The International Monetary Fund (IMF) is now calling on countries to start making adjustments. After years of extraordinary monetary and fiscal policy expansion, the Washington-based organization is now calling for fiscal discipline. The Managing Director of the IMF, Kristalina Georgieva, called this Thursday on central banks not to relax their caution, while at the same time calling on national treasuries to rebuild their fiscal buffers to withstand the next “severe blows” they will receive in the future could future. their economies. The Bulgarian economist warned that these shocks have ultimately become the “new normal.” “Interest rates have to stay higher for longer,” he emphasized. Georgieva, who also pointed to the impact of the Gaza war, which she considers “a new cloud on the economic horizon.”
The fund’s managing director has put the fight against inflation at the top of the agenda that should shape global policy. “Price stability is a prerequisite for economic growth. It also protects citizens, especially the poorest members of society,” the head of the multilateral organization said in an appearance to the media during the IMF and World Bank meetings taking place in Marrakech this week. The other clue for governments was to adjust their budgets. “After a period of increasing public spending, it is time to restore fiscal rules,” the fund chief added.
However, this prescription has been shown to have notable and common side effects, including slowed growth and high debt costs. And it also comes at a time when new geopolitical tensions are raising fresh doubts about the soft landing of the economy that governments and central banks are seeking. Therefore, Georgieva has called on national and regional economic authorities to exercise strict control over the banking sector to ensure the financial stability of the system and to adopt the necessary reforms to boost medium-term growth, which the IMF now considers “mediocre”.
“As we have seen in recent weeks with movements in bond yields in the United States and the European Union, markets have adjusted in an orderly manner with the recognition that interest rates will remain elevated for longer. But in the short term, further tightening of financial conditions may have an impact on markets and the banking and non-banking system, which is why financial supervision is essential,” the fund’s managing director added.
However, if there is something that worries multilateral organizations today, it is the world’s retreat into blocs, which is reversing part of the globalization process. For this reason, Georgieva has urged “international cooperation” given the tendency of the global economy to suffer new setbacks. “Severe shocks will become the new normal,” he said. Demand is increasing and the most vulnerable countries face high debt costs while trying not to miss the digital and green economy train. For this reason, the Bulgarian called for an agreement before the year to increase funds from the IMF members’ quotas.
Brussels warns of the effects of war
Georgieva also referred to the war in Gaza. “It’s too early to say [cuál será el impacto]“, assured the managing director of the IMF. However, the Bulgarian joins the voices of various institutions, including her own, in warning that the conflict is taking place at a time of great economic weakness. The EU Economic Commissioner Paolo Gentiloni, who also takes part in the IMF and World Bank forums, also recalled this on Thursday.
The Italian added another element that could be damaged by the crisis in Gaza: trade. “We are under the influence of a new war. They cannot yet fully estimate the economic impact. It has human aspects and a geopolitical dimension and could therefore affect trade on a global level,” the Commissioner explained in an interview with Bloomberg. “We don’t see a big impact on oil prices at the moment, but uncertainty is increasing,” he added.
“The problem,” the Italian continued, “is that the economy is weak.” Gentiloni admitted that the forecasts show weak growth for the euro zone, but also recalled that Europe is not going into one as expected a few months ago Recession occurred. This is exactly what the Governor of the Bank of France, François Villeroy de Galhau, pointed out this Thursday, taking part in a conference of the Institute of International Finance (IIF, as it is called in English), which also took place in Marrakeix.
The French central banker recalled that Frankfurt has an initial mandate that is to bring inflation to 2% by 2025. The goal is clear, he said. You had to choose the path. “If we can do it on a path that leads us to a soft landing, that will be much better because we will benefit our citizens and public finances,” the banker added.
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