## Three Policy Priorities for a Robust Recovery

_IMF Blog, February 16, 2022_

## Source details

**Canonical URL:** [Three Policy Priorities for a Robust Recovery](https://www.imf.org/en/blogs/articles/2022/02/16/three-policy-priorities-for-a-robust-recovery)

## Other formats

- [Markdown version](/en/blogs/articles/2022/02/16/three-policy-priorities-for-a-robust-recovery/index.md)
- [Structured JSON version](/en/blogs/articles/2022/02/16/three-policy-priorities-for-a-robust-recovery/index.json)
- [Bundle manifest](/en/blogs/articles/2022/02/16/three-policy-priorities-for-a-robust-recovery/bundle-manifest.json)

## Bibliographic details
- Authors: Kristalina Georgieva
- Published: February 16, 2022

---

### Overview
- Author: Kristalina Georgieva
- Date: February 16, 2022
- Central message: Countries must "work together to end the pandemic, navigate monetary tightening and shift focus to fiscal sustainability"—drawing on the Indonesian concepts gotong royong ("working together to achieve a common goal") and Bhinneka Tunggal Ika ("Unity in Diversity").

### Global outlook and key risks
- IMF global forecast for 2022: 4.4 percent.
- Recent drivers of downside risk: Omicron variant, persistent supply chain disruptions, higher-than-expected inflation readings, financial market volatility, and increased geopolitical tensions.
- Cumulative global output losses from the pandemic projected through 2024: nearly $13.8 trillion.

### Priority 1 — Broader efforts to fight "economic long-Covid"
Findings
- Durable and inclusive recovery is impossible while the pandemic continues.
- Uncertainty about virus path post-Omicron, durability of vaccine or infection protection, and risk of new variants.
- Learning losses cost to students worldwide estimated at up to $17 trillion over their lives (lower productivity and employment disruptions).
- School closures especially acute in emerging economies, risking increased divergence among countries.

Policy recommendations
- Move from a singular focus on vaccines to equitable access to a comprehensive COVID-19 toolkit: vaccines, tests, and treatments.
- Ongoing investments in medical research, disease surveillance, and health systems that reach the "last mile".
- Upfront financing of $23.4 billion to close the ACT-Accelerator funding gap as an important down payment.
- Enhanced coordination between G20 finance and health ministries.
- Scale up social spending, reskilling programs, remedial training for teachers, and tutoring for students.

### Priority 2 — Navigate the monetary tightening cycle
Findings
- Inflation pressures building in many countries; differentiation across economies and high uncertainty remain.
- Labor markets tight and inflation expectations rising in some countries (examples cited: United States and the United Kingdom).
- Other countries (including the euro area) can afford a slower withdrawal of accommodation if inflation rise is largely energy-driven.
- So far, global financial conditions have remained relatively favorable, partly due to negative real interest rates in most G20 countries.

Policy recommendations and preparedness
- Calibrate monetary withdrawal to country circumstances; be ready to act faster if data warrants.
- Clear communication of policy shifts to safeguard financial stability domestically and internationally.
- Borrowers should extend debt maturities where feasible now and contain further buildup of foreign currency debts.
- Flexible exchange rates are important for absorbing shocks in most cases, but not the only tool.
- In high volatility events, consider foreign exchange interventions (example: Indonesia in 2020) and capital flow management measures (examples: Iceland in 2008 and Cyprus in 2013).
- Use macroprudential measures to guard against risks in the non-bank financial sector or surging property markets.
- Combine these tools with macroeconomic adjustments when needed.

### Priority 3 — Shift focus to fiscal sustainability
Findings
- Extraordinary fiscal measures prevented a deeper depression but pushed up debt levels.
- 2020 saw the largest one-year debt surge since the second world war; global debt—both public and private—rose to $226 trillion.
- Many developing countries have limited fiscal firepower, weaker recoveries, and deeper scars from economic long-Covid.
- IMF estimate: green supply policies, including a 10-year public investment program, could raise annual global output by about 2 percent compared to the baseline on average over 2021-30.
- About 60 percent of low-income countries are in or at high risk of debt distress—double 2015 levels.

