The International Monetary Fund (IMF) has advised policymakers to pursue a strong fiscal consolidation path to rebuild buffers and prepare for shocks that may still come.

In her concluding remarks at the conclusion of the first meeting of the G20 Finance Ministers and Central Bank Governors, the Managing Director of IMF, Kristalina Georgieva, said 2024 was shaping up to be a tricky year. 

In her concluding remarks at the conclusion of the first meeting of the G20 Finance Ministers and Central Bank Governors, the Managing Director of IMF, Kristalina Georgieva, said 2024 was shaping up to be a tricky year. 

She said central banks must therefore finish the job on inflation by calibrating carefully, whether they cut and how fast they cut, against the risk of being too slow and affecting growth negatively. 

On the part of government’s, she said authorities have to pursue fiscal consolidation to rebuild buffers and prepare for shocks that may still come. 

“We advise for medium-term fiscal plans to gradually help make this consolidation. When we look around the world, countries are in different places on monetary and fiscal policy, so authorities cannot simply take a cue from somebody else. 

“We need to rely on national data to inform the appropriate policy stance. And many officials rightly spoke at this meeting about structural reforms, which they take on for productivity gains, for growth improvements, and for improvements in standards of living,” she stated.

Soft landing 

Ms Georgieva said globally, the IMF was poised for a soft landing, but the plane was not quite yet on the ground. 

“Growth for this year is projected at 3.1 per cent, compared to the 2.9 per cent when we last met. Inflation is down faster than we expected. In our baseline, global headline inflation is expected to fall to 5.8 per cent this year, and 4.4 per cent next year. 

“And this improved outlook also benefits developing economies that were cut off from markets for quite some time – such as Cote D’Ivoire, whose recent bond issuance was several times oversubscribed, followed by Benin and others,” she noted.

She said although this was encouraging, the global environment must be cautious of downside risks.

She noted that one of the risks was a more persistent inflation because of new price spikes that could result from geopolitical shocks and other supply disruptions – such as climate events – or from looser financial conditions, which could slow down the normalisation of monetary policy. 

“We can also have an upside risk, in which inflation falls even faster than expected. And that, of course, would be great for all of us,” she said.

Complacency 

The IMF Managing Director also warned against complacency, noting that growth was stull weak.

“Three per cent year after year, against an average of 3.8 per cent in the pre-COVID decade. And even worse, in many places it is because of low productivity. 

“Countries that are doing well, like the United States and some emerging market countries, have realized productivity gains,” she stated.

She said countries must also be mindful that if interest rates are to remain higher for longer, financial sector risks could go up. 

“So, they require careful monitoring. We must be vigilant for early signs of stress and systematically address vulnerabilities, especially in non-banking financial institutions,” she said.

Source: GraphicOnline