Written interview with DMD Mr. Tao Zhang - ARKA (Armenia)
08.06.2017,
11:20
In its latest April review, the IMF has raised its outlook for global economy growth. In spite of this, economists, analysts, and representatives of states are pessimistic about the future prospects of the global economy.
YEREVAN, June 8. /ARKA/. In its latest April review, the IMF has raised its outlook for global economy growth. In spite of this, economists, analysts, and representatives of states are pessimistic about the future prospects of the global economy.
АРКА - What is the reason for such economic pessimism and how can one overcome it?
Tao Zhang - Indeed, we see world economy gaining momentum as a recovery offers the prospect of more jobs, higher incomes, and greater prosperity. In our 2017 World Economic Outlook, we projected global growth to pick up from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 in 2018, helped by stronger advanced economies’ growth, policy support in China, and a gradual normalization of activity in stressed emerging economies. This uptick in global growth is positive news, but the world is still facing multiple challenges – still too much unemployment, for instance, and widespread inequality. That is where the pessimism you cite might come from. To confront these challenges, we have called for the adoption of a three-pronged approach, with monetary, fiscal and structural actions to avert recession risks and enhance global financial stability. We also encourage more international cooperation to address global challenges.
АРКА - How effective have IMF financing programs been in Armenia? Have they achieved their goals and what is their role in the economy?
Tao Zhang - Firstly, let me congratulate Armenia on the 25th anniversary of their membership at the IMF. We have been partners with Armenia and have a long history of constructive cooperation. Since its independence, the Fund has provided Armenia with financial and technical assistance and policy advice. Our programs have been effective in supporting Armenia’s transition from a centrally-planned economy toward a market-based economy and its recent upgrade to middle-income status. Armenia has managed to eliminate high inflation and fix a troubled banking sector and now has a growing economy that provides better-paying jobs and better infrastructure. Over the past couple of years, the markets also welcomed Armenia’s debut issuance of two Eurobonds.
АРКА - What main problems does the IMF see in the economies of the CIS countries, including Armenia? Does the IMF see any progress in these countries over the past 10 years?
Tao Zhang - Growth has broadened across Central, Eastern, and Southeastern Europe (CESEE). Outside the Commonwealth of Independent States (CIS) and Turkey, growth has remained strong, driven by accommodative policies. Meanwhile, Russia and the rest of the CIS are finally on the road to recovery, with firming oil prices lifting activity. Growth in Turkey has rebounded partially after dropping sharply in the wake of elevated political uncertainty. Armenia is part of what we in the IMF call the Caucasus and Central Asia (CCA) region. The CCA just celebrated its 25th anniversary of independence, and there were many achievements, yet a lot still needs to be done. After a significant slowdown in economic activity in 2016, growth is expected to pick up in 2017 and further accelerate in 2018. However, growth-friendly fiscal consolidation needs to proceed promptly, while monetary policy frameworks should be further strengthened to support the increased exchange rate flexibility in some countries. Weaknesses in financial sectors need to be addressed urgently to minimize risks and limit the potential impact on public finances. With medium-term growth prospects remaining relatively subdued, implementation of structural reforms is essential to successfully diversify the region’s economies.
ARKA - What recommendations can you give to a small country with limited resources like Armenia to achieve higher rates of economic growth and overcome poverty in the country?
Tao Zhang - One of the biggest challenges Armenia faces is maintaining the reform effort to ensure sustainable, inclusive growth. These reforms will help attract foreign direct investment, improve infrastructure and education, tackle corruption, and enhance the business climate. Enhancing skills and building capacity is very important as well. Matching skills with the market requirements will help offer better jobs for Armenians and increase income levels. Also, Armenia still needs further infrastructure expansion, which in turn should help to achieve higher job-creating growth rates.
ARKA - What new programs of development and assistance does the IMF offer to countries to overcome their economic problems? What does IMF offer to countries other than lending?
Tao Zhang - The IMF helps member countries in many ways to build and maintain strong economies. First, we offer various loan instruments, tailored to a country’s needs. For example, Armenia has an Extended Fund Facility (EFF) arrangement that is built on implementing deep and sustained structural reforms. We do much more than provide loans, however: we give advice and help member countries in their economic policy making as part of our annual economic reviews (the so-called Article IV consultations). Also, we provide technical assistance and training in the core areas of the IMF’s expertise to help capacity building. This can help countries raise public revenue, modernize banking systems, and enhance the reporting of macroeconomic and financial statistics.
ARKA - What are the challenges and problems that the global economy faces and what are the factors that are holding back its growth?
Tao Zhang - The global economy is gaining momentum, but prospects differ across countries and risks remain. The risks we are primarily concerned with are: elevated policy uncertainty; China’s financial vulnerabilities; and an inward shift in countries’ policies. Ideally, we would like the focus to be on policies that boost inclusive growth in advanced economies. We also need policies that ensure stability and help lift emerging economies. And of course, multilateral cooperation is key to preserving global economic expansion. Several years ago economies of developing countries experienced pressure caused by devaluation of national currencies.
