MercoPress. South Atlantic News Agency

IMF's Kristalina Georgieva: “We must fight inflation without impairing the recovery”

“In 2020, we observed the largest one-year debt surge since the Second World War, with global debt—both public and private—rising to US$ 226 trillion”.

International Monetary Fund Managing Director Kristalina Georgieva made the following statement at the virtual meeting of the G20 Finance Ministers and Central Bank Governors:

“I would like to congratulate the Government of Indonesia and Minister of Finance Sri Mulyani Indrawati and Governor Perry Warjiyo for their chairmanship of this G20 meeting.

Even as the global economic recovery continues, its pace has moderated. Three weeks ago, we downgraded our global forecast to a still-healthy 4.4% – 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.

Strong international cooperation and extraordinary policy agility will be crucial to navigate a complex 'obstacle course' through 2022.

Let me focus on three policy priorities.

First, we need to broaden efforts to combat what might be described as 'economic long COVID.' 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. 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.

To support our members in harnessing the benefits of capital flows while managing the risks to financial and economic stability, we aim to finalize the review of the IMF’s Institutional View on capital flows by the Spring Meetings. We are also on track to operationalize the findings of the Integrated Policy Framework..

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 US$ 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% to 60% today, and several face the immediate need to restructure their debt.

Here the G-20 Common Framework can play an important role, and I am calling for efforts to make it even more impactful. In addition to transparency and early action, that means:

• Offering a debt service standstill during negotiations to avoid squeezing a country precisely when it is under financial pressure;
• Providing clear and timebound processes that foster confidence and facilitate implementation, including participation of private creditors; and
• Finding ways to bring in countries that are not currently covered by Common Framework by expanding is perimeter.

More broadly, the G20 is 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 US$650 billion SDR allocation by channeling 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.

We count on G20 members’ contributions to make the RST operational and also to support the augmentation of the Poverty Reduction and Growth Trust, which is equally critical for our vulnerable low-income members. I am encouraged by the progress toward the US$100 billion global ambition for reallocating SDRs to benefit countries most in need—with about US$60 billion pledged so far.

We must sustain momentum on global efforts to implement the Paris Agreement, which requires a large increase in investment toward low-carbon and climate resilient development. Critical here are clear policy signals from governments to decarbonize the economy, including through carbon pricing mechanisms to create incentives for the private sector to invest in mitigation.

The IMF will support the G20 on these and other priorities. I look forward to our next meeting in April.”