Giving People a Fair Shot—Policies to Secure the Recovery

March 30, 2021

As prepared for delivery

1. Introduction: Promise and Danger

Thank you, Fareed, for the warm welcome, and thank you to Richard Haass and the Council on Foreign Relations for bringing us together.

Our two institutions are connected by history and values: both founded at global turning points, following global conflicts; both deeply committed to a more peaceful and prosperous world.

Today we face another turning point. In the words of Franklin D. Roosevelt: “The point in history at which we stand is full of promise and of danger.” [i]

The good news is that the global economy is on firmer footing. Millions of people are benefiting from vaccines that hold the promise of a normal life, of embracing friends and loved ones.

But there is danger as well.

Economic fortunes are diverging. Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and rising poverty. Too many countries are falling behind.

We must not let our guard down!

What we do now will shape the post-crisis world. So we must do the right thing.

This means, above all, giving everyone a fair shot—a shot in the arm, everywhere, to bring the pandemic to a durable end; and a shot at a better future for vulnerable people and vulnerable countries to pave the way to inclusive and sustainable recovery.

This will be the focus of our virtual Spring Meetings next week.

2. Global Outlook: Divergence and Uncertainty

Let’s look at the economic picture.

In January we projected global growth at 5.5 percent in 2021. We now expect a further acceleration: partly because of additional policy support—including the new fiscal package in the United States; and partly because of the expected vaccine-powered recovery in many advanced economies later this year.

This allows for an upward revision to our global forecast for this year and for 2022, as you will see in our World Economic Outlook next week.

How we got to this point is a tale of extraordinary effort: nurses and doctors saving lives, essential workers supporting livelihoods, scientists from around the world working together to create vaccines in record time. And governments took exceptional measures—including about $16 trillion in fiscal action and a massive liquidity injection by central banks.

Without these synchronized measures, the global contraction last year would have been at least three times worse. Just think about it—this could have been another Great Depression. Also, we did not have another global financial crisis—not just because of the extraordinary measures, but also because countries had worked together over the past decade to make banking systems more resilient.

And yet, while the outlook has improved overall, prospects are diverging dangerously not only within nations but also across countries and regions. In fact, what we see is a multi-speed recovery, increasingly powered by two engines—the US and China. They are part of a small group of countries that will be well ahead of their pre-crisis GDP levels by the end of 2021.

But they are the exception, not the rule.

The cumulative loss in per capita income, relative to pre-crisis projections, will be 11 percent in advanced economies by next year. For emerging and developing countries, excluding China, the loss will be much worse—at 20 percent, cutting one-fifth of what is already a much smaller per capita income than in richer countries.

This loss of income means millions of people will face destitution, homelessness, and hunger.

We see that clearly. But many other things are less clear. Indeed, one of the greatest dangers facing us is extremely high uncertainty.

So much depends on the path of the pandemic—which is now shaped by uneven progress in vaccination and the new virus strains that are holding back growth prospects, especially in Europe and Latin America.

There could also be more pressure coming to vulnerable emerging market, low-income and fragile states. They already have more limited fiscal firepower to fight the crisis. And many are highly exposed to hard-hit sectors, such as tourism.

Now they face less access to vaccines and even less room in their budgets. And some are already at high risk of debt distress in sovereign, corporate, or banking sectors.

Add to this uncertainty over financial conditions. Accelerated recovery brings good news overall, but it may also create some less desired outcomes. For example, strong growth in the U.S. can benefit many countries through increased trade. We expect inflation to remain contained, but faster US recovery could cause a rapid rise in interest rates, which could lead to a sharp tightening of financial conditions—and significant capital outflows from emerging and developing economies.

This would pose major challenges especially to middle-income countries with large external financing needs and elevated debt levels . Many of those countries will need more support.

Return to growth would also mean policy transition, and the need to deal with the long-term scars of this crisis—among them is the impact on human capital, especially on the young, the low-skilled, women, and informal workers.

Allowing those scars to persist will result in lower growth potential—making it even more difficult to increase employment and reduce inequality.

3. Strong Policy Action—to Give People a Fair Shot

It’s very clear: there will be no sustainable recovery without giving people a fair shot.

What should be done?

First, we must keep our focus on escaping the crisis. We must follow the example of the scientists by stepping up cross-border efforts, by doing whatever it takes to ramp up vaccine production, distribution, and deployment.

One option is to pursue at the global level what has worked at the national level—and that is subsidizing vaccine producers, input suppliers, and “last-mile” distribution. The world needs a fair mechanism to redistribute vaccines from surplus to deficit countries and a fully funded COVAX facility to accelerate vaccination in poorer countries.

This is how we can protect people’s health—and accelerate the recovery. Faster progress in ending the health crisis could add almost $9 trillion to global GDP by 2025.

