Addressing global crises demands renewed spirit of cooperation
Steven Alan Barnett

Editor's note: Decision Makers is a global platform for decision makers to share their insights on events shaping today's world. Steven Alan Barnett is the International Monetary Fund's Senior Resident Representative for China. The article reflects the author's opinions and not necessarily the views of CGTN.

The global economy faces considerable challenges posed by one crisis coming just after another, raising prices, straining incomes, and heightening economic uncertainty. Successfully navigating this environment demands a strong domestic policy response, and perhaps more importantly, a strong international response. That multilateral cooperation remains essential was a key takeaway from the Spring Meetings of the IMF and World Bank Group.

Even before the pandemic, the global economy faced considerable challenges, notably climate change, and our shared future hinges on securing greener growth. Reinvigorating global trade, boosting productivity growth, and adapting to technological change have also remained important priorities.

Then came the coronavirus, and the resulting global economic contraction of more than 3 percent, the steepest downturn since the Great Depression in the 1930s. On top of the tragic human and social costs, the pandemic has also left considerable and lasting economic scars, especially in emerging and developing economies.

Just as that crisis appeared to be easing, the global economy was hit by the war in Ukraine. Beyond the tragic human cost, the European economy is seeing a serious setback, including substantial output losses in Russia, Belarus, and of course Ukraine. It also has global spillovers, largely through rising food and energy prices - price increases that hit lower-income families especially hard, as they spend a larger share of their income on food and energy.

Reflecting these developments, our recent World Economic Outlook lowered the global growth forecast for this year to 3.6 percent. That's down by 0.8 percentage point from our January projection and slower than last year's 6.1 percent growth pace. It also reflected widespread downgrades for 143 economies together accounting for 86 percent of global GDP.

Policy challenges

Multilateral cooperation is essential, but domestic policies are also key for securing recovery. Monetary policy must balance tackling inflation and safeguarding the recovery. Fiscal policy must balance support for the vulnerable with rebuilding fiscal buffers. More broadly, policymakers should not lose sight of the broader long-term challenges that existed before the pandemic.

The IMF's role is to offer a platform for its 190 members to work together, and we did just that when the pandemic hit, responding with a rapid reform of our lending toolkit to address grave challenges. We also extended substantial financial assistance through emergency financing and IMF-supported programs: In the first two years of the pandemic, we approved $216 billion in loans to 92 countries, and more than half of the recipients were our lower-income members. We also provided debt service relief for 25 of our poorest members through the Catastrophe Containment and Relief Trust.

Signage outside the International Monetary Fund (IMF) headquarters in Washington, D.C., U.S., April 19, 2022. /CFP

Signage outside the International Monetary Fund (IMF) headquarters in Washington, D.C., U.S., April 19, 2022. /CFP

In addition, our historic allocation of $650 billion of IMF Special Drawing Rights (SDRs) in August was the largest ever. This benefited all IMF members, boosted reserves, helped build confidence, and sent a powerful signal of a cooperative multilateral response to the crisis. For emerging market and developing countries, the average allocation was equivalent to more than 2 percent of GDP.  Low-income countries are using up to 40 percent of their SDRs on essential COVID-related spending priorities, such as vaccines.

And during the recent meetings, our executive board approved the creation of a Resilience and Sustainability Trust. This will help countries address challenges such as climate change and pandemics by providing more affordable longer-term funding and encouraging private investment. 

War and health

International cooperation is essential in many other areas: First, to end the war in Ukraine, which is causing global reverberations, especially in food and energy markets. Second, to confront COVID-19. To fight it, we need a variety of tools including vaccines, testing, and anti-viral treatments. And importantly, these need to be deployed everywhere. This pandemic provides a great illustration of how health security really is economic security.

Another key area is debt: 60 percent of low-income countries are in or near debt distress. The G20 put in place a framework to provide debt treatments to low-income countries. The challenge is to make it work better and faster. Timely and orderly debt resolutions are in the best interest of debtors and creditors.

Finally, there's climate change. This fight is critical for the planet and for prosperity. With the right policies, the world can address rising temperatures in a way that is good for both the economy and the environment. These include carbon pricing, through a tax or other means; green investment, including by involving the private sector; and support for the vulnerable within societies and across countries to help smooth the adjustment.

From pandemic to war, we can now see more clearly just how interconnected our global economy is – and why we must aim to avoid the costly toll of a lasting fragmentation into geopolitical blocs. Instead, renewing the spirit of international cooperation is the best path toward solving our greatest challenges.

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