Developing countries will fall further behind the rich world as they struggle to recover from the economic impact of the pandemic owing to the spread of coronavirus variants and their limited capacity for stimulus efforts, the World Bank has warned.
In new economic forecasts published on Tuesday the Washington-based institution said it expected the global economy to experience a two-speed recovery in 2022 that would fuel widening inequality. While output in rich countries will return to pre-pandemic levels by 2023, developing countries will still be an average of 4 per cent below their pre-pandemic level.
The feeble rebound from the impact of coronavirus will be especially severe among the most vulnerable countries, the bank said; by next year, output among fragile, conflict-affected and small island states will still be 7.5 to 8.5 per cent below its pre-pandemic level.
David Malpass, World Bank president, said there was a “canyon” between growth rates in rich and poor countries. While per capita incomes in advanced economies rose by 5 per cent last year, in low-income countries they rose just 0.5 per cent, he said.
“We are going in the opposite direction of what you would want for good development,” he said. “We have a big problem ahead that may last for years.”
Ayhan Kose, head of the bank’s economic forecasting unit, said that developing countries faced “a plethora of risks” that increased the likelihood of a hard landing, including outbreaks of new variants, rising inflation, financial market stress as interest rates rise, and climate-related disasters. He called for more aggressive action by the global community on vaccines, debt and climate change.
“These problems are not going anywhere,” he said. “It’s not the case that we don’t know what the problems are or don’t have the frameworks to deal with them . . . The question is whether the global community and national policymakers can implement the prescriptions we have at the aggregate level.”
Kose said emerging and developing economies had been unable to deliver the scale of fiscal and monetary response to the pandemic that had been enacted in advanced economies, and many were already being forced to withdraw stimulus by raising interest rates to tackle a surge in inflation.
“[They] did as much as they could but it was nowhere near what advanced economies were able to do. Now they are withdrawing support faster,” he said. “This is a pandemic of inequality that will spill over across generations.”
Kose called on the G20 group of large economies to move faster on debt relief and to do more to ensure participation by private sector lenders. In particular he flagged the need for more ambitious action to protect developing economies from the virus.
“In the case of vaccines, the problem is very clear and not addressing it has consequences,” he said. “We are pretending we can overcome the pandemic without vaccinating large populations around the world. That is not true.”
The bank’s warning echoed similar calls from other global institutions.
Rebeca Grynspan, secretary-general of the UN Conference on Trade and Development, said the distribution of vaccines worldwide had been “lousy and irrational”, with advanced economies having secured supply agreements for 3bn more vaccine doses than they needed for their own populations, or almost enough to provide two doses to the whole of Africa.
“The cost of the pandemic is escalating beyond anything we have seen before, and not only in terms of debt and the health of millions of citizens,” she said.
She said the spread of new variants “is already affecting the recovery and eroding the legitimacy of governments and democratic institutions everywhere . . . If we don’t find the political will and space for negotiation, unfortunately reality will take us to very bad results”.
Kristalina Georgieva, managing director of the IMF, warned last year that the world was “facing a worsening two-track recovery”, driven by differences in vaccine availability, infection rates and countries’ varying ability to provide policy support. She called it “a critical moment that calls for urgent action by the G20 and policymakers”.