The Managing Director Media Round Table
February 1, 2024
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Randa Elnagar
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Transcript
February 1, 2024
PRESS OFFICER: Randa Elnagar
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Moderators:
JULIE KOZACK
IMF Director of the Communications Department
Speaker:
KRISTALINA GEORGIEVA
IMF Managing Director
T R A N S C R I P T
KOZACK: All right, very good. Good morning to everyone. Thank you so much for joining us. I think we all know each other here, and this is becoming an annual tradition with the Managing Director having this on the record media briefing at the beginning of each year. This is an on the record chat. It will be placed under embargo until 03:00 P.M. DC time today, and we will post then the transcript on the IMF's external website.
In terms of choreography, we know you all have a lot of questions, so we will take questions one question at a time. We'll give each person one question, and if we have enough time, we will then go for a second round. When you ask your questions, please identify yourself. I know we all know each other, but it's just useful for that.
And we'll begin with some opening remarks from our Managing Director, who we're very happy to have us with here today, and then we'll go to your questions. So thank you. And over to you, Kristalina.
GEORGIEVA: Thank you, Julie. I am very grateful to you for taking time to come. You just got our Update for the World Economy. I would sum it up in the following way. The world economy has proven to be more resilient than we feared a year ago, and as a result, we have come with a slight upgrade of our projections for 2024. We see inflation falling faster than we originally predicted. This is, of course, good news, and it is driven by both ease in supply side pressures and the tight monetary policy.
Despite our upgrade, we have to recognize growth remains weak by historical standards, in comparison to the decade before the pandemic where it was on average 3.8 percent annual. We are projecting for this year 3.1 percent, for next year 3.2 percent. And I want to stress we are also seeing a fairly significant divergence in performance of countries with some doing better than expected. And in this category, quite a number of countries, we have the U.S., we have a number of emerging market economies that have been upgraded in our projections. Among them India, Brazil, Mexico, and China. But then we also have outliers where conditions have become more difficult. And among the outliers, countries that are affected by the Gaza conflict, the MENA region, downgrade by half a percentage point.
Also, in some of these country groupings, an outlier, dragging the average performance down despite most of the countries doing well. Latin America is a good example, where we downgraded Argentina from plus 2.5 to -2.8, that drags Latin American performance down despite the fact that the two large economies, both Mexico and Brazil, are being upgraded, and similarly, we see that kind of impact of individual countries. In Sub-Saharan Africa, where there is a big downgrade for South Africa, making the projections for the Sub-Saharan Africa slightly worse, despite the fact that many countries are doing well. So that is a very important point to make.
When we look into the year, yes, the clouds have receded, but we still have a host of risks to be mindful of. Geopolitical risks remain with us. It is unfortunate that we step into 2004 with two conflicts, Russia and Gaza. We see the risks of policy errors. They're always with us, especially at a time of higher uncertainty that may lead to inflation spiking and changing our perspective. Mother nature is clearly a risk. We saw how it impacted the Panama Canal. We should be bracing for more. And I want to bring the lesson from the last years, the unexpected that we have to be prepared for. So expecting the unexpected is now part of our new normal.
What does that all mean for policymakers? Very clearly for central banks, they now need to lend the plane smoothly. They are going to lend it, lend it in the best possible way. Not too early, not too late, move into policy easing.
Secondly, we have been saying that since the Annual Meetings, more attention has to go on debt and deficits. Of course, it was for a good reason that public spending has increased. But the result of this increase is with higher interest rates, debt servicing costs are up, and countries, by and large, have lost buffers that they may need should there be another unexpected shock. And we recognize that this is going to be tough because half of the world population is going to the voting booth this year. Moving into from higher spending to lower spending levels is always difficult. It is that much more difficult in an election time.
And finally, and of course we need to keep our attention on debt in countries that are particularly vulnerable, where debt service has jumped dramatically in Sub-Saharan Africa, four times more. From now, it is 14 percent of revenues that go for that service. So that there is particularly critical.
And let me finish with what I think is actually most important for our future. And it is growing the pie. And growing the pie means structural reforms. It means eliminating red tape on the way of private sector initiative. It means tapping into the green transition to create new types of competitiveness and jobs. And it means dealing with artificial intelligence in a way that it is in service to humanity.
I hope you have seen we put out a note on artificial intelligence. And bottom line in this note is, it's significant, hitting 40 percent of jobs, positively or negatively, globally. And most countries are not yet prepared for it with the lucky exceptions of countries like Singapore, Denmark, the United States. And that is where we see a potential for product productivity growth. We also see, of course, risks for inequality if we end up in a world in which, within and across countries, artificial intelligence lifts some, but not others. And risks for the functioning of our societies if it is uncontrollingly moving into misinformation and disinformation, which is already a problem to begin with.
So, an interesting year ahead of us, and I'm very pleased that I can say interesting, which native English speaker taught me, is a notch better than challenging. So let me finish here and open it up for questions.
