The International Monetary Fund (IMF) is anticipating more borrowing by member countries this year, as the world faces greater uncertainty and potential turbulence.
As the global economic recovery momentum is slowing and risks from inflation and supply-chain bottlenecks to social unrest looming, the multinational funding agency is preparing for a potential increase in demand for its lending this year. This is owing to the fact that central banks are tightening monetary policy and at the same time many developing countries have increased their debt.
The IMF’s Managing Director, Kristalina Georgieva is warning of turbulence as nations withdraw stimuli, arguing that disaffection with two years of economic upheaval from the pandemic could lead to greater unrest in some countries.
Speaking at a virtual event on Wednesday (January 12), Georgieva noted that central banks face a “delicate balancing act” between fighting inflation and supporting an economic recovery noting that the spillover of monetary policy tightening on emerging markets “can add fuel to the fire of divergence” between advanced and developing economies.
“We have to be prepared that there may be more turbulence,” Georgieva said in the online event hosted by the Center for Global Development, a Washington-based think tank.
The IMF last year allocated a record US$650 billion in reserves, called special drawing rights, for its 190 member countries to deal with pandemic fallout. The fund also dedicated US$168 billion to help 87 countries deal with the pandemic.
Proposal for a Resilience and Sustainability Trust
The IMF board will meet to discuss the proposal for a Resilience and Sustainability Trust to provide long-term funding at low-interest rates to help countries weather both the pandemic and climate crises. The IMF boss said funding for the trust would come from rich nations reallocating some of the reserves that they received through last year’s issuance of special drawing rights.
Georgieva said that she expects to have the design for the trust in place by the IMF’s spring meetings, suggesting an increase the number of countries covered by the Common Framework established by the Group of 20 largest economies to provide debt relief for developing countries.
According to her, this would make it more effective and address its current limitations that have seen only three countries make requests for relief.