But the window of opportunity is closing fast. The longer it takes to speed up vaccine production and rollout, the harder it will be to achieve these gains.

Policies, of course, must be tailored to country-specific needs—their pandemic exposure as well as economic factors.

While the crisis is still with us, the key is to help vulnerable households and viable firms. This requires targeted fiscal measures—within credible medium-term frameworks—as well as continued monetary accommodation.

Given diverging recoveries, it is prudent to keep a close eye on financial risk—including stretched asset valuations. And major central banks have to carefully communicate their policy plans to prevent excess financial volatility—at home and abroad. This would support vital capital flows, especially to middle-income countries.

Second, we must safeguard the recovery . As the pandemic recedes, government furlough and support programs should be scaled back. But this transition needs to be carefully managed to cushion the impact on workers—through income support, targeted hiring subsidies, retraining and reskilling.

There should also be further support to viable small and medium-sized firms through equity injections—and more effective bankruptcy procedures. SMEs are the world’s biggest employer. Yet our research shows that the share of insolvent SMEs could rise sharply this year as support is scaled back—threatening one in ten jobs in this vital sector. [ii]

Most emerging and developing countries have relatively weaker bankruptcy procedures, which means they would be more heavily affected by a wave of insolvencies. So we need further reforms to mitigate these economic scars—and promote a fairer transition.

Third, invest in the future. The crisis has made the case for pandemic preparedness and—more broadly—for investing in resilience, especially to climate shocks. A new momentum is building towards greener, smarter, and more inclusive economies.

So far, only a small fraction of fiscal stimulus has been directed to climate and green finance. But the tide is turning, and rightly so.

A coordinated green infrastructure push, combined with carbon pricing, could boost global GDP in the next 15 years by 0.7 percentand create millions of jobs. [iii]

There is also the potential of digitalization. In a recent survey [iv], almost 50 percent of shoppers said they were using digital payments more than before the pandemic. A growing number of central banks are considering digital currencies [v] —which could transform the international monetary system. And digital infrastructure investment could help transform our economic system—boosting productivity and living standards.

To unlock this potential, we need to combine better infrastructure and greater access to the internet with more investment in people’s education and health. This requires sufficient public revenues and national tax systems retooled for the 21st century. In many cases, this will mean making them more progressive—and fairer.

This has to be coupled with modernizing international corporate taxation through multilateral efforts—to ensure that highly profitable firms pay their fair share where they do business. This will also help strengthen public finances, especially in poorer countries.

All this is essential. But it will only take us so far.

The harsh reality is that poorer nations are at risk of missing out on what is a historic transformation to a new global economy built on green and digital foundations.

New IMF research [vi] —released today—shows that low-income countries have to deploy some $200 billion over five years just to fight the pandemic. And then another $250 billion to return to the path of catching up to higher income levels.

They can cover only a portion of that on their own. Success would call for a comprehensive effort—more domestic revenue mobilization, more external concessional financing, and more help to deal with debt. The G20 Debt Service Suspension Initiative and new Common Framework are a good start.

For its part, the IMF has stepped up in an unprecedented way. We have provided over $107 billion in new financing to 85 countries and debt service relief for 29 of our poorest members. In Sub-Saharan Africa, IMF financing last year was about 13 times more than the annual average over the previous decade.

And I am very encouraged that support is building among the IMF’s membership for a possible SDR allocation of $650 billion. This would benefit all our members, but especially the most vulnerable, by boosting reserves without adding to debt burdens. It will send a powerful signal of multilateral solidarity—freeing up resources for vaccination programs and other urgent needs.

Just as we have helped fight the crisis, we will help our members secure the recovery.

4. Conclusion

Let me end as I began—with FDR. On February 12, 1945, he called on the U.S Congress to adopt the Bretton Woods Agreement, which created the IMF and the World Bank.

He said: “The world will either move toward unity and widely shared prosperity or it will move apart. We have a chance to use our influence in favor of a more united and cooperating world.”

These words could not be more apt today when we face the biggest test of our generation. How we work together to build a better world will be remembered for generations to come.

Let’s give it a fair shot.

[i] Franklin D. Roosevelt’s Message to Congress on the Bretton Woods Agreements (Feb. 12, 1945).

[ii] IMF Staff Discussion Note (to be published, April 2021): Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options .

[iii] IMF’s World Economic Outlook (October 2020), Chapter 3: “Mitigating Climate Change.”

[iv] Report : Global Online Payment Methods 2020 and COVID-19's Impact.

[v] A February 2021 survey of IMF desk economists suggests that in 70 percent of 159 countries, central banks are either analyzing the implications of, currently experimenting with, piloting, or likely to issue a central bank digital currency (CBDC) in the short to medium run.

[vi] IMF Board paper (March 2021): Macroeconomic Developments and Prospects in Low-Income Countries 2021 .

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