"Vaccine policy is economic policy," said International Monetary Fund managing director Kristalina Georgieva during the IMF-World Bank spring meetings last week. And when it comes to tackling the Covid-19 pandemic, vaccine policy is an even higher priority than the traditional tools of monetary and fiscal policy, she said.

Economic research shows the cliche that "no one is safe until everyone is safe" applies not only to individuals but also to economies. It also demonstrates that a programme of global vaccinations, which will cost a pittance compared to the trillions of dollars in stimulus that governments have splurged to shore up their economies, will pay for itself many times over. Vaccinations are the most powerful and cost-effective form of economic stimulus.

The global vaccination effort still falls short. The World Health Organisation reported that as of March 26, the Access to Covid-19 Tools Accelerator (Act-A) initiative - the only comprehensive solution across tests, treatments and vaccines - for tackling the pandemic is underfunded to the tune of US$22.1 billion (S$29.6 billion).

Glaring inequities

The Covax programme, which is the part of Act-A dedicated to distributing Covid-19 vaccines to 92 low-and middle-income countries, has delivered about 40 million doses so far, well short of the 100 million doses it expected to distribute by end-March. More than 80 per cent of jabs given so far have gone to people in high-and upper-middle-income countries, while just 0.1 per cent have gone to people in the rest of the world.

In nations with the highest vaccination rates, such as Israel and Britain, healthy young people are getting their jabs while health workers and vulnerable citizens in poor countries where the pandemic is raging have to wait till at least next year before they get theirs.

The glaring inequity in vaccine distribution is only part of the problem. Another part is vaccine production. The Act-A initiative is also intended to increase vaccine manufacturing capacity. Its underfunding means that the global shortage of vaccines will persist, which will push global vaccinations further into the future and prolong the pandemic.

This would pose, first and foremost, new health risks, including for countries which have high vaccination rates. A prolonged pandemic in the developing world will translate into more virus mutations - some of which, like the South African variant, may be able to dodge even the most effective vaccines. So a partially vaccinated world will aggravate the risks of new waves of infections even where the pandemic was presumed to be under control, as we have seen in Europe, Japan and South Asia.

Then there is the economic impact. Several studies have shown that in a partially vaccinated world, global economic demand will fall well short of what is needed for broad-based and sustainable economic recoveries, even in rich countries. The most prominent casualties will be contact-intensive sectors such as tourism, hospitality, offline retail, events and transport, none of which can flourish as long as there are travel restrictions.

Losses from unequal access

A study by the Rand Corporation last year found that even if the places that have developed vaccines - such as the US, Britain, European Union, China, India and Russia - succeed in vaccinating a large share of their population while most of the rest of the world lacks access to vaccines, the result would be a gross domestic product (GDP) loss of about US$1.2 trillion a year or about US$103 billion per month, against a scenario where all countries have access to vaccines. If the vaccine producers fail to vaccinate at scale, the GDP loss would balloon to US$ 3.3 trillion per year or US$278 billion per month.

These findings relate only to contact-intensive sectors. Some of these sectors, like transportation, are also important for international trade. For instance, fewer passenger flights would mean less cargo capacity in passenger planes. Air- and sea-freight costs have skyrocketed during the pandemic. Major events that depend on large numbers of visitors will also be badly hit, with negative economic repercussions, such as the Tokyo Olympics, which will take place without foreign visitors; the Dubai Expo of 2021-22 and the football World Cup in Qatar next year.

A broader study commissioned by the Paris-based International Chamber of Commerce Research Foundation, which covers 35 sectors in 65 countries, found that the global economy stands to lose as much as US$9.2 trillion if governments fail to ensure developing economy access to Covid-19 vaccines, equivalent to more than 7 per cent of pre-pandemic global GDP.

Even if advanced economies reach optimal vaccination levels by the second quarter of this year, they will incur almost half of this cost if the roll-out of vaccines in developing economies continues on its current, snail-paced trajectory.

These losses stem from two causes. First, the exports of the vaccinated country cannot fully recover if there is sub-par demand from its trading partners which are still suffering from the pandemic. So, for example, if Singapore is fully vaccinated while Malaysia is not, Singapore's exports to Malaysia - its third-largest trading partner - will be lower than if Malaysia were fully vaccinated. Nor will Singapore be able to fully open up to Malaysian tourists and Malaysia can't open up either.

And second, the vaccinated country will face shortages of both final and intermediate goods imports from such trading partners. If Malaysia cannot supply intermediates to Singapore because of lockdowns, or because it depends on inputs from, say, India, which is also facing lockdowns, Singapore's production capacity will be hit. So as long as its trading partners have yet to bring the pandemic under control, Singapore's economy will operate at below its capacity even if it manages to fully contain the pandemic at home.

A short-term GDP bounce from the depths of 2020, which is likely to happen in many economies, including Singapore, does not mean a sustained recovery is at hand, as long as the pandemic is still raging in the majority of countries. And the more open an economy, the more it stands to potentially lose.

A lack of trust

The main reason why global initiatives like Act-A and Covax are underfunded and why "vaccine nationalism" has become the norm comes down to a lack of trust between donor countries. While countries may recognise that everybody would be better off if vaccines are globally shared, in the absence of mutual trust, they have incentives to cheat and "free ride". So even as they have provided some funding for Covax, many donors have bought up all the vaccines that they need to inoculate their citizens first, hoping that other donors will plug the funding gap.

Of course, if all donors reason this way, Covax gets underfunded, which is what has happened.

Moreover, the availability of vaccines for Covax has also declined because donors have grabbed the bulk of available supplies for themselves, with some having bought as many as nine doses per citizen because they were not sure which vaccines would be effective. Although some have pledged to export excess vaccines once their own populations are inoculated, this will lead to further delays in getting vaccines out to the world and still may not be enough.

The underfunding of Act-A and Covax is a classic example of the "prisoner's dilemma" in game theory, whereby participants who don't trust each other take what seems to them to be rational decisions individually, but which lead to a sub-optimal collective outcome. Donor countries will themselves end up worse off compared with a situation where they had agreed to provide enough funding to inoculate the world.

It is still not too late to step up cooperation. Economists suggest that the best way to do this is to demonstrate the rate of return that countries would get on their investments in universal vaccine access.

Highest return investment

While different studies use different data sets, just about every study that has been done on this issue finds that the return would be multiple times the investment.

In its latest fiscal monitor, the IMF projects that if everyone were vaccinated, it would add

US$9 trillion to global output between now and 2025; 60 per cent of this (US$5.4 trillion) will go to developing economies and emerging markets, and 40 per cent (US$3.6 trillion) will go to advanced economies, and will translate into about US$1 trillion in additional tax revenues. Compared with these potential gains, the US$22.1 billion funding shortfall for Act-A is a trivial amount.

The study by the International Chamber of Commerce estimates the return on investment that individual countries would earn if they unilaterally funded Act-A. The US, which stands to incur US$744 billion in potential domestic losses if vaccine access is unequal, stands to earn about 34 times its investment by funding the shortfall in Act-A even if no other country contributes more. Japan would earn nine times its investment, while Germany would earn six times.

This is why the latest IMF fiscal monitor points out: "Global vaccination may well be the public project with the highest return ever identified."

In other words, it's a no-brainer.