Long-term growth needs structural reforms: WB

“Structural reforms that will give people the opportunity to share in the gains of progress hold the key to future growth,” said Bert Hofman, World Bank East Asia and Pacific Chief Economist.

The expansive fiscal and monetary response to the global economic crisis has also built up vulnerabilities in many countries. Authorities need to be ready to respond to a steady increase in interest rates in advanced economies, and redouble their efforts to restore and maintain financial stability.

In the long term, as higher global interest rates are likely to affect investment, accelerating growth and poverty reduction depends critically on advancing structural reforms. Countries need to improve their investment climate and invest more in infrastructure, while making public investment more efficient. Firmer global growth prospects can help developing countries pursue reforms enabling them to benefit from the recovery and put their own growth on a more solid footing. 

Over the past few months, speculation about the withdrawal of quantitative easing in the US led to stock market sell-offs and currency depreciation, hurting countries with large foreign participation in their financial markets.

“The Federal Reserve’s decision to delay tapering stabilised markets for now, giving countries a second opportunity to take measures to lower risks from future volatility,” said Hofman.

“Reducing reliance on short term and foreign currency denominated debt, accepting a weaker exchange rate when growth is below potential, and building policy buffers to respond to changing global liquidity conditions are some of the ways that can help countries be prepared.“

The impact of tapering on capital inflows in the region may also be offset by “Abenomics,” Japan’s new strategy to revive growth, which could increase Japanese investment in the region.