The managing director of the International Monetary Fund has warned that the world needs to tackle the ongoing threats to global recovery which she has likened to long COVID.
Speaking to a virtual meeting of the G20 Finance Ministers and Central Bank Governors Kristalina Georgieva (pic) said the IMF’s estimates for global growth were being reduced as COVID continued to impact the economic recovery.
“Even as the global economic recovery continues, its pace has moderated,” Georgieva warned. “Three weeks ago, we downgraded our global forecast to a still-healthy 4.4 percent, partially because of reassessment of growth prospects in the United States and China.
“Since then, incoming economic indicators point to weaker growth momentum in 2022 due to the emergence of the Omicron variant and supply chain disruptions that are more persistent than previously anticipated. At the same time, inflation readings remain high in many countries, financial markets are more volatile, and geopolitical tensions have sharply increased.”
She warned the situation required strong international cooperation and extraordinary policy agility to navigate a complex ‘obstacle course’ through 2022.
The IMF Georgieva added had identified three crucial policies.
“First, we need to broaden efforts to combat what might be described as ‘economic long COVID’,” she explained. “We project economic losses from the pandemic to be nearly US$13.8 trillion by end-2024, and Omicron is a reminder that a durable and inclusive recovery is impossible while the pandemic continues. There remains great uncertainty about how effective the health protections that have been built will be in the face of other possible variants.
“In this environment, our best course of action is to move from a singular focus on vaccines to ensuring that each country has equal access to a comprehensive COVID-19 toolkit that also includes tests and treatments. Keeping these tools updated as the virus evolves will require continuous investment in medical research, disease surveillance, and health systems that help countries reach ‘the last mile’ in every community. The World Bank’s announcement on mobilizing further toward reaching that goal is welcome.”
“Second, many countries will need to navigate a tightening monetary cycle,” Georgieva explained. “In the context of a high degree of uncertainty and significant differences across countries, macroeconomic policies need to be carefully calibrated to individual country circumstances. The risk of potential spillovers, especially for emerging markets and developing countries, also needs to be managed. We must fight inflation without impairing the recovery.
“Third, countries need to give greater priority to fiscal sustainability. Extraordinary fiscal measures deployed during the crisis helped prevent another Great Depression. But they also pushed up debt levels to historical highs. In 2020, we observed the largest one-year debt surge since the Second World War, with global debt—both public and private—rising to $226 trillion.
“And while many countries are facing higher debt, we should prioritize help to those countries who need a debt restructuring. The share of low-income countries at high risk or already in debt distress has doubled since 2015 – from 30 percent to 60 percent today, and several face the immediate need to restructure their debt.”
She described, the G20 as “crucial to sustain the momentum on collective efforts to deliver on global ambitions for the common good”.
“This includes focusing on amplifying the effect of the historic $650 billion SDR allocation by channelling as much of it as possible to where the need is greatest.
“In this context, we welcome the G20 endorsement of our proposed new Resilience and Sustainability Trust (RST). The aim is to establish the Trust by the Spring Meetings and make it operational by the Annual Meetings – so we can support our vulnerable members address longer-term structural challenges, especially those related to climate change and pandemics.”