Weak Global Economy, High Inflation, and Rising Fragmentation Demand Strong G20 Action

IMF Blog, July 13, 2023

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IMF projected global growth at 2.8 percent in 2023, down from 3.4 percent in 2022.
The bulk of it–over70 percent–is expected to come from the Asia-Pacific region.
Recent high frequency indicators show:
- weakness in manufacturing across G20 countries,
- resilience in services across G20 countries,
- strong labor markets in advanced economies.
Financial fragilities have been uncovered by tight monetary policy and require careful management as restoring price stability remains a priority.
Global headline inflation seems to have peaked; core inflation has eased somewhat, particularly in India, but in most G20 countries—in particular advanced economies—inflation remains well above central banks’ targets.
The IMF forecast for global growth over the medium-term is around 3 percent—well below the historical average of 3.8 percent during 2000-19.

Monetary policy:
- Some early signs of transmission to activity: bank lending standards tightening in the euro area and the United States.
- Policymakers should avoid “premature celebrations”; easing policy too early can undo progress on inflation.
- “That’s why it is vital to stay the course onmonetary policyuntil inflation is durably brought down to target, while closely monitoring financial sector risks.” (original phrasing preserved)
- Clear central bank communication and financial sector oversight are needed to reduce the risk of disruptive shifts in financial conditions.
Fiscal policy:
- Tightening fiscal policy after pandemic-related exceptional support can support disinflation, rebuild buffers, and enhance debt sustainability.
- Temporary and targeted measures may be needed to help vulnerable people cope with the immediate cost-of-living crisis.
- Consolidation efforts should protect growth-enhancing investments where space allows.

Recent multilateral outcomes:
- Breakthrough on Zambia's debt restructuring under the G20 Common Framework; the agreement unlocks further financing as part of the $1.3 billion IMF arrangement agreed in August 2022.
- Progress on debt restructuring for Chad.
- These outcomes build on trust and better understanding among creditors and debtors through the Global Sovereign Debt Roundtable.
Remaining priorities to accelerate restructuring:
- Establish clear timelines.
- Provide debt service suspension during negotiations.
- Improve creditor coordination on debt treatment for countries outside the Common Framework.

G20 announced achievement of $100 billion in pledges of SDRs to be channeled from richer to poorer countries.
This pledge target followed the IMF’s record $650 billion allocation of SDRs in 2021.
Notable pledge uplifts: France and Japan to 40 percent of their allocations, and China to 34 percent.
Around $29 billion in SDRs pledged to the Poverty Reduction and Growth Trust (PRGT) since 2020 is helping deliver higher and larger financial support to low-income countries at zero interest.
Some $42 billion in SDRs have already been provided to the IMF’s Resilience and Sustainability Trust (RST).
- Nine members have had their RST funding approved and dozens more have submitted requests.
- RST-supported programs include:
- Integrating climate considerations into fiscal planning in Costa Rica.
- Strengthening climate-related risk management for financial institutions in Seychelles.
- Complementing multilateral development bank support in Rwanda and Barbados to catalyze additional financing from the private sector, including private investment in climate projects.

Vulnerable emerging market and low-income economies face multiple shocks and fundamental transitions, including climate change, the cost-of-living crisis, and high interest rates that increase risks of debt distress.
Increasing economic fragmentation could deprive these countries of benefits from an integrated global economy, undermining growth and development prospects.
These countries will need more support in the months and years ahead to ensure economic stability and restore the path to income convergence with advanced economies.
Strong multilateral institutions—especially IDA and the IMF—have a vital role to play in providing this support.

Priorities for strengthening the IMF:
- Prompt and successful completion of the 16th quota review to increase the overall size of the IMF’s quota resources.
- Replenish the Fund’s concessional resources: a fully funded PRGT and a replenished Catastrophe Containment and Relief Trust.
- Explore reforms to the lending toolkit, including adjustments to precautionary instruments.
- Better account for how climate change affects debt sustainability and enhance support for countries hit by climate related shocks.
These steps aim to ensure the IMF remains inclusive and capable of serving the needs of its entire membership, especially vulnerable emerging and developing economies.

The world faces a more shock-prone environment and fundamental transitions—from climate change and debt distress to trade tensions and economic fragmentation—which raise high expectations of international policymakers.
The global response must be commensurate in size to the world’s challenges.
Call to action:
- Act now and act together to get all countries back on a sustainable path to growth and prosperity.
- Strong G20 leadership is needed to ensure the international financial architecture is fit for purpose with a well-resourced and representative IMF at its center.

Kristalina Georgieva, July 13, 2023