site.btaUPDATED IMF's Georgieva: Bulgarian Economy Recovered despite Pandemic, Political Uncertainty of 2021

The Bulgarian economy showed resilience thanks to the support policies, and has recovered despite the pandemic and political uncertainty in 2021, IMF Managing Director Kristalina Georgieva said at an online round-table on the prospects and challenges for the world economy, held by the IMF for Bulgarian reporters. There are, however, risks of a slow-down and a GDP growth forecast below 3%, she added. 

She said it is a critical moment for the world: the consequences of the pandemic are still here and the Ukraine war started. The war is most of all a tragedy for the people in Ukraine but the consequences are spilling over to the nearby countries and the rest of the world. For the global economy that means a considerable delay in the recovery, said Georgieva.

The impact of the war comes "along two channels": the rising prices of commodities such as crude oil, gas, foods and metals, on the one hand, and, on the other hand, the people fleeing the war.

The impact is stronger for the countries with stronger integration with Russia. 

Georgieva said that four issues need to be addressed in this situation: what to do to step up economic growth; how to contain inflation which has become a tangible problem; the monetary policy of increasing interest rates (though Bulgaria is not among those countries); and the fragmentation of the world economy.

The IMF Managing Director expects the Ukrainian economy to contract by 40% this year. The IMF provided USD 1.4 bln in emergency financing for Kyiv and has a big recovery programme for Ukraine. Also, it will back countries such as Moldova which has a population of 2.4 million and has already accepted 400,000 refugees from Ukraine. "The countries of Eastern Europe can also rely on IMF support," Georgieva said replying to a BTA question. 

She said that despite the shocks for its economy, Ukraine continues to generate revenues, is fast to recover its infrastructure, and is paying pensions and wages. 

As for Russia, it is in deep recession and the IMF forecast is for its GDP to contract by 8.5% this year. The result of the financial isolation of Russia will become visible in the coming weeks despite the measures Moscow has taken to restore the roubl. The problems there are rooted in the war that Russia started, and the best thing that can happen to the world is for the war to end, said Georgieva. 

The IMF is seeing a serious risk of food shortage with at least 26 countries likely to find themselves in a severe crisis. These will be a priority for the IMF and the World Bank. "We have USD 700 billion available to finance such countries and Egypt, Tunisia and Sri Lanka, among others, can rely on us."

Georgieva said that the IMF got approval for a new financial mechanism which will allow it to support with a new fund of USD 40 billion countries with projects to fight climate change and future pandemics. 

Of inflation, she said that it is driven by the ongoing pandemic and the disruption it is causing to the supply chains. In countries where the pandemic is subsiding, demand goes dramatically up and supply remains low, she explained.

To fight inflation, it is necessary to increase interest rates and this is already happening. "We can work on the factors leading to inflation, to work for production of foods and energy resources. We can see where food production can increase. Canada offered that. Or the export can increase by lowering the reserves, which is what India suggests. The EU is considering increasing agricultural production and the US is thinking of switching to production of maize for food rather than for ethanol."

She admits that the higher interest rates will complicate the problem with demand for, and servicing of loans, especially in countries with a considerable debt burden. 

The IMF expects the world economy to grow by 3.6% in 2022, down from the 4.9% forecast of last October. Only a small number of countries are expected to go in recession. Countries which have not recovered from the pandemic and have a problem with the import of raw materials and foods, face a risk of stagflation, but that is not a global problem. "We hopes that inflation will subside this year but the trend will persist longer," she said.

Prices can be contained through increased production and higher levels of cooperation. If the fears for fragmentation of the world economy materialize, inflation might go out of the control of monetary policies. "But we are not there yet," said Georgieva.

"This and next year won't be easy but we are looking for a comprehensive approach to addressing the problems. No country can solve on its own problems such as climate change, pandemics and the advance of digital money. The world will be different and the question is how to be stronger together," said Kristalina Georgieva.