MIL OSI Translation. Government of the Republic of France statements from French to English –
Source: IMF in French
Kristalina Georgieva, Managing Director, IMF Washington
October 6, 2020
1. Introduction: a world turned upside down
Dear Minouche, thank you for this warm welcome! It is an honor for me to celebrate with all of you the 125th anniversary of the London School of Economics – a proud moment for students and faculty, as well as alumni.
As a former LSE and Managing Director of the IMF, I know that our institutions have many values in common. This is what reminded me of a new large sculpture – the globe – last year on the LSE campus. We are connected by our global perspective, caring greatly for the world we live in and its future.
This sculpture by Mark Wallinger could not better symbolize what we face today: our world has been turned by the pandemic – by the loss of more than a million lives, by the economic fallout for billions of people. In low-income countries, the shocks are of such magnitude that we face the risk of a “lost generation”.
To face the crisis, we can draw inspiration from a previous generation. In 1942, William Beveridge, former director of LES, presented his famous report, originally from the British National Health Service. And in 1944, John Maynard Keynes and Harry Dexter White presided over the establishment of the Bretton Woods system, which includes the IMF and the World Bank.
They forged a better world in the darkest hours, in the midst of war. We need the same determination today for the post-pandemic world – to build a more inclusive and resilient world.
This is what the 189 IMF member countries will focus on next week when we virtually come together for our Annual Meeting. This is what I am going to focus on today.
2. Global Perspectives: The Long Rise
Let’s start with the economic situation. Global economic activity registered an unprecedented drop this year in the second quarter, when about 85% of the world economy was confined for several weeks.
In June, the IMF predicted a sharp contraction in world GDP in 2020. Today, the picture is less dire. We now estimate that the evolution of the second and third quarters was a little better than expected, allowing a modest upward revision of our global forecast for 2020. And we still expect a partial and mixed recovery in 2021. You will see. our forecast updated next week.
Much of the reason why we are here is the exceptional measures that have kept the world economy from collapsing. The government has provided about $ 12 trillion in budget support to households and businesses. And unprecedented monetary policy measures have kept the flow of credit going, helping millions of businesses stay afloat.
But some were able to do more than others. The advanced countries have done the right thing. Poorer countries are trying to do their best.
This gap in responsiveness is one of the reasons we expect differentiated results. Another reason is the effectiveness of the measures to contain the pandemic and stimulate economic activity. For many advanced economies, including the United States and the euro area, the slowdown remains extremely painful, but it is less severe than expected. China is recovering faster than expected. Other countries are still struggling, and some of our projection revisions are down.
Emerging countries as well as low-income and fragile countries remain in a precarious situation. They have poorer health systems. They are highly exposed to the most affected sectors, such as tourism and the export of basic products. And they are very dependent on external funding. Plenty of liquidity and low interest rates have helped many emerging countries to borrow again – but no country in sub-Saharan Africa has issued external debt since March.
So my central message is this: the world economy is emerging from the depths of the crisis. But this calamity is far from behind us. All countries are now facing what I will call “the long climb” – a difficult comeback that will be long, uneven and uncertain. And prone to flashbacks.
As we embark on this “climb,” we are all united by one rope – and we are only as strong as the weakest climbers. They will need help getting up.
An extraordinary uncertainty hangs over the path that awaits us. More rapid advances in health measures, such as vaccines and treatments, could accelerate the “rise”, but the situation could also worsen, especially in the event of a sharp increase in disease outbreaks.
Risks remain high, especially those stemming from increasing bankruptcies and high valuations in financial markets. And many countries are more vulnerable today. Their level of indebtedness has increased as a result of fiscal measures taken in response to the crisis and severe losses in production and revenues. We estimate that global public debt will reach a record high of around 100% of GDP in 2020.
Now there is the risk that job losses, bankruptcies and educational disruptions will leave deep economic scars. As a result of this loss of capacity, we expect global production to remain well below our pre-pandemic projections in the medium term. For almost all countries, there will be a step backwards on improving living standards.
