IMF criticises Britain

With sterling selling off and borrowing costs rising on Tuesday, the fund stated about 8 pm London time, chiding the UK for its plan to implement £45bn of debt-funded tax cuts and urging it to «re-evaluate» the package. Almost five days after UK chancellor Kwasi Kwarteng delivered his «mini» Budget, the timing of the IMF statement raised eyebrows. It was sent out in response to media requests rather than as a planned statement from the fund, raising speculation it might not have been thoroughly vetted. Nevertheless, senior IMF managers, including managing director Kristalina Georgieva, approved its release, according to a person familiar with the matter.

The UK was not given an advance copy, said another person briefed on the events. «If you have a mandate for global financial and economic stability, you have to have a view,» the person said. However, the unusually sharp criticism directed at a G7 country also raised questions about whether the IMF had overstepped its remit by commenting on domestic policy outside of a typically scheduled review or an update to its global economic outlook.

In addition to fuelling a crisis engulfing the British government, the IMF’s criticism of tax cuts that would «benefit high-income earners» and «likely increase inequality» chimed perfectly with Labour’s attacks on Kwarteng’s fiscal plan. Finance ministers in France, Germany and Spain have criticised the budgetary package. Adding to a sense of urgency was the scale of the financial turmoil in the UK and the possibility it could soon spread to other major markets.

«This is a time when monetary policy has to fight inflation everywhere, and fiscal policy needs to help,» said one IMF insider. «But they are doing exactly the opposite, and the central bank now has to print money to buy debt,» the person added, referring to the BoE’s emergency £65bn intervention in the gilt market to prevent a pensions meltdown. «When there’s a crisis or policies that are manifestly irresponsible, it’s kind of natural for the IMF to take some kind of note,» he told the Financial Times. «We are dealing with a level of fragility that turns things that possibly would not have been shocking into shocks,» said Sarah Bloom Raskin, former deputy Treasury secretary in the Obama administration.

One prominent British financial commentator called for a boycott of the «outrageously arrogant» institution, arguing it was a «faddish, hypocritical body» that had become «explicitly aligned with the Joe Biden left».

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Yet the IMF has largely backed Biden’s fiscal policies, touting the positive impact of the last pandemic stimulus. «It is puzzling that the IMF felt it necessary to opine on a G20 nation’s domestic policy and only now to oppose a ‘large and untargeted fiscal package’,» said Bill Hagerty, senator from Tennessee.

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