DOHA: Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), stated on Wednesday that the ongoing showdown over government debt in the United States was “unnecessary” for the world economy, emphasizing that a default could be avoided.
Georgieva, along with Stephen Schwarzman, the Chairman of Blackstone, one of the world’s largest investment funds, expressed their frustration at the Qatar Economic Forum regarding the spending standoff between US President Joe Biden and opposition Republicans as the early June deadline approaches.
The battle over the debt ceiling has caused unease in international markets, with some Republicans questioning the urgency of reaching a swift agreement to avert a default. Georgieva referred to past instances of US showdowns over spending limits and noted that history has shown that the issue tends to get resolved at the last minute.
However, she stressed that the current situation in Washington was “unnecessary” for a world economy already facing high uncertainty. She highlighted the need to be mindful of the risks involved. Schwarzman echoed this sentiment, describing the ongoing standoff as a “nail-biter” and a clash of “wills and desires.”
He expressed disbelief that such a situation was unfolding and mentioned that the two parties were roughly $100 billion apart in freezing spending levels, which he believed could be negotiated.
IMF Confident of Avoiding Default
The IMF chief and Schwarzman both expressed confidence that a default would be avoided but acknowledged the importance of finding a resolution promptly. They emphasized that the whole world is closely observing the situation, and any miscalculations in the negotiations could put significant pressure on domestic constituents in the US.
In addition to discussing the debt battle, Georgieva also addressed the global threat of rising prices and its impact on interest rates. She cautioned that interest rates would remain high worldwide due to inflationary pressures.
While headline inflation in many countries is reaching its peak due to central banks raising interest rates, Georgieva noted that core inflation, particularly driven by stubborn food prices, has not yet subsided as expected.
Georgieva stressed the importance of central banks staying the course and not prematurely reversing interest rate policies, as premature actions could create prolonged tensions and hinder economic growth.
She anticipated that interest rates would remain high until around 2024 or early 2025, after which the situation is expected to change.
