The International Monetary Fund (IMF) is proposing a $50 billion trust fund for Nigeria and other low and vulnerable middle-income countries.
In a blog post published on Thursday, it explained that the fund was targeted at helping countries in that category to build resilience and sustainability.
“A proposed $50-billion trust fund could help low-income and vulnerable middle-income countries build resilience to balance of payments shocks and ensure a sustainable recovery,” said the Washington-based institution.
“Even as countries continue to battle COVID-19, it is crucial not to overlook the longer-term challenge of transforming economies to become more resilient to shocks and achieve sustainable and inclusive growth.
“The pandemic has taught us that not addressing these long-term challenges in a timely manner can have significant economic consequences, with the potential for future balance of payments problems.”
The fund comes as part of the $650 billion Special Drawing Rights (SDRs) – an equivalent of about SDR456 billion – issued by IMF in August last year to help vulnerable countries boost liquidity through Resilience and Sustainability Trust (RST).
Channels Television had reported then that Nigeria was allocated about $3.35 billion of the sum, as part of the historic general allocation of SDRs of the IMF.
The amount allocated to Nigeria is as a result of the exchange rate of reference which is 0.702283 SDR to a dollar, and Nigeria has 2.4545 billion SDRs as of July 1, 2021.
In its latest blog post, the financial institution identified climate change as another long-term challenge that threatens macroeconomic stability and growth in many countries through natural disasters and disruptions to industries, job markets, and trade flows, among others.
It believes it is the shared responsibility of individual countries and the international community to overcome these global public policy challenges and it is time to take appropriate actions.
“In a previous blog, we explained how the IMF is considering options for channelling some of the $650 billion SDRs issued in August 2021 from countries with strong external financial positions to vulnerable countries through a Resilience and Sustainability Trust, or RST,” it said. “The RST’s central objective is to provide affordable long-term financing to support countries as they tackle structural challenges.
“As we’ve continued to work toward developing the RST, our current thinking on the key design features—which we outline further below—aim to balance the needs of potential contributors and borrowing countries.
“With broad support from the membership and international partners, we hope that the Trust can be approved by the IMF Executive Board before the upcoming spring meetings and for it to become fully operational before the year’s end.”
The IMF said Monday it had approved the fifth and final round of debt relief under a program meant to help the world’s poorest nations weather the Covid-19 pandemic.
The $115 million in relief under the Washington-based crisis lender’s Catastrophe Containment and Relief Trust (CCRT) affects debt service payments falling due for 25 member states between January 11 and April 13 of next year, the IMF said in a statement.
In the statement, the IMF said its directors view the CCRT relief as having “helped its poorest and most vulnerable members to free up resources to tackle the pandemic and its repercussions,” though they warn not all money pledged for the trust has been received.
The CCRT enables the IMF to provide grants to the poorest and most vulnerable countries hit by a natural disaster or public health crisis, and was tapped by the fund in April 2020 to aid the response to the Covid-19 pandemic.
Malawi police have arrested a former finance minister and an ex-central bank chief for fabricating figures in a bid to impress the IMF, they said on Wednesday.
Joseph Mwanamveka, 57, and Reserve Bank of Malawi former governor, Dalitso Kabambe, 48, are accused of having cooked up numbers to secure a loan from the Washington-based development and crisis lender.
The two “masterminded the falsification of gross liability and net reserve base returns with intent to make International Monetary Fund believe that the government of Malawi was meeting conditions connected to the extended credit facility,” a police statement said.
The IMF on Thursday urged advanced economies in the G20 to extend and improve its debt relief initiative, warning that many countries face a dire crisis without the help.
“We may see economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while the restructurings are being negotiated,” IMF chief Kristalina Georgieva said in a blog, adding that it is critical private creditors also offer relief.
The G20 Debt Service Suspension Initiative (DSSI) expires at the end of the year, and without a renewal, countries could faced financial pressure and spending cuts just as new Covid-19 variants are spreading and interest rates are expected to rise, she said.
