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Dear Colleague,
Welcome to a special edition briefing of the Weekend Read on the 2021 Spring Meetings.Â
In this issue we focus on Managing Director Kristalina Georgieva's curtain raiser speech ahead of the convening on why we need to give everyone a fair shot, the launch of two analytical chapters of our latest World Economic Outlook and Global Financial Stability Report, a new analytical chapter of the latest Fiscal Monitor, cross-regional perspectives on economic and social transformation, and a preview of the agenda of next week's Spring Meetings.
📣 If you would like detailed, daily briefings all next week about the launch of our latest reports, blogs, live events, podcasts and much more—click here and press send.
Today's Spring Meetings media partner is the Financial Times, your trusted guide to an uncertain world. In this era of disruption, the FT challenges business leaders to protect the future of free enterprise and wealth creation by pursuing profit with purpose.
GIVING PEOPLE A FAIR SHOT—POLICIES TO SECURE THE RECOVERY
Earlier this week Kristalina Georgieva framed the upcoming Spring Meetings by discussing the future of the global economy at an event hosted by the Council on Foreign Relations and moderated by CNN's Fareed Zakaria.
Today we face another turning point, she said, In the words of Franklin D. Roosevelt: “The point in history at which we stand is full of promise and of danger.”
The good news is that the global economy is on firmer footing. Millions of people are benefiting from vaccines that hold the promise of a normal life, of embracing friends and loved ones. But there is danger as well. Economic fortunes are diverging. Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and rising poverty. Too many countries are falling behind.
We must not let our guard down. What we do now will shape the post-crisis world. So we must do the right thing. This means, above all, giving everyone a fair shot—a shot in the arm, everywhere, to bring the pandemic to a durable end; and a shot at a better future for vulnerable people and vulnerable countries to pave the way to inclusive and sustainable recovery.
We highly recommend you read the full speech (or watch the 60-min discussion), which is chalk-full of key facts and figures while covering the current economic picture around the world, a range of policy actions required to ensure a sustainable recovery, and the kinds of investments we need to move towards greener, smarter, and more inclusive economies.
🎙️ You can also listen to the 15-min speech on IMF Podcasts.
SLOW-HEALING SCARS: THE PANDEMIC’S LEGACY
Recessions wreak havoc and the damage is often long-lived. Businesses shut down, investment spending is cut, and people out of work can lose skills and motivation as the months stretch on. But the recession brought on by the COVID-19 pandemic is no ordinary recession. Compared to previous global crises, the contraction was sudden and deep—using quarterly data, global output declined about three times as much as in the global financial crisis, in half the time.
Systemic financial stress—associated with long-lasting economic damage—has been largely avoided so far, owing to the unprecedented policy actions taken. However, the path to recovery remains challenging, especially for countries with limited fiscal space, and is made harder by the differential impact of the pandemic.
In a new blog by Sonali Das and Philippe Wingender, based on the analytical chapter 2 of our latest World Economic Outlook, they write that despite higher-than-anticipated growth as the global economy recovers from the COVID-19 shock, we expect world output in the medium-term to be about 3 percent lower in 2024 than pre-pandemic projections. Because financial stability has largely been preserved, this expected scarring is less than what we saw following the global financial crisis.
However, unlike what happened during the global financial crisis, emerging market and developing economies are expected to have deeper scars than advanced economies, with losses expected to be largest among low-income countries.
As vaccine coverage improves and supply constraints ease, policies to limit scarring should focus on three priorities:
First, reversing the setback to human capital accumulation. To address the rise in inequality that is likely to result from the pandemic, social safety nets should be expanded, and adequate resources allocated to healthcare and education. Second, supporting productivity through policies to facilitate job mobility and promote competition and innovation. Third, boosting public infrastructure investment, particularly in green infrastructure to help crowd-in private investment.
📺 Watch a discussion on this topic between Sonali Das, Philippe Wingender and CNBC's Silvia Amaro.
