Asia is “the world’s most dynamic region” but structural reforms are key given its increasing importance to the global economy, International Monetary Fund chief Christine Lagarde said in New Delhi yesterday.
Asia already accounts for 40% of the world economy and stands to deliver nearly two-thirds of global growth over the next four years, Lagarde, the IMF managing director, told the Advancing Asia conference in the Indian capital.
“Given this vital economic role, making the most of Asia’s dynamism is of great interest to the entire world,” Lagarde, on stage with Indian Prime Minister Narendra Modi, said.
“Increased interconnectedness means that Asia now affects the world more than ever before,” she said. “By the same token, Asia is now more deeply affected by global economic developments than ever before – and must respond to them.”
With the global economy facing challenges, it is key that Asian countries carry out structural reforms to boost competitiveness and jobs and ensure growth in future, she said.
Lagarde cited examples including the need for China to rebalance its economy away from debt-led investment, the need for corporate governance reforms in Japan and for improvements in Indian infrastructure.
Strengthening the business environment and developing bond markets will be crucial across the region, she said.
Also speaking at the conference, Prime Minister Modi said that India has “dispelled the myth that democracy and rapid economic growth cannot go together”.  India’s government has projected economic growth of 7.6% for the financial year 2015-16, making it the world’s fastest-growing major economy.
“My agenda of ‘reform-to-transform’ still needs to be finished,” Modi said.
In January the IMF lowered its outlook for global economic growth this year, warning of substantial risks in major emerging market economies.
Slower Chinese growth, a stronger US dollar, collapsed oil prices and political turmoil could wreak further havoc in struggling economies like Russia and Brazil, putting the brakes on the global recovery, it said.  Lagarde urged Asian nations to employ growth-friendly monetary and fiscal policies to counter challenges posed by a fragile global economy.  The call comes as policymakers the world over are struggling to revive their economies, which have been buffeted by slowing productivity and high debt.
Central banks in Europe and Japan have resorted to negative interest rates to stimulate consumer demand and perk up worryingly low inflation. But the strategy has added to the volatility in the financial markets and raised the spectre of competitive currency devaluation.
The multilateral lender earlier this week warned of a further downgrade to the global growth outlook on increasing risks of economic derailment.
“What should be Asia’s response? It is safe to say that structural reforms are key – to boost competitiveness, growth, and jobs,” Lagarde told a conference jointly hosted by the IMF in New Delhi.
In January, the IMF projected global growth of 3.4% and 3.6% in 2016 and 2017, respectively, having revised down its October forecast for both years by 0.2 of a percentage point.
The third downgrade in less than a year was triggered by China’s worst slowdown in 25 years that has exposed vulnerabilities in the country’s corporate and financial sector.
Lagarde said Beijing should improve credit allocation to rebalance the economy away from debt-fuelled investment.

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