## DEVELOPMENT COMMITTEE: THE MANAGING DIRECTOR'S WRITTEN STATEMENT April 2023

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### Economic outlook and risks
- Global growth for 2022 is now estimated at 3.4 percent, which is 0.2 percentage points higher than the projection in October 2022.
- Overall, global growth is forecast to slow to 2.8 percent in 2023 and is expected to recover very gradually and settle around 3.0 percent in the medium term—the weakest forecast in decades.
- Advanced economies (AEs):
  - Growth projected to fall to 1.3 percent in 2023, from 2.7 percent in 2022.
  - For 2024, growth projected at 1.4 percent (only a minor improvement).
  - Main short-term drag: simultaneous monetary tightening of advanced economy central banks.
- Emerging market and developing economies (EMDEs):
  - Real growth estimated at 4.0 percent in 2022 and forecast to remain broadly unchanged in 2023.
  - Robust activity in India and China account for the lion’s share of projected EMDE growth.
  - Growth in Latin America and in the Middle East/Central Asia is projected to slow in 2023.
- Low-income developing countries (LIDCs):
  - Growth forecast to slow marginally to 4.7 percent in 2023, from 5.0 percent in 2022.
  - Close to 60 percent of LIDCs are either in or at high risk of debt distress.
- Inflation and disinflation:
  - Global headline inflation projected to retreat to 7.0 percent after 8.7 percent in 2022.
  - Another decline to 4.9 percent is forecast for 2024.
  - Disinflation is broad-based, with 76 percent of all economies expecting lower headline inflation this year.
  - Underlying price pressures are more persistent, complicating disinflation.
- Risks (tilted to the downside):
  - Financial sector turbulence could cause sharper tightening in global financial conditions and inhibit intermediation.
  - Inflation could be stickier than anticipated, triggering larger disinflation costs.
  - Other risks: faltering post-COVID recovery in China, further escalation of Russia’s war in Ukraine, systemic debt distress in EMDEs, deepening global fragmentation.
- Upside possibilities:
  - Robust consumption growth and tight labor markets could render the recovery more resilient.
  - Easing supply-chain bottlenecks and cooling labor markets via falling vacancies could allow softer-than-expected disinflation.

### Policy priorities
- Immediate global priorities:
  - Reducing inflation and ensuring inflation expectations stay anchored.
  - Safeguarding financial stability.
  - Supporting the vulnerable.
  - Sustaining prosperity.
- Monetary policy:
  - Central banks should maintain a restrictive policy stance until clear evidence shows inflation is returning to target.
  - Because underlying price pressures are sticky, policy may have to remain tight for longer than anticipated.
  - Central banks must be ready to adjust the pace and possibly direction of policy changes in response to incoming data.
- Financial stability:
  - Governments and financial regulators should monitor risk buildup, provide liquidity support where appropriate, strengthen prudential oversight, and initiate resolution procedures for non-viable institutions.
  - Macroprudential tools may be used to tackle pockets of elevated risk.
  - EMDEs should allow currencies to adjust as much as possible; where movements trigger financial stability risks, temporary foreign exchange interventions and capital flow management measures on outflows may be appropriate.
- Fiscal policy and protection of the vulnerable:
  - Governments need to protect the vulnerable from the cost-of-living crisis, increasingly replacing broad-based support with more targeted social protection measures.
  - Policies should preserve market signals as much as possible.
  - In countries with high inflation, a tighter fiscal stance can help reduce aggregate demand and limit the need for monetary tightening.
- Debt sustainability:
  - Credible medium-term fiscal consolidation is key to preserving or restoring debt sustainability, including stronger revenue mobilization, better spending efficiency, and credible fiscal frameworks.
  - Structural reforms to improve governance, boost productivity, and build resilience are needed to boost growth prospects.
  - Where solvency or liquidity constraints exist, debt restructuring is likely necessary.
  - Improve timeliness and efficiency of the G20 Common Framework (CF); the CF has begun delivering results but needs greater creditor coordination, including for middle-income countries not eligible for the CF.
  - Non-Paris Club and private creditors often play a crucial role; the Global Sovereign Debt Roundtable (GSDR) can help creditors and borrowers overcome restructuring shortcomings.
  - Enhance domestic debt management capacity to mitigate vulnerabilities.
- Multilateral collaboration:
  - Multilateral cooperation is essential to support vulnerable countries, accelerate climate action, and avoid dangerous fragmentation.
  - Urgent progress is needed to limit global warming to below 2°C of pre-industrial temperatures.
  - Governments must strengthen mitigation commitments and rapidly close the gap between ambition and actions.
  - International coordination on carbon pricing or equivalent policies is key to faster decarbonization and should be supported by green energy investments that bolster energy security.
  - Avoid trade restrictions on exports of food and fertilizers to safeguard global food supply and distribution.
  - Upgrade World Trade Organization (WTO) rules in areas such as agricultural and industrial subsidies, implement new WTO-based agreements, and fully restore the WTO dispute settlement system.

