Finding Solid Footing for the Global Economy

By Kristalina Georgieva

As the Group of Twenty industrialized and emerging market economies (G-20) finance ministers and central bank governors gather in Riyadh this week, they face an uncertain economic landscape.

After disappointing growth in 2019, we began to see signs of stabilization and risk reduction, including the Phase 1 U.S.-China trade deal. In January, the IMF projected growth to strengthen from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. This projected uptick in growth is dependent on improved performance in some emerging market and developing economies.

Monetary and fiscal policy have been doing their part. In fact, monetary easing added approximately 0.5 percentage points to global growth last year. Forty-nine central banks cut rates 71 times as part of the most synchronized monetary action since the global financial crisis.

But the global economy is far from solid ground. While some uncertainties have receded, new ones have emerged. The truth is that uncertainty is becoming the new normal.

Working together, we can take the necessary steps to reduce uncertainty and put the global economy on more solid footing.

The coronavirus is our most pressing uncertainty: a global health emergency we did not anticipate in January. It is a stark reminder of how a fragile recovery could be threatened by unforeseen events. There are a number of scenarios, depending on how quickly the spread of the virus is contained. If the disruptions from the virus end quickly, we expect the Chinese economy to bounce back soon. The result would be a sharp drop in GDP growth in China in the first quarter of 2020, but only a small reduction for the entire year. Spillovers to other countries would remain relatively minor and short-lived, mostly through temporary supply chain disruptions, tourism, and travel restrictions.

However, a long-lasting and more severe outbreak would result in a sharper and more protracted growth slowdown in China. Its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China.

Even in the best-case scenarios, however, the projected rate of global growth is still modest in too many parts of the world.

And over the medium term, growth is expected to remain below historical averages.

In this context, while some uncertainties—like disease—are out of our control, we should not create new uncertainties where we can avoid it.

I believe there are three areas where the finance ministers and central bank governors can make progress in providing more certainty about future actions during the G-20 meetings in Saudi Arabia: Trade, Climate, and Inequality.

Building a Better Global Trading System

The Phase 1 trade deal between the United States and China eliminated some of the immediate negative consequences for global growth.

We estimate the deal will reduce the drag from trade tensions on the level of GDP in 2020 by 0.2 percent—about one quarter of the total impact.

Why not a larger reduction ? The deal only addresses a small share of the recently imposed tariffs and specifies minimum increases in China’s imports from the United States. These types of bilateral managed trade arrangements have the potential to distort trade and investment while harming global growth. In fact, our estimates suggest that the managed trade provisions cost the global economy close to $100 billion dollars.

There are also broader concerns. The agreement leaves many of the underlying issues between China and the United States unaddressed. Further, the world needs a modern global trading system that can unleash the full potential of services and e-commerce while protecting intellectual property rights.

And tackling trade is only a start. The global economy will continue to encounter major shocks if we fail to address another urgent global challenge: climate change.

Tackling our Climate Crisis

The human toll of climate change confronts us every day. Think of the recent Australian wildfires. The economic costs confront us too. Just one example: the damages from Hurricane Maria amounted to over 200 percent of Dominica’s GDP and over 60 percent of Puerto Rico’s GDP.

IMF staff estimates, released today, show that a typical climate-related natural disaster reduces growth by an average of 0.4 percentage points in the affected country in the year of the event.

Moreover, these types of events are becoming more frequent, particularly in the poorest countries and those least able to cope with the impact.

What steps can policymakers take? Mitigation and adaptation.

A recent IMF staff study shows that global oil demand is expected to peak in the coming decades. That is why the Gulf Cooperation Council, and all members of the G-20, are right to put a renewed focus on finding the path forward on diversification.

Investments in clean energy and resilient infrastructure can yield what I call a triple dividend: averting future losses, delivering innovation gains, and creating new opportunities for those most in need.

Additional revenues generated from carbon taxes, for example, could be used to cut taxes elsewhere and fund assistance to affected households, or finance spending that can help close some of the gaps in our societies. For countries and communities at highest risk of climate disasters investing in adaptation is both urgent and cost-effective. Analysis by the Global Commission on Adaptation suggests the benefits of such investments could far outweigh their cost.

This brings me to my third and final area of focus for the G-20: reducing inequality.

Reducing Inequality

Across much of the OECD and the G-20 countries, income and wealth inequalities remain persistently high. There is a significant opportunity gap when it comes to gender, age, and geography. We know these gaps quickly can become chasms that fuel uncertainty about the future, distrust in government, and ultimately contribute to social unrest. This week, the ministers can put a renewed focus on raising living standards and creating better paying jobs.

In support of the G-20, the IMF, in collaboration with the World Bank, is identifying key areas where access to opportunities can be increased. In particular, investing in high-quality education, R&D, and digitalization. The timing is right. The current low interest rate environment means that some policymakers may have additional money to spend. Of course, that advice will not work everywhere. Public debt is near record levels in many places. So in countries with a high debt-to-GDP ratio, fiscal restraint continues to be warranted.

