Inflation biggest challenge to global economies in 2022: Kristalina Georgieva

Speaking at Civil Society Organisation townhall in Washington, Georgieva said that the combined shock from Omicron in January and Ukraine-Russia war in February have pushed prices up in a way we have not seen in decades. With central banks tightening financial conditions and leading to appreciation of the dollar, countries that import dollar denominated goods are seeing inflation being pushed even higher resulting debt servicing becoming difficult.

IMF MD said that though dealing with inflation was paramount, policymakers will have to strike a balance between doing too little or doing too much that could result in prolonged recession.

She also advocated increasing the tax to GDP ratio as only this would help in keeping enough funds with countries to pay for all their services. Without mentioning specific countries, Georgieva said that half of countries have tax to GDP ratio below 15% and only way this could be raised is by broad-basing taxation, taxes on high income and bringing other sectors such as property under taxation. Domestic resource mobilisation would be critical for maintaining long-term sustainable growth in economies she said.

India, which is expecting its tax to GDP ratio to cross the IMF guided 15% threshold in current this fiscal, clocked tax to GDP ratio of 11.7% in FY22 and rise from just over 10% in the previous year.

The IMF MD also said countries should devise fiscal strategies that are more targeted that helps the most vulnerable sections in this difficult period. “… we have vulnerable people, we have vulnerable businesses, they need and deserve help. But help is much harder to come after COVID that has exhausted the buffers of many in many countries. So fiscal support has to be really well thought through and very well targeted to help those who really must be helped,” Georgieva said.

“…I have no illusions that the only way we can be successful is not by what we do, but how we do it, how we work with our members, how we work with other organizations, how we work with you. So, we can do the best possible in these two critical areas of stabilizing the world economy, transforming it to a more resilient future.

Giving her assessment of global economic conditions in 2022, she said that economic picture has darkened this year over last year due to combined effect of Omicron virus, Russia-Ukraine war, negative climate events on all continents. All of this combined has created a cost-of-living crisis, and made things particularly difficult for poor people and for poor countries.

She said IMF would extend all support to the most vulnerable countries to tide over the present crisis, but suggested that governments also take proactive steps to ensure that cost of living crisis is curbed and a more resilient economic situation is evolved.