Washington (United States) (AFP) – IMF chief Kristalina Georgieva warned Wednesday of difficult times ahead for the global economy if war in the Middle East is unresolved and oil prices stay high, adding that inflation risks could seep into food prices.
“We must brace for tough times ahead” if the conflict persists, she told reporters at a press briefing during the International Monetary Fund and World Bank’s spring meetings in Washington. The gathering brings government and financial leaders to the US capital this week, with policymakers looking to limit economic fallout from the war.
US-Israeli strikes launched against Iran on February 28 sparked Tehran’s retaliation, virtually closing the Strait of Hormuz, a key shipping route for oil and fertilizers. Energy prices have since surged, squeezing countries — especially vulnerable economies and those dependent on oil imports from the region.
“We are concerned about risks for inflation moving into food prices should the delivery of fertilizers at a reasonable price (not be) restarted soon,” Georgieva said. But as countries move to limit price shocks on their citizens, Georgieva urged central banks to “wait and see” before adjusting interest rates if they can do so. She said this was particularly the case where the public has a “well-anchored” expectation of inflation being kept under control.
“If we are to move faster out of the war, it may not be necessary to take action,” she said. But she conceded that countries where central banks lack such credibility might need to send stronger signals. For now, “we are still at a time when a faster resolution of hostilities is possible,” she said.
Noting that fallout is “highly asymmetric,” Georgieva urged IMF member countries to come forward to the Washington-based lender if they need financial assistance during the conflict. Low-income countries spend around 36 percent of their consumption on food, while emerging markets spend about 20 percent, said the IMF’s director of strategy Christian Mumssen in press remarks. Advanced economies spend about nine percent, he added.
The IMF estimates for now that near-term demand for new fund financing would be in the range of $20 billion to $50 billion. “Currently, we have 39 programs, and prospective demand for new programs from at least a dozen countries, a number of them in sub-Saharan Africa,” Georgieva said of the fund’s financial aid. “The sooner we act, the more we would protect the economy and the people,” she added.
She stressed the need to protect fiscal sustainability as countries move to help their populations, cautioning that “untargeted measures, export controls or broad-based tax cuts” could serve to “prolong the pain of high prices.”
© 2024 AFP