However, reducing deficits—when needed—should always be done in a way that protects essential social spending. This is how countries can increase access to opportunities for all and build a stronger foundation within their own economies.


In the 14th century, the Arab thinker and historian Ibn Khaldun wrote about the concept of strength in solidarity and the power of joint purpose. He described the bond between people that can form a community. As G-20 ministers and governors meet this week in Saudi Arabia, I hope they consider the wisdom of Ibn Khaldun. Working together, we can take the necessary steps to reduce uncertainty and put the global economy on more solid footing.

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Fiscal Policies For Women’s Economic Empowerment

By Stefania Fabrizio, Daniel Gurara and Lisa Kolovich

Making sure that opportunities to enter the workforce are fair and rewarding for women benefits everyone. Yet, the average female workforce participation rate across countries is still 20 percentage points lower than the male rate, largely because gender gaps in wages and access to opportunities, such as education, stubbornly persist.

Our new study finds that fiscal policy choices that address gender equality—such as investing in education or infrastructure, developing better sanitation facilities, implementing individual-based tax regimes, and offering parental leave—create more economic opportunities for women, increase growth, and reduce poverty and inequality.

When governments actively promote policies to increase female labor force participation, more women do indeed join the labor force.

Most measures pay for themselves in the long run without additional costs for governments and the added bonus—a larger workforce leads to higher economic activity and growth, which generate additional tax revenue for the country.

Inclusive fiscal policies

Since the mid-1980s, at least 80 countries across all levels of development and regions have adopted fiscal policies to promote gender equality. Previous IMF research suggests that in advanced economies, when governments actively promote policies to increase female labor force participation, more women do indeed join the labor force.

Canada , Czech Republic, and Sweden, for example, have witnessed a substantial increase in women’s paid work when the countries switched to using individual rather than family income taxation.

For low-income and developing countries, programs aimed at reducing gender gaps in education, particularly for secondary and university education, have supported more economic opportunities for women. Other effective fiscal policies, such as better infrastructure, decrease the time spent on unpaid care work, while providing more women the choice to enter into paid employment.

The bottom line is that greater gender parity at all levels, from unskilled workers to top management positions, can also foster the creation of new ideas—leading to higher productivity.

Competing demands

Policymakers face difficult choices every day, given limited room in the budget and competing demands.

These choices often come down to investing in schools or roads, introducing new revenue measures, or offering free, high-quality childcare. Here, policymakers must consider not only what happens to economic growth, but also how these policies can reduce income and gender inequality.

To help with these decisions, our recent analysis examines how policies designed to increase women’s labor force participation can accomplish multiple economic and social goals.

We find that some gender-responsive fiscal policies increase labor productivity and in turn, sustainable growth. Take for instance, an effort to reduce the gender gap in literacy rates. In low-income countries the average literacy rate of men is about 70 percent while it is only 54 percent for women. But if fiscal policies can be used to close this gap, then women’s productivity increases and ultimately, more women are equipped for jobs in more skill-intensive sectors.

Labor-saving infrastructure, such as greater access to safe water, frees time, particularly for women. For instance, in Malawi, women on average spend 54 minutes a day collecting water. Better access to infrastructure means that women may then choose to pursue paid work.

Removing tax distortions for the earner in the family with the lower wage, usually the woman, by changing the personal income tax structure from a family to an individual system creates incentives for more women to work, and with greater diversity in the workforce, fresh and innovative ideas can boost productivity.

Securing the future

Not all gender-responsive fiscal policies benefit women equally. Subsidizing childcare and providing paid maternity leave would have a greater impact on poorer women because they typically face higher childcare costs relative to their income. For example, in the US, poorer women spend 17.4 percent of their income on childcare compared to 7.8 for richer women.

Time horizons matter too. A mix of measures could help support economic goals in a sustainable manner while tackling immediate social needs. For example, investing in education to equip girls with the same skills as boys would boost women’s human capital while shaping future labor productivity. In the meantime, cash transfers that target poorer working women may help reduce poverty and inequality.

Our research shows that tackling gender-biased social norms is crucial. In fact, removing discriminatory practices and addressing social norms amplifies the positive effects of gender-responsive measures. Not only would this improve human rights, but it also would help promote women’s economic empowerment. According to the Organization for Economic Co-operation and Development, discriminatory laws and social practices reduce women’s years of schooling by 16 percent and decrease labor force participation by 12 percent, resulting in a global income loss of 7.5 percent of the global GDP.

Progress in some countries is encouraging. For example, under the Promundo initiative, 34 countries have introduced programs to engage men and boys on gender norms with participants responding very positively to the initiative.

Real changes are happening. Still, we have a long way to go to make the world a place with the same opportunities for men and women. Policymakers and citizens working together can foster equality, equity, and brighter prospects for all, and ensure that gender equality becomes a reality in all of our lifetimes.

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