IMF: Global corruption costs trillions in bribes, lost growth

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Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.

In a new research paper, the IMF said that tackling corruption is critical for the achievement of macroeconomic stability, one of the institution´s core mandates.

The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.

“While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating,” IMF Managing Director Christine Lagarde wrote in an essay accompanying the paper. “Corruption also has a broader corrosive impact on society.

It undermines trust in government and erodes the ethical standards of private citizens,” Lagarde added.

The paper, titled “Corruption: Costs and Mitigating Strategies,” follows Lagarde´s warning to Ukraine in February that the IMF would halt its $17.5-billion bailout for the strife-torn eastern European country unless it takes stronger action to fight corruption, including new governance reforms.

Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.

Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually.

But it said corruption´s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.

Source: http://www.thenews.com.pk/latest/119186-IMF-Global-corruption-costs-trillions-in-bribes-lost-growth

Financial inequality highest in India, China: International Monetary Fund

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According to IMF, China and India have grown rapidly and reduced poverty sharply, however, this impressive economic performance has been accompanied by increasing levels of inequality.

Financial inequality is highest in India and China among Asia Pacific countries despite the two being among the fastest growing economies, IMF has said.

According to the International Monetary Fund, China and India have grown rapidly and reduced poverty sharply, however, this impressive economic performance has been accompanied by increasing levels of inequality.

“In the past, rapid growth in Asia came with equitable distribution of the gains. But more recently, while the fast-growing Asian economies have lifted millions out of poverty they have been unable to replicate the ‘growth with equity’ miracle,” the Fund said.

As per the report, China managed to increase middle class in urban areas, as did Thailand, while India and Indonesia struggled to lift sizeable portions of their populations toward higher income levels.

“In India, differences between rural and urban areas have increased, and have been accompanied by rising intra-urban inequality,” it said.

Many factors have been identified as key drivers of the inequality between rural and urban areas in China and India.

In China, rapid industrialisation in particular regions and the concentration of foreign direct investment in coastal areas have led to substantial inequalities between coastal and interior regions. Other factors also include low educational attainment and low returns to education in rural areas.

On India, the report said inter provincial inequality is lower in India than in China, and rising inequality in India has been found to be primarily an urban phenomenon.

Moreover, the rural-urban income gap has increased, and higher rural inflation has been found to be a key driver of this. Educational attainment has also been identified as an important factor explaining rising inequality in India over the past two decades, the Fund said.

The two countries have introduced a number of policies to tackle the rising inequality.

China introduced the Minimum Livelihood Guarantee Scheme (Dibao) for social protection in the 1990s. Moreover, various social programs are aiming to expand social safety nets and provide support for the development of rural areas and western regions.

In India, the government introduced the Mahatma Gandhi National Rural Employment Guarantee Act to support rural livelihoods by providing at least 100 days of employment. Programs to improve education include the National Education Scheme and Midday Meal Scheme.

The Fund lauded the JAM (Jan Dhan-Aadhaar-Mobile) initiative and said that “the JAM trinity initiative helped India in making substantial advances in financial inclusion. More recently, programs aiming for universal bank account coverage were launched”.

Source:
http://economictimes.indiatimes.com/articleshow/52106291.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

IMF Sees Rising Debt Challenge as Asia Stays Global Outperformer

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The International Monetary Fund said rising debt levels in major Asian economies have become a significant risk, even as the region remains on track to post solid economic growth.

Asia-Pacific economies as a group will decelerate only slightly, to 5.3 percent this year and next, from 5.4 percent in 2015, the Washington-based fund said in an annual regional report published Tuesday. The IMF last month trimmed its global forecasts, and said the world was more exposed to negative shocks thanks to a prolonged weaker pace of expansion.

In Asia, domestic demand, particularly consumption, should be a key driver, but worsening global conditions and high leverage in the region may curb growth, the fund said.

“Downside risks continue to dominate the economic landscape,” the IMF said. “In particular, the turning of the credit and financial cycles amid high debt poses a significant risk to growth in Asia, especially because debt levels have increased markedly over the past decade across most of the major economies in the region, including China and Japan.”

Downward Spiral

The IMF’s singling out of debt as a growing worry is in line with recent statements. The institution warned in a report last month against what it called a self-reinforcing “spiral” of weakening growth and rising debt that could require a coordinated response by the world’s major economies.

In Asia, the IMF said Tuesday, debt levels are high, while credit growth and corporate issuance have remained strong as companies try to take advantage of still-favorable global liquidity conditions.

The ratio of corporate debt to gross domestic product has risen faster in Asia than anywhere else in the world since 2009, the IMF added, and the measure is particularly elevated in China and South Korea. Household debt is a growing worry in Hong Kong, Malaysia, Singapore and Thailand, the IMF said.

“Although part of the credit growth reflects financial deepening, some growth has been above that implied by fundamentals,” the IMF said. Financial deepening refers to the spreading availability and use of banking.

Reform Refrain

As in previous reports, the IMF called on policy makers to push ahead with structural reforms to raise productivity, including measures to boost consumption in China. The fund also flagged the risk of an over-reliance on monetary or credit policies to hold up demand, particularly if job losses in manufacturing exceed the gains in services.

On Japan, the only developed economy where it anticipates economic contraction next year, the IMF recommended moves to reduce the difference between life-time and non-regular labor contracts to allow for higher wage increases. It also suggested deregulation and a drive to increase female labor market participation.

The IMF said that recent economic policies in Japan — so-called “Abenomics” — have been “supportive,” but added that “durable gains in growth” are yet to be seen.

The fund also warned against an excess reliance on monetary stimulus. The remark comes less than a week after a surprising Bank of Japan decision to hold off on stepping up its monetary expansion jolted markets and led to a surge of the yen against the U.S. dollar.

