Focus on keeping countries from derailing global economic recovery
After kicking their massive lending powers into overdrive to help the nations hardest hit by Covid-19 last year, the IMF and the World Bank are now focusing on getting vaccines to poor countries to keep the pandemic from derailing the global economic recovery.
Managing Director of the International Monetary Fund Kristalina Georgieva is spearheading a $50 billion joint effort with the World Health Organization to expand vaccine access, particularly for impoverished nations that have struggled to get the crucial jabs.
Georgieva will on Friday present the proposal, which was unveiled late last month and backed by the World Bank and World Trade Organization, to finance ministers from the G7 wealthiest nations during a meeting in London.
Early in the Covid-19 crisis, the IMF and World Bank warned the pandemic would set back poor countries’ progress, causing increased inequality and a resurgence of poverty.
Now the Washington-based lenders are sounding the alarm that unequal access to vaccines will prolong a pandemic that has already killed more than 3.5 million people worldwide.
Low-income countries have received less than one percent of the doses administered to date, resulting in a “dangerous divergence” in economic fortunes, Georgieva warned.
As a result, it will take years for some countries to claw their way back to pre-pandemic levels. Economies in Latin America and the Caribbean will not regain their previous per-capita income until 2024, the IMF projected.
The IMF and the World Bank “early on understood that the crisis and the economic recession… would be very broad and very deep,” said Homi Kharas, an economist at the Brookings Institution.
They pushed the G20 and private creditors to suspend debt payments for dozens of low-income countries.
“That was the first major step in ensuring that the pandemic didn’t trigger a debt crisis that could have longer-term consequences,” Kharas said in an interview.
The IMF itself extended direct debt relief to 29 of its “poorest and most vulnerable members,” doubled its emergency funding limits, and tripled its concessional resources.
“The IMF stepped up as never before, lending some $110 billion to 84 countries since the start of the pandemic,” fund spokesman Gerry Rice told AFP.
“Lending to sub-Saharan Africa in the first year of the pandemic was 13 times the annual average.”
Meanwhile, the World Bank has committed over $108 billion during the pandemic in more than 100 countries to respond to “the fastest and largest crisis” in the institution’s history, the bank’s chief of operations Axel van Trotsenburg said.
“We are using all the firepower we have,” he said in an email.
However, critics note that help for middle-income countries has lagged.
“These countries, including many in Latin America, had really been almost left to themselves, to their own devices,” since they are not eligible for the debt service suspension initiative nor the low-cost loans available to the poorest countries, Kharas said.
Georgieva herself recently recognized the need to review lending criteria to reach these economies, but the priority now has moved to the effort to immunize at least 40%of the world’s population by the end of the year and at least 60% by the end of 2022.
In the bid to ramp up vaccination programs, “The World Bank has made $12 billion available… and expects to have projects for around $4 billion in 50 countries by mid-year,” van Trotsenburg said.
But observers are pressing the institutions to do more, faster.
“The issue with the World Bank is their rate of execution,” said Adnan Mazarei of the Peterson Institute for International Economics, who added the financing to date is “still a small amount.”
Since the start of the pandemic, the IMF “did a very, very good job of quickly putting out some money” with few conditions, he said. But now the fund needs “greater strategic clarity” on the vaccination goal.
Still, the $50 billion plan is a good sign, and the IMF and other organizations should push to “make sure it is on the table” at the two-day G7 meeting concluding Saturday, Mazarei said.
He notes US President Joe Biden’s administration already has shown more support for the multilateral initiatives than his predecessor, including one to boost the IMF’s allocation of its reserve currency — Special Drawing Rights — by $650 billion.
That proposal is expected to be approved in the coming weeks.