US Treasury Undersecretary Jay Shambaugh on the state of the global economy

Jay Shambaugh
Editor's note:

On Monday, April 10, the Global Economy and Development program at the Brookings Institution convened a fireside chat with U.S. Treasury Undersecretary Jay Shambaugh to discuss the state of the global economy. Undersecretary Shambaugh gave the keynote address and discussed the global outlook and financial stability, Russia’s war against Ukraine, MDB evolution, climate agenda, sovereign debt landscape, and U.S.-China engagement. Below is the full text of his remarks.

Thank you, Brahima and Brookings, for inviting me today. I know you likely have plenty of questions for me about what lies in store this week, but I would like to take a few minutes first to talk about some of Treasury’s priorities.

Economic and financial leaders from around the world are all gathering here in D.C. in the coming days for the World Bank and IMF Spring Meetings. And we have no shortage of global challenges to work on and issues to face.

Let me touch on a few, briefly: global economic outlook and financial stability, Russia’s war against Ukraine, the evolution of the multilateral development banks (MDBs), the climate agenda, the sovereign debt landscape, and our relationship with China.

So let me begin with where we stand now.

topic 1: Global Economic Outlook and Financial Stability

Global Outlook

The last two and a half years have presented the world economy with successive shocks–including the loss of life and economic disruption from the COVID-19 pandemic; and the destruction, elevated energy and food prices, and other spillovers from Russia’s illegal invasion of Ukraine that have exacerbated global inflation.

In both cases, the economic impact is not the main story. COVID has caused a massive loss of life, and Russia’s war is an immoral violation of a nation’s sovereignty.  But the economic shock from each was consequential, as well.

In the health sense, while we are not at peak COVID, in many ways it is still very present. People still get sick, have to isolate, and we have far too many deaths. In the economy it is similar. Peak COVID is two years old in its economic shock, but we still face impacts and dislocations.

The pandemic, the containment measures to combat it, along with peoples’ own actions to avoid the disease, had an immediate impact and unprecedented effect on the global economy and the global financial system. In spring 2020, uncertainty and fear led to strain in virtually every asset class.

Only two years later in February 2022, as a nascent recovery was taking hold, Russia’s war on Ukraine sent a new shock reverberating around the world. This immoral invasion was not only an affront to the world’s conscience and an assault on our collective right to peace and stability, but it was also a shock to the global economy. Ukraine is a vital exporter of key agricultural products like wheat, barley, and vegetable oil. It is also a major player in energy markets through transit of pipeline gas to Europe. Oil and gas prices spiked, and other commodities followed suit. The global economy was hit by sharp commodity shortages, exacerbating inflation and debt dynamics but also creating widespread risks to food and energy security for many, particularly the most vulnerable. Uncertainty over the war and its impacts still hover.

The combined impact of these shocks has been too-high inflation. And obviously policymakers have been working very hard to bring inflation down globally, and we are starting to see results. And, in particular, we are seeing this in the United States.

Altogether, these global shocks have had a terrible toll in terms of lives lost, livelihoods disrupted, rising poverty, and slower economic growth. Unlike in previous periods of global economic challenges, countries are facing divergent pressures, but that doesn’t mean that America and the world’s major economies cannot lead together.

Financial stability

And that leadership was put to the test. In the last few weeks, we contended with problems at two American banks that could have had significant impacts on the broader banking system and the economy. The situation demanded a swift response. The federal government has delivered decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.

These recent developments are very different than those of the Global Financial Crisis (GFC). Back then, many financial institutions came under stress due to their holdings of subprime assets.  In 2008, banks faced a solvency crisis. We do not see that situation in the banking system today–this is a problem of confidence and liquidity, and we are working hard to shore up both domestically and globally.

In the GFC, credit risk was a huge issue–it is not now. There is interest rate risk, but that is a different story.

And our financial system is also significantly stronger than it was 15 years ago thanks to the efforts of Treasury and its counterparts at the Financial Stability Board and other fora. We helped put in place post-crisis reforms that provided stronger capital standards, among other important improvements, that have helped provide a stronger foundation for our global financial system.