KOZACK: Very good. So we want to make sure that everyone has a chance to ask at least one question. So what I thought I'll do, I'll start here, David, with you. We'll go down this side of the table and then we'll move down this side of the table so everyone will have a chance. Please do limit yourself to one question in the first round, and we will then try to have a second round if we have time. Let's see if we can be disciplined.
QUESTIONER: Well, Managing Director, thanks for doing this briefing. I wanted to ask you about the impact of the war in the Middle East. It seemed like in the WEO there was a fairly subdued impact, and I'm not sure if that was a timing issue, but with the shipping disruptions that are going on, how concerned are you about that affecting inflation, particularly in Europe and areas that are dependent on that canal? And just overall detriment to the economy and to the economies in that region, such as Egypt, Lebanon.
GEORGIEVA: Right. Well, thank you. Thank you, David. We monitor this very closely. We actually have a platform that allows us to see in real time impact on shipping. And what I can tell you is that in the month of January, vis-à-vis January last year, cargo passing through the Suez Canal dropped by 43 percent, according to this data set. And interestingly enough, we are seeing, of course, that ships are going around the Cape of Good Hope. That, of course, adds to costs, adds nine days of additional travel.
So the question is, how much is this putting a dent on the world economy? About 10 percent of cargo passes through the Suez Canal, so the impact is moderated by that size of shipping. There is a bit of incremental pressure on supply, but not yet a factor that is of major significance for the world economy. What we do have, though, is also the Panama Canal restricted because of drought. So it is not negligent, but yet it is not yet a major risk. Just by the sheer size, which is, relatively speaking, not so dramatic.
We worry more about two things, duration of the conflict. The longer it goes, the higher the risk of spillovers. This is one spillover from the conflict. There could be others. And two, we worry a lot about the impact on the countries that bordered the epicenter, especially Lebanon and Egypt. Jordan has shown remarkable resilience. But Jordan is also seeing a little bit of impact on tourism revenues. For this countries, tourism is a major source of revenues and it is, of course, negatively impacted most dramatically, Lebanon.
Next in Egypt. For Egypt, in the first half of January, we looked at the impact of reduction of Suez Canal revenues. And at that time it was $100 million less a month. So they get on average $700 million. At that time it dropped by 100 million. And at that time the reduction in traffic was still less. So we are moving up in losses for Egypt.
Beyond the neighborhood, it just adds anxiety that is, you know, with us, as long as the conflict is with us. There are some signs of seeking resolution. And I would say that should there be a revival of the potential for a Palestinian state -- for a two state solution, which seems to be now more prominent, this would be the best memorial built to all the civilians that have been on both sides that have been killed in this conflict. So may we see a turn of page for stability and security in the Middle East.
I mentioned it in the beginning, the biggest downgrade is for the Middle East, half a percentage point. It is both for countries like Egypt, but also Saudi Arabia. Why? Because of the reduction of oil production and export that is affecting the Saudi economy. It is strong, it can withstand that. But it is not good news that a region that last year was doing quite well is now in a tougher spot.
QUESTIONER: Thank you. My question is related with a couple of sentences that you have just mentioned. You have said that more attention has to go on debt deficits. And I'd like to know how do you see countries like Spain, my country, are dealing with debt, with debt. And also about the sentence that you just mentioned, we see the risk of policy errors. What are these policy errors? Which are the policy errors to?
GEORGIEVA: So on your first question, Spain has performed better than the average in the eurozone, both in terms of growth and in terms of bringing inflation down. And that is the result of good policies and also the outcome of reversing fortunes. Economies that were contact dependent during Covid suffered a lot. But then after Covid, with the interest in travel and vacationing, they have benefited more than manufacturing economies. Spain has been very mindful of the need to deal with debt and deficit, this is on the policy agenda. And with the government in place, we see that this objective of bringing buffers back to a level that can be protective for any further shocks is in place.
I looked at our projections for Spain, and while we see a little bit less growth potential for ’24, it is really the result of spillover from other countries in the eurozone and beyond. So overall, Spain's performance is quite good. And of course, Spain is also benefiting from significant injection of funds from the next generation EU. Spain did something very wise to direct a lot of attention to digital and green. And we look at competitiveness for the future, this is where competitiveness for the future lies.
On the errors. Well, the number one issue is how central banks finish the job. And there the markets today are telling them, move faster, we expect you to loosen faster. And central banks have to be guided by data, not by exuberant expectations of markets. And that is what they are doing and this is what they need to continue to be doing.
At this time of the cycle there is risk of premature loosening. There is also risk of keeping interest rates higher for longer, and that is why the attention to data. And also a very tricky space of different countries being in different place in the cycle. So you cannot, as it was last year, where everybody needed to tighten and you kind of synchronize policy action. You cannot do that anymore. You cannot look at the other guy and say, oh, well, they are loosening, therefore I should be loosening, or they are staying put, therefore I should stay put. So that's a tricky part.
I'm actually on the policy of the site of policy errors. I'm more concerned of countries missing the opportunity of better days to rebuild buffers, because we simply don't know what the future may hold. And we learned an important lesson from Covid and the days when the war in Ukraine started, that countries with strong fundamentals withstand shocks much better. Like people with strong immune systems fought the virus better. And fundamentals have been somewhat weakened because of the pile up of debt, higher interest rates, higher debt service and buffers exhausted in most countries.
