Inclusive Recovery in Advanced Economies
During the 2022 World Bank Annual Meetings, the theme of inclusive recovery was widely discussed. The momentum of rapid economic growth was drastically disrupted by the coronavirus and the conflicts in Ukraine, derailing the world off track from the goal of ending extreme poverty. The World Bank’s latest estimates show that up to 685 million people will still live in extreme poverty by the end of 2022. Therefore, panelists explored the different responsibilities that the policymakers in advanced economies can ignite a resilient and inclusive recovery to resume the course of poverty goals.
DISINFLATION THROUGH MONETARY RESPONSIBILITY
Professor Larry Summers, former US Treasury Secretary, stated that the best prospect for ultimate poverty runs through a determined effort to reduce inflation. The US, for example, experienced a four-decade high in June, with consumer prices soaring by 9.1%. He added that the world central banks were terming their debt by retiring long-term debt and issuing reserves, but it is now essential to reverse that. Because many markets are facing significant volatility, monetary policy must ensure that the pace of quantitative tightening (QT) needs is measured with what the financial system can handle without compromising the disinflation objective. Otherwise, the markets will face collateral consequences of unemployment, which ultimately lead to poverty.
DEBT REDUCTION THROUGH FISCAL RESPONSIBILITY
David Malpass, the president of the World Bank, raised the issue of how advanced economies are taking up a big chunk of the world’s capital through national debts while central banks are buying the bonds of developed economies. Thus, it is crucial to return to the stage where money can flow from the advanced economies savers into development and investment. In doing so, policymakers need to ensure that spending goes to where spending is needed and disrupt spending where spending is not required. The US, for example, can do much more than containing health care costs or collect tax revenue, such as strengthening institutional capacity in the funding of the IRS. Doing so would elevate fiscal management by supporting government efforts to mobilize domestic revenue, improve public expenditure management, and produce timely statistics for policymaking.
In the macroeconomic area, matching fiscal and monetary is one of the main themes derived from the panelists. To prevent further inflation and increasing debt, which lead to poverty, the public sector in advanced economies needs to ensure that they take appropriate actions to achieve an inclusive recovery.
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