G20 pledge to go beyond monetary policy to target growth

5 Sep 16

The G20 have vowed to make the most of flexible fiscal policy to boost sluggish global growth, as well as to strengthen economic governance through transparency and international tax collaboration.

In their communiqué issued at the close of a two-day leaders’ summit in Hangzhou, China, the heads of the world’s 20 strongest economies catered to International Monetary Fund advice that only a combination of fiscal, monetary and structural measures could combat the world economy's low growth complex. 

“Monetary policy cannot, by itself, lead to balanced growth,” acknowledged the G20. “While stressing the essential role of structural reforms, we emphasise the fact that our budget strategies are equally important to supporting our mutual growth objectives.”

One way leaders promised to use fiscal policy to boost growth was through more public spending on high-quality, growth-friendly investments, as well as building resilience by ensuring that public debt as a share of GDP falls to sustainable levels.

In regards to structural measures, the G20 said it would focus on finding and encouraging new drivers of growth, which will boost productivity, growth potential and job creation in the longer term.

This will mean policies that cater to innovation, science and technology, the digital economy and the “new industrial revolution” – the combination of digital and manufacturing technologies – the communiqué said.

However these commitments are not new. Christine Lagarde, managing director of the International Monetary Fund, commended an economic plan set out by the leaders for its “forceful policy actions” but said they should now move to delivering the commitments.

In a note published ahead of the summit, the IMF warned that it was likely to downgrade its global growth forecasts again in October and that the G20 was not on track to reach its growth targets due to lacklustre public action.

Lagarde also praised the group’s commitments to reduce excessive inequality and ensure growth was more widely shared, as well as to make the international financial system more resilient.

One way leaders said they would work towards this was by strengthening economic governance, including by increasing transparency, especially with regards to beneficial ownership arrangements at the centre of the international tax scandal dubbed the Panama Papers.

They also vowed to protect the “integrity” of the international financial system and ensure it would not be used for illicit purposes, further efforts for international tax collaboration such as the OECD’s project to reform the global corporate tax architecture, and enhance efforts to promote international cooperation in the fight against corruption.

This falls broadly in line with a call for action from the International Federation of Accountants, issued ahead of the summit last week, which put rebuilding integrity and public trust at the top of the list of priorities for the group. In terms of the public sector, this would involve better public financial management, reporting and governance arrangements.

In their communiqué, as expected, the G20 leaders also mounted a defence of free and open trade, reaffirming their opposition to all forms of protectionism and commitment to facilitating openness.

They did note, however, the need to better inform disillusioned parts of the population, for whom the promised benefits of globalisation never materialised, “about the benefits of trade and open markets”, and that national policies need to ensure a wider distribution of its profits.

Other issues the leaders highlighted as paramount included measures to stem industrial overcapacity, particularly in the steel industry, to support industrialisation and stronger fiscal policies in developing countries, and to ensure women and other disadvantaged groups share the benefits of growth.

In a nod to China’s efforts to establish itself as a leader on the world stage, reflected in the country’s holding of the G20 presidency for the first time, the communiqué celebrated the inclusion of the Chinese renminbi in the IMF’s currency basket, the revival of that currency basket on the bond market, and the shake-up of governance arrangements to give greater powers to emerging economies in the IMF and World Bank.

In other areas, however, the G20 has fallen short. For example, it failed to set a strict deadline for phasing out public subsidies for fossil fuels – a promise the group first made in 2009.

This was despite renewed pressure from civil society, investors and insurance companies, Alex Doukas, a senior campaigner at Oil Change International, pointed out.

“Time is running out,” he continued. “Every dollar wasted on fossil fuel subsidies pushes us closer to climate disaster and makes the transition to clean energy more difficult.”

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