Finance Ministers’ Event on Financing for Development in the Age of COVID-19 and Beyond

Finance Ministers’ Event on Financing for Development in the Age of COVID-19 and Beyond

By Kristalina Georgieva, Managing Director of the IMF
Washington DC

September 8, 2020

AS PREPARED FOR DELIVERY.

I would like to start by thanking Minister Freeland in her new role as Minister of Finance. And my thanks to Minister of Finance Clarke of Jamaica and Deputy Secretary General Amina Mohammed.

I will focus my remarks today on two issues.

First, the outlook for the world economy. And second, the implications of this perspective for what we need to do collectively.

On the outlook, since our last meeting at the end of May, the incoming data paint a less gloomy picture. In other words, we are seeing signs of recovery in the global economy.

The outlook for a number of advanced economies is somewhat less gloomy than expected. China has taken the leap and is recovering a little faster than expected.

And all because of three important factors. First, a very strong and synchronized policy response from finance ministries and central banks.

A massive political response has put a floor under the global economy. This included $ 11 trillion in tax measures. And central banks have worked wonders to inject huge amounts of liquidity and support their national economies and – through spillover – the economies of other countries. We have seen that it has become easier for emerging countries with good fundamentals to raise funds.

The IMF was part of this very strong response. Never in our history have we done so quickly, supporting more than 80 countries with emergency funding and also through our regular lending programs. We have now provided $ 270 billion in support – out of the Fund’s $ 1 trillion capacity – and more than a third of that support has been provided in recent months.

The second reason the situation is better is that the world has learned how to function while the pandemic is still around us. We wear masks, we distance ourselves socially and we follow protocols.

And that allowed some rebounds. We find that non-contact activities like manufacturing are doing a little better than expected.

Third, the results of tests and treatments are improved. And we are hopeful that we will have a vaccine. So, this is on the more optimistic side.

But this is not good or positive news everywhere.

The majority of emerging markets and developing countries – excluding China – are not yet experiencing a turnaround. In fact, some would see a degradation of our projections.

And, as we are well aware, the small countries whose economy depends on tourism are on their knees. Heavily indebted countries are in dire straits and the virus is now moving to places with weaker health systems.

What does this mean for us? I will focus on three priorities.

First, make sure we maintain our support until the economy recovers.

We are projecting a recovery that is only partial and uneven.

We have come to a point where we can say that the world economy will lose $ 12 trillion this year and next year.

To continue supporting advanced economies, it’s a little easier. With low interest rates, it’s more affordable.

For developing economies and for emerging markets with weaker fundamentals, we must all work to increase the funding available to them. All of us.

For the Fund, this means that we are expanding the use of existing SDRs, encouraging the shift from advanced economies to developing economies so that they can count on a strong financing capacity from the IMF on concessional terms.

Second, we need to be aware of the debt levels that are high in many emerging and developing economies – high to the point of stifling the ability to act.

We had the Debt Service Suspension Initiative – a great achievement. It must be extended and the World Bank and IMF are asking for a one-year extension. And we call for greater involvement of the private sector.

And we have to recognize that – for some countries – this will not be enough, and some countries will need restructuring to bring debt down to a sustainable level.

I call for debt transparency as a priority. If we know the debt levels then this problem is much more manageable.

Last but not least, we must recognize that this crisis tells us to build resilience for the future.

It means investing in education, digital capacity and human capital – health systems and social protection systems. We need to make sure that the other crises that lie ahead, like the climate crisis, are well integrated and addressed. And we must prevent inequality and poverty – including gender inequality – from raising their ugly heads again.

To do this, we must deal with taxation in a way that transforms and builds resilience for the future.

Yeah, it’s gonna be tough. Everyone on the political side knows how difficult it will be. But after the global financial crisis, we strengthened the resilience of the banking sector by reforming it.

Now we have to do it for the functioning of our economies as a whole.

Thanks a lot.

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