By Antoinette M. Sayeh
(Keynote speech at the Warwick Economic Summit)
As we gather virtually, almost a year on from the start of the pandemic, I would like to share with you how we see the global economy and our outlook for it. I will also take the opportunity to talk about where we should be headed—that is, our policy priorities for the period ahead. And in keeping with the young, optimistic energy that surrounds me virtually with you all [today]—I will end with what the IMF believes is a once-in-a- generation opportunity that lies ahead of us.
But let me begin first with COVID-19—the biggest, most immediate crisis of our lifetimes. While the global economy has started to climb back from the depths of the crisis, the recent resurgence in infections and spread of new variants is delaying our recovery. It is also a powerful reminder that we cannot achieve a sustainable recovery anywhere unless we defeat the pandemic everywhere.
These exceptional times call for exceptional action. Over the last year, countries around the world have come together to undertake synchronized actions to cushion the blow. This includes $14 trillion in fiscal support to households and firms; and $9 trillion in monetary support through interest rate cuts and other measures by central banks. These actions have helped to put a floor under the global economy, without which the economic impact of the pandemic could have been so much greater.
The IMF, too, has moved with unprecedented speed and magnitude. The Fund was set up more than 75 years ago precisely to help countries in such situations by fostering financial stability and monetary cooperation.
Since the start of the pandemic, we have approved over $105 billion in total financing for 85 countries. We expanded concessional financing for low-income countries and provided immediate debt relief to 29 of the poorest, most vulnerable ones. We worked with the G20 on bilateral debt service relief and on a common framework to address unsustainable sovereign debt. And we provided real-time policy advice and capacity development support to over 175 countries. Never in the history of the IMF have we done so much, so fast.
So, what is the economic outlook? In our latest forecast released last week, we project global growth at 5.5 percent in 2021, which reflects the positive effects of vaccinations in some countries, adaptation to containment measures, and continued policy support. But just to be clear, we are still only in February. And there is tremendous uncertainty around this forecast, especially considering that we ended 2020 with a contraction of 3.5 percent, meaning the worst peacetime recession since the Great Depression.
How we fare over the next few months will be critical—much of it will depend on the outcome of the race between the mutating virus and vaccines, and on the ability of countries to provide continued support until herd immunity is achieved and the recovery is fully underway.
Which is why our immediate priority, must be to bring the health crisis under control. The international community must act swiftly to ensure access to vaccines and medical treatments also for low- and middle-income economies. This will require ramping up production, bolstering funding for the COVAX facility and the logistics of vaccine delivery. The health and economic arguments for this are overwhelming. We estimate that faster vaccinations would raise global income cumulatively by $9 trillion over 2020‑2025, with benefits for all countries.
As we look toward recovery, we must consider the potential of lasting scars imposed by the pandemic—such scars could emanate from interrupted schooling, dislocated workers, idled skills, investments on hold, and new technology on standby. Given the gravity of this crisis, our second priority must be to maintain economic lifelines and policy support in countries where the virus is surging. This will help protect households and prevent bankruptcies of otherwise viable firms, enabling a faster rebound once constraints are lifted.
In countries where fiscal space is limited, spending should be prioritized for health and transfers to the poor. And only when infections are durably declining and economic activity is normalizing, should countries begin to gradually roll back these lifelines, while still cushioning the impact on the most vulnerable.
Advanced economies with more fiscal space are, of course, expected to recover faster; but, around half of all emerging markets and developing economies who were previously converging with advanced economies in per capita income are now expected to diverge. Which is why, our third priority must be to reverse this dangerous divergence between rich and poor countries. To do that, we must come together to help poor countries by providing grants, highly concessional loans, and debt relief—including in some cases, to address unsustainable sovereign debt that may come up in the period ahead.
As we take these steps to navigate our way out of this unprecedented crisis, we also have a once-in-a-lifetime opportunity. An opportunity to put in place policies that not only strengthen our recovery in the short‑term but ensure that we build a solid foundation for a more sustainable, inclusive economy in the years ahead. Simply returning to the low-growth and high-inequality economy of the past is no longer an option.
Which is why, the IMF is calling for a synchronized investment in green and digital infrastructure, as the pandemic starts to come under control.
Governments must put in place public investments as well as incentives for private investments that support low‑carbon and climate-resilient growth. These could be, efficient mass transit systems, smart electricity grids or phasing out harmful subsidies. The IMF estimates that a combination of green investments and appropriate carbon pricing can put us on a path towards net-zero emissions by mid-century and help create millions of new jobs. Similarly, we know that the economy of the future will be digital—each of you, know this especially well. So, countries must enable a planned transition by investing in digital infrastructure—be it e-commerce, e‑learning, e‑government or digital money and payments.
Of course, green and digital investment must also include support for workers as they transition from shrinking to expanding sectors. Increased investment in training, re-skilling and high-quality education will be pivotal to unlocking the potential of a green and digital economy. Already widely understood, this is nonetheless an important point needing greater attention than it has received in the past.
At the IMF, we are moving fast in both of these areas. We are incorporating climate change into our country and financial risk assessments and are scaling up capacity development in this area. We are also working with countries on policies that enable the new digital paradigm to become an engine of growth and financial inclusion.
So, let me now conclude by saying this: 2021 will be the most consequential year of our lifetimes. If the international community can come together to help each other get to the other side of the pandemic, we can exit the crisis with minimal economic scarring. And if we begin to sow the right seeds of investments and policies today, we can go even further and build the foundation of a 21st century economy—one that each of you will inherit.