“Debt challenges are pressing and the need for action is urgent. The recent Omicron variant is a stark reminder that the pandemic will be with us for a while,” Georgieva said in the blog co-authored by Ceyla Pazarbasioglu, director of the fund’s Strategy, Policy, and Review Department.
Given the problems with the debt relief program and the common framework for dealing with private creditors, only three countries so far have applied for relief — Chad, Ethiopia and Zambia — and they have faced “significant delays.”
The framework has “yet to deliver on its promise. This requires prompt action,” she said.
The International Monetary Fund (IMF) has called on the Federal Government of Nigeria to completely remove fuel and electricity subsidies early next year.
In its preliminary findings at the end of its official staff visit to the country under the Artile IV Mission, IMF also called for reforms in the fiscal, exchange rate, trade and governance “to alter the long-running lacklustre growth path.”
The Washington-based organization made these suggestions in a report published on its official website on Friday, November 19.
According to the IMF, the removal of “retrogressive” fuel and electricity subsidies should be considered a priority as part of the fiscal policy.
“The headline fiscal deficit is projected to worsen in the near term and remain elevated over the medium term. Despite much higher oil prices, the general government fiscal deficit is projected to widen in 2021 to 6.3 percent of GDP, reflecting implicit fuel subsidies and higher security spending, and remain at that level in 2022. There are significant downside risks to the near-term fiscal outlook from the ongoing pandemic, weak security situation and spending pressures associated with the electoral cycle.
“Over the medium term, without bold revenue mobilization efforts, fiscal deficits are projected to stay elevated above the pre-pandemic levels with public debt increasing to 43 percent in 2026. General government interest payments are expected to remain high as a share of revenues making the fiscal position highly vulnerable to real interest rate shocks and dependent on central bank financing.
“The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act. In addition, the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed. Well-targeted social assistance will be needed to cushion any negative impacts on the poor particularly in light of still elevated inflation.
“Nigeria’s past experiences with fuel subsidy removal, which have all been short-lived and reversed, underscore the importance of building a consensus and improving public trust regarding the protection of the poor and efficient and transparent use of the saved resources,” the report partly read. The IMF further noted that significant additional domestic revenue mobilization is critical to put the public debt and debt-servicing capacity on a sustainable path.
In the international financial institution’s view, the near-term priorities are to implement e-customs reforms including efficient procedures and controls, developing a VAT Compliance Improvement Program, improving compliance across large, medium, and micro/small taxpayers and rationalising tax incentives and customs duty waivers.
“As the recovery gains strength and compliance improves, Nigeria will have to adopt tax rates comparable to its peers in the Economic Community of West African States (ECOWAS) to raise revenues to levels targeted in the 2021-25 National Development Plan.
“The cumulative net savings from the recommended measures, after making room for additional social assistance to cushion impacts of reforms, could amount to 5.1 percent of GDP over 2022-26. Such a consolidation would keep public debt below 40 percent of GDP and reduce dependence on central bank financing of the deficit.
“A further move toward a market-clearing exchange rate will also help build foreign exchange buffers through higher capital inflows. Despite the recent SDR allocation and a successful Eurobond issuance, gross reserves remain significantly below the IMF’s recommended adequacy levels.
“Slow FX reforms and uncertainties regarding the ability to repatriate foreign funds have discouraged new capital inflows. With an external position that is assessed to be weaker than implied by Nigeria’s economic fundamentals and desired policies, a narrow export base, and limited capital inflows, the mission recommended preserving foreign exchange reserves through sustainable policies. The mission assessed Nigeria’s capacity to repay the outstanding credit from the 2020 Rapid Financing Instrument (RFI) to be adequate,” the report further read.
Giving more inferences to aid development in Nigeria, the IMF said a more open trade regime is needed to unleash the growth potential brought by the African Continental Free Trade Agreement (AfCFTA).
“The authorities are committed to implementing the AfCFTA and are working to enhance trade facilitation through increased use of technology. However, overall trade regime continues to be protectionist and restrictive with numerous products prohibited from FX access for imports, including basic necessities and food items, high tariff and non-tariff barriers, and difficult trade logistics.
