By Yuka Hayashi
WASHINGTON -- The world's top economic officials will meet virtually this week to confront new Covid-19 variants and shutdowns undermining the global rebound and weigh measures to prevent lasting damage to the poorest and most vulnerable populations.
The global economy is recovering faster than many economists projected just weeks ago, powered by growth in the U.S. and China and by the accelerating pace of Covid-19 vaccinations in many rich countries. Yet a new wave of lockdowns -- from Europe to Canada -- is threatening that growth, as many low- and middle-income nations with limited financial resources lag behind.
"The window of opportunity is closing fast," said Kristalina Georgieva, managing director of the International Monetary Fund, co-host with the World Bank of the gathering, in previewing the issues facing central bankers and finance ministers. "The longer it takes to speed up vaccine production and rollout, the harder it will be to achieve these gains," she said.
In a report to be released on Tuesday, the IMF plans to raise its forecast for global growth for this year, from the 5.5% expansion projected in January, Ms. Georgieva said in her presentation Wednesday. That would follow an estimated 3.5% contraction in 2020, the worst peacetime outcome since the Great Depression.
The recovery in large part is a result of the roughly $16 trillion in fiscal stimulus and liquidity injections from governments and central banks, primarily in wealthy nations, the IMF said. The U.S. government alone has pledged roughly $5 trillion in stimulus spending since the pandemic began.
The IMF in January projected 5.1% growth this year in the U.S. China, which more quickly brought the pandemic under control to resume production and exports, was forecast to grow 8.1%.
But in emerging and developing countries, the Covid-19 crisis has reduced per-capita gross domestic product by one-fifth -- nearly twice the loss among advanced economies, the IMF estimates. Last year, more than 100 million people, mostly in South Asia, fell into extreme poverty, defined as living on less than $1.90 a day. Globally, six million children could drop out of school this year, clouding their future prospects, the IMF says.
"Rich governments have been able to approve trillions of dollars in stimulus packages for businesses, for cash transfers for people, vaccines, and for education, but what about lower- and middle-income countries?" asked Nadia Daar, head of the Washington office of Oxfam International. "The financial response the world has provided has just not been sufficient."
Money to aid poor nations has been limited as major economies focused on fighting the pandemic and repairing their own economies. The Group of 20 major economies has provided $5 billion in debt-service relief for more than 40 low-income nations, but private-sector lenders haven't joined the effort. The external debts of low-income countries more than doubled between 2010 and 2019, to more than $750 billion, according to the Institute of International Finance.
To tackle the problem without adding to that burden, the IMF has proposed issuing $650 billion in SDRs, which could be exchanged for dollars or other hard currencies to cover obligations. Critics say that is an inefficient way to help poor nations because most of the SDRs will be given to rich countries that are the largest IMF shareholders. Republican lawmakers in the U.S. also say the issuance could aid repressive regimes and state-sponsored terrorism.
In response to those objections, the U.S. Treasury Department said Thursday that advanced economies are pursuing ways to lend some of their SDRs to low-income countries. The Treasury also said the U.S. can refuse to swap dollars for SDRs of countries whose policies diverge from U.S. interests.
Concerns are also emerging over the possible negative effects of the massive stimulus spending by the U.S. and other wealthy nations on the developing world. Stimulus could stoke inflation, prompting central banks to raise interest rates, thereby boosting the debt burden for countries.
"One big question, which is common to all economies, is how quick should the withdrawal of the stimulus be and what happens when they are withdrawn and whether you'll see an increase in bankruptcies," Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, said in an interview. She added that so far, the global economy has shown enormous resilience.
Federal Reserve Chairman Jerome Powell has repeatedly said he doesn't anticipate changing the central bank's easy monetary policy soon. Even so, the yield on the benchmark 10-year Treasury note was 1.72% late last week, up from 0.91% at the end of last year, on signs of an accelerating economic rebound, but it remains low by historical standards.
Rising U.S. yields have drawn capital away from emerging markets, putting downward pressure on their currencies while fueling both inflation and future inflation fears. Last month, Turkish President Recep Tayyip Erdogan ousted the country's central bank governor, who had raised interest rates repeatedly in an effort to tame inflation.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
04-04-21 1649ET
