Overcoming Divides and Removing Obstacles to Recovery

October 5, 2021

1. Introduction

Buongiorno a tutti voi

Thank you for the warm welcome. I am grateful to Bocconi University and T20 national coordinator and chair ISPI for inviting me to this important G20 event. And I am delighted to join Mario and Paolo for our discussion today.[i]

Like young people everywhere, I am sure that the students at Bocconi University are excited about their return to in-person learning, and with it a renewed sense of energy and optimism.

This brings me to the good news on the global economy. Over the past 10 months, vaccines have helped save millions of lives. And together with extraordinary policy support, this has allowed us to push forward, moving from crisis towards recovery.

But that is only part of the story.

We face a global recovery that remains “hobbled” by the pandemic and its impact.  We are unable to walk forward properly—it is like walking with stones in our shoes! 

The most immediate obstacle is the ‘Great Vaccination Divide’—too many countries with too little access to vaccines, leaving too many people unprotected from Covid.

At the same time, countries remain deeply divided in their ability to respond—in being able to support the recovery, and in their ability to invest for the future.

But we can secure a stronger recovery everywhere and shape a better post-pandemic world for all. We can only do it by working together to overcome these divides.

This will be the focus of our Annual Meetings next week.

2. Global Outlook: Divergence, Inflation, and Debt

Let’s look at the economic picture.

In July we projected global growth at 6 percent in 2021. As you will see in our updated World Economic Outlook next week, we now expect growth to moderate slightly this year.

But the risks and obstacles to a balanced global recovery have become even more pronounced: the stones in our shoes have become more painful. I will focus on three of them.

The first is the divergence in economic growth.

The United States and China remain vital engines of growth even as their momentum is now slowing. A few advanced and emerging economies are still gaining momentum, including Italy and Europe more broadly.

By contrast, in many other countries, growth continues to worsen, hampered by low access to vaccines and constrained policy response, especially in some low-income nations. And this divergence in economic fortunes is becoming more persistent.

Economic output in advanced economies is projected to return to pre-pandemic trends by 2022. But most emerging and developing countries will take many more years to recover.

This delayed recovery will make it even more difficult to avoid long-term economic scarring—including from job losses, which hit young people, women, and informal workers especially hard.

The second “stone” in our shoe is inflation.

Headline inflation rates have increased rapidly in a number of countries—but again, with some more affected than others.

While we do expect price pressures to subside in most countries in 2022, in some emerging and developing economies, price pressures are expected to persist.

One particular concern with inflation is the rise in global food prices—up by more than 30 percent over the past year. Together with rises in energy prices, this is putting further pressure on poorer families.

More generally, inflation prospects remain highly uncertain. A more sustained increase in inflation expectations could cause a rapid rise in interest rates, and a sharp tightening of financial conditions.

This would pose a particular challenge for emerging and developing economies with high debt levels.

This brings me to the third “stone”: debt.

We estimate that global public debt has increased to almost 100 percent of GDP.[ii] Much of this reflects the necessary fiscal response to the crisis as well as the heavy output and revenue losses due to the pandemic.

Here we see yet another deep divide, with some countries more affected than others—especially in the developing world.

Many started the pandemic with very little fiscal firepower. Now they have even less room in their budgets—and very limited ability to issue new debt at favorable terms.

In short, they face tough times and are caught on the wrong side of the fiscal financing divide.

3. Strong Policy Action—Vaccinate, Calibrate, Accelerate

So, how do we go about removing these “stones” from our shoes and overcoming these divisions and obstacles to recovery?

The answer is: vaccinate, calibrate, and accelerate.

First, vaccinate the world.

We can still reach the targets put forward by the IMF, with the World Bank, WHO, and WTO—to 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.

But we need a bigger push.

We must sharply increase delivery of doses to the developing world. Richer nations must deliver on their donation pledges immediately. And, together, we must boost vaccine production and distribution capabilities; and remove trade restrictions on medical materials. In addition to vaccines, we must also close a $20 billion gap in grant financing for testing, tracing, and therapeutics.

If we don’t, large parts of the world will remain unvaccinated, and the human tragedy will continue. That would hold the recovery back. We could see global GDP losses rise to $5.3 trillion over the next five years.[iii]

Second, calibrate policies to country circumstances.

The longer the pandemic is with us, the more persistent the divisions between countries will be, and the more difficult and varied the policy choices become.

Take inflation and monetary policy. Although central banks can generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics, they should be prepared to act quickly if the recovery strengthens faster than expected, or risks of rising inflation expectations become tangible. Some countries that are already facing rising inflation expectations and more persistent price pressures have had to tighten—a difficult choice amid a stop-start recovery.

And we must not forget to monitor financial risks—including stretched asset valuations—which vary widely across countries.

