IMF sees rising fiscal vulnerabilities in emerging markets

11 April 2014

Xinhua, Washington :
Global fiscal risks are abating somewhat but remain elevated, and underlying fiscal vulnerabilities have increased in emerging market economies during the past year, said the International Monetary Fund (IMF) Wednesday in a newly-released report.
In advanced economies, recent policy moves have broadly stabilized public debt ratios, but medium-term prospects are still uncertain, and debt remains at historic highs, the Washington- based IMF said in its Fiscal Monitor report.
Fiscal vulnerabilities are rising in both emerging market economies and low-income countries, although in most cases from " relatively moderate levels," the IMF said.
The IMF said among emerging market economies, deficits remain significantly above the pre-crisis levels as most countries opted to postpone fiscal adjustment in 2014.
"In countries more closely integrated with international capital markets, the normalization of global liquidity conditions has begun to raise borrowing costs and financial volatility, giving yet greater urgency to fiscal consolidation, particularly where deficits and public debt have remained stubbornly high," the report cautioned.
"These (emerging market) countries have overall stronger fiscal positions. They initially weathered the crisis well, in large part by running down their fiscal buffers. While there is significant heterogeneity among emerging economies, deficits and debt ratios remain significantly above pre-crisis levels," said Sanjeev Gupta, acting director of IMF fiscal affairs department.
The IMF suggested that countries with large debt and refinancing needs take decisive measures to rein in deficits. For countries with manageable but rising debt ratios, fiscal policy action is needed to shore up credibility and reduce fiscal vulnerabilities to possible market jitters.

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