Managing Director of the International Monetary Fund (IMF), Ms Kristalina Georgieva, has said that the Fund would, next week, raise its January forecasts for global economic growth of 5.5% in 2021 and 4.2% in 2022, due to increased fiscal spending in the United States and prospects for a vaccine-powered recovery in other advanced economies.
In a speech previewing the Fund’s Spring Meetings next week, she told the Council on Foreign Relations, yesterday, that although the global economy was on firmer footing after governments spent some $16 trillion on fiscal measures to contain the COVID-19 pandemic and mitigate its economic impact, financial conditions remain highly uncertain as developments are diverging dangerously across regions and countries, and even within nations. “Vaccines are not yet available to everyone and everywhere.
Too many people continue to face job losses and rising poverty. Too many countries are falling behind,” she said. Georgieva said the world was at a critical turning point, much as it was in 1945 when the IMF and World Bank were created, and called for continued strong actions to safeguard the recovery, ramp up vaccine production and distribution, and invest in a new green and digital infrastructure.
“We face the biggest test of our generation,” she said, adding that: “What we do now will shape the post-crisis world.” The IMF Chief said the United States and China were powering a “multispeed recovery” from the crisis, with advanced economies facing an 11% cumulative loss in per capita income, relative to pre-crisis projections, while emerging and developing economies, excluding China, would see a 20% drop.
She said that the IMF had provided over $107 billion in new financing to 85 countries and debt service relief for 29 of its poorest members, noting that in sub-Saharan Africa, the Fund’s financing surged to 13 times its average annual level in the previous decade. However, low-income countries needed more help, she said, citing new estimates that they would need $200 billion over five years to fight the pandemic and $250 billion to return to the path of catching up to higher income levels.
Georgieva disclosed that support was building for a possible $650 billion expansion of the IMF’s Special Drawing Rights (SDR), which would help all members, but especially the most vulnerable, by boosting reserves without adding to their debt burdens. Extraordinary measures undertaken by countries and more resilient banking systems had clearly helped to avert a far worse global contraction and another global financial crisis, but the outlook remained highly uncertain, she said.
Noting that faster progress in ending the health crisis could add $9 trillion to global GDP by 2025, she said that much depended on the path of the pandemic, uneven vaccination rates and the emergence of new COVID-19 strains that are holding back growth prospects in Europe and Latin America. According to her, strong U.S. growth could help many countries by boosting trade, but it could also trigger a rapid rise in interest rates, which could cause tighter financial conditions and significant capital outflows from emerging and developing economies. That would pose major challenges, especially for middle-income countries with large external financing needs and high debt levels, she said.