CGD Talks: Compound Crises Call for Decisive Action

September 13, 2022


IMF Managing Director, Kristalina Georgieva.
Centre for Global Development President, Masood Ahmed.


Masood Ahmed: Greetings and welcome to this event at the Center for Global Development. Today, we have the pleasure of having Kristalina Georgieva, the Managing Director of the IMF, join us for this event. Kristalina, welcome. And I should say, for those of us who are watching this and have seen this background before, that we are, in fact holding this event in the studio at the IMF. So, another example of the IMF reaching out to help civil society in putting together events. So, last time we talked, Kristalina, it was the beginning of the year and so much has changed since then. So, I want to start out by welcoming you back to this event. And we have a lot of things that we want to talk about.

MD Georgieva: Thank you very much. A great example of partnership. I want to start first by expressing my condolences to you and to all the British people everywhere and the members of the big family of nations that the UK leads for the loss of Queen Elizabeth. It is an example how a person dedicated to public service creates a legacy. And I wish King Charles to carry forward this legacy successfully. And, of course, the world has changed since we last talked. What we are experiencing is the era of shocks. Pandemic, War, and now cost of living crisis, shock upon, shock upon, shock. What we recognize is that it is for this world. Our institution exists how we can buffer countries against the devastating force of these shocks, but also more and more how we can help them build resilience for the future.

Masood Ahmed: So, I want to come back to this question. I think you're very right that we are at an inflection point. I do think that the next decade at least, we're going to be living in a period of much more volatility, more shocks, probably more frequent, maybe more extreme and how the system adapts to it, how institutions adapt to it, how countries adapt to it is something we want to come back to. Very immediately, of course, one of the shocks is the food crisis. Food crisis has hit many countries, but particularly low-income countries who are importers of food, of energy and their balance of payments has taken a hit. I saw in the news yesterday and then today that the IMF has or is proposing or is discussing still the idea of coming up with a special facility that would provide emergency financing to countries through the new window in your facilities. You did something like this at the time of COVID and I want to get a little bit of sense from you of how you see that moving forward, how many countries likely to be impacted and how big a difference will that make?

MD Georgieva: We had a very good discussion with our board of directors informally yesterday, and I came out of it very positive that there is a sense that it is a necessity, and we have urgency to act, which we will do. So, why a food shock window in our emergency financing? Because [the] cost of living is a problem everywhere. But the part of cost of living that concerns food and the very availability of food is the most dramatic shock people and countries are experiencing. We want to help them go through this period of time, of course, as one of the institutions that [is] charged with the support for more vulnerable countries. What we are proposing is to increase access to emergency financing for a year to countries that are most vulnerable, either because they are importers of food with low income and the cost of import has skyrocketed for them, or because they are affected by other factors, take the case of Ukraine, that is an exporter of food but cannot achieve the full value of export that otherwise it would have done without this war. When you look at the universe of countries that are eligible, we set aside those where there is already interest and demand for a Fund program, or a Fund program is in place and we can augment it. Why? Because a Fund program of a larger size with more direct involvement with the country is a better option. We concentrate on countries that would not be able to benefit from Fund programs as of now. And we are proposing one more innovation, which is to get more involvement of our Board of Directors on the cases that are more complex or where we are building a pathway to a full-fledged Fund program.

When I look into the likely beneficiaries, we see about 50 countries that meet the criteria of vulnerability. And out of this, 50 countries, perhaps 20 to 30 are the most immediately in need to take advantage [of it]. Let me stress that we don't want to substitute for grant financing. If grant financing is available, of course, the Fund steps back. But the situation is so difficult that funding simply doesn't cover the needs as of now of the availability now. So, comes the Annual Meetings. I am very hopeful that we would have the stamp of approval of our Board of Directors and we would move swiftly to support countries that turn to us.

