Amid growing uncertainties and risks of financial system instability, Finance Minister Arun Jaitley today called on the IMF to examine the adequacy of its resources and whether they are sufficient for future proofing the global economy against recurrence of financial crisis.
“The IMF is in unique position to take this responsibility but needs to be strengthened further through reforms in its governance. At the same time, the IMF should also examine adequacy of its own resources and whether they are sufficient for ‘future proofing’ the global economy against recurrence of financial crisis,” Jaitley said in his address to the International Monetary and Finance Committee.
Noting that global growth has weakened further and financial market conditions have worsened, he said global recovery is affected by subdued growth and low productivity in Advanced Economies (AEs) and elevated risks faced by Emerging Market Economies (EMEs).
Many large EMEs are stressed owing to difficult macroeconomic conditions, sharply declining commodity prices and tightening financial conditions amid volatile capital flows, Jaitley asserted.
A credible recovery in global growth is dependent on following consistent macroeconomic policies and easing structural impediments to growth, he said.
Increasing potential growth and productivity, while remaining vigilant about risks to macro-financial stability are needed to secure a sustainable global recovery, Jaitley, who is here on a week-long visit, said.
“Growing uncertainties and risks of instability of the financial system are unsupportive of global recovery,” he said.
Flagging trade volumes, softening commodity prices, idle capacities and anemic economic fundamentals, particularly in a number of large EMEs are increasingly impairing their ability to sustain economic and financial resilience against rising risk premiums and credit risks, the Minister said.
At the same time, he warned that there are the risks of exogenous shocks from asynchronous normalisation of Unconventional Monetary Polices (UMPs) that can produce disorderly adjustments in exchange and volatile capital flows, increasing the cost of managing external exposures and balance of payments.
Given the wider implications of ongoing developments in the global economy, Jaitley urged the International Monetary Fund (IMF) to maintain close oversight upon emerging vulnerabilities and remain committed to safeguarding the stability of the international monetary and financial system.
“In order to be a reliable source of contingent financing, it is important to assess the sufficiency of Fund’s resources in accordance with the changing global realities including levels of global growth, size of trade and capital flows,” Jaitley said.
Calling for the completion of the 15th General Review of Quotas, including the review of the new quota formula, by 2017, he urged the IMF to maintain close oversight upon emerging vulnerabilities and remain committed to safeguarding the stability of the international monetary and financial system.