The International Monetary Fund (IMF) recently launched its much-anticipated World Economic Outlook for the year 2023. The report, aptly named ‘Navigating Global Divergence,’ paints a fairly optimistic picture for the Indian economy, stating that it will grow at a higher rate than formerly projected.
Noteworthy Insights from the World Economic Outlook
According to the IMF’s Outlook, the global GDP is predicted to expand by 3% in 2023, mirroring its July 2023 forecast. However, the projections for 2024 experienced a small downward adjustment of 10 basis points from the earlier prediction, with global GDP growth now projected at 2.9%.
The predictions for China, the world’s second-largest economy, offer a mixed bag of news. Although the Chinese economy is expected to expand by 5% in 2023, an improvement from the 3% growth recorded in 2022, it shows signs of losing momentum. The updated figures from October for China’s 2023 and 2024 growth are 20 and 30 basis points lower than the July projections.
Inflation and Monetary Policy
Concerns about inflation continue to loom large globally. The IMF anticipates Global inflation to reach 5.8% in 2024 — an increase from the previous estimate of 5.2%. It is important to note that these projections do not reflect the recent weekend events and their potential impacts.
Growth Concerns and Risks
The economic growth has been slower due to tight monetary policies implemented by central banks to combat rising inflation which reached 8.7% in 2022. Furthermore, recovery from the pandemic has been uneven, and supply chain disruptions caused by Russia’s invasion of Ukraine have exacerbated the situation.
Uncertainties and Downside Risks
Investment remains below pre-pandemic levels, due to stricter lending conditions and higher interest rates. The IMF cautions that there is a 15% chance of growth falling below 2%, advising countries to rebuild fiscal buffers against future shocks.
India’s Economic Projections
As per the IMF report, India’s GDP for 2023-24 is set to grow by 6.3%. This figure indicates a slight upward shift (20 basis points) from the July 2023 figures. Interestingly, the projection for India’s 2024-25 GDP growth remains unaltered at 6.3%.
IMF’s Key Recommendations
The IMF urges countries to stimulate business investment to enhance economic growth. It underscores the significance of effective inflation and monetary policy management. Besides, it emphasizes that globally synchronized central bank tightening is crucial to control inflation and maintain economic stability.
About the International Monetary Fund (IMF)
The IMF is an international organization formed in 1945 to promote global economic growth and financial stability. It encourages international trade and aims to reduce poverty. Initially, it aimed to foster international economic coordination to prevent countries from devaluing their currency to boost exports. Over time, its role has evolved, and it now serves as a lender of last resort to nations facing severe currency crises.
Reports Published By The IMF
The IMF publishes two major reports annually in April and October: The Global Financial Stability Report and The World Economic Outlook.
Previous Year Questions About IMF in UPSC Civil Services Exam
Over the years, several questions related to IMF and its functions have appeared in the UPSC Civil Services Examination. For instance, questions about the “Rapid Financing Instrument” and “Rapid Credit Facility” which are related to IMF’s lending provisions appeared in the 2022 examination. Similarly, a question about the “Gold Tranche” (Reserve Tranche), a credit system granted by IMF to its members, appeared in the 2020 examination.
Role of The World Bank and The IMF
Known collectively as the Bretton Woods Institutions, the World Bank and the IMF are vital for supporting the world’s economic and financial order. Although they share several common characteristics, their roles, functions, and mandates are distinctly different.
