Failure to find a solution to the US debt-ceiling debate and matters in Europe will result in a “major world economic crisis,” IMF Managing Director Christine Lagarde said.
Without a resolution, there will be a crisis “due to the size of the economies of these two and their relationship with other countries in terms of trade and investment,” she told reporters in the Malawian capital, Lilongwe, yesterday.
While the US Congress approved a deal to avoid raising taxes on most US citizens in the so-called “fiscal cliff deal,” lawmakers need to agree on raising the US$16.4 trillion debt ceiling, which the US reached on Monday last week, according to the US Department of the Treasury.
Extraordinary measures the agency is taking will be exhausted as early as the middle of next month, the Congressional Budget Office said.
In Europe, growth has weakened as a crisis over debt levels among some member nations continued into a third year.
The US and European issues will affect developing countries including African nations, which also face risks from rising food prices, Lagarde said.
“In this context, it will be essential for African countries to have strong macroeconomic frameworks, improve institutional capacity, and ensure sustainable and inclusive growth in order to maintain the impressive economic performances of the last 10 years,” she said.