Group of Twenty IMF Note — Finance Ministers and Central Bank Governors' Meetings

G-20 Surveillance Note

July 7, 2021

The following executive summary is from a note by the Staff of the IMF prepared for the July 9-10, 2021 G-20 Finance Ministers and Central Bank Governors' Meetings, Venice, Italy.
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Executive Summary

Global growth has progressed broadly in line with projections, with clear signs of divergence. While economic activity is gaining steam where vaccinations proceed and policy support is strong, it remains sluggish where COVID-19 infection rates are high. Inequalities and poverty rates have worsened in many countries, with the most vulnerable groups particularly impacted, and debt levels have risen sharply. The path of the pandemic and economic activity is uncertain. Inflation has picked up recently with demand outstripping supply in a range of product markets, including commodities. A rise in inflation expectations, which have been stable so far, could prompt an earlier-than-expected tightening of monetary policy in major economies, tightening financial conditions amid an ongoing pandemic, and exacerbating growth divergence. Climate change remains unmitigated.

Immediate action by the G-20 is needed to arrest the rising human and economic toll of the pandemic. A US$50 billion IMF staff proposal, endorsed by the WHO, WTO, World Bank, and the IMF, provides clear targets, pragmatic actions, and at a feasible cost to bring about an end to the pandemic. Vaccine donations and grant pledges have been provided but much more is needed. With the pandemic still raging, it will be vital to ensure that shared doses are available for use as soon as possible and that additional upfront grant financing is provided for the funding of tests, treatments, and investments in vaccines. More than half a million lives could potentially be saved if high-risk populations globally were to gain earlier access to vaccinations. Ensuring free trade in medical inputs and supplies is also key. The G-20 should also help ensure weaker economies have access to financial liquidity, including through the operationalization of the Common Framework for Debt Treatments and support for the general allocation of Special Drawing Rights (SDR) of US$650 billion. Reforming the international trade system would help support the global recovery.

Policy support should be tailored to the stage of the crisis, avoiding abrupt transitions.

  • Monetary policy should remain accommodative in most economies, while macroprudential policies should help contain financial vulnerabilities. Where inflation expectations are anchored, continued monetary accommodation is warranted. In economies furthest ahead in the recovery, carefully communicated policy intentions will keep inflation expectations well-anchored and avoid adverse spillovers to weaker economies. Where inflationary pressures are high and expectations not firmly anchored, monetary policy should tighten. Targeted macroprudential measures are needed to stop and reverse the rise in financial vulnerabilities amid elevated asset valuations.
  • Fiscal policy support should be tailored to the stage of the crisis and policy space. Where infections are spreading rapidly, support for health systems and vulnerable households and businesses remain necessary. Where fiscal space is limited, existing resources should be reprioritized. Once the crisis is abating, further targeting support can help avoid hindering reallocation to expanding sectors. Efficient insolvency and restructuring regimes can help ensure that valuable resources are not held idle. As economies exit the crisis, digital and green investments can facilitate stronger, more sustainable, and more inclusive growth. Decarbonization—underpinned by carbon pricing and other measures—is necessary to avert catastrophic climate change.

Prepared under the guidance of Oya Celasun by a team led by Lone Christiansen, comprising Mehdi Benatiya Andaloussi, Ananta Dua, Philipp Engler, Chanpheng Fizzarotti, and Chao Wang. Ilse Peirtsegaele provided administrative support.

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