Make or break – the IMF’s challenge this spring

By Jamie Williams

This week marks the beginning of the Spring Meeting of the International Monetary Fund (IMF) and World Bank Group. Across the next seven days, central bankers, finance ministers and academics will meet virtually to discuss issues of global economic concern. There will, of course, only be one thing on the agenda. 

Established in 1945 at Bretton Woods, the IMF had sought to save the global economy from the brink. John Maynard Keynes and Harry Dexter White set out to fight back against the tide of protectionism as many countries had sharply raised barriers to trade in an attempt to improve their failing economies following the Great Depression and the Second World War. Its role has significantly grown over the last century to facilitate the expansion and balanced growth of international trade.

The IMF must now rise to the challenge once again. At a time when populism, trade wars and protectionism have resurfaced, and suspicion of transnational organisations to deliver material benefits to its members is high, this IMF meeting is one to watch.  

As one of the key organisations of the international economic system, the group has played a prominent role in the management of international financial crises since its inception. Most recently, the IMF provided a staggering $108 billion in financial assistance to over 85 countries to support their response to the COVID-19 pandemic.

The organisation’s response has not been without its critics. Human Rights Watch and Transparency International have accused the IMF of not ensuring sufficient oversight of its COVID-19 emergency loans. According to the group, the lack of information has meant it has been near impossible to prevent conflicts of interest and tax evasion by allowing the public to track who benefits from public contracts. 

The path to recovery continues to remain tough, especially for countries with limited fiscal resources. While the economic outlook has improved overall, prospects are diverging within and across borders, particularly with the inoculation progress threatened by the new virus strains present in Europe, South Africa and Latin America.

As economists have been telling us over the past year, so much of the recovery, and with it trade, is dependent on the path of the pandemic. A prospect which is now shaped by the uneven progress in vaccination deployment. 

There is only one focus for this week’s meeting: how the world can pull together to make sure that everyone has what Kristalina Georgieva, Chair of the IMF has described as a “fair shot”. She is of course referring to the literal shot in the arm.

A sound international financial system is needed to support international trade, while smoothly flowing trade helps reduce the risk of payments imbalances and financial crisis. Through delivering a strong economic recovery through deployment of a frictionless and truly global vaccine deployment, the IMF can ensure a strong system of international trade and payments that is open to all countries. A strong economic recovery driven by international trade is critical for enabling economic growth, raising living standards, and reducing poverty around the globe. It is no surprise therefore that vaccines will be the centre of the discussions this week.

We can expect a range of announcements and policy changes in an effort to ramp up vaccine production, distribution, and deployment. These will likely include subsidising vaccine producers, suppliers, and distribution to lower income countries. Key to these efforts will be establishing a fair mechanism to redistribute vaccines from surplus to deficit countries. Many developed nations have made the most of low interest rates, printing huge sums to pay for expensive state sponsored furlough and business loan schemes. The IMF has established that vulnerable emerging market, low-income and fragile states are experiencing huge economic pressure given that their limited fiscal ability to fight the crisis. Many are at high risk of debt distress in sovereign, corporate, or banking sectors. This loss of income means millions of people will face poverty, homelessness, and malnutrition. There is no doubt that at the centre of these talks will be a comprehensive domestic revenue mobilisation including more external concessional financing, and more help to deal with debt.

There are several key events taking place across the week which are worth keeping a close eye on. Tomorrow (7 April), the World Bank will host a press conference, the International Monetary and Financial Committee (IMFC) will be meeting on Wednesday, followed by the Development Committee meeting on Thursday. 

The most important event however is today (6 April) when the IMF will release updated growth projections alongside an economic outlook for global growth. These figures will illustrate just how big a mountain the global economy must climb to return to pre-pandemic levels of growth. Established with the intention of saving the global economy, the IMF must rise to the challenge once again. It really is make or break.