Speaking at Finance Track seminar on Global Economy, the governor said, for this purpose, “a bigger and stronger IMF that is capable of managing levels of country risk assumes crucial importance.”
India’s key policy-makers on Friday called for more steps by IMF-World Bank to help countries in debt distress, and seamless communication among central banks to ensure that spillover effects of their monetary policy actions don’t cause much repercussions for the world economy.
“The crucial role of IMF and World Bank in addressing global debt vulnerabilities cannot be overstated. These institutions are at the centre of international monetary and financial systems. Hence, it is incumbent upon them to do more for countries in debt distress,” Reserve Bank of India (RBI) governor Shaktikanta Das said.
Speaking at Finance Track seminar on Global Economy, the governor said, for this purpose, “a bigger and stronger IMF that is capable of managing levels of country risk assumes crucial importance.”
He noted that while standby arrangements are offered to countries with a balance of payment crisis, these come with performance benchmarks and are often attached with a “stigma”. Lack of access to IMF programmes and perceived stigma can cause countries to seek financial support from other borrowers, and this might lead to debt sustainability consequences, he observed.
The programmes can be designed with lesser riders for countries whose macro-fundamentals that are not “sound” but “reasonably resilient.” “Corrective measures including financing should be put in place in a timely, non-stigmatised, and more open-access basis.”
Stating that monetary policy tightening is one of the reasons cited by some countries for increased debt vulnerability, chief economic advisor V Anantha Nageswaran said that while central banks set monetary policy to achieve domestic economic goals, there are limits to the concentration of spillover on other countries.
The CEA also stressed the need for coherence between fiscal and monetary policies. In several instances, the space for policy action is often limited and there is high likelihood for policies to work across purposes. Higher interest rates would make fiscal consolidation harder and that would put pressure on monetary policy to remain easy for longer if growth remained subdued.
At a time when the world is witnessing increasing debt vulnerabilities and growing geo-economic fragmentation, Nageswaran feels that a multilateral system is key to managing inter-dependencies in a manner that enhances national and global welfare.
Source:financialexpress.com