Developing countries need to steer policies to sustaining growth: World Bank (2)

10:51, June 08, 2011      

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As they put the financial crisis behind them, developing countries need to focus on tackling country-specific challenges such as achieving balanced growth through structural reforms, coping with inflationary pressures, and dealing with high commodity prices, the World Bank said.

"Macroeconomic policy in developing countries need to turn toward medium-term productivity enhancements, managing inflationary pressures and re-establishing the fiscal and monetary cushions that allowed most developing countries to come through the crisis so well," the bank noted.

Robust domestic demand growth in developing countries has supported output in high income countries, but has accentuated capacity constraints in some domestic markets and in global energy and metals markets.

Low-and middle-income countries were responsible for 46 percent of global growth in 2010. Importantly, they were responsible for more than all the increase in global oil and metals demand over the past 5 years, and their growth was, therefore, responsible for much of the rise in global inflation.

In addition, still loose policies and ample global credit flows have contributed to domestic inflation pressures and asset price bubbles in some middle-income countries.

"Both monetary and fiscal policy in developing countries may have to tighten more quickly to curb these pressures," said the World Bank.

While macro-policy is tightening, a more rapid tightening of fiscal and monetary policy and more exchange rate flexibility may be required to avoid overheating and keep inflation in check, the bank added.
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Source: Xinhua
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