Kristalina Georgieva. File
The war in Ukraine has undercut the global recovery, slowing expected economic growth in most countries in the world, IMF Managing Director Kristalina Georgieva said on Thursday.
And beyond the humanitarian tragedy and economic crises, the war has exposed fractures in the international system at a time when global cooperation is the only solution, she said.
The war hit as the world was struggling to recover from the ongoing impact of the Covid-19 pandemic, which has caused an acceleration of inflation that endangers the gains of the past two years.
“To put it simply: we are facing a crisis on top of a crisis,” Georgieva said in a speech ahead of the spring meetings of the IMF and World Bank.
“The economic consequences from the war spread fast and far, to neighbors and beyond, hitting hardest the world’s most vulnerable people,” she said.
Families already were struggling with higher energy and food prices and “the war has made this much worse.”
The IMF is due to release its updated economic forecasts on Tuesday, which Georgieva said will further downgrade the estimate for global growth that was cut to 4.4 per cent in January.
“Since then, the outlook has deteriorated substantially, largely because of the war and its repercussions,” she said, and 143 countries will suffer downgrades.
While most will still have positive growth, the future is “extraordinarily uncertain” and she warned of a steep divide between rich and poor countries.
After a decade of low inflation, prices worldwide have surged amid strong demand for goods as economies began to return to normal, but the Russian invasion of Ukraine in late February and the sanctions imposed on Moscow pushed fuel and food prices up sharply.
Ukraine and Russia are major grain producers, and Russia also is a key source of energy for Europe.
Inflation, which has hit a four-decade high the United States, “has become a clear and present danger,” Georgieva said in the speech at the Carnegie Endowment for International Peace, noting the trend will likely last longer than expected.
“This is a massive setback for the global recovery,” she said.
It also complicates policymaking: major central banks are raising interest rates to contain prices, but that increases borrowing costs for emerging markets and developing nations, which face high debt burdens.
“This is the most universally complex policy environment of our lifetime,” she said.
Ending the war and the pandemic are top priorities, but their risks can be offset only through international cooperation, said Georgieva, who lamented the growing “fragmentation of the world economy into geopolitical blocs.” Those fractures impair the ability to address the current crises and future challenges, but also could cause a “tectonic shift” that would reshape global supply chains.
“The threat to our collective prosperity from a breakdown in global cooperation cannot be overstated,” she said.
“In today’s more shock-prone world, the challenges we face are just as indivisible. Our efforts to solve them must be indivisible as well.”
The IMF plans to raise at least $45 billion for a new trust to help “low-income and vulnerable middle-income countries” cope with protracted challenges like pandemics and climate change, it announced Wednesday.
The Washington-based crisis lender’s Resilience and Sustainability Trust (RST) will come into effect May 1, and is in addition to a $650 billion boost to reserve assets called Special Drawing Rights (SDR) allocated earlier this year.
“As the world is confronting consecutive global shocks, we must not lose sight of the critical actions needed today to ensure longer-term resilience and sustainability,” IMF Managing Director Kristalina Georgieva said in a statement announcing the new trust.
She added that the goal of the trust is to redistribute funds from wealthier countries to more vulnerable ones as members look to support global economic recovery from the Covid-19 pandemic.
Around three-quarters of the IMF’s 190 members will be eligible to borrow from the new tool, it estimates.
First proposed last year, the RST will offer extended repayment periods, with a 20-year maturity and 10-year grace period.
In order to access the money, member countries will need “a package of high-quality policy measures,” have sustainable debt and “adequate capacity to repay,” the IMF said.