IMF head concerned that poorer countries falling further behind 

By Kenton X. Chance

SANTIAGO, CHILE (CMC) —The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has expressed concerns that low income countries are falling further behind in a more fragmented world with less trade, and less fluidity of the flow of capital.

“So for the first time in many decades, what used to be a convergence process, poorer countries doing better and coming closer to those that are ahead. For the first time this process seems to be reversing,” Georgieva said during a press conference with journalists attending an IMF-sponsored training programme on financial reporting, being conducted by the Thomson Reuters Foundation.

“What does that all mean? It means that economic cooperation, global cooperation in this uncertain world, a world of divergence is so much more important. And yet, what we see is a more fragmented world with less trade, and less fluidity of the flow of capital to go into countries that need this capital the most,” she said.

Georgieva said the global economy has gone through “an exceptionally complicated time over the last years” with the pandemic followed by the war in Ukraine, a cost of living crisis and the Israeli-Gaza conflict, all of which have implications for the economy.

“And often these implications swing from one position to another very quickly, making it so difficult for ordinary people to figure out what is happening in the world and what that means for them,” Georgieva said.

She said that despite this tremendous, uncertainty, and the repetitive shocks, the world economy has proven to be remarkably resilient, noting that the most recent projections for global growth were slightly upgraded to 3.2 per cent this year, about the same as for 2025.

“Secondly, what we have seen is that inflation that has been hitting especially poor people dramatically, is going down almost everywhere. But it is not gone. And that means attention to bringing inflation down remains an overwhelming priority in many countries.”

Georgieva’s third point was that while growth is in positive territory, it is weak by historical standards.

“When we look forward the next five years, we projected global growth slightly over three per cent in comparison in the decade before COVID, it was on average 3.8 per cent.”

The IMF chief said this slow growth means that in many places, the aspirations of people for higher standard of living would be hard to meet.

“And on top of it, we live at a time of growing divergence in economic fortunes within economic groups of countries, across economic groups of countries and of course, within countries.”

She said that in the advanced economies, the United States is doing really well whereas the Eurozone is falling somewhat behind.

“When we look at emerging market economies, countries, like India, Indonesia, most of the ASEAN countries, Mexico here in Latin America, are doing quite well.

“But there are many economies in the emerging market world that are struggling. … and the most troubling group of countries are low-income countries that as a group are falling further behind,” Georgieva said.

Georgieva said the most important role of the IMF in light of global realities “is to keep the world together, to bring our members together, present them with objective, unbiased analysis of the economic situation and help them define policies for this fairly suddenly changing world that we all operate in”.

She said it has always been very important for the IMF to be “even-handed, to treat all members equally, even more so today, when we are faced with that more fragmented world”.

The IMF, Georgieva said, is “the only institution that is trusted to keep a hand on the pulse of each and every one of our members, collect the vital signs of the economies and on that basis, provide advice on the country level, and then aggregate the picture for the world and present it for everybody to see.”

She said the IMF is a financial institution and has to support effectively members who face balance of payment problems.

“And I can say quite proudly that the IMF, since we got hit by COVID, has stepped up financially and acted with exceptional speed and scale,” Georgieva said, adding that since the pandemic, the IMF has provided US$360 billion in lending to an estumated100 countries.

“And we also have done the largest allocation of Special Drawing Rights (SDR) in our history — $650 billion equivalent. In other words, in total, we have injected a trillion dollars in liquidity and reserves, which for many of our members, was absolutely essential to retain economic activity.”

She said the IMF is “like ship that is steady in choppy waters” and to continue to be steady, asked its members in October to increase by 50 per cent the quota that they to the financial institution.

Quota is the resource that the IMF is empowered to deploy and depends on the needs of the members.

“And despite the fragmented world we operate in, we did receive the support for 50 per cent increase in our quota. This is about US$360 billion lending capacity for a world that very likely we will have countries continuing to to need that.”

She said the IMF has to there for its members, but crucially, be there for members that are in “direst need of support, meaning that we have gone very actively to increase the capacity for the fund to provide concessional finance for low-income countries.

“And this is the group I’m mostly worried about. We offer zero per cent interest rate loans. And now we have mobilised enough lending capacity. For now, we have enough subsidy capacity to respond to demand.”

The IMF has also created a long term financing instrument called Resilience and Sustainability Trust, which offers concessional financing to low-income countries and to vulnerable middle-income countries that are threatened by climate risks.

It has 20-year repayment period after 10.5 years’ grace.

“We’ve never done that up to now. In other words, we change because the needs of our members change,”  Georgieva said, noting that  the IMF has also put a lot of emphasis on offering members capacity development support in the areas that  it has the strongest skills — fiscal, monetary policy, financial sector policy, “and now more and more on policy areas that are demanded by our members because of what they face like climate.

“So usually, you know that the proof of the pudding is in the eating and we see that the members are actually coming to the fund, engaging with the fund and we are growing in them.”

Georgieva pointed out that before COVID-19, the IMF had 189 member countries that has since risen to 190 and will welcome a new member soon, which means that the only United Nations member states that are not IMF members would be Cuba and North Korea.

The IMF boss said she knows the concerns and criticism often directed at the institution.  “We are very carefully listening to people, and we do our best to respond to the concerns,” she said.

The IMF has responded to criticism that does not pay enough attention to the most vulnerable members of society in the design of its programmes “to bring you know, the fiscal situation in a country in good shape.

“In 2018, in response to these concerns, the fund adopted a policy on social spending floors, meaning that in fund programs, we demand that spending on education, health and social protection does not get squeezed to a point that it may hurt people.”

Georgieva said that since she becoming managing director in  2019, the IMF has been paying very careful attention in its programmes to the need for a country to invest it on people.

“And when we look at the developments in the world, the fund used to not do much on either climate or gender equality or issues of inclusion or inequality,” Georgieva said, adding that the IMF recognised that societies are strong when they are inclusive.

“And we want to help our members design policies that put them on strong footing in terms of macroeconomic financial stability, growth and employment, taking into account these aspects that are historically have been not as much focus of the fund,” Georgieva said.