International Monetary Fund (IMF) sees emerging developing economies including India as big growth drivers in next few years for global growth, but these countries need to “converge more rapidly and grow much more quickly” in the post pandemic world, the IMF’s Chief Economist Gita Gopinath said on Wednesday.

Weakening momentum

Gopinath said that the global economy has recovered well, but the world is still in the grip of the pandemic and momentum in second half is weaker. In the third quarter of this year, global recovery lost momentum.

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“Emerging developing economies will remain growth drivers, but they face serious headwinds in coming out of the Covid-19 crisis for which concrete policy actions would be needed,” Gopinath said after delivering a NCAER organised Public Lecture on “Global Recovery from the Pandemic Policy Challenges in 2022”.

Education setbacks

Gopinath said the setback to education has negative implications for growth.

“This (education) should be a policy priority. How are you going to remedy the loss of learning in last two years? Investment is also an area that would need attention,” Gopinath added.

India’s policy stance

On India, which is expected to grow between 6-7 per cent in the next few years, she noted that the drop in labour force participation is a big issue.

“India’s core inflation is slightly above six percent. In this situation, making policy while the economy is not fully recovered is a major issue. Our view is that India’s fiscal policy should maintain its accommodative stance for few more quarters and afterwards slowly unwind. On the monetary policy, we see reason to remain accommodative when it comes to interest rates and, at the same time, keep a watch on inflation,” Gopinath said.

Crypto currency

She highlighted that rising inflation is a challenge for many countries, especially core inflation at the upper bound on the range. On the issue of cryptocurrency, Gopinath, who was recently appointed the First Deputy Managing Director of IMF and is expected to take this role from January 2022, called for an urgent “global compact” on cryptos to, among others things, help address regulatory concerns of developing economies. She underscored the need for regulating cryptos in such a way “where, for the same kind of activity which has same kind of risk, we need the same kind of rule”.

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Crypto is a challenge for emerging markets as it is attractive to adopt them as currencies in the emerging developing economies.

“There are unique challenges that such economies face — including existing exchange controls and capital flow measures — and crypto assets can be ways to evade such measures,” Gopinath said.

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