Speech

Restoring Sustainable Flows of Capital and Robust Financing for Development

July 8, 2020

AS PREPARED FOR DELIVERY

Dear Minister Le Maire, dear Minister Aljadaan—I am very grateful that you are bringing us together, and thank you for your thoughtful remarks.

We all recognize that the human costs of this crisis are immeasurable, but we can measure the economic fallout. From the start of the crisis until the end of 2021, the world economy is projected to face a cumulative loss of more than $12 trillion—equivalent to the combined annual output of Japan, Germany, Italy, and Spain. It is a dramatic loss.

We also recognize today that we can have some confidence that the worst of this shock is behind us. After the tremendous pain of putting our economies in standstill and the enormous uncertainty at the beginning of the crisis, decisive actions have put a floor under the world economy, countries have learned ways to cope with the health shock—and we now see three-quarters of economies reopening, although gradually and with some necessary reversals.

This reopening will be uneven—across countries and sectors—as long as we do not have a vaccine and/or treatment. And we project only a partial recovery in 2021.

We also know that this crisis is hitting the developing world especially hard. Why? Because of the combined impact of weaker health systems, lockdowns, commodity price drops, evaporating tourism revenues, and shrinking remittances—and all of this is happening at the same time.

It is therefore fitting that our discussions today focus on emerging markets and developing countries. I want to make three points.

1. The economic shock

First, the granularity of the shock to the developing world. Action was taken on an unprecedented scale—including fiscal measures amounting to nearly $11 trillion globally and central banks providing massive liquidity—which has benefited emerging economies tremendously, provided that they have strong fundamentals.

These countries were able to return to international capital markets, issue bonds, and raise money at relatively low cost. In the first six months of this year, emerging market governments issued $124 billion in hard currency debt—two-thirds of that came between April and June, after the stop in debt issuance in March.

But there is no good news for emerging markets with weak fundamentals, especially those with high debt levels, with dependence on hard-hit sectors, or those affected by conflict. They do not have market access, or they don’t have access at any reasonable cost. From Sub-Saharan Africa, to Latin America, to the Middle East, and elsewhere, we see countries where growth prospects are now severely diminished.

It is very important that we recognize the attention these countries deserve, especially in Sub-Saharan Africa. This region was on the move before the crisis; now it is facing a tough situation, but it should not lose the chance of continuing with its transformation.

2. Supporting the most affected countries

This brings me to my second point: we ought to bring strong financial support in a sustained manner to countries that are most affected.

For the IMF, this means continuing to lean into this crisis with full force. We have done the unthinkable: we have provided 72 financial lifelines in less than three months. We now have total exposure of $250 billion, with more than one-third of that committed in these three months. We received strong support from our membership for a doubling of access to our emergency facilities and for a tripling of our concessional financing capacity. All this is right on target to support those countries that are facing the biggest pressures.

Given the gravity of this crisis, we have to tune up our instruments even further, especially for supporting low-income countries and tourism-dependent small island economies. Here we are engaging with our membership to use SDRs of advanced economies to help these highly vulnerable countries. This is what I hope we can do together, rallying support for something that is relatively low-cost for advanced economies and high-impact for countries in need.

We also need to continue to focus on countries with high debt levels. I could not commend you more—both the G20 and the Paris Club—for what you have achieved through the Debt Service Suspension Initiative (DSSI). We will soon have to think about what comes next, and how to handle country-by-country debt restructuring for those who simply cannot keep their head above water without determined action.

On Argentina, for example, it is critical that the country and the creditors come together. That is also what we have to strive for more generally: cooperation between creditors and debtors in a rational and mutually respectful manner. The IMF and the World Bank will play their essential role in promoting debt transparency and prudent debt restructuring.

3. Building greater resilience

This brings me to my third point: we now see an incredible opportunity to do what was done after the global financial crisis—shift our focus to increasing resilience. A decade ago, we focused on strengthening the banking sector. Today we have to expand the concept of resilience: I would call it the “new religion of the IMF.” This priority has three dimensions:

First, as governments further expand their fiscal support, they need to remain fully accountable to the taxpayer. You may have heard me say: “spend but keep the receipts.” Countries also need to take advantage of the digital transformation to move governments to e-platforms—so that they can ensure efficient and transparent public spending, while taking action to cut red tape and thus helping private businesses to flourish.

Second, our policies must not only be fiscally sustainable. They must be environmentally sustainable as well. This means supporting low-carbon and climate-resilient growth, being smart about allocating additional public spending.

And finally, all governments need to embrace the concept of investing in people: in education, health, social protection, and in preventing sharp increase in inequality which this crisis could produce.

If we seize these opportunities, we will emerge from this crisis with a global economy that is more resilient, more efficient, more inclusive, and more sustainable.

Thank you.