“Building on current efforts to improve port infrastructure and reduce the burden of customs administration, the mission recommended decisive actions to reduce barriers to trade and reliance on import substitution.”
As regards corruption, the IMF affirmed that there are ongoing efforts to improve transparency and governance, however, the organization stressed that more is needed to build public trust to implement difficult but needed reforms.
The International Monetary Fund (IMF) recently visited Nigeria for a mission that is part of regular consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF).
Following the visit, the international financial organization made some interesting findings as regards the economic growth of the country.
In its report, the IMF noted that the Nigerian economy is recovering from a historic downturn, benefiting from government policy support, rising oil prices, and international financial assistance.
According to the fund, the authorities’ pro-active approach has contained the COVID-19 infection rates and fatalities.
However, with the emergence of fuel subsidies and the slow progress on revenue mobilization, the fiscal outlook faces significant risks.
The IMF further stated that continued reliance on administrative measures to address persistent foreign exchange shortages is negatively impacting confidence.
The Washington-based organization emphasized that without urgent fiscal and exchange rate reforms, the medium-term outlook faces sub-par growth.
In proffering some measures that could help the nation’s economy bounce back to stability, the IMF gave 18 inferences following their visit.
Below are the theories posed by the financial institution regarding Nigeria’s growth and economic stability.
1. The economy is recovering from a historic downturn. Helped by government policy support, rebounding oil prices, and international financial aid, Nigeria exited the recession in 2020Q4, earlier than expected. Output rose by 5.4 percent (y-o-y) in the second quarter, mainly reflecting base effects from transport and trade sectors and continued strong growth in the IT sector. However, manufacturing and oil sectors remain weak, reflecting continued foreign exchange shortages, and security and technical challenges.
Headline inflation rose sharply during the pandemic reaching a peak of 18.2 percent y-o-y in March 2021 but has since declined helped by the new harvest season and opening of the land borders. Reported unemployment rates are yet to come down although COVID-19 monthly surveys show the employment level to be back at its pre-pandemic level.
2. The COVID-19 pandemic has been well managed but there is a lasting imprint on the vulnerable. Like much of the Sub-Saharan Africa (SSA), Nigeria underwent a third wave of the pandemic in August 2021.
The authorities’ proactive actions, including a robust infection tracking system and a national strategy for vaccine procurement and rollout, have helped keep infection rates and fatalities lower than in many other countries.
The economic and social impacts of the pandemic have been more daunting with rising food insecurity and an increase in the already-high levels of poverty. Significant progress has been made in vaccine procurement. However, less than three percent of the eligible population has been fully vaccinated reflecting limited vaccine supply, delivery bottlenecks, and high vaccine hesitancy.
3. The outlook is for a subdued recovery. While real GDP is projected to grow by 2.6 percent this year and continue in the range of 2.6-2.7 percent per annum over the medium term, this is just above the population growth rate implying stagnant per capita income in the medium term. Moreover, despite an easing of food prices, inflation is projected to remain in double-digits, absent monetary policy reforms.
There are significant downside risks to the near-term outlook arising from the uncertain course of the pandemic and the domestic security situation. In the medium term, there are upside risks from faster-than-expected reaching of the Dangote refinery’s production capacity along with the effective implementation of the 2021 Petroleum Industry Act in terms of higher manufacturing production and investment in the oil sector.
4. Major reforms in the fiscal, exchange rate, trade, and governance are needed to alter the long-running lackluster growth path.
On the immediate front, fiscal and external imbalances require the removal of regressive fuel and electricity subsidies, tax administration reforms, and installing a fully unified market-clearing exchange rate. Over the medium term, moving away from inward-looking policies through trade, monetary, and foreign exchange reforms, enhancing public trust through governance and fiscal transparency reforms and improving welfare through job creation and agricultural reforms are priorities.
Fiscal policy: Remove fuel and electricity subsidies and implement revenue-based fiscal consolidation
5. The headline fiscal deficit is projected to worsen in the near term and remain elevated over the medium term. Despite much higher oil prices, the general government fiscal deficit is projected to widen in 2021 to 6.3 percent of GDP, reflecting implicit fuel subsidies and higher security spending, and remain at that level in 2022.