Our shared prosperity depends on the work to safeguard financial stability before a crisis occurs. We have seen it work–a few years ago, when a worldwide pandemic caused a ‘dash for cash’ and put extraordinary strain on the financial system, we avoided the worst outcomes. A decade of efforts to improve financial stability, increase regulatory and financial communications between governments, and forceful public interventions laid the groundwork for our economic resilience. And so, we have faced the recent bank failures with a stronger financial system and hard-earned lessons from the GFC.

But the work is still not done. These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far, and repair the cracks in the regulatory perimeter that the recent shocks have revealed. We must also address new areas of risk.

We will continue closely working with our international partners to bolster financial resilience. We are coming together to communicate openly about our policies to make sure we understand how our policies interact and any spillovers that materialize.

We will be particularly attentive to problems that arise from financial market shifts that affect emerging market and low-income countries, and we will bring the full array of our tools to bear to handle challenges.

Recent financial sector concerns have not substantially altered the baseline growth expectations, which are notably stronger than 6 months ago. The semi-annual pace of the IMF/World Bank meetings provides a useful context point. Where are we compared to where we were the last time people all gathered here? The answer is, six months ago there were many forecasts about a global recession imminently.  Since then, growth surprised on the upside in late 2022, and growth forecasts for 2023 are better. Recent events have not changed that basic picture. They have highlighted downside risks, but not changed the overall picture.

Topic 2: Support for Ukraine and Countering Russia

But the current inflationary environment cannot be separated from Russia’s brutal war against Ukraine and the economic spillovers that came with it. In February, I joined the Secretary for her trip to Kyiv and saw firsthand the evidence of Russia’s brutal war.  The United States is redoubling our efforts to rally our global coalition of allies at the Spring Meetings on Treasury’s two lines of effort as part of the United States’ unwavering commitment to Ukraine: 1) shoring up economic support for Ukraine’s government and people, and 2) continuing to deny Putin the revenue and military equipment he needs to further his illegal war. As the President has said, we will stand with Ukraine for as long as it takes. Let me focus on each effort.

Economic support for Ukraine

In Kyiv, I observed the impact of our continued security, humanitarian, and economic assistance. Over the past year, we have provided close to $50 billion in overall assistance, including committing nearly $23 billion in budget support grants to date, $15.5 billion of which has been disbursed with the remainder to be disbursed through the fall.  And we are joined by an international coalition of partners and allies, whose support is essential to Ukraine’s ability to provide government services and keep economic activity going. We are trying to help support Ukraine’s economy and government so it can defend itself from this terrible invasion.

As you recently saw, the IMF Board recently approved a four-year Extended Fund Facility for Ukraine that will provide nearly $16 billion in assistance. An ambitious and appropriately conditioned IMF program is critical to underpin Ukraine’s reform efforts, including to strengthen good governance and address risks of corruption, and provide much needed financial support.

It will also bolster the economic assistance that the United States and our partners have provided that is funding essential services like schools, hospitals, and first responders, and which is offering vital support to the Ukrainian economy. This program reflects months of collaborative work between the IMF and Ukrainian government, supported by Treasury and other partners of Ukraine. We are proud of the work we’ve done together.

Looking ahead, Ukraine will need support from a broad set of donors as its recovers and rebuilds. As an international community, we can coalesce around meeting the most urgent and concrete needs—high-impact areas that can help Ukraine restart its economy and bring home displaced Ukrainians as conditions permit.

Countering Russia

Our support efforts go hand-in-hand with countering Russia’s ability to fund its terrible war. When Putin invaded, many experts predicted a quick victory. More than a year later, Ukraine stands strong. Putin’s war was a strategic failure.

Our historic sanctions coalition, thanks to the coordinated efforts of the United States and our allies, have been denying Putin the revenue, technology and inputs he needs to fuel this illegal invasion. Russia has experienced record deficits in its post-war history, and its oil and gas revenue fell by nearly half year over year, thanks in large part to sanctions, embargoes, and the price cap.  Senior Russian economic officials from the Russian Ministry of Finance and its Central Bank have openly acknowledged that the price cap is hurting Russia’s ability to fund its war.

