The World Bank’s bi-annual “Global Economic Prospects” report, released Tuesday, forecasts a slowing of global growth for 2022 and 2023. Global growth was 5.5% in 2021, but the World Bank expects this to fall to 4.1% in 2022 and 3.2% in 2023. The relatively high growth rate in 2021 was tied to “pent-up demand,” with easing of lockdown restrictions triggering a period of high consumerism following a slump in 2020, in the wake of Covid-19.
Inflation is at the highest it has been since the 2008 Great Recession that triggered a banking collapse, and for emerging and developing economies that reacted more slowly to the Great Recession, inflation is the highest it has been since 2011.
The expectation now is that high prices will likely disproportionately hit low-income households. As a result, as the World Bank warned on Tuesday in their report, income inequality is set to increase, not only between richer and poorer economies, but also within countries themselves, between richer and poorer citizens.
According to the report, “Weak recoveries in emerging market and developing economies (EMDEs) are expected to return between-country inequality to the levels of the early 2010s.”
The World Bank’s analysis of preliminary evidence “suggests that the pandemic has also caused within-country income inequality to rise somewhat in EMDEs because of particularly severe job and income losses among lower-income population groups.”
This trend is likely to continue according to the report, which states that “Over the medium and long term, rising inflation, especially food price inflation, as well as pandemic-related disruptions to education may further raise within-country inequality.”
The impact of the #COVID19 pandemic is largest for the world’s poorest. Vulnerable groups, including women, workers with low education, and those informally employed in urban areas, were hit particularly hard.
— World Bank (@WorldBank) January 11, 2022
Driving home the point about the way poorer nations see the most pronounced effects of global income inequality trends, the report observed that “Within-country inequality remains particularly high in EMDE regions that account for about two-thirds of the global extreme poor.”
Policy-makers’ response to inflation has been to withdraw fiscal policy support, according to the World Bank’s press release: “Many emerging and developing economies are withdrawing policy support to contain inflationary pressures—well before the recovery is complete.”
As new waves of contagion caused by Omicron wash across the world, the pandemic is expected to continue to affect the global economy while the 2021 surge in demand winds down. Alongside inflation, rising interest rates and debilitating global debt, the continued strains of the pandemic are likely to form the backdrop to widening worldwide inequality.
The report, speaking about the effects of coronavirus, noted that “lower-income population groups have been hurt disproportionately, and the pandemic has raised extreme poverty rates.”
Vaccine inequality has affected the ability of poorer countries to avoid lockdowns, threatening education and the economy
Speaking to Bloomberg, World Bank Prospects Group Director Ayhan Kose, who authored the report, described a “two-track recovery,” in which emerging markets and developing economies will suffer, whilst advanced economies continue “flying high,” returning to “pre-crisis levels of output” by 2023. The output of poorer countries in comparison, according to the World Bank forecast, will be 4% lower than it was pre-pandemic.
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According to World Bank Group President David Malprass, “COVID and the shutdowns are still taking a huge toll especially on people in the poor countries.” Shutdowns in poorer countries are necessitated by the low vaccination rate – itself caused primarily by the unequal distribution of vaccines worldwide.
— donato (@donatopmancini) January 5, 2022
While richer countries have already administered third doses of the vaccine to large percentages of their citizens, poorer countries are still far behind, affected by what the World Health Organisation’s director general has described as “Vaccine Apartheid.” Currently only 9.5% of people in low-income countries have had a single dose of a vaccine, even with 9.56 billion doses having been administered globally.
Education has suffered too under the pandemic, again with poorer countries being disproportionately affected. According to Malprass: “The reversal in education from school closures will have a permanent impact; the share of 10 year-olds who cannot read a basic story has risen from 53% to 70% in low and middle-income countries.”
The effect on education is likely to have serious and lasting implications for the economies of poorer and middle-income countries in the future, exacerbating the widening gap in growth rates and planting the seeds of further, widening inequality. The impact on education is also considered evidence of the “hard landing” the World Bank is concerned about.
According to the World Bank, urgent action is needed to alleviate the debt burden on developing economies, to avoid a “hard landing”
The World Bank also drew attention to record-high levels of debt, saying that the pandemic has resulted in the highest level of global debt in half a century. Poorer income countries, those eligible for zero to low interest loans from the World Bank’s International Development Association (IDA) programme, are particularly burdened, owing approximately $35 billion.
Global debt levels skyrocketed as a result of the pandemic: at a total 263% of GDP, total global debt has reached its highest level in 50 years. More than half of the poorest countries are now already in debt distress or at high risk of it. https://t.co/ByyNc1oayb #WBGEP2022 pic.twitter.com/ex2KC222nq
— World Bank (@WorldBank) January 12, 2022
40% of that figure represents debt to China according to Marplass. The country has often been accused of predatory loan practices, targeting low and middle income countries (LMICs). China’s loans to these countries have tripled over the past decade. Experts suggest that much of this debt is “hidden,” and under-reported by research institutes, due to their complex nature.
According to an AidData report published in September last year, “These debts are systematically underreported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in LMICs are not the primary borrowers responsible for repayment.”
Sri Lanka, which has borrowed heavily from China, issued a statement on Monday requesting an easement of debt payments, with the President Gotabaya Rajapaksa saying that “it would be a great relief if debt payments could be rescheduled in view of the economic crisis following the pandemic.”
The International Monetary Fund (IMF) drew attention to the urgency of the debt crisis last December, making clear the risk of economic collapse in poorer countries if G-20 countries did not pause collection of debt-services, and negotiate restructuring of payment plans.
One of the major points of emphasis from the World Bank has been the need for global, collaborative policy-making and implementation. According to Ayhan Kose, “aggressive Global cooperation in vaccines, in debt relief and climate change” is needed to overcome the challenges of the slowing growth rate, and avoid the pitfalls of a hard landing.
As to income inequality, both between countries and within countries, there is no question that it is a direct result from the slowdown in both economic growth and education. A holistic approach, that takes into account the need for a robust education infrastructure, as well as the vaccine supply needed to ensure education settings can safely function, seems like the most appropriate course of action.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. — In the Featured Photo: Rural Neighbourhood in Honduras, one of the countries where “GDP in 2022 is projected to be about, or even more than, 10 percent below what was projected just before the pandemic” Featured Photo Credit: Jose Matute.