The managing director of the International Monetary Fund (IMF) Kristalina Georgieva on Wednesday provided her take on the global economic outlook amid the coronavirus recovery.
Speaking at a press briefing in Washington D.C. on the Global Policy Agenda, Ms. Georgieva explained why the IMF reduced its global growth forecast to 5.9 percent for this year, a 0.1 percent downgrade, from a previous forecast in July.
“As you know, yesterday we slightly reduced our global growth forecast to 5.9 percent for this year, just a 0.1 percent downgrade. And we left our projections unchanged for the next year, at 4.9 percent. That on its own is good news,” she said. “The economic recovery continues. Because of the extraordinary policy measures, because vaccines continue to save the lives of millions of people and lift up economic performance, but this is not the whole story. The path ahead is more challenging. What we face is more uncertainty in inflation prospects, elevated debt levels, and a persistent economic divergence. Why the latter? Low vaccine access, limited policy space, they are holding back the recovery in many emerging and developing economies. We estimate that two years from now, in 2024, nearly 160 economies will still face output losses relative to pre-pandemic trends. They still will have not caught up to 2019.”
On how the world should move past these obstacles to a stronger recovery, Georgieva said by focusing on three priorities: Vaccinate, calibrate, accelerate.
She said, “First, vaccines. It is paramount to step up vaccination efforts everywhere. We can send more vaccines to developing countries, and we can remove trade and financing constraints for vaccinations there to accelerate. If we do, we can still reach the target we have set to vaccinate at least 40 percent of people in every country by the end of this year and 70 percent by mid‑2022, a target we embrace with the World Bank, WHO, and WTO. If we do not, and the COVID‑19 situation has a more prolonged impact, this could hold back the recovery and lead to a 5.3 trillion in global GDP losses over the next five years.
“Second, we are now at a point when policies need to be calibrated to very different country circumstances, to the differences in where the pandemic is and what is the available policy space. We expect price pressures to subside in most countries by the middle of next year, and we know that central banks can generally look through transitory inflation pressures, but they cannot let their guard down. They should be prepared to act quickly if risks of rising inflation expectations become tangible.
“What is more concerning is that, for some emerging and developing economies, price pressures are already more persistent, and among those, higher prices for food and energy are already hitting poorer families the hardest. As a result, some countries have already had to increase their interest rates. And when we look forward, transparent and clear communication of monetary plans is critical to limit negative cross‑country spillovers.
“Obviously, the longer the pandemic persists, the tighter fiscal constraints become. They are going to force difficult trade‑offs, and they will require policy credibility. We have to believe in the medium‑term frameworks, as businesses and as households, to ensure that we have the right balance between providing support now and reducing debt over time. And this is imperative for countries with no fiscal firepower left. And that, unfortunately, includes most low‑income nations. They need more help.
“Let me go to the third priority: accelerate fundamental reforms to boost sustainability and resilience. And in this, climate action is absolutely essential. The right green policy package for each nation, robust price on carbon, substantial scale‑up of green investments, they can create 30 million new jobs in this decade. And then, of course, we have to be sure that digital investment is available everywhere to get the other half of humanity online that is not today, to boost productivity and living standards. And new technology, like cryptoassets, central bank digital currencies must be carefully managed worldwide.
“As we pursue major reforms, the historic agreement that the G‑20 managed to achieve on a global minimum corporate tax and redistribution of taxing rights shows we can work together across borders to make everyone better off. This spirit of standing by our members in times of need has always been at the heart of what we do at the IMF. As you are well aware, during this crisis, we have provided $118 billion to 87 countries and debt service relief to our poorest members. We issued $650 billion equivalent of special drawing rights (SDRs); of those, 275 billion went to emerging and developing economies. And countries that are already benefiting from those SDRs, they see their official reserves going up. Some are looking at the use of SDRs for priority needs, like vaccine imports, lifeline spending. And from our side, we are putting in place measures to increase the transparency in SDRs’ use.
“And we aim to magnify the impact of the SDR allocation. So what we do is we call on better‑off countries, and they are responding to voluntarily on‑lend part of their SDRs so they can do more for countries in greatest need. We can use our Poverty Reduction and Growth Trust for that. It provides zero interest loans to low‑income countries. And we are working on a new Resilience and Sustainability Trust to support policy choices in low‑income and vulnerable middle‑income countries that would underpin the transformation of their economies and avoid future balance of payments crises.
“To conclude, we are launching our Annual Meetings at a particularly challenging time, when policymakers are grappling with both the immediate policy objective to overcome the pandemic‑induced crisis and sweeping pressures to transform economies, to make them stronger, greener, fairer. We are faced with some of the most complex policy choices, the most difficult trade‑offs in decades. How we make them will have profound impact for years to come.
“To use the words of Eleanor Roosevelt, “The world of the future is in our making. Tomorrow is now.” And this is why the discussions taking place during this week are so important.”