Can we keep our promises around sustainable development goals?
“We must, and we can. But we have to focus. Focus on the countries that are falling behind and focus on the issues that are more difficult to wrestle with. Of those falling behind, the attention ought to be on Africa. Today, Africa is only half way to reaching these sustainable development goals, and what we see here is tremendous progress over the last decades- the scale of poverty has dropped dramatically, life expectancy has increased, but the absolute number of poor people in Africa, because of rapid population growth, has increased. At the same time Africa offers the most dynamic economies today. Twenty-five of the African countries outperform in terms of growth, the rest of the world. So, it is not just out of our goodness to invest in Africa, it is also because it is a winning proposition in many places”
Who’s going to pay for this, when you’ve got debt levels already rising in Africa?
“Let’s remember that the African economies have been growing, and the African leaders have recognised that they need to help themselves. We have been urging them to increase domestic resource mobilisation and progress is being made in a number of countries. What we want to see from everyone in Africa is at least 15% collection of tax and fees, to feed into the government’s budget, so they pay for what they need, and we want to make sure that private investors go to places that are safe to invest- like Senegal, or Rwanda, or Kenya- and that the official development assistance in Africa perks up. We made promises, the advanced economies have made promises, now is a very good time to come through”
Are you worried we could get a scenario of the 1990s, where you’ve got unsustainable debt and need bail outs?
“For a number of countries in Africa, debt levels are unsuitable. There are a total of sixteen countries where they are either in debt distress already, or they are close to debt distress. We need to look carefully why, and the answer is: 1) conflicts 2) climate shocks 3) bad governance. We do need to concentrate on helping these countries to improve their ability to handle that, to be more transparent. We also need to call on the lenders- what happened in Africa is a very significant increase in private commercial debt. Two thirds of the debt in Africa is now in the hands of private lenders. We need to urge countries to manage their debt and be transparent, but we also have to call on commercial lenders to be a bit more careful as they increase their lending in Africa. We have also seen non-Paris Club members, like China, increasing lending to Africa and that makes the problem of debt serious. The IMF has been ringing an alarm bell on that, over the last couple of years and thankfully we have seen debt levels stabilizing at around 55% of African GDP. But we have to do more, and we have three very straightforward recommendations 1) beef up domestic resource mobilisation 2) use money more effectively, invest it well. Today one dollar invested has only 60cents of assets to show for 3) be prudent in debt management and please be transparent. Transparency is the citizens best friend”
Will the IMF’s involvement adjust the perception of risk on the continent and take out the risk in terms of the accumulation of debt that we see?
“It is very important to focus on the countries in Africa that are doing the right thing and are doing it well. Egypt is a very good example. Very brave reforms, from getting their exchange rate to float, not an easy decision but they took it and they did it. Two, bringing down subsidies for the energy sector. Imagine all over the world you see protests because of energy prices going up, Egypt brought down energy subsidies the smart way. They took the advice we gave to identify who is most vulnerable and put in place social protection programmes to help the woman and poor families, so they can handle that price shock. What is the outcome? From 6% percent of GDP energy subsidies shrunk to around 3%. So, Egypt has 3% more to spend on education or on roads and the image of Egypt and the energy sector attractiveness significantly rose. So, we have seen somewhere around 15bn dollars of private sector investment in energy. Win. Win. Win”
What’s it like leading the IMF in such a time of volatility?
“I’m very privileged to have a professional team, what we do is to provide objective analysis and then present it to policy makers. First, we have been very clear what the cost of trade war is- by next year, we as a planet would lose 700bn dollars. This is 0.8% of the global GDP. Everybody loses. Second, we have also been very clear what can be done so this slow down in a synchronised manner we have seen, can be stopped and reversed. And we say to countries three things 1) if you have monetary space, if you can cut interest rates, please do it- very few countries now have that space. 2) if you have fiscal space please use it. Some countries do have fiscal space and we’re seeing even more reluctant players like Germany, the Netherlands, South Korea, they’re coming up with stimulus packages. 3) most important, everyone can do it- structural reforms. Labour market reforms eliminate red tapes, so the private sector can boom, and jobs can be created. So, 1,2,3 and we see governments around the world actually listening”
Does the IMF have enough resources to step in during trade wars?
“Our shareholders committed to provide the IMF with fiscal financial capacity of 1trillion dollars. So, we do have sufficient firing power to step up but we tell countries do the right thing so you don’t need to come and knock on our door for money, and yes just to say on fiscal capacity yes in many countries it is quite limited, but it can be built up. If you take structural reforms, you can build more capacity so there can be a stimulus in economies that are slowing down”
Do Trump’s tariffs on Argentina and Brazil harm the efforts of the IMF in that region?
“We have been repeating that very simple message on tariffs that they are not going to be helpful because trade is good for growth, good for jobs, good for the poor people. So, we are very keen to see that that historical message, that trade helps us all to do better and retreating from trade hurts everybody is going to be heard”
How does the discussion around climate, impact your role at the IMF and the work you are doing?
“The climate action avenue is one that we have to step on. Why? Because climate risks are micro-critical. One climate disaster wipes out the benefits of development as we have seen so many times. Take Dominica, it lost 225% equivalent of their GDP just in 24hrs. The road to stabilising emissions and bringing them down goes through low carbon growth. Low carbon growth requires fiscal measures that incentivise investments in renewables, in clean mobility. These are all topics that are straight in the IMF’s mandate. And most importantly central banks are getting more and more worried about the financial stability risks that are associated with climate crisis because of natural disasters that shake up what is in the portfolio of banks and because of the long-term probability of assets that may lose their value because of transition to low carbon climate resistant grown. And where the IMF steps in is, how can we stress test banks for this new category of risk, to protect the stability of our financial system. Straight in our mandate”
Do you feel optimistic about the global economic outlook?
“What we see is that we need each other more, but it is harder and harder to come together, and institutions like the IMF have a duty to bring together our membership and seek that consensus to take action together when this is necessary. I do believe that the world is changing much more rapidly today, then 10, 20, 30 years ago. This is the new normal. Uncertainty is the new normal, and therefore we have to help our membership to be more agile, more adaptable to this fast-changing world. Enjoy the pace of change today, it will never be that slow in the future”
Is change and adaption in the future of the IMF?
“I want to see the IMF being an institution that leans forward in a moment of difficulty and offers well-tailored advice to its members. So, we can see strong economies improving the lives of people”