## DEVELOPMENT COMMITTEE: THE MANAGING DIRECTOR'S WRITTEN STATEMENT — April 2024

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### Economic outlook and risks
- Global resilience and growth
  - "The global economy has been surprisingly resilient" during global disinflation over the last two years.
  - Global growth for 2024 is projected at 3.2 percent, up by 0.3 percentage points compared to the projection from last October.
- Near- and medium-term trends
  - Near-term growth is below the historical average of 3.8 percent between 2000-19.
  - Medium-term growth forecast for the global economy is 3.1 percent, described as "the lowest level in decades."
  - Drivers of subdued growth: restrictive monetary policies, withdrawal of fiscal support, and low underlying productivity growth (declining labor force participation, weaker business investment, persistent structural frictions).
  - Deepening geoeconomic fragmentation contributes to the slower convergence to higher living standards.
- Advanced economies (AEs)
  - Growth in AEs is projected to rise slightly by 0.1 percentage point to 1.7 percent from 2023 to 2024, driven primarily by the U.S. economy.
  - Household consumption strengthening after the fall in inflation is expected to support recovery, but weak consumer sentiment and fading one-off positive factors hold back pace.
- Emerging market and developing economies (EMDEs)
  - Aggregate EMDE growth is expected to remain broadly stable at 4.2 percent for 2024.
  - Regional variations: a slowing Chinese economy risks weakening emerging and developing Asia; Latin America and the Caribbean face headwinds from tight policies; non-oil private investment supports growth in the Middle East and Central Asia and sub-Saharan Africa; emerging and developing Europe expected to be stable as war-related shocks subside.
  - Pace of convergence to higher living standards has slowed for EMDEs.
- Low-income developing countries (LIDCs)
  - Outlook improving: growth is projected to increase from 4.0 percent in 2023 to 4.7 percent in 2024.
  - Persistent scarring from past shocks; liquidity concerns and high debt service pressure fiscal space for development spending.
  - Achieving the SDGs will require "extraordinary efforts," especially for the poorest and most fragile countries.
- Inflation and disinflation
  - Global headline inflation is expected to fall from 6.8 percent in 2023 to 5.9 percent in 2024.
  - The 2024 fall reflects a broad-based decline in global core inflation, driven by monetary tightening, softening labor markets, and fading pass-through from early price hikes.
  - Disinflation is expected to be more frontloaded for AEs than EMDEs due to stronger pass-through and currency depreciation effects in EMDEs.
- Risk balance
  - With a lower likelihood of a hard landing, risks have become more balanced.
  - Prominent downside risks: new commodity price shock amid regional conflicts, persistent inflation, growing commercial real estate strains, financial sector stress, faltering China recovery, disruptive fiscal adjustment and debt distress, intensifying geoeconomic fragmentation.
  - Upside risks: productivity boost from artificial intelligence (gains for EMDEs uncertain), further momentum on structural reforms.

### Policy priorities
- Monetary policy and central banking
  - Central banks should "ensure that inflation touches down smoothly": avoid easing prematurely and avoid delaying so long as to risk target undershoot.
  - Where core inflation persists above target-consistent levels, maintaining higher real interest rates may be necessary.
  - Where indicators (inflation expectations, currency movements, wage and price pressures) clearly signal inflation declining toward target, "moving gradually to a more neutral stance while continuing to signal commitment to price stability is suitable."
- Financial sector monitoring
  - Monitor capital flow movements and sharp tightening of global financial conditions; these can pressure external and financial sectors.
  - Use the IMF’s Integrated Policy Framework to guide policy mix where needed.
  - Policy prescriptions vary by country financial structure:
    - Flexible exchange rate regimes, deep FX markets, and low foreign currency debt: adjust policy rate and allow exchange rate to move freely.
    - Shallow FX market and large foreign currency debt: consider FX interventions or capital flow management measures—even outside inflow surges—in line with the revised IMF Institutional View, provided monetary and fiscal policy are appropriately set.
  - Strengthen bank supervision and deploy liquidity support tools promptly and forcefully, while being mindful of moral hazard risks.
- Fiscal policy
  - Fiscal policy should focus on rebuilding budgetary space and containing debt vulnerabilities.
  - Tighter fiscal stance can help fight inflation, but pace of consolidation must be calibrated to avoid excessive growth decline and preserve support for reforms.
  - Build credibility with well-specified baselines, strong institutions, and clear contingency plans.
  - Protect targeted support for vulnerable populations and priority investment during consolidation.
- Structural reforms
  - Carefully targeted and sequenced structural reforms can reverse declining medium-term growth and advance SDGs.
  - Reforms should relax the most binding constraints, be bundled and prioritized to frontload gains, ensure public buy-in, and pave the way to more challenging reforms.
  - Most relevant reforms: strengthen governance, optimize business regulations, reduce trade frictions, and improve access to foreign capital.
- Green transition and climate policy
  - Large global policy gaps persist to contain global average temperature rise to 1.5 – 2.0°C above pre-industrial level.
  - Countries need a holistic instrument set for mitigation: carbon pricing, infrastructure investment in clean energy, sectoral policies, regulations, and reductions in fossil-fuel subsidies.
  - Structural reforms can enhance growth and private sector response to climate policy signals.
  - Investments needed in climate adaptation, infrastructure, climate risk monitoring and risk management frameworks, and stronger safety nets to enhance climate resilience.
- Multilateral cooperation
  - Multilateral cooperation is imperative to address fragmentation, debt resolution, and climate change, and to build resilience in a shock-prone environment.
  - Restore trust in multilateral frameworks—especially trade policies—and ensure industrial and green investment incentives comply with WTO rules; revive the WTO’s ability to settle trade disputes.
  - International sovereign debt resolution: Common Framework (CF) is "starting to deliver" and the Global Sovereign Debt Roundtable is advancing common understanding; build on progress to improve creditor coordination for countries not eligible for the CF.
  - Build on agreements at COP28 to mitigate climate change and facilitate the green transition; mobilize climate finance for adaptation and mitigation.
  - AEs and EMDEs need to agree on a new Collective Quantified Goal on Climate Finance.

