Recession avoidable with right fiscal policies: IMF

Riyadh, October 4

Global recession can be avoided if governments’ fiscal policies were consistent with monetary policy tightening, but likely there would be countries falling into recession next year, the International Monetary Fund’s managing director Kristalina Georgieva said on Monday.

Inflation tax on poor

We do need central banks to act decisively. Why, because inflation is very stubborn… It is bad for growth and it is very bad for poor people. Inflation is a tax on the poor. — Kristalina Georgieva, Managing director, IMF

In the context of monetary policy tightening, fiscal policy cannot stay idle because the cost of living crisis is hitting parts of society dramatically, Georgieva said.

She said fiscal policies that indiscriminately support everybody by suppressing energy prices and providing subsidies are working against monetary policies’ purposes.

“So you have monetary policy putting a foot on the brakes and fiscal policy putting a foot on the accelerator,” she said, after taking part in a conference on food security in the Saudi capital Riyadh.

Governments across the globe have stepped in to support their populations amid high food inflation and shortages by following the US Federal Reserve’s interest rate hikes, sending shockwaves through financial markets and the economy.

Earlier on Monday, a United Nations agency warned of the serious consequences of a monetary policy-induced global recession for developing countries. It called for a new strategy, including corporate windfall taxes, supply-side efforts and regulation on commodity speculation.

Georgieva called on the Fed to be extremely prudent in its policies and be mindful of the spillover impact on the rest of the world, adding its responsibility “is very high.” — Reuters