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IMF-World Bank meeting today

Delegates, central bank governors and finance ministers for the most part, are also under pressure to act more decisively to ease the debt burden carried by the world’s poorest countries.

The annual two-day meeting of the policy-setting committees of the two institutions comes as the world economy, according to the IMF, is in its best shape in nearly 30 years, with growth this year expected to hit five per cent.

“The challenge is to keep the recovery going and to keep it going for as many years as possible,” IMF Managing Director Rodrigo Rato said this week.

The IMF sees a slowdown setting in next year as the pace of global expansion slips to 4.3 per cent.

Rato said national economies may well have to adjust to higher interest rates along with rising oil prices, which reflect tighter supply capacity, robust demand and uncertainties brought on by fears of terrorist disruption.

The IMF estimates that with each annual increase of five dollars a barrel, 0.3 points is shaved off world growth.

With its surging economy, China has developed a voracious appetite for oil and other commodities and its task now is to engineer a soft landing, an easing in its growth pace that does not cause undue hardship to neighbouring countries dependent on the Chinese market as an export outlet.

The IMF has warned that while Chinese authorities have taken steps to tighten credit and investment conditions, the risk of overheating remains.

“The question increasingly is not a hard or soft landing but whether China will land at all,” commented IMF research director Raghuram Rajan. “In its own long-term interest we strongly believe it must land.” But the burden of maintaining world financial stability does not rest with China alone and Rato in the past several weeks has repeatedly urged the United States to curb its budget and current deficits, which he has said are threats to global economic health.

The US government budget deficit was predicted to have come to a record 422 billion dollars -- 3.6 per cent of gross domestic product -- for the fiscal year that ended September 30.

Economists and analysts fear that a sustained US budget shortfall will drive up global interest rates, and thereby dampen growth, as the United States borrows huge amounts of money to finance the deficit.

A yawning deficit in the US current account, a broad measure of foreign trade, is likewise a concern.

The shortfall is currently financed by foreign investment, fanning fears that if such flows were abruptly halted, the dollar would collapse, triggering higher US interest rates and lower growth.

While the eurozone is at last showing some signs of economic life, with growth of 2.2 per cent foreseen this year, political leaders there have shown little inclination to carry out the market-friendly reforms needed to close the output gap with the United States and Japan, according to the IMF.

“Far too many in Europe seem to have concluded that the good life and economic dynamism are contradictory terms,” said Rajan.

Participants at the weekend session here will also get a chance to digest details of an ambitious offer from Britain to pay off 10 per cent of the debt owed to the World Bank and other international lending bodies by the world’s poorest countries.