So how would governments, how would policymakers brave to do it, given that the popular sentiment is, we want you to keep supporting us? You see the farmers protesting. On a human level, I understand they face more hardship and it is not easy to do the job they do. But if that sentiment continues, and it pushes governments in a corner in which they find themselves unable to do what is necessary for strength of the economies, then there may be days to regret that. I was talking to a number of policymakers, especially on the finance minister side, and they recognize the importance of fiscal consolidation, but they also recognize how difficult it is to pull back from support. It's easy to give it, it's tough to take it back.
So what do we advise? We say look at comprehensively in how you can rebuild buffers, and that means look at loopholes in your tax systems. Can you close it and increase revenues? Look at the quality of your public spending. Is there more that you can do there?
And actually, I didn't make a point that I should have made. Governments are under tremendous pressure to invest in competitiveness. They're under pressure to invest in the green economy. They're under pressure to invest in skills training, retraining for the digital economy. Where is this money going to come from? So you put yourself in their shoes. Your cost of debt service has gone up, your public support for a good reason has increased, and you have pressure to spend for a good reason. So, yeah, that's going to be very difficult. I can tell you I have huge sympathy for finance authorities in the year ahead. Thank you very much.
QUESTIONER: Thank you very much taking on my questions. My question is on Japan and the impact of the notable earthquake last month appears to be limited so far. But according to your latest WEO report, Japanese growth rate is 0.8 and 0.9. It's quite tiny, even though above potential growth rate of Japan. And my question is, is it really enough for Japan to deal with a lot of challenges, for example, stabilizing the pile of debt and so on? And what is your view on that point?
GEORGIEVA: Well, let me start by saying that despite the lower than a percentage point growth, Japan is still growing above its natural growth rate. It's doing somewhat better than the current fundamentals would have defined. And it is the result of fairly well timed interventions, policy interventions, from The Bank of Japan in October when they gave a bit more flexibility around interest rates. And also, from the site of the finance authorities in providing well targeted support to the economy for Japan. We actually have a team now in Japan working on Article IV.
For Japan, there are two big tasks. Number one, it's an aging country and one with low population growth to get the labor market more dynamic. As you know, Japan is making an effort to bring more women, not only in the labor market, but in senior positions, in positions of leadership. Japan is providing incentives for increased fertility of the nation. Japan is very mindful of the need to create better conditions for innovation so it can be ahead of the curve in the new economy. And I think these would be the measures that can push up the natural growth rate of Japan.
I know that people in Japan have some -- they are noticing that inflation is higher than it has been traditionally. We think that -- we don't see reason to be concerned about inflation. We think inflation is going to normalize around target.
And the question for Japan is really one of positioning the country strongly for the new climate and digital economy. And that for Japan, means also looking into the energy mix of the country. So I'm actually a bit, I think that Japan on the horizon of countries, has been quite robust in these last years. But I do appreciate your -- as a Japanese, you aspire for more than 0.8 percent and I support that aspiration.
KOZACK: Lalit, please go ahead.
QUESTIONER: Thank you. Thank you for doing this. You know, in India, India's Finance Minister, Nirmala Sitharama, represented an interim budget or article n the pending elections coming up in that. I would like to ask you about India's economic station. What's your take on that and its potential as an economic power and how India can contribute to the global economy?
GEORGIEVA: Well, India has been a bright spot in the world economy and it continues to be so. We are upgrading projections for Indian growth to 6.5 percent in 2024, this comes on the back of fairly strong performance in 2023. And the success of India is grounded in the pursuit of reforms over the last years.
One very significant advantage of India is the bold actions on the digital front. With the digital public infrastructure, digital id, and making digital a strong comparative strength of India, allowing small entrepreneurs to tap into markets in the way they were not able to do before. We also see in India a recognition that female participation in the labor markets is insufficient. And I think Prime Minister Modi is right to bet on Indian women and opening up more space for their participation in the economy.
And last but not least, India recognizes that innovation is what is going to drive a future competitiveness. Investment in R&D, very effective and efficient investment in R&D. As we saw with the moon landing, the cost of the moon landing, tis creates a very fertile ground for future growth. Where India has to be watchful, like all other countries, it has to be watchful of how the strength of public finances and the use of public money supports this medium long term objective of strong growth.
Well, that's the goal. I see no reason why this would be unachievable. You know, stay the course. As everywhere, stay the course also means eliminate obstacles for private entrepreneurship. And that I see in India -- actually everywhere, space for more to be done. What do you think? You know India better than me. So is it achievable? 47. Here we go. I'm so glad we agree.
QUESTIONER: Thank you very much.
GEORGIEVA: And may I say, this has been so visibly strength for India. Confidence and confidence, not just of the leadership, confidence of the people. When I was last in India, I talked to people from all walks of life, and there is that sense of confidence in the economy, confidence in the country. And you just demonstrated this for all of us to see.
