## Overcoming Divides and Removing Obstacles to Recovery

_IMF News, October 5, 2021_

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## Bibliographic details
- Authors: Kristalina Georgieva
- Published: October 5, 2021

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### Introduction
- Context: Remarks by Kristalina Georgieva, IMF Managing Director, at a G20 event hosted by Bocconi University and T20/ISPI on October 5, 2021.
- Core framing: global recovery remains “hobbled” by the pandemic—“like walking with stones in our shoes”.
- Immediate obstacle highlighted: the “Great Vaccination Divide”—too many countries with too little access to vaccines.
- Broader divide: differences in countries’ ability to support recovery and to invest for the future.

### Global Outlook: Divergence, Inflation, and Debt
- Global growth:
  - July projection: global growth at 6 percent in 2021.
  - Updated World Economic Outlook (forthcoming at the time): growth expected to moderate slightly in 2021.
  - Projection: economic output in advanced economies is projected to return to pre-pandemic trends by 2022; most emerging and developing countries will take many more years to recover.
- Divergence:
  - United States and China remain vital engines of growth, though momentum is slowing.
  - Some advanced and emerging economies (including Italy and Europe broadly) gaining momentum.
  - Many other countries face worsening growth due to low vaccine access and constrained policy response—risk of persistent divergence and long-term scarring (job losses affecting young people, women, and informal workers).
- Inflation:
  - Headline inflation rates have increased rapidly in a number of countries, with uneven effects.
  - Expectation: price pressures to subside in most countries in 2022, but in some emerging and developing economies price pressures are expected to persist.
  - Global food prices: up by more than 30 percent over the past year.
  - Risk: sustained rise in inflation expectations could cause rapid rise in interest rates and sharp tightening of financial conditions, posing a particular challenge to emerging and developing economies with high debt levels.
- Debt:
  - IMF estimate: global public debt has increased to almost 100 percent of GDP (global public debt by end-2020).
  - Many developing countries started the pandemic with little fiscal firepower and now face tighter budgets and limited ability to issue new debt at favorable terms—described as the fiscal financing divide.

### Strong Policy Action — Vaccinate, Calibrate, Accelerate
- Overarching prescription: vaccinate, calibrate, and accelerate.
- Vaccinate:
  - Targets endorsed with World Bank, WHO, WTO: vaccinate at least 40 percent of people in every country by the end of this year, and 70 percent by the first half of 2022.
  - Immediate needs:
    - Sharply increase delivery of doses to the developing world; richer nations must deliver on donation pledges immediately.
    - Boost vaccine production and distribution capabilities; remove trade restrictions on medical materials.
    - Close a $20 billion gap in grant financing for testing, tracing, and therapeutics.
  - Risk quantified: If large parts of the world remain unvaccinated (the “endemic scenario”), global GDP losses could rise to $5.3 trillion over the next five years.
- Calibrate:
  - Monetary policy guidance:
    - Central banks can generally look through transitory inflation pressures but should be prepared to act quickly if recovery strengthens faster than expected or if inflation expectations rise.
    - Some countries already facing rising inflation expectations and more persistent price pressures have had to tighten.
  - Financial risks: monitor stretched asset valuations and varied country exposures.
  - Fiscal policy guidance:
    - Tailor fiscal measures to country circumstances; longer pandemic increases fiscal constraints and forces tradeoffs between lifelines, near-term support, and long-term structural goals.
    - Low-income countries need more revenue mobilization, more concessional financing, and more help with debt problems.
    - Governments need sound medium-term frameworks to balance current support and debt reduction to build credibility with citizens and markets.
- Accelerate (structural priorities):
  - Three priority issues for economic and financial stability: climate change, technological change, and inclusion.
  - Climate change:
    - Call for a robust price on carbon and substantial scaling-up of green investment over the next two decades, with support for the most vulnerable.
    - Potential economic impact: with appropriate supply policies, global GDP could be raised by about 2 percent this decade, and create 30 million new jobs.
    - Private finance role: requires stronger global efforts to improve data, disclosures, and taxonomies.
  - Digital transformation:
    - Scale up digital infrastructure investment and invest in education, health, and basic research to raise productivity and inclusion.
    - Example: a new pilot scheme shows that central bank digital currencies can reduce the time needed for cross-border payments to seconds and sharply cut costs.
  - Tax policy:
    - Need for fairer and more efficient tax systems.
    - Completing agreement on global minimum corporate tax is vital to mobilize revenue for transformative investments.
  - International monetary system:
    - Work together so the transformation benefits all.

### IMF Actions and Financing Measures
- IMF support provided:
  - $118 billion in new financing to 87 countries and debt service relief for poorest members.
  - New allocation of Special Drawing Rights (SDRs) of $650 billion in August (largest issuance in IMF history).
    - About $275 billion of the allocation went to emerging and developing countries.
  - Immediate benefits: countries holding new SDRs as part of official reserves can boost confidence and lower borrowing costs; some are using or planning to use SDRs for priority needs (examples cited: Nepal for vaccine imports; North Macedonia for health spending and pandemic lifelines; Senegal to boost vaccine production capacity; Haiti to help finance vital imports).
- Proposals to magnify SDR impact:
  - Call on countries with strong external positions to voluntarily channel their SDRs to where they are most needed.
  - Options include:
    - Channeling new SDRs into the Poverty Reduction and Growth Trust to increase zero-interest loans to low-income countries.
    - Using SDRs to create a new Resilience and Sustainability Trust to help low-income and vulnerable middle-income countries achieve sustainable and prosperous futures.
  - Rationale: making the most of SDRs is good for the global recovery, good for countries, and good for people.

### Conclusion
- Personal reflection: concern for the world future generations will inherit; optimism drawn from student energy and collective learning from the crisis.
- Call to action: use clarity of thought and lessons from the past 18 months to remove the “stones” from our shoes and walk forward to a better future for all.

*Source: Overcoming Divides and Removing Obstacles to Recovery — Speech by Kristalina Georgieva, IMF Managing Director, October 5, 2021.*

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## References

- [https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva)
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_Source: https://www.imf.org/en/news/articles/2021/10/05/sp100521-md-curtain-raiser-overcoming-divides-and-removing-obstacles-to-recovery_