G20 Sherpa’s Meeting
The United Nations assessment on global economic outlook and prospects reinforce the messages heard from international financial institutions (IFIs). There is a broad consensus on considerable weakening of economic growth during 2012. Prospects for the next two years continue to be fraught with a number of uncertainties and risks slanted towards the downside. Over this period, the international community has to tackle a range of issues and problems. These are well covered in the G20 agenda. At the United Nations, Member States are keen for G20’s stronger conversation and engagement in addressing human vulnerabilities and consequences of crisis for the developing and emerging markets.
To start off, I will focus on human vulnerabilities dimension. It is urgent that international community deals head-on with the job crisis. The International Labour Organization (ILO) estimates indicate that since 2007 unemployment has risen by 30 million to over 200 million this year. Renewed weakness in GDP growth will add another 2.5 to 3 million to these numbers. Without economic recovery, sustained improvements in employment are inconceivable and without boost to employment, recovery cannot be sustained. To get out of the trap of “no growth no jobs and no jobs no growth” a comprehensive international endeavour and drive is critical to ensure a human face to adjustment. A combination of approaches and policies are in order.
While a number of proposals exist on table, there is need to focus on, at least three:
First, to implement a proper pace and sequencing of fiscal consolidation. While extending fiscal consolidation to medium term is one way out, there could be merit in the government’s considering raising taxes and spending simultaneously and by the same amount, as this would stimulate the economy and create jobs by raising demand without increasing the deficit.
Second, to restore private sector confidence that requires explicit strengthening and incentivization of investment in infrastructure – only a quantum jump in investments will impact employment and its sustainability. Studies on green growth from the ILO, United Nations Environment Programme (UNEP) and the Organization of Economic Co-operation and Development (OECD) all show that investing in green energy and sustainable agriculture will generate strong employment effects. Three months ago at the Conference on Sustainable Development (Rio+20), the international community agreed to pursue this to preserve a liveable planet over the long run. But frontloading action now will also support the economic recovery in the short run, while supporting vulnerable economies.
Third, deleveraging is essential but needs to be accompanied by diversification of development finance to the real sector and efforts to extend outreach of financial inclusion initiatives to boost employment generation.
These are win-win solutions: By accelerating and better targeting job creation efforts, investing in green growth and sustainable agriculture, and strengthening development finance we can live up to the promise of stronger, balanced and sustainable global growth.
Turning to the issues surrounding emerging markets, G20 needs to recognize more explicitly on spill-over of the economic woes in developed economies to developing and vulnerable economies. Vulnerabilities have and will magnify through different channels. On the trade side, weaker demand for exports is already evident, and financialization of commodity prices and heightened volatility in capital flows is complicating macroeconomic management. Growth has moderated significantly in many developing countries, along with a notable slowdown of already low levels of investment spending.
Moreover, some emerging economies that have grown rapidly in the past are increasingly facing some domestic structural bottlenecks, such as environmental and institutional constraints, which if not addressed properly, may transform the current cyclical downturn into more permanent output losses over the long run.
Low-income countries have held up relatively well, but are facing intensified adverse spill-over effects from the slowdown in both developed and major middle-income countries and many see their external balances affected further by a combination of lower non-food and higher food prices in world markets.
To conclude, as we move forward, perhaps a greater focus on these two areas in the G20 conversations and in the development group initiatives would be useful. There are clear benefits of ensuring comprehensiveness and greater synergies between the different streams of G20: macroeconomic and growth-jobs dialogue that integrates properly with the agenda of the development working group. This would be feasible to achieve if the development working group agenda is simpler, prioritized and implementable. This will be quite opportune as the United Nations has embarked on a consultative process with official, private and IFI sector to launch the post-2015 Sustainable Development Agenda which will aim to address the gaps in MDGs and environmental sustainability.