IMF chief calls for strong G20 policies to counter ‘dangerous divergence’

International Monetary Fund Managing Director Kristalina Georgieva has called for strong G20 policies to counter ‘dangerous divergence’.

International Monetary Fund Managing Director Kristalina Georgieva has called for strong G20 policies to counter ‘dangerous divergence’.

“Today, powered by advancements in vaccinations and your strong monetary policy and fiscal actions, the world economy is on the path of recovery. Growth prospects for this year, enhanced by a sizable additional stimulus in some large economies, are possibly even above our January 5.5 percent projection. Yet, uncertainties remain very high, as vaccinations still have a long way to go against new waves and variants of the virus, ” she said on Friday at the virtual meeting of the G20 finance ministers and central bank governors.

Dangerous divergence

“And we see a dangerous divergence between and within economies. In emerging and developing countries, excluding China, we project by 2022 cumulative per capita income losses as high as 22 percent, versus 13 percent in advanced economies. And we forecast that only half of the countries that were narrowing their income gaps relative to advanced economies will continue to do so over 2020-22. Within countries, the young, the low-skilled, and women have been disproportionately affected by job losses,” she added.

“And we cannot forget the major threat from climate change. We need strong and determined action.

“First, speed up vaccinations across the world. It is the most impactful support for recovery. We need international collaboration to accelerate production and make vaccines available everywhere as fast as possible.

“Second, resolve to provide lifelines to business and households, tailored to countries’ circumstances, until there is a durable exit from the health crisis. And prepare for risks and unintended consequences once policy support is gradually withdrawn. We are likely to see rises in bankruptcies and financial stresses, including excessive volatility in financial markets.

“Third, step up support to vulnerable countries. Together with the World Bank we are working with countries to implement strong reforms, address debt transparency and sustainability, and expand concessional financing. We support the prompt and effective implementation of the Common Framework, with Chad, Ethiopia, and Zambia being the first candidates. Besides, reviewing the case for extending the Debt Service Suspension Initiative.

Growing support for SDR allocation

“We must deploy all tools at our disposal. I am very encouraged by the growing support for a new Special Drawing Right (SDR) allocation; to boost reserves of all members in a transparent and accountable manner. And by the calls for an additional mechanism to enable our wealthier members to support low-income countries through the on-lending part of their SDRs. We also stand ready to present to our membership a robust assessment of long-term reserve needs and implementation modalities.

Finally, a word on aligning the use of public resources; with the goal to shape a climate-resilient, digital, and inclusive future.

“We strongly support the Presidency’s proposal on global climate risks and environmental taxation. We will play our part in the areas of our comparative strength; such as integrating climate in public revenues and spending policies, climate-related financial stability risks, and data.

“I am also encouraged by the new impetus to modernize the international tax system to better fit 21st-century economies. Besides, supporting the goal of inclusive development as well.