Transcript

Speaker:

Kristalina Georgieva, Managing Director, IMF

 

Moderator:

Julie Kozack, Director, Communications Department, IMF

 

Ms. Kozack: Good morning, everyone. It is wonderful to see you all here with us today. Those of you here in person, and we know we have some joining us also on WebEx, I will turn first to the Managing Director for her opening remarks, after which, we will open the floor for questions. So, without further ado, Kristalina, over to you. 

Ms. Georgieva: Thank you very much, Julie. A very warm welcome to all journalists that are here in the room and those that may be online. Great to have you with us. 

When we gathered here six months ago at our Spring Meetings, there was a lot of anxiety about the state of the global economy. I am sure you remember that. Then we predicted a considerable slowdown in growth, but no recession. Six months on, where do we stand? In a nutshell, better than feared but worse than needed. And uncertainty has continued to go up, up, up. Gold values, too. 

As you saw in our latest World Economic Outlook, global growth has held fairly steady, and it is projected to slow from 3.3 percent last year to 3.2 percent this year and 3.1 percent in 2026. That is better than we feared, better than what we projected six months ago. 

The question is why has the global economy shown such resilience in the face of uncertainty and profound transformations in geopolitics, in technology, in trade relations, in demography. I can give you two core reasons. 

First, improved policy fundamentals. Since the Global Financial Crisis, many countries, especially emerging markets—we have a chapter on emerging markets policy fundamentals—have pursued sound policies. They have strengthened their institutions. They have strengthened their frameworks. This investment is paying off. And if I may say, stay the course. 

Second, the adaptability of the private sector, which has shown agility in import frontloading, in supplychain strengthening, in just navigating uncertainty is quite remarkable. But even so, the outlook we have is underwhelming. Mediumterm growth prospects remain weak. Public debt is nearrecord highs and continues to climb, and the global economy is excessively imbalanced. 

The forces of change are making the global economy less predictable, and it is impacting people. People are anxious. They are taking to the streets to demand better opportunities. So, what can countries do? 

In the Global Policy Agenda, I emphasize three overarching priorities. First, we know private sector handles uncertainty better, so unlock private sector growth for economies to deliver more jobs and better livelihoods. 

For the private sector to strive, countries must push ahead with broad and ambitious domestic reforms. I have encouraged our members to embrace regulatory housecleaning to help foster innovation and entrepreneurship. I urge them—I urge them to keep trade as an engine of growth. This can only be accomplished, though, when the basic building blocks of private enterprise are in place: strong institution, free and fair markets, and stable macroeconomic environment—which brings me to the second priority, secure sound macroeconomic fundamentals for navigating a more turbulent world. 

On fiscal policy, countries must rebuild fiscal space and reduce debt. This means relying more on domestic sources of revenues and making smart budget choices. 

On the monetary and financial sector policies, the priority remains to preserve stability and guard against financial stability risks. 

Third, reduce global imbalances. They have shot up. Countries with excessive surpluses, like China, should boost domestic demand, including by spending less on industrial policy and more on social safety nets. Those with excessive deficits, notably the United States, need to reduce fiscal deficits and incentivize private savings. 

As always, at the IMF we are focused on what we can do to help countries strengthen economic and financial stability, resolve balance of payments problems, build strong policies and institutions. And there are a couple of very important developments that we are pursuing. We have in motion the Comprehensive Surveillance Review to sharpen the focus on surveillance, including our advice on trade policies and domestic reforms to rebalance the economy. 

We have an ongoing review on conditionality. It would strengthen program design so we can better support our members and help them navigate this more uncertain world. 

To ensure our capacity to provide muchneeded financing to lowincome countries, we need to continue to mobilize our members to fully implement the PRGT reform agreed last October. There is one thing that I am calling members to look carefully into. This is our Catastrophe Containment and Relief Trust. It was very useful to help the poorest of the poor during COVID, but it is depleted. For the new shocks to come, we need to seriously consider replenishing it. 

Finally, on debt, we continue our work on the Global Sovereign Debt Roundtable. We had our meeting yesterday. We continue our work on reviewing the debt sustainability framework for lowincome countries. And we intend to make more systemic use of our good offices to improve coordination between creditors and debtors. 

