Global economic activity is expected to contract sharply in 2020 due to the impact of the COVID-19 pandemic and the associated disruptions in supply and demand, said the communique of the Group of 20 - Photo by G20 Secretariat

JAKARTA (TheInsiderStories) – Global economic activity is expected to contract sharply in 2020 due to the impact of the COVID-19 pandemic and the associated disruptions in supply and demand, said the communique of the Group of 20 (G20) on July 18. While, the outlook remains highly uncertain and is subject to elevated downside risks, global economic activity is expected to recover going forward as our economies gradually reopen and the impacts of our significant policy actions materialize.

“We are determined to continue to use all available policy tools to safeguard people’ lives, jobs and incomes, support global economic recovery, and enhance the resilience of the financial system, while safeguarding against downside risks,” the finance ministers and governors in an official statement.

The policymakers will taking immediate and exceptional measures to address the pandemic and its intertwined health, social and economic impacts, including through the implementation of unprecedented fiscal, monetary and financial stability actions while ensuring that the International Financial Institutions (IFIs) and relevant international organizations can provide critical support to emerging, developing and low-income countries.

It said, fiscal and monetary policies will continue operating in a complementary way for as long as required. Monetary policy continues to support economic activity and ensure price stability, consistent with central banks’ mandates.

“We will continue to facilitate international trade, investment and to build resilience of supply chains to support growth, productivity, innovation, job creation and development. We will continue to take joint action to strengthen international cooperation and frameworks,” said the communique.

In the virtual meeting, the ministers and governors recognizing that members are in different stages of responding to the crisis and that the global economic outlook continues to evolve. They also welcome the progress achieved under the Debt Service Suspension Initiative. As of 18 July 2020, 42 countries have requested to benefit from the the program, amounting to an estimated US$5.3 billion of debt service to be deferred.

They also rated, the impact of COVID-19 has highlighted that the underlying markets that LIBOR seeks to measure are no longer sufficiently active and reaffirm the importance of the end-2021 deadline for the transition away from the scheme. It said, the pandemic also has reaffirmed the need to enhance global cross-border payment arrangements to facilitate lower-cost, faster, more accessible and more transparent payment transactions, including for remittances.

At the meeting, the International Monetary Fund (IMF) and the World Bank Group (WBG) have proposed a fiscal monitoring framework and a process to strengthen the quality and consistency of debt data and improve debt disclosure. According to Kristalina Georgieva, Managing Director of the IMF, due to the continuing impact of the COVID-19, the global economy faces a deep recession this year, with partial and uneven recovery expected in 2021.

She noted, there remains great uncertainty on the outlook, the unprecedented actions taken by the countries and others have helped to avert a much worse outcome. She asserted, “As we enter the next phase of the crisis, further policy action will be required, as well as increased international cooperation. The G20 Action Plan is key to this effort.”

While, President of WBG, David Malpass, stated that the pandemic has triggered the deepest global recession in decades, and what may turn out to be one of the most unequal in terms of impact. People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.

Adding to the inequality problem, growth and investment prospects are weak and the dominant stimulus in advanced economies is through massive central bank asset purchases, which provides selective support to higher rated bonds and bondholders in their own markets.

For the poorest countries, poverty is rising rapidly, median incomes are falling, and growth is deeply negative.  Debt burdens – already unsustainable for many countries – are rising to crisis levels.

Otherwise, he revealed, the investors are reaching for yield, as interest rates look set to be low-for-long.  This provides short-term support for some governments, but with economic fundamentals deteriorating, it risks complacency and a downward spiral into a new debt crisis that is likely to go beyond the poorest countries.  If this proceeds, it will weigh for decades on people in developing countries.

“The World Bank is substantially increasing the pace of our grants and loans for developing countries as they respond to the crisis, but it won’t be enough.  We expect the development challenges to deepen and become even more severe over the next year,” said Malpass.

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