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The International
Monetary Fund (IMF) said the world economy is recovering from the
global crisis better than expected, but sees activity reviving at
different speeds in different parts of the world.

In its latest World
Economic Outlook (WEO), made available on the organisation’s website,
the IMF said among the advanced economies, the United States is off to
a better start than Europe and Japan. Among emerging and developing
economies, emerging Asia is leading the recovery, while many emerging
European and some Commonwealth of Independent States economies are
lagging behind.

The report stated
that China’s growth is forecast at 10 percent in 2010, with India also
at a rapid 8.8 percent. Sub-Saharan Africa has weathered the crisis
well and its recovery is expected to be stronger than in previous
global downturns. In the depth of the crisis last year, world economic
activity contracted by 0.6 percent, as world trade slumped and credit
froze up.

“We find ourselves
at an important new stage of the crisis,” IMF Research Department
Director, Olivier Blanchard, told an April 21 news briefing in
Washington, as made known by the report. “A global depression has been
averted. The world economy is recovering, and recovering better than we
had previously thought likely.”

But he added that achieving strong, sustained, and balanced growth would require more work.

Outlook still uncertain

The report said
that despite improvements, the outlook remains unusually uncertain, and
downside risks stemming from fiscal fragilities have come to the fore.
A key concern is that room for policy maneuvres in many advanced
economies has either been exhausted or become much more limited.
Moreover, sovereign risks in advanced economies could undermine
financial stability gains and extend the crisis. The rapid increase in
public debt and deterioration of fiscal balance sheets could be
transmitted back to banking systems or across borders.

These problems
underscore the need for policy action to sustain the recovery of the
global economy and financial system. Given the still fragile recovery,
fiscal stimulus planned for 2010 should be fully implemented, except in
economies that face large increases in risk premiums.

The report said the
policy agenda should include several important elements. “The key task
ahead is to reduce sovereign vulnerabilities. These should include
clear time frames to bring down gross debt-to-GDP ratios over the
medium term, as well as contingency measures if the deterioration in
public finances is greater than expected. If macroeconomic developments
proceed as expected, most advanced economies should embark on fiscal
consolidation in 2011.”

The report also
added that as high unemployment persists in advanced economies, a major
concern is that temporary joblessness will turn into long-term
unemployment. Beyond pursuing macroeconomic policies that support
recovery in the near term and financial sector policies that restore
banking sector health (and credit supply to employment-intensive
sectors), specific labour market policies could also help limit damage
to the labour market. In particular, adequate unemployment benefits are
essential to support confidence among households and to avoid large
increases in poverty. Education and training can help reintegrate the
unemployed into the labour force.

Policymakers need
to try to ensure that the next stage of the financial sector
deleveraging process unfolds smoothly and results in a safer,
competitive, and vital financial system.

Looking further
ahead, the report stated that there must be agreement on the reform
agenda for financial regulation. “The direction of reform is
clear-higher quantity and quality of capital and better liquidity risk
management – but the magnitude is not. In addition, uncertainty
surrounding reforms to address too-important-to-fail institutions and
systemic risks, make it difficult for financial institutions to plan.”

The IMF urged that
policymakers must strike the right balance between promoting the safety
of the financial system and keeping it innovative and efficient.

Balancing Stability Agenda with Risks

Bismarck Rewane,
Managing Director, Financial Derivative Company, said the Nigerian
economy is projected to grow by 7.53 percent in 2010, according to the
Nigerian Bureau of Statistics. “Nigeria’s proneness to adverse external
shocks in the oil market and disruptions in oil production are major
risks to growth in 2010. Inflation is also another risk that must be
managed in 2010.”

Mr. Rewane, in his
April edition of the firm’s economic update, said potential threats of
inflation will be from the proposed deregulation of the downstream oil
and gas sector, massive pre-election spending, and the implementation
of 2010 budget with a planned spending increase of about 50 percent,
compared to 2009 figures. Also, about 45 percent of the 2010 budget is
for recurrent expenditure.

“Rising
unemployment and the prevailing credit squeeze in the banking sector
also pose a major threat to overall growth of the economy. The Central
Bank of Nigeria is therefore, faced with a daunting task that must see
it weather the potential shocks to the macro economy and at the same
time, follow through with financial regulatory reform programme.”

He said the
financial system is vital to the development of any economy and so, it
is important that steps are taken to ensure that financial institutions
are strong, safe and efficient.

“However” he said, “focusing on financial regulation at the expense
of the macro economy could also have the undesirable consequence of
jeopardising the overall growth of the economy.”