There are significant downside risks to the near-term fiscal outlook from the ongoing pandemic, weak security situation, and spending pressures associated with the electoral cycle. Over the medium term, without bold revenue mobilization efforts, fiscal deficits are projected to stay elevated above the pre-pandemic levels with public debt increasing to 43 percent in 2026. General government interest payments are expected to remain high as a share of revenues making the fiscal position highly vulnerable to real interest rate shocks and dependent on central bank financing.
6. The complete removal of regressive fuel and electricity subsidies is a near-term priority, combined with adequate compensatory measures for the poor. The mission stressed the need to fully remove fuel subsidies and move to a market-based pricing mechanism in early 2022 as stipulated in the 2021 Petroleum Industry Act.
In addition, the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed. Well-targeted social assistance will be needed to cushion any negative impacts on the poor particularly in light of still elevated inflation. Nigeria’s past experiences with fuel subsidy removal, which have all been short-lived and reversed, underscore the importance of building a consensus and improving public trust regarding the protection of the poor and efficient and transparent use of the saved resources.
7. Significant additional domestic revenue mobilization is critical to put the public debt and debt-servicing capacity on a sustainable path. The near-term priorities are to implement e-customs reforms including efficient procedures and controls, develop a VAT Compliance Improvement Program, improve compliance across large, medium, and micro/small taxpayers, and rationalize tax incentives and customs duty waivers.
As the recovery gains strength and compliance improves, Nigeria will have to adopt tax rates compared to its peers in the Economic Community of West African States (ECOWAS) to raise revenues to levels targeted in the 2021-25 National Development Plan.
The cumulative net savings from the recommended measures, after making room for additional social assistance to cushion impacts of reforms, could amount to 5.1 percent of GDP over 2022-26. Such a consolidation would keep public debt below 40 percent of GDP and reduce dependence on central bank financing of the deficit.
8. The mission welcomed the recent passage of the Petroleum Industry Act (PIA) and stressed its timely implementation. The PIA aims to improve administration and governance in the petroleum sector, introduce market-based fuel pricing and attract higher investment.
Preliminary assessments by the IMF and the World Bank suggest that the approved fiscal terms will provide greater incentives to invest in the oil and gas industry but will reduce the fiscal take from new and converted fields. Exchange Rate Policy: Reduce administrative measures and allow for a market-clearing unified exchange rate
9. The mission welcomed steps taken toward the unification of the exchange rate and stressed the need for further actions. The discontinuation of the official exchange rate is a step in the right direction but continued dependence on administrative measures to address FX shortages sustains uncertainties and increases the risks of a sudden and large adjustment in the exchange rate.
Taking advantage of the favorable global conditions, improving current accounts, and robust oil prices, the mission advised a move to a unified and market-clearing exchange rate without further delays.
To preserve competitiveness, any exchange rate adjustment should be accompanied by clear communications regarding exchange rate policy going forward, macroeconomic policies to contain inflation, and structural policies to facilitate new investment.
10. A further move toward a market-clearing exchange rate will also help build foreign exchange buffers through higher capital inflows. Despite the recent SDR allocation and a successful Eurobond issuance, gross reserves remain significantly below the IMF’s recommended adequacy levels.
Slow FX reforms and uncertainties regarding the ability to repatriate foreign funds have discouraged new capital inflows. With an external position that is assessed to be weaker than implied by Nigeria’s economic fundamentals and desired policies, a narrow export base, and limited capital inflows, the mission recommended preserving foreign exchange reserves through sustainable policies. The mission assessed Nigeria’s capacity to repay the outstanding credit from the 2020 Rapid Financing Instrument (RFI) to be adequate.
11. A more open trade regime is needed to unleash the growth potential brought by the African Continental Free Trade Agreement (AfCFTA). The authorities are committed to implementing the AfCFTA and are working to enhance trade facilitation through the increased use of technology.
