Transcript

Transcript of International Monetary Fund Managing Director Kristalina Georgieva Media Roundtable

January 12, 2023

Participants: Kristalina Georgieva, IMF Managing Director

Julie Kozack, Director, Communications Department

Ms. Georgieva: I am very grateful to you for having this early in the year getting together. I will start very briefly with a couple of words on the world economy and what we see as top priorities for the year. Immediately caveating that there is a great degree of uncertainty in what lies ahead.

So, in terms of the outlook, we will publish an update of the World Economic Outlook at the end of the month, the numbers are still being worked out. But the headline messages are growth continues to slow down in 2023. We projected in October to go down to 2.7% and we will see where exactly we land. But this is yet another half a percentage point in slowdown in global growth. Inflation remains stubborn, and in that sense, the job of central banks is not yet done. They will have to continue to press for price stability, and the fact that inflation remains stubborn, means that cost of living crisis is not over. The more positive piece of the picture is in the resilience of labor markets. As long as people are employed, even if prices are high, consumers spend. And that has helped the third quarter in the US, in the Eurozone, to a better performance.

But we all know that the impact of tightening financial conditions is yet to bite in terms of unemployment, and how deep would the bite be? We don't know, but we for sure know that there will be an implication on investment and consumer confidence. What we see at the outset of the year is that social cohesion is not guaranteed. We see social unrest for different reasons already. I mean, it is only January 12 and we have Brazil, Peru, Bolivia, Colombia, UK, all for different reasons, but with clear social tensions. What would that mean down the road in the year is, of course, too early to say. But I think we need to watch how monetary, how tightening of the financial conditions would translate into an impact on labor markets, and it could translate into possibly more tensions between employers and workers.

The economic factor we all watch very carefully is China. There is a great deal of hope that China's reopening would lead through 2023 to a better impact on global growth. As you know, China's growth in 2022 was very disappointing. We are projecting high growth for 23. This is all subject to China over tuning the next couple of months of adjustment of the economy to COVID impacting many millions of people.

Another driver of uncertainty; the war in Ukraine. We know that it had a dramatic impact on global growth last year when we looked at 2022. What brought the recovery to a screeching halt in the beginning of the year was as you know besides Omicron, Russia's invasion of Ukraine. And we saw from 6.1% growth in 2022 dropped to 3.2% in 2022. The whole cost of living crisis was primarily driven by the war, by energy and food prices this year. Remarkably, Europeans adapted to the dramatic change in energy supply. But we still see the implications from Russia's invasion on investor and consumer confidence, especially in Europe, as a negative factor.

What we also know is that the Ukrainian economy is devastated. We know that the Russian economy is negatively impacted. What we don't know is what will happen in terms of food security and to the deal on exports of Ukrainian grain, to provide more certainty to North Africa, to countries dependent on this import. And we don't quite know the implications of both gas prices and the changes in gas markets on fertilizer production, and through fertilizer prices of food security.

What we see is, of course, with tighter financial conditions for countries with high level of debt, especially dollar and euro denominated debt, the impact is very dramatic. And when it is combined with currency devaluation, it leads to tremendous difficulties for people in these countries. I want to repeat something I said before: We do not see a systemic debt crisis on the horizon at this point. What we do see is incredibly tough time for low-income countries. The 60% that are at or near debt distress and for quite a number of middle-income countries with high level of debt and a debt distress. What all this translates into are policy priorities:

One, central banks in 2023 have an even tougher task than they had in 2022, because they have to stay the course. The job is not done but do it carefully, monitoring how is this impacting prospects for growth and employment. We are seeing in the first days of the year more risk appetite. Which on one level is hopeful. So that may mean that the expectations for inflation not only picking up but trending down are high. But we also know that that may mean that central banks have to do even more to counter inflation.

Secondly, very important that the protection that has been provided against the cost of living crisis is well calibrated and even more calibrated. The less space there is for it. And what it might mean is that the cushion that has been there for many households and businesses might need to tighten. We have seen in the UK, for example, the discussion going in the direction of better targeting, the provision of policy support, and that will be the big task of finance authorities in 2023.