This crisis has further exacerbated inequalities, due to its disproportionate impact on low-skilled workers, women and young people. There are obviously winners and losers, and we risk ending up in a two-tier world. We absolutely have to find a way out.
3. The way forward: facing the crisis and promoting transformations
So what is the way forward? We see four immediate priorities:
First, to preserve the health of populations. The expense of care, testing and contact tracing is imperative. As is the strengthening of international cooperation to coordinate the manufacture and distribution of vaccines, especially in the poorest countries. We can only ensure full economic recovery everywhere if the virus is defeated everywhere.
Second, to avoid a premature withdrawal of public aid. Where the pandemic persists, it is essential to keep fresh airs throughout the economy, for the benefit of businesses and workers – for example, tax deferrals, credit guarantees, transfers monetary and wage subsidies. Equally important is maintaining accommodative monetary policy and liquidity measures to secure credit flows, especially for small and medium-sized businesses – and thus support jobs and financial stability. If these oxygen balloons disappear too quickly, the long ascent will turn into a vertiginous fall.
Third, to pursue a flexible and forward-looking fiscal policy, to put the recovery in place. This crisis has brought about profound structural transformations, and governments must play their part in reallocating capital and labor to facilitate the transition. This will involve stimulating job creation, in particular green investment, and cushioning the shock for workers: from retraining and acquiring new skills to expanding the scope and extension of the duration of unemployment insurance. Preserving social spending will be essential for a just transition to new jobs.
Fourth, manage debt – especially in low income countries. They entered the crisis already heavily in debt, and the burden has only increased. To combat the crisis and maintain vital public supports, and to prevent the development gains of the past decades from being reversed, they will need more help – and fast. They must have access to more grants, concessional loans and debt relief, combined with better debt management and greater transparency. In some cases, global coordination will be required to restructure sovereign debt, with the full participation of public and private creditors.
In all these areas, our member countries can count on the IMF. We will help them climb the mountain. We will seek to be their “sherpa”. We will guide them with sound advice. We will provide them with the training that some may need. Most importantly, we will give them financial assistance and ease the debt burden on those who otherwise may not make it to the top.
We provided funding on an unprecedented scale and on record time to 81 countries. Our loan commitments exceed $ 280 billion, more than a third of which has been approved since March. And we are ready to do more: We still have considerable resources, with a total lending capacity of $ 1 trillion, to serve our members as they embark on their “rise.”
Once again, this ascent will be difficult. We will have to find new trails to climb the mountain. We cannot just rebuild the old economy, with its sluggish growth, low productivity, high inequalities and worsening climate crisis.
That’s why we need fundamental reforms to build a more resilient – greener, smarter, more inclusive – more vibrant economy. This is where we must direct the massive investments that will be necessary for a strong and lasting recovery.
A new IMF study shows that an increase in public investment of just 1% of GDP in advanced and emerging countries can create up to 33 million jobs.
We know that, in many cases, well-designed green projects can generate more jobs and generate higher returns than conventional budget impulses.
We also know that an accelerated digital transformation is underway, which holds the promise of productivity gains and new, better paying jobs. We can unlock this potential by equipping tax systems with new tools and investing in education and digital infrastructure. Our goal must be for everyone to have access to the Internet and have the skills to succeed in the economy of the 21st century.
4. Conclusion: keep climbing!
All of this is possible – because we know that previous generations had the courage and determination to climb the mountains that stood before them. Today is our turn – our mountain to climb.
As one mountaineer said, “Every peak is within reach if you keep climbing. “
The same goes for the long climb and the policies required to move forward. United by one cord, we can overcome the crisis and build a more prosperous and resilient world for all.
Thank you !
IMF Communications Department
PHONE: +1 202 623-7100 EMAIL: MEDIA@IMF.org
EDITOR’S NOTE: This article is a translation. Apologies should the grammar and / or sentence structure not be perfect.