IMF’s Gopinath: Interest rates will remain high for “quite a while”

Emerging markets face a more volatile and uncertain future and must rebuild their fiscal buffers, increase their revenues, diversify their trade and prepare for the trillions of dollars a year that climate change will cost, the deputy chief of staff said on Friday. International Monetary Fund.

The first deputy managing director of the IMFGita Gopinath told the South African Reserve Bank’s biennial conference that external conditions have become more difficult for emerging markets due to increasing geopolitical fragmentation, tough financial conditions and the rising costs of climate change.

“The pandemic and Russia’s war in Ukraine have raised legitimate concerns about the security of the supply chain and national security in general.”, he stated in remarks prepared for the conference.

Extreme weather events related to climate change could also carry huge long-term costs, at a time when debt payments are already rising sharply, with some studies projecting a mitigation need of $2 trillion per year by 2030. .

In South Africa, for example, interest payments on public debt are expected to rise to around 27% of revenue in fiscal year 2028/29, up from 19% this year.

Gopinath said the IMF expected world interest rates to remain high for “a lot of time” and added that the guys may never return to the time of “low for a long time”, given the possibility of more frequent adverse supply shocks.

He also said that the IMF closely watched thedisturbing” increased fragmentation of world trade and warned that it could reduce the gross domestic product of most emerging markets, including South Africa, which could suffer losses of around 5% of GDP.

Some countries could suffer losses of up to 10% of GDP, he said.

The fragmentation of foreign direct investment would add to these costs and could hit emerging markets harder, reducing access to better technologies and know-how.

He noted that the adoption of large-scale industrial policies that restrict trade—particularly in advanced economies—has nearly 6-fold in 2023 alone. Nearly 3,000 trade restrictions were imposed in 2022, three times more than in 2019.

Further turmoil in emerging markets could ensue given the risks ahead, including structural rebalancing in China, he said, stressing the need for countries to further strengthen monetary policy frameworks and protect the financial sector by incorporating financial-related risks. with the weather.

Gopinath noted that emerging markets should strive to mobilize higher domestic revenues by increasing tax collection rates, revitalizing structural reforms, and diversifying trade flows, all while continuing to adopt a socially and fiscally sustainable climate strategy that includes carbon pricing measures.

“The challenges can be overwhelming. But the opportunities are huge“, he claimed. “Emerging markets have shown considerable resilience in recent years, and their potential to accelerate growth and raise living standards remains promising.”.

South Africa, he said, embodies this potential and stands ready to “a growth takeoff” given their natural endowments and strong institutions, if reforms are implemented to boldly and decisively address structural obstacles.

Source: Reuters