Finance Minister Pranab Mukherjee on Sunday said the global economic recovery is fragile and cautioned that emerging economies may not be as resilient in the face of another crisis.
“Countries are recovering at different rates. Growth is well below potential. And the recovery is fragile. There is a constant danger of recovery being derailed by unexpected shocks,” he said in his address to the International Monetary Fund and World Bank Group Development Committee Meeting.
He further cautioned that the world economy is passing through a lot of uncertainty. The financial and economic crisis is yet to run its full course and economies have yet to fully recover from its after-effects, he added.
“Through coordinated action, we were able to avert a prolonged recession ...The prospects are, however, full of uncertainties. Recovery continues across the world, but it is uneven,” he said.
He appreciated the remarkable resilience shown by developing countries in dealing with the crisis. “However, they have exhausted their policy buffers built up over the years and would not be able to show the same resilience in the face of another shock,” he said.
While developed world has been witnessing fragile economic recovery after hit hard by the financial meltdown, started by the sub-prime crisis, Asia is expected to drive the global growth.
Recovery from recession
In fact, IMF recently warned that the United States was staring at a sluggish recovery from severe recession in the face of weak consumer spending and high debt.
Growth in the world’s largest economy slowed to 1.7 percent in the second quarter of this year from a 3.7 percent pace in the first quarter, and key indicators suggest “a weak recovery in coming quarters,” the IMF had said.
Europe, on the other hand, witnessed sovereign debt crisis in some of its countries, but that did not spread.
However, the World Bank warned that Eastern and Central European countries could face another economic slowdown if their Western neighbours cannot gain control of their finances.
On the other hand, IMF expects Asia to continue leading the global recovery.
“China and India will continue to lead the region’s growth. For China and India, we project growth in 2010 at 10.5 percent and 9.7 percent respectively,” the IMF Director for Asia and Pacific, Anoop Singh had said.
Impact of crisis
Stating that the impact of the crisis is going to last for decades beyond the crisis, he said it is a great cause for concern that an additional 64 million people have been pushed into poverty; that joblessness has increased; and that financial flows, although they have recovered from their lows, are still far below their 2007 levels.
“The achievement of the Millennium Development Goals has certainly suffered a setback. Today, we have a billion people suffering from acute hunger, a number unprecedented in history,” he said.
Underlining the need to restore the pace he said, “We need to put in place policies that expand our economies, stimulate investment, increase output and create jobs. We need programs that will address the educational and health needs of our people. We need mechanisms that will ensure that those who are adversely affected by this crisis are taken care of.”
World Bank’s role
He also lauded the significant role played by the World Bank in addressing the fallout of the crisis.
“In fact, it is quite worrying that the Bank’s annual lending will come down to a maximum of USD 15 billion from next year onwards.
He said innovative measures are needed to expand the bank’s lending capacity
“We need strong multilateral buffers to face future crises, play a counter-cyclical role and help maintain development expenditures. For this, we need to quickly focus on further expanding the Bank’s lending capacity through innovative measures. This may even require further capital enhancement,” he said.
In his address, Mr. Mukherjee also called on the need to increase private inflows. “The Bank needs to have an early Warning system by which it can spot and respond quickly to an evolving crisis -- be it food, fuel or economic. The mechanism should be backed by the resources and instruments so that when the situation arises, the Bank is not found wanting,” he said.
The Bank needs to continue to maintain its core focus on poverty alleviation, he said. “One notices a disturbing trend towards a proliferation of goals and the Bank spreading itself too thin. While each goal is valid in its own context, we need to realise that over-burdening the Bank with multiple goals reduces its efficacy in meeting its core objectives.” Mr. Mukherjee said the needs to refocus on agriculture and infrastructure, areas which suffered relative neglect in the 80s and 90s.
“It needs to build up its human, knowledge and operational resources in these vital areas if it is to contribute to global food security and economic prosperity more effectively. We note that some steps have been taken in the recent past but more needs to be done,” he said.