Three, it would be very important for all of us in the international community to work towards protecting a more integrated global economy for the sake of its performance. In other words, we recognize the risk of fragmentation, and we have to acknowledge that some of it is driven by economic logic and will be there with us. To be more specific, we learned from COVID and from the invasion of Ukraine that cost considerations cannot be the only factor. Security of supplies has to be integrated in economic decision making. But that inevitably means an overall higher cost of production globally. And the question is how we retain that increase to be only driven by economic considerations. In other words, the security, security of supplies, and not going to a point in which that undermines economic performance. We need it also to address problems that cannot be solved without global cooperation. And I would put two on the top of the list climate, and debt.

I would finish by saying that for us at the Fund, these are the priorities, to provide sound analysis to policymakers, to central banks, and for monetary policy and fiscal policy, to provide sound analysis on debt and offer institutional pathway for resolving debt problems. You know, we have promoted, and I can say with great satisfaction, but we now do have an agreement on the global sovereign debt roundtable at the highest level. We intend in February to have the first meeting to start operating on it. And it does bring key creditors, Paris Club, China, India, Saudi Arabia, bilateral creditors, private finance, as well as some of the borrowing members of those that are debtor countries with the IMF and the World Bank, creating a safe environment that is conducive for good decision making on debt front.

And on climate, I'm actually encouraged by what we have seen in Europe in terms of accelerated transition to renewables, 30% faster than it was last year. If we can take a constructive approach to bringing countries and private finance for progress on the climate front that would go a long way to reduce economic risks in the future.

So let me stop here and then I'm your hands. Any questions you might want to ask? Actually, we have been debating what is the good news I can give you. It's going to be a tough year from the perspective of global growth, tougher, worse than 2022. So, what is my best news for you? Best news is that we think we bottomed out. We are going to see towards the end of 2023, hopefully a reversal in trend towards higher growth trajectory in 2024. It is less bad than it could have been. In other words, you’re not going to see us going with downgrade, after downgrade, after downgrade, hopefully. This, of course, subject to no unexpected negative surprise.

Ms. Kozack: So before we begin, I'll be happy to moderate the discussion. We can do by hands or you can turn your nametag vertically, if you want. Just a reminder that we're embargoed until today, Thursday, January 12, 5:30 p.m., and I'd appreciate if everyone in the first round can stick to one question. There's a lot of you here, and we'll go to second questions, time permitting. Will finish promptly at 4:00 p.m.

Questioner: Thanks so much for doing this. Just one clarifying question on the global growth forecast. So that's going to be downgraded at the end of the month to 2.2%. Is that right?

Ms. Georgieva: No, that’s what I was saying. 2.7 is what we had in October. I don't know the number. We do not expect to see downgrades, I believe a half percent. Clearly, I didn't express it well. But half percentage point is vis a vis what we built this growth in ‘22, 2.2% growth, ‘22 we are projecting 2.7% in ‘23. We don't yet know the number. Remember, in the previous times we made before the publication and I would say and I, you know, unfortunately we would for the downgrade, I'm not saying that's a good thing.

Questioner: And if I could just have one quick follow up there. I mean, the downside scenario in the October WEO hinged on this sharp spike in oil prices that we haven't seen these numbers reverse at a move in, you know, a significant drop, frankly. And I'm just curious how that's kind of impacting your view on that.

Ms. Georgieva: That is where the picture looks a little better now because this significant downside risk did not materialize. What also is surprising on the upside, is how vibrant and tight labor markets remain. We thought we would see some impact of policy tightening and we do expect to see it. It is just that the lack seems to be, you know, in time, time seems to be more than half a year, because tightening started half a year ago.

Questioner: Thank you. This year, India is G20 presidency and in our last Annual Meeting interview you said India is a bright spot. What can you tell us? Give us a sense which are the areas where India's economy can improve this year.

Ms. Georgieva: So India remains among the countries that perform better than global average and by good percentage. What you see as working extremely well for India is how the country has taken digitalization that was accelerated by COVID to be a strong comparative advantage, both for public policy and for private sector growth. For public policy, because the combination of digital ID and digital public infrastructure allowed India to move policy support on a digital platform, and to target extremely well those who are recipients of this support, as well as to become a bright example of vaccinations done in a prioritized and highly effective manner.

