Vaccines, climate change, and debt were at the heart of the 2021 International Monetary Fund (IMF)/World Bank Spring Meetings that took place virtually this year from 5 to 11 April.
The issue of access to Covid-19 vaccines and support for equal access dominated many of the discussions and were reflected in the final communiqué, not just of the IMF but also of other meetings that happened at the same time, including the World Bank communiqué and the communiqué of the G24 group meeting, Executive Director of the IMF Mahmoud Mohieldin said in an interview with Al-Ahram Weekly.
Since the development of effective vaccines against Covid-19, there have been concerns about adequate access, not only in terms of financial constraints, but also with regard to production and distribution capacities. There are issues related to intellectual property rights and calls from emerging-market countries to the World Trade Organisation (WTO) to place a waiver on these rights to allow them to produce the vaccines.
These calls have thus far been declined, however. “The talk about international cooperation and coordination needs to be translated into action,” Mohieldin said, commenting on the discussions that took place.
Cooperation between governments and the pharmaceutical industry is very much needed for everyone’s sake, he said, explaining that some advanced economies had managed to secure their vaccine needs in multiples of the size of their populations. However, no one is safe until everyone is safe, Mohieldin said, and this principle needed to be operationalised and translated into action in terms of financing and waivers of intellectual property rules.
Tackling health issues was paramount to achieving growth, Mohieldin said, adding that the IMF has projected that global economic growth this year will be around six per cent, more than compensating for the 3.3 per cent contraction last year.
However, this growth is going to be uneven and different across regions, he warned. The US, China, and the Euro zone will grow respectively by 6.4 per cent, more than eight per cent, and 4.4 per cent, but growth will be slower in developing countries and emerging markets.
Not only have many of these economies been severely affected by the fallout from Covid-19, but also because many of them are dependent on services like tourism they will take a longer time to recover. Some are also dependent on commodities, and markets in these will also take time to bounce back.
Such unevenness will not only be across countries, but also within countries as well, and there will be sectoral discrepancies that will require targeted economic policies, Mohieldin said. Policy support by governments, whether fiscal or monetary, should be continued until there is full recovery.
“The coordination between response and recovery is a big challenge,” Mohieldin said, assimilating the process to a marathon, not a sprint. “There is a need to manage resources, efforts, and costs,” with the latter being a major concern.
Countries have been increasingly reverting to borrowing to cope with the economic impacts of Covid-19. While the advanced economies can borrow at zero cost, many of the developing and emerging countries have to borrow from the markets at expensive rates. Many have already reached their single borrower limits, he said.
Such rising debt vulnerabilities were the focus of many discussions during the annual IMF/World Bank meetings.
On a positive note, Mohieldin lauded the efforts made by Sudan to streamline its debts. For many years, the country was not supported by the international financial institutions (IFIs) and was not part of the international development community and had accumulated enormous arrears and debts to the IFIs.
This was now changing, Mohieldin said, as Sudan had been making enormous efforts since the change of its political regime. Sudan had managed to clear some of its debts and obligations and was now in the final stages of debt reconciliation talks with other creditors, including the IMF, leading the way to negotiations with Paris Club and non-Paris Club creditors to agree on debt relief under the Initiative for Heavily Indebted Poor Countries (HIPCs).
Sudan has already cleared its arrears to the World Bank with the support of international development partners, and it is expected to do the same with the IMF. Egypt is supporting the initiative to help Sudan to get back on track with the IFIs, Mohieldin said, adding that there was a critical window to enable a turnaround for a country that has long suffered from mismanagement.
“Egypt and other countries in our constituency like the rest of the international development partners are providing full support for Sudan at this critical time,” he said.
Middle-income countries, however, do not enjoy initiatives such as the HIPC initiative or the Debt Service Suspension Initiative (DSSI) by the G20 group of countries that are designed only to help low-income countries.
This means that middle-income countries, which host 60 per cent of the poor around the world, do not have support, Mohieldin said. Middle-income countries have been urging the international community for greater debt relief to prevent a possible debt crisis emerging on the back of the Covid-19 pandemic.
To help these countries, Mohieldin is supporting an initiative to establish a new trust fund for middle-income countries like the Poverty Reduction and Growth Trust Fund hosted by the IMF to help low-income countries. The new fund, which remains a proposal at an early stage of discussion, will cater for middle-income countries and should provide complementary resources to them.
The middle-income countries are also missing out on the debt-relief arrangements offered to the low-income countries. Debt-distress in middle-income countries is currently only tackled on an ad hoc bilateral basis or through some sort of special arrangement, like in the case of Argentina, Mohieldin pointed out. Argentina is currently renegotiating some $45 billion owed to the IMF.
There have been some important proposals, including that made by the UN secretary-general, to include middle-income countries in debt-service suspensions and debt-restructuring, but so far there has not been an adequate international reaction, he said.
On a happier note, he said the approval of a new Special Drawing Rights (SDR) general allocation of $650 billion at the IMF would help to supplement the cash reserves of low and middle-income countries. Of that sum, the African countries could expect to receive $29 billion and the Middle Eastern countries $36 billion. Egypt, he said, should receive around $2.8 billion.
Two other topics discussed at the various meetings included digitisation, which comprises everything from digital solutions to the future of central bank digital currencies and their impact on monetary policy and sustainability. Digitisation and sustainability are not sectoral issues and are not the responsibility of any one agency or ministry because they affect every aspect of economic and social development, Mohieldin said.
Sustainability, he said, goes beyond climate change to include matters such as biodiversity, the environment, and the UN Sustainable Development Goals. “Governments, especially in our region, need to take these matters very seriously. It is not just a simple matter to be discussed briefly, as they are going to be shaping policies… and need to be factored into all policies and across sectors.”
On how developing countries can finance policies that deal with climate change, Mohieldin said there was a promise of $100 billion that has not yet materialised. In 2009, the developed countries pledged to mobilise $100 billion a year by 2020 in climate financing to support developing economies and economies in transition to cope with the impacts of climate change. There had been successful initiatives like the Green Climate Fund, he said, but they needed more resources.
More investments are needed to finance climate-change initiatives in developing and emerging economies, and countries should not be left to borrow for that purpose, he said. The developing economies and emerging markets are already reaching their borrowing limits, and there have been early warning indicators on the borrowing limits of such countries, he said.
The upside was that this area offered plenty of opportunities for investment, Mohieldin said, adding that these included developing renewable energy, issues related to new technologies for carbon-capture, and investments in green hydrogen and in the resilience of infrastructure, all areas where foreign direct investment coupled with adequate partnership frameworks could help.
He said that there had also been proposals for debt-sustainability swaps, but these involved complicated technical work that needed good capacity to assess debt levels and the terms of any such swaps.
*A version of this article appears in print in the 28 April, 2021 edition of Al-Ahram Weekly