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Deficits falling in India, emerging economies: IMF
Tue, 12 Apr 2011 14:38:46 GMT
WASHINGTON: While deficits in emerging economies have started falling, adjustment in emerging Asia is limited, except for China and India , the International Monetary Fund (IMF) said on Tuesday.

In India, however, the improvement in the headline balance falls short of initial plans and is broadly accounted for by continued strong revenues, restraint in wages, pensions, and interest, and improvements at the sub-national level, IMF April 2011 Fiscal Monitor Report (FM) said.

In 2010, deficits started declining in emerging economies, supported by sustained growth and, in some, higher commodity prices, it said. But the pace of consolidation, however, seems to fall short of what would be warranted by cyclical developments.

The average general government deficit fell by 1 per cent of GDP, with revenues surprising on the upside compared with the November 2010 Fiscal Monitor, in significant part owing to one-off or cyclical revenues, the IMF said citing India, Brazil, and South Africa .

Altogether, consolidation was much more contained at .50 per cent of GDP in cyclically adjusted terms, the IMF report said.

Consolidation is expected to accelerate in 2011, it said. The average headline deficit is projected to fall by 1.25 per cent of GDP and about 1 per cent of GDP in cyclically adjusted terms, but there are significant cross-country differences.

For many emerging economies, growth is buoyant, output is close to or above potential, and inflation is rising, it said noting India, Argentina and Poland, in particular, are enjoying strong macroeconomic conditions while maintaining cyclically adjusted deficits exceeding 3 per cent of GDP.

In emerging economies, adjustment needs are generally smaller than in advanced economies, but with some important exceptions.

Adjustment needs in emerging economies average about 3 per cent of GDP, IMF said. However, illustrative adjustment needs exceed 6 per cent of GDP in India, Malaysia, and Poland.

Both advanced and emerging economies should make progress on structural reforms to enhance growth and equity, and strengthen fiscal institutions and transparency, the IMF suggested.

In all countries where deficit reduction is required to restore debt ratios to prudent levels, action is needed to ensure that the burdens of adjustment and benefits of economic recovery are distributed equitably, it said calling this as "a key condition to make the adjustment sustainable".
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