On the private sector side, because that has become a fertile ground for very rapid expansion of private financing and enterprises and that India intends to take to the G20 as an area to build comparative strengths. I know that I'm not telling you anything you, actually everybody probably knows. But this is one of the priorities of India's G20 presidency, how to make digitization built on a public platform, public infrastructure that allows everybody to plug in and significantly reduce these costs of digitization. How that can be a source of growth and employment. So that is definitely one area.

Also, reforms. India as well, adopted some painful reforms, they are paying off. Where the country faces the difficulties of many others on the climate front. Very dramatic impact on agriculture because of a very severe variability of climate shocks, especially droughts, high temperatures. And India is, of course, impacted by developments in Asia. One of the countries, Sri Lanka is a neighbor, Pakistan is a neighbor. These are countries that are volatile. And of course, the fact that China has slowed down so dramatically, it impacts for the whole of Asia. If I am in India today, I would worry more about what is happening in the rest of the world and how this is going to impact me. Then what are the domestic factors?

We count a lot on India's leadership on the G20 because it is such a critical time for the world to protect its own well-being by protecting the integrated global economy that I hope that India will be able to do that huge global service to take us together.

Questioner: You mentioned hopes for China's recovery. I wonder what your early assessment is of how that recovery has unfolded in the month or so since zero COVID restrictions were lifted and how you expect it to transpire over the rest of the year. And how important a smooth Chinese recovery is the prospects for avoiding a global recession?

Ms. Georgieva: It is a very difficult adjustment for China to move virtually overnight from significant restrictions to free movement of people. What it translates to are shortcomings in vaccinations, especially of elderly population. The fact that their health infrastructure was built around isolation of people rather than preventive measures and treatment, as well as the considerations of the types of vaccines China is using and the availability of antiviral treatment. Just for illustration, I was in China literally on the day they announced easing of restrictions, in a bubble city. What impressed me was driving through the city there were people on the streets, not many, but there were people on the streets and very few of them had masks. And I said, I thought that in China, COVID controls are very strict. The answer was, well, people don't wear masks because in this city there is zero COVID. No one has COVID. Obviously, that is not going it is no more the case.

So how do you adjust from ZERO-COVID to COVID spreading like a bushfire? This is certainly not easy. Whether it would take more or less time, a couple of months or six, seven, eight months, that would have significant implications for China, but also for the impact of China on the growth trajectory for the world economy. It is very likely the single most important factor for global growth in 2023. Remember, China used to deliver 35, 40% of total global growth. Last year, for the first time, China grew as much or a little less than the World. So instead of adding to global growth, it might have subtracted a little bit from global growth.

So it matters tremendously. We are now currently projecting 4.4% for 2023 for China. Again, the numbers will come in the end of the month, so don't take that as our final projection for now. That would put China above average global growth, which normally is which China belongs, and how that would happen would depend on the longevity of this transition period.

Questioner: And so do you expect them to get back to 35 to 40% of global growth, or could it be even more, given that all the other major economies.

Ms. Georgieva: We expect them to become, should they overcome this. What is most important is for China to stay the course, not to back off from that reopening. And if they stay the course by mid-year or there around, China will turn into a positive contributor to average global growth, possibly not as much as they did in the past, because in the past, you know, now India is the one to contribute to global growth more. But it would be a positive contributor.

Questioner: I have a quick follow up on what you said about bottoming out. I apologize. I wanted to ask you to just a very quick follow up and the bottom out for. When exactly are you seeing the bottom? Was it reached in 22’ or is it going to be reached sort of midway through 23 and then turn up again?

Ms. Georgieva: We think that towards the end of 23’, that would be bottoming out. In other words, the trajectory of sliding down of global growth to reverse in the second half 2023 possibly towards the end of 2023, and then to see 2024 higher growth than we've had in 2023. Because we had, you know, 2021, then 2022 lower growth, 2023, we expect lower growth than in 2022. We project that this would turn around towards the end of 2023 and into 2024.

Questioner: And your best assessment now is that a global recession can be avoided?

