News Column

IMF - Nigeria, Others Still Adjusting to Tight Financial Conditions

July 28, 2014

Obinna Chima



Nigeria and a lot of other developing economies as well as emerging markets are still adjusting to tighter financial conditions and implied higher cost of capital since last year, the International Monetary Fund (IMF) has stated.

The multilateral institution which stated this in its latest World Economic Outlook (WEO) for July 2014, obtained at the weekend, also noted that the challenge of weaker medium-term growth trajectories was also confronting economies under the above-mentioned categories.

However, the IMF pointed out that with external vulnerabilities and little macroeconomic policy space in some cases, policy options to support growth if needed had been more limited.

According to the IMF, allowing exchange rates to respond to changing fundamentals and addressing problems of inflation pressure and policy credibility, where relevant, would generally help build monetary policy space.

However, it stressed the urgent need for structural reforms to strengthen growth potential or make growth more sustainable in a lot of economies, advanced and emerging markets alike.

Emerging economies-particularly those with domestic weaknesses and external vulnerabilities-may face a sudden worsening of financial conditions and a reversal in capital flows in the event of a shift in financial market sentiment, the report warned.

"Many of these economies also face the risk that the factors underpinning the weakening of growth will persist into the medium term.

"The weaker global growth expected for the first half of this year underscores that raising actual and potential growth must remain a priority in most economies.

"Although the role of temporary factors in the slowdown in key advanced economies in the first quarter must be recognised, robust demand momentum has not yet emerged despite continued very low interest rates and easing of brakes to the recovery, including from fiscal consolidation or tight financial conditions," it added.

The IMF advised that monetary policy should remain accommodative in all major advanced economies, although prospects for inflation and economic slack under the baseline would call for gradual normalisation at different times.

"The pace and composition of fiscal adjustment should be attuned to supporting both the recovery and long-term growth.

"To limit financial stability risks related to continued low interest rates, the reform of financial regulation should be completed, and macro-prudential tools should be developed further and deployed.

"Finally, in many economies, advanced and emerging market alike, there is an urgent need for structural reforms to strengthen growth potential or make growth more sustainable," it stated further.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: AllAfrica


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters