World economy expected to grow 5.6% in 2021: WB

KARACHI: The world economy is booming, as the global GDP is expected to expand 5.6 per cent, while the growth in advanced economies is expected to reach 5.4 per cent in 2021, the highest rate in nearly 50 years, powered by rapid vaccination and unprecedented fiscal and monetary policy support since the beginning of the Covid-19 pandemic, a World Bank report revealed.

It said global growth is surging again, only a year after the Covid-19 triggered the deepest recession since World War II.

Almost all advanced economies will go back to their pre-pandemic per capita income levels in 2022. In some parts of the world, clearly, the pandemic’s damage is being repaired quickly, the report said.

However, the 74 countries eligible to borrow from the World Bank’s International Development Association (IDA) will not benefit from this, as these are the world’s poorest nations and account for roughly half of all the people living on less than $1.90/day. For them, the global ‘recovery’ is simply nowhere to be seen.

In 2021, their growth will be the slowest in more than two decades (except for 2020), reversing years of progress in poverty reduction, the report said, adding that their harm will not be repaired quickly.

By 2030, one out of every four people in these countries will still be living below the international poverty line, it said, adding that the Covid-19 is doing the greatest harm to the people in precise places that can least afford it.

Even as the wealthiest nations begin to enjoy a return to prosperity and a semblance of normality, the pandemic continues to ravage the poorest countries.

Maternal and child mortality is on the upswing in the World Bank’s International Development Association countries because of reduced access to health services and food. Conflict and instability are also compounding the challenges for some countries, the report said.

History shows that misery on this scale inevitably transcends national borders. The heads of state from Africa, which constitutes more than half of all the International Development Association countries, will gather in Abidjan, Côte d’Ivoire on July 15 to support a strong and early replenishment of funding for the International Development Association.

They will identify key priorities for financing a resilient recovery from the Covid-19 crisis, the report said, adding that it’s in the interest of all the countries to act swiftly to mobilise the resources needed to support this effort.

“Even as the wealthiest nations begin to enjoy a return to prosperity and a semblance of normality, the pandemic continues to ravage the poorest countries.”

These countries will need significant help to dig out of the Covid-19 recession. In 2020, the pandemic halted economic growth in the International Development Association countries and caused per capita income to shrink 2.3 per cent.

“Our analysis indicates their growth will lag that of advanced economies by around 2 percentage points per annum on an average from 2021 through 2023, widening an already large gap between the richest and the poorest countries.

A significant gap has also opened up in the health response to the Covid-19 because of the supply shortages, procurement struggles, and limited financing, the pace of vaccinations has been alarmingly slow, it said, adding that as of July, only three doses of Covid-19 vaccine per every 100 people had been distributed. That amounts to less than one-tenth the rate in advanced economies.

The report also said to return to the path to convergence with the wealthier economies, the International Development Association countries will need up to $376 billion in additional financing through 2025, above and beyond the $429 billion in regular external financing needs.

Many of these countries were already heavily indebted, so the option to borrow is limited, the World Bank report said, adding that given the fiscal constraints of most countries in the pandemic’s wake, overseas development assistance is likely to remain flat or even decline.

Under the circumstances, the International Development Association countries will increasingly need support in the form of grants or zero-interest loans.

The International Development Association has proved to be a uniquely effective platform in this respect. For over 60 years, it has mobilised resources from donors, as well as capital markets to deliver tightly focused support in the form of concessional financing to the poorest countries.

Exactly a year ago, backed by $23.50 billion in donor contributions, the International Development Association began a three-year cycle aimed at delivering $82 billion in financing to the poorest countries.

Today, more than half of that amount had already been committed, necessitating an early replenishment to support these countries from July 2022 through 2025, it said.

The report said this will be a critical period for extinguishing the Covid-19 for good and also for putting the poorest economies on the right track to overcome deep challenges of development confronting them in the long term.

A first step will be to speed up the delivery of vaccines: nations with surplus doses should release them to the poorest countries, and the vaccine manufacturers should prioritise available doses for the countries that need them the most.

The next step is to put in place an ambitious package of policy reforms, to facilitate the transition of labour and capital to high-growth sectors, lower trade costs, and encourage environmentally sustainable investments that can deliver a green, resilient, and inclusive recovery, it added.

The International Development Association countries are eager to do both. But they need, and deserve, all the help they can get. As leaders of the Summit on the Financing of African Economies noted recently: “We…share the responsibility to act together and fight the great divergence that is happening between countries and within countries. This requires collective action to build a very substantial financial package, to provide a much-needed economic stimulus, as well as the means to invest for a better future.”