Ms. Georgieva: Well, we so this is a very interesting question. We have always thought that global recession can be avoided, that there can be a recession in a number of countries. Now we would know towards the end of the month what we project, how many countries, but we would avoid a global recession. This is subject to no new negative driver in the world economy. If you ask me what could be a new negative driver, I can point out to you hypotheticals. Hypothetically, if there is a more social unrest and a spillover from one country to another, that could push countries on a downward trajectory. If the war, Russia has been carrying out against Ukraine takes a turn to the worse, that certainly would be detrimental to consumer investment, investment confidence.

I mean, obviously, you heard the G20 being categorical there should never be use of nuclear power. And I'm not hypothesizing that to change, but a dramatic shift or climate event with very dramatic consequences, cyberattack with very dramatic consequences. We are now in a more shock prone world, and so we have to be open minded that this could be a risk that we're not even thinking about. That's the whole point of the last years. The unthinkable has happened twice. Or, it may be a positive event that turns the world on a positive trajectory. We people, we are wired for danger, but positive event could be a massive expansion of services on the basis of digitalization that lead to eradication of diseases.

Questioner: Do you see? You said that you talked about debt and the Common Framework, the platform. That it's new. That you're going to be meeting the first time in February. Do you have a date? Can you see which of the borrowing countries would be participating and can you just explain the relationship between this and the common framework. Whether this will replace the current framework or enhance it or complement.

Ms. Georgieva: So we had the Common Framework and as it happens, it was this week that it delivered to the fullest, Chad. I'm going to Zambia next week, no, next week, the week after. I really hope Zambia would be the second case. And we know that Ghana is debating whether they should go to the Common Framework. What is the one issue they are concerned about, than anyone is concerned about? Speed and predictability. If we ask for it, do we know how it would work? Do we know what would be the timeline for debt resolution? We have no intention to substitute for the Common Framework.

We actually think this roundtable can help the Common Framework by thinking through some of the issues that are still not fully resolved. For example, how do we define a cutoff date for loans to not be considered in restructuring? What is the timeline? From the moment a request is made until a resolution is reached? What is the transparency requirement for the process? This roundtable can help, but the main objective of the roundtable. it is very commonsensical. Bring everybody around the table to discuss these issues at the most senior level. At the ministerial level, at the head of agency level, at the level of private finance CEOs.

And in terms of who would participate of the debtor countries, we don't yet have a full definition of participation. We are going to certainly invite that the countries that are G20 members because our intention is to aim for first meeting of the roundtable at the margins of the G20 finance ministers, central bank governors meeting. But this is this first meeting is also a preliminary meeting. It is for us to come together and reach some common understanding of what we aim to achieve. And then the intention is to have meetings of the roundtable at the margins of Spring meetings and Annual meetings.

Ms. Kozack: So I suggest we go to here, and then I promise this side of the table, we will go here.

Questioner: Thanks for taking my question. On the U.S. outlook, I was wondering if you are seeing a soft landing in the United States. And in terms of the new power dynamics in Congress, do you have any concerns as part of your outlook that a debt limit standoff could lead to a default?

Ms. Georgieva: What we see in the United States is quite remarkable labor market resilience and the fact that the support that has been provided during COVID, is holding consumer demands strong. We also see a shift from goods back to services. Remember, the big pressure on prices came also from the fact that consumer demand moved to goods, that there wasn't enough of them. Whereas now we see more diversified both consumer demand but also growth underpinning for US. It gives some argumentation of an expectation that the US would avoid falling into a recession. And actually, I would say, even if it is in technical terms in recession, that would be very mild recession. So which side it would land? Of course, we will have to see. For now, the dynamics seem to be more indicative for a soft landing for US. The discussions of debt ceiling limits are always quite intense. History teaches us that in the end, solution is being found. And I don't want to argue with history at this point.

Ms. Kozack: Okay, so we go here and then maybe we can pivot to this side of the table.

Questioner: Thanks very much. I wanted to just go back to what you were talking about, the debt roundtable. You know, one of the issues that there is the U.S. and others are saying is that China, with a portion of the debt, of course, countries have to China. I was wondering if you've seen any particular progress on that front, that China would be more willing to take a haircut in some of these situations? And then what really is, in your view, the worry about debt, what does it really mean for these countries that are facing this debt crisis? What's the real implication for the people?