Masood Ahmed: So, that's great. So, this has been one of the issues that people have been asking about, say, you know, the IMF could come up with some kind of window to respond to the countries most impacted. And that's exactly what this seems to be in the making. So, we've got a month or so to get it in place. You've got some subset of those 50 countries that will be ready to move forward quickly. Others will take a little longer. And then there's also the other countries. And if you look at the other countries, particularly if you think about emerging markets, emerging markets in 2020, 2021 didn't come to the fund in the numbers that people had anticipated, partly because the markets were open, they were able to access financing. Now the markets are not so open, interest rates are rising, the dollar is appreciating, many emerging markets are feeling the pressure. What is your thinking about both the likelihood, the demand? Do you see some sense of people approaching? And also, is it mainly that they should come for the kinds of instruments you have? Or are you also thinking about different kinds of instruments, too? Because there is always a little issue of stigma that holds back countries from coming when they should. So,I want to get a little bit of the sense of you and your colleagues, what you're thinking about that.

MD Georgieva: Well, let me answer with two points. Point number one, we do see an increase in demand for Fund support. Let me clarify that since 2020, we actually had 93 countries benefiting from Fund support, many of them small countries, highly vulnerable, so, the amounts are not trivial. We have provided some $258 billion of lending since the pandemic.

Masood Ahmed: Including the sort of precautionary line that can be drawn down?

MD Georgieva: Including the precautionary, which, by the way, I'll come to that point in a second. So, what we're looking to today is 16 countries already coming with requests for financing since Russia's invasion of Ukraine for a notional [amount of] around $90 billion. And we know that the tightening of financial conditions, the appreciation of the dollar, are still in the early days of their impact on emerging markets. When you look at the picture, emerging markets, many of them are doing well because they have invested in reserves and sound macroeconomic policies. But, 25% of emerging markets are in or near debt distress. Of course, this is much less than low-income countries where over 60% are in debt distress. But, it is still a very significant and concerning number. So, we have to be ready to help. And that takes me to my second point. How can we best serve this more shock prone world of ours, where innocent bystanders get hit from spillovers from a global shock. And there is a very significant thinking going on now at the Fund. We are going to go to our Board with a menu of options, how we can build the Fund for today and especially for tomorrow. Of course, a discussion that would take some time. But the main focus of this discussion is to recognize that the world has changed. And, of course, we have to change with it and preferably ahead of it.

What are the key elements that we are looking at? We are looking at precautionary facilities. Much better for a country to come to the front early. And actually, I praise those that are using the precautionary instruments of the Fund. And I wish more countries would say, hey, “the world seems to be in trouble, let me build stronger buffers”. Please come! Secondly, we are looking at how we provide this financing, what are the modalities of it? And thirdly, we are looking also at the different financial aspects of how the Fund functions. I am very keen to go to the Annual Meetings with a sense that there is work to be done and there is a plan how we are going to do this work. So, stay tuned at that.

Masood Ahmed: So, that's really encouraging because I do think that the two really important point that you just made. One is that the nature of these systemic shocks, whether it's energy or interest rates or food, is such that many countries get impacted at the same time. And the instruments that existed in the Fund traditionally are designed to deal with each country, when it has a problem, but generally through its policy errors compounded by an exogenous shock. And now we're really looking at sort of countries that generally are well managed, they are okay, they get hit by a shock. And that's the second point, you have these precautionary facilities. Historically, if you had to draw down on a precautionary facility that was seen like a failure or a policy failure. And actually, what you're saying now is that you would want to draw down on it when there was a change in the world, rather than because you had failed, the country had failed in some way. So, there's a sort of mind shift change as well involved as much of the facilities change.

MD Georgieva: That is exactly correct. Mindset change is required everywhere. We need to build that resilience mindset. That would help us at a time of uncertainty and frequent, often interconnected shocks to sustain the functioning of the economy and the society as a whole. That mindset of resilience, we have to adopt at the Fund. And when we talk about resilience, we need to understand that the narrow definition that we have applied successfully, by the way, serving the membership well over the decades, that was primarily focus on financial sector, fiscal, is not quite enough. We have to look at resilience in a more comprehensive manner. Resilient people, educated, healthy with sound social protection floor under their feet. Resilient economy. Including resilience of supplies. And of course, resilient planet. And then look at our policy advice in that more comprehensive way. I want to praise Christine Lagarde because under her leadership, the Fund started looking at social protection. And now during the pandemic, that has paid off because we were much more effective, much faster to support countries. She started looking at climate. Why is this a macro significant topic, why we have to take it on board? And I am proud that I'm taking her legacy by moving it forward and doing so with a fairly broad understanding and support of the membership.