However, the overall trade regime continues to be protectionist and restrictive with numerous products prohibited from FX access for imports, including basic necessities and food items, high tariff and non-tariff barriers, and difficult trade logistics.
Building on current efforts to improve port infrastructure and reduce the burden of customs administration, the mission recommended decisive actions to reduce barriers to trade and reliance on import substitution.
Monetary and Financial Sector Policies: Support the recovery but remain vigilant against inflationary and stability risks
12. Monetary policy should remain supportive of the nascent recovery but warrants close monitoring. With the recovery yet to be broad-based, inflation projected to decline, and limited fiscal policy space, monetary policy should remain supportive unless exchange rate pressures intensify, or inflationary pressures resurface.
The mission advised vigilance to prevent possible adverse feedback loops between persistent high inflation and periodic exchange rate adjustments if monetary policy were to become excessively loose. The out-of-cycle and discretionary use of the cash reserve requirement (CRR) continues to pose regulatory and operational uncertainties for the banking system.
13. In the medium term, the monetary operational framework should be strengthened to establish the primacy of price stability. Long-term high inflation in Nigeria is associated with the lack of a well-functioning monetary policy operational framework along with the presence of multiple policy goals.
The mission reiterated its previous advice to (i) modernize the 2007 CBN act to establish the primacy of price stability and (ii) strengthen the monetary transmission mechanism by integrating the interbank and debt markets and using central banks or government bills of short-maturity as the main liquidity management tool.
As the recovery firms up, the CBN also needs to scale back its credit intervention programs as part of a broader monetary structural reform.
14. The banking sector has been resilient thanks to ample pre-crisis buffers. The systemwide NPL ratio has improved, and profitability has been resilient, resulting in capital buffers above the regulatory minimum.
However, stress tests conducted by the authorities show that a severe shock requiring loan reclassification could erode the system’s buffers and there are risks that a part of the restructured loans, which represent less than a quarter of the overall loan portfolio, may eventually become delinquent.
Tighter market liquidity due to CRR debits and restricted access to the CBN discount window may raise bank funding costs going forward and possibly restrict credit growth at individual banks.
15. Financial inclusion continued to improve despite the pandemic but remains considerably below Nigeria’s ambitious inclusion targets. The share of the financially excluded population remains large overall, particularly in rural areas and among women and youth.
The mission recommended prioritizing the provision of financial access points in remote areas and leveraging the new technologies to close the inclusion gap more quickly. The launching of e-Naira bodes strong promises and, over time, could significantly increase financial inclusion and delivery of social assistance if coverage is extended to those with a mobile phone.
16. The mission supported the time-bound debt relief measures currently in place and recommended vigilance to guard against financial stability risks. The authorities are in the process of implementing a suite of Basel II/III instruments in addition to last year’s passage of the new banking law BOFIA.
The mission recommended the following measures to forestall stability risks: · Expiration of pandemic-related loan restructuring as planned in March 2022 in line with the economic recovery. · Timely action against the chronically undercapitalized banks and, more broadly, application of the new provisions under the BOFIA to further bolster corporate governance. · Additional regulation to safeguard sound practices and consumer protection in the growing segment of digital payments and lending. · Introduction of additional macroprudential instruments to better manage systemic and cyclical risks in the context of Basel III implementation. · An assessment by the central bank of the impact of the recent launch of eNaira on monetary policy transmission and financial stability. Structural policies: Increase jobs and worker welfare and strengthen governance
17. Given the large number of projected new entrants in the labor force and stagnant living standards, economic growth needs to increase jobs and improve worker welfare.
With agriculture accounting for almost half of current employment, any job-rich growth will need to rely considerably on this sector at least in the near term. However, the welfare level of agricultural workers, measured by per capita consumption, remains far below other workers reflecting lower productivity. Improving agricultural productivity, which requires increased supply and usage of inputs, initiatives to promote storage and the creation of farm cooperatives to reduce food loss in distribution and higher access to credit will contribute to more jobs, higher income for agricultural workers, food security, and economic diversification given the vast potential in agriculture and agroindustry.
