BAKU, Azerbaijan, Jan. 10
By Nazrin Israfilova - Trend:
The global economic recovery will continue in 2022 and next years, Trend reports on Jan. 10 with reference to the International Monetary Fund (IMF).
According to the IMF, average gross state debt in emerging market economies has grown by almost 10 percentage points since 2019, reaching 64 percent of GDP according to the estimations by late 2021 with big fluctuations all over the countries.
“But as opposed to the US, its economic recovery and labor markets are less resilient,” the IMF said.
According to the IMF report, while the cost of US dollar loans remains low for many countries, several countries with emerging markets, including Brazil, Russia and South Africa, began to raise interest rates in 2021 as a result of concern about domestic inflation and stable external funding.
“More fluctuations in the currencies were observed in the emerging market economies with high public and private debts, foreign exchange risks and lower current account balances compared to the US dollar in recent months,” the IMF said.
“Several emerging markets have already begun adjusting monetary policy and are preparing to cut budget support to resolve the problem with rising debt and inflation,” the IMF said.
According to the IMF report, in response to tightening financing conditions, emerging market economies must adopt the measures according to their circumstances and vulnerabilities.
“Those having confidence in inflation-containment policy can tighten monetary policy gradually, while others with stronger inflationary pressure or weaker institutions must act quickly and comprehensively,” the IMF said. “In any case, the answers should include depreciating of currency rates and raising of benchmark interest rates.”
“In case of turmoil in foreign exchange markets, central banks with sufficient reserves can intervene if this intervention does not replace the guaranteed macroeconomic adjustment,” the IMF said.
The IMF stressed that despite the expected economic recovery, some countries may have to rely on global financial safety.
“This may include the use of swap lines, regional funding mechanisms and multilateral resources,” the IMF said. “The IMF contributed greatly by approving $650 billion Special Drawing Rights allocation in 2021.”
“Some countries may need additional financial breathing space,” the IMF said. “That is why the IMF has adapted its financial lending toolkit for member-states. The countries with strong policy can use loans to help prevent crises.”
The IMF said that other countries can get loans proceeding from their income although the programs must be based on a sustainable policy that restores economic stability and promotes sustainable growth.
According to the IMF report, despite the outlook for a continued global recovery in 2022 and in the coming years, the risks to the growth remain big due to the ongoing COVID-19 pandemic.
“Taking into account the risk that this may coincide with tightening of the Federal Reserve's policy, the emerging market economies should prepare for a possible outbreak of economic instability,” the IMF said.