Masood Ahmed: So, resilience is something that that you've just pointed out, you know, has many dimensions. And I want to come to the resilience that you created an instrument, which is the resilience and sustainability trust, which deals with one dimension of it. And I want to come to that. But just before that, I do want to say that one aspect of this reacting to global shocks is that countries that have a program already with the IMF then get hit by a global shock, and that requires them to augment the size of their program. And one thing that triggers is a higher pricing, which are surcharges that the Fund has. Now historically, the reason for surcharges, of course, was that you didn't want to have people relying too often and on very large amounts for IMF financing. But when the extra financing is a result of a global shock, the argument for the surcharges becomes a little weaker, and it's an issue which is out there. And a lot of people are asking during this period of a crisis, should the Fund also be thinking about its policy on applying surcharges? I wonder whether your colleagues are thinking about that, too?

MD Georgieva: It is part of this broader thinking of the Fund for the future that we are going through during the pandemic that came as an issue. Are we right to collect surcharges? I mean, for fairness, it is from a small group of countries that are using large amounts of Fund resources. But at that time, interest rates were low. That was not the primary driver. Now it is a different time, and it will be on the table of our Board to discuss. Just to give credit to those who worry about removing surcharges, the concern is that we are then reducing the capacity of the Fund to build strength in its reserves. And why we need that, we need it so we can take more risk and we can fund poorer, riskier countries. So, it is not entirely without logic, but indeed, are we on the right path? Is there a way in which we can look into this issue with open mind?

Masood Ahmed: Well, we will stay tuned, as you said.

MD Georgieva: Stay tuned!

Masood Ahmed [00:20:32] So now let's just talk a little bit about the risk to the resilience and sustainability trust set up. I think people initially had questions about how it functioned. That got clarified to a large extent. There was an issue of how the IMF and the World Bank would work together, because this is you have to draw their expertise. I think that there's more clarity on that. So, what I'd like to get a little bit of a sense of is sort of how far advanced are you? How far advanced do you expect to be? We're not quite sure whether people have actually put money into the RST yet. Has somebody signed up on it? I hear three countries have asked for assistance. So, anything more specific? And maybe just a small plea from somebody who watches the fund is that, you know, the IMF is really quite remarkable in being transparent on many, many fronts, I think. And it's a great tribute to you and to your predecessors that the Fund has become that way. But on the issue of SDRs and RST it's a little hard for outsiders to dig through and figure out where things stand. So, it’s over to you.

MD Georgieva: Well, let me first say that the SDR is somewhat opaque. It is not the easiest to explain instrument. The way I usually talk to laymen audience, to women audiences to say the Fund has this collective strength and it deploys it to create reserves for all members. Now, what we have done is recognize the obvious, that all members get increase in reserves, but not all members need it. And, as you know, the origin of the RST is in countries committing to onlend through the IMF for the resilience and sustainability trust.

Where are we today? Spain is the first country that deposited. Their contribution, €1.9 billion. We have lined up 40 billion and we are acting on getting this contributions in. Our goal is 45 billion [US dollars], possibly even more, provided that we can demonstrate both demand and success. Second, on the demand side, it's exponential. The more countries learn about it, the more they're interested to tap into this. Not only because of the conditions; 20-year maturity, ten and a half years grace. It is attractive. But, because of the philosophy that is to help countries put in place policies for mitigation, adaptation, transition that are removing obstacles for private finance. And of course, we have to work with other institutions, with the World Bank, but also regional development banks. Take the case of Africa, Africa adaptation. The African Development Bank is a very important resource. And then the third piece of information is that we are creating at the Fund, I would call it a SWAT team so we can actually serve this request. I mean, I was with African leaders, everybody wants to be accessing this this new instrument. One of the countries that came forward with the request, not surprisingly, is Bangladesh.

