Press Release No. 23/263

IMF Managing Director Kristalina Georgieva Urges G20 Leadership to Strengthen the Global Financial Safety Net

July 18, 2023

International Monetary Fund Managing Director Kristalina Georgieva made the following statement today at the third meeting of the G20 Finance Ministers and Central Bank Governors in Gandhinagar, India:

I would like to thank the Government of India for the generous hospitality and Minister of Finance Nirmala Sitharaman and Governor Shaktikanta Das for their exceptional stewardship of the G20. I have said before that India is a bright spot in the global economy, and the vibrancy of India has shined through clearly during our gatherings.

Outlook

The global economy has shown some resilience. Despite successive shocks in recent years and the rapid rise in interest rates, global growth—although anemic by historical standards—remains firmly in positive territory, supported by strong labor markets and robust demand for services. That said, activity is slowing, especially in the manufacturing sector. Looking further ahead, medium-term growth prospects remain weak. Moreover, divergences in economic fortunes across countries are a persistent concern: some pockets of the global economy are doing well; others are weakening but still growing; and vulnerable countries are falling further behind.

On inflation, there is some encouraging news – the trend is finally downwards. But headline inflation is still too high and core inflation remains sticky despite the significant monetary policy tightening. Elevated food and fertilizer prices are particularly worrying, especially for low-income households for which food insecurity and malnutrition are now much more persistent.

We are thus looking at a mixed picture, and risks remain on the downside. Inflation could remain higher for longer, requiring even more monetary policy tightening, and fragmentation could weigh even more on growth. To mitigate these risks, I call upon G20 leaders to seize the opportunity to move the global economy onto a more vibrant medium-term path. This requires both domestic and international policy action.

Domestic Policy Priorities

• The top priority is to durably bring inflation down. While there is progress, the job is not yet done—monetary policy must stay the course. A premature celebration can reverse the hard-won gains made so far in the disinflation process. Rather, if we stay the course, we can enjoy price stability as foundation for growth and prosperity.
• Now is the time to rebuild fiscal buffers after a period of exceptional policy accommodation. We would like to see fiscal policy pursuing consolidation to enhance debt sustainability and support disinflation, while ensuring adequate protection for the most vulnerable.
• Growth-enhancing reforms are needed to boost productivity and raise living standards. Digitalization provides great promise if we learn from proven successes, like that of India's in public digital infrastructure, as a foundation for dynamism and growth. To support these reform efforts, the Fund will also expand its work on mobilizing domestic resources, improving quality of country spending, building deep capital markets and improving the environment for private investment – both domestic and foreign.

Strengthening the International Financial Architecture

The international financial architecture has served the world well. Since the second world war, the global economy has expanded by more than 10 times in real terms. This has brought tremendous improvements in wellbeing for people – for instance, average global life expectancy in 1950 was just about 45 years.

But for the international financial architecture to continue to provide benefits, we must recognize that the world today is more shock-prone and fragile, with climate change, pandemics, and Russia’s invasion of Ukraine all causing widespread turmoil. Resilience to shocks is not evenly distributed – some countries are in better position to protect their people than others.

So what are the priorities for G20 countries?

To protect the most vulnerable countries and their people, we need to strengthen the global financial safety net. While advanced and strong emerging market economies have a cushion of more than $10 trillion in international reserves, the rest of the world relies on pooled resources of international institutions such as the IMF.

• Today, while the IMF has nearly $1 trillion in lending capacity, quota resources—which are critical to ensure the predictability of the IMF’s firepower—have shrunk in relative terms. I appeal to G20 countries to restore the primacy of IMF quota resources by successfully completing the 16 ^th quota review by the end of this year.
• With our support for low-income countries having quadrupled in recent years and demand still high, the IMF urgently needs to replenish subsidy resources in the Poverty Reduction and Growth Trust (PRGT). I call on the G20 to close the PRGT’s subsidy gap and put it on sustainable footing for the future, including by exploring options for using the IMF’s internal resources.
• The IMF’s newest instrument, the Resilience and Sustainability Trust (RST), has been funded through on-lending SDRs – a great innovation that transforms a ‘sleeping asset’ of countries in strong positions into firepower to support vulnerable countries. The G20 has reached its target of committing $100 billion for SDR channeling to vulnerable countries. For the IMF, this has mobilized US$45 billion for the PRGT and US$42 billion for the RST. Let us work together to increase the firepower of the RST .

On restoring debt sustainability – we have made welcome progress. The recent agreement on Zambia’s debt restructuring was a significant milestone for the G20 Common Framework, building on earlier steps to address Chad’s debt. The Global Sovereign Debt Roundtable (GSDR)—co-chaired by India’s G20 Presidency, the IMF and the World Bank—is facilitating a common understanding of key issues, including comparability of treatment and information sharing. While this progress is important and welcome, the debt restructuring process still needs to be speedier and more effective. The costs of delays in reaching agreement on needed debt treatments are borne acutely by borrower countries and their people, who are least able to bear this burden. The GSDR is the right forum to push for more progress, including clear timelines, debt service suspension during negotiations, and improved creditor coordination on debt treatment for countries outside the Common Framework.

And so we have work to do. Our world may be wealthier today than when the current international financial architecture was established, but it is also more fragile. The global economy has shown resilience, but this resilience is not evenly distributed. With domestic policy actions to durably brighten growth prospects and international action to support the most vulnerable members of our global community, we can achieve a more vibrant and inclusive future.