The IMF has rarely been so important

The headquarters of the IMF in Washington DC. Reuters

The global economy is facing severe headwinds in 2022. Mounting pressure has already toppled some governments, whether through elections or popular revolutions. As the war in Ukraine continues, inflation is rising, and in particular badly affected countries popular discontent is rising with it.

The atmosphere in the ongoing annual meetings at the International Monetary Fund (IMF) and the World Bank is telling. The Fund has maintained its growth forecast for the remainder of this year, but cut its forecast for 2023, warning of an impending cost of living crisis.

The German and Italian economies, two of Europe’s largest, are likely to shrink in 2023. This is hardly surprising; both are heavily reliant on Russian gas, supplies of which have been slashed due to the war in Ukraine. Both also have large manufacturing sectors, which are suffering from supply chain troubles, rising fuel costs and fears over consumer spending. Other European powers are in trouble, too. At the end of September the IMF warned the UK that a controversial new budget would "likely increase inequality".

Nilanthi Gunasekera, 49, holds her family’s last remaining handful of dried fish. She is one of the millions of Sri Lankans battling a sharp decline in living standards. All photos: Reuters

Dilhani Wathsala, 14, eating lunch cooked by Gunasekera, her mother. 'Before the economic crisis, we ate well and we served meat or fish to our kids at least three or four times a week. Now fish is out of the reach of our family and so is meat,' said Gunasekera.

'We had a good business at our kiosk,' said food kiosk owner Chandra Thushari Peiris, 42. 'Since we used to eat the leftovers from our kiosk we didn't have any problem with food.'

'But during the pandemic, and more so the present economic crisis, we didn't get any customers. Although we want to restart we don't have any capital,' Ms Peiris said.

'Our water and electricity supplies were disconnected during the Covid-19 crisis but still we had food,' said road sweeper W.M. Irangani, 58, 'but this is far, far worse,' she said.

Ms Irangani added: 'I am scared to borrow as I have no way of repaying. Already I am in huge debt. I only pray that this economic crisis improves for all and we have enough food to eat.'

Oshada Fernando, 11, plays with a kite his uncle made for him. 'With the economic crisis we haven't bought any toys for our son,' said his mother, 42-year-old Anusha Priyadarshini.

'Just a couple of months back some robbers broke into our house and stole the small gas cylinder and the cooker we had,' said Vidyathipathige Nihal, 62.

Mr Nihal, holding two small bags of chickpeas and rice, the only grain his family currently has, is now forced to cook with firewood.

'I joined the Sri Lanka Army in 1989, and in 1992 I lost my leg to a land mine,' said retired soldier Saman Priyantha, 51.

Mr Priantha said he is receiving a pension but it is not enough to feed and look after his family of five.

"I am a heart patient and have to take medicine every day," said Manel Peiris, 68. "Hospitals used to issue medicine for three months. But ... hospitals don't have medicine and so we are asked to buy from pharmacies."

She said that sometimes her husband has to borrow or get an advance from his workplace to buy the medicine.

'For the last two years, I have sewn clothes for a kids' clothing shop,' said K.P.R. Priyadarshani, 54, who lives with her 16-year-old son Ramika Lakdin.

Ms Priyadarshani said that with the onset of the economic crisis, people don't have money to buy food, let alone clothes.

Sivaraja Sanjeewan, 31, takes a bath at a public well at Wanathamulla, Colombo.

Auto rickshaw driver Mr Sanjeewan said: 'We have a tap water connection but it's very difficult to pay water and electricity bills in addition to the rising costs of food. So now I bathe in a public well more often to save money."

As desperation grows, the government is seeking a multi-billion-dollar bailout in talks with the IMF, but major financial assistance is still months away, so few Sri Lankans are expecting to see light at the end of the tunnel soon.

The cause for alarm goes far beyond Europe, particularly in emerging economies. Since the beginning of the Ukraine war, the IMF has drawn up programmes for 10 countries, estimated to be worth a total of $77 billion. They include Sri Lanka and Lebanon, both of which have seen widespread social unrest this year in large part due to economic woes.

The largest economies are suffering, too. The chief executive of JP Morgan warned earlier this week that the US was likely to go into recession by the middle of next year.

For the Middle East, the picture is mixed. The region contains some of the most ascendant and weakest economies globally. The latter are more vulnerable to the many new shocks that have come in 2022, as well as the lingering effects of the pandemic. Egypt, another country that is seeking support from the IMF, had already been contending with reduced activity in its crucial tourism industry due to the pandemic. Now, its reliance on imported grain, the vast majority of which comes from Ukraine and Russia, is another cause for concern. On the other side, Saudi Arabia is forecast to grow by 7.6 per cent, a massive expansion from last year's 3.2 per cent. As the world's largest exporter of oil, it has benefitted from high energy prices in 2022. And on Monday, the UAE agreed on its federal budget between 2023 to 2026. It estimates 11 per cent growth in government revenue in the next fiscal year.

The complexity the region is grappling with is precisely why organisations such as the IMF and the World Bank are so valuable. Throughout these incredibly challenging times and varied headwinds it has been a voice for fiscal responsibility and a vehicle to help countries most in need. Central governments hold the keys to managing the situation as sensibly as possible. But, as many have been demonstrating for some time, they need as much help, and sometimes constructive criticism, as they can get.