G20 Summit: What’s at stake?

What’s on the agenda for the 2022 summit?

The Bali summit will have three key priorities.

1. Global Health Architecture: This involves deliberations towards strengthening global health resilience and making the global health system more inclusive, equitable, and responsive to crises.

2. Digital Transformation: Deliberations here have centred on achieving the full potential of rapid digitalisation of the global economy by creating a new landscape of cooperation among nations.

3. Sustainable Energy Transition: Under this rubric, the discussions have focussed on ways to accelerate the transition towards cleaner energy sources. In particular, since any such transition requires substantial investments, the efforts have been focussed on finding a platform for such investments.

What else is at stake?

Since the October 2021 summit in Rome, prospects of the global economy have worsened. Between themselves, the G20 countries account for 60 per cent of the world’s population, 80 per cent of the world’s GDP and 75 per cent of the world’s exports. As such, they contain the engines of global growth.

However, as the Chart sourced from a recent report of the International Monetary Fund on G20 countries shows, most of the G20 constituent countries have suffered significant output losses since the start of the Covid-19 pandemic. India, for instance, would have lost almost 14 per cent of its total output — the highest loss among all G20 countries.

Why have prospects worsened?

There are many reasons why global growth and the promise of globalisation have received a severe setback.

For one, Russia’s invasion of Ukraine has not only created massive geopolitical uncertainty but also spiked global inflation, thanks to supply bottlenecks and curbs across a whole host of commodities. The associated sanctions by the West have further queered the pitch. Persistently high inflation — at historic highs in several countries — has eroded purchasing power across these countries, thus dragging down economic growth.

Two, in response to high inflation, central banks across countries have raised interest rates, which, in turn, have dampened economic activity further. Some of the biggest major economies such as the US and the UK are set to face a recession; others, such as those in the euro area, are likely to slow down to almost a halt.

Three, China, one of the major engines for global growth, is witnessing a sharp slowdown as it struggles with a real estate crisis.

Lastly, the world economy is struggling with geopolitical rifts such as the tensions between the US and China, the two biggest economies in the world, or the decline in trade between the UK and the euro area in the wake of the Brexit decision.

Where do the solutions lie?

For global prospects to improve, two things are certain. One, the G20 countries can grow faster if they grow together. Two, such growth, in turn, requires peace. Given the scope of G20 countries, the summit thus affords an opportunity for the leaders to find common ground and iron out the creases in the policy landscape.

According to the IMF, “the overarching priority for policymakers in most economies is to ensure price stability, while bringing down debt levels and protecting the most vulnerable”. In other words, the first job at hand is to contain raging inflation. But at the same time, governments have to find ways to help the vulnerable without necessarily ballooning the debt levels. A key concern in this regard would be to ensure that external risks are carefully monitored.

Secondly, as the IMF said, “a strong, sustainable, balanced, and inclusive recovery requires joint action by the G-20”. This kind of joint action, in turn, requires not just securing peace in Ukraine but also “help prevent further fragmentation”.

On trade, the G20 leaders need to push for a “more open, stable, and transparent rules-based trade” that would help address global shortages of goods. “Strengthening the resilience of global value chains would help protect against future shocks,” said the IMF.

Lastly, as is mentioned in one of the three key priorities for the Bali summit, “a durable recovery requires multilateral action on climate, debt, taxation, and pandemic preparedness”.