The Business Forward annual event saw a slew of economic and policy experts share their insights on the state of the world economy today and the way forward following the pandemic. Dr. Youssef Boutrous Ghaly, a renowned economic adviser and Egypt’s ex-minister of finance, shared valuable insights covering everything from policies needed to overcome the fallout of the pandemic, to how the world economy is going to look like in this economically bipolar world. Moderated by Heba Saleh, Cairo and North Africa correspondent for the Financial Times, and a member of Business Forward’s editorial board, we invite you to watch the insightful discussion below.
“Today, emerging markets are competing to stay on the world market, because the world market as you’ve seen – the IMF has predicted contraction of 4.4 percent this year. There is a slight pickup next year, but very uneven in most countries. Emerging countries are all competing to stay in the market. You also have massive indications in countries in the world, from advanced economies where trillions have been spent, to emerging market economies where many have spent vast amounts to try to address the fallout of the pandemic.
On a national level, you have a massive unemployment wave. People are losing jobs. The massive increase in poverty. People are pushed to use their limited savings, and poverty rates are increasing. Not only in emerging market economies, but also in developed economies. Here in the UK, poverty rates have increased massively; there are queues in front of food banks; the free distribution of food has increased enormously. Now this is a rich country. Imagine what happens in countries like ours.
Of course, there’s also parallel to this, capital stock destruction. All of these companies, enterprises that are going bankrupt. Therefore, we need to do something and many countries have taken measures to address this issue so that this capital stock does not disappear. When a company goes bankrupt after the pandemic, it will not come back. Therefore, you have to take measures to prevent this.
Inequality is massively increasing. Some people are benefiting. But the vast majority are not. Therefore, the gap between the upper income and the lower income is going to increase. All of this, and I haven’t even mentioned the health requirements, the spending and the challenges faced by this sector in most of these countries. Be it hospitals, clinics and now, with the vaccine, the distribution.
I don’t think that the appearance of a vaccine will address these issues in the short term. Because we have an issue of distribution and production. When you put all of these vaccines together, the most you can produce is about two and a half billion doses per year. Now, at the rate of two injections per person, that’s half a billion. We’re 7 billion people, and therefore, there will be inequality as to who gets the vaccine first. Developed countries will probably get it first, before we and the emerging markets get it. And within countries, probably those who have more resources will get it first, and those with less access will get it last – typically the poor. So, you’ll have even more inequality.
What do we do?
The question then arises, what do we do? What can we do? At the personal level, well, my advice is increasing your versatility; make sure you can do multiple things, because we don’t know what the work environment is going to be like in the next 10 years. What we do today is going to affect the environment we’re living and working within in the next decade.
And therefore, since we don’t know how it’s going to look, you have to learn many skills, digital skills, because now the work-from-home mode isn’t going to go away once the pandemic is over. Some companies have discovered that you work as well from home as you do from the office. So a lot of these mechanisms are going to change. You want to be able to adapt quickly. You must increase you resilience. You have to be able to survive a period of unemployment, even mental resilience. You have to learn new skills quickly. Don’t get stuck running after degrees. The world today is not degrees, it’s skills. So you need to make sure you are competitive, remain flexible in the job market.
What do countries do?
Now what happens at the country level? There’s massive destruction in our structures, productivity, employment, human, everything is being restarted. The question is, do we rebuild better? Or do we rebuild as it was? If better, then we have to start thinking how. If we’re going to rebuild it the way it was before, okay well, do it. But, most practical economies will tell you never let a crisis go to waste. Use the crisis to change, to push forward policies that normally you would not be able to accept. Now is the time to change, to evolve and to build better.
What are the main policies? Employment, you have to make sure we concentrate on productivity. Emerging market economies are going to be competing in the world. They’re going to lower the currencies, increase the productivity, competitiveness. You have to be part of that race. I’m helping a number of South American countries, and the first obsession is productivity. Improve the quality of your products. Second you have to make sure to lower the cost of moving from low-skilled to high-skilled jobs. A lot of low-skilled jobs are going to disappear.
Many women and low skilled labor are going to disappear. Many companies have cancelled their rental agreements and will work from home – all the people that were in charge of cleaning, providing food services, have lost their jobs and they’re not coming back. These people need to upgrade their skills. We, as a government, need to make sure that whoever has the skill to upgrade can do so, we need to salvage the capital stock.
All of these companies that are going to be bankrupt need to be helped now. Now, these are the main lines, if I look at the tools we have at hand, on a micro level, I need to create fiscal space – to be able to spend money without wrecking the rest of the economy. Domestic indebtedness is not the issue – if you don’t borrow today to salvage your economy, you won’t have an economy in the future. What is relevant in our countries is debt-to-GDP. Now if this GDP can grow at 10 percent, then you can take care of GDP ratios fairly quickly. So don’t be afraid to borrow, to have a big deficit.
Protecting the poor should be first priority, what destroys an economy is mass poverty, mass income inequality. Not the income inequality that comes in transitional economies that go from low to high growth. There’s usually an increase in income inequality in the beginning and then it catches up later on. You also have to preserve the capital stock, help companies to stay in the market, because they are the ones who are going to give you the taxes later on that you’ll use to cover your deficits and indebtedness. Therefore, have programs that aren’t afraid to go into grant money and unconditional assistance.
You have to promote a rich recovery. Go hot; get hot macroeconomic policies, not tentative ones. Push at the heart. You’re in quick sand and you’re sinking, so you need to push hard. This is the essence of fiscal policy.
Monetary policy has to have its primary purpose to facilitate lowering the cost of fiscal intervention. Because printing domestic currency is a convention. The interest doesn’t come from God, it’s not in any holy book; it’s a custom; an agreement between the issuer and the user. But it’s a convention. Now we need to go past the convention. Also lower the cost of indebtness to the economy. Lower the interest rate on companies to help them cross over to viability after the pandemic.
Finally, on the external sector, preserve competitiveness. You do this by increasing your productivity.”
Youssef Boutrous Ghali.