Developing economies and LDC’s (Less Developed Countries) will lag further behind the rich world (developed economies) as they struggle to recover from the post-traumatic economic impact of the pandemic owing to the ongoing spread of the coronavirus variants (Delta, Omicron etc) and their limited capacity for stimulus efforts, the World Bank has warned.
In the bank’s recent economic forecasts published on Tuesday, the Washington-based institution indicated that it expected the global economy to experience a two-speed recovery in 2022 that would subsequently fuel widening inequality between both economies. While output in developed/rich economies will return to pre-pandemic levels by 2023, developing/ less developed countries will still be an average of 4 percent below their pre-pandemic levels.
The bank indicated that the weak rebound from the impact of the coronavirus will be especially severe among the most vulnerable countries. The bank further indicated that by next year, output among fragile, conflict-affected, and less developed economies like Nigeria will be 7.5-8.5 percent below its pre-pandemic level.
The World Bank president, David Malpass stated that there exists a ‘canyon’ between growth rates in developed and less developed economies. “While per capita incomes in advanced economies rose by 5 percent last year, income in low-income countries rose by just 0.5 percent,” he said.
“We have a huge problem ahead that might last for years,” he added. We are going in the opposite direction of what you would want for good development,” Malpass said. He further indicated that the world economy is simultaneously facing COVID-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful to develop countries.
The head of the World bank’s economic forecasting unit, Ayhan Kose, stated that developing countries have faced a ‘plethora of risks’ that have increased the likelihood of a hard landing with the inclusion of new variant outbreaks, rising inflation, financial market strain as interest rates sky-rocket and climate-related disasters.
He further urged for additional aggressive action by the global community on vaccines, debt, and climate change. “These problems are not going anywhere anytime soon,” he added. “The issue is not whether we know the problems or not, neither is it about having the framework to deal with them or not… the pertinent question is whether the global community and national policymakers can implement the prescriptions we have at the aggregate level,” Kose stated.
He said that 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 in an attempt to tackle the surge in inflation. “This is a pandemic of inequality that will spill over across generations.
“Developing economies did as much as they could but it was nowhere near what advanced economies were able to do. Now they are withdrawing support faster,” Kose said. He 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. He particularly flagged the need for more ambitious action to protect developing economies from the virus.
“As for the vaccines, the problem is very clear and negligence towards addressing it has dire consequences. The world keeps pretending that we can overcome the pandemic without vaccinating a larger population of the world. The fact is that such a reality would remain an illusion,” he said.