Next steps

As President Biden has said, the United States will stand with the government and the people of Ukraine for as long as it takes in the face of Russia’s unjust, unlawful, and immoral war. Looking to the week ahead, key areas of focus at the Spring Meetings will be:

Building from the recent IMF Ukraine program with our allies to continue providing economic support to the government and people of Ukraine.

Collaborating closely with our key allies on the price cap to maintain the flow of oil onto global markets and limit the revenue Russia earns.

Leading our broad alliance in leveling sanctions on Russia to degrade its military industrial complex and decreasing revenue they need to fund their war. We have a renewed focus to enforce our sanctions and target those that evade restrictions and prop up Russia’s brutal war.

Topic 3: MDB Evolution and Development

MDB evolution

We are in a pivotal point in international development. The multilateral development banks, and the World Bank in particular, are in the midst of a once-in-a-generation transition. We are now in a world that faces increasingly complex global challenges that cross boundaries and disproportionately affect the poorest and most vulnerable, and for which the MDBs were not designed to address.

Six months ago, Secretary Yellen called on the MDBs and their shareholders to prepare for the challenges of the future. To evolve to meet the challenges of an interconnected and changing world.

Let me talk about what we have been able to do together with a broad coalition of shareholders: we’ve targeted the mission, the model, and the money.

We modernized the mission of the Word Bank. The new mission underscores the importance of building resilience in the face of global challenges like climate, pandemics, and fragility and conflict as an integral element of the World Bank meeting its Twin Goals of ending extreme poverty and boosting shared prosperity.

We are strengthening the Bank’s operational model. Risks are not bound by borders and development challenges are not always country-specific.  The Bank is integrating global challenges into its analytical work, country strategies and results framework while also bolstering response toolkits and private capital and domestic resource mobilization. It is considering how it can better deploy concessionality.

We increased the Bank’s financing capacity without adding more resources by starting to implement the recommendations of the G20 Capital Adequacy Framework review. Shareholders agreed to undertake reforms to responsibly stretch the balance sheet and introduce innovations that could add up to $50 billion in financing over the next decade. These reforms will unlock new opportunities and efficiencies while protecting the Bank’s financial sustainability and AAA rating to keep lending rates low for borrowing countries.

We have come a long way in the last six months and this week will be an opportunity to thank Bank staff and fellow shareholders for the important work to get this far. But there is still more to do, and we must continue to push forward as the MDBs are essential to tackling critical global challenges, especially climate change.

Topic 4: Climate Priorities

The United States continues to work through multilateral and bilateral financial institutions to increase climate finance to meet President Biden’s commitment to provide more than $11 billion in climate finance by 2024, and to deliver on developed countries’ collective $100-billion annual climate-finance mobilization goal.

However, we must continue to ramp up ambition, as we know the needs far exceed the goals.

Treasury is working to scale, mobilize, and align global financial flows to meet the goals of the Paris Agreement. I would like to talk about a few of the key areas, but by no means is this exhaustive.

First, the administration is delivering on climate goals by the Inflation Reduction Act. The IRA is all about increasing the production of clean energy and building resilient, clean supply chains. It keeps us on track for the 2030 goal of reducing emissions by 50 percent by 2030.  These investments will accelerate deployment of clean technology, drive down costs, and bolster energy security.

Second, Treasury is working with the World Bank and regional MDBs as they begin aligning financial operations with the Paris Agreement. We are reimagining the climate finance architecture with greater coherence, better linkages, and less fragmentation.

Third, our work, and successes, on the Just Energy Transition Partnerships is essential. Through these JETPs with high-emitting emerging markets, we seek to bring together different players in support of ambitious partner country energy-transition commitments – and we’ve already seen successful progress with South Africa, Indonesia, and Vietnam. By bringing all these groups together we can help ensure financing at necessary scale and make sure countries are driving towards the necessary ambition.

Fourth, we are still committed to scaling up effective climate finance for developing countries both to help in adaptation to a changing climate but also mitigation to stave off the worst outcomes. We hope to scale up financing in the Clean Technology Fund and Green Climate Fund, for example, to enhance energy security and innovation while also boosting resilience to environmental risks and impacts.

And lastly, we are looking at climate-related financial risks. Governments, regulators, and private companies all must coordinate to better understand and manage climate-related risks. We do this work at the Financial Stability Board along with U.S. regulators and key foreign counterparts–from climate-related disclosures to vulnerability analysis, we are trying to take important steps forward in understanding, and thus preparing for, these risks.

