IMF chief sees downgrades to growth forecasts amid Omicron

‘We are likely to see some downgrades of our October projections for global growth.’
Kristalina Georgieva, managing director of the International Monetary Fund. Image: Bloomberg

International Monetary Fund Managing Director Kristalina Georgieva expects the organisation to pare back its expectations for the global economic rebound as the number of Covid-19 cases attributable to the new omicron strain picks up.

“We are likely to see some downgrades of our October projections for global growth,” Georgieva said at conference hosted by Reuters Friday. New strains of the coronavirus “very rapidly can dent confidence,” she said.

The Washington-based IMF in October predicted that the global economy would expand 4.9% next year. For 2021, it had trimmed its outlook to 5.9%.

Problems that pre-date the emergence of omicron are now entrenching, including a deepening divergence between some countries recovering faster from the pandemic and others falling behind, Georgieva said.

In the meantime, “new problems are stepping forward for policy makers — in particular, inflation,” she said.

Debt concerns

Georgieva reiterated concerns she raised Thursday about low-income countries’ ability to repay debt, noting that about 60% of the world’s poorest nations are at high risk or are already in debt distress.

“2022 is going to be a very pressing year in terms of dealing with debt,” thanks to a surge in borrowing during the pandemic, Georgieva said. While interest rates are currently relatively low, “that may not be the case through 2022,” she said.

The Group of 20 in May last year started a debt-service suspension initiative to provide relief for the world’s poorest nations amid the pandemic. With the DSSI expiring at the end of this year and interest rates poised to rise, Georgieva said countries need to consider alternatives such as the so-called common framework, a plan modelled on the rules of the Paris Club of creditors to reorganise loans.

The common framework — meant to help countries deal with their unsustainable debt after the pandemic hurt their finances — has been plagued by delays and a lack of interest from debtor countries since its inception in November 2020. Only three countries — Ethiopia, Chad and Zambia — have asked for it.

The IMF has tried to address disincentives for joining the common framework by proposing a stand-still on debt servicing the moment the framework is requested. Georgieva said she has engaged with private-sector lenders, along with China — which is a large creditor — about this.

“My message to everybody is don’t wait until it is too late — it will be costlier for you,” Georgieva said. “It will be very painful for the countries. Move!”

The encouraging progress with Zambia can serve as a “signal to those countries that are sitting on the bench,” Georgieva said.

“It doesn’t mean that they all need common framework treatment,” she said. “I would expect that if we are successful to reform the common framework, this would be not an unlikely number — to talk about a dozen countries, or even more — but I don’t want to prejudge where we would be.”

Georgieva also suggested that while the framework is now for low-income countries, it could be expanded. “Should we think about middle-income” economies with “tremendous debt-service obligations, and how we can approach these countries’ issues in a more prudent, structured and organized way?”

© 2021 Bloomberg

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