Sri Lanka is warning sign for countries with high debt levels, limited policy: IMF chief

International Monetary Fund Managing Director Kristalina Georgieva said on Saturday that Sri Lanka is a warning sign to countries with high debt levels and limited policy space.

Georgieva made these remarks at the hybrid meeting of the G20 Finance Ministers and Central Bank Governors held in Indonesia, reports Lankan media outlet Daily Mirror.

The war in Ukraine has intensified, exerting added pressure on commodity and food prices. Global financial conditions are tightening more, than previously anticipated. And continuing pandemic-related disruptions and renewed bottlenecks in global supply chains are weighing on economic activity, she said.

"As a result, later this month we will project a further downgrade to global growth for both 2022 and 2023 in our World Economic Outlook Update. Moreover, downside risks will remain and could deepen – especially if inflation is more persistent – requiring even stronger policy interventions which could potentially impact growth and exacerbate spillovers particularly to emerging and developing countries. Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign," she said.

Emerging and developing countries have also been experiencing sustained capital outflows for four months in a row. They now suffer the risk of reversing three decades of catching up with advanced economies and instead falling further behind. 

The IMF already downgraded its outlook for the global expansion this year to 3.6%, from 4.4% before the war in Ukraine, in its April report.