The IMF warns that the economic recovery is not assured and does not rule out increasing SDRs to emerging countries

Inflation

Fund chief economist also warns of demand and supply chain bottlenecks upward pressure on prices, a circumstance that the planet “Unique political challenges”.

However, Gopinath points out that in most advanced economies, inflation is expected to decline to pre-pandemic levels in 2022 For the following reasons:

• A significant portion of abnormally high inflation is transient, due to sectors affected by the pandemic (such as travel and hospitality), and compared to the exceptionally low values ​​of last year (raw materials).
• the employment rates remain well below pre-pandemic levels in most countries. Although there has been rapid wage growth in some sectors, wage increases remain within normal ranges. As sanitary conditions improve and support measures expire, hiring difficulties in certain sectors and wage pressures should decrease.
• Ultimately, long-term inflation expectations remain well anchored, in addition to the effect of automation on the labor market.

However, the economist warns that this assessment “is subject to significant uncertainty given the unexplored nature of this recovery ”. Thus, “more persistent supply interruptions and / or a sharp rise in house prices are some of the factors that could lead to continued high inflation”.

Under these conditions, inflation is expected to remain high through 2022 in some emerging markets and developing economies, a trend related in part to continued pressures on food prices and currency depreciation.

Gopinath believes that while wider access to vaccines could improve the outlook, the risks are generally down. And alert that “The emergence of highly infectious viral variants could derail the recovery and cumulatively wipe out $ 4.5 trillion from global GDP by 2025.”

Financial market conditions could also tighten “suddenly”, in a context of high asset valuations and in the event of a sudden revaluation of the outlook for monetary policy, particularly in the United States. It would also be possible if the spending the United States uses to stimulate the economy turns out to be weaker than expected.

In this unfavorable scenario, a worsening of the pandemic and tighter financial conditions would have a dual impact on emerging and developing economies “Severely delay their recovery”.

The Fund believes that multilateral action is needed to ensure that the world has rapid access to vaccines and treatment. Thus, the staff of the IMF formulated a proposal – approved by the World Health Organization, the World Bank and the Trade Organization – which sets the objective of vaccinating at least 40% of the population in all countries of the world. ‘by the end of 2021 and at least 60% by mid-2022.

To achieve these goals, it is estimated that at least 1 billion doses of vaccine must be shared by 2021 by countries with vaccine surpluses and drug manufacturers must prioritize deliveries to low- and lower-middle-income countries.

In order to ensure the financial conditions, Gopinath specifies that the general allocation of Special drawing rights (SDR) equivalent to $ 650 billion ($ 250 billion for emerging markets and developing economies), as proposed by the IMF, “Must be completed quickly to provide cash reserves to countries and help them meet their critical spending needs.

For this expansion, Argentina is entitled to approximately $ 4,300 million. And consider that the impact may be greater if rich countries voluntarily channel their SDRs to emerging markets and developing economies.

The other big shared challenge, according to the IMF’s chief economist, is reduce carbon emissions Yes slow the rise in global temperatures to avoid catastrophic health and economic consequences. In this regard, he believes that a multiple strategy will be necessary with carbon pricing as the centerpiece.

Are also required green technology research grants accelerate the movement towards reducing carbon dependency. So far, only 18% of stimulus spending has gone to low-carbon activities.

recommendations

Political efforts at the national level must continue to adapt to the stage of the pandemic, argues the Fund. Thus, Gopinath details the following recommendations:

• First, To escape the acute crisis, health spending must be prioritized and specific support provided to affected households and businesses.
• Then to ensure recovery with more emphasis broader fiscal and monetary policy is needed.
• Finally, invest in the future, which involves advancing the long-term objectives of boost productivity and accelerate the transition to less carbon dependency, harness the benefits of digitization and ensure that the benefits are shared fairly.

However, he warns that “fiscal actions must be nested within a credible medium-term fiscal framework to ensure that debt remains sustainable.” For many countries, this will involve improve tax collection, increase tax progressivity and eliminate waste.

The Fund considers that central banks should avoid prematurely tightening their policies in the face of transitory inflationary pressuresBut they must be prepared to act quickly if inflation expectations show signs of stalling.

Emerging markets should also prepare for a change in external financial conditions by extending debt maturities to the extent possible and limiting the accumulation of foreign currency debt.