The International Monetary Fund has warned emerging economies including the Philippines about bouts of economic turbulence amid the hawkish stance of the US Federal Reserve as well as the stubbornly resurgent COVID-19 pandemic.
In a blog post titled “Emerging Economies Must Prepare for Fed Tightening,” IMF economists said policymakers may need to react by pulling multiple policy levers depending on the actions of the US Fed, as well as challenges in their respective countries.
“While the global recovery is projected to continue this year and next, risks to growth remain elevated by the stubbornly resurgent pandemic. Given the risk that this could coincide with faster Fed tightening, emerging economies should prepare for potential bouts of economic turbulence,” the IMF warned.
According to the multilateral lender, the US central bank has decided to accelerate the tapering of asset purchases. There is also the possibility of three rate hikes this year due to inflation developments. The changes have made the outlook for emerging markets more uncertain.
“These countries also are confronting elevated inflation and substantially higher public debt. Average gross government debt in emerging markets is up by almost 10 percentage points since 2019, reaching an estimated 64 percent of GDP by end-2021, with large variations across countries,” the IMF said.
In the Philippines, the Bangko Sentral ng Pilipinas has maintained an accommodative monetary policy stance to help the economy fully recover from the impact of the pandemic.
“Some emerging markets have already started to adjust monetary policy and are preparing to scale back fiscal support to address rising debt and inflation. In response to tighter funding conditions, emerging markets should tailor their response based on their circumstances and vulnerabilities. Those with policy credibility on containing inflation can tighten monetary policy more gradually, while others with stronger inflation pressures or weaker institutions must act swiftly and comprehensively,” the IMF said.
Economic turbulence will be part and parcel of the global struggle to recover from the devastation and challenges wrought by the COVID-19 pandemic. The countries that can anticipate such turbulence and prepare countermeasures will emerge from the storm faster while those that don’t will be left behind. Hopefully the economic managers of the Philippines are better at their job than the people who were put in charge of the pandemic response.*
