Managing director of International Monetary Fund (IMF), Kristalina Georgieva, warned that the economic crisis could last in the long term and many countries will be left behind due to the pandemic - Photo by IMF Office

JAKARTA (TheInsiderStories) – Managing director of International Monetary Fund (IMF), Kristalina Georgieva, warned that the economic crisis could last in the long term and many countries will be left behind due to the pandemic. She urged the governments to increase vaccine distribution so the virus outbreak can be controlled immediately.

“Faster progress in ending the health crisis could increase cumulative global income by US$9 trillion during 2020 – 2025,” she said in an official statement released on Feb. 24, by adding the revenues should be used for vaccinations, reallocating excess supply to countries with shortages, and increasing vaccine production.

She also estimated, that more than half of the 110 developing and developing countries in the world will experience a further decline in income behind developed economies by the end of next year. In 2022, she adds, the developing markets and countries’ income per capita will lowering by 22 percent than before the crisis.

Furthermore, the economic crisis caused by this pandemic will also widen the income gap in developing countries. The IMF recently projected global GDP growth at 5.5 percent this year and 4.2 per cent in 2022. But it is going to be a long and uncertain ascent.

She noted, there is a major risk that as advanced economies and a few emerging markets recover faster, most developing countries will languish for years to come. This would not only worsen the human tragedy of the pandemic, but also the economic suffering of the most vulnerable.

“We estimate that, by the end of 2022, cumulative per capita income will be 13 percent below pre-crisis projections in advanced economies—compared with 18 percent for low-income countries and 22 percent for emerging and developing countries excluding China. This projected hit to per capita income will increase by millions the number of extremely poor people in the developing world,” said Georgieva.

Before the crisis, IMF forecast that income gaps between advanced economies and 110 emerging and developing countries would narrow over 2020 – 2022. But now estimate that only 52 economies will be catching up during that period, while 58 are set to fall behind. This is partly because of the uneven access to vaccines.

Even in the best-case scenario, most developing economies are expected to reach widespread vaccine coverage only by end-2022 or beyond. Some are especially exposed to hard-hit sectors such as tourism and oil exports, and most of them are held back by the limited room in their budgets.

Last year, advanced economies on average deployed about 24 percent of GDP in fiscal measures, compared with only 6 percent in emerging markets and less than 2 percent in low-income countries. Cross-country comparisons also show how more sizable crisis support was often associated with a smaller loss in employment.

It would also deepen the long-term economic scars of the crisis, which would make it even more difficult to reduce inequality and boost growth and jobs. Think of the challenges ahead, for G20 economies alone, excluding India and Saudi Arabia, total employment losses are projected at more than 25 million in this year and close to 20 million in 2022, relative to pre-crisis projections.

Georgieva continued, faster progress in ending the health crisis could raise global income cumulatively by $9 trillion over 2020 – 2025. That would benefit all countries, including around $4 trillion for advanced economies, which beats by far any measure of vaccine, related costs.

Led by G20 countries, the world has taken unprecedented and synchronized measures, including nearly $14 trillion in fiscal actions. Governments need to build on these efforts by continuing to provide fiscal support, appropriately calibrated and targeted to the stage of the pandemic, the state of their economies, and their policy space.

Another option is a new SDR allocation to help address the global long-term need for reserves. This could add a substantial, direct liquidity boost to countries, without adding to debt burdens. For its part, the IMF has stepped up in an unprecedented manner by providing over $105 billion in new financing to 85 countries and debt service relief for our poorest members.

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