Risks to global economic recovery

‘Countries are relying on effective immunizations to save lives and revive businesses. The World Bank’s projection for 4% growth this year depends on widespread deployment of vaccines. Surging Covid cases and a delay to the delivery of inoculations, however, could limit expansion to just 1.6%... . At least 49 higher-income countries are rolling out Covid vaccines, compared with one lowest-income nation reporting the first 25 doses, according to World Health Organization Director-General Tedros Adhanom Ghebreyesus. “Not 25 million. Not 25,000. Just 25,” he said at a meeting Monday.’ – ‘Vaccine disparities raise alarm as Covid variants multiply’ by James Paton

One of the greatest risks facing global economic outlook where deep recession over many months now has exacerbated income inequality and poverty appears highly likely to be in the shape of inequality in vaccine rollout, not to mention the fast-approaching existential threat of climate change. That the situation of vaccine inequality is quite likely is highlighted by James Paton in his same Bloomberg article: ‘High-income countries have secured 85% of Pfizer Inc.’s vaccine and all of Moderna Inc.’s, according to London-based research firm Airfinity Ltd. Much of the world will be counting on U.K. drugmaker AstraZeneca Plc, whose vaccine is cheaper and easier to distribute, along with other manufacturers such as China’s Sinovac Biotech Ltd.’

Moreover, the article points out that even in the case of AstraZeneca, 59 per cent have already been secured by the high-income and upper-middle-income countries, while only 17 per cent have been secured by the lower-income-countries, and the rest to be distributed under the reportedly seriously issues-stricken multilateral COVAX initiative led by the WHO (World Health Organization), among others. Given this scenario, vaccine rollout inequality poses a serious risk to global economic recovery.

To understand other important global risks, the World Economic Forum (WEF) recently released ‘The Global Risks Report 2021’, now in its sixteenth year of publishing. Ranking the risks based on the ‘global risks perception survey 2020 report’ conducted by the WEF, top risks both in terms of likelihood and impact included infectious diseases, climate action failure, and related variables like extreme weather, debt and livelihood crises. Here, around-average economic risks, in terms of likelihood and impact, included debt crises, prolonged stagnation, and asset bubble burst. Other economic risks also indicated included social security collapse, commodity shocks, and price instability.

Although the Survey does not rate prolonged stagnation, high debt crises and price instability very high, the practice of ‘vaccine nationalism’, ‘food nationalism’, and to some extent even ‘oil nationalism’ in view of reports that the OPEC would make meaningful cuts in supply to push up prices, and not thinking as such about countries, which are net importers of oil and already finding it difficult to manage balance of payments situation in the face of high stimulus-related debt repayments requirements, rising commodity prices, and making available high patent walls-backed pricy vaccines, all mean that debt crises are more likely than ever, especially given weak multilateral- and bilateral creditor response to debtor countries.

According to the Report, ‘In low- and lower-middle-income countries, severe and long-lasting humanitarian impacts could be exacerbated by lower levels of financial support and fewer aid workers. Poor working conditions and lack of social protections are likely to aggravate the impact on the world’s 2 billion informal workers’ and given vaccine, food and oil nationalism, and risks, especially the vaccine rollout inequality, debt crises, and prolonged stagnation, all mean likely continuation of misery for a large proportion of people, particularly in the global south.

That misery breeds radicalization, polarization, and overall instability is a fact. Political stability, which is an important determinant of economic recovery and stability, has largely reduced over the years in countries under the neoliberal assault. Hence, rising political instability, especially in the wake of the pandemic, remains an important risk factor for global economic recovery. Here, highly inward-looking policies of advanced countries during the pandemic, in the face of unjustifiably heightened sense of insecurities that the pandemic has instilled, have in turn not provided the needed bilateral and multilateral economic support that the fiscally challenged developing countries needed to provide the required level of stimulus in the wake of the pandemic.

This, in turn, has allowed political parties otherwise on the fringes of economic spectrum, in many developing and even some developed countries, to exploit the sentiments of the suffering masses to instil extreme populism, and in turn ride the rising wave of political instability to raise their chances of coming into power in an overall environment of political chaos, not caring for further economic issues chaos creates, while at the same time those parties having little political and economic acumen to deal with the huge challenges at hand.

Political instability is, therefore, on the rise even in developed countries, since given the severity of the pandemic leaving a lot to be desired in terms of policy actions and size of stimulus there. Hence, while years of neoliberal assault had already reduced the role of government both in terms of its traditional welfare role, but also in regulating the private sector, where the limited sense of government’s presence has allowed the tyranny of the private sector’s ‘profit over people’ mind-set. So, the pandemic has just further increased the already big income inequality gap, which has all the more fed into increasing political instability, as people have continued to feel more disenfranchised over the years under Neoliberalism.

In the wake of the pandemic, high risk levels have also increased uncertainty facing economies. In this regard, a recent IMF blog article ‘What the continued global uncertainty means for you’ by Hites Ahir, among others, pointed out: ‘Global uncertainty reached unprecedented levels at the beginning of the COVID-19 outbreak and remains elevated. The World Uncertainty Index – a quarterly measure of global economic and policy uncertainty covering 143 countries – shows that although uncertainty has come down by about 60 percent from the peak observed at the onset of the COVID-19 pandemic in the first quarter of 2020, it remains about 50 percent above its historical average during the 1996–2010 period.’

To tackle many of the above risks, and in turn to reduce uncertainty, there is therefore a strong need for activism in countries across the economic spectrum for greater social justice, and a non-neoliberal policy outlook, more on the lines of social democracy achieved, for example, by Scandinavian countries. Globalization and domestic policies, influenced heavily by Neoliberalism over the years, require this activism, so that deep reforms of Capitalism can be carried out in these highly difficult times for global economy.

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund)

He tweets@omerjaved7

Copyright Business Recorder, 2021