## DEVELOPMENT COMMITTEE: THE MANAGING DIRECTOR'S WRITTEN STATEMENT — October 2020

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### Economic outlook and risks
- Global recovery trajectory
  - The world economy has begun a gradual recovery after the sharp negative initial impact of the COVID-19 pandemic, with activity picking up in May and June following an unprecedented slump in April.
  - GDP figures for Q2 mostly surprised on the upside, supported by large-scale policy support in advanced and emerging economies and easing global financing conditions.
  - From August, high case numbers in many countries and regions slowed and/or partially reversed reopening plans; mobility indicators remain depressed.
- Global projections and inflation
  - IMF WEO projects global growth of -4.4 percent for 2020.
  - For 2021, global growth is projected at 5.2 percent (0.2 percentage point below the June projection).
  - Inflation is expected to remain subdued as contracting aggregate demand outweighs supply chain disruption effects on prices.
- Risks and uncertainty
  - Uncertainty around the baseline is very large; near-term outlook depends on virus spread and infectiousness, public health response, global spillovers, financial market sentiment and capital flows, trade policy uncertainty, persistence of supply chain disruptions, and potential social/political instability.
  - Upside risks include stronger-than-anticipated fiscal support and progress with COVID-19 vaccines or treatments; overall balance of risks is tilted to the downside.
- Emerging markets and developing economies (EMDEs)
  - Real GDP in EMDEs projected to contract by 3.3 percent in 2020 (downward revision of 0.2 percentage point from June and of more than 2 percentage points from April).
  - EMDE recovery to growth of 6.0 percent is expected in 2021.
  - Recovery prospects are highly uneven: some (e.g., China, Vietnam) may avoid real contractions in 2020 and can expect robust growth in 2021 of 7 percent or more; others (including India, Brazil, Argentina, the Philippines, Iraq) face high caseloads clouding near-term outlook.
  - EMDE oil exporters (e.g., Angola, Ecuador, Nigeria) heavily impacted by decline in oil prices.
- Low-income developing countries (LIDCs)
  - Growth in LIDCs forecast at -1.2 percent for 2020 (marked down by 0.2 percentage point from June and more than 1½ percentage points from April).
  - Recovery in 2021 expected at 4.9 percent, remaining below the global average.
  - By end-2024, GDP in LIDCs is forecast to be some 6 percent lower relative to the trajectory projected before the crisis.
  - Pre-crisis vulnerabilities included subdued growth, sizeable external and fiscal deficits, and elevated debt burdens.
  - Since March, LIDCs hit by a confluence of shocks: sharp contraction in real exports, lower export prices (especially for oil), less capital and remittance inflows, reduced tourism receipts, and domestic recessions from the virus and containment measures.
  - Fiscal response capacity and revenue loss:
    - Advanced economies boosted gross fiscal spending on average by 9 percent of annual GDP.
    - Emerging markets boosted gross fiscal spending by almost 3½ percent.
    - LIDCs could make only 1.8 percent of GDP in additional resources available, and used almost half of this to bolster health sector capacity.
    - The crisis is causing an average revenue loss for LIDCs of more than 2 percent of GDP in 2020, with only a gradual recovery expected thereafter.
  - Early October IMF-World Bank debt sustainability assessments showed almost half of LIDCs at high risk of debt distress or in debt distress already.
- Development and poverty risks
  - Increased prospect of unsustainable public debt burdens for many LIDCs.
  - Risk of scarring: permanent loss of productive capacity from higher mortality, worse health and education outcomes, depletion of savings/assets, firm closures, and debt overhangs that depress private-sector lending.
  - Threats to reversing progress since the 1990s in reducing global poverty, exacerbating inequality, and making the 2030 SDGs much more difficult to achieve.

