We live in a more shock-prone world. The development of vaccines and unprecedented monetary, fiscal, and financial support, including the IMF’s historic general special drawing right (SDR) allocation of about $650 billion, made a global recovery possible. But Russia’s invasion of Ukraine upended it, severely setting back global economic prospects.
Economic risks have risen sharply as a result. Geopolitical and social tensions have escalated as poverty and inequality have increased. Inflation in many countries has risen sharply, fueled by a combination of surging energy, food, and commodity prices, labor shortages, and supply disruptions. Public and private debt has reached new highs. With more limited fiscal space, countries will face increasingly difficult policy trade-offs as they tackle rising inflation, heightened macro-financial risks, and slowing growth. Emerging market and developing economies with large foreign currency borrowing and external financing needs will also need to prepare for possible turbulence in financial markets as the monetary policy stance in advanced economies tightens.
Even as policymakers focus on cushioning the impact of the war in Ukraine and the pandemic, the world is also facing sweeping forces of longer-term change, including those from the effects of climate change and the digital revolution. The impacts of these forces will inevitably play out in the balance of payments of individual countries, making structural reforms and improvements to policy frameworks all the more important for building resilience and achieving long-term, inclusive growth.
Today’s economic challenges—from the pandemic and spillovers of war to climate change and digitalization—reveal economic and geopolitical fault lines in the global economic and financial system. With many countries likely to need financial assistance, it has become ever more critical to maintain a reliable global financial safety net with the IMF at its center. To better support its members during these difficult times, the IMF is revisiting its policy advice, lending activities, and capacity building, including through the establishment of the Resilience and Sustainability Trust in April 2022.