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IMF warns of global economic collapse

The International Monetary Fund (IMF) has warned of economic collapse in many African economies, including Malawi, in the face of rising inflation, public debt as well as foreign exchange shortage.

The warning is contained in a report titled ‘Facing a Darkening Economic Outlook: How the G20 Can Respond’ released on the back of G20 ministers and central bank governors meeting.

Georgieva: It will be a tough 2022

In her reaction to the report, IMF managing director Kristalina Georgieva said it will be a tough 2022 and possibly an even tougher 2023, with an increased risk of recession.

She said: “The difficult conditions in many African countries at this moment are important to consider. In my meeting with ministers of Finance and Central Bank governors from the continent this week, many highlighted how the effects of this entirely exogenous shocks were pushing their economies to the brink.

“That is why we need decisive action and strong international cooperation led by the G20.”

Reacting to the report yesterday, economist Bond Mtembezeka observed that the rising average global inflation rate in advanced economies will negatively affect domestic economy through imported inflation.

He said: “Average global inflation has gone up indeed with advanced economies that are good at managing inflation experiencing record high inflation rates. That will definitely have an impact on the domestic economy through imported inflation first and foremost as you know we import raw materials and finished goods as well.

“Secondly, as economies experience record inflation rates, purchasing power is definitely eroded, therefore, economic agents in those economies will cut down on purchases, thereby impacting our exports as well.”

Betchani Tchereni, associate professor of economics at Malawi University of Business and Applied Sciences, said considering the huge balance of payments imbalances destabilising the demand for foreign exchange, if countries at risk do not enhance their productive capacities, their economies may be in recession for some time.

The IMF report recommends that countries to do everything in their power to bring down high inflation as persistently high inflation could sink the recovery and further damage living standards, particularly for the vulnerable.

It also recommends the tightening of fiscal policy for countries facing elevated debt levels so as to reduce the burden of increasingly expensive borrowing.

Malawi’s year-on-year headline inflation has been on the rise, with National Statistical Office data showing that the June 2022 inflation rate rose by 4.4 percentage points to 23.5 percent from 19.1 the previous month.

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