(CNSNews.com) – International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Sunday that they expect to see “a deep recession in Russia,” and even though Russia has the money to pay its debt, “it cannot access it.”
“Let's remember that the reason there are unprecedented sanctions is because the unthinkable happened, a devastating war in Ukraine, and the impact of the sanctions is quite severe for the Russian economy. We expect a deep recession in Russia, and this abrupt contraction is affecting already how the Russian population is taking the heat on them. The ruble depreciated significantly. What does it mean?” Georgieva said.
“Real incomes have shrunk. Purchasing power of the Russian population has significantly diminished. In terms of servicing debt obligations, I can say that no longer we think of Russian default as improbable event. Russia has the money to service its debt, but cannot access it. What I'm more concerned is that there are consequences that go beyond Ukraine and Russia,” she said.
The IMF is “mostly concerned” about Russia and Ukraine’s immediate neighbors: the Central Asian republics, the Caucasus, Moldova, because they have trade relations with both Russia and Ukraine more than the rest of the world, and because of this outflow of people refugee wave in Europe, that is of the order of magnitude of what happened in the Second World War.”
“So there the impact is most significant. Beyond the immediate neighbors, there are two groups of countries we are very worried. The first group are countries that have yet to recover from the COVID-induced economic crisis. For them, this shock is particularly painful, and the second group of countries are those that are more dependent on energy imports from Russia, because there the impact on consumption, but also on inflation is going to be more prominent.
“Are we looking, because of the debt levels you talk about, the vulnerability, are we looking at the potential of this becoming a financial crisis for the rest of the world?” host Margaret Brennan asked.
“For now, no. When you look at the total exposure of banks to Russia, it is about a hundred and twenty billion dollars. Not negligent, but definitely not systemically relevant, and to what we are also seeing is that while inevitably we are going to downgrade our growth projections for 2022, it is still going to be a positive growth rate,” Georgieva said.
“For countries that have been fast to recover from the COVID crisis, like the United States, growth is robust. It is those that were falling behind where the impact is more severe, and let me say this, yes, war in Ukraine means hunger in Africa, but war in Ukraine also has social implications for many, many countries through the three channels that are already demonstrably impactful,” she said.
“One, commodity prices, energy, grains, fertilizers, metals to the impact that has on inflation and in countries where inflation has already been high, this is dramatic,” Georgieva said.
“Like the United States,” Brennan said.
“Like United States, like many emerging market countries, think of Brazil, Mexico, and three, what do we do when we have to fight inflation? We tighten financial conditions,” Georgieva said.