LABOR POLICIES FOR A FAIRER RECOVERY
The COVID-19 pandemic’s destruction of jobs was sure and swift. The lasting effects of the crisis on workers could be just as painful and unequal. Youth and lower-skilled workers took some of the hardest hits on average. Women, especially in emerging market and developing economies, also suffered. Many of these workers face earnings losses and difficult searches for job opportunities. Even after the pandemic recedes, structural changes to the economy in the wake of the shock may mean that job options in some sectors and occupations permanently shrink and others grow.
In a new blog based on analytical chapter 3 of our latest World Economic Outlook, John Bluedorn explores how policies can lessen the pandemic’s harsh and unequal effects. We find that a package of measures to help workers keep their jobs while the pandemic shock is ongoing, combined with measures to encourage job creation and ease the adjustment to new jobs and occupations as the pandemic ebbs, can markedly dampen the negative impact and improve the labor market’s recovery.
Evidence from past recessions suggests that the pandemic is likely to inflict sizable costs on the unemployed, particularly lower‑skilled workers. After unemployment spells, workers often have to switch occupations to find a new job, which tends to come with a pay cut. On average, unemployed workers finding work in a new occupation experience a large average earnings penalty of about 15 percent compared to their previous earnings.
Lower-skilled workers experience a triple whammy: they are more likely to be employed in sectors more negatively impacted by the pandemic; are more likely to become unemployed in downturns; and, those who are able to find a new job, are more likely to need to switch occupations and suffer an earnings fall.
📺 Watch a discussion on this topic between John Bluedorn and the Washington Post's Heather Long.
CONFRONTING THE HAZARDS OF RISING LEVERAGE
Leverage, the ability to borrow, is a double-edged sword. It can boost economic growth by allowing firms to invest in machinery to expand their scale of production, or by allowing people to purchase homes and cars or invest in education. During economic crises, it can play a particularly important role by providing a bridge to the economic recovery.
Most recently, amid the sharp contraction in economic activity brought on by lockdowns and social distancing practices during the COVID-19 pandemic, policymakers took actions to ensure that firms and households could continue to access credit markets and borrow to cushion the downturn. Many firms managed to limit the number of workers they had to lay off. And cash-strapped households could continue to spend on necessary items such as rent, utilities, or groceries.
However, high levels or rapid increases in leverage can represent a financial vulnerability, leaving the economy more exposed to a future severe downturn in activity or a sharp correction in asset prices. In fact, financial crises have often been preceded by rapid increases in leverage, often known as “credit booms.”
For policymakers, the question becomes how to ensure that the fledgling recovery is not endangered, while at the same time avoiding an excessive buildup of leverage.
In a new blog based on the analytical chapter 2 of our latest Global Financial Stability Report, Adolfo Barajas and Fabio Natalucci find that an easing of financial conditions tends to accelerate buildups in leverage. This further complicates the challenging intertemporal policy trade-off that arises because loose financial conditions, while providing a short-term boost to growth, also accentuate downside risks to growth in the medium term. Macroprudential policy can temper leverage buildups and strengthen resilience, thus mitigating future financial stability risks.
COMMERCIAL REAL ESTATE AT A CROSSROADS
Empty office buildings. Reduced store hours. Unbelievably low hotel room rates. All are signs of the times. The containment measures put in place last year in response to the pandemic shuttered businesses and offices, and dealt a severe blow to the demand for commercial real estate—especially, in the retail, hotel, and office segments.
Beyond its immediate impact, the pandemic has also clouded the outlook for commercial real estate, given the advent of trends such as the decline in demand for traditional brick-and-mortar retail in favor of e-commerce, or for offices as work-from-home policies gain traction.
In a new blog by Andrea Deghi and Fabio Natalucci, based on the analytical chapter 3 of our latest Global Financial Stability Report, they write that recent IMF analysis finds these trends could disrupt the market for commercial real estate and potentially threaten financial stability.
Low rates and easy money will help nonfinancial firms continue to be able to access credit, thereby helping the nascent recovery in the commercial real estate sector. However, if these easy financial conditions encourage too much risk-taking and contribute to the pricing misalignments, then policymakers could turn to their macroprudential policy toolkit.
