How the world could win the economic battle against Covid

Martin Wolf: Bold action on vaccines could allow us to end the pandemic

We are a strange species. We are able to produce marvels, but then fail to ensure they reach everybody who would benefit, even though the costs would be trivial against the gains to all. The marvel now is the swift arrival of effective vaccines against Covid-19. The failure is to ensure production and distribution at sufficient scale. In our folly, we are throwing away a glorious opportunity.

In "A Proposal to End the Covid-19 Pandemic", Ruchir Agarwal and Gita Gopinath of the IMF have illuminated both the opportunity and the benefits from seizing it. Their suggested plan is to vaccinate at least 40 per cent of the population of all countries by the end of 2021 and at least 60 per cent by July 2022, as well as enabling widespread testing and tracing. The study estimates the cumulative economic benefits at $9 trillion (€7.36 trillion) against a cost of $50 billion – a ratio of 180 to one. This must be among the highest-return investments ever.

This pandemic is, above all, a health crisis. But it is also an economic disaster. The report is right to insist that “pandemic policy is also economic policy as there is no durable end to the economic crisis without an end to the health crisis.” A comparison of the IMF’s forecasts of October 2019 with those for April 2021 suggests that Covid-19 lowered global real output by $16 trillion (at 2019 prices) in 2020 and 2021 alone. If the pandemic continues, such losses will cumulate far into the future.

The report also estimates that 40 per cent of the gain from the plan would go to high-income countries, as a global recovery strengthens theirs, too. This would also add at least $1 trillion to their tax revenue. Moreover, accelerating vaccination would not just speed up economic reopening. It would also lower the likelihood that a future variant would defeat available vaccines, which could throw the entire world back into shutdowns.


What’s the plan?

The plan is to spend $50 billion, of which at least $35 billion would be funded by grants and the rest by concessional lending. Given the commitments, only a further $13 billion in grants is needed. But crucially, these must not just be promises, but upfront financing, at-risk investment and vaccine donations now.

Under what the report calls “business as usual”, it estimates a global supply of 6 billion doses by the end of 2021, which would be sufficient to vaccinate 3.5 billion people (45 per cent of the world’s population). That would allow the world’s high-priority population to be covered. In practice, however, some countries are vaccinating children, while others are vaccinating nearly nobody. Thus, actual coverage in low- and middle-income countries will be far below 45 per cent.

Worse, there are plausible downside risks to this scenario. These include shortages of raw materials, export restrictions, safety concerns over the vaccines particularly suitable to developing countries and the likely use of doses to vaccinate children or provide boosters to offset reduced vaccine efficacy. Any or all of these developments would further reduce vaccine availability to developing countries, delaying the end of the global pandemic.


So, what is proposed on vaccination?

First, achieve the more ambitious vaccination targets. This will require additional upfront cash contributions of $4 billion to Covax, the entity intended to ensure global vaccine access. That would allow Covax to finalise orders, activate unutilised global capacity and deliver vaccines. Moreover, individual countries should also be helped to order more. In addition, restrictions on raw materials and finished vaccines must be lifted. Finally, surplus vaccines should be donated wherever needs are greatest.

Second, insure against downside risks, by entering into final contracts for an extra 1 billion doses in the first half of 2022. This would require extra funding of $8 billion. Also, make extra efforts to encourage voluntary licensing and cross-border transfer of technology. In addition, it is essential to create a global system of genomic surveillance and vaccine modification, if needed. Another essential component is transparency over all orders and the supply chains expected to deliver them.

Third, manage the period of vaccine scarcity wisely. So, invest today in delivery capacity and in countering “vaccine hesitancy”. In addition, evaluate all potential vaccines, including those from China or Russia. It is also vital to ensure that vaccines will, at the least, be free to poor people. Moreover, so long as vaccines remain scarce, doses should be stretched, as the UK has done, by giving first doses to more people, by fractional dosing, or by giving single doses to people who have already had the disease.

Technical details

The technical details of the proposed programme may need to be adjusted. So, too, may the precise funding. But there can be no question of the overall logic. We are all in this together. It is folly to imagine that the national focus of today’s vaccination programmes will be effective in dealing with a global pandemic. It is folly not to expand global vaccine supply and delivery as urgently as is possible. It is folly, too, to spend literally trillions of dollars on pandemic support at home, while failing to spend a few tens of billions on ending the pandemic worldwide as swiftly as possible.

If such self-evident truths do not sway the governments of the high-income democracies, let them consider the geopolitics. For modest sums, they can transform the plight of billions of people living in vulnerable countries and so prove that they are both caring and competent. They can look good by doing good. If they fail to show the needed urgency in spending these trivial sums, posterity will want to know what on earth they were thinking. This is a global war. Governments of rich countries should go forth and win it now. – Copyright The Financial Times Limited 2021