The Covid-19 pandemic has killed more than 1 million people globally and closed schools and businesses—but the impacts of the virus could reach farther even after the distribution of an effective vaccine.
The crisis threatens to deepen already-present economic inequalities, says Kristalina Georgieva, the managing director of the International Monetary Fund and former CEO of the World Bank, and prevention is up to policymakers around the world.
Georgieva, who has compared the IMF to the global economy’s family doctor, recently joined Barron’s for its conference, The Wealth Gap: A Global Perspective. The director has previously warned that it is imperative for policymakers to invest in ways that will help train workers for the future and lessen inequalities.
During her panel, Georgieva shared her view on how Covid-19 could worsen global inequality and advice for policymakers building a more equal future.
The conversation below has been edited and condensed for clarity.
Barron’s: Thanks for joining us, Kristalina. What impact does inequality have on global economic growth, and why is it important for investors to consider this?
Georgieva: Inequality holds growth back. When people are excluded from opportunities—when women cannot contribute equal to men—society loses that contribution.
Let’s remember: Just before this pandemic, we were worried that productivity was slow and growth was anemic. If we want this to change, we must concentrate on building a more inclusive growth model for the future and we must be very mindful that, unfortunately, history tells us pandemics deepen inequality.
We have done research at the IMF that clearly demonstrates that five years after SARS, or H1N1, we would get 5% more unemployment among the poorer part of the population. So if we don’t want to come on the other side of this pandemic weaker, we ought to integrate [an] inclusive approach to growth to the response to the pandemic right now.
What impact are you already seeing on the ground, in terms of exacerbation of inequality from the pandemic?
Let’s just pause and recognize that never in our post-war history have we had a shock that would impact so many at the same time. We have 90% of the world finishing 2020 poorer than at the start of the year.
What it means, in terms of erasing the benefits of development, is that we are anticipating, with great horror, that we might have somewhere around 90 million more people experiencing poverty. Rather than poverty shrinking—we were at 760 million before the pandemic—it is likely to go up.
The second very concerning issue is with education put on a standstill for people who have no access to the internet. We may be faced with scarring that goes way deeper after the pandemic.
Those who have access to e-learning would do better. But if you are in a poor country and you drop out of school and you are a girl, the probability of returning to school when the pandemic is over is low.
If we don’t have to face a lost generation, it is absolutely paramount to do two things within countries: To make sure that priority is given to health and to skills and education, and then across countries, those that can do more take their responsibility.
As you’ve mentioned, the recovery has been very uneven. What types of stimulus do you want to see in this next round?
First and foremost, it is so critical that we bring a durable end to the health crisis everywhere. Priority has to be given to health systems—to doctors, nurses. The ability to protect people from the most terrible loss that comes with the epidemic, the loss of lives.
Then comes the question of how we can make sure that a bridge is being built so jobs are not erased forever. This is the other thing that is very troubling for many countries, especially countries that are dependent on contact-intensive industries. Think of tourism.
The shock from the pandemic is very dramatic. So [it is critical to make] sure that there is this financial support to countries and that it is then distributed with focus on the most vulnerable people [and] most vulnerable parts of the economy.
If I may add one very important message: Yes, [the IMF is] helping to finance this action as well. We tell countries: “spend, but keep the receipts.” We cannot afford leakage, or even worse, corruption, to take away this precious support for people at this time of very dramatic crisis.
You’ve warned, as bad as this pandemic has been, a climate crisis could be even worse in terms of inequality and its impact. As people rebuild their economies, how should they be thinking about that?
That’s a great opportunity we now have because everywhere—even in low-income countries—there is stimulus put in place to inject jobs and growth in the economy. How you spend this money is absolutely critical.
Invest in [a] low-carbon, climate-resilient future, because if you don’t like the pandemic, you’re not going to like the [climate] crisis one iota. We know that climate shocks are hitting the most vulnerable countries and the most vulnerable people the hardest. From the perspective of addressing inequality, dealing with the climate crisis is absolutely essential within countries and across countries. Use the stimulus wisely.
If you had to give policymakers advice for the biggest bang for their buck in the near term, what are three things that you suggest?
Number one, reform your tax system for the 21st century so you can have equitable support for your economy. That means raising revenues in a more progressive manner than has been done in the past. But then also improve the quality of expenditures.
My second point, and it is hugely important: invest in people. Resilience in the future depends on how resilient we are. And that means having skills [and] having access to the internet …If we increase access to the internet by 10% in sub-Saharan Africa, growth would jump by four percentage points.
My third advice would be financial inclusion. It’s critical to have men and, in particular, women with access to finance, so we can have the vibrant small- and medium-sized enterprises contributing to the recovery to the fullest. My main message to everybody is: Put more money in the hands of women. The recovery would come faster and it would be more vibrant.
How can we improve financial literacy for those in the government and in service roles?
One of the very interesting examples is Russia. Some 10 years ago, [Russia made] a decision to introduce financial literacy as a subject at school around sixth, seventh grade. What it did was not only to get the new generation of Russians to be [financially] literate, but these kids became the teachers of their parents, and especially their grandparents.
Taking financial literacy seriously means that we have to, from a very early age, get kids to understand what it means to have income and expenditures—say, how to manage your finances, and to nurture this entrepreneurial spirit that comes with it. I also have seen, in some of the low-income countries, massive advances. Rwanda has done miracles in advancing financial inclusion and spreading financial literacy.
IMF is coming out with its growth outlook next month. When you’re looking at the economic scarring that you talked about, what do you see as the risks that really worry you?
What worries me the most is if we are not to sustain support for as long as necessary to come on the other side of this crisis. What we are telling policymakers is: Please do not withdraw this support prematurely. We have to be able to get a barrier to bankruptcies and unemployment. If we don’t, we risk not only growth prospects, we risk financial stability, we risk our ability to recover and then come back to growth rapidly.
We are working very hard with our membership to expand our capacity to provide concessional financing with longer maturities to countries that have no access to financial markets, but face exactly the same, or even worse, domestic economic crises. So [to] sustain support until we come on the other side of this crisis. Of course, I really pray, like everybody else, that vaccines, treatment, testing is going to become available faster so we have this durable exit from the crisis.