The economic gap between the rich and poor countries is worsening because of the ongoing uneven rollout of Covid-19 vaccines globally.
In World Economic Outlook report released on Tuesday, the International Monetary Fund said overall economic risk remains significant.
The Bretton Woods institution has revised upward the projected economic growth in advanced economies while cutting the prospects for emerging and developing markets, showing that the recovery is largely confined to specific regions and countries.
Global economy is projected to post six per cent uptick this year, the strongest rebound since 1980, when the fund started keeping records and 4.9 per cent next year.
The 2022 figure is a 0.5 percentage-point increase over the previous projection made earlier this year.
But for emerging and developing markets as a group, growth projections for this year were revised downward by 0.4 percentage points from the previous IMF outlook on the back of slow COVID-19 vaccination programmes, rising infection rates, and less fiscal firepower to cushion the economies.
“The reason for the downgrades and the biggest risks on the horizon are indeed the virus and the pandemic,” Gita Gopinath, IMF’s chief economist said, warning of political instability and geopolitical risks if the current inequality worsens.
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The COVID-19 delta variant is the main concern, with infection rates in India and other parts of Asia significantly weighing down the economic growth.
Sub-Saharan Africa is grappling a third wave of the pandemic, with some positive economic trends out of South Africa being offset by negative revisions elsewhere.
While advanced economies saw annual per capita income drop by 2.8 per cent relative to pre-pandemic trends, the IMF said the decline was a much heftier 6.3 per cent for middle- and lower-income countries, aside from China.
Vaccine access remains the most critical issue for the global recovery, with the IMF saying that even rich nations with better rollouts may face headwinds if the virus keeps ravaging the world.
According to Gopinath, an IMF calculation showed that across advanced economies, nearly 40 per cent of people have been fully vaccinated. That rate is 11 per cent in emerging markets and less than one per cent in poor nations.
“Better global cooperation on vaccines could help prevent renewed waves of infection and the emergence of new variants, end the health crisis sooner than assumed, and allow for faster normalization of activity, particularly among emerging market and developing economies,” IMF report stated.
Another area of strong divergence is the fiscal support governments are able to offer. For many of the world’s lower-income countries, the arsenal of support for local economies is already depleted.
At the same time, the lowest-income nations may face upward price trends, particularly if food costs remain elevated, Gopinath noted.
On inflation, Gopinath said central banks should not take action yet but be prepared to tighten policy if rising prices remain persistent.
This could make borrowing costs rise for middle- and lower-income countries, amid existing concerns about defaults on debts.
“A worsening pandemic and tightening financial conditions would inflict a double hit on emerging market and developing economies and severely set back their recoveries,” Gopinath cautioned in a blog post on IMF’s website.
One way to help ease the pressure, according to the report, is IMF’s plan to issue $650 billion dollars in Special Drawing Rights starting August.
While these funds can help countries around the world cope with the economic fallout from the pandemic, by bolstering reserves, the allocation will favor wealthier nations, as the distribution is based on the quota share in IMF.
In recent months, calls have been growing for wealthy nations to donate chunks of their vaccine allocation to poor countries.