So let me end with this. Uncertainty is here to stay, and change is unstoppable, but with change comes opportunity. And at the IMF, we will continue to help our countries to pursue opportunities in front of them. As a prudent steward of our members' resources, we are going to be right there for them every step of the way. 

I can share with you that I have had extensive meetings with regional groups across the membership. The interest in the Fund to provide calibrated, detailed countryspecific advice for this moment of time is just overwhelming. It makes me feel very good that our members value what we can offer, and I know we will reflect on all of this when the meetings are over. Julie, back to you. 

Ms. Kozack: All right. Thank you very much. We will now open the floor for questions. Please raise your hand. I see many of you are doing so and we will take questions from the floor. Let us start actually in the back here, right on the end, the man with the pen in his hand. Right here, yes. 

Questioner: Thank you for doing this. Managing Director, there has been a lot of talk about the role of artificial intelligence over the past year. I wonder could you outline how big a role you think the AI investment boom is playing in the resilience of the global economy. 

Ms. Georgieva: Excellent question. The AI investment boom is bringing incredible optimism mostly concentrated in the United States. When we look at the distribution of AI investments, the US stands very tall and then comes the rest of the world. 

What it drives here is also recognizing that there are two things for AI to work. One, energy. How that can be secured on the scale that is necessary. When we look at the demand for energy for AI, it is equivalent to half of the energy consumption of the United States. It is really big. And the second one is how would then AI penetrate the rest of the economy. How would it transform sectors because AI would be valuable only if it makes a major contribution to productivity and growth? 

We have done our assessment. Our view at this point is that indeed AI will contribute to growth—somewhere between 0.1 and 0.8 percent. This is significant. Remember, we are stuck in this around 3 percent growth right now. And if we were to extract that kind of boost of growth, that would be very significant for the world. 

Of course, we do not quite yet have this penetration of AI across the economy. And this is why we are emphasizing one thing, preparedness. Are you ready for it? We have developed at the Fund an AI Preparedness Index. It ranks 174 countries on four criteria: digital infrastructure, labor market skills, innovation, and how it penetrates. In other words, is AI making a difference in transport, in agriculture, in healthcare. Four—and the fourth is the trickiest—regulation and ethics. When we rank countries, here is a problem that arises. We have a very big distribution from the best to the laggers. Advanced economies and some emerging markets, among them China, but also most of the Gulf, they are concentrated in the top one third. Lowincome countries are at the bottom. So, the risk we see is that we may end up in a world in which there is an increase in productivity, but it is also a source of divergence within countries and across countries. This is why I go back to the point I made; preparedness really matters. It is happening fast. So, we do not really have much time as societies to be ready for AI. 

I love asking this question, so bear with me. How many of you are using one or another application of AI? So here we go. OK, let us go to the next question. 

Ms. Kozack: Let us go to this side of the room. I am going to go to the gentleman, second row with—right there. 

Questioner: Firstly, can you talk generally about how you view the fiscal health of the Group of 7 countries as a whole directionally and some risks there? And more countryspecific, can you talk about Canada's fiscal position. They are planning to run some deeper deficits, focus investment towards infrastructure and capital spending, away from operating spending. Can you just generally speak about Canada as well, too?

Ms. Georgieva: Of course. Of course. So, what we are observing is that debt built up is driven primarily by advanced economies, also emerging markets—not lowincome countries because it is very difficult for them to tap into more borrowing. 

Advanced economies are moving up, but there is differentiation. Some have a more significant fiscal problem. Others less. When we look at the Group of 7, we have on one side the United States, as well as France, Italy where there is need for fiscal consolidation. The good news is that they all recognize this need. Then we have countries that are—Japan is in this category of needing to look into their borrowing. And then we have countries in the G7 that are in a better position. Germany and Canada stand up in that regard. 

Both Germany and Canada recognize that in this very testing time, they need to use their fiscal space. In the case of Germany, it is beneficial for Germany, it is beneficial for the European Union and, of course, it is beneficial for the rest of the world. In the case of Canada, the Canadian authorities have been very decisive to take action in the context of changing relations with their main trading partner. And one of these actions is indeed to reform—modernize the budget framework by doing two things. First, separate operating expenses in the budget from investment—that ability to then focus strategically on investment that are progrowth, that can lift up productivity. And then send a signal to companies and to society as a whole that Canada is going to do it, we welcome very much. 

