In its World Economic Outlook Update published in July 2021, the International Monetary Fund (IMF) projected that the global economy would grow 6.0 percent in 2021 and 4.9 percent in 2022. The report noted that “although the 2021 forecast is unchanged from April, there are offsetting revisions across advanced economies and emerging market and developing economies, reflecting differences in pandemic developments and policy shifts. The 0.5 percentage point upward revision for 2022 largely reflects anticipated additional fiscal support in the United States, with associated spillovers to the global economy.
“Global trade volumes are projected to expand 9.7 percent in 2021, moderating to 7.0 percent in 2022. The merchandise trade recovery is set to broaden, after being initially concentrated in pandemic-related purchases, consumer durables, and medical equipment. Services trade is expected to recover more slowly, consistent with subdued cross-border travel, until virus transmission declines to low levels everywhere (IMF, 2021).
“In most cases, inflation is expected to subside to its pre-pandemic ranges in 2022 once the transitory disturbances work their way through prices. This is underpinned by three pillars: even with diminished participation rates, labour market slack remains substantial (albeit with reported shortages and hiring difficulties in sectors such as hospitality and travel); inflation expectations are well anchored; and structural factors that have lowered the sensitivity of prices to changes in slack are still expected to operate as before (some have possibly intensified — for example, automation). However, inflation is expected to remain elevated into 2022 in some emerging market and developing economies, related in part to continued food price pressures and lagged passthrough from higher oil prices for importers (IMF, 2021).”
Once the health crisis is under control and economies are secure on their recovery paths, policy must increasingly focus on incentivising shifts in employment, credit, and other inputs consistent with emerging growth opportunities (for example, digitalisation or the transition to lower carbon dependence). Policies should also ensure the gains are widely and equitably shared by strengthening social safety nets, protecting vital health and education spending, and funding worker-training, as well as investing in child and elder care to facilitate broader participation in the post-pandemic labour market.
“Financing these initiatives with more progressive taxation, closing loopholes, and reducing tax expenditures would help mitigate inequality while helping rebuild fiscal buffers for the next downturn. The recovery is not assured until the pandemic is beaten back globally. Concerted, well directed policy actions at the multilateral and national levels can make the difference between a future where all economies experience durable recoveries and one where fault lines widen further — as many struggle with the health crisis for an extended period, while a handful see conditions normalise, albeit with the constant threat of renewed flare-ups” (IMF, 2021).
The IMF reported that it is expecting commodity prices to rise significantly. The report stated that “commodity prices are expected to increase at a significantly faster pace than assumed in the April 2021 WEO. Amid the strengthened global recovery, oil prices are expected to rise close to 60% above their low base in 2020. Non-oil commodity prices are expected to rise close to 30% above 2020 levels, reflecting particularly strong increases in the price of metals and food.”
The Brent crude price, which is currently US$75.77, a 60% projected increase will result in oil prices surpassing the US$100 bbl. mark for the first time since 1979, or more than four decades ago. This, in turn, would result in Guyana’s earnings from oil production at the current production levels to increase by over US$200 million /GY$43 billion. However, the downside would be increased prices for the downstream/ consumption products – that is, fuel prices for example, which would affect the consumers.
With the increased earnings, though, policymakers can consider utilising some of the earnings from the oil revenues as a buffer to cushion the effects on consumers in the short term, and/or a mixture of other policy instruments to bring some degree of relief on the part of the consumers.
More notably, the report highlighted that “global government debt reached an unprecedented level of close to 100% of global GDP in 2020, and is projected to remain around that level in 2021 and 2022.
“In the case of Guyana, with unprecedented growth in GDP which was 43.3% in 2020 and projected 20.9% growth in 2021, Guyana’s debt to GDP ratio is well below 50%, which is fiscally sustainable. Hence, these are relatively good macroeconomic indicators for the country when compared to the rest of the world, and which bodes well for sustainable growth and encouraging for heightened investments both from the public and private sectors.”
About the Author:
JC. Bhagwandin is a financial and economic analyst; and an Adjunct Instructor at Texila American University, Business College. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected].
