Why IMF Seeks Growth Oriented Expenditure?

The IMF’s steering committee in the last week of April asked member nations to bolster “growth oriented” expenditure. It said the Fund would examine modified preventive lending tools to assist nations to overcome a slowdown in the international economic development.

According to the International Monetary and Financial Committee, “Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalized slowdown and a sudden pull back of capital flows. A more forceful and balanced policy mix was needed to stimulate growth and avoid deflation. A growth-friendly fiscal policy is needed in all countries.”

An accommodative financial policy was vital for growth in many developed nations. It also recommended the implementation of structural reforms to assist demand.

Financial stakeholders are looking for methods to improve cooperation to negate several economic contingencies.

The IMF is requesting member nations to execute new public infrastructure projects. It feels greater government expenditure would bolster development. However, in a period of significant budget deficits, the request from the IMF has not received a positive response.

The key stakeholders representing the IMF and the World Bank are stressing on the requirement for initiatives to bolster development and prevent the global economy from sliding into another recession.

A series of stronger procedures need to be initiated to overcome any increasing risks.

According to Christine Lagarde, the Managing Director of the International Monetary Fund, “The recovery from the 2008 financial crisis and the deep recession that followed was still too slow and too fragile. The IMF has once again had to reduce its estimate for global growth, cutting the projection to 3.2 per cent for this year, down from a 3.4 percent forecast made just three months ago.”

The IMF felt risks have enhanced due to turbulent financial markets and reduced commodity prices. Again, the general feeling was that decision makers in many nations had run out of options.

A combined effort globally would assist in leveraging distinct nations actions, thereby ensuring the international monetary system is more robust.

A prolonged low international demand and adverse interface between actual economy and markets would increase deflationary pressures. This could lead to secular stagnation.

International economic recovery is happening at a slow pace. This is the period to initiate decisive measures to put the international economy back on track.

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