JUST IN: ‘Massive Setback’ Looms For Global Economy As IMF Predicts $4trn Output Loss

…Says 60% Of Low-Income-Countries Risk Debt Crisis

The International Monetary Fund (IMF) has said that the impact of the Covid-19 crisis and the war between Russia and Ukraine may cost a global output loss of about $4trn between now and 2026.

It said the amount represents the of the German economy, adding that this is a massive setback for the world economy.

The Fund said that the $4trn output loss could result into a massive setback for the global economy which is currently facing the various economic uncertainties.

This is just as it said about 60 per cent 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 the Georgetown University, Washington, DC.

Countries with less than $1,035 Gross National Income per capita are classified as low-income countries and those with between $1,036 and $4,085 are middle-income countries.

Nigeria’s GNI per capita for 2021 was $2,100, making it a middle-income country.

She 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 the 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 per cent and the growth for 2023 will be reviewed from 2.9.

Global economic crisis has forced countries to borrow more, while others are already at the risk of default.

Nigeria’s debt had risen to $103.31bn as of June 2022.

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 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 noted that inflation has been stubbornly high which implies that central banks have to continue to respond.

Nigeria’s inflation rate as of August this year stood at 20.52 per cent. The inflationary pressures had forced the Central Bank of Nigeria to increase the Monetary Policy Rate to 15.5 per cent which is the highest in the last 17 years.

The IMF Boss said, “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 on growth and massive harm on 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.”