A New Agenda for Macro Stability

September 21, 2021

As Prepared for Delivery  

Thank you, Douglas, for the introduction and for inviting me to the Development Talks series. I am very excited to have this conversation with you today. 

Your mission to help countries understand the drivers of growth and job-creation is commendable. Especially at this time, when the world is looking to recover from the biggest crisis of our lifetimes, restoring strong economic growth and employment are indeed a top priority for policymakers. 

In that sense our missions are aligned. As an organization of 190 countries that fosters global economic cooperation, the IMF, too, is focused on working with countries to support economic stability and sustainable growth.

And I’d like to share with you today, how, over the last 18 months, we have leveraged this role to mount an unprecedented response to help countries deal with and recover from the crisis. But first, let me begin with the outlook. 

The global economy is on a path to recovery – we are on sounder footing today than we were a year ago. But this recovery hides a deeply worrying difference between countries – it is powered by only a few, leaving others at greater risk of falling behind. In other words, the recovery is creating a growing divergence between advanced economies and many emerging and developing economies.

Why is this happening? 

The main reason is unequal access to vaccines. As we confront the dangerous Delta variant, close to 40 percent of the population in advanced economies is fully vaccinated.

In emerging markets, that number is 11 percent – and in low-income countries, a tiny fraction. 

As a result, the unthinkable is happening today. Extreme poverty is set to rise for the first time in 20 years. It is a human tragedy and an economic calamity. And the emergence of even more infectious virus variants could further wipe out trillions from global GDP by 2025, creating untold suffering in terms of loss of lives and economic activity. 

The other key reason for this divergence is unequal resources to support the recovery. We continue to see, for instance, sizable fiscal support in advanced economies – with $4.6 trillion of pandemic related measures available in 2021 and beyond. In other economies, most support measures expired in 2020 due to limited fiscal space. 

A worsening of the pandemic combined with inflation concerns could inflict a double blow to many emerging and developing economies if advanced economies normalize monetary policy faster than expected and the financial conditions tighten.

Many countries have been in need of support – and I want to tell you that the world did come together through the IMF to support them.  

Since the start of the pandemic, the IMF has provided over $118 billion in financing to 87 countries, including 54 low-income countries. Our support to Sub-Saharan Africa, in particular, has increased dramatically – reaching 13 times that of our annual average last year. And we provided policy advice and capacity development support to over 175 countries during the crisis.

Recognizing the heavy burden of the pandemic on low‑income countries, the IMF extended direct debt service relief to 29 of our poorest, most vulnerable member countries. We also supported the G20’s efforts to provide debt relief via the DSSI and Common Framework initiatives.

And last month, the IMF made the largest allocation of Special Drawing Rights in its history—about US$650 billion—injecting additional liquidity to the global economic system. This allocation is supplementing countries’ foreign reserves, reducing their reliance on more expensive domestic or external debt, and helping step up their fight against the crisis. To magnify its impact even further, we are encouraging voluntary channeling of some of the SDRs from countries with strong external positions to those most in need.

I want to put the IMF’s response to the pandemic in perspective – never in our history have we done so much, so fast – reached out to so many countries in such a short period of time.

Of course, given the scale of this crisis, so much more needs to be done.

On top of that list – is urgent, collective action in closing the gap in access to vaccines. The global economy will not recover durably and equitably if governments struggle to bring the pandemic under control. 

IMF staff recently outlined a $50 billion plan that sets a goal of vaccinating at least 40 percent of the population in every country by the end of this year and at least 60 percent by mid-next year. Speed is of the essence here – faster access to vaccinations for high‑risk populations could potentially save more than half a million lives in the next six months alone.

Such an upfront investment will not just save lives – it could also lead to trillions of dollars in economic growth driven by accelerated recovery. This would be the best public investment of our lives, a global game-changer and a boost to recovery efforts.  

In short, vaccine policy today is the most urgent and important economic policy – and our first priority to building a new agenda for macro stability.

The other priority? Building a more resilient and sustainable global economy as we emerge from the crisis

These are the imperatives for long‑term macro stability – ensuring that our economic systems are strong enough to withstand shocks in an uncertain world; and encouraging a harmonious use of resources to generate growth that benefits all. 

Strengthening public finances, for instance, by better mobilizing revenues and managing expenditures. Modernizing financial systems, advancing macroeconomic frameworks and improving governance – all of these are critical to enabling long-term economic stability, inclusive growth and job creation. And they are fundamental focus areas for policymakers to build resilient economic systems.

Policymakers also have a historic opportunity to right some wrongs of the past and build a recovery that is fair to all segments of our society—including women, informal workers and youth. This means focusing on policies that enable greater access to basic public services—healthcare, education and infrastructure—and policies that better protect the vulnerable from income shocks. 

It also means policies that enable a transition to stronger digital economy, which can help boost productivity and financial inclusion. Think e-commerce, e-learning and e-government—but also investing in human capital. Strengthening high-quality education can help spread the benefits of technology more widely, including to the vulnerable segments of our society.

And speaking of vulnerable segments, an important part of this new agenda for macro stability ought to be gender‑inclusive policies. It is a moral issue, of course, but from an economic standpoint, gender equality is also macro-critical. IMF studies show that closing the gender gap in countries with very low female labor force participation could increase GDP by an average of 35 percent in level terms.

In other words, policies that are good for women are also good for economic growth.

Finally, let me turn to building a resilient and sustainable planet. We need climate action now, so that our future generations can live in a stable environment for years to come.

That means arresting or reversing the accumulation of emissions by putting a robust price on carbon, one that can send a critical signal to the market and encourage transformation to green energy. Today, carbon is priced at $3 a ton—globally—we have to reach $75 a ton by 2030. I recognize that is a huge jump, but IMF staff have put together a proposal around a carbon price floor for big emitters that makes this action possible.

Decarbonizing our economies will also require a substantial scaling-up of green investment over the next two decades. The best part is that doing so offers a huge opportunity for growth and jobs. Research by IMF staff shows how deficit-financed green supply policies could raise global GDP by about 2 percent this decade and create millions of new jobs.

But as we emphasize a transition to green economy, we must also ensure it is a “just transition.” That means supporting workers as they move from shrinking to expanding sectors.

It also means supporting countries that face the twin challenge of increasing energy access and reducing carbon footprint, as well as those that confront the high cost of adapting to climate change with very limited resources.

So, these are the priorities moving forward – and, in our view, the building blocks of a new agenda for macro stability.

We have a lot of work ahead of us. What gives us hope, though, is the optimism and the renewed energy we feel in our meetings with policymakers. They recognize that resilient and sustainable economic policies are growth-enhancing policies.

Their collective action through the IMF speaks to a renewed support for such an agenda – and to building forward the foundation of a better 21st century economy.

Thank you.