Washington: The International Monetary Fund (IMF) has cautioned central banks against allowing inflation to 'spiral out of control' amidst the ongoing uncertainty surrounding the Middle East conflict. Kristalina Georgieva, the IMF Managing Director, delivered this warning during a speech ahead of the Fund's joint Spring Meetings with the World Bank Group, set to take place next week in Washington.
According to Ghana News Agency, Georgieva pointed out that the war in the Middle East has caused significant disruptions in transportation networks and trade flows, leading to shortages of refined products. These disruptions have resulted in a large, global, and asymmetric supply shock, which threatens to derail an otherwise upward growth trajectory for the world economy.
The IMF Chief highlighted that the transport disruptions have exacerbated food insecurity, pushing an additional 45 million people into hunger, raising the total number globally to over 360 million. The ongoing conflict could cause further shocks through price, impact, and supply shortages, potentially igniting a costly inflation process and affecting financial conditions.
Georgieva advised central banks to avoid "unnecessarily" tightening monetary policy but to stay committed to price stability. She emphasized the importance of stepping in with firm rate hikes if inflation expectations show signs of becoming unstable. The upcoming Spring Meetings will focus on strategies to weather these shocks and alleviate economic pain.
On fiscal policy, Georgieva noted that most countries have wisely avoided broad-based tax cuts and untargeted energy subsidies. She urged governments to keep fiscal support targeted and temporary. She stressed the need for a balance between monetary and fiscal policies, cautioning against deficit-financed stimulus, which could increase the burden on monetary policy in the current climate of rising benchmark yield curves and climbing debt service costs.
Georgieva also encouraged the rebuilding of fiscal space and called for a rejection of export and price controls, warning that such measures could exacerbate global disruptions. She emphasized the need for international cooperation and warned against actions that could worsen global conditions.
In the near term, the IMF expects demand for balance-of-payments support due to the war's spillovers to range between US$20 billion and US$50 billion, with the lower end being more likely if a ceasefire is reached. Georgieva reminded policymakers that while external shocks are beyond control, the strength and agility of domestic fundamentals and institutions remain within their authority and are crucial for crisis resilience.
Finally, she urged governments to remain focused on longer-term structural issues such as technology, demographics, geopolitics, trade, and climate while navigating the immediate challenges. The Spring Meetings aim to help countries find a path forward through what she described as the 'fog of uncertainty,' and she called for lasting peace in the Middle East and globally.