### IMF support, governance, and capacity development
- Lending toolkit and access
  - The Fund continues to adapt its lending toolkit to support members bolstering macroeconomic stability and reforms.
  - In March, the Board approved an extension to end 2024 of the temporary increase in annual and cumulative access limits to the General Resource Account (GRA) to 200 and 600 percent of quota, respectively.
  - Access limits to the Poverty Reduction and Growth Trust were raised by the Executive Board to the same levels in December 2023 until end-2024.
  - A comprehensive review of the Fund’s concessional facilities and financing is expected to be completed this year.
  - The Fund will also review the access limits to GRA and its surcharges policy.
  - A new Review of Program Design and Conditionality will assess drivers of successful programs and strengthen catalytic effects.
- Resilience and Sustainability Facility (RSF) / RST demand
  - Demand for the Resilience and Sustainability Facility (RSF) remains strong: eighteen RSF arrangements have been approved by the Board and around 30-35 other countries have expressed interest.
  - The RST interim review will assess initial experience, focus on progress and challenges, and propose fine-tuning of the RST design to strengthen implementation of the Trust’s objectives.
  - The Fund is working with WHO and the World Bank to finalize Broad Coordination Principles and operationalize RSF arrangements for pandemic preparedness.
  - The Fund relies on economically stronger members to boost RST resources.
- Governance reform and quotas
  - The Board of Governors concluded the 16th General Review of Quota (GRQ) and approved an increase of IMF members' quotas by 50 percent.
  - When implemented, the quota increase, combined with reduced reliance on borrowing, will maintain the Fund’s lending capacity.
  - Work will continue on possible approaches for further quota realignment, including through a new quota formula under the 17th GRQ.
  - The Fund will welcome the 25th Executive Board Chair intended for sub-Saharan Africa.
- Debt vulnerability and restructuring support
  - The IMF continues to support global efforts on reducing debt vulnerabilities, including financial and policy support to prevent debt crises.
  - The Executive Board has endorsed policy reforms to better support members undertaking debt restructurings to ensure Fund financing helps address debt problems and provides stronger incentives for faster creditor participation.
  - The Fund and the Bank are reviewing the Debt Sustainability Framework for Low-Income Countries.
- Surveillance, transparency, and capacity development (CD)
  - Bilateral and multilateral surveillance aims to provide first-rate real-time diagnostics and policy advice amid profound global changes.
  - The Data Adequacy Assessment for Surveillance provides a more structured, principle-based, and transparent assessment of data adequacy.
  - An upcoming Review of the Transparency Policy aims to increase public access to the Fund’s analysis and policy advice and to facilitate cross-country experience sharing.
  - Operationalization continues on strategies for climate, fragile states, gender, governance, AML/CFT and social spending.
  - The Fund is committed to close collaboration with other international organizations, especially the World Bank, including the IMF-WTO dialogue on trade and industrial policies.
  - The Review of the Fund’s Capacity Development Strategy introduces changes to make CD more flexible, integrated, tailored, and more impactful.
  - The Fund and the Bank are working on a new Domestic Resource Mobilization Initiative to help members increase fiscal revenue, spend better, and develop financial markets.
  - The Fund provides fiscal CD through the Global Public Finance Partnership and expands CD into areas including climate change, digital money, inclusion, and gender; the Central Bank Digital Currency Virtual Handbook is the latest addition.

*Source: DEVELOPMENT COMMITTEE: THE MANAGING DIRECTOR'S WRITTEN STATEMENT — April 2024*

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_Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024027.pdf_