2023-07-14 01:51:04
Blog Por: Kristalina Georgieva
IMF Managing Director
When G20 finance ministers and central bank governors meet in Gandhinagar next week, the world will seek joint action to deal with growing economic fragmentation, slowing growth and high inflation. Agile multilateral support is vital to addressing the common challenges posed by debt vulnerabilities, climate change and limited conceptual financing – especially for countries hit by shocks of no their own making.
Perspectives: resilience amid challenges
In April, the IMF projected global growth of 2.8% in 2023, down from 3.4% in 2022. Most of it – more than 70% – is expected to come from the Asia-Pacific region.
However, recent high-frequency indicators paint a mixed picture: weakness in manufacturing contrasts with resilience in services in G20 countries and strong labor markets in advanced economies. At the same time, the financial weaknesses revealed by tight monetary policy require careful management – especially as restoring price stability remains a priority.
Global inflation appears to have peaked, and core inflation has eased somewhat, particularly in India. But in most G20 countries – especially in advanced economies – inflation remains well above central bank targets.
Fight inflation and boost growth
In the fight against inflation, there are some early signs of transmission of monetary policy to activity, with the worsening of the criteria for granting bank loans in the euro zone and in the United States. That said, policymakers should avoid “premature celebrations”: Lessons from past inflationary bouts show that easing monetary policy too soon can undo inflation’s progress.
That’s why it’s vital to stay the course of monetary policy until inflation is durably reduced to the target, while closely monitoring financial sector risks. Here, clear central bank communication and financial sector supervision are needed to reduce the risk of disruptive changes in financial conditions.
the tax policy must also play its part. Tightening the purse strings after a period of exceptional pandemic-related support can support disinflation, rebuild buffers and increase debt sustainability, while temporary and targeted measures may be needed to help vulnerable people cope with the immediate cost of living crisis. .
At the same time, consolidation efforts must protect growth-enhancing investments where space permits. Why? Because while the short-term outlook is mixed, the medium-term outlook for the global economy remains bleak.
The IMF forecast for medium-term global growth is around 3% – well below the historical average of 3.8% during 2000-19. Furthermore, economic fragmentation will hamper growth and make it more difficult to address pressing global challenges, from rising sovereign debt crises to the existential threat of climate change.
The importance of joint action
The good news is that we’ve seen how well the international community can do when differences are set aside.
In June, we saw progress in Zambia’s debt restructuring. This was a significant milestone for the G20 Common Framework, which was born out of the efforts of the country’s authorities, as well as Paris Club members and other countries such as China, India and Saudi Arabia. The deal unlocks further funding as part of the IMF’s $1.3 billion deal agreed in August 2022.
In addition to progress in Chad’s debt restructuring, this outcome also builds on trust and better understanding between creditors and debtors introduced through the Global Sovereign Debt Roundtable.
But the work is not done yet. More efforts are needed to accelerate the debt restructuring process through clear timelines, suspension of debt service during negotiations, and better coordination of creditors in dealing with debt for countries outside the Common Framework.
The G20 also announced last month the winning of US$ 100 billion in guaranteed Special Drawing Rights (SDRs) to be channeled from the richest to the poorest countries. Set by the G20 following the IMF’s record $650 billion allocation to SDRs in 2021, achieving this target is a strong signal of broad international solidarity. We should also take inspiration from members who have increased the ambition of their pledges to channel SDR: France and Japan to 40% of their allocations and China to 34%.
This exceptional generosity has enabled the IMF to do even more for our members. Some $29 billion in SDRs pledged to the Poverty Reduction and Growth Trust (PRGT) since 2020 are helping us provide ever-increasing financial support to low-income countries at zero interest rates.
In addition, some $42 billion in SDRs have already been provided to the IMF’s Resilience and Sustainability Fund (RST), launched last year. Nine members had their RST funding approved and dozens more submitted applications.
RST programs will support climate reforms such as integrating climate considerations into fiscal planning in Costa Rica and strengthening climate-related risk management for financial institutions in Seychelles. And in Rwanda and Barbados, RST resources are complementing support from multilateral development banks, which together are expected to catalyze additional private sector finance, including private investment in climate projects.
Support vulnerable countries
As important as these milestones are, they alone are not enough.
Many vulnerable emerging markets and low-income economies are on the cusp of a variety of fundamental shocks and transitions.
Climate change, where the most vulnerable countries have contributed very little to the problem, but are most vulnerable to the consequences. Or the cost-of-living crisis and high interest rates, which take a disproportionate toll, pushing more countries into debt and threatening development prospects. Add to that the growing economic fragmentation that could deprive them of the benefits of an integrated global economy that has generated high growth and raised living standards for billions of people.
Together, these challenges mean that countries will need more support in the coming months and years – to ensure economic stability and get back on the path of income convergence with advanced economies. Strong multilateral institutions have a vital role to play in providing this support, especially the IDA, the World Bank’s fund for low-income countries, and the IMF.
IMF Reforms and Resources
Many countries have gone through difficult transitions before, and at every step the IMF is part of the global response, adapting to help our members and their people meet new challenges. Now – faced with a new set of transitions – we will continue to adapt and respond with agility: through timely policy changes and stronger resources.
The top priority is a swift and successful completion of the 16th Quota Review: increasing the overall size of the IMF’s quota resources – which are essential for a robust global financial safety net – with attention to developments in the global economy.
This should be complemented by decisions to replenish the Fund’s concessional resources for vulnerable countries: a fully funded PRGT and a replenished Disaster Containment and Relief Fund that provides debt service relief when countries are hit by major shocks.
In parallel, we are exploring reforms to our lending toolkit, including adjustments to precautionary instruments to better serve our members’ needs. We are also looking at ways to better explain how climate change affects debt sustainability and increase our support for countries hit by climate-related shocks.
Together, these steps will ensure that the IMF remains an inclusive institution capable of serving the needs of all its members, especially vulnerable emerging and developing economies.
The key role of the G20
In a world more prone to shocks and at a time of fundamental transitions – from climate change and over-indebtedness to trade tensions and economic fragmentation – the world has high expectations of international policymakers, and rightly so.
We must act now and act together to put all countries back on a sustainable path to growth and prosperity.
This requires strong leadership from the G20 to ensure that the international financial architecture is in place. The global response must be proportionate in size to the world’s challenges.
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