Global trade restrictions, sovereign wealth debt and protectionist policies are key obstacles to growth this year for emerging economies, which will need to be "agile and resilient”, the head of the International Monetary Fund has said.
“Trade is no longer the agent of growth it used to be,” Kristalina Georgieva, IMF managing director said on Sunday at the AlUla Conference for Emerging Market Economies, referring to the 1990s and 2000s when trade grew faster than GDP globally.
Inflation is expected to go to target levels for advanced economies but not for emerging ones, she said. Global inflation is set to decline steadily, from 6.8 per cent in 2023 to 5.9 per cent in 2024 and 4.5 per cent in 2025, according to the IMF.
Emerging economies contribute about two thirds to global growth but they will face more complications amid geoeconomic tides, she said. “You have to weather the shocks,” said Ms Georgieva. “Trade may be falling behind GDP growth."
While global growth is projected at 3.3 per cent for both 2025 and 2026, according to the IMF's latest World Economic Outlook issue - the forecast is the lowest in decades.
High debt, in addition to "limited fiscal resources and mounting spending pressures [are creating] a challenging triple threat", she said.
She also discussed the role of governments in propagating this shift, citing the new US administration’s goals for changing its policies on trade, tax spending, immigration, digital assets, and also the revolution of advanced technology including AI.
Since taking office last month, US President Donald Trump has threatened to impose a series of tariffs on trading partners around the world. Mr Trump most recently announced reciprocal tariffs in response to what he called unfair trade practices. "We're going to be doing reciprocal tariffs, which is whatever they charge, we charge, very simply,” he said on Wednesday.
These types of restrictions to trade are leading to slow productivity growth, which has accounted for more than half of the global growth slowdown in recent decades, said the IMF chief. "If countries narrow their overall productivity gaps with the United States by just 15 per cent, this would add 1.2 percentage points to global growth," she said.
The AlUla summit is the first IMF event to be held in the kingdom since the fund established a regional office in Saudi Arabia in April.
It is also the third that Ms Georgieva has attended in the Middle East in recent weeks, after speaking at the Arab Fiscal Forum and the World Governments Summit in Dubai.
Speaking at the event on Sunday, Mohammed Al Jadaan, Saudi Arabia’s Minister of Finance, stressed the need for countries to collect quality data to implement technology to find solutions.
He also highlighted the role of the private sector to improve competitiveness and narrow the gap between emerging and advanced market economies.
Mr Al Jadaan identified sovereign debt as threatening development gains and in need of framework reform. "At a time when capital is scarce, we should also use every dollar efficiently and effectively," he said. Halting waste in procurement could save at least $1 trillion a year globally, he added, citing a World Bank report.
The fault does not lie only with debtors but creditors as well, he said. "We know that international financial institutions and other lenders may have made some mistakes in programme design and conditionality, and this had severe impact on both economies and people," he said. These programmes now include safeguards and buffers to help protect the poorest citizens.
"The road ahead is indeed not easy to improve the global economy," said Mr Al Jadaan. The path ahead lies in working with multinationals to find and apply solutions that will benefit both advanced and emerging economies, he added.