LONDON – Politicians and central banks need to be “very selective” with stimulus measures to avoid jeopardizing global economic growth in the medium term, according to a senior International Monetary Fund official, with excessive debt and vulnerabilities identified as possible risks.
The warning comes when it looks like the IMF is trying to orchestrate a delicate balancing act at this week’s spring meetings.
The Washington DC-based institute has highlighted the United States for praising promoting an extraordinary stimulus amid the ongoing coronavirus crisis to accelerate the global economic recovery, while warning about the potential of such measures to cause long-term structural damage to world economies. .
“There is no doubt that the stimulus in the United States presents a very favorable backdrop for the growth projections we have made,” Geoffrey Okamoto, IMF’s first deputy managing director, told CNBC’s Joumanna Bercetche on Wednesday.
“I wouldn’t characterize it as a crutch. This is a final wind, it’s true that countries should be able to use or capitalize to try to pass the remaining time until they can get all their citizens punched. and their economies reopen, ”he added.
The IMF said Tuesday in its outlook for the global economy that the global economy was on track to grow 6% this year, improving its forecast for the second time in three months. It comes after an estimated contraction of 3.3% in 2020 and the worst global recession since World War II.
IMF Managing Director Kristalina Georgieva said the brightest outlook was based on the deployment of coronavirus vaccines and economic stimulus measures, “especially in the United States.”
In a move that is expected to surpass the U.S. economic recovery, President Joe Biden’s $ 1.9 trillion stimulus package was approved last month. Since then, the White House has tried to make a $ 2 trillion infrastructure plan for the administration’s next legislative priority.
When asked if policymakers and central banks were at risk of overcooking economies as a result of ultra-accommodative measures, Okamoto replied: “In both fiscal and monetary policy stance, maintaining housing instead for too long it invites risk. “
“Risks for growth”
“When it comes to monetary policy, maintaining a monetary policy accommodation too long calls for introducing certain vulnerabilities in the financial sector,” said Okamoto, who added that the institute had said in its global financial stability report that regulators should contain these risks. .
The IMF’s GFSR report, released on Tuesday, said that while there is an urgent need to avoid a legacy of vulnerabilities, actions taken during the “coronavirus pandemic” can have unintended consequences, such as assessments. widespread and increased financial vulnerabilities “.
It also highlights a sharp divergence between a small number of advanced economies and emerging market economies, and low-income countries are seen at risk of falling behind during a multi-speed recovery.
A worker works on a production line to produce electrical products for the domestic and Southeast Asian markets in Hai City, Jiangsu Province, eastern China, on March 29, 2021.
Costfoto | Barcroft Media | Getty Images
“When it comes to taxation, the fact that rates are still low and your ability to borrow doesn’t mean you can borrow unlimited loans for any purpose,” Okamoto continued.
“We want people to spend resources prudently both to overcome the pandemic and to make the right investments to establish a growth trajectory that emerges from the crisis. But this requires being very selective and making sure it funds projects. with the highest economic rates of return “.
Okamoto said that not being selective with these projects would invite over-indebtedness, “and both over-indebtedness and financial vulnerabilities could invite risks to growth in the medium term.”