IMF's Kristalina Georgieva: The Long Ascent
We must all assume the pandemic will be with us indefinitely. The medical scars run deep. Economies and businesses are imploding. So we must all engage in realignment and recalibration, with a new adjustment for the scale of unthinkables.
Kristalina Georgieva, Managing Director of the International Monetary Fund praised our Thinking the Unthinkable work when she was at the World Bank. Here she describes the long ascent up the huge mountain ahead in an address to celebrate 125 years of the London School of Economics on 6 October.
- Risks remain high: much we take for granted will not survive
- Existing negatives like poverty and inequality will get much worse
- Keeping financial and economic lifelines creates jobs
- Building Back Green will create new wealth and opportunities
“All countries are now facing what I would call the long ascent. A difficult climb that will be long, uneven and uncertain and prone to setbacks.
As we embark on this ascent, we are all joined by a single rope. We are only as strong as the weakest climbers. They will need help on the way up. The path ahead is clouded with extraordinary uncertainty. Faster progress on health measures, such as vaccines and therapies could speed up the ascent.
But it could also get worse, especially if there is a significant increase in severe outbreaks. Risks remain high, including from rising bankruptcies and sketched valuations in financial markets.
Many countries have become more vulnerable. The debt levels have increased because of their fiscal response to the crisis and the heavy output and revenue losses. We estimate that global public debt will reach a record high of about 100% of GDP in 2020.
Economic scars threaten us
There is now also risk of severe economic scarring from job losses, bankruptcies and the disruption of education. Because of this loss of capacity, we expect global output to remain well below our pre-pandemic projections of the medium term.
For almost all countries, this will be a setback to the improvement of living standards. This crisis has also made inequality even worse. This is because of its disproportionate impact on low skilled workers, women, and on young people. There are clearly winners, and there are clearly losers.
We risk ending up with a ‘tale of two cities’. We need to find a way out.
How to prevent much worse
So what is the path forward? We see four immediate priorities.
First, defend people’s health. Spending on treatment, testing and contact tracing is an imperative. So too is a strong international cooperation to coordinate vaccine manufacturing and distribution once we get vaccines, especially in the poorest countries. Only by defeating the virus everywhere can we secure a full economic recovery anywhere.
Second, avoid premature withdrawal of policy support. Where the pandemic persists, it is critical to maintain lifelines across the economy - to firms and to workers, such as tax deferrals, credit guarantees, cash transfers, wage subsidies. Equally important is continued monetary accommodation and liquidity measures to ensure the flow of credit, especially to small and medium sized firms supporting jobs and supporting financial stability. Cut the lifelines too soon and the long ascent becomes a precipitous fall.
Third, flexible and forward leaning fiscal policy will be critical for the recovery to take hold. This crisis has triggered profound structural transformation. Governments must play their role in reallocating capital and labour to support the transition. This will require both stimuli for job creation - especially in green investments - and cushioning the impact on workers from retraining and reskilling to expanding the scope and duration of unemployment insurance. Safeguarding social spending will be critical for a just transition to new jobs.
Fourth, deal with the debt, especially low-income countries. They entered this crisis with already high debt levels. And this burden has only become heavier if they are to fight the crisis and maintain vital policy support. If they are to prevent the reversal of development gains made over decades, they will need more help and they will need it fast.
This means access to more grants, concessional credit and debt relief, combined with better debt management and debt transparency. In some cases, global coordination to restructure sovereign debt will be necessary with full participation of public and private creditors. In all these areas, our member countries can count on the IMF. We will help them all the way up the mountain, we will strive to be their Sherpa.
Don’t withdraw financial and debt support anytime soon
We will help show the way with sound policy advice. We will provide the training for the climb some may need. Above all, we will be there with financial support. And we will help ease the debt burden for those who otherwise may not make it.
We have provided financing at unprecedented speed and scale to 81 countries. We have reached over 280 billion in lending commitments. More than a third of that approved since March. And we are ready to do more. We still have substantial resources from our $1 trillion in total lending capacity to put it to the service of our members as they embark on their ascent.
Again, this will be a difficult climb. It requires new parts of the market. We cannot afford simply to rebuild the old economy with its low growth, low productivity, high inequality and worsening climate crisis.
Don’t rebuild the old: build new and green
That is why we need fundamental reforms to build a more resilient economy. One that is greener, smarter, more inclusive, more dynamic. This is where we need to direct the massive investments that will be required for a strong and sustainable recovery.
Our new research shows that increasing public investment by just 1% of GDP across advanced and emerging nations can create up to 33 million new jobs badly needed.
We know that in many cases well designed, green projects can generate more employment and deliver higher returns compared with conventional fiscal stimulus.
We also know that an accelerated digital transformation is under way. It is promising higher productivity and new jobs with higher wages. We can unlock this potential by retooling tax systems and investing in education and digital infrastructure.
Our goal must be for everyone to get access to the internet and the skills to succeed in the 21st century economy. All this can be done. We know it from the previous generations that had the courage and the resolve to climb the mountains they faced.
It is now our turn. This is our mountain. And as one climber put it, every mountain top is within reach, if you just keep climbing.
The same goes for the longer ascent, and the policies needed to move forward. Joined by a single rock, we can overcome the crisis and achieve a more prosperous and more resilient world for all.
Let’s do it.”