Finance Minister Pranab Mukherjee today said the global economic recovery was fragile and cautioned that emerging economies might not be as resilient in the face of another crisis.
“Countries are recovering at different rates. Growth is well below potential. And the recovery is fragile. There is a constant danger of recovery being derailed by unexpected shocks,” he said in his address to the International Monetary Fund (IMF) and World Bank Group Development Committee Meeting.
He further cautioned the world economy was going through a lot of uncertainty. The financial and economic crisis was yet to run its full course and economies had yet to fully recover from its after-effects.
“Through coordinated action, we were able to avert a prolonged recession... the prospects are, however, full of uncertainties. Recovery continues across the world, but it is uneven,” he said.
He appreciated the remarkable resilience shown by developing countries in dealing with the crisis. “However, they have exhausted their policy buffers built up over the years and would not be able to show the same resilience in the face of another shock,” he said.
While the developed world has been witnessing fragile economic recovery after hit hard by the financial meltdown, started by the subprime crisis, Asia is expected to drive global growth.
IMF recently warned the US was staring at a sluggish recovery from severe recession in the face of weak consumer spending and high debt.
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Growth in the world’s largest economy slowed to 1.7 per cent in the the second quarter of this financial year from 3.7 per cent in the first quarter, and key indicators suggested “a weak recovery in coming quarters,” the IMF had said.
Europe, on the other hand, witnessed a sovereign debt crisis in some countries, but that did not spread.
However, the World Bank warned that eastern and central European countries could face another economic slowdown if their western neighbours could not gain control of their finances.
On the other hand, IMF expects Asia to continue leading the global recovery.
“China and India will continue to lead the region’s growth. For China and India, we project growth in 2010 at 10.5 per cent and 9.7 per cent, respectively,” IMF Director (Asia-Pacific) Anoop Singh had said.
Appreciating the role played by the World Bank in addressing the fallout of the crisis, Mukherjee said the bank, too, was stretched. “It is quite worrying that the Bank’s annual lending will come down to a maximum of $15 billion from next year. We need strong multilateral buffers to face future crises, play a counter-cyclical role and help maintain development expenditures. For this, we need to quickly focus on expanding the Bank’s lending capacity through innovative measures. This may even require further capital enhancement,” he said.
Mukherjee also called on the need to increase private inflows. “The Bank needs to have an early warning system by which it can spot and respond quickly to an evolving crisis — food, fuel or economic. The mechanism should be backed by the resources and instruments so that when the situation arises, the Bank is not found wanting,” he said.
Reform package
IMF said it was closer to wrapping up a package of reforms, including shifting quota share by at least five per cent from over-represented to under-represented countries by January 2011.
IMF Managing Director Dominique Strauss-Kahn said the aim was for a shift in quota share to dynamic emerging market and developing countries by least five per cent.
Support for poorest nations
IMF and the World Bank on Saturday sought support from developed as well as emerging economies for the development of the world’s poorest nations.
“When I see rich countries or so-called advanced economies cutting in aid lines, I do not believe they are doing the right thing, even if I can understand that they have to consolidate their own fiscal sustainability. Advanced economies have to do what they committed to doing,” Strauss-Kahn said at the end of the bi-annual meeting of IMF and the World Bank.