Seizing the opportunity to build a post-pandemic growth-friendly world


Since March 2020, governments have spent $16 trillion to provide financial support during the pandemic, and central banks worldwide have increased their balance sheets with a combined value of $7.5 trillion. Deficits are at their highest levels since World War II, and central banks have provided more liquidity in the past year than in the past 10 years combined. This was indispensable. Fund research indicates that without the actions of policymakers, last year’s recession, the worst peacetime recession since the Great Depression, would have reached three times the level it has already reached.
This is what the situation has become, and the question is, where are we heading? Next year, as vaccine production and numbers of immunized recipients increase, and more economies reopen, policymakers should plan a fundamental shift from seeking to save their economies from collapse to strengthening them for future events through growth-focused reforms.
We know that some of the pro-growth reforms have been delayed, if not rolled back, and that economies have been scarred. The world has lost $15 trillion in output as a result of the Covid-19 pandemic, compared to what the Fund projected in January 2020. The energy that has been directed to spending on vaccinations and recovery plans should itself be directed to pro-growth measures in order to compensate for this loss. The resulting.
Enhanced debt restructuring mechanisms would help in the immediate liquidation of non-viable companies and in directing investment into innovative ideas and new companies. Strengthening active labor market policies, including follow-up and support for job searches and retraining, would also help transfer employment to jobs promising a better future in more dynamic sectors of the economy. Improving competition-policy frameworks – a hot topic of debate in Europe and the US – and lowering barriers to entry into rigid sectors would ensure that firms are not surrounded by protection trenches, a trap that policymakers have fallen into in the past year.
On a brighter future, seizing the present moment to make some of these difficult reforms means that the monetary and fiscal stimulus that is still flowing will be a stepping stone towards a brighter and more sustainable future and not a stick for a weaker version of the pre-Covid-19 economy to lean on. Seizing the opportunity can achieve Years of solid growth and improvement in living standards after COVID-19. The International Monetary Fund estimates that comprehensive growth-enhancing reforms in product, labor, and financial markets could raise annual per capita GDP growth by more than one percentage point in Emerging market and developing economies over the next decade. These countries will be able to double the speed of their convergence of living standards prevailing in advanced economies than they were in the pre-pandemic years.
For advanced economies, the impetus for growth and reform would help pay off the debts arising from the unprecedented support that has been given, thus expanding the scope for necessary investments and reducing the need to raise taxes. In view of inflation rising above forecasts and the uncertainty over the timing of its drivers, the growth-supportive reforms targeting the supply side prevent any persistent inflationary risks arising from demand-side pressures in the United States and other countries.
For emerging market countries that have managed to maintain access to global capital markets, reforms can bolster their economic fundamentals and boost investor confidence even as financial conditions tighten, especially if inflation persists in advanced economies. In low-income countries that have exhausted the space provided by their policies, the payoff from growth-oriented reforms could be large enough to avoid severe fiscal austerity, allowing them to protect social and health spending in the short term while enhancing their ability to invest in human capital over the long term. the long.
It does not have to be all done at once. Recovery from this crisis will take years for most countries. But the main challenge for this generation of policymakers is to inspire the next generation to rebuild a brighter future. They must seize the opportunity of this challenge, and be bold as the current crisis reaches a crossroads. The combination of pro-growth reforms and recovery spending will deliver the prosperity we promised our citizens, and will define our destiny in a post-Covid-19 world.


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