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Is the World’s Financial Firefighter Ready?

Wealthier countries must equip the International Monetary Fund to prevent and manage the spread of financial crises across emerging and developing economies. This will require adequately bolstering the IMF ahead of time with well-positioned reserves and firebreaks.

OXFORD – The world needs to prepare for a cascade of financial crises across emerging and developing economies. The writing is already on the wall, with Ghana, Pakistan, Bangladesh, and Sri Lanka currently queuing at the International Monetary Fund’s door. Wealthier countries must now equip the IMF – the world’s financial firefighter-in-chief – to prevent and manage the spread of crises. They could start by ensuring that the Fund has the resources to stop lower-income economies adopting beggar-thy-neighbor policies that destroy other countries’ livelihoods and threaten political and economic stability.

As the US dollar strengthens and global growth slows, many poor-country governments that are already seriously overstretched by COVID-19, and by the food and energy crises sparked by Russia’s war in Ukraine, must now contend with depreciating currencies and rising borrowing costs. And support from China is declining as the country’s new political priorities, zero-COVID policies, distressed property market, demographic pressures, and structural reforms cause its economy to grow at its slowest rate in four decades.

Adding fuel to the fire, foreign investors are withdrawing funds from emerging markets at a record pace. As a result, many of these countries are burning through the foreign-exchange reserves that they had carefully built up after previous crises.

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