Over the next five years, the novel coronavirus (COVID-19) crisis could cost the world an estimated $28trn in output losses, according to Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF).
Georgieva’s remarks came during a virtual press conference held on Wednesday, as the IMF and World Bank Group held their annual meetings.
“Nine months into the pandemic, we are still struggling with the darkness of a crisis that has taken more than a million lives, and driven the economy into reverse, causing sharply higher unemployment, raising poverty, and the risk of “a lost generation” in low-income countries,” Georgieva said.
She added that the picture over the last few months has become less dire, although the IMF continues to project the worst global recession since the Great Depression of the 1930s. The IMF head noted that growth is expected to fall to -4.4% in 2020.
“At the same time, we see unprecedented efforts in vaccine development and treatment,” Georgieva said, “We see extraordinary and coordinated fiscal and monetary measures putting a floor under the world economy, and in addition, the world is starting to learn how to live with the virus.”
She added, “While there is tremendous uncertainty around our forecast, we project a partial and uneven recovery in 2021, with growth expected at 5.2%.”
Georgieva highlighted three priorities that are needed to overcome the crisis and build a brighter future, including the continuation of essential measures to protect lives and livelihoods.
“A durable economic recovery is only possible if we beat the pandemic everywhere, and stepping up vital health measures is imperative,” she said, “As is fiscal and monetary support to households and firms, with these lifeline, such as credit guarantees and wage subsidies, likely to remain critical for some time, to ensure economic and financial stability. Pull the plug too early, and you risk serious, self-inflicted harm.”
Georgieva said that the second priority is to build a more resilient and inclusive economy. She mentioned that the IMF’s new research shows that public investment, especially in green projects and digital infrastructure, can be a game changer.
Public investment has the potential to create millions of new jobs, while boosting productivity and incomes. Supporting workers as they transition to new jobs is another key feature of a more resilient and inclusive future. This is particularly important for women and young people, who have been disproportionately affected by the crisis.
The third priority is to deal with debt. She explained that the global public debt is projected to reach a record high of 100% of GDP in 2021, partly due to countries needing to boost spending to fight the crisis and secure the post-pandemic recovery.
Georgieva said that addressing this issue over the medium-term will be critical. But for many low-income countries, urgent action is required now. Given their heavy debt burdens, they are now struggling to maintain vital policy support, and they need access to more grants, concessional credit, and debt relief.
“More than ever, we need strong international cooperation, especially on vaccine development and distribution,” she said, “Faster progress on medical solutions could speed up the recovery, potentially adding almost $9trn to global income by 2025, which, in turn, could help narrow the income gap between poorer and richer nations.”
She talked about the IMF’s role since the beginning of the pandemic, highlighting that the fund has been pressing ahead with full force and commitment with its policy advice, capacity development, and financial resources.
“We have reached over $280bn in lending commitments, more than a third of that approved since March,” Georgieva said, “We still have substantial resources from our $1trn lending capacity to help support our members.”
She added, “We have provided financing to 81 countries, and extended debt service relief for our poorest members. We have mobilised an additional $21bn to support lending on concessional, zero-interest terms, and we are considering options to further adapt our lending toolkit to support countries in this moment of extreme uncertainty.”
Georgieva continued that the growth projections of -4.1% for the Middle East and North Africa (MENA) region are slightly better than the global average of -4.4%. More troubling, however, are the IMF’s 2021 projections for the region, which are worse than the fund’s global average projections.
“We project growth of 3% for the region, whereas for the world as a whole, we project 5.2%,” Georgieva said, “This means that it is very important for countries to focus support where it would make the biggest difference in protecting firms, and protecting people.”
She also said, ”For the rest of the world and for the international partners, it is important to do the right thing by stepping up, as we have done the right thing by stepping up to provide $15bn of support for countries in the [MENA] region.”
Georgieva said that the IMF is geared to respond to further calls of support. There are also the most vulnerable countries, for example like Yemen, who have benefited from IMF debt relief.
“Hopefully we would see acceleration of reforms that have started in the region to give that one and only viable exit, not only that they exit on the healthy side, but that we all come out on the other side with more vibrant, more, more dynamic more competitive economies,” she said.