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The director of the International Monetary Fund has sternly warned that Covid-19 will lead a lost generation unless urgent action is taken to prevent the pandemic from widening the gap between rich and poor countries.
Kristalina Georgieva, managing director of the IMF, said financial support for the most vulnerable countries must be stepped up to avoid long-standing scars that would reverse the anti-poverty efforts of the past decades.
Writing for The Guardian, Georgieva said that inaction would reverberate around the world, with increased inequality leading to social and economic disruption.
A reduction in exports, fewer capital inflows, fewer tourists, and fewer remittances represented a “poisonous cocktail” for the 70 countries most at risk.
“Just as people with weak immune systems are more vulnerable to the virus, low-income countries with weak fundamentals are more prone to its economic effects. More than half of these countries were already at high risk of, or in fact, debt problems before the crisis started. “
In her article, the IMF’s managing director called for a four-pronged approach:
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Governments make health their priority to ensure a lasting exit from the pandemic, with special attention to the elderly and vulnerable.
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Ensure budgets are well spent by focusing on key spending areas, such as education, and cracking down on corruption.
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Laying the foundations for the future by accelerating the transition to climate-resilient and low-carbon digital economies.
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An intensification of support from rich countries, requiring an increase, not a cut in aid resources in the form of grants, soft loans and debt relief.
“Make no mistake: without urgent action, we run the risk of deepening the divide, globally, between rich and poor,” Georgieva said. “The impact will be profound, and not just in low-income countries. There is a risk of reverberating around the world with greater inequality leading to economic and social upheaval: a lost generation in the 2020s whose consequences will be felt in the coming decades.
More than 100 countries have sought help from the IMF since the Covid-19 crisis began earlier this year and the Washington-based organization has forecast a near 5% drop in global output in 2020, the most severe drop. since the Great Depression.
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Updated growth estimates will be released at the IMF’s virtual annual meeting next month, but Georgieva said so many lives and livelihoods have never been disrupted at the same time.
“The IMF estimates the loss from the pandemic to the world economy at around $ 12 trillion during 2020-21. The poorest countries, with limited resources and limited capacity, are hit the hardest: growth in low-income nations will stop this year, compared to 5% last year. “
Georgieva said that debt relief efforts must go further. In response to a call from the IMF and the World Bank, the G20 group of leading developed and developing countries suspended official payments on the bilateral debt of the poorest countries this year, putting around $ 5bn (£ 4bn ) available to 42 low-income countries. “The initiative could be expanded along with greater participation from commercial creditors,” he said.
