Developing countries are being left behind in the pandemic recovery and face the risk of a renewed economic downturn if vaccine supplies fail to materialise and global inflation rises, the World Bank warned on Tuesday.
Emerging economies are particularly vulnerable, it said, as increasing prices and interest rates undermine their ability to deal with the high levels of debt accumulated during the coronavirus crisis.
“While advanced economies are rebounding, many of the world’s poorest countries are being left behind, and much remains to be done to reverse the pandemic’s staggering human and economic costs,” the bank said in its twice-yearly Global Economic Prospects report.
“Moreover,” it added, “the recovery is not assured: the possibility remains that additional Covid-19 waves, further vaccination delays, mounting debt levels or rising inflationary pressures deliver setbacks.”
It said the near-term resumption of economic growth worldwide could not make up for the misery the pandemic has inflicted on the poorest. Per capita income losses incurred in 2020 would not be fully unwound by 2022 in about two-thirds of emerging and developing countries, it said, and in 75 per cent of the most fragile, conflict-affected economies.
By the end of this year, about 100m people will have fallen back into extreme poverty since the onset of the pandemic, estimated the World Bank.
“Globally co-ordinated efforts are essential to accelerate vaccine distribution and debt relief, particularly for low-income countries,” said David Malpass, president of the World Bank.
The report stressed the need to expand vaccine distribution and deployment as a precondition for a lasting global recovery.
It made no mention, however, of vaccine manufacture or of rising demands for the suspension of intellectual property rights by pharmaceutical companies to deal with supply shortages. Last month, the US backed a temporary suspension of such rights for Covid-19 vaccines, leaving the UK and the EU as the main opposition to such a move.
Speaking to reporters, Malpass said the World Bank did not support the lifting of IP rights because to do so could jeopardise spending on research and development.
“The World Bank supports the licensing and transfer of technology to developing countries to bolster global supply,” he said. “A very critical part of the supply chain is the invention and creation of manufacturing techniques. Above all, as we go into the booster stage, it will be vital that [research and development] flows continue to increase so that we can create vaccines that apply to new variants.”
The Washington-based institution singled out the record level of debt around the world, particularly among emerging and developing countries, as a threat to economic stability. It said the global financial system was vulnerable to a sudden increase in interest rates, if there was a rise in risk aversion among investors, inflation, or expectations of faster monetary tightening.
Consumer price inflation is likely to exceed expectations this year in half of all emerging economies that set such targets, the report said. If the increase is temporary, and consumers and investors continue to believe the targets will be met, policymakers may be able to leave monetary policy unchanged.
“If, however, inflation expectations risk becoming unanchored, [emerging market and developing economy] central banks may be compelled to tighten monetary policy more than would be appropriate,” the report warned.
Ayhan Kose, director of the World Bank Prospects Group, which analyses changes in the global economy, said higher inflation may complicate the policy choices of poorer countries in the coming months, as some of them still rely on expansionary support measures to ensure a durable recovery.
“If growing inflationary pressures cause market participants to be concerned, they could trigger a rise in risk premia,” he said. “Emerging market and developing economies are vulnerable to because of their record high debts. In the event of market disruptions, capital outflows could force them to tighten policies in a manner that could throttle their recoveries.”