Countries must work together to drive inclusive, sustainable growth: Lawrence Wong

GOVERNMENTS and societies today face immense uncertainty and the deep structural challenges of growth, inclusion and sustainability, said Finance Minister Lawrence Wong on Monday (Apr 18).

"Our response must be to drive inclusive and sustainable growth. It will require a repurposing of fiscal policy and the role of the state, renewing of the social contract, and reinvigorating of the open and rules-based international order, with stronger commitments to multilateral solutions," he said in Washington, where he is on the first leg of his visit to the United States.

Wong, who is also deputy chairman of the Monetary Authority of Singapore, made these points in a speech titled "Growth, inclusion and sustainability in a post-pandemic world" at an event organised by the Peterson Institute for International Economics (PIIE), an American think tank based in the US capital.

This is Wong's first overseas trip since it was announced last week that he is the new leader of the ruling People's Action Party's fourth-generation team, a position that puts him next in line to succeed Prime Minister Lee Hsien Loong. After Washington, Wong will travel to New York.

In his remarks that were streamed live on Monday, the minister described the agenda facing the world as "ambitious", but one that is "not impossible to achieve".

"Our current challenges have ignited an intrinsic desire to create hope and do better for the future. We must seize the moment to build a more prosperous, united, fairer, and greener world," he said.

On growth, the minister noted that countries face the threat of slower growth, higher inflation and the effect of domestic macroeconomic policies in some major economies.

He noted that it is "almost a certainty" that inflation will be higher for longer, and the world will face a "sharper trade-off" between growth and inflation.

"Compounding these challenges to growth is a more fundamental and worrying shift in the global economic environment. The high tide of globalisation is ebbing. I don’t expect a reversal of globalisation, but we could be heading into a new era of decoupled globalisation," he said.

Turning to the challenge of less inclusive growth, Wong noted that there is a growing divide between the richest and poorest both across and within nations, partly due to rapid technological advances. Inclusive growth has also been made more difficult by the pandemic, he said.

And on sustainability, Wong said the need for "meaningful action" on climate change is growing as global warming continues apace.

"With the Ukraine conflict, we can expect reliance on fossil fuels to increase even further in the short term. This may be necessary to cope with the short-term energy shortages, and to keep the lights on," he said.

"But it also means that we must redouble our efforts in the medium and longer term, to set the right price for carbon, regulate emissions and invest in cleaner, low-carbon technologies."

Wong stressed that there were "no easy answers" to respond to these challenges, adding that, for over a decade, expansionary policy has succeeded in buffering economies and financial systems against severe shocks.

"But this has had its downsides, and has likely reached its limits. As the balance of macro-risks shift towards inflation, the era of easy money will come to an end. Fiscal policy therefore has to play a more important role. Part of this is about being able to respond quickly with immediate stimulus when needed. Many countries have done so over the past 2 years to stave off the most severe downsides of Covid-19 and mitigate longer-term economic scarring," he said.

He also took the opportunity to share Singapore's experience, with the Republic also spending heavily to tackle the public health crisis and to help workers stay engaged in training or work in one form or another. The government was able to afford this expenditure due to a strong balance sheet and substantial reserves, he said.

"These actions have enabled employment and incomes to recover to pre-Covid levels, with the unemployment rate now back to about 3 per cent, even with the many restrictions on activity that have helped to keep Covid-19 deaths at one of the lowest rates in the world," said Wong.

Still, he warned that with almost all advanced economies emerging from the pandemic with huge increases in public spending, the public debt in many countries will likely reach levels not seen since the end of World War II.

"With interest rates rising, there will be a need to taper spending or raise revenues to ensure more sustainable budgets over time, and to gradually rebuild fiscal space to deal with future shocks," he said.

"More crucially, the issue is not just about the amount of spending, but how and what we spend on. We need to re-purpose fiscal policy and renew the social contract. This is not a call for bigger government per se. Rather it’s about the state playing a more active and purposeful role to achieve important longer-term goals – to raise productivity, to tackle inequality and rekindle social mobility, and to catalyse the green economy."

In a more divided world with an uncertain future, Wong called on countries to find common ground and work together to solve problems. This means keeping the international system open and inclusive, and reaching new sustainable working arrangements between countries.

"Failure to cooperate internationally, preserve stability and invest in the global commons will have disastrous longer-term consequences for the world," he said.

Wong was the first of 8 policymakers to speak at the PIIE's annual Macro Week event. Among the other prominent speakers this year are European Central Bank president Christine Lagarde, Bank of England governor Andrew Bailey, Swiss National Bank chairman Thomas Jordan, and the European Commissioner for Economy Paolo Gentiloni.