The G20 needs to do more than recycle the G7’s agenda

The world economy is facing a two-speed recovery. The rich world is overheating. The poor world is stagnating, with Asia’s developing countries at its centre. Left to fester, both worlds will soon start exporting problems to each other, creating a dangerous feedback loop.

Addressing this two-speed global economy should be the top priority of G20 leaders when they meet in Italy on 30 October. But early indications suggest it’s not. The G20’s agenda is too focused on rich world problems. If it wants to be relevant, the G20 needs to stop recycling the G7’s agenda. It needs to deal with the challenges facing Asia’s developing economies and the developing world before it’s too late.

The International Monetary Fund’s (IMF) latest forecasts reveal just how divided the post-Covid-19economic recovery will be. Rich countries are expected to reach their pre-pandemic level of output by 2024, while poor countries will remain 5.5 per cent behind their pre-pandemic levels. There is a precedent for the G20 ministers to take action when they convene: At the height of the 2008-09 financial crisis, the international community devoted large sums to assisting hard-hit countries. IMF resources were increased to $1 trillion, and the Group of Seven (G7) committed to a sharp rise in bilateral assistance to developing countries.

The G20 committed to a standstill on sovereign debt payments this year by low-income countries. The IMF and Paris Club—the group of creditor countries that sets rules and practices for sovereign debt relief—have expressed concern about delays in the initiative. The chair of the Paris Club, Odile Renaud-Basso, has specifically cited lending by China’s policy banks and Western commercial loans and bond issues. There is a growing consensus—including Chinese leader Xi Jinping and World Bank President David Malpass—on the need to extend the standstill through 2021, which could free up about $90 billion for Africa. The program needs new life.

These forecasts are stark, but not surprising. Weak healthcare systems, weak social safety nets and limited fiscal and monetary policy space meant that COVID-19was always going to devastate developing countries. The rich world did the bare minimum to help. Most rich world financial supports, like currency swap lines, went to other rich countries. Support from the multilateral institutions was too small and too hard to get. Debt forgiveness was a drop in the ocean.

Nor have any lessons been learned. The vaccine roll-out in the developing world has been dismal. Almost 60 per cent of the population in advanced economies are fully vaccinated. Many are now receiving their booster shots. In poor countries, more than 95 per cent of the population remain unvaccinated.

This two-speed global economy is not just a moral problem.

The rich world will soon start exporting financial turbulence towards the developing world. Many rich world central banks have already begun tapering quantitative easing programs and raising interest rates. If inflationary pressures persist, more will follow.