The managing director of the International Monetary Fund (IMF), Kristalina Georgieva has told the delegates at this year’s IMF and World Bank Annual Meetings to “Bottle up and keep going”.
This could be the words the delegates may have to use as a mantra, as they face what has been described as a “gloomy” 2023, with fears that the global growth rate could get as slow as 1.1% next year.
Growth is projected to slow from 3.2% in 2022 to 2.7% in 2023 amidst high uncertainties.
However, there is an estimation that there is about a one in four probability, that global growth next year could fall below the historically low level of 2% if many of the risks materialize.
The risks include tightening financial conditions, elevated debt, an increase in supply chain and trade disruptions, high multi-decade inflation and increasing volatility of capital flow and exchange rate.
The negative spillovers from the pandemic and the now Russian-Ukraine war are weighing heavily on economies, threatening food and energy security risks and financial stability.
The warning sounds worrying and overwhelming with dire projections. The G7 and the Paris Club are feeling the pressure to help sustain debts while the IMF and the World Bank slog to ensure macro stability.
“Our priorities are to fight inflation and to protect the most vulnerable populations while safeguarding debt sustainability, growth, and macro-financial stability, and managing other vulnerabilities,” said Nadia Calviño, chair, of the International Monetary and Financial Committee of the board of governors, IMF.
The World Economic Outlook highlights that global inflation will peak at 9.5% this year before decelerating to 4.1% by 2024. Inflation is also broadening well beyond food and energy.
“As we continue to monitor financial vulnerabilities and risks to financial stability, our macroprudential policies need to guard against rising systemic risks as financial conditions tighten while being mindful of potential negative procyclical effects,” Calviño added.
A major recommendation is that there should be a clear communication of policy and safeguarding central bank independence. This can help avoid exacerbating market volatility, limit negative cross-country spillovers, and maintain policy credibility.
“Fiscal policy should not work at cross-purpose with monetary authorities’ efforts to bring down inflation. Doing so will only prolong inflation and could cause serious financial instability, as recent events illustrated” Pierre-Olivier Gourinchas.
The IMF stepped up to help its response and supported with US$260 billion in new financing to 93 economies delivered at record speed just since COVID-19 hit. Since Russia’s invasion of Ukraine, the fund has supported 16 countries with close to US$90 billion – and a further 28 countries have expressed interest in receiving Fund support.
This is on top of last year’s historic US$650 billion SDR allocation. But much as it has given, the Fund is under so much pressure as almost the entire world seeks a piece of it.
Nana Oye Ankrah
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