Development Committee Plenary Meeting
IMF News, October 16, 2020
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- Published: October 16, 2020
Global economic outlook
- The Covid-19 pandemic and containment measures triggered a sharp downturn in the first half of this year.
- Activity has begun to recover, supported by large-scale easing of fiscal and monetary policies in many advanced and emerging economies and the widespread adoption of health measures.
- Manufacturing drives the recovery, while contact dependent services are lagging.
- The virus continues to spread in many parts of the world; several countries have slowed reopening and some have reinstated partial lockdowns.
- Global activity forecasts:
- Global activity is expected to contract by 4.4 percent in 2020–the sharpest decline since the Great Depression.
- A recovery of 5.2 percent is expected in 2021—but even with this, the world economy would remain well below its pre-crisis growth path.
- Inflation is expected to remain subdued, as weak demand outweighs the impact of supply chain disruptions on prices.
- Exceptional uncertainty around the outlook driven by:
- spread and infectiousness of the virus,
- the public health response,
- extent of global spillovers,
- financial market sentiment,
- persistence of supply chain disruptions.
- Distributional divergence: parts of the economy (notably the digital economy and tech sector) are doing well, while others face protracted or permanent decline.
Emerging market and developing economies (EMDEs) and low-income developing countries (LIDCs)
- EMDEs face continuing virus outbreaks alongside weak external demand, tourism, remittances and capital inflows; low oil prices hurt oil exporters.
- EMDE forecast:
- For EMDEs as a group, GDP is forecast to contract by 3.3 percent this year.
- China and some other East Asian economies are expected to perform better, reflecting resilient exports, strong policy support, and success with controlling the virus.
- Near-term outlook is grim in much of Latin America, the Middle East, Sub Saharan Africa, and South Asia.
- LIDCs are especially vulnerable:
- Weak healthcare capacity leaves populations highly exposed to the pandemic.
- Many governments in LIDCs can mobilize only limited fiscal resources to support their economies.
- Risks include reversal of development gains, millions pushed back into poverty, loss of access to education (with girls likely most severely affected), and accumulation of high levels of public debt.
Policy priorities and recommendations
- First: avoid premature withdrawal of support for the economy to prevent tremendous damage.
- Fiscal support deployed so far:
- Advanced economies: 20 percent of GDP
- Emerging market economies: 6 percent of GDP
- Low-income countries: 2 percent of GDP
- To help developing countries maintain support, international institutions will have to "lean forward."
- Second: gradually redirect public support to underpin structural change toward a more equitable, knowledge-, digital- and green-focused post-pandemic economy.
- Emphasize job-rich investments (e.g., infrastructure rehabilitation in advanced economies, new infrastructure in emerging markets and developing countries).
- Pair investments with training and skills to ensure a just transition.
- Third: deal with pre-existing conditions (fiscal buffers, effective institutions, transparent governance, quality of spending).
- Support efforts to enhance international architecture for resolving sovereign debt problems.
- Welcome the G20 debt service suspension initiative and the Common Framework for Sovereign Debt Resolution.
- Continue to work with the World Bank on a case-by-case basis to support debt restructuring where necessary.
- Give attention to governance, domestic revenues, quality of spending, transparency and accountability.
- Health and trade:
- Guarantee access to essential health supplies.
- Keep borders open for trade.
- Ensure vaccines and treatments are available to all when discovered.
- Note: World Bank announced $12 billion to help developing countries finance purchase and distribution of vaccines, tests, and treatments.
IMF response and actions
- Lending and financial support:
- As of October 2, 2020, 81 countries have received support from IMF lending facilities totaling over $100 billion.
- 42 of these countries are LIDCs.
- Temporarily doubled the limits on access to emergency facilities.
- Increased annual access to both regular and concessional financing facilities.
- Received assistance from members to boost the loan resources of the Poverty Reduction and Growth Trust Fund (PRGT), allowing sharp expansion of concessional lending since the start of the pandemic.
- Additional resources will be needed to strengthen support to low-income countries going forward.
- Debt relief and debt work:
- Provided debt service relief to poorest members through the Catastrophe Containment and Relief Trust (CCRT), enabled by grant support from several members.
- Advancing work on a broad debt agenda, including reviewing international architecture for resolving debt to private creditors and assessing the role of state-contingent instruments in sovereign debt restructurings.
- Surveillance and capacity development:
- Resuming targeted bilateral surveillance through Article IV consultations after a temporary suspension.
- Assessing improvements to IMF surveillance of national economies and financial sectors.
- Integrating issues such as inequality and gender equity, corruption, and tackling climate change into Article IV consultations.
- Launching a COVID-19 Crisis Capacity Development Initiative to deliver concrete technical advice to help members overcome the crisis faster.
- Acknowledgement of contributions to capacity development from Japan, Germany, and Switzerland.
Speaking Points for the Managing Director, Development Committee Plenary Meeting — Washington, D.C., October 16, 2020.