IMF tells governments to protect vulnerable people when tackling Covid debt
IMF tells governments to pro...
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IMF tells governments to protect vulnerable people when tackling Covid debt

20 April 2022
2530
2 min.
2
IMF tells governments to protect vulnerable people when tackling Covid debt

Gloom at the International Monetary Fund is nothing new. Since last summer the body responsible for stabilising and supporting the world economy has been growing ever more pessimistic.

First it was rising inflationary pressures caused by supply-side bottlenecks. Then it was the arrival of the new Omicron variant towards the end of 2021. Now it is the war in Ukraine, something not anticipated when the Washington-based organisation last published its assessment in January but which dominates the IMF’s world economic outlook.

It is not just the fact that Russia’s invasion will lead to appreciably slower growth and higher inflation this year – although both look inevitable.

The IMF also warns the war has exacerbated two tricky policy dilemmas, one facing central banks and one troubling finance ministers.

For central banks, such as the Bank of England and the Federal Reserve, the issue is how to tackle mounting cost of living crises without killing off still incomplete recoveries from the pandemic. That’s not going to be easy, as the IMF freely admits.

For finance ministers, such as Rishi Sunak, it is getting the balance right between protecting the most vulnerable while repairing the damage caused to the public finances by Covid-19 spending. The IMF understands the difficulties but warns against being too penny-pinching.

“Following a huge and necessary fiscal expansion in many countries during the pandemic, debt levels are at all-time highs and governments are more exposed than ever to higher interest rates. The need for consolidation should not prevent governments from prioritising spending with well-targeted support for the vulnerable – including refugees, those struggling because of commodity price spikes, and those affected by the pandemic,” it said.

The war, the extent to which central banks raise interest rates and the speed at which finance ministries raise taxes and cut spending will be three of the five key factors shaping the short-term direction of the global economy, the IMF says in its world economic outlook. The other two will be the slowdown in China caused by lockdowns and whether the impact of the pandemic fades as expected from this spring onwards.

In the longer term, the Fund is worried that the war will add to de-globalisation forces, leading to fragmentation, rival blocs and weaker multilateral collaboration in areas such as climate change and debt relief.

The pandemic – by exposing the fragility of global supply chains – had already pushed the world some way down this path. By highlighting Russia’s vital role in energy markets the war in Ukraine has given this process a further hefty shove.

Source: https://www.theguardian.com/business/2022/apr/19/imf-governments-covid-debt-world-economic-outlook

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