The tight monetary policy brought inflation down without undermining the fundamentals of the global economy, bringing a strong sense of relief. This was said by the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, at the plenary session during the annual meetings of the Fund and the World Bank in Washington.
Global inflation is falling. According to IMF forecasts, from a level of 5.7 percent in the fourth quarter of last year, the price rate is now expected to decline to 5.3 percent in the current, fourth quarter of 2024, and further to 3.5 percent in the same quarter of 2025, with a more significant decline expected in developed economies, Georgieva explained to the delegates at the plenary session.
“However, it is not yet time to celebrate, including because, even if inflation declines, the new and higher price level will persist,” the IMF chief warned.
The world now faces the risk of low growth and high debt. “We forecast world GDP to grow at an anemic average rate of 3.2 percent per year over the next five years. Our forecasts have been revised downwards over the years,” noted Georgieva.
At the same time, global public debt will continue to grow. It is likely to exceed our baseline forecast by up to 20 percentage points of global GDP in a severe but plausible downside scenario, she said, painting a more likely picture of public debt reaching $100 trillion.
“Higher interest payments “eat up” a growing part of fiscal revenues, especially in low-income countries and emerging economies,” Kristalina Georgieva also pointed out.
Against this background, priority spending includes funds related to demography and the fight against climate change, and in countries with emerging economies – also to low incomes. By 2030, the IMF projects that spending pressures from these policies will add the equivalent of about 7 percent of GDP to annual spending in advanced economies, 9 percent of GDP for emerging markets, and 14 percent in developing economies. low-income economies, Georgieva also said.
In her words, “the world is fragmenting and trade is no longer the powerful engine of growth that it once was. The retreat from global economic integration, driven both by national security concerns and the anger of those who have suffered from it, is taking its toll in the measures taken in relation to industrial policy, trade barriers and protectionism”.
The IMF Managing Director delivered a message to delegates at the plenary session, urging them to restore fiscal buffers; investment in reforms that promote growth, and work together to address global challenges.
“With the easing of monetary policy, fiscal consolidation must begin now. Multiannual fiscal plans must outline consolidation paths tailored to each country’s specific situations.”
According to Georgieva, governments are faced with significant spending needs, political “red lines” in terms of taxation and the need to restore buffers, writes BTA.
Mobilizing own revenues will be critical for many countries, she said, adding: “Investments to promote growth, especially climate and technology related, must be protected. And consolidation must be designed so that it is not at the expense of social protection and jobs”.
More than 20 countries around the world have managed to increase their tax revenue by more than 5 percent of GDP over the past three decades. There are many good examples in this direction, argued Kristalina Georgieva.
She also recommended that along with fiscal consolidation, countries should embark on ambitious reforms to increase their growth potential.
The Managing Director also highlighted the assistance that the IMF has provided to its member countries.
“We have increased lending to support reforms and help vulnerable countries address balance of payments needs and build resilience to shocks,” she said, pointing out: “In the years since the start of the pandemic, we have set records both in terms of our total lending volume as well as the number of countries assisted, with the stock of concessional loans outstanding from our Poverty Reduction and Growth Trust Fund, has tripled to $28 billion in less than three years since its launch on 20 countries received long-term loans from our Trust Fund for Resilience and Stability (RSTF), supporting policies to increase resilience to climate change.
The 50 percent increase in quotas, which we agreed on last year in Marrakesh (during last year’s IMF and World Bank meetings in Morocco – note), strengthens our lending capacity, Georgieva pointed out.
It also welcomed the Principality of Liechtenstein as the 191st member country of the IMF.
The plenary session during the annual meetings of the Fund and the World Bank in Washington was opened with a welcoming video address by the President of the United States, Joe Biden.
The American head of state spoke about the need to accelerate the transformation to clean energy, empower workers, develop infrastructure, address widespread non-market practices. “We are already making important progress together with the World Bank, unlocking over $140 billion in new loans,” Biden said.
Through the IMF, the US has provided more than $20 billion in additional loans, he added.
“Nations should not have to choose between investing in their future or repaying their debts to their creditors,” Biden said.