By Joni Akpederi and Dike Onwuamaeze
Finance ministers, central bank governors and other policymakers from the 189 member-countries attending this year’s annual meetings of the Bretton Woods institutions will by now be thinking of rising to the challenge thrown by twin-bosses Christine Lagarde and Dr Jim Yong Kim yesterday: sustain the global economy’s fragile recovery for humanity’s benefit.
Projected to grow at 3.6 percent and 3.7 percent this and next year respectively, the world’s economic boat cannot continue to row gently towards full stability if such risks identified by World Bank’s Dr Kim as the “rise in protectionism and policy uncertainty”, in some rich, developed countries, notably the US, are not checked.
Best performance in the last decade
The world, according to researchers and analysts at the institutions, is really experiencing the return of the good times. Close to 75 percent of all countries have positive GDP growth stats and rosy outlooks, making this year the best in the last 10 years. What is more, the growth is more evenly spread than it was a decade ago, when emerging markets alone accounted for 80 percent of the growth.
Both the World Economic Outlook (WEO) and The Global Financial Stability Report (GFSR), the twin institutions’ seminal periodic publications, capture these happy developments but are quick to caution that the global economy is not yet out of the woods.
Waxing philosophical and then poetic, IMF’s Lagarde reduced how the Fund expects to respond to the current state of the global economy to the immortal words of John F Kennedy who famously admonished the world to “fix the roof while the sun is shining”; and the British poet Percy Brysshe Shelley’s line, “there’s harmony in autumn.”
The Fund’s chief said the current “harmony” of action among the world’s central banks, regulators and policymakers who have been pursuing the unconventional and accommodative policy measures that have enabled the recovery must be sustained, though they have to be reviewed in tune with the exigencies of the markets and the impact of technology. Dr Kim, of the same opinion, would like to see more efforts at shoring up investment without precipitating financial market turbulence.
He was reflecting, of course, on the 2007 crash which had its roots in the risk created by easy financial conditions. IMF Financial Counsellor and Director Monetary and Capital Markets Department, Tobias Adrian notes that just as in the period preceding the crash, investor risk appetite is buoyant globally while capital flows have surged. However, he is quick to state that all these favourable conditions present the “opportunity to strengthen the financial system”, warning that “experience” – the unfortunate financial crisis – “has taught us that it is during times of easy financial conditions that vulnerabilities build.” Lagarde sent the same message with JFK’s roof and sunshine analogy: it is time to fix the vulnerabilities in the global economy while the performance indicators are all up and soaring.
Again, three-pronged approach
On the fiscal front, both the Fund and the Bank recommend increased spending on infrastructure; the social sector especially, education and women empowerment; and on reducing debt-to-GDP ratio. This makes the Fund’s old three-pronged approach incorporating monetary, fiscal and structural reforms more relevant than ever.
While developing countries have more to do to catch up with the rich countries of the West and Asia, many of the challenges under discussion really cut across borders, according to the IMF Managing Director. The increased global cooperation on regulatory reforms made since the financial crisis must be kept in place to keep the global financial system ticking right.
The IMF believes that emerging economies in Africa and Latin America battling corruption to prevent the loss of the gains made after the introduction of liberal market systems are on the right track. It also urges them to continue to encourage the growth of the private sector and the cutting of excessive bureaucracy. It sees the advent of new, disruptive hard-to-monitor technology-enabled processes such the new-fangled fintech as another challenge that calls for continued international regulatory cooperation as capital is becoming more mobile and transactions, more rapid.
True, world’s economy is on the upswing, having turned the critical corner in the middle of last year. It is, however, not time for celebration. Risks lurk around everywhere one looks, from political through environmental to over-confidence in the improving macroeconomic indices.