QUESTIONER: I have a question about the United States. I was just wondering, in yesterday's Fed interest rate decision, it seems like the prospect of a March rate cut was taken off the table. They said it was highly unlikely there would be a March rate cut. That seems to bring the Fed more in line with what the IMF was predicting. I think Pierre-Olivier was saying, second half of this year, expecting interest rate cuts then.
But my question is about the risks of over tightening or of leaving interest rates higher for longer. You know, as inflation continues to fall, you're going to have real rates going up, essentially. I just wonder, what do you see as the risks of keeping interest rates high for too long on the U.S. and the global economy? And then, if I may, just one question about the policy risks. The current front runner for the republican nomination has floated the idea of a 10 percent across the board tariff on imports. What sort of an impact could that have on U.S. and a global economy? Thank you.
GEORGIEVA: Let me actually start with a small detour back in the question of policy errors. It is a risk of keeping interest rates higher for longer than necessary. And it is not just a risk for the U.S. economy, it is also a risk for the global economy. Because when other countries, especially many emerging market economies that have brought inflation down to target already move to a lower interest rates. If the U.S. continues to be, you know, higher, that could impact exchange rates and it can impact other countries in a somewhat negative way. So the timing of U.S. easing monetary policy is indeed very important. Not too early, but also not too late.
If you carefully assess the Fed posture, it is one that recognizes the job is not quite yet done, but we are near the end. So we are not talking about a significant space. You're not talking about many months or year. We are talking about timing that is a matter of months.
Our team has looked back in history, and the conclusion they drew is that the risk of premature easing is higher than the risk of being slightly behind, because a premature easing can reverse gains with more significant impact on confidence, both consumer confidence and investor confidence, and also anticipation for what inflation may look like in the future. So that is on the balance of risks. This is still one that the Fed, I think, is right to be cautious about. But don't keep it tight if you don't have to. So look at the data. Act on the data.
To your second question. We have done quite a lot of work on assessing the impact of trade restrictions and tariffs, including tariffs between the two large economies, U.S. and China. And what the data tells us, is that they do have a negative impact on global growth. Actually, what has already been done is taking 0.4 percent out of global growth. So it's not insignificant, especially when we are nickeling and diming for 0.1 percent more. That is obviously not a positive signal.
We have seen across the world more restrictions. 2019, 1 thousand tariff barriers of any kind. Last year, 3 thousand. So getting at the point when there could be a more difficult trade environment, particularly problematic for small open economies and medium sized open economies, they are to feel the brunt of it. And particularly problematic for low income countries for which the opportunity to grow is connected to the openness of the world economy.
KOZACK: Just one question in the first row.
GEORGIEVA: Oh, yes, you guys have done too. Julie, thank you for noticing.
QUESTIONER: Thank you. I’m Maoling Xiong with Xinhua. Thank you very much for doing this. I had just one question about the Chinese economy. The IMF has upgraded the projection for 2024 to 4.6 percent, but it's still much slower than 2023, which was 5.2 percent. There seems to be some issues in the real estate sector, and also there is weakness in consumption for the Chinese economy. I'm just wondering whether you could share some thoughts on the IMF's evaluation for the current economic status and also the government's capacity to roll out policy support? Thank you.
GEORGIEVA: But the Chinese economy performed in ’23, around and even slightly above expectations. What we see as impacting growth going forward are both current difficulties in the property sector, in terms of high local government debt, as well as some structural challenges, like the aging of the Chinese population. And therefore, we recommend that China addresses these issues decisively.
On the property sector there had been some actions taken, potentially, that could be done. Some more could be done. To exit the property sector, companies that have not proven to be viable anymore. And at the same time to finish construction for homeowners that have put down payments to kind of smooth the exit from this problem.
On the local government debt. This is a matter that the Chinese authorities address quite seriously. There is a question of the spending patterns, the sources of revenues, as well as more broadly, relations between the central government and local -- fiscal relations between the central government and local authorities.
On the structural issues. They only can be addressed with China continuing decisively with structural reforms, among them pension reform, to make it so that there is more confidence, so people save less, spend more. To accelerate what is core for the Chinese economy, a transition for high dependency on exports to a more balanced growth model in which domestic consumption plays a bigger role. Looking into the drivers of growth with an eye to shift more towards those sectors where they can be more reliance on domestic consumption. And that is -- in some areas, China has already taken steps like automobile electric vehicles.
Overall, on the green economy, China has made some important decisions. Of course, the way China approaches has to be compatible with the policies of the rest of the world. China does have policy space. As we have seen in the last days, it has taken some steps to stimulate growth for this and next year. But our analysis is clear that without structural reforms, including opening up, opening up the economy further, state owned enterprises, reforms. Without those reforms, there is risk that Chinese growth would fall below 4 percent. So again, an encouragement to continue on a path of deep structure reforms.