18. There are ongoing efforts to improve transparency and governance, but more is needed to build public trust to implement difficult but needed reforms. On transparency, the national oil company NNPC has published its last two annual statements to better reconcile gross and net oil revenues remitted to the Federation Account and the Corporate registry has started to publish information on persons with significant control in newly established companies.
The government is in the process of presenting whistleblower legislation to the Parliament to facilitate untraceable declarations of corruption. However, perception of corruption remains high regarding the civil service, leading to low tax compliance and buy-in of reforms.
Implementation of transparency and accountability measures committed under the RFI has been slow. Access and quality of information on the COVID-19 spending on the Ministry of Finance’s Transparency Portal have been uneven.
The COVID-19 spending audits are just starting, and the publication of procurement contract recipients is incomplete.
With a pandemic debt suspension program in its final weeks, IMF Managing Director Kristalina Georgieva on Wednesday encouraged creditors in more advanced nations to continue offering aid to poor countries.
Early in the pandemic, G20 nations agreed to the Debt Service Suspension Initiative (DSSI), which offered 73 low- and middle-income countries the ability to halt debt payments during the pandemic.
That will expire at the end of the year, and the IMF chief encouraged countries to offer relief under the “Common Framework” aimed at DSSI-eligible countries that continue to struggle with their debt loads.
“We must speed up the implementation of the G20’s Common Framework for debt resolution,” Georgieva wrote in the Washington-based crisis lender’s blog released ahead of a gathering of the bloc’s leaders in Rome beginning Saturday.
“The keys are to provide more clarity on how to use the framework and offer incentives to debtors to seek framework treatment as soon as there are clear signs of deepening debt distress,” she wrote.
While the DSSI offers repayment over a fixed timeframe following a grace period, the Common Framework is more flexible, with repayment periods based on countries’ individual circumstances and provisions to require participation from private and other lenders.
More than 40 countries have received DSSI relief totaling $5 billion since it took effect in May 2020, according to the World Bank.
The pandemic aid program was originally scheduled to conclude at the end of last year but was extended through the end of 2021.
World Bank President David Malpass earlier this month called for a comprehensive plan to deal with debt loads in low-income countries, which surged 12 per cent to a record $860 billion in 2020 amid the pandemic downturn.
He said the DSSI “wasn’t broad enough,” adding, “I think there should be consideration by the world of what to do after January 1. And a suspension is something that could be considered.”
With certain sectors haemorrhaging jobs while others can’t find enough qualified workers due to the economic upheaval unleashed by the coronavirus pandemic, the IMF on Wednesday urged Europe states to step up training programmes.
“The Covid-19 pandemic could result in a sizable reallocation of labour, especially among the low-skilled and young workers, as they are disproportionately employed in the sectors hardest hit by the pandemic,” the International Monetary Fund said.
The tourism sector, especially in southern Europe, has been hard hit by coronavirus lockdowns and has shed jobs by the tens of thousands.
Meanwhile, IT companies seen their businesses boom as locked down consumers shifted further to buying goods online, and can’t recruit enough trained workers.
The IMF said in a report focusing on Europe that training assistance should be directed at the most vulnerable workers and those having the least qualifications.
It should also be directed at smaller companies that traditionally have less resources to dedicate to training, the IMF added.
Incentives to companies could also help them to take the risk of employing newly qualified help.
Meanwhile, aid directed to workers, like cushioning a loss of wages, could help people take the risk of jumping into a new profession.
Alfred Kammer, the head of the IMF’s European department, told a news conference it is important that countries intensify their efforts as “automation will continue and accelerate and it will add pressure on the labour market.”
The Middle East and North Africa are on track to economic recovery, but rising social unrest and unemployment are threatening to hinder “progress”, the International Monetary Fund said Tuesday.
The MENA region, which includes the Arab countries and Iran, saw its real GDP growth shrink by 3.1 percent in 2020 due to lower oil prices and sweeping lockdowns to prevent the spread of the coronavirus.
But with rapid vaccination campaigns, particularly in the Gulf nations, the IMF predicted that GDP growth would rise to 4.1 percent this year, a slight upgrade of 0.1 percent from the last projection in April.
