Building the Foundation of a 21st Century Economy

IMF News, December 15, 2020

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Building the Foundation of a 21st Century Economy

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Bibliographic details

• Published: December 15, 2020

Overview

• Keynote Speech by Antoinette M. Sayeh, Deputy Managing Director, at the Rome Investment Forum 2020, December 15, 2020.
• Focus: priorities for building a stronger recovery from the COVID-19 crisis and the central role of international cooperation.

Priority 1 — Bring the health crisis under control

• Vaccines, treatments, and tests are essential for a sustainable recovery; cooperation on manufacturing, purchase, and distribution is required to ensure access for all countries, including poorer ones.
• IMF estimate:
  • If progress on medical solutions is shared quickly and widely, we can add almost $9 trillion to global income over the next five years.
  • This would help address the income gap between poorer and richer nations.

Priority 2 — Maintain income lifelines and prevent long-term scarring

• Initial global response: unprecedented and synchronized fiscal and monetary actions that put a floor under the world economy.
• Current risk: resurgence of infections and waning fiscal support; lifelines such as cash transfers, job retention support, and augmented unemployment benefits have expired or are set to expire this month.
• Policy imperatives:
  • Maintain income support to households and firms to prevent cascading bankruptcies and lasting scars (dislocated workers, idled skills, investments on hold).
  • Provide urgent support to low-income countries through more grants, concessional loans, and debt relief.
• G20 and EU actions cited:
  • Debt Service Suspension Initiative: temporary cushion for many low-income countries.
  • Common Framework: aims to address unsustainable sovereign debt with broad creditor participation and fair burden sharing.
  • European Commission advance purchases and EU contribution to COVAX to secure vaccines for low- and middle-income countries.

Priority 3 — Synchronized push for green and digital infrastructure investment

• IMF research scenario for G20 infrastructure spending:
  • If G20 countries with the largest fiscal space simultaneously increase infrastructure spending by half percent of GDP in 2021 and one percent of GDP in the following years, and G20 economies with more constrained fiscal space invest one third of that, then:
  • Global GDP would increase by close to 2 percent by 2025.
  • They could spend a third less to achieve the same outcome than if they acted alone.
• Regional impact:
  • Central, Eastern and Southeastern Europe: for each percentage point of GDP spent on infrastructure, long-term output could increase by two to 2.5 percent.
  • Greater dividends if investments improve connectivity across regions and countries, reducing trade costs (example: Three Seas Initiative).
• Types of priority investments:
  • Green: efficient mass transit systems, smart electricity grids; combined with appropriate carbon pricing can put the world on a path towards net zero emissions by mid-century and help create millions of new jobs.
  • Digital: digital infrastructure for e-commerce, e-learning, e‑government; support for workers through training, re-skilling, and high-quality education to facilitate transitions from shrinking to expanding sectors.
• Structural reforms:
  • Growth impact of recovery packages (e.g., Next Generation EU) depends on progress with structural reforms in health and education.
  • Linking funds to progress on EU country-specific recommendations can ensure recovery acts as a catalyst for reforms.

Europe and Next Generation EU

• Next Generation EU recovery package:
  • If implemented effectively, could provide a meaningful boost to growth across the EU, help speed recoveries, expand productive capacity, mitigate long-term scarring, and serve as a backstop to the recovery.
  • Emphasis on accelerating green and digital transformation is supported.
• Divergence and inequality:
  • Concern that without coordinated action, inequality and divergence between countries is set to increase.
  • Italian G20 Presidency priorities align: people (tackling inequalities), planet (implementing Paris Climate Agreement commitments), prosperity (empowering participation in a digital society).

Policy recommendations (explicit)

• Continue international cooperation on vaccine manufacturing, purchase, and distribution to ensure access for all countries.
• Maintain fiscal support measures (cash transfers, job retention support, augmented unemployment benefits) to avoid permanent economic damage.
• Provide urgent financial support to low-income countries: more grants, concessional loans, and debt relief.
• Coordinate a synchronized increase in green and digital infrastructure spending among G20 countries, leveraging comparative fiscal space to maximize global GDP gains and reduce total spending required.
• Pair infrastructure and recovery funding with structural reforms in health, education, and labor market policies, and link disbursements to progress on reforms where appropriate.
• Invest in worker training, re-skilling, and high-quality education to manage transitions caused by automation and sectoral shifts.

Source: Building the Foundation of a 21st Century Economy — Keynote Speech at the Rome Investment Forum 2020, Antoinette M. Sayeh, December 15, 2020. https://www.imf.org/en/news/articles/2020/12/15/sp121520-sayeh-rome-investment-forum-keynote

References

• https://www.imf.org/en/about/senior-officials/bios/antoinette-monsio-sayeh
• Speeches
• PRESS CENTER
• Common Framework
• https://www.imf.org/en/home