IMF warns more funding needed to safeguard global economy

WASHINGTON — Warning that the recovery from the pandemic crisis is not yet over, the International Monetary Fund (IMF) on Thursday called on policymakers to continue to spend money to shore up the global economy and ensure no one is left behind.

Without that aid, and additional financing from both the fund and the World Bank, developing countries and the poor in many countries could struggle to rebound from the downturn caused by COVID-19, the IMF said at the conclusion of its spring meeting.

Continued support is needed to “mitigate and heal economic scars,” IMF Managing Director Kristalina Georgieva told reporters.

“We want to make sure everybody has a fair shot to a better life.”

That means accelerating access to vaccines and taking advantage of the opportunity presented by the crisis to invest in green technology, which can create good paying jobs and address climate change.

US Treasury Secretary Janet Yellen joined the call, urging “significant” new spending to ensure a solid rebound from the damage inflicted by the COVID-19 pandemic.

While the economic outlook has “improved significantly”, especially due to substantial government support, “the job is not yet done, given high uncertainty and the risk of permanent scarring”, Yellen said.

“I urge major economies to not just avoid removing support too early, but to strive to provide significant amounts of new fiscal support to secure a robust recovery,” she said.

The IMF now projects global growth of 6 per cent this year after the 3.3 per cent contraction last year and credited the $16 trillion in global public spending during the pandemic with keeping the worst peacetime recession in a century from being three times as severe.

Yellen highlighted the $1.9 trillion US aid package President Joe Biden signed last month, as well as his proposal announced last week to spend $2 trillion on infrastructure and jobs.

Boosting resources 

Yellen said that with stimulus already boosting the recovery from the pandemic shutdowns, the US economy “could reach full employment as soon as next year”, but many developing countries do not have similar resources to support their economies.

Georgieva warned about a “dangerous divergence” in low-income countries’ prospects compared to rich nations, which could worsen if advanced economies like the United States raise interest rates sooner than expected.

She also praised the IMF members who agreed to allow the fund to issue $650 billion in new Special Drawing Rights, an additional pool of IMF currency that will add to nations’ reserves and boost their ability to access financing.

The IMF is expected to present a proposal to its board in June, and Georgieva said the fund is working with rich nations to shift some of their share of those reserves to help aid developing nations, which “face a crucial policy transition from crisis to recovery”.

Vaccines as economic policy 

The officials again stressed that ending the health crisis remains central to the economic recovery, and the closing statement from the IMFC, the fund’s steering committee, lamented the “uneven access to vaccines”.

The committee emphasised “the need for strong international cooperation to accelerate vaccine production and support affordable and equitable distribution to all”.

Yellen pledged US support for vaccine rollouts, including efforts to “make sure financing does not become an obstacle for global vaccination... and to work toward ensuring robust, equitable, and transparent vaccination deployment”.

Shift to green 

The crisis offers policymakers a vehicle to capitalise on the need for investments to accelerate green projects that can provide good-paying jobs.

“Government efforts to support the recovery need to take advantage of the opportunity to accelerate the transition towards a low-carbon economy and limit the long-term threat from climate change,” said Angel Gurria, head of the Organisation for Economic Cooperation and Development.

Georgieva said those investments could create jobs in growing industries to replace those lost in sectors that are shrinking.

“Climate risks are growing, and they are substantial for macroeconomic and financial stability, climate action can generate green growth and green jobs,” she said.

The IMF and World Bank have also announced plans to intensify the focus on green investment and climate-friendly aspects of their lending programmes.