What are the key takeaways from India’s G20 presidency?
India brought the G20 together, but it did more than that. It invited countries and international organisations; so, we can say the whole world came together. The very first important achievement is the African Union being accepted into G20, which gives a whole continent a voice. I think Prime Minister Modi and the rest of G20 did the right thing to welcome that voice.Second, the Indian presidency brought up ambition on climate action. There was a much stronger sense of urgency to move. Third, on financing, the Indian presidency advanced reform of multilateral development banks and the World Bank, and brought the role of these institutions — as mobilisers of private finance — much more in focus.
Four, we have seen the India presidency rallying everybody, (which brought) pledges for lending special drawing rights through IMF to vulnerable middle- and low-income countries to fruition. It started with the Italian presidency, moved to the Indonesian presidency, and now, the pledge has materialised. That means more resources for developing countries.
Five, India genuinely mobilised, in a very thoughtful way, public and private sector creditors as well as borrowers to face the tremendous challenge a debt build-up presents. We co-chaired the global sovereign debt roundtable with India and the action. It has been a genuine success of the presidency. Iwant to finish with two policy areas. Now we have a roadmap that IMF and FSB (Financial Stability Board) put together to bring the world to a better place with regard to crypto. And last, but definitely not the least, the Indian presidency mobilised support around digital public infrastructure. It demonstrated how it works and excited others to tap into it. So, (when) I look at the presidency, it is not just that we finally got a joint statement, but that in the statement, there is action. They’re the bones and there’s meat on it.
There’s ambitious climate agenda. You also called for release of the promised $100 billion. Does the summit give the Climate Action Plan much-needed urgency to act, especially on the funding?
There was agreement in the room on the urgency over mitigation and adaptation, on the importance to provide more financial resources to poorer countries that are most dramatically impacted, as well as recognition that public money needs to be used wisely, (and) to also bring private money on scale.Of course, there will be a lot more work done on specific ideas that have been tabled during the presidency. For example, Prime Minister (Narendra) Modi called for green credits to be more widely utilised. At IMF, we agree that we urgently need strong incentives for decarbonisation and adaptation, both green subsidies, green credits and also carbon price, because if carbon is not priced, then the pressure on producers and consumers to move faster is not going to be strong enough.
India has seen some impact of climate change on farm productivity. Do you see this as a growing worry?
What we see very clearly is that the frequency and intensity of weather events has increased dramatically, and the predictability of seasons and how you can plan agricultural production is no more what it used to be. The world requires three actions. One, we need to have much more credible data, so farmers can adjust to weather patterns more effectively. Two, we need more resilient crops to floods and heat. Three, we need to utilise better for what we produce. We produce, in many places, twice as much as we consume. Half goes to waste… or (there is) lack of transportation and facilities to conserve what we have got. All of this requires serious investment and cooperation, sharing experience, learning from each other. Because the world we are getting into — of more severe, more frequent climate shocks — is not going to forgive us if we are slow to adapt.
What is your take on countries imposing export restrictions on food products?
It is really disheartening to see what has happened over the last year in terms of trade restrictions. Since the pandemic, they have tripled. If you go further back, they increased six times. That’s not good for anybody. It’s a slippery slope when we impose restrictions. And then it’s like opening up a Pandora’s box of protectionism. Once the genie comes out, you can’t put it back.
When it comes to restrictions on food items, there are occasionally circumstances in which, for security reasons, a country may need to impose a restriction. But it should be really well-motivated and… temporary. I really urge all of us to think about the consequences of creating a world in which solidarity takes a backseat. A world of more shocks, this is the world we are, means we have to work more with each other, help each other. And we are going in exactly the opposite direction today.
There are concerns about the global economy, whether it’s inflation or interest rates or China. What is your outlook?
On the positive side, it is remarkable how resilient the world economy has proven to be under the unthinkable events, Covid, war. We were worried that the consequences could be even more severe, but the recovery is slow and uneven. When we look at the world, only the US has fully recovered their pre-Covid trend. Eurozone is 2% below, emerging markets 5% below, low-income countries 6-7% below. These are trillions of dollars lost, and it has significant implications. On top of it, growth is projected to be slow over the next few years.
