IMF tells governments to protect vulnerable people when tackling Covid debt

theguardian.com:

Gloom at the International Monetary Fund is nothing new. Since last summer the body responsible for stabilising and supporting the world economy has been growing ever more pessimistic.

First it was rising inflationary pressures caused by supply-side bottlenecks. Then it was the arrival of the new Omicron variant towards the end of 2021. Now it is the war in Ukraine, something not anticipated when the Washington-based organisation last published its assessment in January but which dominates the IMF’s world economic outlook.

It is not just the fact that Russia’s invasion will lead to appreciably slower growth and higher inflation this year – although both look inevitable.

The IMF also warns the war has exacerbated two tricky policy dilemmas, one facing central banks and one troubling finance ministers.

For central banks, such as the Bank of England and the Federal Reserve, the issue is how to tackle mounting cost of living crises without killing off still incomplete recoveries from the pandemic. That’s not going to be easy, as the IMF freely admits.

For finance ministers, such as Rishi Sunak, it is getting the balance right between protecting the most vulnerable while repairing the damage caused to the public finances by Covid-19 spending. The IMF understands the difficulties but warns against being too penny-pinching.

“Following a huge and necessary fiscal expansion in many countries during the pandemic, debt levels are at all-time highs and governments are more exposed than ever to higher interest rates. The need for consolidation should not prevent governments from prioritising spending with well-targeted support for the vulnerable – including refugees, those struggling because of commodity price spikes, and those affected by