The International Monetary Fund (IMF) has said sanctions on Russia will have a substantial impact on the global economy and financial markets, with significant spillovers to other countries.
In IMF Article IV Consultation on Ukraine released yesterday, IMF Managing Director Kristalina Georgieva, disclosed that in many countries, the crisis is creating an adverse shock to both inflation and activity, amid already elevated price pressures.
The sanctions announced against the Central Bank of the Russian Federation will severely restrict its access to international reserves to support its currency and financial system.
International sanctions on Russia’s banking system and the exclusion of a number of banks from SWIFT have significantly disrupted Russia’s ability to receive payments for exports, pay for imports and engage in cross-border financial transactions.
Georgieva said that while it is too early to foresee the full impact of these sanctions, we have already seen a sharp mark-down in asset prices as well as the ruble exchange rate.
She said that while the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious, adding that energy and commodity prices – including wheat and other grains – have surged.
She said monetary authorities will need to carefully monitor the pass-through of rising international prices to domestic inflation, to calibrate appropriate responses.
“Fiscal policy will need to support the most vulnerable households, to help offset rising living costs. This crisis will create complex policy tradeoffs, further complicating the policy landscape as the world economy recovers from the pandemic crisis,” Georgieva said.
She added that in Ukraine, in addition to the human toll, the economic damage is already substantial.
“Sea ports and airports are closed and have been damaged, and many roads and bridges have been damaged or destroyed. While it is very difficult to assess financing needs precisely at this stage, it is already clear that Ukraine will face significant recovery and reconstruction costs.
“Ukraine has already requested emergency financing of $1.4 billion under the IMF’s Rapid Financing Instrument. Staff anticipates bringing this request to the Executive Board for consideration as early as next week,” she said.
She said countries that have very close economic links with Ukraine and Russia are at particular risk of scarcity and supply disruptions and are most affected by the increasing inflows of refugees.
“The Fund will advise our member countries on how to calibrate their macroeconomic policies to manage the range of spillovers, including via trade disruptions, food and other commodity prices, and financial markets.”