## Urgent Action Needed to Address a Worsening ‘Two-Track’ Recovery

_IMF Blog, July 7, 2021_

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## Bibliographic details
- Authors: Kristalina Georgieva
- Published: July 7, 2021

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### Recovery overview and outlook
- Global recovery is progressing broadly in line with the IMF’s April projections of 6 percent growth this year.
- United States projected growth: 7 percent this year, the highest since 1984.
- Recovery is gaining momentum in China, the euro area, and a handful of other advanced and emerging economies.
- Incoming data confirm a deepening divergence in economic fortunes — a “worsening two-track recovery” driven by differences in vaccine availability, infection rates, and policy support.

### Human and health consequences
- Faster access to vaccinations for high-risk populations could potentially save more than half a million lives in the next six months alone.
- Low vaccination rates leave poorer nations more exposed; in sub-Saharan Africa, less than 1 adult in a hundred is fully vaccinated, compared to an average of over 30 percent in more advanced economies.
- Unvaccinated populations raise the risk of deadlier variants emerging, undermining global progress.
- Immediate needs in regions with surges include oxygen, testing material, personal protective equipment, and therapeutics.

### Risks from inflation, financial conditions, and commodity prices
- Recent pickup in inflation, particularly in the U.S., is being closely watched; inflation expectations have been stable so far but could rise.
- Risk: a more sustained rise in inflation or inflation expectations could require earlier-than-expected tightening of US monetary policy.
- Higher interest rates in the US could lead to sharp tightening of global financial conditions and significant capital outflows from emerging and developing economies.
- Countries with large external financing needs or elevated debt levels would face major challenges.
- Policymaker guidance: continue monetary accommodation in most countries while closely monitoring inflation and financial stability risks; major central banks should carefully communicate policy plans to keep inflation expectations well anchored and prevent excess financial volatility.

### Fiscal policy and support measures
- About $16 trillion in fiscal action has been taken globally, led by G-20 economies.
- In countries with rapidly rising infections: continue targeted support for healthcare, vulnerable households, and firms within credible medium-term frameworks.
- As health metrics improve: gradually scale back general support programs while scaling up social spending and training programs to cushion workers, especially young people, women, and the low-skilled.
- Continued international cooperation is essential to end the pandemic; the economic benefits are cited as “extraordinary” and the costs “relatively small.”

### International policy proposals and IMF plans
- IMF staff outlined a $50 billion plan intended to deliver trillions of dollars gained from faster vaccine rollout and accelerated recovery.
- IMF, World Bank, WHO, and WTO have formed a “war room” to track, coordinate, and advance delivery of health tools to developing countries and mobilize policymakers to remove roadblocks.
- Vaccination targets endorsed for support: at least 40 percent of the population in every country by the end of 2021, and at least 60 percent by the first half of 2022.
- Critical actions to reach targets: more dose sharing; support grant and concessional financing to increase and diversify vaccine production and bolster in-country delivery, diagnostics, and therapeutics; remove barriers to exports of inputs and finished vaccines and other barriers to supply chain operations.
- Swift provision of emergency packages to affected regions is essential, including oxygen, testing material, personal protective equipment, and therapeutics.

### Support for vulnerable and low-income countries
- Estimated needs for low-income countries: $200 billion over five years to fight the pandemic, plus another $250 billion to have fiscal space for transformative reforms.
- Wealthier nations are urged to redouble efforts on concessional financing and dealing with debt.
- G20 Debt Service Suspension Initiative provided breathing space; need to make the new Common Framework fully operational.
- Example cases: Chad received financing assurances from its G20 bilateral creditors and needs speedy commitments by private creditors on comparable terms; timely formation of the creditor committee is encouraged to enable delivery of the debt operation Ethiopia is requesting.
- Countries with unsustainable debt burdens or protracted financing needs should seek early action for debt resolution or reprofiling.

### IMF financing, SDRs, and institutional initiatives
- IMF provided $114 billion in new financing to 85 countries and debt service relief for poorest members.
- Support received to increase access limits to scale up zero-interest lending capacity.
- Exploring a new “vaccine window” under emergency financing facilities to support countries in financing vaccination programs if needed.
- Membership backs a new allocation of Special Drawing Rights of $650 billion, the largest issuance in IMF history; expected allocation process to be completed by the end of August.
- IMF working to magnify impact of SDR allocation by encouraging voluntary channeling of some SDRs, together with budget loans, to reach a total global ambition of $100 billion for the poorest and most vulnerable countries.
- Exploring channels including the Poverty Reduction and Growth Trust (PRGT) and possibly a new Resilience and Sustainability Trust (RST).
- This week’s G20 meeting is an opportunity to advance the plan for a new RST to support low-income nations and poorer and vulnerable middle-income countries with structural transformation and climate-related challenges.
- IMF staff recently proposed an international carbon price floor to accelerate the transition to low-carbon growth over the course of this decade.

### International tax agreement
- Strong welcome for the historic agreement reached by 130 countries in the context of the OECD/G20 Inclusive Framework: a minimum corporate tax rate to help ensure highly profitable companies pay their fair share everywhere.
- IMF research indicates minimum tax regimes can help preserve corporate tax bases and mobilize revenue, important for investing in health, education, infrastructure, and social policies.

### Core policy recommendations (summarized)
- Step up international cooperation to end the pandemic: endorse vaccination targets (40 percent by end-2021; 60 percent by first half of 2022), accelerate dose sharing, expand production and delivery financing, remove trade barriers for vaccines and inputs, and provide emergency supplies to crisis regions.
- Step up efforts to secure the recovery: tailor fiscal measures to pandemic exposure and policy space; protect healthcare and vulnerable groups where infections are rising; scale back broad support when warranted while increasing social spending and training; maintain monetary accommodation where appropriate and communicate policy plans clearly.
- Step up support to vulnerable economies: provide concessional financing and debt relief, operationalize the Common Framework, facilitate creditor committees and comparable terms from private creditors, and mobilize international finance for pandemic response and transformative reforms.

*By Kristalina Georgieva, July 7, 2021*

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## References

- [عربي](https://www.imf.org/ar/News/Articles/2021/07/07/blog-urgent-action-needed-to-address-a-worsening-two-track-recovery)
- [日本語](https://www.imf.org/ja/News/Articles/2021/07/07/blog-urgent-action-needed-to-address-a-worsening-two-track-recovery)
- [Português](https://www.imf.org/pt/News/Articles/2021/07/07/blog-urgent-action-needed-to-address-a-worsening-two-track-recovery)
- [our note to the G20 meeting](https://www.imf.org/external/np/g20/070721.htm)
- [war room](https://www.imf.org/en/News/Articles/2021/06/30/pr21201-joint-statement-heads-wb-imf-who-wto-first-meeting-task-force-covid-19-developing-countries)
- [own research](https://blogs.imf.org/2021/06/09/the-benefits-of-setting-a-lower-limit-on-corporate-taxation/)

_Source: https://www.imf.org/en/blogs/articles/2021/07/07/blog-urgent-action-needed-to-address-a-worsening-two-track-recovery_