Photo taken on April 6, 2021 shows the IMF headquarters of the International Monetary Fund in Washington, DC, the United States.

Ting Shen | Xinhua News Agency | Getty Images

LONDON – Policymakers and central banks must be “very selective” with stimulus measures to avoid endangering medium-term global economic growth, senior International Monetary Fund official says, with over-indebtedness and financial vulnerabilities identified as possible risks.

The warning comes as the IMF appears to be trying to orchestrate a delicate balancing act at its spring meetings this week.

Washington DC-based institute praised the United States for adopting an extraordinary stimulus amid the current coronavirus crisis to accelerate the global economic recovery, while also warning of the potential of these measures to cause longer-term structural damage to global economies.

“There is no doubt that the recovery in the United States presents a very favorable context for the growth projections that we have made,” Geoffrey Okamoto, first deputy managing director of the IMF, told Joumanna Bercetche of CNBC on Wednesday.

“I wouldn’t call it a crutch. It’s a tailwind, isn’t it, that countries should be able to use or capitalize on to try to get through the time remaining until they can convince all of their citizens and their savings. reopen, ”he added.

The IMF said in its World Economic Outlook Tuesday that the global economy was on track to grow 6% this year, improving its forecast for the second time in three months. This follows an estimated 3.3% contraction in 2020 and the worst global recession since World War II.

IMF Managing Director Kristalina Georgieva said the brighter outlook has been supported by the rollout of coronavirus vaccines and economic stimulus measures, “particularly in the United States”.

In a move expected to boost America’s economic recovery, President Joe Biden’s $ 1.9 trillion stimulus package spent last month. The White House has since sought to make a $ 2 trillion infrastructure plan the administration’s next legislative priority.

When asked if policymakers and central banks risk overfeeding economies due to ultra-accommodative measures, Okamoto replied: “On both fiscal and monetary policy posture, keeping accommodations in place for too long. a long time leads to risks. “

‘Risks to growth’

“On the monetary policy side, keeping monetary policy accommodations in place for too long invites certain vulnerabilities to enter the financial sector,” Okamoto said, adding that the institute said in its global financial stability report that regulators should contain these risks. .

The IMF’s GFSR report, published Tuesday, said that while there is an urgent need to avoid a legacy of vulnerabilities, actions taken during the coronavirus pandemic “may have unintended consequences such as stretched valuations and growing financial vulnerabilities.”

It also highlights a marked divergence between a small number of advanced economies and emerging market economies, with low-income countries at risk of falling even further behind in a multi-speed recovery.

A worker works on a production line to produce electrical products for domestic and Southeast Asian markets in Hai’an, east China’s Jiangsu Province, March 29, 2021.

Costfoto | Barcroft Media | Getty Images

“On the fiscal side, just because rates stay low and your borrowing capacity exists doesn’t mean you can borrow unlimited amounts for any purpose,” Okamoto continued.

“We want people to spend their resources prudently both to weather the pandemic and to make the appropriate investments to get on a growth trajectory after the crisis emerges. But that does require being very selective and making sure that you are funding the projects with the highest economic rates of return. “

Okamoto said failure to be selective with these projects would lead to debt distress, “and over-indebtedness or financial vulnerabilities could pose risks to medium-term growth.”

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