QUESTIONER: regional (inaudible) is presumably on the agenda. I know the IMF often talks about how one size fits all approach to Africa won't work, but we're seeing a lot of common challenges and opportunities from coups, climate change, and a risk of financial contagion. You talked about this in Latin America and Argentina. I wondered if you think it's time to start thinking of an African crisis similar to the Asian crisis of 1997. Are you in conversations, for example, with the World Bank President, whether financial institutions start thinking of regional approaches to take on (inaudible).
GEORGIEVA: Well, Africa certainly is a very vivid example of divergence in fortunes of countries. We have the countries that have been impacted by coups, 11 coups or attempted coups in the last years. We have countries with high debt vulnerability, but we also have countries with very strong performance, high growth rates, strong fundamentals. An example is Côte d'Ivoire that just went to markets and the emission was eight times oversubscribed.
So when we can't talk about Africa as if it is one entity. It is Africa of high growth, with strong policies in place, countries that collect over 20 percent in taxes, and invest in human capital, in infrastructure, in growth potential. And we have countries that collect less than 10 percent in taxes. We have countries with commitment to reforms. Nigeria joined this club, liberalizing the currency. And we have countries that are going backwards, especially in this red belt of instability from the Sahel to Sudan. So it's very difficult to talk about Africa in one breadth.
I would say, for us, for the Fund, this is the reason we have worked hard to have a differentiated approach to countries in Africa. Where we are uniformly approaching Africa, is to make the Fund present and engaged. Of course, depending on the nature of the issues the country is facing. We have 21 programs in Sub-Saharan Africa, this is a record for the Fund. Exactly for the reason that Africa needs to be supported.
A uniform problem for Africa, even in the best performing countries, is the triple financial squeeze. One, buffers exhausted because of Covid and the impacts of the war. Two, high interest rates that have pushed debt service costs four times above where they were before Covid. And three, -- and actually also currency depreciating in this environment. And three, stagnating ODA support. And in that context, I welcome the Italian government and the Italian G7 presidency bringing attention to Africa. We have to recognize that the financial gap for Africa to stop diverging, on the average, from the rest of the world is significant.
I want to make two points that are very important to recognize. The first is on debt. Yes, there are countries in Africa suffering under a high level of debt, but it is not a universal problem. It is not a systemic crisis. And it is important for this to be recognized, because otherwise we put under the same definition Côte d'Ivoire and Central African Republic. And obviously they don't belong to the same club. We have made some progress on the common framework overall on that resolution. Admittedly, we need to do more, but we are not where we were before the common framework was created.
And the second point I want to make is Africa uniting for its own good. The Continental Free Trade Agreement holds tremendous promise. If implemented, it can increase intracontinental trade by over 50 percent. It can lift income per capita on average by 10 percent. That's a very significant benefit. But it takes the collective will to act to remove trade barriers, non trade barriers, and build more connectivity in Africa. And of course, Africa, with the youthful population, holds tremendous promise.
It is not helpful, however, when countries pull back from regional and continental trade and integration. And we talk with the World Bank, we actually have a very systematic approach, which is first look at the challenges, the key issues, and of course, debt comes there. Climate, green, industrialization, digital Africa. But then identify countries where focus of the two institutions is paramount. And obviously that leads us to Zambia, Ghana, Kenya, Ethiopia, where our teams have a very structured engagement. So the two institutions, of course, with the African Development Bank and others, that we do better.
QUESTIONER: Thanks so much for taking my question and for doing the briefing. On the U.S. economy, can you talk about why it's been so surprisingly strong? And as part of that, do you expect this sort of burst of productivity to last and spread to other countries?
GEORGIEVA: Well, the surprise came because conventional wisdom teaches us, and actually economic history, that when you tighten interest rates, especially so suddenly and so much, there would be slowdown in consumption and investment, slowdown in growth. And last year, we were among the very few that we didn't have in our baseline recession in the United States. We actually thought it might have a soft lending because we can see the labor market remaining strong and consumer demand remaining strong. This conventional wisdom did not materialize. We didn't see dramatic drop in consumer confidence. We didn't see labor market softening.
And that is the result of two things. One, accumulated savings during the pandemic. Two, the fact that there have been good economic forces, winds blowing into the U.S. sail. Energy. The war in Ukraine affected Europe quite significantly, did not affect the United States, because the United States is an exporter of energy, not dependent on others. And that continues to play a positive role. Second, the fact that there has been a great deal of attention to infrastructure and moving into the green economy, providing a stimulus. And three, the innovative nature of the U.S. That is, it continues to be a magnet for talent from all over the world. When you look at the field of artificial intelligence, the so called magnificent seven here -- do that gives a, in a world of rapid technological change, it gives a competitive edge to the U.S. When U.S. is doing well, that has positive spillovers. We see it, for example, the Mexican economy being upgraded.
But it has positive spillovers globally, because it's a large economy, it has large impact. If U.S. is able to lead on artificial intelligence, with the right proportion of regulation and innovation, it can be transformative for the world. Analysis shows that artificial intelligence can lift up productivity quite substantially.
Finally, if you look at our worry, growth is weak. Why is growth weak? Because productivity is lagging. If those who project artificial intelligence to be the next industrial revolution, the next big transformation in the world economy, they are right. If they're right, then obviously the U.S. would be in a pivotal position because of the advancements that have been made here.
