IMF sees strong foundations for global recovery, big downside risks

IMF sees strong foundations for global recovery, big downside risks

IMF sees strong foundations for global recovery, big downside risks

By Andrea Shalal

WASHINGTON (Reuters) – Extraordinary policy measures led by Group of 20 economies and COVID-19 vaccines are underpinning a global economic recovery, but new virus variants, inflation and supply-chain disruptions pose downside risks, the International Monetary Fund said.

In a blog published Wednesday, ahead of Friday’s meeting of G20 finance and health ministers, Managing Director Kristalina Georgieva urged bold action now to end the pandemic and create space for a more sustainable economy.

This month, the IMF trimmed its 2021 global growth forecast to 5.9% from its 6.0% forecast in July, citing nagging supply chain disruptions and inflation pressures. It said the modest revision masked large downgrades for some countries.

Georgieva said G20 countries could boost their prospects through 2022 by carefully calibrating their own monetary and fiscal policies.

Enacting growth-enhancing reforms, such as programs to support job search and retraining, and reducing regulatory barriers to entry for new firms, could boost aggregate real gross domestic product in the G20 countries by about $4.9 trillion through 2026, Georgieva said.

She said joint action was needed to provide some $20 billion in additional grant funding for testing, treatment, medical supplies and vaccines to end the pandemic, and deliver vaccine doses already pledged.

To help developing countries cope financially, G20 nations should also speed up implementation of the Common Framework for Debt Treatments so that vulnerable countries were not forced to choose between paying creditors and providing healthcare.

Incentives to debtors, early engagement with all creditors, including the private sector, and faster timelines for debt resolution would also make the Common Framework more effective and attractive, she said.

G20 countries should also act soon to channel part of their newly allocated Special Drawing Rights, or emergency reserves, to the IMF’s Poverty Reduction and Growth Trust, she said.

She also called on G20 leaders to commit to a comprehensive package to reach net-zero carbon emissions by mid-century.,

Georgiega cited a new IMF analysis which found that increasing energy efficiency and transitioning to renewables could result in net creation of new jobs because renewable technologies are more labor-intensive than fossil fuels.

The research showed that a comprehensive investment plan focused on “green supply policies” could lift global GDP by about 2% this decade and create 30 million new jobs.

Georgieva repeated her call for an international carbon price floor, and said richer countries should deliver on their longstanding promise to provide $100 billion per year for green investment in developing economies,

G20 members could also channel their SDRs to a new IMF Resilience and Sustainability Trust that they backed at the IMF and World Bank annual meetings earlier this month, she said.

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