## THE MANAGING DIRECTOR'S WRITTEN STATEMENT TO THE DEVELOPMENT COMMITTEE — OCTOBER 2019

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### Economic outlook and risks
- Global growth is projected at 3.0 percent in 2019, down from 3.6 percent in 2018—the slowest pace of economic expansion in a decade.
- The IMF’s baseline growth projection for 2020 foresees a recovery to 3.4 percent, conditional on improved performance in several emerging economies currently experiencing acute macroeconomic stress.
- Advanced economies (AEs) slowdown is pronounced, driven by weakening industrial production, escalating trade tensions, and increasing geopolitical risks.
- With activity weakening, global inflationary pressures have remained muted; many central banks have adopted a more accommodative monetary stance.
- Since the 2019 Spring Meetings, energy prices have declined, reflecting weak expected demand; food and metal prices have remained broadly flat.
- Growth in emerging and developing economies (EMDEs) slowed from 4.5 percent in 2018 to a projected 3.9 percent in 2019.
- Several emerging market economies are under severe economic stress (examples cited: Argentina, Turkey, Venezuela, and Iran); growth is also subdued in Brazil, Mexico, Russia, and South Africa. Some EMs have largely escaped the global slowdown (examples cited: Colombia, Indonesia, Romania).
- Low-income developing countries (LIDCs) growth in 2019 is projected at 5.0 percent, unchanged from 2018, with large cross-country variation:
  - Many commodity exporters (Republic of Congo, Nigeria, Sierra Leone) continue gradual recoveries from the 2014-15 export price shocks, though growth remains below par.
  - Countries less dependent on commodity exports (Ghana, Vietnam) experienced easing in growth in 2018-19 but from a high base; the median growth rate for this group remains close to 6 percent, with several countries recording high growth for several consecutive years (Bangladesh, Cambodia, Ethiopia).
  - Fragile and conflict-affected states (Nicaragua, Sudan, Burundi) have experienced weak or contracting activity and bleak medium-term prospects.
  - Several LIDCs tapped international markets in 2019 (Papua New Guinea, Benin first-time issuers; Côte d’Ivoire, Ghana, Kenya, Senegal repeat issuers).
- Key external risks for EMDEs include further escalation of trade tensions, a protracted slowdown in AEs (many of which have limited policy space), surges in risk aversion and sell-offs of EMDE assets, tighter financing conditions, and currency adjustments.
- High public debt remains a concern in many LIDCs; more than 40 percent of LIDCs are assessed to be at high risk of, or already in, debt distress (IMF-World Bank debt sustainability assessments). A more challenging financial environment could complicate servicing and/or rolling over these debts.

### Policy priorities
- Domestic policies to strengthen resilience:
  - Stability-oriented fiscal policies are critical to weather a more precarious global environment.
  - Revenue-generating reforms and measures to enhance public spending efficiency are needed to safeguard public finances, create space for priority outlays, and protect the most vulnerable.
  - EMDEs with access to international capital markets should use that option prudently to avoid overborrowing and debt sustainability problems.
  - Exchange rate flexibility, supported by sound macroeconomic policies, can help mitigate exogenous shocks such as sudden swings in investor sentiment.
  - Well-designed macroprudential policy tools, regulatory frameworks, and financial safety nets are paramount to alleviate possible financial stress.
  - Structural reforms to strengthen resilience, contain vulnerabilities, boost growth and investment, and foster inclusion—tackling corruption, creating clear and stable business rules, and policies to foster women’s labor market participation—are emphasized.
- Multilateral responses where domestic action is insufficient:
  - Resolving trade disputes and modernizing the rules-based multilateral trade system is essential to reduce uncertainty and protect gains from economic integration; progress needed in services trade, electronic commerce, agricultural and industrial subsidies, and technological transfers.
  - Much more technical and financial support is needed to pursue the 2030 Sustainable Development Goals, especially for the poorest and least developed countries; while many EMs can finance higher outlays via domestic revenue mobilization, most LIDCs will need substantially higher levels of aid.
  - Curbing greenhouse gas emissions and containing consequences of rising global temperatures are urgent; mitigation measures need accompanying policies to assist those losing out from changing production patterns.
  - Multilateral cooperation is needed to provide a more level playing field in international taxation, tackle illicit financial flows, and preserve and strengthen the global financial safety net.

### IMF support
- Recent IMF initiatives and engagement:
  - In May 2019, the IMF reformed its lending framework for low-income countries, increasing access limits across all concessional facilities by one-third and modifying facilities to better meet the needs of fragile states and countries hit by natural disasters.
  - In the past six months, new lending arrangements were approved for Armenia, Ecuador, Honduras, Pakistan, the Republic of Congo, Mali, and São Tomé and Príncipe. Overall, 36 lending arrangements are ongoing.
  - Mozambique and Comoros received rapid financial assistance after natural disasters.
  - A comprehensive assessment of the IMF’s bilateral and multilateral surveillance is scheduled for completion in the first half of 2020.
  - The IMF and the World Bank are implementing a multi-pronged strategy to tackle debt vulnerabilities in lower-income countries: objectives include better and broader public debt coverage, greater transparency on debt composition, and stronger debt management capacity.
  - The IMF supports countries’ efforts to attain the 2030 Sustainable Development Goals by providing technical assistance in revenue mobilization and public financial management, offering policy advice to foster macroeconomic stability, and conducting costing exercises to identify longer-term financing needs.
  - A recent review shows a 28 percent increase in IMF support for capacity development in LIDCs from 2015 to 2018.
  - The IMF has advanced related initiatives: adopting a framework for assessing governance vulnerabilities and a strategy to engage on social spending issues.
  - The IMF is implementing its 2018 plan to enhance engagement on fragile states, including tailored support to build institutional and human capacity and addressing staffing challenges on fragile and conflict-affected states in its human resources strategy.
  - The IMF is stepping up engagement on the macroeconomic impact of climate change: fiscal policies to attain the Paris agreement mitigation targets were discussed in a May 2019 Board paper and the October 2019 Fiscal Monitor; an analysis of building resilience in countries vulnerable to natural disasters was published in June; sustainable finance features in the October 2019 Global Financial Stability Report; a strategy to integrate climate change more systematically into IMF surveillance is under development.

*Source: Managing Director’s Written Statement to the Development Committee — October 2019*

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_Source: https://www.imf.org/-/media/files/publications/pp/2019/101919-md-statement-to-development-committee.pdf_