Washington: Noting that an uneven global economic recovery was emerging although growth and job creation still remained weak, the International Monetary Fund (IMF) on Saturday stressed on the need for decisive action to restore the resilience of the global economy and nurture a sustainable recovery. In a communique on Saturday, IMF said emerging markets and developing economies which are experiencing relatively high growth should begin to rebuild policy space while those exposed to volatile capital flows should avoid financial vulnerabilities.
Noting that financial sector repair and reforms remained a priority, IMF said advanced economies need to balance supporting domestic demand with reforms to tackle structural weaknesses that weigh down growth. "When dealing with macroeconomic or financial stability risks arising from large and volatile capital flows, macroeconomic policy adjustment could be supported by prudential measures and, as appropriate, capital flow management measures.
"Such measures should not, however, substitute for warranted macroeconomic adjustment," IMF said. "We note the Fund s increased support for Arab countries in transition and welcome the bilateral support thus far. "More needs to be done by the Fund and the wider membership to support countries undertaking difficult reforms. We also welcome the Fund s strengthened engagement with small states to better reflect their needs in programme design and technical assistance," the communique stated.
Noting that reforms to put debt on a sustainable trajectory were critical, the communique called on the Fund to draw lessons from experiences of dealing with high debt. Global imbalances have continued to narrow, but more needs to be done to reduce the structural sources of these imbalances. To support rebalancing, deficit countries must continue to raise national saving and surplus economies must boost
domestic sources of growth.
"In addition, fiscal and structural reforms, supported by greater exchange rate flexibility where appropriate, are needed to ensure that the correction continues," it said. Stating that a moderate and steady private sector-led recovery was underway in the United States although growth in the eurozone as a whole had yet to materialise, the communique emphasised on continued progress in improving public finances as essential in most advanced economies.
"Where country circumstances allow, fiscal policies should avoid pro-cyclicality, focus on structural balances, and let automatic stabilisers operate fully to support growth. "Credible medium-term fiscal consolidation plans remain crucial, in particular for the United States and Japan," the statement said. The communique urged members who have yet to complete the necessary steps to ratify the 2010 reforms to do so without delay.
"We remain committed to complete the reform of the Funds quota and governance structure, which is key to its credibility, legitimacy, and effectiveness. "We will integrate work on a new quota formula with work on the Fifteenth General Review of Quotas," it said.
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