Ms. Georgieva: China is becoming a very significant source of lending does bear responsibility to support countries when they're faced with inability to service that debt. We have engaged with the Chinese authorities, working on two very important issues: One, coordination among Chinese agencies that would allow all sources of debt to China to be part of the discussion for a solution. And this has been a long process and it is still continuing. China does not have the tradition of that coordination that exists in more mature lenders.

China has many agencies and entities involved. The second area we have engaged with China is at the country level, to define a pathway for debt resolution of Chad, Zambia, also, we are discussing Sri Lanka, Suriname, to help China understand both the whole issue of debt sustainability and what can be a pathway for their contribution. We have seen more willingness. Just to give one example, when we were in China, we asked to have a meeting with the two key agencies, the Ministry of Finance and the People's Bank of China; as well as with the large lenders in China, Exim Bank and China Development Bank. They came for this meeting and we had a very constructive and frank discussion on these issues. What is the biggest problem internally, domestically for China? It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore China will try to offer support to all developing countries it is genuinely with the objective to help, but also, they expect to be paid back because it is a developing country.

So a haircut in the Chinese context is politically very difficult, but they understood, after many interactions that there are ways in which they can reach the equivalency of a haircut by stretching maturities, reducing or eliminating interest rates, payments, and the Paris Club in their own engagement with China, so that there might be a way to reach the same objective in a way that in terms of reducing the burden of debt. Now, of course, it is much better if debt reduction is done upfront, not to that reprofiling, but to a as you said, haircut. So, we of course, continue to discuss with China the value for China as a lender to have their exposure to countries defined in a way that is rational and then the countries can actually service that debt. But it is this is where the roundtable is so important to have that kind of substantive discussions with China and with everybody else.

For countries that are suffering under tremendous burden of debt, they cannot possibly serve, that translates into reducing social services for their own people. And that is not the choice they should be faced with. How can we help? Well, number one, provide more liquidity so they can have the capacity to fund education, health care, critical public expenditures. And we have been doing that, the World Bank has been doing that. That, of course, we've been advocating from donors to do more of it, because if a country is underwater, pouring more water, getting more debt is not the very best way to help. What we need to recognize is that these countries came out of COVID with their fiscal space completely depleted. Many of them are not just facing debt. They're facing security expenditures at the very high level, for example Chad. And they do require much more attention than currently they seem to have received. So I was very pleased that US President Biden called the 17 African leaders, very warmly welcomed the decision of Janet Yellen to go to Africa. I think it is in the interests of the countries, of course, but it is in the interests of global stability that these countries are not left to sink in that insecurity and climate shocks on their own. Write more about that, please; if there is one huge risk of fragmentation, it is ignoring the build up of insecurity that comes from poor countries sinking even deeper into problems, and then that would turn to bite the rest of the world.

Ms. Georgieva: Thanks for taking my question. So to build on what you just said in getting Africa involved, there's been a lot of calls, of course, to sort of reform the way international financial institutions deal with a number of issues. There's been reports that the World Bank is going to go to the Spring Meetings with requests to increase capital, create some new lending tools to address global crises. I'm wondering if you could tell us whether the IMF supports that idea and also like what kind of changes to the IMF mission operating model and financial capacity might make sense in this new era that you might be discussing in the spring.

Ms. Georgieva: We very much support the World Bank coming up with a strategic outlook of what are the global risks that undermine development gains and even reverse this development gains. We know that after three decades of poverty reduction and reduction in hunger, we are now seeing increase in poverty and increase in hunger. And the World Bank has a huge responsibility as an institution to address these issues. We know that one of the big drivers of increasing poverty and hunger is climate change.

And again, the World Bank has a huge responsibility and mandate to work on all of these issues. I do see a case for creating more agility in how the World Bank uses its capital, and if it is given more financial capacity, they also will have to carry the responsibility of how they deploy this financial capacity to the fullest. So I very much look forward to the discussions that will take part in the Spring Meetings. For the Fund we have done over the last year, year and a half, three things that have a significant impact on the way we work.

Number one, we have worked with our members to expand our financial contribution to liquidity in countries in need, through the special drawing rights, through the increase in access levels for PRGT countries and through the creation of the Resilience and Sustainability Trust.

