The Path to Growth
April 13, 2023
As prepared for deliveryGood morning to all members of the press. I would like to start by thanking you for the hugely important work you do, often in difficult circumstances. Far too many of your colleagues are persecuted — a tragedy for them and their families, and a threat to the very foundation of a vibrant society. Here, at the IMF, you are always welcome.
And you are most welcome to these Spring Meetings taking place at a time of complex challenges. The world economy has proven remarkably resilient to the multiple shocks of the last three years, but it is yet to overcome the combination of weak growth and sticky inflation.
As you will have seen in our latest World Economic Outlook, we project global growth to slow down to 2.8 percent in 2023 and remain weak, at around 3 percent, over the next five years. This is the weakest medium-term forecast in decades. Underlying inflation remains stubbornly high, geo-economic fragmentation affects trade and capital flows, and downsides risks have increased. Fighting inflation and safeguarding financial stability have become more complex with the recent banking sector pressures.
At the same time, we know that low-income countries are particularly vulnerable given high debts. As their per capita income growth lag, it is becoming harder and harder for them to catch up.
In this environment our Global Policy Agenda concentrates on the path to restoring both short- and medium-term prospects for sustainable and inclusive growth.
Let me highlight three priorities.
First, restoring price stability and safeguarding financial stability as prerequisites for return to robust growth. So long as financial pressures remain limited, we expect central banks to stay the course in the fight against inflation—holding a tight stance to prevent a de-anchoring of inflation expectations. Further effort to reduce budget deficits is critical to support the fight against inflation and reduce debt, but this must be coupled with targeted support for the most vulnerable.
And central banks should address financial stability risks where they emerge, working closely with regulators and supervisors. The key is to monitor risks that may be hiding in the shadows in banks and non-bank financial institutions, or in sectors such as commercial real estate. Vigilance is imperative.
Second, rebuilding the foundation to sustain future prosperity—by acting now to advance structural transformations and counter fragmentation. Think of steps to accelerate the digital revolution, improve the business environment, and boost human capital and inclusion. And think of the green energy transformation. An estimated $1 trillion a year is needed for renewable energy alone. That will pay dividends in terms of growth and jobs.
We also need to step up international cooperation to reduce the harm from fragmentation. Our analysis shows that the long-term cost of trade fragmentation could be as high as 7 percent of global GDP. If we add technological decoupling, some countries could lose up to 12 percent of GDP. Fragmentation of capital flows, including foreign direct investment, would be another hit to global growth.
Third, solidarity with the most vulnerable countries. The IMF has provided nearly $300 billion in new financing for 96 countries—more than half our members—since the start of the pandemic. Just in the six months since our Annual Meetings our Board has approved 23 new arrangements.
Nearly half of our financing commitments in the past three years have been done through our precautionary facilities—like the one approved for Morocco last week. They serve as an additional buffer to countries with strong economic fundamentals.
We have stepped up support for vulnerable middle-income countries—including through a temporary increase in the amount members can borrow from the IMF. And we have recently provided financing to countries such as Sri Lanka and Ukraine.
We have also used our new tools to meet new challenges. Our Food Shock Window is helping countries cope with the economic consequences of Russia’s war in Ukraine, while the Resilience and Sustainability Trust is focused on long-term challenges such as climate change. Five countries are already benefitting from RST support, with many more in the pipeline.
Yet, for the most vulnerable members of our global family, additional support from the international community is essential.
I am making a double plea on their behalf: help them resolve crushing debt burdens; and help ensure that the IMF can continue to support them going forward.
On the first, the Global Sovereign Debt Roundtable is making tangible progress. Co-chaired by IMF, the World Bank, and India as G20 Chair, this forum brings together public and private creditors, as well as borrowers, to accelerate restructuring cases, including those under the G20’s Common Framework. The roundtable met yesterday, and I was encouraged by the positive outcomes. First, we agreed to improve information sharing on macroeconomic projections and debt sustainability assessments at an early stage in the debt restructuring process. Second, we have reached a common understanding on the role that MDBs can play, notably through the provision of positive net flows of concessional finance. And, third, we will pursue a workstream, including a workshop to be organized in the next weeks, on how to assess and enforce comparability of treatment.
On the second part of our plea, key players met yesterday to discuss urgent funding gaps in our Poverty Reduction and Growth Trust. IMF concessional financing has increased more than four-fold since the onset of Covid. Coming into these meetings, we had been calling for $4.7 billion in loan resources and $1.6 billion in additional subsidy resources to maintain this interest-free support.
I am very encouraged that some of our economically stronger members are already stepping up. Just in the past few days five countries—Ireland, Japan, Portugal, Saudi Arabia and the UK—have all come forward with substantial new pledges or contributions.
And we call on all members to work this year to successfully complete the review of quotas—the building blocks of the IMF’s financial structure—so that we can continue to strongly fulfill our mission.
We have a lot more to do—this week, and beyond.
We have overcome enormous challenges before, especially over the past few years, and I am confident that, together, we can do so again.
Thank you.
IMF Communications Department
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