They are highly vulnerable, but also effective in adaptation. I know we can be a positive factor for Bangladesh.

So, let's see which would be the country to cross the finish line first. But we would like to demonstrate through successful examples how the RST works. I invite everybody who is interested in the topic to work with us. And actually, we are going to create a series of roundtables once we have the money secured, which I guarantee you by the Annual Meetings would be a fact.

Masood Ahmed: So, by the time of the Annual Meetings, I mean, you sound very confident that it'll take some time to do the actual administration, but you're on track to get 40 billion of SDRs equivalent.

MD Georgieva: Yes!

Masood Ahmed: put in to be able to on lend through the RST and by the time of the Annual Meetings. Do you anticipate that some of these countries that want that support will have advanced to a point where… When are we going to start seeing the first disbursement? Because until then, this is all a plan, right?

MD Georgieva: I don't want to get bogged down on a particular date, but our objective is by the end of the year to have moved some of these requests. And of course, we would be careful because we are also learning, and yet, you're absolutely right. People want to see what is it, how does it look like? And that would be done speedily after the Annual Meetings.

Masood Ahmed: And do I understand correctly, that to be able to access support from the RST, the country will also need to have an IMF program of some kind, disbursing on non-disbursing alongside?

MD Georgieva: Yes, this is correct. And why is this requirement? Of course, when we learn more from the experience of the RST, we would take stock, there may be some refinements. But, the requirement is there because we want to build strong policy foundation for the RST. And of course, when we have a program engagement that deepens the understanding of our teams of priorities of the country, and it is a good platform to build on, to have the RST we will be open to, as you said, different forms of engagement with the Fund disbursing or non-disbursing. What we are also thinking ahead, what if we have a country that is in very strong standing, doesn't need any form of engagement? A question to be answered! Right now, our objective is: get it going!

Masood Ahmed: Let's get a few started!

MD Georgieva: Yes!

Masood Ahmed: I think the in a way, the SDR or the whole SDR recycling, rechanneling debate has so far been, you know, very active at one level – RST is a very good example, it's the most advanced form of recycling alongside the PRGT that that's already there. There's been discussions about using some MDBs, and that's sort of advancing. But, as of now, you don't see many of those SDRs working their way into the budgets or balance of payments of countries, with the exception of some of the disbursements through the PRGT, I guess.

MD Georgieva: I agree. Once we establish the new food shock window for countries that are eligible for the PRGT, it is actually going to be funded from SDRs that are provided to the Fund to on-lend. And in that case, you would see more immediately the connection between making the recycling work.

Masood Ahmed: And actually, real money going...

MD Georgieva: and real money going to countries. And of course, the RST has to be operational to show the flow of money. I am confident that if we are to demonstrate how good a public service this is, that it is actually a global public good, that we might see even higher level of commitment from countries.

Masood Ahmed: And higher level of demand on the other side.

MD Georgieva: And higher level of demand on the other side, yes.

Masood Ahmed: So, I guess are you comfortable that you have enough subsidy financing sitting there to be able to do all this in the PRGT? I mean, do we need to start thinking about amending that? Do we need to come back to questions of, don't forget, does the IMF gold that periodically resurfaces as a topic.

MD Georgieva: Well, you wouldn't be surprised for me to tell you that these are questions that countries are already asking, members are already asked. On the subsidies, I use this forum to say to those who are better off and haven't yet stepped up on our call for subsidy resources, please consider it. It would make our ability to help the most vulnerable countries stronger. We are still short, I can tell you where exactly we are on the SDRs on lending, we are two thirds to three quarters up to the target. But, on subsidies to complement this on lending, we are only around 40% to target. So, what are we doing? One, you know, the thing called the Finance department they are very creative in finding ways in which subsidy resources can be provided, including using interest on the SDRs and making that work for subsidies. And of course, the question of a small gold sale for some countries is an open question.

