It is fitting that G20 finance ministers and central bank governors will meet this week at the Biennale Pavilion in São Paulo, designed by renowned architect Oscar Niemeyer. With its flowing lines and impressive façade, this building is a monument to the boldness of modern Brazil.
I hope the G20 will also take inspiration from this landmark and act boldly. The recent improvement in the global short-term outlook gives G20 policymakers an opportunity to rebuild policy momentum and set their sights on a more just, prosperous, sustainable and cooperative future.
After years of shocks, global growth is expected to reach 3.1% this year as inflation falls and the job market holds. This resilience provides the basis for shifting focus to medium-term trends shaping the global economy. As our new report to the G20 reveals, some of these trends, such as AI, are expected to increase productivity and improve growth prospects. we desperately need it. Medium-term growth forecasts have fallen to their lowest in decades.
Low global growth affects everyone, but it has particularly worrying implications for emerging market and developing countries. These countries have weathered successive global shocks better, supported by stronger institutional and policy frameworks. However, due to slowing growth prospects, integration with developed countries is becoming more distant.
Other factors also contribute to the complex global situation. Geographic and economic divisions are deepening as countries shift trade and capital flows. Climate risks are increasing and are already impacting economic performance, from agricultural productivity to transportation reliability to insurance availability and cost. These risks could hold back regions with the greatest demographic potential, such as sub-Saharan Africa.
Against this background, Brazil's G20 agenda focuses on key issues such as inclusion, sustainability and global governance, while welcoming the eradication of poverty and hunger. This ambitious agenda, which the IMF is committed to supporting, can guide policymakers at a pivotal moment in global economic recovery.
Toward solving the inflation problem
Central bankers are understandably focused on finishing the job of getting inflation back on target. This is especially important for poor households and low-income countries, which are disproportionately affected by high prices. But welcome progress in curbing inflation means major central banks will need to think carefully this year about when and how much to ease interest rates.
With core inflation remaining high in many countries and upside risks to inflation remaining, policymakers need to closely track underlying inflation trends and avoid easing too soon or too soon. There is.
But if inflation is clearly on track, countries need to ensure that interest rates do not remain high for too long. Brazil's early and decisive response to soaring inflation during the pandemic is a great example of how agile policymaking can pay off. Brazil's central bank was one of the first central banks to raise interest rates, then eased policy as inflation fell towards its target range.
Tackling debt and deficits
Rebuild buffers against future shocks, limit public debt growth, and create space for new spending priorities as inflation subsides and the economy is better able to absorb austerity stances. The time has come to refocus. If you wait, you may be forced to make painful adjustments later. However, for lasting results, tightening must be done at a carefully calibrated pace.
Finding the right balance is difficult, as rising interest rates and debt servicing costs strain budgets, leaving less room for countries to provide essential services and invest in human capital and infrastructure. Efforts to reduce debt and deficits must be based on a credible medium-term fiscal plan. It should also include measures to minimize the impact on poor and vulnerable households, while protecting priority investments.
It is also important that countries continue to make significant progress in raising revenue and eliminating inefficiencies. Brazil has demonstrated leadership in this area with its historic value-added tax reform. However, many countries are lagging behind and there is scope to widen the tax base, close loopholes and improve tax administration. This is why the G20 has asked us to launch a joint initiative with the World Bank to help countries accelerate the mobilization of domestic resources.
Furthermore, each country should ensure an international tax system that takes into account the interests of developing countries and aim to create a more comprehensive and transparent tax system.
Our work continues under the Global Sovereign Debt Roundtable to devise steps to speed up debt restructuring and make it more predictable. Although progress has been made under the G20 Common Framework, reducing the time it takes for official creditors to agree on debt resolution, faster improvements to the global debt restructuring architecture may be needed.
Expanding the economic pie
Policymakers need to urgently address medium-term growth drivers, alongside monetary and fiscal policies that lay a solid foundation.
Many countries still have the opportunity to ease the most binding constraints on economic activity. In emerging market economies, reforms in areas such as governance, corporate regulation, and external sector policy can lead to productivity gains. But that's only part of the story. Economies must also prepare to harness the structural forces that will define the coming decades.
Consider the new climate economy. For some countries and regions, it will bring jobs, innovation and investment. It can be even more difficult for people who rely heavily on fossil fuels. The question is how to maximize opportunities and minimize risks.
Policies that make polluters pay, such as carbon pricing, can create incentives to shift towards lower carbon investment and consumption. IMF research shows that countries that take action on climate change are more likely to stimulate green innovation and attract an influx of low-carbon technologies and investment. Taxing the most polluting modes of international transport could also raise revenue that can be used to fight climate change, fight hunger, and support the most vulnerable members of the population.
But for many vulnerable countries, strong growth alone will not be enough to realize their potential, and external support, both financial and technical, will be needed.
This demonstrates the importance of an international architecture that can respond to the changing dynamics of the global economy.
a stronger international system
As recent military conflicts reveal, we live in an increasingly polarized world. Tensions are dividing the global economy along geopolitical lines, with around 3,000 trade restrictive measures imposed in 2023, almost triple the number in 2019. No country can benefit from the world economy splitting into blocs. It is important to restore trust in international cooperation.
In the 80 years since its founding, the Fund has continually evolved to meet the needs of its members. Since the pandemic, we have deployed $354 billion in financing to 97 countries, including 57 low-income countries. As countries are likely to face larger and more complex crises, they will need to work together, with the IMF at the center, to strengthen the global financial safety net.
Last year, we received a strong vote of confidence from our shareholders. Among other measures, it was strengthened to meet the funding targets of the Poverty Reduction and Growth Trust, which provides interest-free loans to low-income countries. and our shareholder has agreed to increase his permanently allocated resources by 50 percent. G20 countries can take the lead by quickly ratifying quota increases, allowing us to maintain our country's lending capacity and reduce our dependence on borrowed resources.
But we can and must do more. Our Member States also recognized the importance of rebalancing their quota shares to better reflect their relative positions in the global economy, while protecting the voices of our poorest Member States. . With this goal in mind, we are developing possible approaches to restructuring, including through new allocation methods. This is in addition to the third Sub-Saharan African chair of the Executive Committee to be elected at this year's Annual General Meeting, and is an important addition to the African Union's new status as a permanent member of the G20. This will be a step.
In the coming years, the global cooperation will be essential.
As Oscar Niemeyer once said, “Architecture is invention.”
The creation of a global economic and financial structure was a courageous feat of collective invention that improved the lives of millions of people. The challenge now is to make it stronger, fairer, more balanced and more sustainable, so that millions more people can benefit. To achieve that goal, we need to tap into that inventive spirit once again.
