Caution key word as economies reopen
As countries around the globe take strenuous efforts to bring COVID-19 under control while safeguarding jobs and incomes, it should be kept in mind that the economic recovery from the pandemic will be more gradual than previously forecast, as predicted by the International Monetary Fund (IMF). IMF estimates growth this year at -4.9 per cent, or nearly two percentage points below projections in April, indicating that the recession will be deeper and recovery slower. The latest World Economic Outlook is an update to data published two months ago. Subtitled ‘A Crisis Like No Other, An Uncertain Recovery’, it has clearly warned that gains made over the past two decades in driving down extreme poverty could be in peril. Although many economies have begun to reopen, the Fund has rightly stated that the unique characteristics of lockdowns and social distancing have conspired to hit both investment and consumption. Lengthier lockdowns will exert an additional toll on economic activity in countries struggling to control infections. “We are definitely not out of the woods. We have not escaped the Great Lockdown,” as IMF Chief Economist Gita Gopinath points out. Given this tremendous uncertainty, policymakers should definitely remain vigilant. Leaders would do well to heed suggestions by IMF experts that in areas still under lockdown, authorities should continue to “cushion” household income losses, while also supporting firms forced to curtail their activities due to mandated restrictions. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivise the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic. The situation also offers an ideal chance to implement climate-related commitments and scale up carbon taxation.
The UN has for quite some time been calling for recovery plans to be built around low-carbon technologies, to avoid a return to fossil-fuel based business as usual. Some of the countries and regions at the forefront of this wholesale shift to renewables are islands, where the need to avoid the significant cost of importing fossil fuels, such as oil and gas, provides added motivation. Mauritius, for example, is planning to generate over a third of its electricity from renewable sources within the next five years. Projects supported by the UN Development Programme (UNDP), will be an important part of this transition, bringing an additional 25 Mega Watts of solar power to Mauritius, including a mini-power grid in Agalega, one of the outer islands. Interestingly, as well as reducing pollution, this shift to clean energy is expected to aid economic recovery, with new jobs in areas such as the production, installation, and maintenance of renewable energy equipment, from solar panel, to batteries and wind turbines. The Pacific US State of Hawaii is also planning to go even further and become a trailblazer for the rest of the United States, by going completely renewable by 2045. As UN officials point out, Mauritius and Hawaii show that a green option is not only possible, but actually a better deal than a fossil-fuel based recovery plan, especially when the true costs, including air pollution, climate change effects and traffic congestion, are factored in. While COVID-19 continues to wreak havoc, global solidarity remains crucial. Trade and technology tensions and tariff wars could put recovery at risk. One big lesson from the pandemic is also that health care systems need to be adequately resourced.