Riyadh, Saudi Arabia – The world should be prepared that the interest rates are here to stay for a longer duration, Managing Director of the International Monetary Fund Kristalina Georgieva said at the Future Investment Initiative (FII) conference in Riyadh.
“We want to see the normalization of the monetary policy over time,” Georgieva said. “We are not thrilled with the rapid transition from 0% to 5% interest rates but we are there. So now, our message to everyone is to buckle up and ensure that you understand interest rates are here to stay for a longer duration.”
She, however, conceded that “interest rates are not just suffocating, they are making life harder.”
Dubbed “Davos in the desert”, the conference has brought together the who’s who of the finance world including chief executives of global banks and investment heavyweights running funds with trillions of dollars in assets under management.
Georgieva also called on the overburdened countries to restructure debt for sustainability. “Act early; we’re here to assist in debt restructuring,” she said.
The IMF chief blamed inflationary pressures on structural factors.
“We need the conversations on what are the inflationary pressures,” Georgieva said.
She acknowledged that “inflation is terrible for growth”.
“It undermines investor confidence, it undermines consumer confidence,” Georgieva said.
When asked about the geopolitical crises like the Ukraine war and the fresh conflict in Gaza, Georgieva said that countries needed to find a way to insulate their people from the economic impact.
“We are in a world where we are witnessing frequent and devastating exogenous shocks. How we create a GDP to buffer our people against unthinkable events is the job of governments,” she said. “Some countries are doing well, others falling far behind. This calls for solidarity.”
Striking a note pessimism, the IMF chief said that the war between Israel and Hamas was another cloud on a horizon.
“What we see is more jitters in what has already been an anxious world,” Georgieva said. “And on a horizon that had plenty of clouds, one more — and it can get deeper.”
Long-term consequences, according to her, included children being forced out of school, as well as the effect on the tourism sectors of the neighbouring countries.
“Egypt, Lebanon, Jordan. There, the channels of impact are already visible,” she said. “Uncertainty is a killer for tourists inflows. Investors are going to be shy to go to that place”