IMF Head Warns of ‘Ricochet Impact’ of Uneven Global Recovery

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Emerging-market nations’ struggle to claw out of the pandemic-induced economic crisis can spill over to hurt the developed world, which should be doing all it can to ensure better access to vaccines and a more equitable recovery, the head of the International Monetary Fund said.

Poorer nations are faced with the risk of interest rates increasing while their economies aren’t growing, and may find themselves “really strangled” to service debt, especially if it’s dollar-denominated, Managing Director Kristalina Georgieva said Tuesday in a virtual event hosted by the Washington Post.

“That is not only danger for them, it is a danger for global supply chains, it’s a danger for investor confidence -- in other words, it has a ricochet impact on advanced economies,” she said. “Closing our eyes to this divergence can harm not only those countries and their people, which is bad enough, but it can harm the global recovery and it can harm investor sentiment in a way that we see to be significant and requiring very close attention.”

Measures taken to stimulate the U.S. economy are, on balance, translating into “good news” for other countries because of the spillover effect of demand, the IMF chief said.

Georgieva said she’s concerned about 2022 and beyond, when even a relatively small increase in interest rates, combined with a possibly stronger dollar, could create problems for corporate and sovereign debt, which was high even before the crisis.

Countries should now be looking at whether their sovereign positions are strong enough, and companies should examine whether restructuring is needed, “while conditions are very clearly favorable,” Georgieva said.

”The next couple of years are going to be absolutely critical. We have to step up and then shrink this very dangerous divergence,” she said at a later Washington Post roundtable.

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