July 9, 2021/IMF Weekend Read
In today’s edition we focus on why a two-track recovery from the crisis is bad for the world, a new allocation of IMF Special Drawing Rights, a worrying trend for Africa, the importance of infrastructure development, military spending in the post-pandemic era, and much more. On that note, let’s dive right in.
AVOIDING A TWO-TRACK RECOVERY
G20 finance ministers and central bank governors will convene in Venice today and tomorrow as an uneven recovery from the pandemic grows more pronounced. The world is facing a worsening two-track recovery, driven by dramatic differences in vaccine availability, infection rates, and the ability to provide policy support. It is a critical moment that calls for urgent action by the G20 and policymakers across the globe, IMF Managing Director Kristalina Georgieva writes in a new blog.
Faster access to vaccinations for high-risk populations could potentially save more than half a million lives in the next six months alone, according to new analysis in the IMF note to the G20 meeting.
So what needs to happen?
Step up international cooperation to end the pandemic: IMF staff recently outlined a $50 billion plan that could lead to trillions of dollars gained from faster vaccine rollout and accelerated recovery. This would be the best public investment of our lives and a global game-changer.
Step up efforts to secure the recovery: Led by G-20 economies, the world has taken extraordinary and synchronized measures, including about $16 trillion in fiscal action. Now is the time to build on these efforts with measures that are tailored to countries’ pandemic exposure and policy space.
Step up support to vulnerable economies: We estimate that low-income countries have to deploy some $200 billion over five years just to fight the pandemic. And then another $250 billion to have the fiscal space for transformative reforms, so they can return to the path of catching up to higher income levels. They can cover only a portion of that on their own. It is therefore vital that wealthier nations redouble their efforts, especially on concessional financing and dealing with debt.
Read the full blog here.
A SHOT IN THE ARM FOR THE WORLD
The IMF Executive Board on Thursday supported a general allocation of Special Drawing Rights (SDR) equivalent to $650 billion. This largest allocation in the IMF’s history will create new resources for countries in need, boosting the liquidity and reserves of all IMF member countries.
“The SDR allocation will help every IMF member country – particularly vulnerable countries – and strengthen their response to the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said in a statement.
What happens next?
The Executive Board adopted a decision that concurred with the Managing Director’s proposal for a new general SDR allocation. The proposal will be sent to the Board of Governors for their approval in early August. The allocation would be implemented 21 days after the Board of Governors approval.
How will this help countries in need?
SDR general allocations are distributed across IMF membership as the same percentage of their IMF quota shares. That means large countries like the United States will have access to a larger amount of the new allocation, but IMF staff is exploring a number of proposals for channeling SDRs to the countries that need them.
Countries already have the option to send SDRs to the IMF’s Poverty Reduction and Growth Trust, which provides interest-free financing to low-income countries. A new Resilience and Sustainability Trust is also being considered, depending on the priorities of the membership, to help countries ensure greener recoveries from the crisis.
Read the press release here and a Q&A here. Read more about SDRs here.
A WORRYING TREND FOR AFRICA
The COVID-19 pandemic accelerating in many countries in sub-Saharan Africa as infection rates reach new peaks. IMF African Department Director Abebe Aemro Selassie discussed the need to boost the supply of vaccines to the region.
“Right now what we’re seeing in sub-Saharan Africa is less than 1 per 100 adults is being vaccinated,” he said on CNN this week. “This contrasts with, on average, in advanced countries of about 30 per 100, and in many countries it’s even higher.”
IMF staff has put forward a $50 billion plan that sets the target of vaccinating at least 40 percent of the global population by the end of 2021 and at least 60 percent by the first half of 2022. To reach these targets, critical actions would include more dose sharing with the developing world; supporting grant and concessional financing to increase and diversify vaccine production, and bolster in-country delivery, diagnostics, and therapeutics; and removing all barriers to exports of inputs and finished vaccines, and other barriers to supply chain operations.
“Why has the vaccine rollout been so slow in Africa? The primary constraint is the international community has not done enough to boost global supply of vaccine quickly enough,” Selassie said.
INFRASTRUCTURE AND CONNECTIVITY
IMF Managing Director Kristalina Georgieva highlighted the benefits of building resilient market economies and strong macroeconomic fundamentals in a speech this week to the Three Seas Summit and Business Forum.