So, anaemic growth with big scarring means that pain on people or businesses is not going to be easy to alleviate. When we look at the world, high inflation has been going down, but not fast enough. Many countries have high interest rates, are facing currency depreciation; many emerging markets are looking at a high level of debt. It is a difficult, complex picture. How can we get out of it? Well, let the economies grow. What is the most powerful engine of growth? Trade. So, working towards a more open and integrated economy is in everybody’s interest.
Is there a need to further energise free trade?
One of the very encouraging things in this statement (the New Delhi Declaration) is the call to reinvigorate trade, to bring the WTO up so they can be the neutral judge in trade disputes. I am very mindful that for the first time in a long time, we have trade growing slower than the economy. This year, economic growth is 3%, versus trade growth of 2%. It means we are not fuelling this engine. It will slow growth even further. I’m all with the Indian presidency on this point. Let’s open up more corridors, more opportunities for trade.
In the US, interest rates will remain high for some time. We saw a banking crisis there. Is there concern about such an issue cropping up again and could there be a contagion effect?
The good news is that after the global financial crisis, the banking system has really been reinforced. The benefit of it came during Covid. This spring, when there was a shake-up, we saw that the authorities are very fast to take action. And this action, both in the US and Switzerland, was very effective.
There is no serious threat of a financial crisis. Now, we know interest rates will be higher for longer. Inevitably, there would be a negative impact on businesses. We are already seeing some increase in non-performing loans. Will the financial system sustain that? My confidence is high because I have seen coordination in monetary and fiscal policy at the start of Covid. When inflation hit, (there was) very rapid coordination of monetary policy. I expect this will continue in the future. We learned a lesson from the global financial crisis to be vigilant. One space where we are paying more attention is the non-banking financial institutions, to make sure there is no accumulation of problems that could then cause negative impact elsewhere.
Could there be a bigger risk for emerging economies, with a stronger dollar?
Of course, when there is a high-interest rate environment in the US, there is concern about the world economy. There is a flight to safety and that leads to a stronger dollar. What we have seen over the last two decades is that emerging markets can build reserves. This is costly, but it is helpful. When we look at the foreign reserves, most emerging markets with sound fundamentals like India, Brazil, also have strong reserve positions. China has a particularly strong reserve position, but China is not the only one.
The problem is vulnerable emerging markets and low-income countries. Their reserves are a tiny fraction. In fact, 100 countries, small island economies and low-income countries hold only 1.5% of total global reserves. For these countries, when the dollar is strong, their economies are in a very risky place. And for these countries, there is an IMF. We have seen a huge increase in demand for IMF programmes. We are there for our members, supporting them at this difficult time.
China is being seen as a growing worry. Some experts say it’s another Lehman moment for the global economy. How do you see the situation?
China started recovering in the first quarter quite strongly. Then, this recovery lost momentum, mostly because of two reasons — property sector and local government. These factors are holding up the Chinese recovery. There is also the impact of exogenous factors.
China does have policy space; it can do more to support the economy. From what we see, they are now tapping into some of these policies. They have decreased interest rates and eased the financial support for the property sector. We are encouraging China to carefully monitor the situation and use more of this fiscal space, but differently, rather than using it as China did in the past, in infrastructure, to prop up private consumption.
The Indian economy is being seen as a bright spot. What’s your outlook on India and especially in view of the PM’s goal that the country should become a developed nation by 2047?
What we have seen over the last few years in India is an ability to deal with very difficult challenges effectively. When Covid hit, the country did suffer, but very quickly put in place a massive vaccination campaign and managed to come out to recover from that shock to a point that we now see in it the bright spot on the gloomy horizon.
There are two very strong advantages. The first one is the youthful population that brings dynamism in the Indian economy. Many young people in India prove to be very entrepreneurial and that sparks up the prospects for Indian growth. The second one is digitalisation as well as, more broadly, investment in research, development and innovation. What India has done with the public digital infrastructure is remarkable. We tell many other countries — please go and learn from India and move in that same direction.
The fact that India sent a spacecraft to the moon… I told Prime Minister Modi, impressive as it is, even more impressive is that he did it at the cost of $74 million only. There is also a great deal of attention paid to another resource, women.