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Emerging economies facing increased financial imbalances – IMF

By on April 14, 2011

The International Monetary Fund has said that the main challenge facing emerging economies is accumulation of financial imbalances to maintain financial stability and avoid future crises.

This observation was contained in its latest edition of Global Financial Stability Report made available to the News Agency of Nigeria in Lagos on Wednesday.

IMF said that emerging markets were receiving increased flow of foreign capital at a time when their output gaps were closing and inflation rates rising.

“These capital inflows are complicating efforts to manage local demand through tighter monetary policy and are straining the absorptive capacity of some local financial markets,” IMF said.

It said that the emerging economies needed to rebalance their policy mix by relying more on economic policies.

“The tighter monetary policies in a number of countries, a judicious use of macro prudential policies, including, in some cases, capital controls, could play a supportive role in managing capital flows and their effects,” IMF said.

The world body said that the global financial system remained vulnerable to further shocks, adding that policymakers needed to tackle the root causes of the recent crisis.

IMF advised policy makers to strike the right balance and shift their focus away from policies that would treat symptoms of the crisis.

“The challenge will be to repair the banking system and deal with high debt levels without jeopardising financial stability and the nascent global economic recovery,” it said.

Source : Punch