COVID-19 Pandemic Exacerbates Global Economic Inequality

Strategic Insights -

The COVID-19 pandemic has had a devastating impact on the global economy, exacerbating existing economic inequalities between rich and poor countries. As the International Monetary Fund (IMF) notes in its April Fiscal Monitor report, the gap between advanced and emerging economies has widened significantly, with the latter struggling to recover from the pandemic. The report highlights that the fiscal deficit for emerging market economies stood at 9.8% of GDP in 2020, while being projected to be 7.7% in 2021, a high level of fiscal deficit. Furthermore, the report suggests that a temporary wealth tax on the rich could help generate finances to meet pandemic-related needs.

Key Takeaways:

  • The fiscal deficit for emerging market economies stood at 9.8% of GDP in 2020, while being projected to be 7.7% in 2021.
  • The general government gross debt of Pakistan increased from 85.6% of GDP in 2019 to 87.2% in 2020, and is projected to be 87.7% and 83.3% in 2021 and 2022, respectively.
  • The IMF suggests that advanced economies can consider levying higher taxes on the income or wealth of the rich to help pay for the enormous cost of tackling the COVID-19 pandemic.
  • Emerging market and developing economies should focus on strengthening tax capacity to finance more social spending.
  • The IMF proposes a temporary wealth tax on pandemic winners and wealthy individuals to help reduce social inequalities.
  • The COVID-19 pandemic has highlighted the need for greater multilateral support and cooperation to help developing countries manage their fiscal deficits and debt repayment needs.

Statistics:

  • Global fiscal deficit: 10.8% of GDP in 2020, projected to be 9.2% in 2021 (Fiscal Monitor report).
  • Emerging market economies fiscal deficit: 9.8% of GDP in 2020, projected to be 7.7% in 2021 (Fiscal Monitor report).
  • Pakistan's general government gross debt: 85.6% of GDP in 2019, increased to 87.2% in 2020, projected to be 87.7% and 83.3% in 2021 and 2022, respectively (Fiscal Monitor report).
  • Potential benefit of a temporary wealth tax: US $650 billion (IMF-World Bank spring meetings).

Sources:

  • International Monetary Fund (IMF). Fiscal Monitor. April 2021.
  • IMF. World Economic Outlook (WEO). 2021.
  • Larry Elliott. "IMF calls for wealth tax to help cover cost of Covid pandemic." The Guardian. 2021.
  • Chris Giles. "IMF proposes 'solidarity' tax on pandemic winners and wealthy." Financial Times. 2021.