COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

IMF mulls medium term fiscal consolidation, monetary tightening for India's revival

The International Monetary Fund has prescribed for India macro-economic policy measures and a wide range of structural reforms to boost investors' confidence and reinvigorate growth.

''The first priority for macro-economic policy is to take decisive steps toward medium-term fiscal consolidation, in order to reduce the public sector deficit, substantially from its recent level of close to 10 per cent of GDP,'' the IMF said in its latest World Economic Outlook, which was released in Washington on Monday.

It drew attention to the slowing of India's growth in the industrial sector, accompanied by higher inflation that reflected agricultural supply difficulties, rapid monetary growth and the depreciation of the rupee since 1997.

''The current account position has weakened, but international reserves remained comfortable, boosted by capital inflows from non-resident Indians,'' it noted.

The World Economic Outlook which updates the one issued in October last, said, ''It will also be important to avoid a premature easing of monetary policy. In fact, further tightening may be warranted if inflation does not slow,'' it warned.

''Aside from these macro-economic policy requirements, it points out a wide-range of structural reforms are needed to boost confidence and reinvigorate growth.''

The IMF in its October issue of the World Economic Outlook, had voiced similar concerns about the Indian economy, recommending continuous action to rein in public sector deficit.

Dealing with the situation in neighbouring Pakistan, it says, ''The external financial crisis in Pakistan, which has been reflected in a sharp decline in international reserves and the accumulation of large external payments arrears, is being addressed by a policy package entailing substantial fiscal adjustments as well as broadly-based structural reforms and the gradual removal of the temporary exchange restrictions imposed at the onset of the crisis, and by debt relief from official and private creditors.''

The report forecast the global economy to grow in the 2-2.25 per cent range in 1999, about the same as this year, reflecting the continued impact of the financial crisis that began in 1997 in Asia and spread to other economies.

The most serious risks to the global economy that emerged following the Russian crisis and debt default in August ''now seem to have subsided,'' it said adding, ''the relatively modest scale of the further downward revisions to the global growth outlook since early September suggest that the situation may have begun to stabilise.''

It, however, said that the ''balance of risks still seems to be predominantly on the downside.'' The interim updated report projects world output growth this year at 2.2 per cent and a near equal size expansion next year that is rounded to 2.2 per cent.

The IMF is now projecting Japan's economy to contract in 1998 by 2.8 per cent and in 1999 by 0.5 per cent. The stagnation in Japan was attributed to the continued depression of private sector demand, linked to difficulties in the financial sector, and to the impact on exports of the yen's appreciation.

The other advanced economies are projected to grow in 1998 and all will grow more slowly in 1999, except Italy. The United States is projected to grow by 3.6 per cent in 1998, by far the longest of any advanced country, and the IMF cites as positive the anticipated slowing of the US economy to a 1.8 per cent expansion in 1999.

As a group, the major industrial countries are projected to grow by 2 per cent in 1998 and by 1.6 per cent in 1999.

In the emerging markets, Indonesia, Malaysia, the Philippines and Thailand are forecast to contract by 10.6 per cent in 1998, then by 1.4 per cent in 1999.

South Korea's gross domestic product is projected to contract by 7 per cent in 1998 and by 1 per cent in 1999.

Asia as a group is projected to grow by 2.6 per cent in 1998, 4.3 per cent in 1999. China's expansion remains strong. The IMF forecasts a 7.2 per cent expansion in China in 1998 and 6.6 growth in 1999.

UNI

Business news