Tools like limits on the loan-to-value or debt service coverage ratios could be used to address these vulnerabilities. Moreover, policymakers could look to broaden the reach of macroprudential policy to cover nonbank financial institutions, which are increasingly important players in commercial real estate funding markets. Finally, to ensure the banking sector stays strong, stress testing exercises could help inform decisions on whether adequate capital has been set aside to cover commercial real estate exposures.
🎙️ In a new 20-min podcast, lead author Andrea Deghi and team lead Mahvash Qureshi say vacancy rates of office space in the US almost doubled in 2020 due to people having to work from home, a trend likely to continue well beyond the pandemic.
📺 You can also watch a 20-min discussion on this topic between Fabio Natalucci, Andrea Deghi and CNBC’s Silvia Amaro.
IMPROVING ACCESS TO BASIC PUBLIC SERVICES
The COVID-19 pandemic is intensifying the vicious circle of inequality. To break this pattern and give everyone a fair shot at prosperity, governments need to improve access to basic public services—such as health care (including vaccination) and education—and strengthen redistributive policies.
For most countries, this would require raising additional revenue and improving the efficiency of spending. These reforms must be complemented by greater transparency and accountability, which can help increase overall trust in government and contribute to more cohesive societies.
In a new blog by David Amaglobeli, Vitor Gaspar, and Paolo Mauro, based on a new analytical chapter of the Fiscal Monitor, they write that inequality was a pre-existing condition that worsened COVID-19’s impact. Disparities in access to basic services have contributed to uneven health outcomes. According to new research, countries with worse access to health care, proxied by the number of hospital beds, have had higher COVID-19 mortality rates than predicted by the number of cases and age structure. Similarly, their analysis shows that countries with higher relative poverty had higher rates of both cases and deaths.
And COVID-19 is also widening inequality. One example is children’s education. Their analysis shows that, with widespread school closures, education losses in 2020 are estimated at a quarter of the school year in advanced economies and twice as much in emerging market and developing economies. Children from poorer families have been disproportionately affected. We estimate that up to 6 million children in emerging market and developing economies could drop out of school in 2021, with lifelong adverse consequences.
Read the blog, chapter summary, or full chapter text.
📺 You can also watch a 10-minute conversation on these topics between Paolo Mauro and the Economist's Henry Curr.
ECONOMIC AND SOCIAL TRANSFORMATION AROUND THE WORLD
What cross-regional perspectives can be gathered from previous economic, political, and social transformations, such as the fall of the Berlin Wall, the aftermath of the Arab Uprisings, and recent protests in Latin America? What can policymakers learn from these events on how to move forward with reforms to support a new social contract?
Yesterday, the IMF’s Kristalina Georgieva, Jihad Azour, Alejandro Werner, and a distinguished panel of experts from the Middle East, Latin America, and Europe including Erik Berglöf, Mauricio Cárdenas, Marwan Muasher and Minouche Shafik, discussed how the pandemic can serve as an opportunity for countries to overhaul their economies, making them smarter, fairer, greener and more conducive to job creation.
Georgieva observed that change and transformation brings benefits and opportunities, but it needs to be accompanied with policies that support those negatively affected. Muasher noted that the root causes for big societal changes are the lack of good governance and economic opportunity. Cárdenas highlighted the sharp reversal in recent poverty and inequality gains. And Shafik stressed that current social contracts do not provide security nor equal opportunities and that massive talent is wasted around the world.
📺 Watch this fascinating 60-min discussion here.
CIVIL SOCIETY POLICY FORUM
Over the last two weeks, the IMF and World Bank hosted the CSO Policy Forum, in which hundreds of participants representing civil society organizations, academics, the private sector, and government officials from around the world came together to discuss a green and inclusive recovery, social protection, universal access to vaccines, climate change, anti-corruption, debt and Special Drawing Rights. View the full agenda here with webcast links to each session.