Masood Ahmed: So, let's so let's move on. I know we want to stay to our time. So, the one topic which I think is very much out there is debt.

MD Georgieva: Yes.

Masood Ahmed: You know, the state of play is well known. It's been difficult to get progress, some progress on the common framework, but not what anybody had hoped for on it's not clear where getting countries outside the common framework that are in the fund and others have been saying the risk of debt problems. You just said that a large number of emerging markets themselves are feeling distress. So over the next two years, debt problems are going to get worse rather than better. And yet the difficulty of getting the creditor countries together, which include China and the Paris Club and non-Paris club creditors, all thinking alike, has really bedeviled progress. And the private sector creditors also have really not been as forthcoming as one would have expected. People are saying, look, this is going to go nowhere unless the IMF and maybe the World Bank together take a role that is more proactive in moving this agenda forward. And I mean, you and others have written about the things that need to be done to fix the common framework. Not clear any of those things are getting picked up. What are we going to do about debt?

MD Georgieva: I am very grateful we are bringing this question because it is a problem that is only being built up. It is not melting on its own. We have gotten modest success with Zambia on the Common Framework. We are now urging to codify the rules of the framework and then apply these rules consistently. My message to the large creditors, to China, to the private sector, to all those that have been there providing financial resources for countries, is that the larger your share is, the bigger your responsibility and the bigger your interest. It is in your interest as creditors to prevent a problem from exploding. And yes, you're right to call on us on the IMF and the World Bank. We are discussing with David Malpass how we can structure that engagement with the large creditors. And again, you will see how we are thinking through it and how we are coming forward. We have to remember that debt crises are always a gradual build up, but an instantaneous explosion. And may we be smart enough to prevent it from happening.

Masood Ahmed: And we've seen the individual countries, when they do fall into that, I mean, a debt crisis when you fall into a debt default. It really is a shock that stops everything else from working in the system.

MD Georgieva: So, and it can have spillover impacts and we need to remember that/

Masood Ahmed: Wouldn't be able to get Lebanon or you look at Sri Lanka, you know, is a classic example right in front.

MD Georgieva: So, on Sri Lanka, there are three large creditors, Japan, India, China. We are very hopeful to see an engagement from the public side that comes quickly. And then, of course, looking at all the parameters, bringing the private sector on board. On Lebanon, we need to recognize it is primarily domestic political constraints, unfortunately. But, what is common is that we are not quite recognizing the urgency to deal with these problems and we know what has to be done. One you need that transparency, please show me the whole thing, not just the tip of the iceberg. Two, we need rules that provide equal treatment for creditors. Three, we need an organizational setup that brings creditors together. And four, we need political will in the countries to work with the creditors, to work with us, to work with other institutions, and then be decisive in equal treatment for everybody.

Masood Ahmed: And I would just add a footnote to you for, which is you need a process, you need predictability, and you need a timetable. Because at the moment, frankly, I mean, if I'm a country that's looking at whether I should go into the system, it's like entering into this tunnel, which is dark and I'm not sure when and how I emerge.

MD Georgieva: Agreed! I remember when I when I first wrote about that these were the three things. One, provide incentive for countries to come: debt standstill. Two: provide them with rules and timeline. How is this going to work? Three: make sure that there is inclusiveness and that there is as much transparency as possible.

Masood Ahmed: exactly. And I think those are still valid objectives, but they're still objectives rather than reality. Now, Kristalina before we finish, so I wanted to also take the opportunity of of people who are watching and who are sending questions in online, for which I thank you and I encourage you if you do have still to send them. So, there are two questions, and they are both about meetings that you have recently had. So, I could assume from my time doing communications that these are obviously from the colleagues in the media. So, the first one says, and I'll give you both of them together because they're the same question, essentially. One says that you spoke with President Zelensky today and want to get a little bit of a readout from you of that and what more the IMF and the global community can do. And the second, so that you met with the minister of economy of Argentina yesterday, and again, any readout from that? Are you concerned about a credibility crisis from that? So let me give you those two questions.

