Leaders must act upon the IMF’s Glasgow nudge
Attention spans have lately been stretched on everything Bretton Woods. Kristalina Georgieva, managing director of the International Monetary Fund (IMF), kept her job amid a scandal over data fudged for the World Bank’s Doing Business report and her role in it when she was in charge. On Tuesday, the Fund’s executive board re- affirmed “full confidence" in her leadership after reviewing the evidence presented. The US treasury secretary Janet Yellen said that “without further direct evidence… there is not a basis for a change in IMF leadership." The day’s spotlight shifted soon enough to the Fund’s update of its World Economic Outlook (WEO).
Broadly, the global economy is recovering from the effects of covid, although this revival could not just weaken, it is also uneven. By the IMF’s latest forecasts, global growth should clock in at 5.9% in 2021, a decimal notch down from its 6% projection published in July, but will then slip to 4.9% in 2022, as estimated earlier. The Fund expects India’s economy to expand by 9.5% this fiscal year, and then 8.5% the next. Before our second wave, the report had expected a rebound three percentage-points stronger in 2021-22, after last year’s 7.3% contraction. But even at a slower rate, Indian output could get within reach of its pre-covid level of 2019-20. What we must not lose sight of, however, are worrying patterns that emerge as we look ahead. This year’s bounceback has largely been a rich-world affair, while low-income and even better-off emerging economies lag in their recoveries. This is primarily on account of vaccine inadequacy, which has held commerce back. While well-jabbed countries have got going, poorer ones still face the threat of full-blown health crises. It is obvious that no ‘global recovery’ is possible unless we achieve equitable immunization across the globe. In a world of interlinkages, the need for vax haves to help have-nots fend off covid should be seen as a matter of self-interest. Until the pandemic is quelled, supply disruptions could persist. While the WEO doesn’t foresee stagflation, its analysis of inflationary pressures in a scenario of upward commodity prices and various input shortages found that inflation risks have an upward skew. Much of it may be transient, with a price surge upon the world that lasts no longer than mid-2022. Still, as its chief economist Gita Gopinath made clear, central banks should watch out for second-round effects. Policy errors on this front could make space for a crisis of prices going out of control even as growth slows.
The pandemic’s impact has kept us occupied, but what will come to matter most is how we respond to Gopinath’s call to mitigate our big long-term threat. As part of her exposition of the world’s economic prospects, she made a point to remind us how dim those would soon be if we fail to tackle climate change. For this, in the context of a cap-and-trade market for carbon permits, she called for an international price floor “adjusted" for country-specific conditions. She also flagged the need for public investment and research subsidies to reduce emissions, and of compensatory transfers to homes that may be hurt by an energy transition. Advanced nations, she said, must uphold their pledge to mobilize an annual $100 billion in aid for developing countries to cap their exhaust of pollutants. The rich world did most of the atmospheric damage, after all. As world leaders now prepare for CoP-26 climate talks in Glasgow, they should bear her words in mind.