The areas that Canada identified, housing, infrastructure, energy, they are thinking of some strategic projects. These are areas that we see the need of doing more so Canada can lift up productivity. 

The second thing Canada is doing is to change the time schedule for the budget. Rather than presenting it in the spring, to move it towards presenting it in the fall. Actually, if I remember correctly, early November is when the budget is going to come. Why are they doing it? Because they are thinking of predictability of the signaling of this investment orientation. And they are saying, wait a minute. The construction season in Canada is from the spring on. If we tell people in April there will be this very important project, by the time it starts churning, it will be winter—not the best time to construct. So, they are moving the cycle in a way that we think is appropriate. 

Ms. Kozack: Let us go right here in the front row, woman in the green jacket. 

Questioner: Thank you. My question is about China. As we know, China's economy is shifting from highspeed growth to a stage of high quality and stable development, which is reflected in the latest WEO report. Could you please comment on that and also, how do you assess China's role in driving the global growth? Thank you. 

Ms. Georgieva: Thank you for this question. China has been quite resilient to the turbulence that the world has experienced. We project growth this year at 4.8 percent. We expect growth to slow down to 4.2 percent. That immediately answers your question, China is growing faster than the global average, and in this sense, it is contributing to global growth. 

China faces a fork in the road—whether China would continue with the growth model that it had before, exportoriented, or it would reorient the economy towards domestic consumption. The Chinese leadership recognizes that it is time to take this turn, to move the economy towards investment—sorry, towards domestic consumption. 

What does that mean? There are three important priorities. The first one is resolve the real estate sector problems resolutely. Get them out of the way. Why? Because they hold down consumer confidence as long as this problem persists.

Two, increase social safety nets. Instead of investing in industrial policy—China has been spending about 4 percent of GPA to support industries. Redirect this money towards supporting social safety nets to boost consumer confidence and reduce the saving tendency. Spend more, save a bit less. 

Three, China has a lot of opportunity to open up sectors that are currently not as market active, like services—from education to healthcare to other types of services. I think that if China takes this turn, then it will be a major contribution to reducing the excessive imbalance currently China presents. I think it is overall right for a large economy like the Chinese economy to do more at home than outside. 

Ms. Kozack: All right. Let us go right here, first row at the end. 

Questioner: Thank you. Good morning, Madam Managing Director Kristalina Georgieva. Good morning, Madam Kozack. Madam Kristalina, you recently highlighted positive developments in Senegal, yet multiple creditor rating agencies continue to downgrade the country. Could you share your perspective on this apparent contradiction? Specifically, to what extent might the downgrade be linked to delays in the IMF response to the hidden debt issue? Thank you very much. 

Ms. Georgieva: Thank you for your question. I want to start by giving full credit to the Senegalese authorities for uncovering a major misreporting problem. There was debt hidden, and they brought it to light. Assessing why this happened, what is the magnitude and what to do about it took some time, but now we have clarity. Once we had clarity, Senegal asked for a program from the Fund. I can tell you they asked, and we immediately responded. 

I met with the Senegalese delegation here. We had a very constructive discussion on what the objectives of a program could be, how to go about it, and we are dispatching a team immediately after the Annual Meetings to Senegal. So, in that sense, we acted as soon as conditions allowed it. We do not comment on rating agencies. You put this question to the rating agencies, what is our thinking, but I can say this: Senegal has great potential. With sound management, the country can do so well for its people. You are one of them, so best of luck. 

Ms. Kozack: Blue shirt, yellow tie. Yes. 

Questioner: Thank you very much, Managing Director. I wanted to ask you about something that is making the rounds in financing circles here. There are a couple of US companies that have collapsed in the automotive sector—a parts company and a subprime auto lender. They got their funding from the nonbank sector, the private lending market. It has raised some alarm bells there. Jamie Dimon the other day mentioned that if you see one cockroach, there are others. So, I am wondering if this is a concern for you about the health of the credit markets and whether this is something that could boil over into a crisis. And then furthermore, how prepared is the world to handle another systemic crisis, buffeted by crisis after crisis? There are not a lot of resources left in fiscal coffers. Thank you. 

Ms. Georgieva: Thank you, David. We are concerned. And it came very clearly in the financial stability report we issued this week. What we have seen is a very significant shift of financing from the banking sector to nonbank financial institutions to a point that more than half of financing is now there. We know that the nonbanking financial institutions do not enjoy the same level of regulatory oversight as the banks do. Therefore, if that grows significantly, then we risk should there be a concern that growth, that we may be in a difficult place. 

