The International Monetary Fund has advised struggling economies to continue implementing measures to tame stubbornly high inflation, including continuing rising interest rates, in a bid to sail out of a looming global recession.
THE INTERNATIONAL Monetary Fund (IMF) has advised struggling economies to continue implementing measures to tame stubbornly high inflation, including continuing rising interest rates, in a bid to sail out of a looming global recession.
IMF managing director Kristalina Georgieva said on Monday that the global economy was faced with multiple crises, and thus had to navigate carefully which policies were to be implemented.
Georgieva said the Covid-19 pandemic had an impact on supply chains while the war in Ukraine pushed up energy and food prices.
She said that as a result, the risk of recession had necessitated tightening of financial conditions, with inflation having risen faster than originally expected.
“We have calculated that about one-third equivalent of the world economy would have at least two consecutive quarters of negative growth this year and next year,” Georgieva said.
“And that the total amount that would be wiped out by the slowdown of the world economy is going to be between now and 2026, $4 trillion (R69 trillion). This is the size of Germany GDP (gross domestic product) gone.”
Georgieva was speaking during a joint seminar on the way forward in addressing multiple crises in an era of volatility during the World Bank and IMF annual meetings in Washington DC.
The annual meetings are taking place as the world grapples with the sharpest slowdown in economic activity in 80 years, rising inflation, a food and energy crisis, the war in Ukraine, the continued negative impact of Covid-19, climate change, and worsening poverty.
There is a profound urgency for policymakers, international organisations and the private sector to take decisive and co-ordinated action to build resilience in this era of volatility.
“What we are advocating for are actions in three areas. First, contain inflation. We cannot afford inflation to be a runaway. And so we are risking if we don’t take strong action for this to happen,” Georgieva said.
“Secondly, (inflation) is painful for people so some support is necessary. But that support has to be well targeted because if it is not, then we are adding fuel to the flames of inflation.
“And that working together, monetary policy, fiscal policy this year is absolutely paramount. Otherwise, for anybody who is a driver, we would have monetary policies stepping on the brakes and fiscal policy stepping on the accelerator.
“We have to think of the strong dollar that comes with tightening of financial conditions and how it impacts developing countries.”
President of the World Bank Group David Malpass said that currency depreciation meant that the debt levels for the developing countries were getting more burdensome.
Malpass said the rise in interest rates had put added weight on debt levels, and inflation was still a major problem for everyone, but especially for the poor.
Central banks began adopting aggressive interest rates rising cycles after Russia invaded Ukraine and disrupted global trade in crude oil, fertiliser and food stuffs.
“If there can be a concerted effort to describe growth policies going forward, ones that add to supply, then that immediately begins to address some of the concerns about inflation expectations, which are so important to get down,” Malpass said.
“We have to face the starting point that interest rates were probably too low at the beginning of the cycle, substantially too low. So, some parts of the world are still getting back to what might be a neutral spot. So getting there quickly is important.”
– BUSINESS REPORT
