## ppea2023042

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### Economic outlook and risks
- Global growth for 2023 is projected at 3.0 percent—0.2 percentage point higher than projected in April 2023.
- Global growth is forecast at 2.9 percent in 2024 and 3.1 percent in the medium term.
- Advanced economies (AEs):
  - Growth for 2023 revised upward by 0.2 percentage point to 1.5 percent.
  - Growth in 2024 projected at 1.4 percent, below the 2022 level of 2.6 percent.
- Emerging market and developing economies (EMDEs):
  - Growth projected broadly stable at 4.0 percent for 2023 and 2024.
  - Regional divergences: emerging and developing Europe expected to strengthen; emerging and developing Asia impacted by slowing China; rest of world EMDEs face commodity, weather, security, and global slowdown headwinds; Africa affected by power shortages and reduced oil and gas production.
- Low-income economies:
  - Growth forecast to decline from 5.2 percent in 2022 to 4.0 percent in 2023—0.7 percentage point lower than projected in April 2023.
  - Dimming prospects for income convergence and increasing difficulty in achieving the 2030 Sustainable Development Goals (SDGs).
- Inflation:
  - Global headline inflation projected to decline from 8.7 percent in 2022 to 6.9 percent in 2023 and 5.8 percent in 2024.
  - Core inflation decline is more gradual, driven by pass-through from past headline shocks, relative price and expectation channels, and tight labor markets.
  - Inflation decline in EMDEs is on average more gradual than in AEs, though declining quickly in many frontier markets; longer-term inflation expectations have so far remained anchored.
- Risk assessment:
  - Adverse risks have moderated since April 2023 but remain tilted to the downside.
  - Key downside risks include: volatile food and energy prices amid climate and geopolitical shocks; persistence of core inflation; reprise of financial market turmoil; stress in real estate; wider debt distress among EMDEs; intensified geoeconomic fragmentation; rising inequality and renewed social unrest.
  - Upside possibilities: faster domestic demand recovery, technological breakthroughs, or a soft landing in AEs amid declining inflation.

### Policy priorities
- Monetary policy:
  - Durably restoring price stability remains the top priority.
  - Central banks should generally maintain a tight monetary policy stance and avoid premature easing, especially where inflation is elevated and persistent.
  - Where inflation is cooling and expectations are anchored, gradual moves toward a more neutral stance may be warranted, while signaling continued commitment to price stability.
  - Careful, data-driven calibration is advised given uncertainties about the disinflation path.
- Financial sector:
  - Central banks need close monitoring of bank, nonbank financial, and real-estate sectors; address data, supervisory and regulatory gaps.
  - Macroprudential measures could be invoked preemptively.
  - Central banks should be ready to provide prompt and forceful liquidity support when market strains emerge, mindful of moral hazard.
  - Countries at risk of external shocks should use the global financial safety net while implementing appropriate macroeconomic policies.
- Fiscal policy:
  - A tight fiscal stance is needed to build budgetary buffers; communicate a medium-term framework to support fiscal sustainability.
  - Fiscal adjustment composition should protect the most vulnerable; untargeted measures that interfere with price signals should be phased out.
  - Tightening fiscal policy can support disinflation by reducing aggregate demand and anchoring expectations.
  - For EMDEs, domestic revenue mobilization, greater spending efficiency, and improved institutional fiscal frameworks are increasingly pertinent given large debt service obligations and spending needs.
- Structural reforms:
  - Deep, targeted, and carefully sequenced structural reforms can alleviate tradeoffs between bringing down inflation and rebuilding fiscal space.
  - Prioritize reforms that relax the most critical binding constraints and bundle them to frontload gains and ensure public buy-in.
  - Emphasized areas: governance, business regulations, labor market, and external sector reforms.
  - Industrial policies should avoid protectionism and be consistent with World Trade Organization (WTO) rules.
- Multilateral coordination:
  - Critical for debt resolution, food security, and accelerating the green transition; restoring trust in multilateral frameworks (beginning with the WTO) is urgent.
  - Nearly sixty percent of low-income countries are at high risk or already in debt distress.
  - Progress under the G20 Common Framework (CF): recent agreement on debt treatment for Zambia and progress on Ghana; Global Sovereign Debt Roundtable (GSDR) discussions advancing common concepts for restructurings—these efforts must be accelerated.
  - Food security: threatened by extreme weather and the war in Ukraine (notably suspension of the Black Sea Grain Initiative); countries should withdraw trade restrictions and safeguard global agricultural input and food supplies; strengthen rules-based frameworks for export restrictions.
  - Climate action: recent heat waves, droughts, and floods amid record high global temperatures reinforce urgency; multilateral cooperation can coordinate on carbon pricing, avoid trade and investment distortions from green industrial policies, establish green corridors for critical minerals, and improve data sharing and standardization.

### IMF support and institutional actions
- Lending toolkit and facilities:
  - Temporary increase of normal access limits under the Fund’s General Resources Account (GRA) has been approved.
  - Reforms in precautionary lending facilities introduced to ensure signaling power, agility and capacity to deal with external risks.
  - Temporarily higher cumulative access limits for emergency financing extended until end-June 2024 for the Rapid Financing Instruments and until the 2024/25 Poverty Reduction and Growth Trust (PRGT) review for the Rapid Credit Facility.
  - Interest rates on all PRGT credit will remain at zero until then.
  - Food Shock Window (FSW) has been extended by six months until end-March 2024 as a contingency instrument; 29 countries affected by the food crisis have benefited from Fund financial support, including six countries under the FSW.
  - Demand for Resilient and Sustainability Facility (RSF) programs remains strong: eleven RSF programs approved; interim review planned for mid-2024; an interest cap set to preserve concessionality for lowest income members; RSFs so far focused on climate change; discussions with the World Bank and WHO on pandemic preparedness cooperation ongoing.
- Resourcing and special trusts:
  - Completing the 16th General Review of Quotas by end-2023 is key to ensuring adequate size and composition of GRA resources.
  - Funding of the PRGT is critical in light of growing demand for PRGT loans.
  - On the Resilience and Sustainability Trust (RST), more than $40 billion in pledges received to date; economically stronger countries encouraged to scale up ambition to channel SDRs beyond the original target of 20 percent of the 2021 SDR allocation to help meet strong demand for RST.
- Debt work and frameworks:
  - IMF contributes to CF and GSDR and works with the World Bank on a multipronged approach to debt vulnerabilities.
  - IMF working on financing assurances policy to improve engagement with countries undertaking debt restructuring and will initiate the Review of the IMF-World Bank Low-income Country Debt Sustainability Framework.
- Surveillance and capacity development (CD):
  - Bilateral and multilateral surveillance continuously integrates new analytical findings; updated Institutional View guides policy advice on capital flows; rollout of the Integrated Policy Framework continues.
  - Operationalizing strategies on climate, digitalization, fragile states, gender, governance and social spending; increasing share of Article IV reports contain in-depth discussions when macro-critical.
  - Reviewing strategy on Anti-Money Laundering / Countering the Financing of Terrorism.
  - Modernizing delivery, management and administration of Capacity Development, building on the forthcoming Review of the Fund’s CD Strategy.
  - Fund CD continues in core areas and expands to climate change, digital money, inclusion and gender.

*The Managing Director’s Written Statement to the Development Committee — October 2023*

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_Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023042.pdf_