COVID-19 has resulted in largest global economic contraction in 80 years, say World Bank and IMF

The World Bank and the International Monetary Fund said the global economic contraction caused by the ongoing coronavirus pandemic is the largest in the last eight decades, raising the world poverty rate, exacerbating inequalities and damaging long-term economic growth prospects.

The WB and IMF concluded their annual meeting here on Friday, which heavily revolved around the impact of COVID-19.

"The pandemic has resulted in the largest global economic contraction of the last eight decades: it is impacting developing, emerging and developed economies; increasing the global poverty rate; exacerbating inequalities; and damaging long-term economic growth prospects," according to a joint-ministerial communique issued by the two UN-backed institutions.

The associated lockdowns, restrictions and continued uncertainty have caused investments, trade, and remittance flows to plummet, eroded jobs and human capital, kept children out of school, and pressured food and medical supply chains, it said.

The monetary institutions warned that the humanitarian crisis can further exacerbate fragility, conflict, and violence as well as intensify risks, including in small island states.

The economic crisis is threatening the lives and livelihoods of vulnerable populations, including women-led households, youth and the elderly, refugees and displaced people.

It is also widening gender gaps and jeopardising hard-won development gains and prospects for girls and children overall, it said.

Commending the World Bank for the speed and scale of its COVID-19 response across countries, the joint communique said that the bank is supporting countries’ efforts to strengthen health systems and should continue to do so.

Early this week, the bank had announced a USD12 billion financial incentive to fund a COVID19 vaccine.

Noting that in the restructuring and recovery stages of the COVID-19 response, the bank and the IMF will need to help countries rebuild better, focusing on promoting the building blocks for an inclusive and sustainable recovery, ensuring affordable energy access and energy security, and addressing the challenges to economic and environmental vulnerabilities, including climate change, the communique said that they look forward to the upcoming Climate Change Action Plan.

To accelerate a resilient recovery centered on jobs and economic transformation, the communique asked the World Bank to provide the knowledge, policy advice, and financial support to help countries strengthen social safety nets and facilitate the movement of capital and labour toward sectors that will be productive and sustainable in the post-pandemic context, while also providing the innovation needed to open up trade finance for SMEs and confront the challenges of informality.

The joint communique urged the World Bank to support the mobilisation and crowding in of private capital and finance, to create markets and promote investments and quality infrastructure for a broad-based recovery and long-term development.

Supporting the extension of the Debt Service Suspension Initiative (DSSI) by six months and to examine, by the time of the 2021 Spring Meetings of the World Bank and the International Monetary Fund, the joint communique said that all official bilateral creditors should implement this initiative fully and in a transparent manner.

It strongly encouraged private creditors to participate on comparable terms when requested by eligible countries.