G20’s call for rapid structural reforms apt

The call given by world’s top economies to focus on structural reforms and look beyond ultra-low interest rates, would not only strengthen the global economy, but also restore confidence in the markets. The holding of G20 meeting is timely and comes amid fears driven by slowing growth in the host nation China, steep falls in world financial markets, and US interest rates having risen for the first time in nine years – while Japan has adopted negative rates.
G20 host China used the platform to try to allay fears about the world’s second-biggest economy, and Beijing’s ability to manage it. The world’s second biggest economy made it clear it is capable to turn the looming slowdown around.
The forum was an opportunity for the G20 finance ministers and central bankers to address a series of risks to world growth, including volatile capital flows, a sharp fall in commodity prices and the potential “shock” of a British exit from the EU.
The draft communiqué touched on the challenges posed to the world economy by geopolitical turmoil – including the EU’s mounting refugee crisis.
The International Monetary Fund cut its world growth outlook last month, saying the global economy will expand 3.4 percent this year, down from a projected 3.6 percent in October 2015.
Even with consensus over a number of issues, differences have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks. Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.
The United States, Britain and China do not share the view of Schaeuble. They all backed the use of monetary and fiscal tools to fight a downturn, as well as structural reforms. Berlin does “not agree on a G20 fiscal stimulus package”, the German minister said.
But they agree on a number of issues, notably the structural reforms. To pep up the global economy, faster progress on structural reforms “should bolster potential growth in the medium term and make our economies more innovative, flexible and resilient”, the communiqué said.
Identifying one of the areas to enhance the global economy, global finance chiefs stepped up their call for development lenders such as the World Bank to help support economic growth by further opening the infrastructure taps. Multilateral development banks should present concrete actions by July, according to the communiqué.
The World Bank plans to coordinate its efforts more closely with other multilateral lenders, such as the Asian Development Bank and the China-led Asian Infrastructure Development Bank. The $100 billion lender with 57 founding members formally opened its door last month in Beijing.
“There’s a lot that the multilateral investment banks can do on the demand side,” World Bank Group President Jim Yong Kim said. The World Bank is trying to work more closely with the AIIB and other lenders, “to increase investment in infrastructure in developing countries”.
Taking a new look, the World Bank and other development lenders will make huge new investments in the Middle East and North Africa, to see if economic development can have an impact on the fragility, the conflict, the refugees and the humanitarian crises that are there.
The seriousness demonstrated so far by the G20 during its summit in Shanghai to address the economic and other pressing issues would bear fruits since the world’s powerful economies have the will and power to turn things around.