Speech

Opening Remarks at the High Level Policy Dialogue on Inequality

September 20, 2022

Thank you very much, Sukhwinder, for that kind introduction—and thanks to all of you for joining us. A very good morning or afternoon to everyone, depending on where you are.

It is my great pleasure to open this important and very timely event on inequality.

As we all know, our world today is confronting multiple challenges, ranging from heightened geopolitical fragmentation, to mounting concerns about sovereign debt in many countries, and a cost-of-living crisis in virtually every country. These challenges are creating even greater urgency for policymakers to tackle issues around reducing growing inequalities.

And this is particularly so for sub-Saharan Africa. Even before the COVID-19 pandemic, inequality within African countries was the second highest in the world after Latin America. The pandemic exacerbated these pre-existing inequalities in several ways.

First, within countries. We know that the pandemic disproportionately affected low-skilled informal sector workers, especially from the services sector—with women and the youth bearing the biggest brunt. Second, inequality also increased between countries in the region, depending on their degree of resilience and capacity to respond to the shock. And finally, sub-Saharan Africa is expected to rebound from the pandemic more gradually than the rest of the world.

Coming on top of the pandemic, the spike in food and energy prices stemming from Russia’s war in Ukraine have further aggravated these inequalities. Food insecurity is of particular concern because food represents a larger proportion of the consumption basket in low-income households, and food insecurity was growing before the current crisis, with at least 35 million people in Africa having become acutely food insecure over the past two years. 

In the near future, the effects of frequent climate shocks will further amplify this divide. In fact, sub-Saharan Africa is the most vulnerable region in the world to the effects of climate change, with the majority of the population living in rural areas and depending on weather-sensitive activities such as rain-fed agriculture.

Sustained inequality can also leave long-lasting scars and undermine  economic, social and political stability. For instance, schools in sub-Saharan Africa were closed for much longer than in advanced economies, contributing to a widening gap in learning outcomes and weighing on medium-term growth. We know that the effect of school closures is stronger for children from poorer households and girls, who are at a higher risk of dropping out. This deepening inequality in access to education is likely to slow down intergenerational mobility and perpetuate the divide within countries.

So, in sum, the divergent recovery paths between Africa and the rest of the world, and within African countries, may result in permanent fault lines, jeopardizing decades of hard-won progress in reducing poverty and gender disparities and making reaching the SDGs ever more difficult.

Which is why we need to act now.

And I am most pleased that we have gathered together today to discuss policy options for doing so. There is, of course, no one size fits all, but I will highlight three broad principles that I urge you to consider in designing policies to address inequality.

First, in the current difficult environment, we must ensure continued support for the most vulnerable. Recent shocks confirm the importance of strengthening countries’ social protection systems. Across the world, we have seen evidence of the positive impact and cost-effectiveness of social protection interventions that contribute to poverty reduction, human capital development, job creation and resilience in the face of shocks.

Tomorrow’s discussion will make clear that several African countries have made important progress and innovations in strengthening their social protection systems, including during the pandemic. But much more remains to be done. And as we recover from the shocks, any new strategy to foster long-term sustainable and inclusive growth needs to prioritize the immediate needs of the most vulnerable. 

Second, reducing inflation is essential, as inflation is, after all, a tax on the poor. The current inflation spike we are observing in the region is mostly driven by external factors, namely high global food and fuel prices and supply side disruptions—some of which pre-date the crisis. Where monetary policy tightening is necessary, it is important to strengthen monetary policy frameworks to ensure the effectiveness of policy moves.

Third, countries must continue reforms to enhance resilience to shocks and address the underlying drivers of inequality. There are various aspects of inequality—income, gender, health, economic opportunity—all of which are closely related and mutually reinforcing. So, policymakers will need a comprehensive approach. Fiscal policy has a key role to play. For instance, pre-distributive policies can help level the playing field before people enter the labor market—through the provision of public education, health services, and basic infrastructure. And re-distributive policies help correct inequalities, for instance, through progressive income tax and social assistance to help people cope with life events. Digitalization can also help, as we will hear at the conference tomorrow, notably in facilitating access to finance and efficient delivery of income support.

I, of course, fully recognize that in the current challenging economic environment, many countries will not be able to address their needs alone. The international community has a key role to play in reducing inequality. And this includes the IMF.

Since the start of the pandemic, the Fund acted rapidly to expand our financing support—including through the $650 billion SDR allocation—and we facilitated additional debt relief. The IMF is gearing up to roll out our new, long-term financing instrument—the Resilience and Sustainability Facility—to help countries build resilience against climate change and future pandemics.

We have also begun to integrate gender into our core activities of surveillance, lending and capacity development—and our Board recently approved a Gender Strategy aimed at further mainstreaming gender into our work. Indeed, we recognize that reducing gender disparities goes hand-in-hand with higher economic growth, greater economic stability and resilience, and lower income inequality.

The IMF is also enhancing its analysis, policy advice and training in the area of inequality and inclusive growth. But I am sure there is more we can do. In these challenging times, defining effective and coherent strategies to reduce inequality is crucial, and to do that we need to listen to each other.

I look forward to hearing the outcomes of conference discussions and suggestions on how best the IMF can support our member countries in better tackling inequality. Thank you very much.