Number two, we have worked with our membership to have a strategy for fragile and conflict-affected states, because this is now 25% of our membership. And to define what it means for the Fund to play a role together with others, to bring our comparative strength, which is in macro policy and financial stability; to these countries. And it would be soon, in a month from now, maybe I should say we will have a first anniversary of the adoption of this strategy, see how we're doing today.

Three, our board adopted the climate strategy for the Fund. What it means for the Fund to play a role in a world of climate shocks, but also opportunities for green growth in countries. We didn't just go to say they think these are good ideas. We went also and ask our board to provide us with the financial resources to have skills and capabilities to do this work and of course the RST is related to it. We are going to have engagements with our board in the next months prior to our Spring Meetings on issues like access limits, instruments, do we have the right instruments at the Fund for a changing world? And we just had our retreat with our board of directors. I was very impressed how much we are on the same page on priorities, inflation, financial conditions, impact on the more vulnerable countries and what does it mean for the Fund? So you will see the Fund continue working in this direction.

There are very interesting discussions going out and I am grateful for them on what more and what better we can do. We are very open to these discussions. Actually, the initiative that the Prime Minister Mia Mottley, started the Bridgetown Initiative, in the first meeting I joined them virtually exactly because of that. We need to think of a rapidly changing world and institutions that have to be ahead of the curve and not behind, and that is to use the wisdom of the collective to define how we can best serve our members.

Can I add something? You know, you work for Africa, right? What Impresses me, leaders come for the Africa Summit. The majority of them came to the Fund, so we can engage in discuss, and this is a reflection of the Fund recognizing that as an institution at the center of the financial safety net, we ought to prioritize the most vulnerable members of those that we serve. And obviously that means a strong focus on Africa.

Questioner: Thank you very much for taking my question, Japan is G7 chair this year. I would like to ask you a very Japanese specific question on inflation. Things might be a bit changed in Japan now. BoJ adjust further its monetary policy to tackle such tiny inflation? Or should BoJ still adjust the deflationary narrative to conduct accommodative monetary policy program. Thank you.

Ms. Georgieva: BoJ has had the privilege to be in an exceptional circumstance because inflation in Japan, as I said, even now is very close to 2% or very slightly above the 2% target. In other words, BoJ rightly pursued accommodative monetary policy. The pressure from labor on increase in labor compensation has not led to any dramatic change. In other words, there is no driver for inflation coming from there. Nonetheless, conditions have somewhat changed because the yield curve control has been tested, 25 basis points has been tested, and therefore BoJ appropriately is reviewing how they should handle their monetary policy posture. We have over time, over the years, we have been discussing this issue with the BoJ, what options there might be for defining monetary policy in these specific conditions of Japan. And in that sense, what we see in the thinking of BoJ is connected to what we have been discussing during our Article IV consultations, including myself, during the last the Article four consultations. To sum it up, they are doing the right thing, to keep an open mind to look into the situation. But BoJ is not faced with a sharp increase in inflation or drivers of inflation coming strongly into play and therefore they are cautious approach remains appropriate.

Questioner: A few days ago you mentioned that one third of the world's economy will be in recession this year. But you didn't mention Latin America in that group. How do you see the region in the next months considering that some of the conflicts that you mentioned before are happening there?

Ms. Georgieva: Growth in Latin America is not very strong, but it is in positive territory. At this point we only see Chile for a variety of reasons, possibly falling in recessionary territory. There is, of course, concern about developments on the civil unrest fronts. What we have seen in Latin America over the last year is a fairly significant political shift and it is driven by underlying factors, economic factors seen in Latin America. Would that lead to further slow down is to be seen. I want to say two positive things about Latin America: Quite a number of countries there were early to anticipate and act on inflation: Brazil, Mexico, Chile. And what they have achieved is for inflation in these countries to trim down, to peak and then trim down, before the rest of the world.

That provides more confidence for investors. And the second positive thing about Latin America is we are not, with some notable exceptions, we are not seeing that burden of the kind that can torpedo an economy into a crisis. Obviously, Argentina has a very special circumstance, but even Argentina, and of course, Julie knows a lot about Argentina, just these last days saw their municipal debt rating slightly adjusted upward? Well, never mind. My point is that we don't have that dramatic risk that comes from debt unsustainably. Ecuador has some issues, but they have done quite well on reforms.

