📚 Weekend Read: The Great Transformation | Rescue to (Green) Recovery | Stronger Economic Institutions | Role of Fiscal Policy

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Dear Colleague,

Last week we asked you what your top concerns were about the recovery. Across sectors and around the world, many of you cited the following issues: debt (public and private), climate (how to enable a green recovery), inequality (including unemployment and poverty), a potential rise in populism, and the future of trade. 

Against this backdrop, what role do you believe the IMF can play in tackling these specific issues, in both research and action? Write to me directly with your thoughts, as we are regularly discussing your feedback with relevant colleagues across the institution.

THE GREAT TRANSFORMATION

The COVID-19 crisis is inflicting the most pain on those who are already most vulnerable. This calamity could lead to a significant rise in income inequality. And it could jeopardize development gains, from educational attainment to poverty reduction. New estimates suggest that up to 100 million people worldwide could be pushed into extreme poverty, erasing all gains made in poverty reduction in the past three years. Indeed, we know from experience and recent IMF analysis that major epidemics often exacerbate pre-existing income inequality.

"Our new research, prepared jointly with the World Bank for the G20, focuses on how to increase people’s access to opportunities, no matter who they are and where they are from," writes Managing Director Kristalina Georgieva in a new blog on how best to promote an inclusive recovery. She identifies three key priorities moving forward: use fiscal stimulus wisely, empower the next generation through education, and harness the power of financial technology.

In a recent speech titled "From Great Lockdown to Great Transformation," MD Georgieva addressed the U.S. Chamber of Commerce and continued to build on the theme of seizing opportunities⁠—honing in on how best we can embrace the digital transformation, focus on building a green economy, and address inequality around the world. "The process of reopening is now starting across the globe—some 75 percent of countries are now reopening—and so now is the moment to think carefully about what comes next," said Georgieva.

SIGNIFICANT SCARRING

In a just-released virtual address to the Seventh Asian Monetary Policy Forum, Chief Economist Gita Gopinath said that when the IMF releases new economic growth projections on June 24 that they "will be, very likely, worse than what we had" in April, when it was estimated that the global economy would shrink by 3% this year. Gopinath noted that there is still "profound uncertainty" about how long the COVID-19 pandemic will persist and what will be its true impact on consumption, job losses and bankruptcies. "Many of these variables point to significant scarring effects," she said. "As such there is a big question about what the recovery would look like." Watch the 30-min presentation.

FROM RESCUE TO (GREEN) RECOVERY

Earlier this week, Deputy Managing Director Tao Zhang spoke at the Delphi Economic Forum on how best to emerge from the pandemic with an eye towards fighting climate change. He discussed the IMF's analytical and policy work on carbon pricing, and our efforts to help countries price climate risks, provide incentives for climate-resilient investment, and integrate climate risks and adaptation spending into their economic and fiscal plans.

For instance, together with the World Bank, we have begun assessing countries’ climate strategies—starting with the small countries most vulnerable to climate change. "We need the right policies to ensure a just and inclusive transition to a green economy," said Zhang. Read his full remarks here.

STRONGER ECONOMIC INSTITUTIONS

In a new blog, Deputy Managing Director Antoinette Sayeh writes that for the recovery to be sustainable, policymakers will need to strengthen economic institutions that enable resilient, inclusive policies. For example, business continuity and protecting revenue streams are crucial for governments to rapidly mobilize and maintain domestic resources. And as countries ramp up emergency spending, they also want to ensure that they have strong institutional frameworks and good governance so money can quickly get to those who need it the most – especially when it comes to health expenditures and social protection systems.

"As a former policymaker, I know first-hand the important role economic institutions can play in shaping policies that impact ordinary people. The laborious task of strengthening economic foundations is not glamorous—but it is one that can have the greatest, long-term impact on the economic and social wellbeing of people," writes Sayeh. "As the world emerges from the Great Lockdown, policymakers and development partners should treat rebuilding stronger, more resilient institutions as a top priority." Read the full blog here.

Speaking of an inclusive recovery, DMD Sayeh also recently spoke to the Women's World Banking forum on gender-balanced leadership and how best to ensure financial stability in times of crisis. "We know that increasing gender diversity on boards in the financial sector is associated with stronger financial outcomes, reduced risk, and enhanced resilience," said Sayeh. "Evidence also suggests that enhanced gender diversity on boards is associated with greater bank stability, reduced conflict, and greater focus on transparency and ethics. In fact, adding just one more woman in a firm’s senior management or corporate board is associated with between 8 and 13 basis point higher return on assets." Read her full remarks here.

THE ROLE OF FISCAL POLICY

Fiscal policies have been central for providing emergency lifelines to people and firms during the COVID-19 pandemic, and they are also at the forefront of facilitating a recovery post-lockdown. Earlier this week, Catherine Pattillo, Mehdi Raissi, and W. Raphael Lam of the IMF's Fiscal Affairs department participated in a 90-min webinar hosted by LSE on how policymakers can support a speedy and sustainable recovery. Drawing on the latest IMF Fiscal Monitor, the discussion also focused on the role of state-owned enterprises and public banks in supporting the recovery.

THE POLITICAL ECONOMY OF COVID-19

In the cover story of our summer 2020 issue of F&D magazine, Harvard professor of government Jeffry Frieden writes that public health experts have long warned that the world was likely to face a major pandemic, and called for greater preparedness. Yet policymakers who have to focus on the next election find it difficult to invest the time, money, and political capital to address the abstract possibility of a future crisis. And so most of the world was unprepared for a global public health threat of the magnitude posed by COVID-19.

Read this incredibly thoughtful 2600-word article on how policymakers in particular should be thinking about the political economy of economic policy, and how these lessons can be applied towards achieving a greener, smarter and fairer recovery. Prefer the PDF? Click here to download.

IMF AND COVID-19

We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.

There are now 69 countries that have been approved for emergency financing, totaling about US$24.7 billion. And 28 countries that have been approved to receive debt relief from the Catastrophe Containment and Relief Trust (CCRT), totaling about US$243.6 million. Recent approvals include Rwanda, Guatemala, Tanzania, Ukraine, Papua New Guinea, Liberia and Egypt. If you're wondering how the IMF is helping ensure transparent and accountable use of COVID-19 financial assistance, read this fact sheet, and if you're looking for our latest Q&A about the IMF's response to COVID-19, click here. 

We are also continually producing a special series of notes—around 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics.

Thank you again very much for your interest in our newsletters. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note.

Stay healthy and see you next week,

Rahim Kanani Editor, IMF Weekend Read rkanani@IMF.org

P.S. Stay tuned for next week’s edition as we’ll feature a new in-depth interview between Managing Director Georgieva and Transparency International about all-things corruption and the pandemic. Watch a preview here.

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