Whether that kind of problem can be more dramatic, of course, depends on two things. It depends on the performance of the real economy, and it depends on the magnitude of nonbanking financial institutions that find themselves in a tough spot. This is why we are urging more attention to the nonbank financial institutions. We are asking a question, what should be done to have more oversight, a better view of what is happening there. You are asking the question that keeps me awake every so often at night. I mean, at this point, what we see is a world that has learned to operate with more responsibility, with better policy frameworks, and it is across the globe. It is not like we have a small subset of advanced economies with good fundamentals. We actually have many emerging market economies with very strong fundamentals. 

We also have lots of reserves. When you look at the systemic in significant economies, they have accumulated massively reserves, or like the United States with the exuberant privilege of the dollar.

In that sense, there is a better foundation. We are not where we were at the time of the Global Financial Crisis. Lessons have been learned. Actions have been taken. 

Nevertheless, we also have to recognize that countries have exhausted their fiscal buffers. I just talked about the high level of debt. Monetary policy is still wrestling with keeping inflation on a downward trend with the exception of parts of Asia where actually disinflation went too far. And in this environment, of course, the security blanket is covering us, but maybe we have a foot out in the cold, so we have to be vigilant. What do we do? We watch it very carefully. Stretch valuations are a reality. We talked about AI. AI has created this enthusiasm. Very important, David. If this bet pays off, we are in a very good place. But what if it does not or it does not fast enough? So, you are right to be putting this question to us. And I can tell you that we are very watchful on development. So far, so far not that many cockroaches. 

Ms. Kozack: Very good. Let me go right here to the front, gentleman in the brown jacket. 

Questioner: Good morning. Thank you, ma'am. You have had kind words for India, and you have called it an efficient growth engine thanks to the reforms put out recently. India wants to do much more and contribute to the global economy, but just when India and Asia want to contribute, the world is clamping down. Multilateral trade is under question. What is the solution for this because if the advanced economies want to stop trade and let the emerging markets not grow further, how will the global economy pan out from here? Should they be more generous and have more emerging market countries grow and contribute? What kind of reforms should India adopt and what kind of geopolitical relationships should it develop so that this imbroglio view goes away?  

Ms. Georgieva: Excellent question. India is one of the fastest growing economies. Given its size, it contributes to global growth substantially. India is where it is because it has pursued very significant reforms—tax reform, investing in infrastructure, digital infrastructure, but also roads, connectivity in the country. That has injected this growth potential. 

Now, indeed there is a significant change. The largest economy in the world has chosen to use tariffs as an instrument in relation with partners. Here is the interesting fact today. The rest of the world has not followed so far. I want to put the emphasis on so far. Out of 191 members of the IMF, we have seen only three moving more forcefully on tariffs. Of course, first the United States, China, and to a certain degree—although there have been significant adjustments—Canada. 188 countries said, thank you, but no thank you. We prefer to continue to trade on the most favored nation’s rules. And we are encouraging countries to please do that because unless you are very large, a relatively closed economy—and India is not—it is an open economy—it does not work well for you. 

We also are seeing a very interesting phenomenon, and it is the increase in regional trade integration. Actually, the ambition for regional trade integration is growing in many places—in the Gulf Cooperation Council, in ASEAN. We see it in Central Asia, more interest to trade. I think for India, that takes me to what can India do? One, India itself can aim for a higher degree of trade integration with partners. India has still maintained some barriers to trade. There are tariffs that India imposes. There are some restrictions. It is good to think about where do we want to go. Do we want to go in a direction of maintaining and increasing these restrictions or we want to do the other way and integrate? If I take the relations with the EU, the signal seems to be, yes, we want to trade with others. We want to have more openness. 

The second thing India can do is just to continue doing what has worked for it—pursue reforms. There is a lot that can be done in education, increasing skills capabilities, reforming sectors to open them up for more private sector initiatives. India does have space for smart regulation to move. Selfinflicted injuries, get them out of the way. I think the strategic direction of India, look at the future sources of growth. Where is the world economy likely to go next? Demonstrably, the international solar alliance is a signal that in this thinking of that pursuit of opportunities. 

Ms. Kozack: All right. Let us go over to the second row. 