But let me say one thing, and I want to say it loud and clear, and please, on the record. Interest rates are still high. And we are seeing that they -- of course, they bite. They haven't bitten us badly. But you see some softening in the especially SMEs. You see the commercial real estate in the United States being a soft spot, and that translates globally because banks that have invested in commercial real estate in the United States feel this suffering. So while our baseline and our conviction is that we are poised for soft landing, it's not done. We are still 50ft above ground and we know that until you land, not over.
KOZACK: Question from Claire before Managing Director. She is filling in for Colby, who's on maternity leave from the --
GEORGIEVA: Oh, so Colby, did she have the baby?
QUESTIONER: She did.
GEORGIEVA: And?
QUESTIONER: Rowen May, a lovely little girl.
GEORGIEVA: Excellent. Please convey our very best wishes.
QUESTIONER: She'll be so pleased.
GEORGIEVA: I'm so happy for her. I last saw her when she was well advanced, but great. I'm so glad to hear this, and welcome.
QUESTIONER: Thank you very much. I'm just kind of like mulling whether to ask a question about Egypt or Argentina. I think I'm going to go for Egypt. So there's a lot of reports going around that you're really close to agreeing a deal. Would you care to maybe comment on that or just tell us? You mentioned a little bit in Egypt, but how do you see the situation, the IMF's capacity to help?
GEORGIEVA: Working with Egypt is a very high priority. Both because it matters to the Egyptian economy and the Egyptian people, but also because it matters more broadly in regional context. That has become more difficult. We have very constructive engagement with Egypt. The problems Egypt is dealing with are complex, so it requires us to thoughtfully and thoroughly go to how best to address them. And we are making very significant progress in that regard.
We recognize that the financial gap for Egypt has increased. I just mentioned that they're losing, just from Suez Canal revenues, they're likely to lose, they are losing hundreds of millions of dollars. So we are discussing, also augmenting our program in light of the developments over the last months. And again, I want to express my respect and appreciation for the quality of our engagement with Egypt and the progress we have made over the last days. We may need a little bit more time, but
QUESTIONER: How much?
GEORGIEVA: Well, we are in this very last stretch when we are working on the details of implementation. And both sides, the Egyptians and us, we want to get that right. And as you can imagine, things have changed. So we started from a point that is not anymore exact. So we have to make that correction of the program. But we are close. We are very close. So we are not talking about long protracted period at all.
And I can tell you I have engaged with other partners of Egypt. I met with the president of the European Commission, that was one of the issues with the Gulf. This is one of the top issues for us, how we can best support Egypt in this very difficult time. Needless to say, for the Egyptian people, but also for regional stability.
I'll grant you Argentina. So if you want to ask Argentina
QUESTIONER: I feel that's slightly unfair.
GEORGIEVA: Just because we have --
QUESTIONER: Is this a question that other people want to know about as well? Okay. I mean, it was just to give us an update. I mean, it sounds as the new music has been quite optimistic on Argentina since Milei took over. But we've had news, you know, last Friday, it’s been difficult for him to pass measures. He also seems to want to draw up a new IMF program. So it'd be good to just talk about, you know, your view on the situation in Argentina and how concerned you are and how amenable you'd be to start a new program afresh.
GEORGIEVA: Let me start by the tremendous difficulty the new administration stepped into when they won the elections. We had a country that had inflation in triple digits, practically no reserves wiped out, poverty levels going up. And what we endorse wholeheartedly is the decisiveness s to tackle these problems with more ambition than we have seen in prior years. And speak truth to people, which there is no sugar coating. Milei was elected on the basis of telling everybody it’s going to be very hard and it will be.
As I mentioned in the beginning, we have downgraded growth projections. We saw already installment of this decisiveness in action. Eliminating multiple exchange rates, setting a target on the deficit side, wiping out deficit this year, 2 percent surplus, anchoring the policies of the government in no more Central Bank monetary financing, which is a very brave step. And also recognizing that vulnerable people in Argentina are going to be to feel the pain more than anybody else, therefore building more social protection.
What I can tell you is that so far we have seen a good team in place, good economic team in place, very pragmatic president, not ideologically confined, but looking at ways in which the country can move out of this difficulty. And in that sense, the decision that was taken on Friday was a pragmatic decision. You move where you have more consensus. We also looked at the consequences of this decision on the targets, the program targets, and we were satisfied that there is contingency in place. What is very clear is that moving through this very difficult year would require more contingency planning and more agility and adaptability.
At this point, we are not discussing a new program. The government, in my view, correctly decided to bring the existing program back on track. But given the ambition they put forward, when we had the discussion on the 7th review, it did feel like review number one, because there is a dramatically different approach to policy making. It is of course, risks are there. Getting through a big transformation, big bank change is never easy. You have to keep people with you. We have been backing up the Argentine people. We will continue to do so.
I'm impressed by how open the government, the president and the government, is to advice to good policy discussions. And that was my personal impression when I met him, both when I met him virtually, and when I met him in person, in Davos.
