The IMF chief has said it is a “time to dare and endure”, urging governments to press on with fiscal restraint and reforms to unlock economic productivity.
“In a world of more frequent shocks we know we will be tested again. To quote Winston Churchill: ‘This is not a time for ease and comfort. It is time to dare and endure’,” said the fund’s managing policy director Kristalina Georgieva during a briefing about the institution’s global policy agenda on Thursday.
Speaking at the IMF and World Bank’s spring meetings in Washington DC, Georgieva added that the world’s “remarkable [economic] resilience” in the face of geopolitical headwinds was being called into question due to several factors, including the soaring cost of debt, diminished fiscal firepower from multiple crises, and a widespread slowdown in total factor productivity.
“Growth is still in positive territory but there is still plenty to worry about. Inflation is coming down, yet is taking longer than expected while divergences in performance are growing between countries. Prospects for growth look like a Swiss ski slope,” she said.
Earlier this week the fund forecast that growth in the world economy would be stagnant at 3.2 per cent in 2024 and 2025, in line with the figure for last year.
Georgieva listed three main policy priorities for governments worldwide, the first of which is to rebuild fiscal buffers.
“Fiscal restraint is exhausted in most cases and debt is dangerously high as global public debt has edged up to 93 per cent of world [gross domestic product].
“This is 9 per cent higher than pre-pandemic [levels] so the time has come to adopt medium-term goals for fiscal consolidation. There must be a balance between mobilising revenue and smarter spending,” she said.
A second priority is to restart growth prospects by unleashing better productivity through structural reforms, investment in artificial intelligence and human capital.
“Co-ordination on global rules for AI is vital and we must also maintain open flows of goods and capital. We at the IMF are researching the growth prospects of members vulnerable to exogenous shocks,” she continued.
A third priority is that the IMF must renew its commitment to its members and help them in stressful periods, said Georgieva.
“This month we reached our target of $25bn in special drawing rights; that is our own protection against financial risks. It allows us to perform well in an uncertain time,” she said.
Georgieva also discussed why she thought productivity has been so weak in large swathes of the global economy.
“This has been caused by the poor allocation of labour and capital, while the decade of low interest rates after the global financial crisis might have helped zombie firms survive. Also technology has brought some gains to the economy but not in the way we thought it would.”
She contrasted the US’s economic strength to Europe.
“The US benefits from a strong innovation culture that allows start-ups to become profitable; it has an abundant labour supply and benefits from low energy prices,” she continued.
On China, Georgieva said: “It is at a fork in the road and has to define growth strategies for the future. There are three opportunities for the country: boost domestic consumption, open its markets and solve the property problem.”