MD Georgieva: Well, thank you to those who are asking questions. Very good, very engaged, very substantive call with President Zelensky. We discussed, first how we can immediately be of help to Ukraine. Remember, we were the first institution to provide financial support to Ukraine through emergency financing. At that time, it was 1.4 billion [dollars]. We are still the largest source of financing from international financial institutions. But in meanwhile, the needs of Ukraine have only grown. So, we discussed how we can deploy potentially the food shock window, provided our board approves it, and what could be a potentially a timeline for it, as well as likely size, which would be in the ballpark of what we had done last time around.

Secondly, we discussed a longer term engagement with Ukraine and how we can build towards a program that can more comprehensively benefit Ukraine. We are going to modify somewhat our engagement capacity with the proposal we have made to our Board. That is a build up towards a full-fledged Fund program. And we agreed that a Fund mission will engage with the economic team of Ukraine in within the next weeks and then and then create a pathway of engagement that is deeper. Three, President Zelensky was very interested how the fund can work with other institutions, kind of lead institutions on the policy support for Ukraine and more broadly on imagining how Ukraine transitions from where it is today to a sound future.

He was very gracious to our staff, expressing gratitude for the work of the staff. But most importantly, he was very clear that he expects the Fund in what we are best, which is macroeconomy, monetary policy to continue to be engaged with Ukraine. They have come to us over these months with very specific questions that are dictated by reality. How do you deal with revenues in an environment they find themselves? How do you stabilize those revenues where the economy is coming to a normal performance? And questions like this will continue to come. So that was doing that to.

Masood Ahmed: So that is Ukraine, and Argentina?

MD Georgieva: Argentina. A very strong commitment from Argentina to the program and the recognition [that] the program is an anchor for the Argentine economy. They don't have the luxury of other anchors. What impressed me was the composition of the team. Minister Massa came together with the Central Bank Governor and the key people of his team. And that is a good signal that we have a whole of government approach to implementing the program. We are at the time.. when he soberly recognized that, and of course, I soberly recognized the problems Argentina faces are very significant. And on top of the list is inflation, that is devastating, especially for the poor people of Argentina. So, how to work together to address this problem - some accumulated over time - successfully that was a conversation that actually extended - I was late to Chair the Board - very substantive and I came out of it with the sense that we have a partner with whom we can work well.

Masood Ahmed: Kristalina I want to say I'm really happy that we were able to have this conversation today, because I know you have your in a couple of weeks, you'll be doing your curtain raiser speech, which focuses more on the global economy. And we'll look forward to that. But I think what you've given us today is a very good sense of how you, you and the institution are taking on board the sort of changing global reality within which we are going to have to work, not just to deal with the current crisis, but with a new wave of shocks. What if on the other, if you like. And also with the work program and with many deliverables between now and the Annual Meetings in the months ahead. So, we will be tracking progress on all of that. And I hope that we have an opportunity once we're through the Annual Meetings, to then take stock on and see how far these innovations are addressing the problem. I think you'll find many people outside who are very open to engage with your colleagues, to try and find ways to make sure that this is the most responsive IMF that there can be.

MD Georgieva: Yes, you started with stigma. We ought to put it in the past. Put it behind us. Why? Because if countries don't come in a timely way, they hurt themselves, but they also hurt the rest of the world's economy. I want to end up with two thanks. One to you, to your colleagues, and to everybody who is willing to give us a helping hand in this very complex and uncertain time we find ourselves in. Two, to my staff, the staff of the IMF. These are admirable people; they work extremely hard. And I cannot tell you how impressive it is to see them coming up with this fresh thinking for the sake of the membership.

Masood Ahmed: Well, thank you to you. Thank you to all your staff. And looking forward to continuing this conversation.

MD Georgieva: Thank you.

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