Vaccines rollout not enough comfort for global economic recovery

COVID-19 vaccines

Clara Nwachukwu 

The success in the rollout of vaccines to combat the COVID-19 pandemic as well as its administration around the world is not an assurance that the global economy is out of troubled waters yet, according to the International Monetary Fund (IMF).

The IMF in its 2021 World Economic Outlook (WEO), released yesterday, insists that the “Fault Lines Widen in the Global Recovery,” saying: “Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalization of activity later this year (almost all advanced economies), and those that will still face resurgent infections and rising COVID death tolls.”

It added that recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere.

Although retaining earlier forecasts that the global economy is projected to grow 6.0 percent in 2021, and 4.9 percent in 2022, the Outlook sees offsetting revisions as prospects for emerging market and developing economies have been marked down for 2021.

Furthermore, it says that recent price pressures for the most part reflect unusual pandemic-related developments and transitory supply-demand mismatches. While inflation is expected to return to its pre-pandemic ranges in most countries in 2022, it is expected to rise in some emerging market and developing economies, related in part to high food prices, especially in a country like Nigeria.

Immediate action

The IMF therefore urged Central banks to generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics.

In the case of Nigeria, the CBN’s ban of bureau de change (BDC) operators from the official foreign exchange market due to unethical practices, is considered by many as a further squeeze of liquidity and may spike higher exchange rate and inflation.

“Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions,” IMF said.

It also warns that transitory risk pressures could become more persistent, and central banks may need to take preemptive action.

The Fund also notes that risks around the global baseline are to the downside, adding that “Slower-than-anticipated vaccine rollout would allow the virus to mutate further.”

Similarly, it noted that “A double hit to emerging market and developing economies from worsening pandemic dynamics and tighter external financial conditions would severely set back their recovery and drag global growth below this outlook’s baseline.”

Against this backdrop, the Outlook agrees that

Multilateral action has a vital role to play in diminishing divergences and strengthening global prospects.

“The immediate priority is to deploy vaccines equitably worldwide. A $50 billion IMF staff proposal, jointly endorsed by the World Health Organization, World Trade Organization, and World Bank, provides clear targets and pragmatic actions at a feasible cost to end the pandemic.

“Financially constrained economies also need unimpeded access to international liquidity. The proposed $650 billion General Allocation of Special Drawing Rights at the IMF is set to boost reserve assets of all economies and help ease liquidity constraints. Countries also need to redouble collective efforts to reduce greenhouse gas emissions.

“These multilateral actions can be reinforced by national-level policies tailored to the stage of the crisis that help catalyze a sustainable, inclusive recovery.”

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