WASHINGTON: IMF chief Kristalina Georgieva urged Britain and other nations on Thursday to ensure their fiscal policies remain consistent following reports that London is mulling more U-turns for its controversial budget plan. Georgieva said she had a “very constructive” meeting with British finance minister Kwasi Kwarteng and Bank of England Governor Andrew Bailey during this week’s annual gathering of the IMF in Washington.
“We discussed the importance of policy coherence and communicating clearly so there can be no-in this jittery environment-there could be no reasons for more jitters,” she said. The International Monetary Fund has stressed throughout this week’s meetings of finance chiefs the need to maintain fiscal discipline while central banks raise interest rates to control soaring inflation.
“Our message to everybody, not just to the UK, to everybody at this time: fiscal policy should not undermine monetary policy,” Georgieva said. This would make the task of monetary policy “only harder and it translates into the necessity for even further increase of rates and tightening financial conditions,” she said. “So don’t prolong the pain and make sure that actions are coherent and consistent.”
Kwarteng sent shock waves through markets last month when he slashed taxes and froze energy prices in a bid to ease a cost-of-living crisis, a decision that raised fears of more debt for Britain.
The move forced the Bank of England, which has been raising borrowing costs, to jump into bond markets to help protect financial stability. Since then, Kwarteng axed his proposed tax cut for the richest earners and brought forward his debt-reduction plans and economic forecasts to October 31.
The British pound rallied against the dollar on Thursday on reports that officials were discussing how to back away from costly tax-slashing measures. While she called for consistency, Georgieva said it was “correct to be led by evidence so if the evidence is that there has to be a recalibration, it is right for governments to do so.”
Meanwhile, a divided G20 held talks on Thursday under the shadow of multiple crises, from Russia’s war in Ukraine to a global economic slowdown, on top of soaring inflation and climate change. Finance ministers and central bankers from the Group of 20 major economies were gathering in Washington during annual meetings of the IMF and World Bank this week that have underscored the multiple challenges the world is facing.
The list of threats ranges from rising interest rates to soaring food prices, along with growing poverty and natural disasters blamed on climate change. The IMF lowered its growth forecast for the world economy for next year earlier this week, warning that the “worst is yet to come.”
But the G20, which includes Russia, is expected to close its meeting without a joint communique, as in its previous gatherings presided by Indonesia this year. “It may be difficult to have a joint communique,” said a source in the French economy ministry. While Western nations have imposed unprecedented sanctions on Russia, other countries have maintained economic ties with Moscow, with India and China stepping up their purchases of Russian oil.
The Group of Seven wealthy democracies is now looking to cap the prices of Russian crude exports, a move aimed at stripping the country of a major source of funding for its war effort.
The G7 — which includes Britain, Canada, France, Germany, Italy, Japan and the United States-said Wednesday it had made “significant progress” in key parts of its proposal, noting that it had added Australia to its coalition. Gaining broad global approval for a price cap is a key challenge for the proposal.
The Saudi-led OPEC group of oil exporters has angered the United States by agreeing on a drastic production cut with Russia and other allies, which could send energy prices soaring even higher. US President Joe Biden warned of “consequences” for Saudi Arabia in an interview with CNN this week. – AFP