Coronavirus and its measures to leave lasting scars on global economy, says World Bank chief

By Team Newsable | First Published Jun 3, 2020, 9:28 AM IST

Global economy facing staggering losses, funding shortfall hindering pandemic response, said World Bank chief

Washington DC: The global economy is facing "staggeringly large" losses and the recovery effort is hampered by a shortage of resources to make up for the damage caused by the coronavirus pandemic, World Bank president David Malpass said on Tuesday.

While the Washington-based development lender has rushed out new programs to deploy $160 billion in funding to 100 countries in an effort to address the immediate emergency, the crisis will force developing nations to rethink the structure of their economies, Malpass told AFP in an interview.

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Initial estimates of $5 trillion in economic value destroyed by the COVID-19 measures likely falls far short of the actual damage that will be done by the efforts to contain the virus, he said.

The bank warned that the worldwide recession will drive 60 million people into extreme poverty but Malpass said that grim projection likely will become much worse as the crisis progresses. As he deals with the emergency, what keeps the World Bank chief up at night?

"Not enough resources," he said.

"I keep looking... for others to add resources to the programs that we have up and running," among them direct cash payments to help the most vulnerable people in developing nations, Malpass said.

The World Bank will release its updated Global Economic Prospects (GEP) growth forecasts next week, but the scope and speed of the pandemic's impact almost defies description, and will leave long-lasting scars.

"The countries are facing the deepest global recession since World War II," Malpass said. "And that should keep lots of people up at night worrying about the consequences for the poor, for the vulnerable within those economies, for children, for healthcare workers, all facing unprecedented challenges."

While advanced economies will face the deepest downturns in percentage terms, "In many ways the more dangerous contractions are in the poorest countries, because they were closer to the poverty line before the pandemic."

The deterioration in extreme poverty in large part will depend on how soon advanced economies can reopen, since developing nations depend on markets in rich countries, he said.

Not the old economy:

As countries struggle to fund urgent needs for medical equipment and treatments, as well as ensure food supplies, they are forced to drain resources intended for education and other critical investments.

And the absence of investments undermines potential growth during the post-pandemic recovery. "The investment that you need for the future is being lost to fighting the healthcare crisis," Malpass said.

To blunt the long-term damaging effects beyond the immediate crisis, Malpass said governments will have to rethink and reshape their policies and "recognise that the global economy is going to be quite different in the future."

Lawmakers will have to invest in new types of jobs and businesses, in "the forward-looking economy rather than trying to recapitalise the historical economy”.

A country that has been working to build a bigger tourism sector will need to find a way to "build workers skills that will fit into a global economy... where there's less tourism and more need for food safety (and) for diversity of food sources”.

Malpass also warned that the "staggering" number of children out of school is creating "learning poverty" that will have larger consequences for the social fabric.

'Multi-decade slowdown':

The bank's GEP report warns the current crisis will "exacerbate the multi-decade slowdown," and it revives some of the free-market policy recommendations long promoted by the World Bank and its sister organisation, the IMF, calling for "comprehensive policies to boost long-term growth... to make future economies more resilient”.

Among them, the World Bank calls for doing away with inefficient spending, including energy subsidies at a time when fuel prices have fallen sharply, especially since finances of oil exporters were shaky before the pandemic.

The report also recommends "speeding the resolution of disputes, reducing regulatory barriers and reforming the costly subsidies, monopolies and protected state-owned enterprises that have slowed development”.

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