Global public debt will reach a record-high of about 100% to GDP in 2020, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva announced on Tuesday.

Georgieva’s remarks came during a virtual press conference entitled “Overcoming the Crisis and Building a More Resilient Economy.” She also said the IMF projected, in June, a severe global GDP contraction this year.

“The picture today is less dire, as we now estimate that developments in the second and third quarters (Q2 and Q3) were somewhat better than expected, allowing for a small upward revision to our global forecast for 2020,” she said. “We continue to project a partial and uneven recovery in 2021.”

The IMF head added, “We expect global output to remain well below our pre-pandemic projections over the medium term. For almost all countries, this will be a setback to the improvement of living standards.” 

Georgieva said the projection was now less dire as there had been “an incredibly powerful injection of liquidity by central banks and fiscal measures in a synchronised manner.”

Projections have also been positively affected, she said, as the world has now learned how to function relatively smoothly, despite the ongoing presence of the novel coronavirus (COVID-19).

“We have seen measures everywhere leading to a reopening, so that wherever and whenever spikes now occur, the restrictions are well targeted and are not uniform,” she said. “The global economy is coming back from the depths of the crisis, but this calamity is far from over. All countries are now facing what I would call ‘The Long Ascent’, a difficult climb that will be long, uneven, and uncertain, as well as prone to setbacks.”

She added that the path ahead is clouded with extraordinary uncertainty, whereas faster progress on health measures, such as vaccines and therapies, could speed up the “ascent”. It could also get worse, especially if there is a significant increase in severe outbreaks worldwide.

Georgieva said that the risks remain high, including from rising bankruptcies and stretched valuations in financial markets. Many countries have additionally become more vulnerable through possessing increased debt levels, in no small part due to their fiscal response to the crisis and the heavy output and revenue losses.

The IMF head revealed that, in order to deal with the crisis, the IMF has provided financing of over $280bn in lending commitments at unprecedented speed and scale to 81 countries. Of this amount, more than a third of that has been approved since March.

“We are ready to do more, as we still have substantial resources from our $1trn in total lending capacity to put at the service of our members as they embark on their ‘ascent’,” she said.

Georgieva revealed that governments have provided around $12trn in fiscal support to households and businesses. At the same time, unprecedented monetary policy actions have maintained the flow of credit, helping millions of firms stay in business.

She highlighted the gap between the developed and developing countries was clear in dealing with the pandemic, which partially resulted in different outcomes.

She said that the emerging markets and low-income states continue to face a precarious situation, due to their weaker health systems, and being highly dependent on external financing.

On the other hand, abundant liquidity and low interest rates helped many emerging markets regain access to borrowing, but not a single country in Sub-Saharan Africa has issued external debt since March.

Referring to the path forward in confronting the crisis, Georgieva highlighted four immediate priorities, including: Safeguard people’s health by stepping up essential measures; Avoid premature withdrawal of policy support; Flexible and forward-leaning fiscal policy which will be critical for the recovery; and Deal with debt, especially in low-income countries.

“We cannot afford simply to rebuild the old economy, with its low growth, low productivity, high inequality, and worsening climate crisis,” Georgieva said. “That is why we need fundamental reforms to build a more resilient economy, one that is greener, smarter, more inclusive and more dynamic. This is where we need to direct the massive investments that will be required for a strong and sustainable recovery.”

She mentioned that a new IMF research shows that increasing public investment by just 1% of GDP across advanced and emerging nations can create up to 33m new jobs.

“We know that, in many cases, well-designed green projects can generate more employment and deliver higher returns, compared with conventional fiscal stimulus. We also know that an accelerated digital transformation is underway, promising higher productivity and new jobs with higher wages,” Georgieva concluded.