Policy recommendations
- Carefully calibrate fiscal policies as countries emerge from the pandemic: continue support for health systems and the most vulnerable while reducing deficits and debt levels as appropriate.
- Faster fiscal scaling back warranted where recovery is further ahead to facilitate monetary policy shifts and contain inflationary pressures.
- For highly indebted and low-income countries: more domestic revenue mobilization, more grants and concessional financing, and immediate help to deal with debt.
- Reinvigorate the G-20 Common Framework for debt treatment:
  - Start with offering a standstill on debt service payments during negotiation under the framework.
  - Implement quicker and more efficient processes with clarity on steps—from formation of creditor committees to agreement on debt resolution.
  - Make the framework available to a wider range of highly indebted countries.

### The IMF’s role and financing tools
Findings and actions
- IMF provides macroeconomic frameworks and debt sustainability analyses; encourages greater debt transparency (greater disclosure of what a member owes and to whom when seeking IMF financing).
- Works with members through the IMF-World Bank Multi-Pronged Approach to debt vulnerability.
- Historic allocation of Special Drawing Rights: $650 billion.

Examples of SDR use (as cited)
- Nepal: vaccine imports.
- North Macedonia: health spending and pandemic lifelines.
- Senegal: boost vaccine production capacity.

Recommendations for maximizing SDR impact
- Channel new SDRs through the Poverty Reduction and Growth Trust for concessional financing to low-income countries.
- Channel SDRs through the new Resilience and Sustainability Trust (RST).
- RST offers cheaper rates and longer maturities and could fund climate, pandemic preparedness, and digitalization policies that improve macroeconomic stability for decades.
- The G20 has given strong backing to the RST; aim to have it fully operational this year.

Final IMF policy stance
- The IMF will support countries with calibrated policy advice, capacity development, and financial assistance where needed.
- Emphasizes agility in policymaking and international cooperation to achieve a durable, inclusive recovery that "works for all."

*Source: IMF blog post "Three Policy Priorities for a Robust Recovery" by Kristalina Georgieva, February 16, 2022.*

---

## Content in this bundle

- **Policy Paper**
  - [Policy Paper (Markdown version)](/-/media/files/publications/pp/2020/english/ppea2020066.pdf.md){rel="alternate" type="text/markdown"}
  - [Policy Paper (PDF)](/-/media/files/publications/pp/2020/english/ppea2020066.pdf){rel="external" type="application/pdf"}
- **G20: Reaching Net Zero Emissions**
  - [G20: Reaching Net Zero Emissions (Markdown version)](/external/np/g20/pdf/2021/062221.pdf.md){rel="alternate" type="text/markdown"}
  - [G20: Reaching Net Zero Emissions (PDF)](/external/np/g20/pdf/2021/062221.pdf){rel="external" type="application/pdf"}

---

## References

- [we cut our global forecast](https://blogs.imf.org/2022/01/25/a-disrupted-global-recovery)
- [new report to the G20](https://www.imf.org/external/np/g20/021622.htm)
- [comprehensive COVID-19 toolkit](https://www.imf.org/en/Topics/imf-and-covid19/imf-staff-pandemic-proposal)
- [School closures have been especially acute](https://blogs.imf.org/2022/02/03/pandemic-scars-may-be-twice-as-deep-for-students-in-developing-countries/)
- [https://www.imf.org/wp-content/uploads/2022/02/G20-Blog-Chart-1.png](https://www.imf.org/wp-content/uploads/2022/02/G20-Blog-Chart-1.png)
- [potential capital flow reversals](https://blogs.imf.org/2022/01/10/emerging-economies-must-prepare-for-fed-policy-tightening)
- [https://www.imf.org/wp-content/uploads/2022/02/G20-Blog-chart-2-.png](https://www.imf.org/wp-content/uploads/2022/02/G20-Blog-chart-2-.png)
- [rising to $226 trillion](https://blogs.imf.org/2021/12/15/global-debt-reaches-a-record-226-trillion)
- [G-20 Common Framework for debt treatment](https://blogs.imf.org/2021/12/02/the-g20-common-framework-for-debt-treatments-must-be-stepped-up)
- [Poverty Reduction and Growth Trust](https://www.imf.org/en/About/Factsheets/IMF-Support-for-Low-Income-Countries)
- [Resilience and Sustainability Trust](https://blogs.imf.org/2022/01/20/a-new-trust-to-help-countries-build-resilience-and-sustainability/)

_Source: https://www.imf.org/en/blogs/articles/2022/02/16/three-policy-priorities-for-a-robust-recovery_