COVID-19 will widen gap between rich and poor ― IMF
The COVID-19 pandemic will widen the gap between the rich and the poor, especially in emerging markets and developing economies, the International Monetary Fund (IMF) has said.
It said, that as part of its latest World Economic Outlook it explored two facts about the current pandemic to estimate its effect on inequality: a person’s ability to work from home and the drop in GDP expected for most countries in the world.
The organisation said, “Emerging markets and developing economies grew consistently in the two decades before the COVID-19 pandemic hit, allowing for much-needed gains in poverty reduction and life expectancy.
“The crisis now puts much of that progress at risk while further widening the gap between rich and poor.
“Despite the pre-pandemic gains in poverty reduction and lifespans, many of these countries have struggled to reduce income inequality.
“At the same time, they saw persistently high shares of inactive youth (i.e., not in employment, education, or training), wide inequality in education, and large gaps remaining in economic opportunities for women.
“COVID-19 is expected to make inequality even worse than past crises since measures to contain the pandemic have had disproportionate effects on vulnerable workers and women.”
The organisation said that the ability to work from home has been key during the pandemic and that recent study showed that the ability to work from home is lower among low-income workers than for high-income earners.
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It added that based on studies lower-income workers were less likely to be able to work from home and more likely to lose their jobs as a result of the pandemic, which would worsen the income distribution.
“What this tells us is the estimated effect from COVID-19 on the income distribution is much larger than that of past pandemics.
“It also provides evidence that the gains for emerging market economies and low-income developing countries achieved since the global financial crisis could be reversed.
The world body warned that the widening inequality on average has a clear impact on people’s well-being.
It said, “We assess the progress made before the pandemic and what we can expect for 2020 in terms of welfare using a measure that goes beyond GDP. We use a welfare measure that combines information on consumption growth, life expectancy, leisure time, and consumption inequality.
“Based on these measures, from 2002 to 2019, emerging markets and developing economies enjoyed welfare growth of almost 6 per cent, which is 1.3 percentage points higher than per capita real GDP growth, suggesting many aspects of peoples’ lives were seeing improvement.
“The increase was mostly due to improvements in life expectancy.
“The pandemic could reduce welfare by 8 per cent in emerging markets and developing countries with more than half of it stemming from the excess change in inequality as a result of a person’s ability to work from home.
“Note that these estimates do not reflect any income redistribution measures after the pandemic. This means that countries can dampen the effect on inequality and on welfare more generally by policy actions.”