Fed Rate Hike Could Slow Down Economic Progress And “Throw Cold Water” On Global Recovery: IMF Chief Kristalina Georgieva
The managing director of the International Monetary Fund (IMF), Kristalina Georgieva has said that the interest rate hikes by the Federal Reserve could “throw cold water” on the economic recoveries in the countries that are already financially weak.
Speaking via a video conference at The Davos Agenda Virtual Event, Georgieva said that an increase in United States rates could have significant repercussions for countries with higher levels of dollar-denominated debt.
She further stated that it was, therefore “hugely important” that the Federal Reserve was communicating clearly its policy plans in order to prevent surprises. Higher U.S. rates can make it even more expensive for countries to service their dollar-denominated debt.
On a panel moderated by CNBC’s Geoff Cutmore, Kristalina Georgieva said that the clear message from the International Monetary Fund to countries with a higher level of dollar-denominated debt was simply “Act now. If you can extend maturities, please do it. If you have currency mismatches, now is the moment to address them.”
She further said that the biggest concern for her was that for low-income countries with high levels of debt, and highlighted the fact that two-thirds were now either in “debt-distress” or in danger of falling into it, which is twice as many as in the year of 2015.
Georgieva also said that the International Monetary Fund is expecting the global economic recovery to continue but also stressed the fact that it was “losing some momentum”.
She suggested that the New Year’s policy for policymakers must be focused on “policy flexibility”.
Georgieva said, “2022 is like navigating an obstacle course,” given the risks such as inflation, the Covid-19 pandemic, and high-debt levels. The International Monetary Fund also warned back in the month of December that the global debt hit 226 trillion U.S. dollars in the year 2020. This was the largest one-year rise since World War II.
Highlighting the concern regarding inflation, Kristalina stressed that the problem is country-specific. The prices are rising at a tremendous pace in certain countries. The United Kingdom inflation rate hit a thirty-year high, the eurozone inflation hit a record of 5% in the same month, and the U.S. consumer index rose at its fastest pace since 1982.
Georgieva continued, “That country specificity is what makes 2022, in a way, even more, difficult than 2020,”
She added “In 2020, we had similar policies everywhere because we were fighting the same problem — an economy at standstill. In 2022, conditions in countries are very different, so we cannot anymore have the same policy everywhere, it has to be country-specific and that makes our job in 2022 so much more complicated.”
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