New Delhi, Aug 4 : The outlook for external positions of countries is highly uncertain with major risks, according to a report by the International Monetary Fund (IMF).
The report, titled ‘2020 External Sector Report: Global Imbalances and the Covid-19 Crisis’, suggested that a further worsening in risk sentiment, for economies with pre-existing vulnerabilities, such as large current account deficits, may further increase risks of an external crisis.
“A second wave of the crisis, with a renewed tightening in global financial conditions, could narrow the scope for emerging market and developing economies to run current account deficits, further reduce the current account balances of commodity exporters, and deepen the decline in global trade,” it said.
Current account surpluses and deficits narrowed modestly in 2019, and the outlook is highly uncertain for 2020, the report said. The Covid-19 pandemic has caused a sharp decline in global trade, lower commodity prices, and tighter external financing conditions.
It suggested that in the near term, policy efforts should continue to focus on providing relief and promoting economic recovery. To adjust to external shocks, such as the fall in commodity prices or tourism, countries with flexible exchange rates should allow them to adjust as needed, where feasible.
“For economies experiencing disruptive balance of payments pressures and without access to private external financing, official financing would help to ensure that health care spending is not compromised,” it said.
Further, tariff and nontariff barriers to trade should be avoided, especially on medical equipment and supplies, and recent restrictions on trade should be rolled back, as per the IMF report.
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