### Policy priorities
- Overarching guidance
  - Policymakers should use all levers to combat the health crisis and mitigate the downturn: slow transmission where infections are high, cushion income losses for people and firms, and accommodate reallocation away from contact-intensive sectors.
  - As economies emerge, reassess spending priorities and gradually scale back crisis-related transfers.
- Guidance for LIDCs
  - Adopt targeted containment measures and strictly prioritize spending due to unenforceability of lengthy lockdowns, subsistence needs, absence of comprehensive income support, and large informal sectors.
  - Priorities include firming up health sector capacity and providing transfers to the most vulnerable households; maintaining food security is often the highest priority.
  - Protect spending critical for longer-term development, notably on education.
- Avoiding long-term damage
  - Refrain from protectionist measures and distortionary policies that would be hard to unwind.
  - Support for corporations should be temporary and extended according to transparent and equitable criteria.
  - For LIDCs with high public debt, additional borrowing should be on highly concessional terms.
  - Rebuild revenue capacity after the crisis through sustained effort.
- Green and sustainable policies
  - While advanced economies and large EMs bear the bulk of responsibility for greenhouse gas emissions, smaller EMs and LIDCs can contribute by eliminating fuel subsidies, raising carbon prices (also generating fiscal revenues), and supporting long-term sustainable investment projects.
- Multilateral cooperation
  - LIDCs need extensive international support to overcome the crisis and embark on sustained recovery: guarantee access to essential health supplies, keep borders open for trade, maintain essential supply chains, and safeguard access to vaccines and treatments.
  - Ensure LIDCs can finance critical development spending via more grants and concessional financing.
  - Additional reprofiling and/or restructuring of debt will likely be needed in several countries.
  - Official creditors must work together to facilitate timely and comprehensive debt resolution for countries with unsustainable debt burdens, with comparable treatment for private creditors.
  - Once recovery is safer, reassess time paths and associated spending needs to achieve the 2030 SDGs.

### IMF support
- Emergency lending and access
  - IMF response: extending financial assistance, enhancing lending toolkit, assisting with debt restructuring and reprofiling.
  - Annual access under flexible emergency response facilities temporarily doubled; facilities include the Rapid Financing Instrument (available to all members) and the concessional Rapid Credit Facility for low-income countries.
  - IMF-supported programs under standard lending facilities (Stand-By Arrangement, Extended Credit Facility, Extended Fund Facility) have been recalibrated and/or augmented in several cases.
  - Temporary increases in overall annual access limits under the PRGT and under the GRA.
  - As of October 5, 2020, 81 countries have received support under all lending facilities amounting to just over $100 billion since the start of the crisis.
  - Of these, 42 are LIDCs that have received support totaling about $14.5 billion.
- PRGT mobilization and SDRs
  - Mobilization of additional resources to support lending from PRGT resources is underway.
  - Fast-track loan mobilization campaign has already secured over $21 billion to meet the surge in loan commitments and disbursements.
  - More subsidy resources are being sought to allow higher levels of access to concessional financing for low-income countries.
  - A review of PRGT financing and facilities, planned for the Fall 2020, will discuss funding options and possible reforms to PRGT lending facilities.
  - The IMF is examining how to make better use of existing Special Drawing Rights (SDRs).
- Debt service relief and DSSI/CCRT
  - IMF and World Bank provide technical support to the G20 Debt Service Suspension Initiative (DSSI), which runs through end-2020; discussions under way to extend into 2021.
  - IMF approved 29 countries for debt service relief on obligations to the Fund under the Catastrophe Containment and Relief Trust (CCRT); the applicable period was recently extended from 6 to 12 months, with fundraising efforts ongoing to extend this period to up to two years.
  - IMF is helping countries develop credible medium-term fiscal frameworks and will advance work on a multi-pronged approach to address debt vulnerabilities, in collaboration with the World Bank.
- Surveillance, analysis, and capacity development
  - IMF is resuming targeted bilateral surveillance and will strengthen analytical frameworks to focus on the pandemic, global risks, and policy responses, including integration of high-frequency data and epidemiological modeling of COVID-19 into macroeconomic frameworks.
  - IMF will advance the Comprehensive Surveillance Review and the Review of the Financial Sector Assessment Program (with the World Bank).
  - Social and governance issues are key elements for surveillance and program work to reduce inequality and strengthen social cohesion.
  - IMF continues analytical work on illicit and tax-avoiding financial flows.
  - Climate change mitigation and adaptation policies are increasingly integral to IMF surveillance.
  - Capacity development adapted to crisis conditions includes the launch of the Covid-19 Crisis CD Initiative to react rapidly to EMDEs’ needs.
- Fragile and small states
  - IMF is enhancing engagement with fragile and conflict-affected states on monetary and financial policies, revenue mobilization, social protection, and targeted capacity development.
  - For small and developing states, the IMF is exploring ways to expand liquidity assistance in the event of large shocks and to support resilience to natural disasters.

*Source: THE MANAGING DIRECTOR’S WRITTEN STATEMENT TO THE DEVELOPMENT COMMITTEE — October 2020*

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_Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020049.pdf_