International Monetary Fund Current Affairs - 2019
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The Report of the Financial Sector Assessment Programme for India by the International Monetary Fund (IMF) makes the following recommendations:
- The level of non-performing loans in India remains high and the IMF has favoured bolstering the level of capitalisation of some banks, particularly government-owned banks.
- Together with capitalisation, the report asks for resolution and the recognition of Non-performing loans as part of the process of cleaning up the banking system of non-performing loans,
The report notes that there were some steps that were taken by the authorities to boost capital buffers in banks and also to improve governance in state-owned banks that have had some positive impact.
Financial Sector Assessment Programme
The FSAP includes two major components: a financial stability assessment, which is the responsibility of the IMF, and a financial development assessment, the responsibility of the World Bank.
Financial Sector Assessment Programme of the IMF aims to:
- To gauge the stability and soundness of the financial sector.
- To assess its potential contribution to growth and development.
The Financial Sector Assessment Program (FSAP) is a comprehensive and in-depth analysis of a country’s financial sector.
The International Monetary Fund (IMF) in the World Economic Outlook 2019 April report has made the following forecasts:
- The global growth will be 3.3% in 2019, down from 3.6% in 2018 and 4% in 2017.
- The reduced growth rates are attributed to lower global expansion in the second half of 2018 caused by U.S.-China trade tensions, macroeconomic stress in Turkey and Argentina, tighter credit policies in China and financial tightening plus normalisation of monetary policy in advanced economies.
- Global growth is expected to level out at 3.6% over the medium term beyond 2020. The growth would be driven by a moderation in expansion in advanced countries (caused by weak productivity growth and slow labour force growth) and the stabilisation of emerging market expansion at 2020 levels.
- Advanced economies are expected to slow down to 1.6% growth by 2022 and remain at that rate thereafter.
- Growth is expected to steady at 4.8% over the medium term For emerging markets and developing countries.
- The emerging markets and developing countries are growing faster than advanced economies. Their contribution to global growth is expected to increase from 76% to 85% over the next five years.
- China is expected to slow down to 5.5% by 2024 as it moves towards increasing private consumption and services and regulatory tightening.
Estimates for India
- India’s economy will grow 7.1% in 2019-20 and is expected to accelerate to 7.3% growth this fiscal and to 7.5% in 2021-22. All the estimates are 0.2 percentage points less than its previous assessment in January.
- IMF estimates are higher than those of the Reserve Bank of India. RBI had last week cut its growth forecast to 7.2% for this fiscal and 7.4% for FY21.
- The reduction in India’s estimate is on account of the “the recent revision to the national account statistics that indicated somewhat softer underlying momentum”.
- IMF suggests reforms to hiring and dismissal regulations to help incentivise job creation and absorb the country’s large demographic dividend.
- India’s growth is expected to stabilise at 7.75% over the medium term, driven by structural reforms and the easing of infrastructure bottlenecks.
IMF calls for continued implementation of structural and financial sector reforms in order to lower public debt and aid growth.