Strong co-operation and agility needed to ensure fast economic recovery, IMF chief says

Washington-based fund last month cut its world economic growth forecast for 2022 to 4.4%

IMF managing director Kristalina Georgieva said countries need to broaden their efforts to beat the Covid-19 crisis. AFP

International Monetary Fund managing director Kristalina Georgieva warned global policymakers and economies of weaker growth momentum in 2022 due to the emergence of the Omicron coronavirus variant and supply chain disruptions.

She said “strong international co-operation and extraordinary policy agility” will be crucial to navigate a “complex obstacle course” through this year.

“Inflation readings remain high in many countries, financial markets are more volatile and geopolitical tensions have sharply increased,” said Ms Georgieva, speaking during the hybrid meeting of the G20 Finance Ministers and central bank governors on Friday.

Last month, the Washington-based fund cut its world economic growth forecast for 2022 by 0.5 percentage points to 4.4 per cent because of rising inflation, supply chain disruptions, the Omicron variant and concerns related to the China’s real estate sector.

Ms Georgieva said countries need to broaden their efforts to combat the Covid-19 crisis. She projected economic losses from the pandemic to be nearly $13.8 trillion by the end of 2024.

“Omicron is a reminder that a durable and inclusive recovery is impossible while the pandemic continues. There remains great uncertainty about how effective the health protections that have been built will be in the face of other possible variants.”

The best course of action would be to move from a singular focus on vaccines to ensuring that each country has equal access to a Covid-19 toolkit that includes tests and treatments, she added.

The IMF said that macroeconomic policies need to be adjusted according to the circumstances in individual countries, as many nations will need to navigate a tightening monetary cycle in the coming months.

“We must fight inflation without impairing the recovery,” Ms Georgieva said.

To support member countries manage capital flows while mitigating risks to financial and economic stability, the IMF aims to finalise its review of the institutional view on capital flows by the spring meetings in April.

Ms Georgieva said countries need to give greater priority to fiscal sustainability.

“While many countries are facing higher debt, we should prioritise help to those countries who need a debt restructuring.

“The share of low-income countries at high risk or already in debt distress has doubled since 2015 [from 30 per cent to 60 per cent today] and several face the immediate need to restructure their debt.”

Extraordinary fiscal measures taken during the pandemic prevented another great depression, but they also pushed debt levels to historic highs.

In 2020, the IMF observed the largest one-year debt surge since the Second World War, with global debt — both public and private — rising to $226tn.

The IMF called on the G20, which comprises the world’s 20 largest economies, to play an important role to ensure recovery efforts are more impactful and transparent.

Ms Georgieva recommended offering a “debt service standstill during negotiations to avoid squeezing a country precisely when it is under financial pressure”.

There is a need to provide a “clear and timebound processes that foster confidence and facilitate implementation, including participation of private creditors”, she suggested.

“The G20 is crucial to sustain the momentum on collective efforts to deliver on global ambitions … this includes focusing on amplifying the effect of the historic $650 billion SDR [special drawing rights] allocation by channelling as much of it as possible to where the need is greatest,” she said.

Global trade increased an annual 25 per cent last year to a record $28.5tn after being battered by the Covid-19 pandemic, a report from the UN Conference on Trade and Development said.

It increased about 13 per cent compared from 2019, the agency said in its “Global Trade Update” report, released on Thursday.