IMF Managing Director Underlines Risks of Global Economy Increasing Fragmentation

The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has warned of the risks of rising fragmentation in the global economy, noting that resilience and prosperity depend on “the survival” of economic integration.

In an op-ed published in Foreign Affairs magazine, Georgieva stressed that “the world is witnessing a rise in fragmentation, which is a process that starts with increasing barriers to trade and investment and ends with the fragmentation of countries into rival economic blocs,” emphasizing that “this outcome risks reversing the transformative benefits that global economic integration has resulted in.”

The Managing Director explained in her article, entitled “The Price of Fragmentation: Why the Global Economy is Unprepared for Future Shocks”, that trade fragmentation or increased restrictions on trade in goods and services between countries could reduce global GDP by as much as 7%,  equivalent to $ 7.400 billion, roughly the combined GDPs of France and Germany, and three times more than the size of the entire economy of sub-Saharan Africa.

“Fragmentation can also lead to serious disruptions in commodity markets and create food and energy insecurity,” warned Georgieva, adding that another pandemic could once again plunge the world into a global economic crisis.

Georgieva also asserted the benefits of globalization, both in this op-ed and in a parallel interview with the Washington Post, explaining that “the expansion of trade in an increasingly integrated world economy has brought substantial benefits in terms of growth and poverty reduction.”

The IMF’s Managing Director affirmed that rising inequality is fostering political instability and jeopardizing future growth prospects, particularly for vulnerable economies and the poor, in addition to the existential threat of climate change which aggravates existing vulnerabilities and introduces new shocks, stressing that “vulnerable countries lack room for maneuver, and growing indebtedness jeopardizes economic viability.”

The official also shed light on the importance of modern IMF governance and stronger IMF Fund resources to continue to fulfill its role as a “global safety net” that pools international resources to provide liquidity to countries in times of crisis, citing the pandemic as a good example of the Fund’s importance.

“Since the outbreak of the pandemic, IMF has approved over $ 300 billion in new financing for 96 countries, the largest support ever provided over a short period,” recalled Georgieva, adding that out of this amount, over $ 140 billion has been provided since the outbreak of the Russian-Ukrainian conflict to help Fund members cope with financial pressures, including those resulting from the war.

“Decision-making within the Fund requires a highly collaborative approach and inclusive governance,” emphasized Georgieva, highlighting the role of other international institutions and new creditors in addressing the challenges arising from a new “fragile and fragmented” global economy.

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