## Fix the Roof While the Window of Opportunity is Open: Three Priorities for the Global Economy

_IMF News, April 11, 2018_

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**Canonical URL:** [Fix the Roof While the Window of Opportunity is Open: Three Priorities for the Global Economy](https://www.imf.org/en/news/articles/2018/04/09/spring-meetings-curtain-raiser-speech)

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## Bibliographic details
- Authors: Christine Lagarde
- Published: April 11, 2018

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### Overview / Introduction
- Speech by Christine Lagarde, IMF Managing Director, at University of Hong Kong on April 11, 2018.
- Central message: use the current global upswing to enact reforms—“fix the roof while the sun is still shining”—because the window of opportunity is open but risks are rising.

### State of the Global Economy
- Global momentum driven by stronger investment, a rebound in trade, and favorable financial conditions.
- IMF projection: 3.9 percent global growth for 2018 and 2019.
- Regional and country notes:
  - Advanced economies expected to grow above their medium-term potential this year and next.
  - United States is already at full employment; growth likely to accelerate due to expansionary fiscal policy.
  - Asia contributes close to two-thirds of global growth.
  - Japan’s economy continues to grow strongly.
  - Asian emerging markets—led by China and India—are driven by rising exports and higher domestic consumption.
  - Challenges remain in some emerging and developing countries, including in sub-Saharan Africa.
- Medium-term headwinds identified:
  - Fading fiscal stimulus (including in the U.S. and China).
  - Rising interest rates and tighter financial conditions as major central banks normalize monetary policy.
  - Aging populations and weak productivity.

### Priority 1 — Steer Clear of Protectionism
- Key findings and arguments:
  - Import restrictions hurt everyone, especially poorer consumers, by increasing prices and reducing choice.
  - Bilateral trade imbalances generally reflect division of labor and global value chains; overall trade deficits are driven by spending above income.
  - The multilateral trade system helped reduce by half the proportion of the global population living in extreme poverty from 1990-2010.
- Policy recommendations:
  - Avoid imposing tariffs; use macroeconomic tools (fiscal policy, structural reforms) to address imbalances.
  - Countries should improve their own practices: better protect intellectual property, reduce distortions favoring state enterprises, and trade by WTO rules.
  - Scale up investment in training and social safety nets to help workers affected by trade or technological change.
  - Support forward-looking trade initiatives (examples cited include agreements between Japan and the European Union, the new African Continental Free Trade Area, and the so-called TPP-11).
- IMF role: support members through analysis, advice, and a platform for dialogue and cooperation.

### Priority 2 — Guard against Fiscal and Financial Risk
- Key statistics and findings:
  - New IMF analysis shows global debt—both public and private—has reached an all-time high of $164 trillion.
  - Compared to its 2007 level, this debt is now 40 percent higher, with China alone accounting for just over 40 percent of that increase.
  - The private sector makes up two thirds of the total debt level.
  - Public debt in advanced economies is at levels not seen since the Second World War.
  - In advanced economies, public debt as a proportion of GDP was at 105 percent on average in 2017.
  - High debt in low-income countries could jeopardize development goals by increasing debt service burdens and reducing spending on infrastructure, health, and education.
  - A study shows the decline in output after a financial crisis is less than 1 percent in a country with adequate fiscal and monetary buffers, but almost 10 percent in a country with no buffers.
  - Housing markets in major cities are increasingly moving in tandem, which could amplify shocks.
- Policy recommendations:
  - Use the current window to build policy buffers—“building policy buffers”.
  - Reduce government deficits, strengthen fiscal frameworks, and place public debt on a gradual downward path in a growth-friendly manner through more efficient spending and progressive taxation.
  - Increase exchange rate flexibility to cope with volatile capital flows, especially in emerging and developing countries.
  - Strengthen financial stability by reducing corporate debt and bolstering bank capital and liquidity where needed.
  - Implement policies to address booming housing markets.
  - Avoid rolling back regulatory frameworks established since the global financial crisis; ensure regulations evolve with fintech.
  - Maintain and strengthen the global financial safety net, with the IMF playing a central role in helping countries cope with capital flow volatility.

### Priority 3 — Foster Long-term Growth that Benefits Everyone
- Core concerns:
  - If advanced economies return to disappointing medium-term growth, inequality, debt concerns, and political polarization could worsen.
  - More than 40 emerging and developing countries are projected to grow more slowly in per capita terms than advanced economies.
- Two potential game-changers:
  (i) Unlock the potential of the service sector, especially in developing economies
  - Some service sectors—led by transportation, communications, and business services—can match the productivity levels of manufacturing (April 2018 World Economic Outlook, Chapter 3).
  - Important for countries such as the Philippines, Colombia, and Ghana where employment and output are shifting from agriculture to higher-value services.
  - Policy actions: increase public investment in education, training, and job-search assistance; open service sectors to more competition; reduce barriers to trade in services, including e-commerce.
  (ii) Digital transformation of government
  - Examples of digital government initiatives:
    - India: subsidies and welfare payments delivered directly into bank accounts linked to unique biometric identifiers.
    - Australia: tax authorities collect information on wages in real time.
    - Hong Kong: a government-funded Faster Payment System will allow bank customers to use mobile phone numbers and email addresses for transfers and retail purchases; to be launched in September 2018.
  - Scale and impact:
    - One study estimates almost 20 percent of public revenues worldwide, or about $5 trillion, go missing each year because of tax noncompliance and misdirected government payments.
    - Big data and digital tools can reduce leakages related to corruption and tax evasion, enabling increased priority spending.
  - Digital government can deliver public services more efficiently and effectively; more households in developing countries now have access to digital technology than to clean water and secondary education.
- Policy recommendations:
  - Invest in education, training, and digital infrastructure.
  - Leverage digital tools to improve tax collection, reduce leakages, and increase fiscal space for priority spending.
  - Facilitate trade and competition in services to raise productivity and inclusive growth.

### Conclusion
- Policymakers face a choice: repeat past policies that delivered mixed results or pursue a new landscape where:
  - trade is open, fairer, and more collaborative;
  - financial systems are safer and supportive of growth; and
  - the digital revolution benefits all people.
- Closing exhortation: greater courage is needed across government, business, and society to seize the current opportunity.

*Source: Christine Lagarde, "Fix the Roof While the Window of Opportunity is Open: Three Priorities for the Global Economy", Speech at University of Hong Kong, April 11, 2018.*

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## References

- [Christine Lagarde](https://www.imf.org/en/About/senior-officials/Bios/christine-lagarde)
- [People's Republic of China - Hong Kong Special Administrative Region and the IMF](http://www.imf.org/external/country/HKG/index.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [India and the IMF](http://www.imf.org/external/country/IND/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
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_Source: https://www.imf.org/en/news/articles/2018/04/09/spring-meetings-curtain-raiser-speech_