IMF Managing Director Remarks at the Summit for a New Global Financing Pact
June 22, 2023
Thank you, President Macron, for hosting this Summit and for bringing such incredible energy to these important issues of debt, climate, and financing for development.
And thank you for bringing the new World Bank President, Ajay Banga, and me on stage together for the first time in our new roles.
For full disclosure, we have been on stage together before, discussing women’s empowerment and financial inclusion. I have no doubt that we will be great partners in the next chapter of our institutions’ work together.
A rapidly changing and unbalanced world
Let me start by saying that the IMF and the World Bank were created in 1944 and since then the world has changed dramatically. At that time, there were 99 countries.
Now there is more than double that number – the IMF has 190 members – so on that basis alone the Bretton Woods institutions are dramatically different to when they were created.
At the same time, the global population more than tripled, and the world economy – as measured by GDP -- increased more than 10 times. The simple math means that the average income per capita has more than tripled.
So, we have a richer world. But it is a world with huge imbalances.
First, we have youth in some places and capital in different places. Unless we build a bridge for capital to flow where young people are [to create jobs and prosperity], not only would we undermine prospects for growth, but we would also undermine global stability.
Two, climate. The sources of emissions – historically and now – are primarily in advanced economies and large emerging market economies. But where is most of the impact? Tragically, in countries that have done nothing to create the problem. We must build a bridge to help address this imbalance.
Three, financial capacity to cope with a fast-changing, more shock prone world. Financial resources are much larger in some places than in others.
And so – our institutions have a huge responsibility to do what is necessary for the world today and the world tomorrow.
Adapting institutions
For the Fund and for the Bank, this translates into the imperative of a change in mindset. We must recognize that – at their core – our mandates are the same but how we implement these mandates should change dramatically.
For the IMF, we have a clear mission: macroeconomic and financial stability, growth, and employment.
But to implement this mission in the world I described – with the imbalances we face – requires us to take a much more comprehensive view. What does that mean in practice?
It means a more comprehensive view of the resilience of people – to ensure they are educated, healthy and have good social protection.
It means a more comprehensive view of the resilience of society – not just in the banking sector – because when society is unfair and unjust the economy cannot deliver the best fruit for all people.
And of course, a more comprehensive view when it comes to the resilience of our planet.
And when we take that more holistic, more comprehensive approach to our mandate – that requires us to examine how we work, what our priorities are, and what instruments we deploy.
Well-resourced reinvigorated multilateralism
Clearly a top priority for both the Bank and the Fund is to mobilize more concessional and grant financing because of the imbalances I have described.
Start with the Poverty Reduction and Growth Trust (PRGT). We have almost reached the resources we need to meet demand.
Yet, demand is higher, interest rates are higher –so we need more subsidy resources to make up the difference between the market rates received by lenders and the below market rates we are committed to offer to our most vulnerable borrowers. This subsidy gap stands at US$1.2 billion.
My appeal at this Summit is to close this gap.
President Banga and I will go to Morocco for the IMF and World Bank Annual Meetings in October. This will be the first time in half a century that the meetings will take place on the African continent.
We will go there to deliver for Africa and that means having a strong International Development Association (IDA) and a strong PRGT.
We have also promised to help re-channel Special Drawing Rights (SDRs). So if countries in strong reserve positions that receive SDRs don't need them, they should lend their SDRs to others – through the Fund or through multilateral development banks.
The target for such rechanneling was set at US$100 billion. And I can announce today that we reached that target.
Now, we must lift our ambition.
On SDR channeling, we started with a request for countries to channel 20 percent of their 2021 allocation. Then we went to 30 percent. And now we are moving to an ask of 40 percent.
Today we have close to US$60 billion in pledges to be channeled through the Resilience and Sustainability Trust (RST) and through the PRGT.
And - for the Resilience and Sustainability Trust, I'm very proud to announce that we have raised more than US$40 billion – close to our original target. Today, I'm using this meeting to ask that we lift our ambition by an additional US$20 billion -- because we now have proof of concept.
We already have seven countries benefiting and hope for another 10 countries to benefit next year.
For sure, demand for the RST has been very strong. Why? For the first time in our history, we are offering long-term financing – with a 20-year repayment period and a 10-year grace period. And we are providing financing to vulnerable middle-income countries on concessional terms.
In implementing the RST, we are working closely with the World Bank. It is the analytics of the World Bank, such as the Country Climate and Development Reports, that underpin two thirds of our RST programs.
And today we will announce how the RST is working with other institutions, such as the European Investment Bank, the African Development Bank, and the Inter-American Development Bank – showing that we deliver on what we pledged to do: we are acting together.
I want to conclude with the following.
We know that average income per capita has increased by several multiples over the past decades.
But, as my professor of statistics used to say: if you put your head in the refrigerator, and your feet in the oven, your temperature would be average – but you would be dead.
Why do I say this? If we don't restart the engine of income convergence, then – for people lower down the income spectrum whose income is lagging – the fact that the average global income is increasing would not make any difference to their lives.
Our institutions are committed to ensure this is not the fate of the world.
Thank you.