Faced with “persistent” inflation, central banks must not “step back” despite the risks that this can pose to the financial sector, said Thursday the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, in an interview granted at AFP.
“At the moment, we do not see central banks having to back down in their fight against inflation”, Ms Georgieva said, “because inflation is still there and as long as it does not drop significantly marked enough, central banks must continue” to raise rates.
Despite everything, the action of central banks has “highlighted the vulnerabilities of the financial sector”, acknowledged the boss of the IMF, whether in Switzerland or in the United States, but this means in her eyes that “central banks must to do more to ensure financial stability”, at the same time as they seek to reduce inflation.
The rise in central bank rates, which are now in a range between 4.75% and 5% for the American Federal Reserve (Fed) for example, led to the bankruptcy of several American regional banks, in the wake of Silicon Valley Bank (SVB) in early March, and the hasty takeover of Credit Suisse by UBS.
If the “risks became significant, then central banks would have to decide to what extent the fight against inflation should take precedence over financial stability”, underlined Ms Georgieva, “but we are not there yet. current”.
On the contrary, the world economy must for the moment face the risk of fragmentation, estimated the managing director of the Fund, in particular because of the trade tensions between the United States and China.
“We are emerging from a period in which the allocation of investments was determined by costs, but this is no longer the case. In the United States, and elsewhere, national security and that of supplies are now essential” in the take decision, “and it will last”, recognizes Kristalina Georgieva.
But “how far should we go? We believe that the reflection must remain economic and not reach the point where it risks affecting the countries which say they want to protect themselves. Because in the end, it is the consumers of these countries who pay”, she recalled.
According to the IMF, the trade war cost 0.4% of global growth last year, “or 400 billion dollars less”.
– Weakest growth since 1990 –
But underlines Ms. Georgieva, “the resolution of the debt question obliges the countries to work together. Same thing for climate change, we will not succeed if we do not work together”.
Therefore, the role of the IMF is to “provide a table where all countries can sit down and discuss, even on controversial subjects but which will benefit all”.
In the immediate future, the many shocks caused by the repeated crises should lead the world to one of the weakest growth periods in recent decades, below 3% in 2023.
The Fund will publish an update of its forecasts for 2023 and the medium term on Tuesday. “We expect growth of around 3% over the next five years, our weakest medium-term outlook since 1990,” the institution’s boss said in a speech.
Kristalina Georgieva was also worried about the state of public finances in most countries, while public debt soared almost everywhere in the world, under the effect of the Covid-19 pandemic and then consequences of the Russian invasion of Ukraine.
The challenges to be met are significant, in particular to enable the ecological transition of emerging countries, whose needs are estimated at 1,000 billion dollars per year over the next few years. This will require “our wealthiest members to help fill the gaps” in fundraising.
Even more so when low-income countries face difficulties in accessing the debt market, due to rising costs linked to the increase in the rates of the main central banks.
These nations are often in financial difficulty: the total amount of funds made available by the IMF has thus increased sharply, to 300 billion dollars, in recent months.
This could continue because “nearly 15% of low-income countries are already in debt difficulty and 45% are close to plunging into it”, insisted Ms Georgieva.