QUESTIONER: Very good. Thank you.
KOZACK: So, David, to you.
QUESTIONER: Yeah, I wanted to go back to something you said earlier. You'd mentioned this was a year of elections and I forget the number, but they're breaking out all over the place. How concerned are you that economic discontent, of one form or another, in places like the United States or elsewhere could produce political outcomes? Renewed populism, extremism, what have you, that would aggravate the sort of geoeconomic fragmentation you've warned about in the past.
GEORGIEVA: What we have seen over the last years is that a combination of changing hardship and misinformation. Disinformation have fed into a public discontent, mistrust in governments and that makes the job of policymakers when they have to take tough decisions harder. The more attention is being paid to the reason of genuine reasons of discontent, and the response to these reasons is made part of policy. The better chances we have for public support and for elections that produce governments willing and able to take the tough decisions that are sometimes necessary.
On a more positive note, today we saw the European Union coming together on the support for Ukraine after quite an extensive debate, especially bringing on board Hungary for this decision. The more we are able to bring that kind of unity for tough decisions, decisions that require different points of view to be integrated, the better. My personal conviction is that we would see a world in which more collaboration is focused on specific tasks that can be explained to people rather than on broad, overarching agreements. And that we should be very pragmatic in persevering to show that coming together makes a difference in a positive way.
I was also very encouraged, and I'm saying that not because happens to be my duty and my job. I was very encouraged by our Annual Meetings. Here is the world, days after Hamas's attack in Israel and response from Israel already in place. Agreeing to increase by 50 percent, the quarters of the IMF, agreeing to provide us with all the funding we ask for, and more for our poverty reduction and growth. Trust for both the loan account and the subsidy account, and agreeing to create a third chair for representation of Sub-Saharan Africa so we can reach agreements as long as we can articulate clearly the benefits of those agreements and help countries stay together.
So that kind of -- my sense is that if we retreat into, oh, it's all difficult and we can't get anything done, and it's hopeless, we would get what we deserve. We would get nothing. We need determined pursuit of the common good. And that means also thinking through more what people care about and how we can respond to what they care about. So it is harder in a way, but hard doesn't mean impossible. It just means we have to work harder for it.
KOZACK: David? Eric.
QUESTIONER: Yes, thank you, Managing Director. I just wanted to, before my question, follow up on your answer to my colleague on Egypt. Our reporting is that the team has extended its stay in Egypt. The mission has extended its stay through the end of the week. Do we read that as a positive sign that a breakthrough is closer at hand? Specifically on the currency, is there anything that you're asking for if you can clarify the IMF view on Egypt's currency and the potential devaluation? And then my question is on Zambia. And if you think that we're going to see, if you're confident that we'll see a resolution between commercial and official creditors on comparability of treatment? And what this says, though, about comparability of treatment and how the common framework has worked, or whether it may need to be tweaked.
GEORGIEVA: Detailing implementation of agreements that we have reached, and since these are ongoing negotiations, I would rather not say more out of respect of our Egyptian partners. But my message is that we have made very good progress. And it is the fact we take more time is not because of disagreements, it is just because these are complex matters. Egypt has taken a wise decision over time to move to inflation targeting. They ask us for support in that regard. So they are thinking about systemic adjustments in their policies and what it would take to be successful. And we are working on these details.
On Zambia, the issues of comparability. The issue of comparability of treatment is one of those we have identified as critical to do more work on, and it is high on the agenda of the Global Sovereign Debt Roundtable. Why? Because in a world of multiplicity of creditors, traditional, nontraditional, public creditors, and private creditors being eye to eye, what is comparable treatment is not at all easy. So to answer your question, yes, the common framework needs to come up with more clarity on some of the issues that have been on the way of quick resolution, and comparability of treatment is one of these issues.
Zambia. And then on specific question of Zambia, Zambia is engaging very actively with the official creditors and with the private sector creditors to bridge that gap that still exists. I am confident they would reach a conclusion. It is to the credit of Zambia for being a very prudent economy in terms of the strength of their policies domestically and the fairness with which they're approaching their creditors, as you know, the difficulty is to get the public sector creditors to accept a solution on the private sector creditor side. That they have some doubts is entirely comparable. We have been asked, we have provided our technical judgment and in that engagement my conviction is that Zambia will get a resolution. They earned it. So they must get a resolution, they earned it. They deserve know.
I am hesitant to pronounce on that because I thought we were done and that was in October. So this is one of the issues that I am concerned about that with multiple creditors you think that you have closure only to find out that there is a holdout. And this is why I'm going back to the principle of using the global sovereign debt roundtable to bring decisions in principle on the issues that are currently causing deviations among creditors.
QUESTIONER: Egypt's currency. Do you anticipate that they will devalue?
GEORGIEVA: Sort of in one go I answered this part of his question. These are ongoing discussions and I would rather not get know you would hear from the two of us, from Egypt and the Fund when we are done. And David, I'll call you, right. Actually, I have to call Eric first because he asked the question first. But I'll come back to you. And again, I just want to say on this issue we have a country that is generally one of the worst affected. They were hit by Covid, then they were hit by the war in Ukraine more severely than others because of their high dependency on grain imports. And now they're hit by the Gaza war more severely than others because of proximity. And there in a neighborhood that is not the easiest, you just think of the number of refugees from Sudan that went into Egypt.
