Joint Action Needed to Secure the Recovery

IMF Blog, October 27, 2021

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Joint Action Needed to Secure the Recovery

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Bibliographic details

• Authors: Kristalina Georgieva
• Published: October 27, 2021

Context and economic outlook

• The foundations for recovery remain strong because of vaccines and synchronized policy measures led by the G20, but progress is held back by new virus variants and supply-chain disruptions.
• The IMF recently reduced its global growth forecast to 5.9 percent for this year.
• The outlook is highly uncertain and downside risks dominate; inflation and debt levels are rising in many economies and divergence in economic fortunes is becoming more persistent.
• A package of short-to-medium-term policies could boost aggregate real GDP in the G20 by about $4.9 trillion through 2026.

Policy recommendation 1 — End the pandemic: vaccines and financing

• Targets to reach:
  • Vaccinate at least 40 percent of people in every country by end-2021.
  • Vaccinate at least 70 percent by mid-2022.
• Current shortfalls:
  • Some 75 nations, mostly in Africa, are not on track to meet the 2021 target.
  • G20 countries have promised more than 1.3 billion doses to COVAX, but fewer than 170 million have been delivered.
• Financing gap and needs:
  • The G20 should provide about $20 billion more in grant funding for testing, treatment, medical supplies, and vaccines to close a vital financing gap.
• Operational proposals:
  • Deliver on pledged doses immediately.
  • Swap delivery schedules for doses already under contract so buyers with more urgent needs go first; countries with high vaccination coverage should swap delivery schedules with COVAX and AVAT to speed deliveries to vulnerable countries.
• Economic stakes:
  • If COVID-19 were to have a prolonged impact, it could reduce global GDP by a cumulative $5.3 trillion over the next five years, relative to the current projection.

Policy recommendation 2 — Help developing countries cope financially

• Social and humanitarian impacts:
  • The pandemic caused a spike in poverty and hunger, lifting to more than 800 million the number of people who were undernourished in 2020.
• Debt and financing measures:
  • Speed up implementation of the G20’s Common Framework for debt resolution by providing more clarity, offering incentives for early engagement, engaging all creditors including the private sector, and adopting faster timelines for debt resolution.
  • Many developing nations need more support with raising revenue, more grants, concessional financing, and liquidity support.
• IMF actions and proposals:
  • The IMF has stepped up with new financing for 87 countries and a historic allocation of Special Drawing Rights of $650 billion.
  • Countries have benefited from holding the new SDRs as part of their official reserves; some are using part of their SDRs for vaccine imports, boosting vaccine production capacity, and supporting the most vulnerable households.
  • Call on countries with strong external positions to voluntarily provide part of their allocated SDRs to the IMF’s Poverty Reduction and Growth Trust to increase the IMF’s ability to provide zero-interest loans to low-income countries.

Policy recommendation 3 — Commit to a comprehensive package to reach net-zero by mid-century

• Macroeconomic and labor outcomes:
  • IMF staff analysis projects that increasing energy efficiency and transitioning to renewables could be a net job creator because renewable technologies tend to be more labor-intensive than fossil fuels.
  • A comprehensive investment plan with a combination of green supply policies could lift global GDP by about 2 percent this decade—and create 30 million new jobs.
• Core policy elements:
  • Putting a robust price on carbon is central to any comprehensive policy package.
  • IMF proposal: a price floor for large carbon emitters that takes into account a country’s level of development and allows for equivalent regulations in lieu of an explicit price mechanism like emissions trading.
• International finance and support:
  • Richer countries should deliver on their longstanding promise to provide $100 billion per year for green investment in the developing world.
  • Channel SDRs to establish the new Resilience and Sustainability Trust endorsed at the IMF Annual Meetings to serve needs of low-income and vulnerable middle‑income countries, including their transition to a greener economy.
  • Completing and further strengthening the historic agreement on global minimum corporate tax will help mobilize revenue for transformative investments.

Short-to-medium policy mix and sequencing

• Monetary policy:
  • Monetary policy should see through transitory increases in inflation but be prepared to act quickly if risks of rising inflation expectations become tangible; clear communication of policy plans is essential to avoid adverse spillovers.
• Fiscal policy and medium-term frameworks:
  • Carefully calibrating monetary and fiscal policies, combined with strong medium-term frameworks, can create more room for spending on healthcare and vulnerable people and deliver quick benefits through 2022.
• Structural reforms:
  • Growth-enhancing structural reforms—labor market policies that support job search and retraining, and product market reforms to reduce barriers to entry—provide the bulk of added gains after 2022.

Source: Kristalina Georgieva, "Joint Action Needed to Secure the Recovery", October 27, 2021.

Content in this bundle

• G-20 Report on Strong, Sustainable, Balanced, and Inclusive Growth
  • G-20 Report on Strong, Sustainable, Balanced, and Inclusive Growth (Markdown version)
  • G-20 Report on Strong, Sustainable, Balanced, and Inclusive Growth (PDF)

References

• the IMF
• proposal