The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, warned this Thursday of the “difficult future” that lies ahead, a time of low growthhigh debt and geopolitical instability and called on governments to do much more to reverse the situation.
“Governments must work to reduce debt and rebuild buffers for the next shockwhich will surely come, and perhaps sooner than we expect,” he noted in the traditional preliminary speech to the Fund’s annual meetings, which will be held next week in Washington.
At this meeting, which will bring together ministers, presidents of central banks and other economic authorities, the institution will update global growth forecastswhich in July estimated at 3.2% for this year and 3.3% for next year.
In the different presentations, meetings and talks, it will be time to take stock of a time that also has good news, Georgieva said: that “the great wave of global inflation is receding”thanks to effective monetary policy measures that have not caused a global recession or a large increase in unemployment.
But, “despite the good news,” Georgieva warned, “don’t expect victory parties next week,” Well, there are three reasons not to celebrate, among them the “difficult” geopolitical environment.
“We are all very concerned about the growing conflict in the Middle Eastand its potential to destabilize regional economies and global oil and gas markets. Its humanitarian impact, along with the prolonged wars in Ukraine and elsewhere, is heartbreaking“he said.
Furthermore, he added, in a world of more wars and more insecurity, defense spending may continue to increase and countries, driven by national security concerns, increasingly resorting to protectionism“creating one trade restriction after another.”
“In the future, Trade will not be the same engine of growth as before. It is the fracture I warned about in 2019, but worse. “It’s like pouring cold water on an already lukewarm global economy,” he said.
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A worrying future
The forecasts that point to “an unforgiving combination of low growth and high debt”said the Bulgarian economist, who has just begun her second five-year term as managing director of the institution.
Medium-term growth will be “mediocre” and insufficient to eradicate global povertycreate the necessary jobs and generate the tax revenue that governments require. It will be “a difficult” and “worrying” future due to the high and growing public debt.
This week, The IMF offered a preview of its Fiscal Monitor, which he will present in full next week, in which he estimated that global public debt is expected to exceed $100 trillion, or 93% of global gross domestic product, by the end of this year, and to approach 100%. of GDP by 2030.
This represents 10 percentage points of GDP more than before the pandemic (2019).
Furthermore, another reason not to celebrate, he added, is that even if inflation rates fall, “the level of higher prices that is felt in the portfolio is here to stay.”
Tax reforms, the IMF recipe
Despite the current gloomy outlook, Georgieva recalled that, as her counterpart at the World Bank, Ajay Banga, says, “forecasts are not destiny” and it is in the hands of governments to do much more.
“We can do better (…) There is much we can and must do to increase our growth potential, reduce debt and build a more resilient global economy“, said.
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Thus, governments must move away from the popular prevailing fiscal expansion and make “difficult decisions”. “Tax reforms are not easy, but they are necessary and can improve inclusion and opportunities,” he said.
Georgieva called for reforms in the labor market, eliminate barriers that prevent the mobilization of capital and carry out policies to improve productivity, reduce bureaucracy, harness the power of artificial intelligence or boost spending on education, research and development.
In addition to internal reforms, the IMF director noted, Countries have to “look abroad”although today the world is a “distrustful and fragmented” place.
Thus, during the annual meetings, Georgieva plans to call on governments to work together to improve collective prospects.
“Let us not take global tensions for granted, but rather decide to work to lower the geopolitical temperature and take care of tasks that can only be tackled together“, he stated.
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