The Egyptian population feels quite desperate for strengthening of the economy and the government is committed to do that, to take the steps that are necessary. But they also have to do it in a context of high anxiety. High anxiety because of the status of the economy, but also high anxiety because of the war next door. In fact, we have observed, we have heard from our partners in the neighborhood that consumption has gone down because people are sitting in front of their TVs watching the tragedies next door. And that has a huge impact on the society in Egypt, but also more broadly in the Arab world, in the Muslim world.
So we are always very careful how we go about the program, how we communicate on a program, and now we have to be extra careful given that context. So please, you know that I'm always open to share, but we also have to be respectful of where we are. Last steps. Please go ahead.
KOZACK: So we only have a few minutes left, so I think maybe we can take two questions in these last couple of minutes. So go ahead.
QUESTIONER: Yeah, thanks very much. Quick one on the Chinese economy. Just wondering how much confidence you have in the data that you're getting out of China, considering outside analysts are a little bit less bullish on China? And then, which is, one on sort of the macro economy. G7 is working on a plan to seize Russian assets and use those to aid Ukraine. Do you have any concerns about the impact that this could have on the global financial system and on the dollar?
GEORGIEVA: To your first question, we are very realistic about China. We actually -- in our projections we were, last year, a little bit below consensus on China. We were more forthcoming on seeing the difficulties that were the headwinds that were coming for the Chinese economy. What we recognized is a sheer fact that China does have policy space. They have policy space, monetary policy space, they have fiscal policy space. So if they were to boost economic performance, they have the luxury of being able to do so.
This being said, I want to repeat that we are concerned about medium long term growth in China. that without structure reforms, it will fall below 4 percent, somewhere in the 3.5, 3.6 percent, which is going to create difficulties for China. So we would like to see China focusing not only on the immediate problems, but also on these medium long term structural issues. And of course, how do you rebalance from export to consumer more consumer driven economy? It's not a trivial task and it does require a series of reforms. How you get the state owned enterprises to compete on equal footing with private sector, not a trivial task. So that's on China.
On the issue of frozen assets, we, as an institution, we have duty of neutrality, so we do not get into topics that are in the hands of member states to decide. In other words, that is for member states to decide. What we would say is, and we said it in the -- for Belgium, is that these are issues on which there has to be very sound legal basis and all the potential consequences have to be properly assessed. So if a decision is to be taken in that direction, it has to be taken with ice open.
KOZACK: Alan, go ahead.
QUESTIONER: Just a very quick follow up about Argentina. And maybe it's a little naive question, but why weren't you more forceful, more critical with Alberto Fernandez's government, because it always seemed like it was the drug's fault, right? So why weren't you more critical at that time?
GEORGIEVA: Well, let me say Julie had the privilege to be in charge of our work in Argentina. In these times, we were quite critical of the incremental policies, and we were very clear that Argentina needs to take some decisive steps to bring back macroeconomic stability. We were particularly keen to see clearing the way for private sector to bring more jobs. I mean, you have a country where -- don't quote me on the number because I may not get it right, but I think they have like five and a half million jobs in private sector from the size of the country. It's so small.
At the same time, I also would say that it was very important to prevent Argentina from falling off an edge. That the consequences of complete derail of the Argentine economy for poverty levels could be quite dramatic. So we took that more pragmatic approach of saying, let's do the best we can given the political environment. And until April, they actually have done the best we can. And then in the last month the program got completely off track. So we did face a need of significant course correction and fortunately, this government is doing it. Okay.
KOZACK: I think that brings us to the end. I don't know if you would like to give any final comments.
GEORGIEVA: I want to say first, thank you. I enjoy very much these meetings because they also give me a sense what is top of mind of the public you serve. And I hope that we will have some good news to share on some of the countries.
I'm surprised nobody asked about Pakistan. I don't know what to make out of it. So you think Pakistan is doing great? Perhaps only one question. Well, I would say, because I opened up my mouth on Pakistan, we see the problem we have with this caretaker government. They have done a good job. They have done a good job to move in the right direction. But of course, the problem of Pakistan are not solved. So more needs to happen.
What we expect is government that would take seriously solving the very deep structural problems of Pakistan. I talked about countries having very low tax to GDP. Well, Pakistan is one of them. Not allowing rich people to not pay their duty to society is not going to bring prosperity to Pakistan. So we would like to see a government that is willing to do what is necessary for Pakistan to reach its potential. As you know, this is a country that can do much better in economic terms. So we won't see that aspiration translating into government policy.
KOZACK: Very good. Thank you very much all for coming. Thank you, Kristalina, for taking the time and spending it with us today. Let me just reiterate. The content of this discussion is embargoed until 03:00 P.M. today. In case you have any immediate follow ups, you can contact my colleagues at media@imf.org.
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