Spill over of macroeconomic tightening of major economies, debt overhang need to be addressed: Janet Yellen

War, debt and economics are set to dominate G20 leaders’ discussions over the next two days.

US Treasury Secretary Janet Yellen on Thursday flagged the need for tackling challenges like the spill over effects of macroeconomic tightening in major economies to the rest of the world and the debt distress in vulnerable countries like Zambia and Sri Lanka, ahead of the crucial two-day meeting of finance and central bank governors starting in Bengaluru on Friday.

Yellen, who met finance minister Nirmala Sitharaman and discussed cooperation on the evolution of multilateral development banks and India’s role in  promoting sovereign debt restructuring, also  highlighted the work needed for advancing global macro economy and resolving the food security issues exacerbated by the Russia-Ukraine war.

Yellen criticised Russia’s “immoral” war on Ukraine and told reporters that the US would be extending additional $10 billion assistance to Ukraine. She also recommended the International Monetary Fund to quickly move in with assistance for Ukraine. The treasury secretary said the price cap on Russian oil imposed by the US and allies is showing signs of working. Yellen also made it clear that Chinese entities dodging the sanctions on Russia will face consequences but sought China’s proactive role in resolving the debt distress in certain countries like Zambia and Sri Lanka.

On sanctions and aid to Russia, Yellen said, “ We have made it clear that providing material support to Russia or assistance with any type of systemic  sanctions evasion will be of very serious concern to us and we will certainly continue to make it clear to the Chinese government and to companies and banks in their jurisdictions about what the rules are regarding our sanctions and the serious consequences they would face for violating them.”

With respect to debt, Yellen said she was hopeful that China will be constructive in understanding the need of countries like Zambia and Sri Lanka.

Yellen said it was critical that the IMF swiftly move towards a fully financed programme for Ukraine which it said they will do. “Continued robust support for Ukraine will be a major topic of discussion during my time here in India. over the next couple of days, I also look forward to working with my counterparts to advance work on the global macro economy. while there is significant headwinds, it is fair to say the global economy is in a better place today than many predicted just a few months ago,” Yellen said.

The treasury secretary said that the shared view among her counterparts was to take decisive action against the challenges faced in their countries. “That includes combating high inflation where it exists. It is also important for us to be attentive to the spill overs of macroeconomic tightening for the major economies to the rest of the world.”

Yellen also spoke about reforms in multilateral development banks and the investments needed in clean energy transition.

In a tweet, Yellen said over the next days she would meet with her counterparts to discuss building a more resilient global economy and the ongoing efforts of the US to hold Russia accountable for the one year old war on Ukraine.

Yellen stated that the United States along with its coalition implemented a cap on the price of Russian crude oil in December followed by caps on the price of Russian refined products like diesel and fuel oil earlier this month.

 “So far, we see clear signs that our policy is working to reduce Russian revenues and stabilize global energy markets. Even as global oil prices have remained relatively stable over the past few months, Russian oil prices have fallen substantially. Last month, Kremlin's oil revenue was nearly 60% lower than the immediate aftermath of the invasion. We've continued to see emerging markets negotiate steep discounts on Russian oil, which keeps oil on the global market but sharply reduces the Kremlin take,” Yellen said.

Russia has become one of the topmost sources of oil for India following western sanction in the backdrop of the Ukraine war. Russian crude's share in the Indian crude basket in 2021 was only around 2.2%. But India’s imports of Russian oil climbed to a record 1.4 million barrels per day (bpd) in January, over 9% higher compared to December.

Notably, Netherlands has emerged as the top destination for India’s petroleum product exports such as petrol and diesel during the ongoing financial year. The Netherlands became one of the biggest markets for Indian exports largely due to petroleum imports from India. This change comes in the wake of the Ukraine war, with India continuing to buy discounted crude oil from sanctions-hit Russia.

 “The IMF estimates that around 55% of low-income countries are close to or in debt distress. I will continue to push for all bilateral official creditors including China to participate in meaningful debt treatments for developing countries and emerging markets in distress. Most urgent is the need to provide debt treatment to Zambia and to commit to specific and credible financing assurances for Sri Lanka,” Yellen stated.

Earlier this week Sri Lankan President Ranil Wickremesinghe had stated that seeking the IMF bailout package was the only option available to the debt-ridden country to overcome the ongoing economic crisis. Sri Lanka is in the midst of the worst financial crisis since its independence from Britain in 1948, due to an acute shortage of foreign exchange reserves, sparking political turmoil in the country.

 “Later this week, I am looking forward to robust discussions about the common framework process to help countries like Ghana. I will also be discussing international coordination on debt restructuring from middle income countries,” Yellen further said.