She stressed the importance of infrastructure investments, digital connectivity, and spending on healthcare in her remarks to the Three Seas Initiative that brings together 12 EU member states between the Baltic, Black and Adriatic seas: Austria, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.
“infrastructure investments can significantly boost productive capacity and output. We estimate that, for every euro spent, this will increase output by a factor of 1.7‑2.5 over the long term. And it is not just about boosting the economy of today, but building an economy for tomorrow,” she said.
Read the full remarks here.
PODCAST: ISLAND STATES PAYING THE PRICE FOR CLIMATE CHANGE
No country has been spared the effects of changing weather patterns but developing countries–and island states, in particular, are facing the brunt of climate change while not having contributed to its root causes.
Prime Minister of Barbados, Mia Mottley, and Madagascar’s Finance Minister, Richard Randriamandranto, joined IMF Managing Director Kristalina Georgieva to discuss the effects of natural disasters on their economies and how policies can be designed to help countries adapt to the new climate reality. The podcast is a compilation of excerpts from their discussion. Listen to the podcast here or read the transcript. Watch a webcast of the full event at IMF.org
F&D: MILITARY SPENDING IN THE POST-PANDEMIC ERA
In our latest issue, Benedict Clements, Sanjeev Gupta, and Saida Khamidova write about how countries’ efforts to secure a more peaceful world could have a positive economic effect.
Covid-19 has left government budgets across the globe scrambling for revenues and having to reassess their tax and spending policies. For some countries– especially those in conflict areas, spending on defense eats up precious resources that could otherwise go toward other forms of public spending like education, health and infrastructure.
Military spending absorbed on average about 6½ percent of government budgets across the world in 2019, according to data from the Stockholm International Peace Research Institute, the most comprehensive and comparable source of data on military spending. Since the end of the Cold War in 1990, defense outlays have declined both as a share of government spending and of the economy’s total output (GDP). This has made room for other forms of public spending, such as on education, health, and infrastructure. But will military spending remain at historically low levels?
Interested in learning more? Read the full article here.
IMF VIRTUAL SUMMER SCHOOL
Consider joining the first IMF Summer School. Each Wednesday at noon ET from July 14 to August 11, IMF economists will present some of the main highlights of IMF courses on five topics: inclusive growth, financial inclusion and development, public financial management, monetary policy analysis and forecasting, and debt sustainability for low income countries.
You can follow the Summer School live on the IMF Institute’s YouTube Learning channel, the Twitter and Facebook feeds of IMF Capacity Development, and the IMF’s LinkedIn page – starting with the Inclusive Growth course highlights this Wednesday, July 14.
BUDGETING WITH WOMEN IN MIND IN LATIN AMERICA
The IMF and its partners are teaming up to help countries implement economic policies that promote gender equality, including in Latin America through gender responsive budgeting.
Gender budgeting integrates gender into the policies and processes of public financial management in order to bring the powerful tool of national budgets to bear on gender inequalities.
This week, the IMF co-organized an EU-funded seminar with UN Women on the promotion of gender responsive budgeting in Latin America. Sixteen countries from the region participated at political and expert levels. The vice-ministers of finance of Guatemala, Saúl Figueroa, and of Argentina, Raúl Rigo, joined the opening to promote this effort.
International experts – including from the International Budget Partnership – presented innovative approaches to introduce or strengthen gender budgeting, including through legal frameworks, policy design, impact evaluation, budget classification, analytical tools, and transparency on the use of resources.
IMF economists expect to further increase their demand-driven assistance in the coming months. Learn more.
IMF AROUND THE WORLD
The IMF Executive Board this week completed the fourth review under the Policy Coordination Instrument for Rwanda and extended it for one more year. The Board also concluded it Article IV economic assessment for Saudi Arabia.
IMF staff and Seychelles this week reached a staff-level agreement on a $107 million arrangement under the Extended Fund Facility. Staff also issued concluding statements for Article IV missions for Oman and St. Kitts and Nevis.
RESPONDING TO THE CRISIS: To date, 85 countries have received more than $113 billion in financial assistance in response to the economic impact of the COVID-19 crisis. Find out more in our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.
Overall, the IMF is currently making about $250 billion, a quarter of its $1 trillion lending capacity, available to member countries.
