From Isaac Anumihe, Abuja
As the COVID-19 pandemic continues to ravage most economies of the world, International Monetary Fund (IMF) has proposed a $650 billion General Allocation of Special Drawing Rights set to boost reserve assets of all economies and help ease liquidity constraints.
In its External Sector Report, the Fund also suggested that countries need to redouble collective efforts to reduce greenhouse gas emissions.
‘These multilateral actions can be reinforced by national-level policies tailored to the stage of the crisis that help catalyse a sustainable, inclusive recovery. Concerted, well-directed policies can make the difference between a future of durable recoveries for all economies or one with widening faultlines—as many struggle with the health crisis while a handful see conditions normalise, albeit with the constant threat of renewed flare-ups,’ it said.
While calling for multi-lateral actions, the report maintained that the immediate action to take now is to deploy vaccines equitably worldwide.
‘Multilateral action has a vital role to play in diminishing divergences and strengthening global prospects. The immediate priority is to deploy vaccines equitably worldwide. A $50 billion IMF staff proposal, jointly endorsed by the World Health Organisation, World Trade Organisation, and World Bank, provides clear targets and pragmatic actions at a feasible cost to end the pandemic. Financially constrained economies also need unimpeded access to international liquidity,’ it said..
Recent price pressures for the most part reflect unusual pandemic-related developments and transitory supply-demand mismatches.
However, inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, though uncertainty remains high.
But elevated inflation, the report noted, is also expected in some emerging market and developing economies, related in part to high food prices.
‘Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics. Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions. There is, however, a risk that transitory pressures could become more persistent and central banks may need to take pre-emptive action.
‘The risks around the global baseline are to the downside. Slower-than-anticipated vaccine rollout would allow the virus to mutate further. Financial conditions could tighten rapidly, for instance, from a reassessment of the monetary policy outlook in advanced economies if inflation expectations increase more rapidly than anticipated. A double hit to emerging market and developing economies from worsening pandemic dynamics and tighter external financial conditions would severely set back their recovery and drag global growth below this outlook’s baseline,’ the report, further, said.