International Monetary Fund, Deputy Managing Director
Special statement to FEMM 2021 Opening session
July 13th, 2021
Greetings from Washington DC.
Five years ago, when I joined the IMF as Deputy Managing Director, my first public event was on the Pacific Islands, when we launched a book prepared by Patrizia Tumbarello and others from our Asia and Pacific department. Now, I have come to the end of my term. It is a great honor and pleasure for me that my last public engagement also will be on the Pacific.
Today, I will focus my remarks on the global and regional outlook. I will then turn to some of the key issues we see facing Pacific Islands.
First, the outlook. Economies across the world are recovering. But these recoveries are diverging in a potentially dangerous way. Economic activity is gaining stream in advanced economies, where vaccinations and policy support are strong, but remains sluggish in developing economies, where the incidence of COVID-19 remains high, and vaccinations are lagging. Developing economies are thus at risk of falling even further behind the rest of the world. And, tragically, the historic income losses are borne mostly by the less advantaged. These include low income workers, youth, and women. Without policy actions, the pandemic risks stunted opportunities, rising equalities and even social unrest. In the Asia Pacific regions, too, we see wide differences across countries. Overall, export and manufacturing have benefited from surging global demand for pandemic-related supplies. In China, headline GDP has returned to its pre-pandemic trend driven by strong growth in investment and export. And advanced economies such as Australia, Korea and New Zealand are benefiting from strong policy responses and spill overs from the large US fiscal package. But some emerging markets, including India, Indonesia, Malaysia and the Philippines are facing increased Coronavirus cases and renewed lock downs and therefore weaker recoveries and undiversified economies, and those dependent on services such as tourism, are languishing.
Let me now turn to the Pacific Islands economies. The Pacific Island economies have been hit hard, and the pandemic has imposed a severe social toll with rising unemployment and poverty. The pace of recoveries will hinge on vaccine supplies and distributions, external environment and domestic policy support. For commodity exporters such as Papua New Guinea, and Solomon Islands, a return to positive growth is plausible this year, as the external environment improves. For tourism-reliant countries including Fiji, Palau, Samoa, and Vanuatu, t he recovery will take longer. Our best guess is that the region may now get back to 2019 tourism levels before 2023. Beyond the pandemic, Pacific Islands face severe, daunting challenges Let me here, highlight three. First, higher public debt has added to pre pandemic vulnerabilities in several countries. This issue is all the more pressing, given the investment needed to enhance climate and natural disaster resilience and to address infrastructure deficiencies, and human capital development. Second, losses of correspondent banking relationships CBRs, threaten remittances, business income and fiscal revenues. The decline in the number of the CBRs is a global phenomenon, but is particularly problematic in the Pacific and reflect the assessment by banks of the risks relative to the profitability of this business. Third, Pacific Islands are particularly exposed to the negative effects of climate change. They have less capacities to adapt to changing climate conditions, and the natural disasters that accompany such change. For some of the islands, climate change is a existential threat. Work on the economics of climate change and adaptations in the IMF has already increased substantially.
So with that, let me now turn to policies. The priority in the Pacific is to end the pandemic. And the key to this is rapid availability and distributions of vaccines. I will come back to this shortly. Targeted policy support for vulnerable populations must continue. Future support should be geared towards reallocations of resources towards new dynamic sectors such as the green economy and the digital economy. All stakeholders must preserve external financial lifelines. The IMF is helping to find solutions by providing AML-CFT training, and facilitating dialogue among the stakeholders. Further down the road, key tasks include ensuring sustainable public finances, enhancing resilience to shocks, dealing with excess leverage in corporate and quasi-fiscal sectors, adapting to climate risk, and enhancing the resilience and productivity of growth models with upgraded infrastructure, and human capital.
Global cooperation is vital to avoid developing countries falling further behind the rest of the world. Here I want to emphasize three points. First, ending the pandemic everywhere requires further coordinated global actions. IMF staff recently proposed a US $50 billion plan to end the pandemic by vaccinating at least 40% of the people in every country by the end of this year, and 60% by mid-2022. The most urgent part of this plan is to redirect excess vaccine doses from advanced economies to the developing world. About 1/3 of the plans –$35 billion dollars in grant financing– has now been secured. But the work must continue to raise the rest. Second, beyond vaccines, ensuring sufficient financial support for weaker economies is essential. This includes grants from bilateral donors and international financial institutions, and debt relief and rescheduling. The debt service suspension initiatives, DSSI, and its extensions have provided welcome relief for more than 40 countries and a common framework for debt treatments beyond the DSSI should be made operational. Third, the proposed general allocation of SDRs of the US dollar equivalent 650 billion can help meet the need to supplement reserves, and support recovery effort of vulnerable countries.
Finally, poorer economies will need support to facilitate the transition to cleaner energy sources, and invest in climate adaptation, that renders them more resilient to climate shocks.
So, IMF is committed to all of this important work to promote global cooperation, and I can assure all of you that we will do our own part to the utmost. Thank you.–ENDS
LINK TO ALL FEMM 2021 OPENING SPEAKERS ON SOUNDCLOUD