IMF Chief Exclusive | 2023 may be worse than 2022 for the global economy, says Kristalina Georgieva

The IMF chief said 2023 could be worse than 2022, "but how much worse depends on factors that we don't know. What we can work with is the need to work together to lessen the pain," she said, referring to the economic shocks that countries across the globe have faced this year.

"There are good signals that we are collaborating better but the world needs to come together on trade and climate," she said, adding that she was worried divisive forces in terms of prolonged warfare could get stronger.

Georgieva believes inflation has proven to be more stubborn than expected because of the pandemic, war and escalating cost of living. Europe is staring at a recession and some economists believe that even the US can see a mild form of it.  On recession concerns, Georgieva said that it is too early to say whether widespread recession would come about. "We could see a scenario that feels a lot like recession," she said.

Georgieva added that the global fiscal crisis in 2008 was tough and regulating the banking sector was the right response.

"In 2022, fiscal shocks have affected economies across the board including the labour market and demand in general. The complexity of economic shocks of 2022 comes with too many factors and variables," she said.

The lack of synchronisation towards a better fiscal policy is a real concern, she said, adding that the absence of synchronisation could mean that fiscal policy and monetary policy are at odds with each other.

It is also important for countries to realise the need of being cautious when they see trouble down the road, she added.

Talking about India's performance, The IMF chief said the country is performing well quarter on quarter, in terms of growth, but still underperforming by way of regional metrics.

She said harvests could be lower next year and food prices could be greatly impacted.  "Fiscal spaces have shrunk during and after the pandemic, which make for a difficult time. It is important that the world coordinates and comes together, despite existing fragmentation," she said.

Talking about the recent export restrictions India has levied, Georgieva said that it is doing the same only selectively and then removed them when the conditions improve.

"It is not in the interest of India to entice others to impose trade restrictions since it comes in the way of open and free trade," she said.

India is in a bright spot on account of reforms, she said, adding that the country is truly poised for its big moment on the international stage as it takes over the G20 presidency.

She said India is taking charge at a challenging time as it gets serious about reforms.  "India will be speaking on behalf of emerging economies internationally," she said, adding that Finance Minister Nirmala Sitharaman is clear about ensuring all voices in the G20 are heard.

"We see huge advantages in working with India as sustainability becomes a huge concern," she said.

The IMF is aligned with India on crypto regulations and it is important to balance the pros and cons, Georgieva said.

"India's digital ecosystem is on steroids as cryptos have emerged strongly without regulations. It is important to remember that cryptos are like the wild wild west," she said.

The Prime Minister has emphasized on advantages of leveraging India's experience in digitisation, she said, adding that a more pragmatic roadmap can be worked out with clear deliverables. "It would be fantastic if India uses its leadership to ensure more transparency and data ownership," she said.

The IMF Chief said that there have been indications that the gender gap has turned for the worse.

"Gender inequality is worrying and makes for bad economics," she said.

Georgieva believes that women are a great force for entrepreneurship and are fantastic in making income-based decisions. "Women can contribute more to society and that is the case in many countries. Growth and employment must call for gender-based budgeting and fiscal inclusion for women," she said.

Around 25 percent of emerging market economies are in distress, she said. "It is known that most of the lower income countries are struggling while middle income countries such as Ghana are also in peril.  Even countries with strong fundamentals are become vulnerable to shock-after-shock," she said, adding that it is important to build resistance to shocks through the right fiscal policy and strong buffers.

Sri Lanka has been facing its worse economic crisis this year, while Pakistan has also been staring at bankruptcy. "Large creditors such as China and the private sector in general need to show leadership in providing debt relief to countries in crisis," the IMF Chief said.

She said emerging markets have been fast to recognise the need to tighten monetary policy. "Emerging markets need to double down on making investment climate attractive. They also need to be agressive on issues such as transparency, debt and good governance to ensure better investment," she added.

She said it is important to be resilient in countering economic shocks that the world is witnessing. "We have to expand our compression of macroeconomic and financial stability to integrate the shock factor.  We have to build a precautionary mindset when it comes to countering fiscal crises," she said.