IMF Prepares Financial Support for Countries Facing Severe El Nino Impacts

NEW YORK: (News Desk) – The International Monetary Fund is preparing to support countries vulnerable to the economic impact of El Nino, IMF Managing Director Kristalina Georgieva said on Wednesday, warning of growing risks to food security and inflation.

Speaking to AFP in Singapore, Georgieva said the IMF was closely monitoring the weather phenomenon and its potential impact on food prices and vulnerable economies.

“We are very concerned about the El Nino that is hitting this year,” Georgieva said, warning that rising food prices could add further pressure to global inflation.

El Nino is a naturally recurring climate phenomenon that typically occurs every two to seven years due to warming sea-surface temperatures, causing changes in global wind, pressure and rainfall patterns.

Global forecasters expect this year’s event to reach an unprecedented intensity in the modern era, potentially worsening the effects of human-driven climate change and extreme weather.

Central American countries are already facing drought, while parts of Asia are experiencing severe disruptions to monsoon rainfall, affecting agricultural production.

Georgieva advised governments to carefully manage their limited fiscal resources, noting that some countries could be forced to seek external financing.

She said the IMF was preparing to assist vulnerable countries if El Nino develops into a major economic shock.

The IMF chief also warned of the possibility of “dual exogenous shocks” from El Nino and rising energy prices linked to the US-Iran conflict.

While some economies may be able to absorb the impact, Georgieva said Pacific island nations and vulnerable countries such as Bangladesh and Laos face greater challenges and called for a coordinated global response.

Energy Subsidies Under Pressure

As the Middle East conflict continues and colder weather approaches in the Northern Hemisphere, Georgieva urged governments to avoid excessively broad energy subsidies.

She said the global economy had already experienced a series of major shocks, including the COVID-19 pandemic, the war in Ukraine, the inflation surge and higher interest rates, followed by the latest energy shock.

According to Georgieva, governments have repeatedly responded by borrowing more and increasing fiscal deficits, but rising interest rates and borrowing costs have made that approach increasingly difficult to sustain.

She urged governments to better target support measures while focusing on reducing public debt and lowering borrowing costs.

Georgieva said debt markets were seeking clear medium-term fiscal consolidation plans and greater certainty that public debt would decline over time.

AI Boom Brings Financial Risks

Georgieva also highlighted both the economic opportunities and financial risks associated with the global artificial intelligence boom.

She said the IMF estimates that AI could add up to half a percentage point to global annual economic growth.

However, she warned that a slowdown in AI-related investment could affect economies worldwide, while a loss of investor confidence and a rapid withdrawal of capital from AI assets could create financial stability risks.