Asia reforms key to global economic growth: IMF chief – Arab News

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NEW DELHI: Asia is “the world’s most dynamic region” but structural reforms are key given its increasing importance to the global economy, International Monetary Fund chief Christine Lagarde said in New Delhi.
Asia already accounts for 40 percent of the world economy and stands to deliver nearly two-thirds of global growth over the next four years, Lagarde, the IMF managing director, told the Advancing Asia conference in the Indian capital.
“Given this vital economic role, making the most of Asia’s dynamism is of great interest to the entire world,” Lagarde, on stage with Indian Prime Minister Narendra Modi, said.
“Increased interconnectedness means that Asia now affects the world more than ever before,” she said.
“By the same token, Asia is now more deeply affected by global economic developments than ever before — and must respond to them.”
With the global economy facing challenges, it is key that Asian countries carry out structural reforms to boost competitiveness and jobs and ensure growth in future, she said.
Lagarde cited examples including the need for China to rebalance its economy away from debt-led investment, the need for corporate governance reforms in Japan and for improvements in Indian infrastructure.
Strengthening the business environment and developing bond markets will be crucial across the region, she said.
Also speaking at the conference, Prime Minister Modi said that India has “dispelled the myth that democracy and rapid economic growth cannot go together”.
India’s government has projected economic growth of 7.6 percent for the financial year 2015-16, making it the world’s fastest-growing major economy.
“My agenda of ‘reform-to-transform’ still needs to be finished,” Modi said.
In January the IMF lowered its outlook for global economic growth this year, warning of substantial risks in major emerging market economies.
Slower Chinese growth, a stronger US dollar, collapsed oil prices and political turmoil could wreak further havoc in struggling economies like Russia and Brazil, putting the brakes on the global recovery, it said.
Earlier, a senior official said the IMF may cut 2016 global growth forecasts again in the coming weeks.
Jose Vinals called on policymakers to take comprehensive measures to strengthen their economies.
In January, the Fund projected global growth of 3.4 percent in 2016 and 3.6 percent in 2017, having revised down its October forecast for both years by 0.2 percentage point.
“It is very likely that by the time that we arrive at the spring meetings next month there may be a further downward revision in our forecasts,” Vinals, financial counsellor and director of the monetary and capital markets department said during an event organised by the Reserve Bank of India.
His comments echoed a warning last month from Lagarde, who said the global economy could be derailed unless policymakers took collective action.
“The cost of inaction will be costly in terms of global growth,” Vinals said.
Expressing concern over China’s slowing growth and “vulnerabilities” in its corporate and financial sector, Vinals said its deleveraging will be key to global financial stability.
But he added that he did not foresee a hard landing for the world’s second-largest economy.
Vinals said India needed to prioritise a clean-up of its banks’ balance sheets, while tackling a debt overhang.
He also said potential capital outflows posed a risk.
Indian banks’ stressed loans are at 13-year high of 8 trillion rupees ($119.12 billion),constraining banks’ ability to lend and boost economic growth, which is pegged at 7.00-7.75 percent for 2016/17.
Worried that further rise in bad loans could impede the early recovery, RBI Governor Raghuram Rajan has asked banks to provide even for potential bad assets after pledging to clean up lenders’ books by March 2017.
Meanwhile the government has also said it will put in 700 billion rupees through March 2019 to shore up state-run banks.
Vinals said it is “very important” that India “redouble the efforts to clean up public sector banks’ balance sheets” and tackle its corporate sector debt overhang.

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