Questioner: Hello. We have seen a significant rise in term premium of late, particularly in the UK, but also globally. Is this now the new normal? Indeed, they have returned really to the sort of levels we saw before the Global Financial Crisis. Is this the new normal? If so, what are the implications of that particular for countries with high sovereign debt? 

Ms. Georgieva: This is why we are so loud in our call for fiscal consolidation and reducing debt levels across the world, because we should not be surprised if you look at the current debt composition, a big chunk of it was accumulated when interest rates were close to zero. There is a moment when you need to refinance. You are refinancing in a different environment. Demand for refinancing and also access to financing is quite high. One of the reasons why the world economy is doing relatively well, it is easy financial conditions. Even frontier markets are able to borrow at not the highest of cost. But when you look at the longer term, then you see what? You see the reflection of uncertainty. OK, I am going to lend you money. You are going to pay me 10, 15 years from now. You need to pay me a little bit of premium because of this uncertainty. 

So, I think you are right to put it in a sense that this is not a blip. This is more likely a trend towards somewhat higher reward for especially longer term. But if government—let me put this again. If governments bring their debt levels decisively down in the medium term—not only that, if they signal they are doing it—in this sense, the UK is doing the right thing. They are signaling that they are—they have a growth vision, but they also have fiscal responsibility—so you signal and then the markets are going to be kinder to you. 

Ms. Kozack: All right. Let us go right here to the front. Woman in the green. 

Questioner: My question is about the Middle East. Do you think that the Middle East region will regain economic stability after two years of geopolitical tensions that have affected Egypt, Jordan, Lebanon, and Syria? 

Ms. Georgieva: I am like I am sure everybody in this room, everybody on this planet, we breathed a sigh of relief when the ceasefire was reached for the sake of the people that have been affected, those waiting for their loved ones to go back home, those waiting for peace so they can move more freely in Gaza. 

It is important, of course, that everybody concerned encourages this direction of sustaining lasting peace. Yes, it would benefit the region. Just think about Egypt. Less tensions means good news for the Egyptian economy. The same for Jordan. For Lebanon, Lebanon put a request for a program. With Egypt and Jordan, we have programs. They are doing quite well. Lebanon has requested a program. I hope we will be able to come up with a program. Syria asked us for support to rebuild institutions, especially the central bank. We have already had a team in Damascus. So, when there is peace, there is also this benefit that those who are there to support you, it is easier, more viable for this support to come. So, absolutely there would be peace dividend for everybody. 

Ms. Kozack: I am going to go—we have time for one last question. So let me go into the audience. I am going to go right here in the middle, man with the white shirt. This will be the last. 

Questioner: Good morning, Managing Director. My question is about inflation. As you pointed out, most of the central banks are still wrestling with the relatively sticky inflation. Is there any concerns that the ongoing trade tensions specifically between China and the US might have spillover effects on inflation around the globe at some point? Thank you. 

Ms. Georgieva: What we see on the inflation front is that overall inflation is trending down with some differences. In Asia, down, down, up to a point like in China where maybe a little bit of inflationary impulse could be a good thing, to somewhat higher than target—well, around target in the euro zone and somewhat higher here in the United States. 

When we look at the impact of tariffs, as I said in a previous answer, we have one country that is more engaged, another one that is responding. The rest of the world is for now not becoming part of a trade war. Meaning that for these countries that are on the receiving end of tariffs, tariffs act as a shock that contains inflation. It does not increase inflation. But for the country that is originating tariffs, it is a push of prices potentially up. So far in the US, the impact has been moot. Our explanation is threefold. One, both importing and exporting companies have been doing well. They have good profitability so they can absorb some of the tariffs in their profits. Two, there was a lot of prepositioning that allowed pretariff prices to be maintained. And three, the likely adjustment of supply chains may also ease this impact. If there is flareup of trade tensions, that would of course have a negative impact. Again, this is why we are saying, please do not and do not do that. It is not a healthy action. 

Ms. Kozack: All right. Thank you very much. This brings us to the end of our press briefing. Thank you, Managing Director for joining us. Thank you all for joining us. We will post the full transcript of this press briefing on our website, and of course if you have further questions, my colleagues at media.org, the IMF media team are available to talk with you. Thank you very much. 

Ms. Georgieva: Thank you very much, everybody.