The G20 has a fantastic chance to shift its attention from combating one shock after another to developing a long-term plan for robust, sustainable, equitable, and balanced growth.
It seems appropriate that the G20 finance ministers and central bankers are gathering at the renowned Oscar Niemeyer-designed São Paulo Biennial Pavilion this week. Its massive façade and wavy lines serve as a tribute to the audacity of modern Brazil.
It is my hope that this work will encourage the G20 to take decisive action as well. The recent improvement in the short-term outlook for the world presents a chance for G20 policymakers to redouble their efforts in advancing policies aimed at constructing a future that is more just, prosperous, sustainable, and cooperative.
We predict 3.1% global growth this year after several years of shocks, with declining inflation and stable labor markets. The basis for focusing emphasis on the medium-term patterns that characterize the global economy is laid by this resilience. Certain of these trends, like artificial intelligence, have the potential to increase productivity and enhance economic prospects, as our recent report to the G20 makes evident. Our medium-term growth estimates have dropped to the lowest level in decades, making this an urgent requirement.
Everyone is impacted by weak global growth, but emerging markets and developing countries are especially vulnerable. Due in large part to their better institutional and policy frameworks, these nations have fared extremely well during multiple global shocks. However, the likelihood of convergence with advanced economies is getting further away due to declining growth prospects.
This intricate global picture is influenced by several factors. A further economic fragmentation is occurring as nations rearrange money flows and commerce. The economy is already being impacted by the growing threat posed by climate change, which affects everything from the availability and cost of insurance to the productivity of agriculture and transportation. Sub-Saharan Africa and other areas with higher demographic potential may face additional challenges as a result of these dangers.
Regarding this, Brazil’s G20 agenda emphasizes important elements like global governance, sustainability, and inclusivity, with a special focus on ending hunger and poverty. This comprehensive agenda, endorsed by the IMF, can act as a roadmap for decision-makers throughout this crucial phase of the global recovery.
Overcoming inflation permanently
The goal of returning inflation to the desired level is central bankers’ primary concern. This is particularly crucial for low-income nations and impoverished families who have been disproportionately impacted by rising prices. However, given the commendable progress made in reducing inflation, central banks will need to reevaluate when and how much to raise interest rates this year.
Striking the correct balance is difficult since rising interest rates and debt servicing expenses are straining national budgets, making it harder for nations to invest in infrastructure and people as well as crucial services. Reducing debt and deficits requires solid medium-term fiscal strategies as a foundation. In addition, steps to safeguard priority investments and lessen the impact on low-income and vulnerable households should be included.
It is imperative that nations persist in implementing resolute measures to appropriate revenue and eradicate inefficiencies. Brazil has led the way in this area with its historic VAT reform. However, a lot of nations still have room to catch up, address tax evasion loopholes, and enhance tax management. This is the reason the G20 has requested that we work with the World Bank to start a collaborative project aimed at assisting nations in encouraging the mobilization of their own resources.
Furthermore, nations ought to endeavor to implement tax systems that are more transparent and inclusive, guaranteeing that the concerns of emerging nations are integrated into the global tax framework.
We are still working on developing protocols to expedite and standardize debt restructurings within the context of the Global Roundtable on Sovereign Debt. Even though the G20 Common Framework has seen improvements in the form of more flexible agreements on official creditors’ treatment of debt, faster progress might be required to enhance the framework for global debt restructuring.
An expanding economic pie
The government must immediately address the factors that propel medium-term growth in addition to implementing monetary and fiscal policies that provide a strong basis.
Some of the most onerous parts of economic activity can still be addressed in many countries. Reforms in business regulation, governance, and external sector policies have the potential to boost productivity in developing market economies. However, economies must also get ready to take advantage of the structural forces that will shape the upcoming decades.
Think about the new economy related to climate change. It will spur investment, creativity, and employment in some nations and areas. It might be more difficult for people who primarily rely on fossil fuels. How to maximize chances while lowering dangers is the question.
Investment and consumption in low-carbon energy sources can shift as a result of policies to hold polluters accountable, such as carbon pricing. According to IMF research, nations that take climate action also tend to encourage green innovation and draw investment and finance for low-carbon technologies and investments. Furthermore, levies on the dirtiest modes of transportation might bring in money to combat hunger and climate change as well as to assist the most disadvantaged sections of society.
Stronger growth, however, won’t be sufficient for many fragile countries to reach their full potential; they’ll need technical and financial assistance.
This emphasizes how crucial it is to have an international infrastructure that can change with the movements of the world economy.
A more robust global framework
Recent military engagements have demonstrated how divisive our globe is becoming. Geopolitical fissures are causing tensions to splinter the global economy: nearly three times as many trade restrictions were put in place in 2023 as there were in 2019. Any nation has no interest in creating economic blocs within the global economy. Rebuilding trust in international cooperation is vital.
The IMF has changed over the course of the eight decades since it was established to better serve its members’ requirements. We have provided $354 billion in funding to 97 nations since the outbreak, including 57 low-income nations. Since they will probably encounter more extensive and intricate crises, nations must cooperate to fortify the international financial safety net, which is centrally located at the IMF.
Our shareholders awarded us a resounding vote of confidence last year. They increased their efforts, among other things, to reach the fund-mobilization goals for the Poverty Reduction and Growth Trust Fund, which lends low-income nations interest-free money. They also consented to a 50% increase in our permanent quota resources. The G20 nations should set an example by swiftly approving the quota increase, which would enable us to continue lending and reduce our reliance on borrowed funds.
But there’s more we need to and can do. In order to preserve the voices of the less developed member nations, member nations also agreed that it was critical to realign relative quotas to more accurately represent each nation’s relative standing in the international economy. We are developing potential realignment strategies in light of this, including a revised quota mechanism. A significant step that supports the African Union’s new status as a permanent member of the G20 is the election of a third group of sub-Saharan African nations to the Executive Board at this year’s Annual Meetings.
In the upcoming years, addressing geoeconomic fragmentation and reviving trade, avoiding debt bottlenecks, responding to climate change, and fully utilizing artificial intelligence will all require international cooperation.
Architecture, in the words of Oscar Niemeyer, is invention.
Millions of people’s lives were made better by the brave act of communal creation that gave rise to the world’s economic and financial system. The current task is to strengthen it and make it more sustainable, equitable, and balanced so that millions of people can gain from it. We need to rediscover that inventive spirit if we are to succeed in achieving our goal.