“The region is going through recovery in 2021. Since the beginning of the year, we see progress in the economic performance,” Jihad Azour, director of the Middle East and Central Asia Department at the IMF, told AFP in an interview.
But “this recovery is not the same in all countries. It is uncertain and uneven because of the divergence in vaccination… and geopolitical developments”, Azour added.
The IMF said this month that while prospects for oil-exporting economies improved with higher oil prices, low-income and crisis-hit countries are witnessing “fragile” recoveries.
It warned of “a rise in social unrest” in 2021 that “could pick up further due to repeated infection waves, dire economic conditions, high unemployment and food prices”.
Unemployment rates increased in MENA last year by 1.4 percent to reach 11.6 percent.
This rise exceeds that seen during the global financial crisis and the 2014-15 oil price shock, the IMF said.
The fund also warned of the longer-term risk of the uneven recovery, which could lead to a “permanent widening of existing wealth, income, and social gaps and, ultimately, weaker growth and less inclusive societies”.
About seven million more people in the region are estimated to have entered extreme poverty during 2020-21 compared to pre-crisis projections, according to the IMF.
In Lebanon, the continuing drop in the value of the currency has dashed hopes that the government formed last month can stem an economic crisis, branded by the World Bank as one of the worst since the mid-19th century.
Nearly 80 percent of the Lebanese population lives below the poverty line.
“The Fund has already started technical discussions with the authorities… to develop what would be in fact that the framework within which the fund can help Lebanon,” said Azour, a former Lebanese finance minister.
Accelerating the pace of vaccinations worldwide will be key not just to containing the coronavirus pandemic, but also to resolving the speed bumps besetting the global economic recovery, IMF chief Kristalina Georgieva said Thursday.
Finance officials gathered for the annual meeting of the Washington-based crisis lender have flagged concerns about supply chain bottlenecks that are pushing prices higher.
Those disruptions stem from the unprecedented situation created by the pandemic and the sharp rebound in demand as economies reopen, as well as struggles to hire workers amid renewed infections from the Delta variant of the coronavirus.
But Georgieva said the “more fundamental problem” is the growing divergence between “countries that are pulling forward more strongly, and those that are falling behind,” largely due to the drastically lower vaccination rates in lower-income nations.
“There was a very clear message coming out of this meeting that vaccinating the world is critical,” she told reporters.
While advanced countries are starting to provide booster shots, about 96 percent of the population of low-income countries are unvaccinated.
International Monetary Fund members “called for a strong international cooperation and immediate action to achieve universal vaccination,” said Sweden Finance Minister Magdalena Andersson, who chaired the IMF’s steering committee.
Georgieva repeated the Fund’s view that inflation pressures are mostly transitory, but the committee stressed that central banks will be watching prices closely and will take action if “concrete” risks materialize.
The committee, in its concluding statement, recognized the risks to the recovery and highlighted the need for “immediate action” on vaccinations and to address the crisis that is exacerbating poverty.
The membership also repeated the pledge to “extend financial assistance to countries in need.”
That includes shifting funds from the newly-issued IMF reserves — $650 billion in special drawing rights — to countries most in need. Georgieva said her $100 billion goal is “very achievable.”
After debt loads surged last year amid the pandemic, governments now must take care to ‘calibrate’ spending, the IMF said Wednesday.
Global debt in 2020, including public and private borrowing, “jumped by 14 per cent to a record-high $226 trillion,” according to the International Monetary Fund’s Fiscal Monitor report.
Public debt amounts to $88 trillion, close to 100 percent of GDP, and is expected to decline only gradually, said Vitor Gaspar, director of the IMF’s Fiscal Affairs Department.
But there is a risk excess private debt will become public debt so “countries will need to calibrate fiscal policies to their own unique circumstances,” Gaspar said in a blog post about the report.
Massive public support helped to soften the economic blow from the pandemic, as well as the health impact.
Huge aid packages in the United States and Europe “could add a cumulative $4.6 trillion to global GDP between 2021 and 2026 if fully implemented,” Gaspar said.