In one session, Ceyla Pazarbasioglu, head of IMF strategy and policy, hosted a lively discussion with CSOs on how best to achieve a more equal and green recovery. She talked about the IMF's response to the COVID-19 crisis, how the institution learned from the global financial crisis, and how the IMF was working with its members to help their economies recover—with an emphasis on building back fairer, smarter, and greener.
đź“ş Watch the 60-min discussion for more.
2021 SPRING MEETINGS: PREVIEW OF NEXT WEEK
On Monday, our IMF Inspired event—Vaccinating the World—will open with Kristalina Georgieva, followed by a discussion between Aurélia Nguyen, Managing Director of the COVAX Facility and Sabina Bhatia of the IMF on the challenges of vaccine procurement and distribution, and the need for international cooperation to secure global and equitable access to vaccines.
This is just one of more than 15 events taking place next week:
Flagship Seminars: In a series of three 60-minute discussions—averting a COVID-19 debt trap, a critical year for climate action, and a debate on the global economy—Kristalina Georgieva will be in conversation with Mohamed El-Erian, Vera Songwe, John Kerry, Jerome H. Powell, Paschal Donohoe and Ngozi Okonjo-Iweala.
Analytical Corners: In a series of four 45-minute discussions spanning the themes of pandemic recovery, inequality and debt, digitization, and climate change, hear from IMF experts on a range of specific topics including post-COVID financial stability in Asia, COVID-19 and labor markets in Latin America, food insecurity and the pandemic, technology and taxation, central bank digital currencies, the global economic impact of climate change and more.
Governor Talks: In a series of six 30-minute discussions with IMF regional directors, learn directly from Spain's Vice-President and Minister of Economy and Digitalization, Burkina Faso's Minister of Economy, Finance and Development, and Central Bank Governors of Saudi Arabia, Croatia, Brazil and Thailand on policy responses to COVID-19 and how best to navigate a post-pandemic recovery.
Capacity Development Talks:Â In a series of four 45-minute discussions, learn more about the IMF's engagement on social protection, support for COVID-19 spending transparency through digital platforms, training on achieving inclusive growth, and developing safe, efficient and inclusive digital payment systems.
đź“…Â Click here to view the full schedule, complete with calendar buttons to create reminders, details on speakers and panelists, and links to session webcasts.
And if you've signed up for our special daily briefing next week, stay tuned for Monday!
IMF AROUND THE WORLD
The IMF Executive Board this week approved a disbursement of nearly $271 million to Namibia under the Rapid Financing Instrument, which will address urgent balancing of payment and fiscal financing needs as a result of the COVID-19 pandemic. The Board also approved more than $174 million in emergency assistance to South Sudan under the Rapid Credit Facility. The financing will help the African country address a loss of revenue from the pandemic-related sharp decline in oil prices and the impacts of devastating floods.
The Board also approved a more than $312 million financing package for Madagascar. The 40-month arrangement under the Extended Credit Facility will support implementation of the country’s ambitious economic reform agenda.
IMF staff this week issued a number of concluding statements to Article IV missions assessing the economies of Kyrgyz Republic, Cyprus, and Italy. IMF staff also reached a staff-level agreement with Jordan on the second review of the country’s Extended Fund Facility program.
IMF LENDING
Check out our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19. We are also 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.
To date, 80 countries have been approved for emergency financing, totaling over US$32 billion. Looking for our Q&A about the IMF's response to COVID-19? Click here. We are also continually producing a special series of notes—more than 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more.
Looking for our Q&A on Special Drawing Rights (SDRs)? Click here.
HAVE YOUR SAY IN 2 MINUTES
đź“ť What do you think of this special briefing and the Spring Meetings so far? Share your thoughts and feedback directly with the team by answering this quick and easy survey. Your comments will very much inform our agenda and coverage moving forward.
Sincerely,
IMF 2021 Spring Meetings Team
P.S. 🎙️ Did you catch Kristalina Georgieva's recent discussion on private sector innovation and recovering from the pandemic? She joined Google's Zeitgeist podcast and spoke with Alphabet and Google CFO Ruth Porat and David Miliband, CEO of the International Rescue Committee. In a hurry? Skim the transcript here.
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