Source: http://www.bloomberg.com/news/articles/2016-05-03/imf-sees-rising-debt-challenge-as-asia-stays-global-outperformer

China commends India’s GDP growth; says keen to invest more

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China has complimented India for “doing a good job” in maintaining an impressive growth rate despite a global slowdown and is keen on working together to push for reforms in the international financial system to offset the inherent weaknesses.

Stating that his country was keen to ramp up investments in India, Chinese Foreign Minister Wang Yi said the two major emerging economies can contribute significantly in helping the world economy by keeping up their growth momentum.

“First of all, we both need to grow our own national economies. On this front, we want to commend India for doing a good job in promoting economic growth,” said Wang.

Wang, who was here to attend Foreign Ministers’ meeting of RIC (Russia, India, China) grouping, further said reform of global financial system is key to protect the interest of developing countries and for recovery of the world economy.

“We need to join hands in playing a positive role in improving the global economic and financial governance because that will help protect the interests of the developing countries. It will also help the world economy to embark on a path of strong recovery,” Wang said.

He said China was “optimistic” about the prospect of deeper relationship between the two countries.

“Of course, we will be happy to invest more in India. There is no doubt about it,” he added.

After witnessing nearly three decades of close to double-digit growth, China has seen a decline in its growth rate, making room for India to replace it as the fastest-growing major economy of the world.

However, Chinese economy remains much bigger than that of India in terms of the overall size.

China clocked 6.9% growth in 2015 when India is estimated to have grown by 7.3%. The IMF has projected Indian economy to grow at 7.5% in 2016 and 2017.

The Chinese Foreign Minister also said his government was “looking forward” to President Pranab Mukherjee’s upcoming visit to China.

Forex reserves hit record high at $359.917 bn

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India’s foreign exchange reserves continue to rise to hit a record level of $359.917 billion as on April 8, data from the Reserve Bank of India (RBI) show.

India’s foreign exchange reserves continue to rise to hit a record level of $359.917 billion as on April 8, data from the Reserve Bank of India (RBI) show.

The central bank data show that in the week-ended April 8, India’s forex reserves rose by $157.40 million from the previous week.

As on April 8, foreign currency assets (FCA), which forms a key component of the reserves rose by $159.3 million from the previous week to $335.845 billion. FCA are maintained in major currencies like US dollar, euro, pound sterling, yen, etc. However, the foreign exchange reserves are denominated and expressed in US dollar only.

The movements in the FCA occur mainly on account of purchase and sale of foreign exchange by the RBI in the foreign exchange market in India, income arising out of the deployment of the foreign exchange reserves, external aid receipts of the central government and revaluation of the assets.

Gold reserves, however, remained unchanged at $20.115 billion. Special drawing rights (SDR) from the International Monetary Fund fell by $0.90 million from the previous week to $1.501 billion.

SDR is an international reserve asset created by IMF and allocated to its members in proportion of the members’ quota at IMF. The country’s reserve position in the IMF, however, fell by $1 million to $2.455 billion.

Source: http://www.financialexpress.com/article/industry/banking-finance/forex-reserves-hit-record-high-at-359-917-bn/237598/

IMF knowledge sharing center to come up in India

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In a first for Asia, the International Monetary Fund (IMF) will set up a knowledge-sharing centre in India, to provide technical support and assistance here and to five other South Asian nations. Their team will extend expertise in core macroeconomic and financial management areas, said an unnamed government source. An agreement is likely to be signed here on Saturday by IMF Managing Director Christine Lagarde with Prime Minister Narendra Modi.

The new IMF centre, being set up amid global economic uncertainty, will provide assistance to India, Nepal, Bangladesh, Sri Lanka, Pakistan and Bhutan. Since the IMF team will be based out of the region, it will ensure better understanding of regional concerns, including trade, agriculture, climate change, facilitating a reform process and support to regional integration. The knowledge centre will come up in the wake of IMF announcing implementation of its long-pending quota reform, giving more voting rights to emerging economies.

With these changes, to be effected in the coming days, India’s quota in the IMF would rise to 2.7 per cent from the existing 2.44 per cent. Also, the voting share of India would increase to 2.6 per cent from 2.34 per cent. For the first time, four emerging market (EM) countries of the Brics bloc — Brazil, China, India and Russia — will be among the 10 largest members of IMF.

Two new multilateral agencies are also being set up — a New Development Bank of the Brics countries and an Asian Infrastructure Investment Bank.

An Asian economic crisis did occur in the late 1990s but from the Southeast Asian ‘tigers’ of that time. This time, one could emanate from China or another large economy from the EMs. According to the Economic Survey of 2015-16, if this kind of crisis does emerge, it would be very different from those of earlier decades. Since the 1980s, it said external financial crises have followed one of three basic forms — Latin American, Asian or global models.

In a Latin American debt crisis, governments went on a spending binge, financed by foreign borrowing (of recycled petrodollars) while pegging their exchange rates. In the Asian one of the late 1990s, the transmission mechanism was similar — overheating and unsustainable external positions under fixed exchange rates — but the instigating impulse was private borrowing rather than governnment borrowing.

The global one of 2008, with America as its epicentre, was unique in that it involved a systemically important country and originated in doubts about its financial system.

If a crisis occurs in China or another large EM, it is more likely to resemble events of the 1930s, when the UK and then the US went off the gold standard, triggering a series of devaluations by other countries and leading to a collapse of global economic activity.

If such a crisis hits India, it will require fresh prescriptions and it is here that the IMF centre would be of help, a source said.

Source: http://www.business-standard.com/article/economy-policy/imf-knowledge-sharing-centre-to-come-up-in-india-116030901112_1.html