The Path Forward: The Global Economy

IMF News, June 3, 2020

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Inequality has been going up globally since the global financial crisis.
IMF research shows that inequality damages societies and their prospects for the future.
Past pandemics (SARS, H1N1) have been associated with increases in inequality; the current protests may be a wakeup call to prevent the world becoming more unequal and less fair.
2019 was a year of widespread protests with common root causes: a sense of growing inequality, lack of opportunity, and mistreatment of certain groups.

Advanced economies have put in place massive fiscal measures of $9 trillion and massive monetary easing.
Emerging markets with strong fundamentals have raised $77 billion over the last two months to cushion people and companies.
Debt Service Suspension Initiative (DSSI):
- 73 countries are eligible.
- Half of them have already asked for debt service suspension.
- Target/injection discussed: $12 billion.
- The priority is transparency: publish data so creditors' participation can be tracked and progress assessed.
Debt-suspension applicability and limits:
- DSSI is for G20 official creditors (including G7, China, Saudi Arabia, other Gulf countries, India).
- Debt suspension is not an answer for countries that do not qualify among the 73 or for countries with high debt burden where suspension alone is insufficient.
- Where debt is unsustainable, careful debt restructuring (public and private participation) is necessary to restore sustainability and market access.

IMF lending capacity has been expanded to $1 trillion (quadrupled since prior levels before the global financial crisis).
Immediately before the global financial crisis the Fund had $250 billion.
Amount already deployed: 260 billion (slightly over what was available before the global financial crisis).
Remaining capacity: about three-quarters of the $1 trillion still available.
Speed and scale of emergency financing:
- Lifelines extended to 63 countries in 6 weeks.
- The Fund has been operating at high pace ("24/7 operation") and is prepared to deploy available resources to the fullest if necessary.

Reopening approach observed: cautious and gradual reopening where medical capacity, testing, and contact tracing are sufficiently expanded; micro measures to reduce exposure are important for businesses.
Near-term global outlook:
- At the end of this year, the world economy will be smaller than it started.
- One hundred and seventy countries would be smaller in the end of the year.
- World output faces "minus 3-percent growth" this year.
IMF projection for 2021:
- World growth projection: 5.8 percent next year (partial recovery).
- Recovery characterized by high uncertainty (risk of the virus making another global round).
Longer-term considerations:
- International cooperation is critical — "we can't beat this pandemic one country at a time."
- De-globalization is not judged inevitable; digital transformation tends to be borderless and can support openness.

Fiscal policy:
- Continue fiscal stimulus while maintaining accountability: "spend as much as you can but keep the receipts."
- Leverage low interest rates and available liquidity to support recovery.
Debt policy:
- Use debt suspension where appropriate for eligible poor countries.
- Apply objective IMF assessments to guide debt restructuring when needed.
- Ensure transparency in creditor participation and debt relief actions.
Structural and social priorities:
- Expand digital transformation and ensure inclusivity so people and countries are not left out.
- Use stimulus to invest in a low-carbon, climate-resilient future (examples: reforestation, building insulation) that can be job-rich.
- Strengthen social protection to reduce poverty and inequality and distribute the benefits of growth more equitably.
Collective choice: avoid a "great reversal" and instead pursue a "great reset" to build a more united, resilient world after the pandemic.

Source: IMF Managing Director Kristalina Georgieva, Washington Post Live, June 3, 2020.