Governments around the world should be wary of withdrawing fiscal and monetary policy support “prematurely”, according to the head of the International Monetary Fund.
“We must be determined to underpin the road to recovery with continuous strong policy actions. Do not withdraw fiscal policy support and monetary policy support prematurely,” Kristalina Georgieva told the Caixin Summit.
The Washington-based multilateral lender has forecast the global economy to contract 4.4 per cent this year due to the economic fallout over the coronavirus pandemic. The IMF sees the world economy rebounding to 5.2 per cent in 2021.
The IMF chief said the year 2020 presented the biggest challenge to the world economy since the Second World War and Great Depression.
"Because of the decisive action of governments and central banks, we managed to put a floor under the world economy. And we are seeing the green shoots of recovery,” she told the audience.
She cautioned that the road to recovery is likely to be difficult and would require “determined collective action” on the part of world governments, with tackling the health crisis set to dominate agendas.
"We cannot possibly achieve a sustainable recovery unless we have a durable exit from the health crisis,” she said.
"That means taking action to protect people from the virus while it is still with us – and most importantly taking action to have vaccines and treatment and make sure that they are available everywhere,” she added.
The novel coronavirus has so far infected more than 53 million people worldwide. Around 1.2 million people succumbed to the virus as of Friday, according to Worldometers, which tracks the pandemic
The outlook for the global economy turned optimistic last week, when America pharmaceuticals company Pfizer and Germany’s BioNTech said that their vaccine trial proved 90 per cent effective against the coronavirus.
However, the vaccine has delicate storage requirements and needs to be maintained at minus 75 degrees Celsius, which is colder than any other vaccine. The handling and storage of the vaccine will prove challenging in developing countries.
The IMF’s former head and current European Central Bank president, Christine Lagarde said in an address on Wednesday that the pandemic had created “a big river of uncertainty”.
While the election of Joe Biden as President of the United States and progress over Brexit talks removed several layers of uncertainty, the ECB president remained concerned about new, mutated forms of the virus.
Last week, Denmark detected a mutated form of the coronavirus in mink and plans to cull the entire population to stop the spread of the virus.
The cull of nearly all of the Scandinavian state's mink population was to ward off concerns of the mutated virus spreading more virulently among humans, denting vaccine efficacy.
In her address to the Caixin Summit, Ms Georgieva also highlighted the need for a sustainable recovery.
She recommended investments in education, health, social protection as well as in enabling greener transition in global economies.
"Public investments that are going to be put in place in the months and years ahead should pursue, first, investment in people," she said.
"Second, investment in green infrastructure – making sure that we can build a low-carbon, climate-resilient economy for tomorrow," she addded.