What is really disappointing is that Latin America has such a huge potential to grow. And in a world where for climate reasons and security of supply reasons, there is so much discussion around [inaudible] that could drive much better performance of Latin American countries that we see today. So it is more of a story of underutilized potential than anything everything else. And may I say, 3% growth, this is not great for countries with youthful population and shortage of jobs. They should be striving for 7-8%. I am looking at our Indian colleague, not be satisfied with 2 or 3%.

Questioner: I just wanted to follow up about the risk of social tensions that I think you mentioned a few times. And you talked about how we have to monitor this risk and also how the impact of tighter financial conditions have yet to bite. To what degree is this going to be, does the IMF see this as like a major downside risk when it comes to global growth or particular regions?

Ms. Georgieva: It is, it is a downside risk. Look, if I have to zoom in on what is the issue that is likely to come later in the year that we have not yet prepared for, it is the impact of financial tightening on labor markets, on employment. Why is this so serious? Because it is one thing to deal with the cost of living crisis when you have a job. It's a very different thing to deal with the costs of the crisis when you don't have a job. So far, it looks like labor markets are holding fairly tight. And people are not on the streets to protest. Big part of it is because governments have been fast to provide policy support for high energy prices, high food prices. In other words, they're being buffered. But that policy space is shrinking. And while inflation reduces the total debt in local currency, over time servicing this debt becomes a real burden. If you have a flexible rate mortgage and it goes from 2% to seven, initially the first one or two payments, it's kind of okay, well, the third payment, the fourth payment, the fifth payment, the sixth payment, eight payment, you're selling your house. It's a little bit the same with governments. So that issue of labor market, of unemployment and tight financial conditions for governments, they are related, and if there is no clear policy thinking now how to address it six months from now, then we may have more unhappy people. But remember, 2019, 2019 the year of protests. France, Chile, Lebanon, and then came COVID and blocked the scene. But now COVID is gone. People are on the street and if they're unhappy, they'll stay there.

Questioner: And that's the biggest risk that you see?

Ms. Georgieva: So I see this as a risk for the I wouldn't say the biggest risk, frankly. The biggest risk to me is for the world is a dissipated spillover from the war in Ukraine that, to my mind, might spill over into a war. A war is the highest risk. It is not necessarily the most probable. It's a low probability, but very high negative impact risk.

Questioner: Thank you, Managing Director. I wanted to ask you to ask about some of the implications of, you know, fiscal policy. There's the old joke about the IMF being, you know, it's mostly fiscal, of course. And I wanted to ask about in the case of the Inflation Reduction Act and some of the subsidies there. And we've seen some exploration of subsidies as well in Europe. Look in Germany providing subsidies. To what extent are you concerned about the implications of the Inflation Reduction Act and potential for a subsidy war to the bottom in terms of everyone trying to provide similar benefits and then creating problems in terms of revenue or in terms of an arms race on subsidies. Thank you.

Ms. Georgieva: We have been very clear that the evidence consistently over our long history is that a choice of subsidies and protectionism usually creates similar reactions from other countries. And the result is a shrinking pie, not expanding. But we do understand that there are domestic policy considerations and also a degree of excitement around how the climate crisis can be best addressed short of global agreement that actually holds.

Nonetheless, what we would like to see is countries, I think only rationally on security of supplies, with diversification of supplies, within economically proven benefits for themselves and for the rest of the world. I mean, let me make this somewhat more concrete. It is very clear that no, that issue of security of supplies is real, very clear. COVID has proven it and the war has proven it. You cannot rely only on the single supplier. You have to think of diversification of your supply routes, but you have to do that with an economic logic. That means two things. One, don't bring everything back home because this is not diversification, it is dependency. Imagine that the place you put all your production domestically gets hit by a hurricane. And then what? And to make it so that there is a common view and a common standard that everybody accepts, this is why you exist. This is why the IMF exists. Places where we have dialog on economic policies in a coordinated manner, and this is what we would be advocating for. Do the right thing in the world economy integrate.

Ms. Kozack: Very good. Thank you for your time.

Ms. Georgieva: And my pleasure.

Ms. Kozack: And thank you all for coming.