More monetary tightening required to contain inflation: IMF Chief

International Monetary Fund managing director Kristalina Georgieva said on Tuesday that while the global economy has shown some resilience, it is not widespread. Medium term growth prospects remain weak, with the gap between rising and vulnerable countries widening even further.

In a statement released at the end of the meeting of G-20 Finance Ministers and Central Bank Governors, Georgieva said that headline inflation could remain higher for longer, requiring even more monetary policy tightening, and fragmentation could weigh even more on growth.

“The global economy has shown some resilience. That said, activity is slowing, especially in the manufacturing sector. Looking further ahead, medium-term growth prospects remain weak,” Georgieva said.

“Moreover, divergences in economic fortunes across countries are a persistent concern: some pockets of the global economy are doing well; others are weakening but still growing; and vulnerable countries are falling further behind,” she said.

As per the IMF’s own latest projections, baseline global growth is expected to fall from 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023.

Georgieva said that headline inflation is still too high and core inflation remains sticky despite the significant monetary policy tightening. “Elevated food and fertiliser prices are particularly worrying, especially for low-income households for which food insecurity and malnutrition are now much more persistent.”

The IMF chief said that the top priority of governments and central banks should be to durably bring inflation down and monetary policy must stay the course. She also said there is a further need to build fiscal buffers.

She supported India’s call to reform the IMF and World Bank, and admitted that they must reposition themselves to meet the emerging geo-economic challenges.

“We must recognise that the world today is more shock-prone and fragile, with climate change, pandemics, and Russia’s invasion of Ukraine all causing widespread turmoil.”

Georgieva said that while the IMF has nearly $1 trillion in lending capacity, quota resources from the major nations have shrunk in size. She appealed to the G20 countries to restore the primacy of quota resources and also increase the funding for its poverty reduction and sustainability funds.

The IMF Chief also said that while encouraging steps have been taken to restructure debt of countries like Zambia and Chad the process still needs to be speedier and more effective. “The costs of delays in reaching agreement on needed debt treatments are borne acutely by borrower countries and their people, who are least able to bear this burden,” she said.