\nAs \nFrom the global economic slowdown and climate change to the cost-of-living \nIndeed, even as we need more international cooperation on multiple fronts, \nIt would also be a stunning reversal of fortune. After all, economic integration<\/em> has helped billions of people become wealthier, \nRising fragmentation risks <\/strong>\n<\/p>\n \nAnd yet, not everyone has benefited from global integration. Dislocations \nBut that\u2019s only part of the story. Trade tensions between the world\u2019s two \nOf course, countries have always placed some restrictions on trade in \nSince the outbreak, mentions in companies\u2019 earnings presentations of reshoring, onshoring, and near-shoring have increased almost \nThat would be a dangerous slippery slope towards runaway geoeconomic fragmentation<\/strong>.\n<\/p>\n \nEstimates of the cost of fragmentation from recent studies vary widely. The \nYet, according to new IMF staff analysis<\/a>, the full impact would likely be even larger<\/strong>, depending on how \nThis would be especially challenging for those who are most affected by \nAnd emerging and developing economies would no longer benefit from \n \nSo, how can we confront fragmentation? By taking a pragmatic approach<\/strong>. This means focusing on areas where \nFirst, strengthen the international trade system.<\/strong>\n<\/p>\n \nIn a global economy beset with low growth and high inflation, we need a \nStrengthening the role of trade in the global economy begins with vigorous \nIn some areas, plurilateral agreements, among subsets of WTO members, can \nWe also need to be pragmatic about strengthening supply chains. To be \nMeanwhile, countries should carefully weigh the costs, at home and abroad, \nBut these efforts, while important, aren\u2019t enough. We also need better \nSecond, help vulnerable countries deal with debt.<\/strong>\n<\/p>\n \nFragmentation could make it even more difficult to \nAbout 15 percent of low-income countries are already in debt distress and \nThere are signs of progress on the Group of Twenty\u2019s Common Framework<\/em> for debt treatment: Chad <\/strong> \nCountries seeking debt restructuring under the Framework<\/em> will need \nThese and other pragmatic actions, such as further progress on majority \nThird, step up climate action.<\/strong>\n<\/p>\n \nCollective action is just as vital to address the climate crisis. Just last \nBut last year also brought some good news. The agreement at COP27 to set up \nOne potential game changer could be an international carbon price floor \nWe also need to step up climate finance to help vulnerable countries adapt. \nAnd, of course, we need
\n
\npolicymakers and business leaders gather at the World Economic Forum in
\nDavos, they are facing a Gordian knot<\/em> of challenges
\n<\/a>
\n.\n<\/p>\n
\ncrisis and high debt levels: there is no easy way to cut through it. Added
\nto this are geopolitical tensions that have made it even more difficult to
\naddress vital global issues.\n<\/p>\n
\nwe are facing the specter of a new Cold War<\/em>\u00a0that could see the
\nworld fragment into rival economic blocs. This would be a collective policy
\nmistake that would leave everyone poorer and less secure.\n<\/p>\n
\nhealthier, and better educated. Since the end of the Cold War<\/em>, the
\nsize of the global economy roughly tripled, and
\n
\nnearly 1.5 billion people were lifted out of extreme poverty.
\n<\/a>
\nThis peace and cooperation dividend should not be squandered.\n<\/p>\n
\nfrom trade and technological change have harmed some communities. Public
\nsupport for economic openness has declined in several countries. And since
\nthe global financial crisis, cross-border flows of goods and capital have
\nbeen leveling-off.\n<\/p>\n
\nlargest economies have been rising amid a global surge in new trade
\nrestrictions. Meanwhile, Russia\u2019s invasion of Ukraine has caused not only
\nhuman suffering, but also massive disruptions of financial, food, and
\nenergy flows across the globe.<\/p>\n
\ngoods, services, and assets for legitimate economic and national security
\nconsiderations. Supply chain disruptions during the COVID-19 pandemic have
\nalso increased the focus on economic security and making supply chains more
\nresilient.\n<\/p>\n
\nten-fold. The risk is that policy interventions adopted in the name of
\neconomic or national security could have unintended consequences, or they
\ncould be used deliberately for economic gains at the expense of others.\n<\/p>\n
\nlonger-term cost of trade fragmentation alone could range from 0.2 percent
\nof global output in a limited fragmentation scenario to almost 7 percent in
\na severe scenario\u2014roughly equivalent to the combined annual output of
\nGermany and Japan. If technological decoupling is added to the mix, some
\ncountries could see losses of up to 12 percent of GDP.\n<\/p>\n
\nmany channels of fragmentation are factored in. In addition to trade
\nrestrictions and barriers to the spread of technology, fragmentation could
\nbe felt through restrictions on cross-border migration, reduced capital
