Global Trade Imbalances: IMF calls for adoption of growth-friendly fiscal consolidation.

The International Monetary Fund IMF has charged both surplus and deficit countries must work together to reduce excess global imbalances in a manner supportive of global growth and stability.

IMF in its report says that Despite the narrowing of global current account imbalances, stock imbalances (measured as the sum of countries’ net foreign assets and liabilities) have continued to increase, as creditor countries have run surpluses and debtor countries have run deficits for the most part. At 40 percent of GDP, stock imbalances have reached a historical peak and are four times larger than in the early 1990s.

IMF say Countries with excess current account deficits, like the United Kingdom and the United States, should adopt or continue with growth-friendly fiscal consolidation, while those with excess current account surpluses, like Germany and Korea, should use fiscal space to boost public infrastructure investment and potential growth.

IMF added that Over the medium term, in the absence of corrective policies to reduce imbalances, trade tensions could become entrenched. Moreover, a further increase in countries’ external debts in key countries could trigger costly disruptive adjustments that could spill over to the rest of the world.

More generally, all countries should avoid policies that distort trade, as they tend to come at the expense of global trade, investment, and growth. Instead, surplus and deficit countries should work toward reviving international trade and strengthening the rules of the multilateral trading system that have served the global economy well over the past 75 years.

IMF say governments need to carefully calibrate their policies to achieve domestic and external objectives.


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