Calibrating policies also means carefully tailoring fiscal measures. The longer the pandemic persists, the tighter the fiscal constraints will become, forcing difficult tradeoffs between lifelines to people, near-term support to the economy, and advancing long-term structural goals.

Low-income countries face particular challenges: with massive financing needs, high debt burdens, and—most recently—sharply higher debt servicing costs. They will need more revenue mobilization, more concessional financing, and more help to deal with debt problems.

To face these challenges, governments need policy credibility: sound medium-term frameworks to ensure the right balance between providing support now and reducing debt over time—to build trust with citizens and markets.

As countries grapple with the need to vaccinate their populations and calibrate policies, they must also look to the future—one that is greener, smarter, and fairer.

This brings me to the third policy imperative: “accelerate” the reforms needed to transform economies.

Amid the sweeping global changes in the years—and decades—ahead, we see three priority issues for economic and financial stability: climate change, technological change, and inclusion.

We know that fighting climate change is critical for the planet and prosperity. The dire warnings in the recent IPCC report on climate change leave us in no doubt that we must act now.

We need a robust price on carbon, substantial scaling-up of green investment over the next two decades, and support for the most vulnerable within societies and among countries. This will help ensure a transition that benefits all—and one that is just.

The green transition also presents huge opportunities: the shift to renewables, new electricity networks, energy efficiency, and low carbon mobility. And if we do this with a combination of supply policies, and we could raise global GDP by about 2 percent this decade—and create 30 million new jobs.

Of course, private sector finance will be key—which requires stronger global efforts to improve data, disclosures, and taxonomies.  

The digital revolution also presents enormous opportunities. Scaling up digital infrastructure investment is key, combined with investment in people’s education, health, and basic research. This is how we can make economies more productive—and more inclusive.

To unlock this potential, we need fairer and more efficient tax systems. Completing the agreement on global minimum corporate tax is vital to help mobilize revenue for transformative investments.

By working together, we can ensure that the transformation of the international monetary system benefits all.

Just one example: a new pilot scheme[i] shows that digital currencies issued by central banks can reduce the time needed for cross-border payments to seconds—and they can sharply cut costs. Clearly, the possibilities and perils of new technology will need to be carefully managed.


Given the enormity of the policy challenges to overcome these obstacles, we need decisive action at all levels, national and multilateral.

For our part, we at the IMF remain a steadfast partner of our member countries. We are continuing to calibrate our financial support, as well as our policy analysis and technical advice. And we will accelerate our own transformation to meet our members’ evolving needs.

We have stepped up in an unprecedented manner by providing $118 billion in new financing to 87 countries and debt service relief for our poorest members.

Thanks to the collective will of our membership, we provided a new allocation of Special Drawing Rights of $650 billion in August. This is the largest issuance in the IMF’s history—in this crisis like no other. About $275 billion of the allocation went to emerging and developing countries.

Countries have benefitted immediately from holding the new SDRs as part of their official reserves, which can boost confidence and lower borrowing costs.

And some already are using part of their SDRs for priority needs, or planning to do so. Nepal for vaccine imports. North Macedonia for health spending and pandemic lifelines. Senegal to boost vaccine production capacity. And for Haiti, already facing a very difficult situation, the SDRs will help finance vital imports.

Yet, there is more we can do to help countries remove the obstacles to recover. We can magnify the impact of the allocation and ensure that more SDRs go to countries most in need. We are calling on countries with strong external positions to voluntarily channel their SDRs.

This means getting new SDRs into our Poverty Reduction and Growth Trust, increasing our ability to provide zero-interest loans to low-income countries. We are also engaging with our members on using SDRs to create a new Resilience and Sustainability Trust to help low-income and vulnerable middle-income countries to achieve a sustainable and prosperous future.

Making the most of these new SDRs is good for the global recovery, good for countries, and good for people.

4. Conclusion

That brings me to my final thoughts.

I often worry about the world my granddaughter and other young people will inherit. But our setting today is a source of inspiration and hope.

Despite an ocean between us, we have come together to envisage a better future. The students gathered here—the fine students of Bocconi University—have the energy, the enthusiasm, and the wisdom of learning needed to overcome the obstacles that lay before us.

We have all learned so much from the past 18 months. This extraordinary crisis has divided us—but it has also armed us with knowledge that allows us to think differently about our future.

It is very fitting we are discussing this at Bocconi—economic and social progress are values steeped deeply in the history of the University. 

Now we should use this clarity of thought and the lessons from the crisis to remove the obstacles in our way—remove the stones from our shoes—and walk forward to a better future for all.

Molte grazie.

[i] Mario Monti, President of Bocconi University, and Paolo Magri, Executive Vice President of the Italian Institute for International Political Studies.

[ii] New IMF estimate. Global public debt by end-2020.

[iii] This reflects the “endemic scenario”, where large parts of the world remain unvaccinated, and economies adapt to “living with Covid.”