Article:
World Bank’s Global Economic Prospects Report and COVID-19
In the recent news, the World Bank has published a section of the Global Economic Prospects (GEP) June 2020 report. It illuminates how the Covid-19 pandemic will trigger “severe” short and long term implications on economic growth.
Impact of COVID-19 on Global Poverty
COVID-19 and the resultant economic shutdowns have inflicted unprecedented damage on the world’s poor. It’s projected that around 60 million people could be propelled into extreme poverty in 2020 alone. This forecast may escalate further with the revival of advanced economies. Economic lockdowns have also impaired several channels, such as lower investment and innovation, deterioration of human capital and a withdrawal from global trade and supply linkages. This has resulted in the reduced potential growth and labor productivity.
The Plight of Emerging Market and Developing Economies (EMDEs)
EMDEs are among the most vulnerable and are likely to grapple with health crises, restrictions, and external shocks from declining trade, tourism, and commodity prices, as well as capital outflows. These countries are predicted to experience a 3-8% output loss in the short term. In the long run, there will be a drop in output level accompanied by a decrease in potential output growth. Commodity-exporting EMDEs are expected to face slower growth compared to their importing counterparts.
Spillover Effects on EMDEs
EMDEs are also set to experience spillover impacts from the United States, Euro Area, and China, which together account for nearly half of global output. These countries are not expected to regain their pre-pandemic output levels until the end of 2021 at the earliest.
Loan Repayment Issues in Low-Income Countries
Previously, G20 countries and commercial creditors agreed to suspend loan repayments for low-income countries from 1st May 2020 till year-end. However, implementation has been delayed, exacerbating poverty levels in debtor nations. Most creditors are located in advanced economies like the United States, Europe, Japan, China, and the Gulf.
Challenges Faced by Energy-Exporting EMDEs
Energy-exporting EMDEs confront dual challenges in the form of a public health crisis and fiscal strain due to plummeting oil revenues. The fall in oil demand because of global economic lockdowns coupled with a surge in oil inventories led to a record one-month drop in oil prices. Despite this, low oil prices may not be enough to counteract the impacts of the pandemic, although they could provide initial support for global recovery.
Crisis Response Measures
Worldwide, various steps are being taken such as increasing debt transparency to attract new investment. Other measures include enhancing digital connectivity and expanding cash safety nets for the underprivileged to limit the damage and facilitate a robust recovery.
Implementing Short and Long Term Solutions
In the short term, countries need to address health emergencies and secure core public services to revive their economies. They should also direct new capital towards sectors that would be productive in post-pandemic structures. In the long term, improving the business environment, governance, and educational outcomes and investing in public health are key. Speeding up litigation, bankruptcy resolutions, reforming costly subsidies, and monopolies, and reevaluating protected state-owned enterprises are urgent tasks.
Rebuilding for Future Resilience
The pandemic followed by economic shutdowns have dealt a severe blow to the global economy, particularly in poorer regions. Economic growth must be made more resilient, robust, and sustainable. Future economies should also be more resilient to similar shocks and capable of retaining human and physical capital during recovery, thereby meeting the demands for new types of jobs, businesses, and governance systems in a post-pandemic world.