Tharman stresses urgency of structural economic reforms

Singapore

THE global economy faces the real risk of a prolonged period of sub-par growth, which underlines the need for greater urgency when it comes to implementing structural reforms, said chairman of the International Monetary and Financial Committee (IMFC) Tharman Shanmugaratnam.

Mr Tharman and International Monetary Fund (IMF) managing director Christine Lagarde were speaking at a press conference on Saturday in Washington, DC after the meeting of the IMFC, the policy-setting body of the IMF.

Since the global financial crisis struck six years ago, some economies - such as the US - have seen a pick-up in economic activity, but global recovery still remains uneven and weaker-than-expected.

In a press release, the IMFC flagged existing downside risks, including monetary normalisation in some developed countries, protracted below-target inflation in others as well as intensified geopolitical tensions.

If the global economy experiences low growth over a long period, it will find itself susceptible to geopolitical risks, biological pandemics and "financial Ebolas", stressed Mr Tharman, who is also Singapore's Deputy Prime Minister and Finance Minister.

A key part of the meeting's discussions, which were attended by finance ministers, was to address the challenges of lifting growth in the near term and ensuring sustained growth into the future.

Mr Tharman said: "If we don't address tomorrow's growth problems today, we will be left with today's problems tomorrow, unsolved, and tomorrow's problems, if left for the future, will just get larger. So we've got to put much greater urgency on the structural reforms required to solve tomorrow's problems, towards achieving sustainable growth and towards averting a prolonged period of sub-par growth."

Structural reforms - which will help boost confidence in the near term and stimulate growth in the medium to long term - are seen as critical at this juncture in the global economic recovery.

"We recognise that structural reforms have been, with some exceptions, too slow and we've got to pick up the pace," said Mr Tharman, adding that there are ways of implementing such reforms without curtailing economic growth in the short term.

"There are ways in which we can have growth-friendly fiscal policies without a major fiscal expansion or without slippage from fiscal rules. There are ways in which we can liberalise labour markets, which can enhance job creation as well as improve productivity growth without an expansion of fiscal budgets. There are ways in which we can liberalise service sectors to boost productivity and enhance competition, again without having to expand fiscal resources," he said.

Looking ahead, the IMF will focus its efforts on three areas to enable the global community to chalk up stronger growth, with growth and jobs - via infrastructure investment - seen as high on the agenda. Other areas include analysing the risks and consequences of policies as well as continuing with efforts to complete financial sector reform.

"Particular emphasis must be placed on measures to boost labour demand and supply, including through reducing youth unemployment and increasing opportunities for women and older workers in the economy; improve credit flows to productive sectors; and enhance the business environment to support private investment," the IMFC said in the press release. And "carefully calibrated, well-communicated normalization" of monetary policy would reduce adverse spillovers and be beneficial to the global economy, it noted.

Meanwhile, Ms Lagarde said that US$130 million in additional interest- free financing has been provided to Guinea, Liberia and Sierra Leone to help them deal with the fallout from the Ebola crisis. "The purpose is to eradicate Ebola but not isolate the countries themselves," she said.