INTERVIEW: IMF gives varying growth outlook

Doaa A. Moneim , Tuesday 27 Jul 2021

Head of the World Economic Studies Division at the IMF Research Department Malhar Nabar explains the findings of its World Economic Outlook report to Al-Ahram Weekly


On Tuesday, the International Monetary Fund (IMF) launched its new World Economic Outlook report, which sheds light on the consequences of the Covid-19 pandemic and recovery efforts made across the world.

In an interview with Al-Ahram Weekly, Malhar Nabar, head of the World Economic Studies Division at the IMF Research Department, explained that growth forecasts for emerging and developing economies will depend on vaccine rollouts against the virus and supportive fiscal measures.

What can be expected for the developing and emerging markets in the rest of 2021 and 2022?

We project the emerging markets and developing economies group to grow by 6.3 per cent in 2021, moderating to 5.2 per cent in 2022. In general, most economies in the group are expected to have broad Covid-19 vaccine access in 2022.

This is a slower pace of vaccine rollout than for the advanced economies group, where broad vaccine access is expected in the summer of this year. The relatively slower pace of vaccine rollout among most emerging markets and developing economies leaves them vulnerable to renewed infection waves and new mutations of the virus.

What are the reasons for keeping the world economic growth outlook unchanged at six per cent and what are the projections for 2022?

We have set an unchanged global growth forecast for 2021 at six per cent, but the composition of this has changed. We have upgraded the forecast for the advanced economies, but this has been exactly offset by a downward revision for the emerging markets and developing economies group, mainly in Asia.

These revisions reflect differences in pandemic developments and shifts in policy support across the two groups. We are still seeing sizable support in the advanced economies and more fiscal support is anticipated, particularly in the United States.

Meanwhile, some emerging markets and developing economies are looking to rebuild their fiscal buffers, and some have started normalising their monetary policy. For 2022, we project global growth at 4.9 per cent.

What are the IMF’s projections for the Egyptian economy?

We have revised up our 2020-21 fiscal year growth forecast for Egypt from 2.5 per cent to 2.8 per cent, as activity was stronger than expected in the second quarter. The tourism sector has been hit hard by the pandemic, as was the case in other countries, and the recovery in tourism is likely to be subdued and drawn out because global travel restrictions are likely to persist into the second half of 2021.

What are the IMF’s projections for foreign direct investment (FDI) inflows in the developing countries in 2021 and 2022, including in Egypt?

As we noted in previous World Economic Outlook reports, global FDI inflows, as a share of global GDP, are expected to pick up with the global recovery from the pandemic.

How is increased global inflation expected to affect the recovery in emerging markets and developing economies?

For most countries, we expect inflation pressures to subside in 2022 after the pandemic-induced disturbances and supply-demand mismatches work their way through prices. But we are in an uncharted recovery from an unprecedented recession. As economies reopen, accelerating demand is hitting up against supply shortages.

There is high uncertainty about how long this process will last and how inflation expectations will react going forward. If inflation pressures persist and if signs emerge that inflation expectations are increasing, central banks may need to move quickly. Financial conditions could tighten severely as a result, which would weigh on recoveries, especially among vulnerable emerging markets and developing economies.

How should the world deal with this recovery divergence?

Given the shared challenges and the shared objective of ending the pandemic globally, there is a strong role for multilateral cooperation to limit divergences and ensure that all countries are on a path of durable recovery. The highest priority is to ensure rapid, worldwide equitable vaccine access.

This will require vaccine donations from countries that have secured extra doses to those that have procured only limited doses, grants, and concessional financing, especially to low-income and lower middle-income countries, and the removal of export restrictions on vaccines and raw materials. Policy-makers should also ensure unimpeded access to international liquidity for financially constrained economies, so that they can meet critical health, social spending, and infrastructure needs, while continuing to meet their obligations on external payments.

There is also an urgent need for countries to cooperate on reducing carbon emissions to slow the increase in global temperatures and reduce the risk of catastrophic health and economic outcomes.

What financial conditions are needed in emerging and developing countries to boost the recovery process?

Broadly supportive financial conditions despite intermittent spells of volatility have been a key part of the global recovery from the deep contraction of 2020. The continued recovery among emerging markets and developing economies depends on financial conditions remaining supportive going forward.

A sudden tightening of external financial conditions will harm the recovery, particularly for vulnerable emerging markets and developing economies with large foreign-currency debts.

 *A version of this article appears in print in the 29 July, 2021 edition of Al-Ahram Weekly.

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