As Group of Twenty (G20) finance ministers and central bank governors are set to gather later this week, the International Monetary Fund (IMF) called for urgent action to address a worsening “two-track” recovery.
“The world is facing a worsening two-track recovery, driven by dramatic differences in vaccine availability, infection rates, and the ability to provide policy support,” IMF Managing Director Kristalina Georgieva wrote in a blog, noting that it is a “critical moment” that calls for urgent action by the G20 and policymakers across the globe.
According to IMF estimation, faster access to vaccinations for high-risk populations could potentially save more than half a million lives in the next six months alone.
Low vaccination rates mean that poorer nations are more exposed to the virus and its variants, Georgieva said. In sub-Saharan Africa, for example, less than one adult in a hundred is fully vaccinated, compared to an average of over 30 percent in more advanced economies.
“Unvaccinated populations anywhere raise the risk of even deadlier variants emerging, undermining progress everywhere and inflicting further harm on the global economy,” she continued.
The IMF chief also noted that shrinking fiscal resources will make it even harder for poorer nations to boost vaccinations and support their economies, which will leave millions of people unprotected and exposed to rising poverty, homelessness, and hunger.Noting that inflation expectations in the United States have been stable so far, Georgieva also warned that there is a risk of a more sustained rise in inflation or inflation expectations, which could potentially require an “earlier-than-expected tightening” of U.S. monetary policy.
“Higher interest rates in the U.S. could lead to a sharp tightening of global financial conditions and significant capital outflows from emerging and developing economies,” she said. “It would pose major challenges especially to countries with large external financing needs or elevated debt levels.”
In order to address this worsening two-track recovery, the IMF chief urged G20 policymakers to step up international cooperation to end the pandemic, step up efforts to secure the recovery and step up support to vulnerable economies.
IMF staff recently outlined a 50-billion-dollar plan that could lead to trillions of dollars gained from faster vaccine rollout and accelerated recovery. “This would be the best public investment of our lives and a global game-changer,” Georgieva said.
In countries where the recovery is accelerating, including the United States, it will be essential to “avoid overreacting” to transitory increases in inflation, she said, urging major central banks to carefully communicate their policy plans.
According to IMF estimation, low-income countries have to deploy some 200 billion dollars over five years just to fight the pandemic, and then another 250 billion dollars to have the fiscal space for “transformative reforms.”
“They can cover only a portion of that on their own. It is therefore vital that wealthier nations redouble their efforts, especially on concessional financing and dealing with debt,” Georgieva said, calling on G20 bilateral creditors and private creditors to enhance their support for vulnerable countries.
For its part, the IMF has stepped up in “an unprecedented manner” by providing 114 billion dollars in new financing to 85 countries and debt service relief for the poorest members, Georgieva noted.
She said that its membership also backs a new allocation of Special Drawing Rights of 650 billion dollars, and the allocation process is expected to be completed by the end of August.
In the blog, the IMF chief also highlighted IMF staff’s recent proposal for an international carbon price floor, as well as the multilateral lender’s support for a global minimum corporate tax rate.