Urgency and importance of global cooperation
By: Rahim Kanani International Monetary Fund
GREENING THE RECOVERY
In a speech to the Parliamentary Assembly, Deputy Managing Director Tao Zhang outlined six key priority actions governments can take to turn the COVID-19 crisis into an opportunity for a green recovery. Referencing a new guidance note on the topic, Zhang discussed the need to develop a new, ambitious, medium-term climate plan for the UN Climate Change Conference next year, the notion of a just transition—assisting vulnerable households, workers, regions, and trade-exposed or fuel-producing firms—and the need to put the right price on carbon, among other priorities.
For example, existing carbon taxes and emissions trading schemes are not strong enough to change behavior as needed. The average price they impose on carbon is only $2 per ton, but measures equivalent to a global carbon price of at least $75 per ton by 2030 will be needed to keep global warming under 2 degrees Celsius.
Aligned with the pursuit of a green recovery, the human and economic impact of the COVID-19 pandemic makes spending needs larger and SDG financing more challenging. Addressing the UN on this topic, DMD Zhang said that the crisis risks setting back previous achievements in moving towards equality and reducing poverty and that health and social spending needs increase as countries respond to the emergency. With revenue losses and higher debt in many countries, fiscal space is shrinking.
$114 BILLION GAP
“African governments urgently need additional external financing to help them mitigate the pandemic’s economic impact,” writes Director of the African Department Abebe Aemro Selassie in a new op-ed for Project Syndicate. “The IMF and the World Bank estimate that the region faces a government financing gap of at least $114 billion in 2020. African governments cannot mobilize this amount domestically.”
For example, the COVID-19 pandemic is severely impacting Uganda’s economy. The country is feeling the reverberations from the decline in external global demand and the difficulties faced by key trading partners. This is expected to result in a 45-50% decline in foreign direct investment, remittances, and tourism inflows compared to pre-shock projections.
To help alleviate the impact pandemic, Uganda requested emergency assistance of $491.5 million. This financial support is a zero-interest rate loan, with a grace period of five and a half years, and a 10-year maturity. These funds will provide critical support to limit the decline in international reserves, contribute to health care spending, shield the most vulnerable, and protect businesses from the shock of the COVID-19 crisis. Learn more here.
With global interest rates as low as they are now, it is hard to think of a more opportune time to make such a commitment to Africa.
$260 BILLION LOST
The COVID-19 pandemic and the plunge in global oil prices are also posing a dual challenge to GCC economies. This too is their defining moment.
“If GCC countries act decisively—building on their tech-savvy, well-educated youth and rapidly expanding the digital economy—the region will emerge from this crisis with a stronger foundation for a more diversified economy in the future,” writes Director for the Middle East and Central Asia Jihad Azour in a new op-ed for The National.
The IMF projects GCC growth to shrink by 3.3% this year—equivalent to losing about $260 billion in economic output. That projection does not take into account the impact of the latest OPEC+ agreement, which could shave an additional two to four percentage points from respective country forecasts, or the additional risks that a deeper and more protracted global economic downturn would bring.
$520 MILLION LIFELINE
“Jamaica’s balance of payments will be negatively impacted by our considerably lower inflows from tourism and remittances, which prior to the pandemic represented approximately 20 and 15 percent of GDP, respectively,” said Jamaica’s Minister of Finance and Public Service Nigel Clarke in a new interview with the IMF.
Jamaica’s established track record of economic reforms has created buffers that are invaluable today in responding to the COVID-19 crisis. Yet, despite the authorities’ proactive mitigation strategies, the pandemic is significantly impacting their economy. The Government of Jamaica has declared the entire island a disaster area and established a special task force to coordinate the country’s COVID-19 response and recovery efforts—with a focus on minimizing the loss of human life and protecting livelihoods. To this end, they have requested emergency financing from the IMF in the amount of $520 million.
In a new blog, Louis Marc Ducharme, James Tebrake, and Zaijin Zhan of the Statistics Department discuss how countries have been stepping up efforts to find higher frequency and more granular information to identify and quantify the impact of the virus faster.
For example, the United Kingdom started to release weekly bulletins with new and experimental indicators, including online price indices and daily shipping data to measure the economic impact of COVID-19 on inflation and trade. South Africa, using online prices from retail stores, has compiled an Essential Products Consumer Price Index. The IMF is incorporating these and other new data sources to analyze the economic and financial impact of COVID-19, including, for example, by tracking activity in specific sectors and mobility through high-frequency energy consumption and flight data.
Referencing newly-produced guidance notes that offer recommendations and best practices to ensure continuity of key statistics for prices, growth, and trade, the authors hone in on three key statistical challenges and recommendations to overcome them.
DRAMATIC DECLINE IN TOURISM
Already among the most remote countries on earth, Pacific island states saw their vital economic links weakened in recent months with the evaporation of tourism, severe disruptions to international trade, and a reduction in remittances. For these countries, the COVID-19 pandemic may cut deeper than even some of the worst cyclones from years past.
For example, tourism receipts are estimated to account for up to 20-30 percent of economic activity in countries like Samoa and Tonga, and tourism is a prime source of employment and foreign exchange for such countries as Fiji, Palau, and Samoa. With tourists from countries like Australia, New Zealand, and others in Asia unable or unwilling to travel due to the border controls and travel restrictions, hotels and resorts on the islands are effectively empty, forcing layoffs and closures. Learn more here.
THE NEXT ISSUE OF F&D
Our next quarterly issue of Finance & Development magazine launches on Monday and focuses on the interplay between economic policymaking and politics in light of the pandemic (get notified of the launch by entering your email and selecting “IMF Finance & Development”). This issue makes for an incredibly interesting and insightful read over the summer. In case you missed the March issue on global demographics and economic well-being, check it out.
IMF AND COVID-19
We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board. This morning will mark the 60th such approval, and we expect to disburse assistance to another 20 countries within the next four weeks. To date, funding for the 60 countries totals USD$22.8 billion.
We are also regularly producing a special series of notes—50 and counting—by IMF experts to help members address the economic effects of COVID-19 on topics including how best to mitigate the risk of corruption in pandemic spending (download), policies that support the income of informal workers during the crisis (download), and the impact of COVID-19 on insurers (download).
Finally, if you’re wondering how the IMF is helping ensure transparent and accountable use of COVID-19 financial assistance, read this fact sheet, and if you’re looking for our latest Q&A about the IMF’s response to COVID-19, click here.
In wrapping up this edition of the Weekend Read, I wanted to close with a quote by Managing Director Kristalina Georgieva, who was recently asked by the Financial Times about the first thing she plans to do after the lockdown. She replied:
It was Maya Angelou who said, “I sustain myself with the love of family”. I know this is so true for me — but my family is on another continent. Virtual hugs and kisses only go so far. When we speak on Skype, my granddaughter asks me when I will give her a cuddle “for real”, and it’s heartbreaking that I have no good answer for her. So for now it’s virtual hugs only and what I look forward to most — I cannot wait! — is to get home for the real thing.
First Published: https://content.govdelivery.com/accounts/USIMF/bulletins/28dd254