You are the first Director of the IMF who comes from an emerging economy. How has this experience influenced your understanding and action on the challenges of developing countries?
If there is one clear lesson from my experiences, it is the importance of building a resilient economy. The value of this has become even clearer in the context of the ongoing pandemic. This crisis is a reminder that we live in a more shock-prone world, and that the shocks or risks that we face continue to change. We need to think about resilience in a multidimensional way.
Many people have spent the past 18 months grappling with loss and hardship. Although our latest global growth forecast of 6 percent for 2021 is unchanged from the previous outlook, that global average masks a deeply worrying difference between countries. Countries with access to vaccines and the scope to provide policy support are bouncing back. Yet many emerging market and developing countries are falling further behind.
And with this worsening two-track recovery, the unthinkable is happening. Global extreme poverty is set to rise for the first time in 20 years. It is a human tragedy and an economic calamity, holding millions of people back.
First and foremost, we need urgent collective action. Working together, seeking and offering help, makes a huge difference in an emergency. The pandemic is a powerful reminder of the need for solidarity in an interdependent world.
Second, we don’t know our own internal strength until we are hit. As the European Union’s Crisis Commissioner, I saw Syrian refugees in terrible situations helping each other. We are resilient, and we are able to withstand shocks, especially when we come together. This gives me a sense of optimism.
Third, we need the whole economic system and our planet to be resilient. It also means we need to think about the unthinkable and anticipate what will be needed when a shock hits you. Therefore, I often talk about ‘build better before’ because preparedness and prevention pay off big time.
The pandemic has triggered calls for borrowing from many developing countries; but at the same time the ability to repay high debts may become more complex. How is the IMF dealing with this delicate situation?
Public debt levels in low-income countries (LICs) were already very high before the crisis and the pandemic is pushing them to new heights. The pandemic has hurt LICs’ liquidity and solvency indicators; over 50 percent of them are now assessed to be at high risk of or in debt distress according to the joint IMF-World Bank Debt Sustainability Framework.
To alleviate financing constraints and provide breathing space, the IMF moved swiftly to provide debt service relief to its poorest members. And, together with the World Bank, we supported the G20 Debt Service Suspension Initiative (DSSI), which has been extended for another six months to later this year. For countries with higher debt vulnerabilities that may need deeper debt relief, the G20 have also pioneered the Common Framework for debt resolution. Now is the time to make the Common Framework fully operational. Three countries have already asked for debt treatment under the Common Framework—Chad, Ethiopia, and Zambia. I am encouraged that Chad received financing assurances from its G20 bilateral creditors. We now need speedy commitments, on comparable terms, by private creditors.
Whether or not countries are in debt to the IMF, do you think that stronger involvement and advice on fiscal and monetary policy management would help improve stability and thus prevent the need for borrowing?
We are seeing in advanced economies and some emerging market countries a recovery like no other, propelled by a combination of strong fiscal and monetary policy support and rapid vaccinations; but in many other countries—particularly the poorest without access to vaccines and with surging infection rates—growth is suppressed. Urgent action is needed in three areas.
First, accelerate vaccinations: to cover at least 60 percent in all countries by mid-2022. We, together with the World Bank, WHO, and WTO, in close collaboration with ACT-A, have formed a task force to help achieve this goal. A normal return to activity everywhere could add trillions of dollars to the global economy through 2025—the US$50 billion cost of this pandemic plan pales by comparison.
Second, implement sound macroeconomic policies: they continue to play a pivotal role in securing the recovery. Monetary policy should remain accommodative, as inflationary pressures are likely to be temporary. Central banks will need to communicate policy intentions clearly to avoid triggering adverse spillovers.
Third, step up support to vulnerable countries. The IMF’s new SDR allocation of US$650 billion will increase countries’ reserves, create additional space for vaccine financing, and boost confidence in the recovery. To magnify the impact of the allocation, we will explore options for economically stronger members to voluntarily use their SDRs to help poor and vulnerable countries. We are discussing with our membership ways to get this done, including through our Poverty Reduction and Growth Trust and possibly a new Resilience and Sustainability Trust.
What is the main achievement for which you would like to be remembered when you leave the IMF?
My focus is on working with colleagues, member states and global partners to help turn the two-track recovery into synchronized and sustainable growth—by acting decisively and collectively. The IMF has stepped up in an unprecedented manner by providing $114 billion in new financing to 85 countries and debt service relief for our poorest members. When future generations look back, I hope they will recall how the global community came together to beat the pandemic and the climate crisis and the decisive role that was played by the IMF.