EDITORIAL: The International Monetary Fund (IMF) has also joined the chorus of warnings against an imminent global recession with its managing director, Kristalina Georgieva, admitting that the international economic outlook had “darkened significantly” over the last few months.
She also said in a blog post published just ahead of a meeting of G20 finance ministers and central bankers in Bali that Russia’s war in Ukraine had accelerated inflationary trends all over the world, especially energy and food inflation, raising the prospect of “widespread hunger and poverty” in poor countries struggling with debt.
That explains headlines about the Fund preparing to slash its global growth estimate for 2022-23 once again in its World Economic Outlook report due later this month; after having already cut it to 3.6 percent in April.
This is very bad news for countries like Pakistan. It’s true that more or less everybody had factored in price fluctuations because of the Russia-Ukraine war, precisely in food and energy because a lot of these things come out of those two countries, but this war has already dragged on a lot longer than any side had anticipated, which is why its spillover has caught a lot of capitals off guard.
The biggest concern now must be to contain the fallout in the most exposed countries with depleting foreign exchange reserves, especially where high interest rates and a very strong dollar have made it all but impossible to meet debt repayment deadlines.
Since most heavily indebted countries are also some of the poorest in the world, even the slightest breakdown there would sharply raise poverty and death rates, leading to all sorts of social problems, like rampant crime and corruption, as well.
That is why the IMF is already urging the G20 to “boost coordinated international action” to provide essential aid to poor countries. “Reducing debt is an urgent necessity – especially in emerging and developing economies with liabilities denominated in foreign exchange that are vulnerable to tightening global financial conditions,” Kristalina went on to say in her post.
Rich countries should also pay heed to her concern that most countries were “completely shut out” of global markets due to financial pressures and lacked the safety net of a large domestic market. First they were devastated by the lockdowns that came with the Covid emergency, then they struggled because of supply chain disruptions as the world fought off the worst of the pandemic, and now the high inflation triggered by the Russia-Ukraine war has left them hung out to dry.
“They are calling on the international community to come up with bold measures to support their people. This is a call we need to heed,” Kristalina very rightly concluded. The Fund is in favour of rich nations stepping up to the plate now because it backs the hawkish global monetary tightening cycle, even if it pushes much of the world into recession.
Because if they don’t help poor countries when they desperately need it, and a few of the latter fold because of all the financial pressures, then the former would also have to bear the brunt of it in terms of skewed trade arrangements, poverty and famine on large scales, and also the influx of refugees across their own borders.
Since the coming slowdown is global in nature, it is truly everybody’s problem. And those with the resources should bail out those without them for the benefit of all; otherwise everybody would suffer in different ways.
G20 countries wisely deferred debt payments for poor countries at the height of the pandemic, which enabled some of them to survive the ordeal. Now they must do more to keep the international system working, not just because it is the right thing to do. Regardless, the world must brace for “a tough 2022 – and possibly an even tougher 2023”, just like the IMF is warning.
Copyright Business Recorder, 2022