Multilateral Solutions to Global Challenges
May 19, 2021
Thank you for the kind introduction. A very good morning / afternoon / evening to you all.
Let me, first, warmly congratulate Suzanne Clark for being the first woman to lead the U.S. Chamber of Commerce. From one institution led by a woman to another – we couldn’t be happier. We look forward to working with her and building on the decades-long partnership between our two institutions.
We are more than a year into the biggest, most urgent crisis of our lifetimes. And as countries look ahead to recovery, they will be focused on two priorities: growth and jobs. Which is why I am particularly excited to speak at this event – because you, the private sector, are the biggest engines of growth and jobs.
The role of the IMF is focused on helping countries create sound macroeconomic frameworks which are necessary for markets to function effectively, for the private sector to operate efficiently, and therefore to spur growth and create jobs. So, thank you for inviting me.
This last year has also reminded us that fighting a global pandemic, dealing with climate change, reducing inequality – these big, consequential issues transcend national borders and all relate to the sustainability of growth. They can only be tackled by countries working together.
So, I will speak to you today about three such areas where we need multilateral solutions. But first let me begin with where the global economy stands.
Outlook
After a contraction of 3.3 percent in 2020—which was the worst recession since the second world war—the global economy is now on a path to recovery. Last month, we lifted our global forecast to 6 percent in 2021 and 4.4 percent in 2022.
We got to this point because of the unprecedented policy response from countries, which included $16 trillion in fiscal action and massive liquidity injection by central banks. Without these synchronized measures by countries, the global contraction last year would have been at least three times worse.
Of course, there is high uncertainty in this forecast. Here, I think of the emergence of new virus strains, the uneven path of the pandemic, and countries’ abilities to sustain policy support. The heartbreaking situation we see in India reminds us that the crisis is far from being over.
What is clear, though, is the dangerous prospect of divergence across countries. The global recovery is powered by only a few countries with advanced vaccination efforts and successful containment, leaving poorer countries at greater risk of falling behind.
The implications of this divergence are dire. Over half of the developing countries that were once catching up to advanced economy income levels are now set to fall further behind. Emerging markets face the risk of tighter financial conditions and capital outflows. Many developing countries carry higher debt burdens – some of the poorest already face a high risk of debt distress. The sad reality is that much of the past hard-won development gains will be wiped out.
This economic divergence can also weigh down long-term growth in advanced economies, cause increased economic migration, and undermine social stability around the world. The growing effects of climate change will likely make the repercussions even worse.
Closing this gap is, therefore, not just the right thing to do; it is key to ensuring a sustainable long-term recovery for all countries.
So, let me lay out the three economic priorities for multilateral action that the Fund views as essential for a strong, sustained, inclusive, and green recovery.
Economic Priorities for Multilateral Action
First, vaccines. Right now, vaccine policy is the most important economic policy. Investing in ensuring everyone rapidly has access to vaccines may well be the highest-return public project if you consider that faster progress in ending this crisis would add almost $9 trillion to global GDP by 2025, enabling over $1 trillion in additional tax revenue. Coordinated international action on vaccines is key in this respect.
But this window is closing fast. The longer it takes to speed up vaccine rollout, the harder it will be to achieve these gains. We must do whatever it takes to ramp up production capacity – and deploy a fair mechanism to redistribute vaccines from surplus to deficit countries. This also requires a fully funded COVAX facility to accelerate vaccination in poorer countries.
Second priority – international tax. Let me say this: It is broadly in the interest of countries—and of the private sector—to limit tax competition and the proliferation of chaotic, unilateral tax measures.
We must come together to create an international tax system that is designed for the 21st century – one that is simplified, harmonized, predictable… and fair, thus instilling broad public trust.
Multilateral efforts are already underway with the Inclusive Framework initiated by the OECD, which now includes 139 countries. This type of a coordinated approach will help simplify an overly complex system, better align incentives and provide predictability. It will also help create a fair system where companies pay taxes in the countries where they operate. The IMF supports the Inclusive Framework – and we are optimistic about a global agreement this year.
Our third priority – climate. Yes, it is an economic priority. Climate change has an impact on macroeconomic and financial stability – and presents risks to the functioning of our economies.
At the same time, the way in which we respond to this challenge also offers opportunities for growth and jobs. So, as the world starts to recover, we must accelerate the shift to a green economy.
To do that, we need a robust price on carbon, which can send a critical market signal – and advance climate friendly investments. IMF analysis shows that steadily rising carbon prices and a green investment push could boost global GDP by about 0.7 percent per year in the next 15 years and create millions of new jobs.
Carbon pricing is already gaining momentum – many businesses now use a shadow carbon price in their models. But the average global price of $2 a ton needs to rise substantially by 2030 to be in line with the Paris Agreement.
This is why the IMF has called for an international carbon price floor among large emitters, such as the G20. Focus on a minimum carbon price among a small group of large emitters could facilitate an agreement covering up to 80 percent of global emissions.
Of course, such a price floor has to be pragmatic and in line with countries’ economic development. And it can be implemented through carbon taxes, trading systems, or other equivalent measures that match local policy preferences. Crucially, such a price floor could avoid the less efficient border adjustments if some countries move ahead with robust pricing while others do not.
In parallel, we also need to unlock the potential of private finance and align the global financial system with climate objectives. The good news is that the financial industry is beginning to step up – investors, however, also cite the poor quality or availability of data as the biggest barrier to sustainable investing.
That is why the IMF is working with countries and partners on data quality and disclosure, as well as on financial-sector stress testing for climate-related issues. We need a green taxonomy and standardized reporting of climate-related financial risks to bring more certainty to investment decisions, improve understanding of transition risks—and help unlock trillions of dollars in private finance.
Focusing on a greener recovery clearly opens up prospects. But the harsh reality is that poorer nations risk missing out on this historic transformation. IMF research shows that low-income countries need $450 billion over five years to fight the pandemic, preserve buffers, and return to the path of catching up to higher income levels. They can cover only a portion of this on their own.
The good news is that the world did come together last year in an unprecedented way through the IMF. Since the start of the pandemic, the IMF has provided over $110 billion in financing to 86 countries.
Just to put that in perspective – never in our history have we done so much, so fast.
We also provided debt service relief to 29 of our poorest member countries, which is in addition to the G20’s Debt Service Suspension Initiative. All this has given countries breathing room, allowing them to focus on protecting lives and livelihoods.
The G20 Common Framework is also an important initiative to address debt vulnerabilities and create policy space in low-income countries. And here, private financial sector institutions have a key role to play in debt restructurings, not only from the point of view of fairer burden-sharing, but also to help avoid protracted debt crises which are detrimental to growth.
And just last month, the IMF received a mandate from our Board of Governors to pursue a general SDR allocation worth $650 billion. If formalized in the coming months, we will be able to inject $650 billion of SDRs into countries’ reserves. This new SDR allocation will boost confidence in the global recovery, just as it did at the time of the last allocation in 2009, during the global financial crisis.
So much more needs to be done, of course. But from what we have seen so far, we are optimistic. Actions taken by 190 countries through the IMF speak to a renewed support for multilateral solutions to global challenges.
Before I close, I would like to call on you for your support. The private sector has a big role in addressing the challenges before us. As I noted in the beginning, you will continue to be the engines of growth and job creation, helping the world not just to boost living standards but also to leapfrog to a more sustainable future.
So, join us to build the foundation of a better 21st century economy – and make the period ahead the most consequential one of our lifetimes. Thank you.