Giving People a Fair Shot—Policies to Secure the Recovery
IMF News, March 30, 2021
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- Authors: Kristalina Georgieva
- Published: March 30, 2021
Introduction: Promise and Danger
- Central message: give everyone a fair shot—a shot in the arm, everywhere, to bring the pandemic to a durable end; and a shot at a better future for vulnerable people and vulnerable countries to pave the way to inclusive and sustainable recovery.
- Contextual framing:
- Global turning point with "promise and danger" (Franklin D. Roosevelt quotation).
- Vaccines offer the promise of a normal life, but access is uneven.
- Diverging economic fortunes risk lasting damage to vulnerable people and countries.
- Key risks highlighted:
- Uneven vaccine availability and new virus strains.
- Job losses, rising poverty, and countries falling behind.
- High uncertainty shaping the path of the pandemic and economic recovery.
Global Outlook: Divergence and Uncertainty
- Updated growth expectations and drivers:
- January projection: global growth at 5.5 percent in 2021.
- Expectation of a further acceleration due to additional policy support (including the new fiscal package in the United States) and vaccine-powered recovery in many advanced economies.
- Upward revision to global forecast for this year and for 2022 to be reflected in the World Economic Outlook.
- Policy response to date:
- About $16 trillion in fiscal action and a massive liquidity injection by central banks.
- Without these synchronized measures, the global contraction last year would have been at least three times worse.
- Divergence specifics:
- Recovery is multi-speed, increasingly powered by two engines—the US and China.
- Cumulative loss in per capita income, relative to pre-crisis projections:
- 11 percent in advanced economies by next year.
- 20 percent for emerging and developing countries, excluding China (described as "cutting one-fifth of what is already a much smaller per capita income than in richer countries").
- Millions at risk of destitution, homelessness, and hunger.
- Additional uncertainties and transmission channels:
- Pandemic path shaped by uneven vaccination and new virus strains, especially impeding Europe and Latin America.
- Vulnerable emerging market, low-income and fragile states face limited fiscal firepower, reduced vaccine access, exposure to hard-hit sectors (e.g., tourism), and elevated debt distress risks across sovereign, corporate, or banking sectors.
- Financial risks: faster U.S. recovery could lead to rapid rise in interest rates, sharp tightening of financial conditions, and significant capital outflows from emerging and developing economies.
- Middle-income countries with large external financing needs and elevated debt levels will face major challenges and need more support.
- Long-term scars on human capital—young, low-skilled, women, and informal workers—could lower growth potential and worsen inequality.
Strong Policy Action—to Give People a Fair Shot
- Overarching imperative: no sustainable recovery without giving people a fair shot.
- Priority 1 — Escape the crisis (vaccination and health response):
- Step up cross-border efforts to ramp up vaccine production, distribution, and deployment.
- Possible measures: subsidizing vaccine producers, input suppliers, and "last-mile" distribution.
- Need for a fair mechanism to redistribute vaccines from surplus to deficit countries and a fully funded COVAX facility to accelerate vaccination in poorer countries.
- Estimated benefit: faster progress in ending the health crisis could add almost $9 trillion to global GDP by 2025.
- Urgency: the window of opportunity is closing fast; delays reduce achievable gains.
- Priority 2 — Support households, firms, and financial stability while managing transitions:
- While the crisis persists: targeted fiscal measures within credible medium-term frameworks and continued monetary accommodation to help vulnerable households and viable firms.
- Monitor financial risks, including stretched asset valuations; major central banks should carefully communicate policy plans to prevent excess financial volatility and support vital capital flows, especially to middle-income countries.
- As pandemic recedes: scale back furlough and support programs with careful transitions—income support, targeted hiring subsidies, retraining and reskilling to cushion workers.
- Support for SMEs:
- Further support to viable small and medium-sized firms through equity injections and more effective bankruptcy procedures.
- Research indicates the share of insolvent SMEs could rise sharply this year as support is scaled back—threatening one in ten jobs in this sector.
- Most emerging and developing countries have relatively weaker bankruptcy procedures and would be more heavily affected by insolvency waves; reforms needed to mitigate scars and promote fairer transition.
- Priority 3 — Invest in the future: green, digital, and human-capital investments:
- Push for pandemic preparedness and resilience, especially to climate shocks; momentum toward greener, smarter, and more inclusive economies.
- So far, only a small fraction of fiscal stimulus has gone to climate and green finance; a coordinated green infrastructure push combined with carbon pricing could boost global GDP in the next 15 years by 0.7 percent—and create millions of jobs.
- Digitalization potential:
- Recent survey: almost 50 percent of shoppers said they were using digital payments more than before the pandemic.
- A February 2021 survey of IMF desk economists suggests that in 70 percent of 159 countries, central banks are either analyzing the implications of, currently experimenting with, piloting, or likely to issue a central bank digital currency (CBDC) in the short to medium run.
- Digital infrastructure investment, combined with education and health investment, could transform productivity and living standards.
- Revenue and taxation:
- Need sufficient public revenues and national tax systems retooled for the 21st century—often more progressive and fairer.
- Modernize international corporate taxation through multilateral efforts to ensure highly profitable firms pay their fair share where they do business, strengthening public finances, especially in poorer countries.
- Addressing the financing gap for low-income countries:
- New IMF research shows low-income countries need to deploy some $200 billion over five years just to fight the pandemic, and another $250 billion to return to the path of catching up to higher income levels.
- Domestic revenue mobilization, more external concessional financing, and more help to deal with debt are required.
- G20 Debt Service Suspension Initiative and new Common Framework are a good start.
- IMF actions and proposals:
- IMF provided over $107 billion in new financing to 85 countries and debt service relief for 29 of our poorest members.
- In Sub-Saharan Africa, IMF financing last year was about 13 times more than the annual average over the previous decade.
- Support building among IMF membership for a possible SDR allocation of $650 billion to boost reserves without adding to debt burdens—especially benefiting the most vulnerable and freeing resources for vaccination programs and other urgent needs.
Conclusion
- Historical parallel and call to cooperation:
- Quoting FDR (Feb. 12, 1945): "The world will either move toward unity and widely shared prosperity or it will move apart."
- The speech frames current choices as the biggest test of this generation and calls for multilateral cooperation to build a better, more united world.
- Closing exhortation: "Let’s give it a fair shot."
By Kristalina Georgieva, IMF Managing Director, Washington, DC, March 30, 2021. As prepared for delivery.