By no means is this an exhaustive list of all our climate work. It shows up in so much work we do, including much of our G7 and G20 work. But as the urgency to address climate builds, so will Treasury’s efforts.

Now let me turn to the last major challenge I’ll speak about today, which is by no means any less important.

Topic 5: Sovereign debt and U.S. leadership

Sovereign debt landscape

Debt overhang remains one of the most significant economic headwinds. Many emerging markets and low-income countries are facing challenges right now driven by the pandemic and its resulting economic disruptions. Challenges compounded by Russia’s illegal war in Ukraine. More than half of low-income countries are near or in debt distress.

Many of them–with the most limited resources and policy space–are facing multiple shocks simultaneously. A fiscal hangover from COVID, high or rising commodity prices, an ongoing energy crisis, tighter financing conditions, and food insecurity.

We are focused on durably tackling debt distress in low- and middle-income countries to help borrowers restore debt sustainability and achieve economic recovery. Through our leadership in the G20 and Paris Club, we have been working with creditor and debtor countries to help the Common Framework deliver results.

The Common Framework process has been slower than we would like, so at a broader level, we are pushing to improve the speed and predictability of the framework to assist countries that request such assistance.

This requires constructive and timely participation from all creditors in international debt restructuring discussions.

The immediate priority is resolving the outstanding requests for debt restructuring in the three Common Framework countries–Zambia, Ghana, Ethiopia–but also in Sri Lanka. We are encouraged by the progress made this year–Sri Lanka took necessary steps to deal with the underlying factors of the crisis, engage with creditors, be more transparent on their debt, and make other positive contributions. After all other creditors had stepped up, China agreed to provide specific and credible financing assurances in the Sri Lanka case. This enabled the IMF to move forward with a program and provide Sri Lanka much needed assistance.

This underscores that multilateralism can work–concerted efforts can result in breakthroughs. Looking ahead, we will continue to urge action in other cases such as completing Zambia’s debt treatment and establishing an official creditor committee for Ghana in the next month.

At these meetings, we will work to speed up the process, change procedures, and get to debt treatment faster–something that is in the interest of both creditors and debtors.

At the international financial institutions (IFIs), we must be prepared to help countries that fall into debt or other economic crises. The IFIs support and advise countries as they calibrate their macroeconomic policies and seek to restore debt sustainability.

But progress in tackling unsustainable debt in low- and middle-income countries requires us to work together, which brings me to my closing topic.

Topic 6: Perspective on U.S.-China relations and the path forward

We face a complicated global economic outlook. There is a pressing need for the two largest economies in the world, the United States and China, to closely communicate on global macroeconomic and financial conditions, and as I mentioned, cooperate to address global economic challenges.

China engagement

With respect to U.S.-China relations, as the Administration has stated, responsibly managing relations between the world’s two largest economies has always been vitally important, but especially so today.

As the leaders said in Bali, we have responsibility to work together on shared challenges.

Our approach to China underscores our overall priorities–we want to advance our national security interests while having a healthy economic relationship with China. As the two largest economies, our ability to cooperate on the global economic challenges of the day, many of which we have and will discuss today such as sovereign debt or MDB Evolution, is crucial.

We remain committed to maintaining open lines of communication so we can prevent miscalculations that can lead to conflict.

We do not seek to decouple or limit China’s growth. Sometimes we need to take targeted national security related actions, and we will always stand up to unfair economic practices.  But there is plenty of scope for an economic relationship that benefits us both.

One important global challenge is tackling unsustainable debt in low- and middle-income countries. This is, however, a multilateral issue, not a bilateral issue between the United States and China. And we will continue to work towards a solution that can help these countries get back on track.


So, to wrap up, the meetings this week present an opportunity for multilateralism to meet the moment. We’ve seen successes over the last year: creating the pandemic fund; an IMF program for Ukraine that required a lot of work; and the MDB evolution process augmenting the mission, changing the operations, and expanding capacity of the World Bank.

But obviously, there is a lot more work to do and we look forward to tackling the challenges we face this week.