- Discuss the opportunities at length.
Three emerging markets—Indonesia, India, and Brazil—will chair the G20 between 2022 and 2024, with Indonesia as the current chair. Under the banner of ‘Recover Together, Recover Stronger,’ Indonesia has encouraged all countries to work together to achieve a stronger and more sustainable recovery as the global economy. In this context, there is a need to discuss the global macroeconomic framework and priority options for India’s presidency in 2023.
Managing the Global Macroeconomic Recovery:
G20 countries have responded to the pandemic with large monetary policy measures (unprecedented low-interest rates, more liquidity), fiscal actions (worth some US$16 trillion), and liberalising trade policies.
- Monetary Policy and Tackling Inflation : The rise in commodity prices, especially energy, has caused inflationary pressures in many countries. This comes at a time when major economies are looking to raise interest rates to tackle inflationary pressures & prevent price volatility. Expected tightening by advanced economies has contributed to currency depreciation in several emerging market economies.
- At a more structural level, the G20 has called for central banks to communicate their intentions transparently and coherently to avoid large price swings. The members made a strong commitment to maintaining exchange rate flexibility by refraining from competitive devaluation that could be harmful to some economies.
- Fiscal Policy and Confronting Public Debt : Falling government revenues, coupled with major public spending to reduce the immediate impact of the pandemic, increased global debt by US$20 trillion between Q3 2019 and Q3 2020. Global debt-to-GDP ratios have climbed to an all-time high. The threshold of public debt to GDP is 77%, and any increase above that negatively affects overall growth. In 2020, the total public debt-to-GDP was 99%.
- In April 2020, the G20 members announced the Debt Service Suspension Initiative (DSSI) to assist the most impoverished countries. The scheme mainly targeted the suspension of bilateral debt for 73 International Development Association-eligible and least developed countries until 31 December 2020. However, following the onset of new virus variants in 2021, the scheme was extended up to December 2021. Recently, the G20 has also created the Common Framework for Debt Treatment beyond the DSSI. Providing countries with debt treatments will facilitate financial support from the IMF and multilateral development banks (MDBs). The current Debt Sustainability Framework provides rules under which a country may receive lending.
- Trade policy, resilient supply chains, and avoiding protectionism:
- From the pandemic’s start, the G20 announced measures to ease supply chains, especially for food and medical products and avoid protectionism, with varying success. Much more needs to be done by the G20 to facilitate trade after the pandemic. The new challenges emerging from the Russia-Ukraine conflict will lead to further supply chain challenges. Importantly, dealing with supply chain issues will also contain inflationary pressure and reduce the need for monetary tightening.
- Green growth:
- The G20 is also an important forum to promote private investment in green infrastructure projects that could help transition from fossil fuels to renewable and sustainable energy sources and achieve net zero in 2050. The G20 could accelerate collaboration between advanced and emerging economies to create greener jobs, support green growth, and assist low-income countries to escape the brown growth trap.
- Leveraging macroeconomic measures for inclusive, sustainable, and digital transformation :
- Macroeconomic policies are typically used to address short-term shocks, but they can also be used to steer the global macroeconomy in a way that fosters desirable structural changes. Such finance-related issues could be supported through targeted fiscal, monetary, and trade issues.
- Central banks could more actively support a green transformation (through liquidity support and stress testing banks), advanced economies could use their SDRs and aid budgets to finance vaccines in the poorest economies, and private sector capital is essential in large infrastructure projects related to digital and green transformation.
- Trade policies can support a green transformation, provide more equitable access to vaccines, and support digital trade. The G20 could play a lead role in reconciling macro-economic responses with desirable long-term development trajectories.
The global macroeconomic environment is undergoing rapid changes, and the G20 will need to respond. Some macroeconomic policies need to respond to short-term shocks and, in other cases, must accommodate structural shifts, such as green and digital transformation. India and the UK could work together in the areas of Monetary policy, Macroeconomic policy & inclusive health; debt sustainability and fiscal space; Climate change and preserving the value of democracy.