1.1
What is the outlook for the global economy, and how can policymakers ensure a path towards a sustainable and equitable recovery from the COVID-19 pandemic?
What are the opportunities for global recovery, and what are the challenges?
A ROBUST AND EQUITABLE GLOBAL RECOVERY WILL NOT BE POSSIBLE UNTIL THE PANDEMIC IS UNDER CONTROL.
While some countries are emerging from the worst of the crisis, the pandemic is continuing in many parts of the world. Global vaccination progress has played a huge role in the speed of recovery, but disparity in access to vaccines threatens to exacerbate inequalities between countries.
Beyond the immediate health crisis, the playing field is far from even as countries deal with the economic fallout of the crisis. Some countries have deployed massive resources to support their economies, but others remain in need of significant support.
There is a better understanding of the complementarities between fiscal and monetary policy now than there was in the aftermath of the 2008 Global Financial Crisis. In some developed countries, monetary policy has contributed to the creation of fiscal space to aid recovery, while in the developing world the situation is more challenging. Sovereign debt risks have built up over time and could result in a “lost decade” for some countries, making their prospects for recovery and economic growth significantly gloomier than those of developed countries.
Disparity in access to vaccines threatens to exacerbate inequalities between countries.
Fiscal space can be defined as room in a government's budget that allows it to spend without jeopardizing the sustainability of its financial position or the stability of the economy.
We need to consider a range of concrete policy options to address concerns regarding uneven fiscal space. These may include:
a new and larger Special Drawing Rights (SDRs) allocation, a mechanism for redistributing unused SDRs from rich to poor countries and the use of unused SDRs for global public goods
capital account management to reduce volatility and prevent capital flight
deep and comprehensive debt restructuring with the compulsory involvement of private creditors
recapitalization of multilateral development banks as crucial instruments to finance development while better aligning their lending to the Sustainable Development Goals (SDGs)
and greater international tax cooperation that would address the concerns of developing economies, including on digital services tax and illicit financial flows, to strengthen domestic resource mobilization
Special Drawing Rights (SDRs) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). They are not a currency per se, but rather, represent units of account for the IMF and operate as a supplement to the existing money reserves of member countries.
Capital flight refers to the exodus of financial assets and capital from a country due to political or economic instability, currency devaluation or the imposition of capital controls.
The response to the current crisis presents an opportunity to create a bridge between short-term and medium-term challenges and change incentives for public and private investment and consumption from undesirable activities to more desirable ones.
Recovery plans and bailouts need to have conditions attached to them to create more sustainable and inclusive outcomes, such as investments in climate actions.
In the developing world, this means more inclusive growth that supports a strong middle class and robust productive sectors, including service sectors, while tackling illicit financial flows that rob poorer countries of crucial resources.
In the developed world, there is a clear need to create more decent jobs including through investment in productive sectors and research and development, while revisiting the notion of welfare states to ensure that everyone can enjoy basic economic security.
The International Labour Organization (ILO) defines decent work as "productive work for women and men in conditions of freedom, equity, security and human dignity".
Productive sectors include industry, agriculture and services.
The huge informal job market that exists in developing countries creates considerable challenges for job creation and implementing social protection systems and measures for all. In the absence of sufficient decent jobs, a focus on reducing inequality through investments in human capital alone will not be enough to reduce inequality overall. The tremendous improvements in education worldwide have not been matched by the creation of more desirable jobs. Education systems are not always in sync with the demand for new skills.
The huge informal job market that exists in developing countries creates considerable challenges for job creation.
Adopting technologies that complement, rather than replace, labour and unlocking growth in small and medium-sized enterprises (SMEs) can help to promote employment and create more productive jobs.
UN Photo/Mark Garten
The COVID-19 pandemic has also highlighted the importance of economic and social inclusion.
Women have been forced out of work disproportionately, while children from disadvantaged groups have found it more difficult to stay in school. So far, rescue packages have provided much-needed protection to population groups in disadvantaged and vulnerable situations but have generally not been effective in reducing inequalities. Income and other forms of inequality have increased within and between many countries as a result of the COVID-19 crisis, and this could fuel social and economic tensions. More must be done to prioritize investments in people, and as the world recovers, countries must assess their recovery programmes, evaluate their impact on inequality, and adjust them accordingly. Any premature move to austerity, as after the 2008 Financial Crisis, risks hurting the poorest. Understanding why structural changes didn’t take place in the wake of the 2008 Financial Crisis is crucial to focusing our efforts for transformation this time around.
Any premature move to austerity, as after the 2008 Financial Crisis, risks hurting the poorest.
Lastly, the pandemic has demonstrated the importance of multilateralism and international solidarity.
The crisis has been characterized by insufficient international cooperation and an absence of leadership of the multilateral system. It would be important to bring the International Monetary Fund (IMF) and the World Bank more closely into discussions at the UN (and vice versa) as well as to better fund the UN and its agencies to deal with the current crisis and any future crises.
1.2
Many consider that measuring progress based on gross domestic product (GDP) does not fully account for long-term global sustainable development needs.
Are there ways in which we can move beyond the current GDP metric?
THE CONTINUED CENTRAL ROLE OF GDP AND ITS CHALLENGES
Gross Domestic Product (GDP) is currently used to inform many policy decisions, and its role will remain crucial. However, GDP is lacking as a measure of economic and social development, and we know that we cannot summarize our complex society with a single number. It is therefore important to question how GDP is calculated today, and to make sure that what is being measured reflects what is truly valued.
But we are faced with data gaps in many areas, and it is difficult to measure certain types of assets and values. Digitalization of the economy has complicated the issue. For example, digital services, such as GPS, are typically measured as inputs for other productive activities, but not as outputs. Data gaps in time use related to the provision of care and housework need to be filled to better reflect the gender dimension and the impact of ageing. After decades of depleting our planet and its natural resources, filling data gaps around the environment is also crucial.
In this regard, the collective agreement on updated international statistical standards with the introduction of the System of Environmental Economic Accounting (SEEA) is an invaluable effort by the UN to ensure the value of nature is recognized.
The same approach to other components of the true wealth of nations, in the context of the United Nations statistical framework, will prove invaluable in reaching a consensus about how to go beyond GDP.
The System of Environmental Economic Accounting (SEEA) is a statistical system that combines economic and environmental information to measure the condition of the economy, how the environment contributes to the economy and the impact of the economy on the environment.
Potential complementary indicators to GDP
A dashboard of key complementary indicators of GDP would enable better measurement of development progress. The selection of indicators would need to reflect different development priorities across regions. The potential for the selected indicators to steer behaviours should also be considered.
The selection of indicators should also consider the availability of timely and comparable data. Underlying data should be easily obtainable, up to date and comparable across countries and time. It could include:
labour market indicators (e.g., median wage multiplied by the employment rate
nutrition indicators (e.g., percentage of population able to afford a nutritious diet)
time-use indicators disaggregated by gender
per capita food consumption
and indicators of inequality (e.g., Gini index).
Per capita emissions, an improved Human Development Index (HDI) and SDG Indicator 10.1.1 could also be considered alongside GDP.
The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and having a decent standard of living. The HDI is the geometric mean of normalized indices for each of the three dimensions."
SDG 10: Reduce inequality within and among countries. Its first target, (SDG 10.1) is to: "Progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average" The Indicator for this target (SDG 10.1.1) is: "Growth rates of household expenditure or income per capita among the bottom 40 per cent of the population and the total population".
