WASHINGTON: The IMF today asked member countries to refrain from all forms of protectionism and competitive devaluations as it emphasised on global cooperation in combating corruption, reinvigorating global trade integration and addressing international tax issues.
In a communique issued during the annual Spring meeting of the International Monetary Fund (IMF) and the World Bank, the IMF asked its member countries "to refrain from all forms of protectionism and competitive devaluations and to allow exchange rates to respond to changing fundamentals".
The IMF said global cooperation is needed on several fronts. These included ensuring a well-functioning international monetary system, reinvigorating global trade integration and combating corruption and improving governance.
Global cooperation is also needed on addressing international tax issues including transparency, coping with challenges of non-economic origin, including those pertaining to refugees, the IMF said.
It also sought global cooperation for consistently implementing and completing the financial regulatory reform agenda, including policies to transform the shadow banking sector into a stable source of market-based finance.
Observing that the global economy continues to expand modestly, the IMF said global growth, however, has been subdued for a long time and the outlook has weakened somewhat since October.
Although recent developments point to some improvements in sentiment, financial market volatility and risk aversion have risen, reflecting partly the reappraisal of potential growth, the communique said.
"The significant slowdown in global trade growth also persists. Recoveries in many advanced economies are restrained by a combination of weak demand, low productivity growth and remaining crisis legacies," the IMF said.
"Activity in emerging market and developing economies has cooled down, although it still accounts for the bulk of world growth. Globally, lower commodity prices have adversely affected exporters, while their short-term growth impact on energy importers has been less positive than expected," the IMF said.
Downside risks to the global economic outlook have increased since October, raising the possibility of a more generalised slowdown and a sudden pull-back of capital flows, it said.
At the same time, geopolitical tensions, refugee crises and the shock of a potential UK exit from the European Union pose spillover risks, it added.
Reinforcing its commitment to strong, sustainable, inclusive, job-rich and more balanced global growth, the IMF said to achieve this it will employ a more forceful and balanced policy mix.
"Implementation of mutually-reinforcing structural reforms and macroeconomic policies, using all policy tools, individually and collectively is vital to stimulate actual and potential growth, enhance financial stability and avert deflation risks," the IMF said.
"Clear and effective communication of policy stances will be key to limit excessive market volatility and negative spillovers," it said.
Asserting that growth-friendly fiscal policy is needed in all countries, the IMF said fiscal strategies should aim to support the economy, providing for flexible use of fiscal
policy to strengthen growth, job creation and confidence, while enhancing resilience and ensuring that debt as a share of GDP is on a sustainable path.
"Tax policy and public spending needs to be as growth- friendly as possible, including by prioritising expenditure in favour of high-quality investment," it said.
The IMF said accommodative monetary policy should continue in advanced economies where output gaps are negative and inflation is below target, consistent with central banks' mandates and mindful of financial stability risks.
Monetary policy by itself cannot achieve balanced and sustainable growth and hence must be accompanied by other supportive policies, it said.
In a number of emerging market economies, monetary policy will need to address the impact of weaker currencies on inflation, the communique said.
Exchange rate flexibility, where feasible, should be used to cushion the impact of external shocks, including terms-of-trade shocks, it observed.
Underlining that structural reforms need to be advanced, benefiting from synergies with other policies to support demand, the IMF said it should be appropriately prioritised and sequenced in each country.
Commodity exporters and low-income developing countries should implement policies to promote economic diversification, it said.
The IMF also called for a timely, full and consistent implementation of agreed financial reforms, including the Basel III and Total Loss-Absorbing Capacity (TLAC) standard which it said remains important to boost the resilience of the financial system.
"Efforts must continue to facilitate the repair of private sector balance sheets. Advanced economies must deal with remaining crisis legacy issues. Emerging market economies need to monitor foreign currency exposures and bolster their ability to withstand financial shocks," it said.
"Further analysis and solutions are needed, as appropriate, with the aim to prevent de-risking from unduly impeding access to financial services, including correspondent banking relationships," the IMF said.