Two-speed global economic recovery worries experts

The international community must act to avert a two-speed global economic recovery post Covid-19, key global financial institutions have said.

This is where one sector is allowed to grow at a faster rate than another.

Heads of international development institutions held a closed-door session with German Chancellor Angela Merkel on Thursday to discuss the uneven global economic recovery, access to vaccines, and strategies to drive a recovery from the Covid-19 crisis.

Merkel was joined by the heads of the African Development Bank (AfDB), World Trade Organization, the International Monetary Fund (IMF), the World Bank, the Organisation for Economic Cooperation and Development (OECD), and the International Labour Organization (ILO).

“We have noted that the recovery after the pandemic is a two-speed recovery, which is cause for concern,” Chancellor Merkel said.

The German leader added that the G7, IMF and World Bank continued to take measures to assist lower and middle-income countries, which includes Kenya.

She said it is important to channel the IMF Special Drawing Rights in a way that benefits the world’s poorest countries.

On Monday,IMF announced a record $650 billion (Sh71.3 trillion) special reserve to support poor countries through the pandemic.

Kenya earned Sh80.8 billion ($737.6 million) worth of special drawing rights (SDRs) from the reserve.

It is not a loan or currency but is a claim on free usable currencies of IMF members.

This means that Kenya can choose to sell the special drawing rights under voluntary arrangements for actual currency, with one SDR currently equivalent to $1.4184 (Sh155.61).

Highlighting the IMF’s projection of six per cent global growth in 2021, IMF managing director Kristalina Georgieva said the composition of the six per cent is changing, with advanced economies broadly accelerating growth, whereas most emerging markets and developing economies are falling further behind.

"This is a dangerous divergence,”Georgieva said.

The consequences of the disparity include continuing supply chain disruptions and the risk of giving up hard-won gains in development, which would fuel unrest and instability.

Georgieva said vaccines remain the number one priority.

World Bank President David Malpass said progress had been made under the African Vaccine Acquisition Trust (AVAT) initiative of the Africa Centres for Disease Control and Prevention, but advanced economies still need to make doses available to the rest of the world.

On debt relief, Malpass said: “I have actively advocated for more transparency with regard to debt, as well as a greater balance within the debtor/creditor relationship around the world.”

Addressing Africa’s economic prospects, AfDB President Akinwumi  Adesina said the continent’s economies were forecast to grow by 3.4 per cent.

He termed the IMF special drawing rights invaluable in facing down economic headwinds.

About $27 billion (Sh2.98 trillion) of the $650 billion SDRs are set to benefit  Africa, which Adesina said will go a long way in helping boost reserves for developing countries.

“If the developed countries reallocate $100 billion of SDRs to Africa, as agreed at the Paris leaders meeting and by the G7, that will further support faster economic recovery in Africa,”he said.

ILO Director General Guy Ryder said the impact of the pandemic on labour markets was four times greater than the 2008-2009 financial crisis.

“We’ve recovered perhaps half of the damage done in terms of work being done, but all of us agree that the recovery process is incomplete, uneven and fragile,” Ryder said.  

 The meeting took place a day before a Compact with Africa conference, which several African heads of state are attending.

The Compact with Africa is a G20 initiative that promotes private investment in Africa.

It involves reform of the continent’s macroeconomic, business and financing frameworks.