IMF sees rising economic fragmentation risk

The biggest challenge facing central bankers now is bringing inflation down, International Monetary Fund Managing Director Kristalina Georgieva said on Thursday, as her deputy warned of the growing risk of economic fragmentation.

Georgieva told a conference in Washington that policymakers should adopt targeted measures to alleviate rising food and fuel prices, while avoiding steps that could fuel inflation or sidetrack monetary policy.

First Deputy Managing Director Gita Gopinath, speaking at the same conference, said the strengthening dollar, now at its highest level in more than 20 years, and concerns about financial fragility also posed big challenges in the current environment, and there was no scope for missteps.

“There’s really a very narrow path to get things right,” Gopinath said, noting that the dollar’s sharp rise had important macroeconomic implications for a host of countries around the world.

Gopinath said policymakers needed to keep a watchful eye on potential vulnerabilities, noting that data was critically lacking about risks to financial stability posed by hidden leverage in non-bank financial institutions.

Another huge challenge, Gopinath said, was the rising risk of geoeconomic fragmentation, noting that the Covid-19 pandemic and the war in Ukraine had “significantly” raised the risks.

“That doesn’t mean trade as a whole might collapse, but we certainly are going to redraw the map - the global trade map - in terms of who trades with whom,” she said, adding that would have implications for productivity, efficiency and employment.

Gopinath noted that more than 30 countries had restricted trade in food, energy and other key commodities since Russia’s Feb. 24 invasion of Ukraine.

Published in The Express Tribune, November 11^th, 2022.

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