October 06, (THEWILL) – The International Monetary Fund (IMF) has said that the impact of the Covid-19 crisis and the war between may cost a global output loss of about $4 trillion between now and 2026.
According to the Fund, the loss could result in a massive setback for the global economy.
This is just as it said about 60 percent of low-income countries are at high risk of debt distress.
The Managing Director of the IMF, Kristalina Georgieva, said this on Thursday, at the Annual Meetings 2022 Curtain Raiser.
She spoke on the theme, ‘Navigating a more fragile World’ at Georgetown University, Washington, DC.
Countries with less than $1,035 Gross National Income (GNI) per capita are classified as low-income countries and those between $1,036 and $4,085, as middle-income countries.
Nigeria’s GNI per capita for 2021 was $2,100, making it a middle-income country.
But Georgieva said, “Many countries also need help to deal with debt that was pushed up with the Covid crisis. This is particularly challenging for the developing world.
“More than a quarter of emerging economies have either defaulted or had bonds trading at distressed levels, and over 60 percent of low-income countries are in—or at high risk of—debt distress.
“This raises the risk of a widening debt crisis in these countries—harming their people, as well as global growth and financial stability.”
The development was induced by the residual impacts of Covid-19 and the Russian-Ukraine war.
The war had led to a staggering spike in global inflation leading to a hike of interest rates across the globe.
She said, “We estimate that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year. And, even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices.
“Overall, we expect a global output loss of about $4trn between now and 2026. This is the size of the German economy—a massive setback for the world economy.”
According to her, global growth projections for 2022 will be reviewed downwards from 3.2 percent and the growth for 2023 will be reviewed from 2.9.
The global economic crisis has forced countries to borrow more, while others are already at risk of default.
The IMF boss said, “It is more likely to get worse than to get better. Uncertainty remains extremely high in the context of war and the pandemic.
“There could be even more economic shocks. Financial stability risks are growing: rapid and disorderly repricing of assets could be amplified by pre-existing vulnerabilities, including high sovereign debt and concerns over liquidity in key segments of the financial market”, Georgieva added, noting that inflation has been stubbornly high which implies that central banks have to continue to respond.
“Not tightening enough would cause inflation to become de-anchored and entrenched which would require future interest rates to be much higher and more sustained, causing massive harm to growth and massive harm to people.
“On the other hand, tightening monetary policy too much and too fast and doing so in a synchronized manner across countries—could push many economies into prolonged recession”, she added.