\nflows, and a sharp decline in international cooperation that would leave us
\nunable to address the challenges of a more shock-prone world.\n<\/p>\n
\nfragmentation. Lower-income consumers in advanced economies would lose
\naccess to cheaper imported goods. Small, open-market economies would be
\nhard-hit. Most of Asia would suffer due to its heavy reliance on open
\ntrade.\n<\/p>\n
\ntechnology spillovers that have boosted productivity growth and living
\nstandards. Instead of catching up to advanced economy income levels, the
\ndeveloping world would fall further behind.\n<\/p>\n
\nFocus on what matters most: trade, debt, and climate action
\n<\/strong>\n<\/p>\n
\ncooperation is essential, and delay is not an option. It also means finding
\nnew ways to achieve common objectives. Let me highlight three priorities:\n<\/p>\n
\nmuch stronger trade engine. Trade growth is expected to decline in 2023,
\nwhich makes it even more critical to roll back the distortionary subsidies
\nand trade restrictions imposed in recent years.\n<\/p>\n
\nWTO reform and by concluding WTO-based market-opening agreements. But
\nfinding agreement on complex trade issues remains challenging, given the
\ndiverse World Trade Organization membership, increasing complexity of trade
\npolicy, and heightened geopolitical tensions.\n<\/p>\n
\noffer a path forward. Take the recent agreement on regulatory cooperation
\nin service industries\u2014from finance to call centers\u2014which can reduce the
\ncost of providing services across borders.\n<\/p>\n
\nclear, while most supply chains have been resilient, recent disruptions to
\nfood and energy supplies have raised legitimate concerns. Still, policy
\nchoices such as reshoring could leave countries more<\/span> vulnerable to
\nshocks.
\n
\nIMF research
\n<\/a>
\nshows that diversification can cut potential economic losses from supply
\ndisruptions in half.\n<\/p>\n
\nof national security measures on trade or investment. We also need to
\ndevelop guardrails to protect the vulnerable from unilateral actions. A
\ngood example is the recently agreed requirement to exclude from food export
\nrestrictions the exports to humanitarian agencies such as the World Food
\nProgram.\n<\/p>\n
\npolicies at home, from improving social safety nets, to investing in job
\ntraining, to increasing worker mobility across industries, regions, and
\noccupations. This is how we can ensure that trade works for all.\n<\/p>\n
\n
\nhelp many vulnerable emerging and developing economies that have been
\nhard hit by multiple shocks. Take one particular challenge that many
\ncountries face: debt. Fragmentation will make it harder to
\n<\/a>
\nresolve sovereign debt crises, especially if key official creditors are
\ndivided along geopolitical lines.\n<\/p>\n
\nan additional 45 percent are at high risk of debt distress. Among emerging
\nmarkets, about 25 percent are at high risk and facing default-like borrowing spreads.\n<\/p>\n
\nrecently reached an agreement with its official and private creditors;
\nZambia is progressing toward a debt restructuring; and Ghana just became
\nthe fourth country to seek treatment under the Common Framework, sending a
\nsignal that it is seen as an important pathway for debt resolution. But
\nofficial creditors have a lot more work to do.\n<\/p>\n
\ngreater certainty on processes and standards, as well as shorter and more
\npredictable timelines.
\n
\nAnd we need to improve processes for countries not covered by the Framework<\/em>.
\n<\/a>
\n
\nTo support these improvements, the IMF, World Bank and Indian G20
\npresidency are working with borrowers and public and private creditors
\nto quickly establish a global sovereign debt roundtable, where we can
\ndiscuss current shortcomings and make progress to address them.
\n<\/a>\n<\/p>\n
\nvoting provisions in sovereign loans and climate resilient debt clauses,
\ncan help improve debt resolution. That would reduce economic and financial
\nuncertainty, while helping countries get back to investing in their future.\n<\/p>\n
\nyear, we saw climate disasters on all five continents, with $165 billion in
\ndamages in the United States alone. It shows the massive economic and
\nfinancial risks of unmitigated global warming.\n<\/p>\n
\na loss and damage fund for the most vulnerable countries shows that
\nprogress is possible with enough political will. Now we must take further
\npragmatic steps to cut emissions and curb fossil fuels.\n<\/p>\n
\namong major emitters. It would focus on carbon pricing or equivalent
\nmeasures in an equitable process that would complement and reinforce the
\nParis Agreement. Or consider the \u2018just energy transition partnerships\u2019
\nbetween groups of donors and countries such as South Africa and Indonesia.\n<\/p>\n
\nInnovative use of public balance sheets\u2014such as credit guarantees, equity
\nand first-loss investments\u2014can help mobilize billions of dollars in private
\nfinancing.\n<\/p>\n
\n
\nbetter data around climate projects
\n<\/a>
\n: harmonized disclosure standards and principles will help, as will
\ntaxonomies to align investments to climate goals.\n<\/p>\n