### IMF support
- Lending facilities and new instruments:
  - The IMF’s Food Shock Window (FSW) under the emergency financing facilities and the Resilience and Sustainability Facility (RSF) have become operational.
  - Six requests under the FSW have been approved by the IMF’s Executive Board (Ukraine, Malawi, Guinea, Haiti, South Sudan, and Burkina Faso).
  - Nine other countries have benefited from new UCT arrangements or augmentations of existing arrangements to address balance of payments needs associated with food insecurity.
  - Five countries (Barbados, Costa Rica, Bangladesh, Rwanda, and Jamaica) have entered early RSF arrangements to enhance resilience to climate shocks.
  - A stocktaking exercise is underway to draw early lessons to strengthen the RSF’s modalities.
- Other IMF measures:
  - Temporary increase in access limits to the General Resources Account (GRA).
  - Emergency facilities, precautionary lending facilities, and the FSW will be reviewed in due course.
  - A comprehensive review of the Fund’s concessional lending facilities, including its lending envelope and financing options, is scheduled for 2024/25.
- Funding and Trusts:
  - The Poverty Reduction and Growth Trust (PRGT) fundraising targets are SDR 12.6 billion in loan resources and SDR 2.3 billion in new subsidy resources.
  - Thus far, pledges have covered only about three-quarters/half of these respective amounts.
  - Funding needs are growing rapidly; placing the PRGT’s finances on a sound footing is an urgent priority.
  - Good progress has been made towards the SDR 33 billion goal for the Resilience and Sustainability Trust (RST), but more pledges and timely delivery are needed.
  - Completing the 16th General Review of Quotas by end-2023 is key to ensuring GRA resources remain adequate.
- Debt work and surveillance:
  - The IMF continues to work with partners to support debt restructuring and strengthen the global debt architecture, contributing to the CF and GSDR.
  - Enhancing debt transparency is a key pillar.
  - The new Sovereign Risk and Debt Sustainability Framework for market access countries has been rolled out; groundwork for the review of the LIC-DSF will start later this year.
  - The IMF is integrating new analytical findings into bilateral and multilateral surveillance, has updated the Institutional View, and is operationalizing the Integrated Policy Framework to help manage volatile cross-border capital flows.
  - Implementation of strategies on climate, digitalization, fragile states, gender and social spending is advancing.
  - A rapidly growing share of Article IV consultations contains in-depth discussions of climate-related macroeconomic policy challenges.
- Capacity development and collaboration:
  - The 2023 Review of the Fund’s Capacity Development (CD) Strategy aims to modernize CD management, administration, and delivery.
  - CD is expanding into climate change, digital money, and inclusion and gender.
  - The IMF welcomes the World Bank’s Evolution Roadmap and looks forward to reinforcing the Roadmap’s impact through IMF–MDB collaboration.

*Source: THE MANAGING DIRECTOR’S WRITTEN STATEMENT TO THE DEVELOPMENT COMMITTEE—APRIL 2023 (ppea2023017)*

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_Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023017.pdf_