IMF chief warns of ‘significant economic risk’ from Ukraine conflict

WASHINGTON: IMF Managing Director Kristalina Georgieva on Thursday warned the conflict in Ukraine will have repercussions for the global economic recovery. Following Russia’s invasion of its neighbor, Georgieva said she was “deeply concerned,” and cautioned that the fighting “adds significant economic risk for the region & the world.”

The International Monetary Fund continues to assess the economic impact, but will “stand ready to support our members as needed,” she said on Twitter.

The Washington-based crisis lender is in the process of deploying $2.2 billion in assistance to Ukraine under a loan program set to end in June, but Georgieva has said the fund could provide additional aid if needed.

The building conflict already has sent oil prices soaring to their highest level since 2014, adding to worrying global inflation pressures. The United States and European powers later Thursday are expected to ratchet up economic sanctions against Russia, which economists warn also could bite the global economy as it reels from the impact of the Omicron variant of Covid-19.

In January, the IMF cut its world GDP forecast for 2022 to 4.4 percent, half a point lower than its previous estimate in October, due to the “impediments” caused by the latest virus outbreak. Among the expected sanctions, Washington and Brussels could target major Russian banks, cutting them off from SWIFT, the global messaging system used to move money around the world.

That would hinder Russia’s ability to profit from the global energy market, which operates largely in US dollars. However, analysts note that Moscow has prepared for years to withstand such sanctions, building up a war chest of cash and gold, and has very low debt.

“It’s not a coincidence. I think it’s a very much part of what we call fortress Russia strategy,” said Elina Ribakova of the Institute of International Finance, a global banking association. “It was a very deliberate shift in macroeconomic policy to accommodate geopolitical ambitions,” she told AFP. “They have a piggy bank that can protect them.”

The conflict could also change the Federal Reserve’s calculus when it comes to fighting inflation in the United States, a central bank official said Thursday. The Fed next month is expected to hike rates for the first time since Covid-19 broke out, but it might have to move more aggressively if the Ukraine crisis disrupts commodities and raise prices.

Loretta Mester, president of the Cleveland Federal Reserve Bank, said the central bank will monitor the conflict’s impact on the world’s largest economy. “The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the US will also be a consideration in determining the appropriate pace at which to remove accommodation,” she said in a speech.