The recovery from the global financial crisis has begun to lose steam, after better-than expected growth in early 2010," says Global Financial Stability Report 2010 launched Tuesday, adding that consumers´ confidence and other leading indicators have started to level off, reflecting rising uncertainty about the next phase of the recovery.[break]
Such statement of the flagship publication of IMF, meanwhile, indicates that consumers in the US and Europe will continue to tighten their spending, something which is not good news for exporters world over, including in Nepal.
On the back of good progress and possible end of the crisis by 2011, countryies like Nepal had been pinning hope over reclaiming high remittances growth rate, which had slowed down last year, and also customers of woolen carpet, garment and pashmina -- the leading exports in the developed world.
"But despite the progress like strengthening of capital ratios of the US and European banking systems to over 10 percent on average, confidence has not yet been fully restored," Jose Vinals, financial counselor and director of Monetary and Capital Markets Department, IMF, said.
Talking to media persons, Vinals tagged the financial system as the Achilles´ heels of the economic recovery, meaning economic recovery will stand largely on the restoration of confident financial system. "And much works still needs to be done to ensure global financial stability," he stated.
To fully restore confidence and remain firmly on track toward building financial resilience, IMF pushed the countries reeling under sovereign debts like Greece and Ireland, among others, to strengthen their sovereign balance sheets through credible medium term fiscal consolidation strategies, like growth enhancing structural reforms.
It also suggested countries in and outside Europe to restructure weaker financial institutions and increase capital buffers to reduce vulnerabilities.
"While remaining open to providing financial support at the times of need, the central banks and governments should also make their exit strategies contingent on adequate progress on the economic and financial stability front," the report suggested.
IMF welcomed the announcement of the Basel Committee that adopted new norms on bank capital and liquidity standard, but also urged the developed countries to put in place adequate regulation, enhance supervision and establish effective resolution regimes for failing financial firms.
With the prolonged crisis in the developed world, the report notes that developing and emerging markets that are doing relatively well and showing resilience to crisis have started to witness substantial rise in capital inflows.
This might be good news for the developing countries, but IMF has cautioned that such capital can prove volatile, especially as they might exit the country as easily as they come. It has suggested the policy makers to enhance institutional capacity to cope with the macro-financial challenges emanating from it.
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