Emerging markets are at risk of experiencing lower economic output and employment in the coming years as a result of “scarring” from the COVID-19 pandemic, according to the International Monetary Fund (IMF). 

The lender said that G20 countries are continuing their recovery after the health outbreak, but risks still remain, with emerging economies likely to endure the biggest losses due to their relatively less access to vaccines and smaller pandemic-support packages. 

“For many economies, the outbreak of the war in Ukraine is adding to the challenges,” the IMF said in its latest blog.  

The lender said that a key cause of scarring from the pandemic in emerging economies is weak labour market recoveries. 

“Policymakers must act promptly to repair the damage from the crisis and prevent decades of diminished economic output from lost human capital,” it said. 

Employment rates remain below pre-pandemic projections due to weaker recoveries in emerging markets, with informal work rebounding faster than formal work in several countries including Brazil, Indonesia, Mexico and South Africa, exceeding pre-pandemic levels by late 2021.   

If informal work continues to grow, incomes could be affected, as it generally sees lower wages than formal work, the IMF said. 

Earnings could be further affected by loss of learning due to school closures, which can lead to depressed income. 

The war in Ukraine coming after the pandemic is also making policy action constrained due to elevated debt and rapid inflation. 

The IMF concluded that policies could shift to helping workers adjust to the changing labour market, through targeted training, and making sure there are well structured systems for insolvency and re-structuring of businesses. 

(Reporting by Imogen Lillywhite; editing by Cleofe Maceda)  

imogen.lillywhite@lseg.com