In advanced economies, with progress on containing the virus, spending is shifting away from the immediate crisis, towards green and digital policies and the effort to “make economies more inclusive.”
For example, US budget proposals “aim to reduce inequality and could cut poverty by nearly one-third,” he noted.
But emerging markets and low-income developing countries “face a more challenging outlook” and “long-lasting negative impacts,” as falling tax revenues due to the ongoing crisis will leave little room for investing in development, he said.
He repeated the IMF call for continued support for the poorest nations dealing with high debt loads.
“While recognizing that the international community provided critical support to alleviate fiscal vulnerabilities in low-income countries, more is needed,” he said.
Worldwide supply chain disruptions are driving price increases and draining momentum out of economies recovering from the Covid-19 pandemic, the IMF warned on Tuesday.
The ongoing hit from the pandemic and the failure to distribute vaccines worldwide is worsening the economic divide and darkening prospects for developing nations, the IMF said in its latest World Economic Outlook.
The global economy is expected to grow 5.9 per cent this year, only slightly lower than projected in July, before slowing to 4.9 per cent in 2022, the report said.
But the overall figures mask large downgrades and ongoing struggles for some countries, including the United States, Germany and Japan that are feeling the impact of supply bottlenecks, IMF chief economist Gita Gopinath said.
“This recovery is really quite unique,” she told AFP on the sidelines of the annual meetings of the International Monetary Fund and World Bank.
Despite a strong return in demand, “the supply side has not been able to come back as quickly,” hampered in part by the spread of the Delta variant of Covid-19, which has made workers reluctant to return to their jobs.
Those labor shortages are “feeding into price pressures” in major economies, she said, slowing growth expectations this year.
Energy prices have hit multi-year highs in recent days, with oil above $80 a barrel, weighing on households.
But Gopinath said she expects energy prices to begin to retreat by the end of the first quarter of 2022.
In low-income developing countries, the outlook “has darkened considerably due to worsening pandemic dynamics,” she said in a blog post on the new forecasts.
The setbacks, which she blamed on the “great vaccine divide,” will impact the restoration of living standards, and a prolonged pandemic downturn “could reduce global GDP by a cumulative $5.3 trillion over the next five years,” she warned.
“The dangerous divergence in economic prospects across countries remains a major concern,” Gopinath said.
Advanced economies are expected to regain “pre-pandemic trend path in 2022 and exceed it by 0.9 per cent in 2024,” she said.
However, in emerging market and developing economies, excluding China, output “is expected to remain 5.5 per cent below the pre-pandemic forecast in 2024.”
Amid the danger of long-term scarring, “The foremost policy priority is, therefore, to vaccinate at least 40 percent of the population in every country by end-2021 and 70 per cent by mid-2022,” she said.
Delicate US balancing act
The world’s largest economy has benefitted from massive fiscal stimulus, but the Delta wave and the supply issues have undermined progress, prompting the IMF to slash the US growth forecast for this year to six per cent, a full percentage point off the July figure.
US growth is expected to slow to 5.2 per cent next year, slightly faster than previously expected, but policymakers will face a delicate balancing act amid risks of rising inflation and lagging employment, the fund noted.
Wages also threaten to rise as employers compete for scarce workers, Gopinath noted.
While inflation is expected to return to “more normal levels” by mid-2022 in most countries, it could take longer in the United States, she told reporters.
“There is tremendous uncertainty, we have never seen a recovery of this kind,” she said, noting labor shortages plaguing employers even amid high unemployment, and supply unable to meet demand.
US consumer prices rose 5.3 percent annually in August, more than double the Federal Reserve’s two-percent goal. Markets on Wednesday will be watching for the government’s September inflation report.
US Treasury Secretary Janet Yellen said she believes the price increases will be “transitory.”
“But I don’t mean to suggest that these pressures will disappear in the next month or two,” she told CBS News. “This is an unprecedented shock to the global economy.”
However, if higher inflation becomes entrenched, it could force central banks to respond aggressively, and rising interest rates would slow the recovery, the IMF cautioned.