IMF prepares $50bn bailout to prop up countries battered by war

The International Monetary Fund (IMF) is preparing bail-outs of up to $50billion (£37billion) for countries battered by the Iran war – as oil prices rise again amid fears over the fragile ceasefire.

IMF managing director Kristalina Georgieva revealed that the fund was ready to provide support as the conflict causes ‘considerable hardship around the globe’.

Georgieva said world growth forecasts will be downgraded when the organisation publishes its latest World Economic Outlook in Washington next week.

The downgrade will apply even in the ‘most hopeful’ scenario in which there is a ‘relatively swift’ return to normal, she said.

That is because of ‘infrastructure damage, supply disruptions, losses of confidence and other scarring effects’ caused by the war.

‘Even in the best case, there will be no neat and clean return to the status quo ante,’ Georgieva added. ‘Growth will be slower – even if the new peace is durable.’

She said the IMF, the ‘firefighter’ in times of financial crisis, expected demand for its support to rise as a result of the war.

It estimates stricken countries will call for between $20billion (£15billion) – if the ceasefire holds – and $50billion (£37billion), adding that the fund was ‘well resourced to meet this shock’.

The comments came as the IMF announced a £520million financing agreement with Sri Lanka, which has been badly hit by surging energy prices and disruption to air travel affecting tourism.

Hopes for peace in the Middle East were raised this week when the US announced a ceasefire with Iran.

That opened the prospect of a reopening of the strait of Hormuz, sending oil prices sharply lower and stock markets higher on Wednesday.

However, doubts are now growing about whether the truce can hold – and there has been little sign of ships returning to the strait, through which a fifth of the world’s oil and gas flows.

Sultan Al Jaber, boss of the United Arab Emirates state oil giant ADNOC, said the narrow waterway remained closed and demanded that Iran reopen it without conditions.

The price of a barrel of Brent crude rebounded from less than $95 a barrel to nearly $99 while the FTSE 100 turned lower, together with stock markets in Europe.

IMF boss Georgieva warned that the conflict was causing a ‘large’ supply shock meaning ‘all of us now paying more for energy’ as well as disruption to supply chains worldwide.

Continuing ‘ripple effects’ include oil refinery shutdowns, shortages of diesel and jet fuels and food insecurity for 45million more people due to high fertiliser prices.

And the shock is feeding through to higher inflation, she said.

‘We have been here before in the ‘70s and earlier this decade,’ Georgieva added.

She called for countries to reject ‘go it alone’ measures such as export controls and price controls that would further upset global conditions, urging them: ‘Don’t pour gasoline on the fire.’

Georgieva highlighted the vulnerability of countries that rely on oil and gas imports, particularly those with less capacity to cope with the shock in regions such as sub-Saharan Africa.

It comes after the IMF last week said that, in Europe, the UK was among the most vulnerable because of its reliance on gas-fired power.

That suggests Britain is likely to be on the receiving end of next week’s downgrades.

Back in January, the IMF was already predicting sluggish growth of just 1.3 per cent this year.

A separate forecast from the Organisation for Economic Cooperation Development has already sharply downgraded the UK outlook as a result of the war, suggesting it will be harder hit by the conflict than any other advanced economy.