Overcoming Divides and Removing Obstacles to Recovery
IMF News, October 5, 2021
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- Authors: Kristalina Georgieva
- Published: October 5, 2021
Introduction
- Context: Remarks by Kristalina Georgieva, IMF Managing Director, at a G20 event hosted by Bocconi University and T20/ISPI on October 5, 2021.
- Core framing: global recovery remains “hobbled” by the pandemic—“like walking with stones in our shoes”.
- Immediate obstacle highlighted: the “Great Vaccination Divide”—too many countries with too little access to vaccines.
- Broader divide: differences in countries’ ability to support recovery and to invest for the future.
Global Outlook: Divergence, Inflation, and Debt
- Global growth:
- July projection: global growth at 6 percent in 2021.
- Updated World Economic Outlook (forthcoming at the time): growth expected to moderate slightly in 2021.
- Projection: economic output in advanced economies is projected to return to pre-pandemic trends by 2022; most emerging and developing countries will take many more years to recover.
- Divergence:
- United States and China remain vital engines of growth, though momentum is slowing.
- Some advanced and emerging economies (including Italy and Europe broadly) gaining momentum.
- Many other countries face worsening growth due to low vaccine access and constrained policy response—risk of persistent divergence and long-term scarring (job losses affecting young people, women, and informal workers).
- Inflation:
- Headline inflation rates have increased rapidly in a number of countries, with uneven effects.
- Expectation: price pressures to subside in most countries in 2022, but in some emerging and developing economies price pressures are expected to persist.
- Global food prices: up by more than 30 percent over the past year.
- Risk: sustained rise in inflation expectations could cause rapid rise in interest rates and sharp tightening of financial conditions, posing a particular challenge to emerging and developing economies with high debt levels.
- Debt:
- IMF estimate: global public debt has increased to almost 100 percent of GDP (global public debt by end-2020).
- Many developing countries started the pandemic with little fiscal firepower and now face tighter budgets and limited ability to issue new debt at favorable terms—described as the fiscal financing divide.
Strong Policy Action — Vaccinate, Calibrate, Accelerate
- Overarching prescription: vaccinate, calibrate, and accelerate.
- Vaccinate:
- Targets endorsed with World Bank, WHO, WTO: vaccinate at least 40 percent of people in every country by the end of this year, and 70 percent by the first half of 2022.
- Immediate needs:
- Sharply increase delivery of doses to the developing world; richer nations must deliver on donation pledges immediately.
- Boost vaccine production and distribution capabilities; remove trade restrictions on medical materials.
- Close a $20 billion gap in grant financing for testing, tracing, and therapeutics.
- Risk quantified: If large parts of the world remain unvaccinated (the “endemic scenario”), global GDP losses could rise to $5.3 trillion over the next five years.
- Calibrate:
- Monetary policy guidance:
- Central banks can generally look through transitory inflation pressures but should be prepared to act quickly if recovery strengthens faster than expected or if inflation expectations rise.
- Some countries already facing rising inflation expectations and more persistent price pressures have had to tighten.
- Financial risks: monitor stretched asset valuations and varied country exposures.
- Fiscal policy guidance:
- Tailor fiscal measures to country circumstances; longer pandemic increases fiscal constraints and forces tradeoffs between lifelines, near-term support, and long-term structural goals.
- Low-income countries need more revenue mobilization, more concessional financing, and more help with debt problems.
- Governments need sound medium-term frameworks to balance current support and debt reduction to build credibility with citizens and markets.
- Accelerate (structural priorities):
- Three priority issues for economic and financial stability: climate change, technological change, and inclusion.
- Climate change:
- Call for a robust price on carbon and substantial scaling-up of green investment over the next two decades, with support for the most vulnerable.
- Potential economic impact: with appropriate supply policies, global GDP could be raised by about 2 percent this decade, and create 30 million new jobs.
- Private finance role: requires stronger global efforts to improve data, disclosures, and taxonomies.
- Digital transformation:
- Scale up digital infrastructure investment and invest in education, health, and basic research to raise productivity and inclusion.
- Example: a new pilot scheme shows that central bank digital currencies can reduce the time needed for cross-border payments to seconds and sharply cut costs.
- Tax policy:
- Need for fairer and more efficient tax systems.
- Completing agreement on global minimum corporate tax is vital to mobilize revenue for transformative investments.
- International monetary system:
- Work together so the transformation benefits all.
IMF Actions and Financing Measures
- IMF support provided:
- $118 billion in new financing to 87 countries and debt service relief for poorest members.
- New allocation of Special Drawing Rights (SDRs) of $650 billion in August (largest issuance in IMF history).
- About $275 billion of the allocation went to emerging and developing countries.
- Immediate benefits: countries holding new SDRs as part of official reserves can boost confidence and lower borrowing costs; some are using or planning to use SDRs for priority needs (examples cited: Nepal for vaccine imports; North Macedonia for health spending and pandemic lifelines; Senegal to boost vaccine production capacity; Haiti to help finance vital imports).
- Proposals to magnify SDR impact:
- Call on countries with strong external positions to voluntarily channel their SDRs to where they are most needed.
- Options include:
- Channeling new SDRs into the Poverty Reduction and Growth Trust to increase zero-interest loans to low-income countries.
- Using SDRs to create a new Resilience and Sustainability Trust to help low-income and vulnerable middle-income countries achieve sustainable and prosperous futures.
- Rationale: making the most of SDRs is good for the global recovery, good for countries, and good for people.
Conclusion
- Personal reflection: concern for the world future generations will inherit; optimism drawn from student energy and collective learning from the crisis.
- Call to action: use clarity of thought and lessons from the past 18 months to remove the “stones” from our shoes and walk forward to a better future for all.
Source: Overcoming Divides and Removing Obstacles to Recovery — Speech by Kristalina Georgieva, IMF Managing Director, October 5, 2021.
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