ARKA - What are the medium-term perspectives for currency of developing countries and how will dollar and euro behave in the new political reality?
Tao Zhang - Well, as you know, over the past few years, there were several economic factors that affected the global currency markets, which included the decline in oil prices and the move by the U.S. to tighten monetary policy. Meanwhile the European Central Bank has continued its quantitative easing. For the Caucasus and Central Asia, including Armenia, you can add to this the slowing growth in main trading partners’ economies. In the medium term, emerging markets currencies will remain volatile, as they are linked to expectations of faster monetary tightening in the U.S. and increased uncertainties (including of protectionist policies), with the Turkish lira and the Mexican peso most affected. One of the most widely discussed problems in the modern economy is the rapidly increasing gap between the incomes of various strata of the population and growth of inequality.
ARKA - What is the reason for such developments? What transformation in the world economy should happen to smooth the inequality? What solution does IMF see in the current situation?
Tao Zhang - You have brought up a very important point. Let me quote the IMF Managing Director, who said earlier this year that growth has been too low, for too long, and benefiting too few. That said, inequality differs within countries While inequality has increased in many countries, inter-country inequality has fallen, largely as a result of rapid per capita income growth in emerging economies like China and India. International opinion surveys suggest that rising inequality has been accompanied by growing support for redistribution, including to address gender inequalities. A range of economic policies can help to address concerns about rising inequality, including fiscal and labor market policies. However, these policies must be carefully designed to balance inequality objectives with the need to preserve incentives for efficiency. The IMF provides technical assistance on the design of policies to achieve greater fairness. A recent initiative, which began in 2015, is aimed at enhancing discussions of inequality issues during our annual economic reviews. Recently IMF has published a discussion note "Corruption: Costs and Mitigating Strategies”.
ARKA - What are the main postulates of the Report? Will IMF make substantive use of new approaches to corruption in providing funding to countries?
Tao Zhang - Indeed, the IMF is paying increasing attention to corruption issues in its work. This is a very important topic. There are three main points to highlight: corruption undermines growth and economic development; economic and social costs are high; transparency, effective institutions, and leadership are key factors of success in the fight against corruption. The Fund has stepped up its engagement on corruption, including through the publication in May 2016 of a report on “Corruption: Costs and Mitigation Strategies.” Building on that work, the IMF is conducting a review of its engagement on governance issues over the past twenty years. ---0----
АРКА - What is the reason for such economic pessimism and how can one overcome it?
Tao Zhang - Indeed, we see world economy gaining momentum as a recovery offers the prospect of more jobs, higher incomes, and greater prosperity. In our 2017 World Economic Outlook, we projected global growth to pick up from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 in 2018, helped by stronger advanced economies’ growth, policy support in China, and a gradual normalization of activity in stressed emerging economies. This uptick in global growth is positive news, but the world is still facing multiple challenges – still too much unemployment, for instance, and widespread inequality. That is where the pessimism you cite might come from. To confront these challenges, we have called for the adoption of a three-pronged approach, with monetary, fiscal and structural actions to avert recession risks and enhance global financial stability. We also encourage more international cooperation to address global challenges.
АРКА - How effective have IMF financing programs been in Armenia? Have they achieved their goals and what is their role in the economy?
Tao Zhang - Firstly, let me congratulate Armenia on the 25th anniversary of their membership at the IMF. We have been partners with Armenia and have a long history of constructive cooperation. Since its independence, the Fund has provided Armenia with financial and technical assistance and policy advice. Our programs have been effective in supporting Armenia’s transition from a centrally-planned economy toward a market-based economy and its recent upgrade to middle-income status. Armenia has managed to eliminate high inflation and fix a troubled banking sector and now has a growing economy that provides better-paying jobs and better infrastructure. Over the past couple of years, the markets also welcomed Armenia’s debut issuance of two Eurobonds.
АРКА - What main problems does the IMF see in the economies of the CIS countries, including Armenia? Does the IMF see any progress in these countries over the past 10 years?
Tao Zhang - Growth has broadened across Central, Eastern, and Southeastern Europe (CESEE). Outside the Commonwealth of Independent States (CIS) and Turkey, growth has remained strong, driven by accommodative policies. Meanwhile, Russia and the rest of the CIS are finally on the road to recovery, with firming oil prices lifting activity. Growth in Turkey has rebounded partially after dropping sharply in the wake of elevated political uncertainty. Armenia is part of what we in the IMF call the Caucasus and Central Asia (CCA) region. The CCA just celebrated its 25th anniversary of independence, and there were many achievements, yet a lot still needs to be done. After a significant slowdown in economic activity in 2016, growth is expected to pick up in 2017 and further accelerate in 2018. However, growth-friendly fiscal consolidation needs to proceed promptly, while monetary policy frameworks should be further strengthened to support the increased exchange rate flexibility in some countries. Weaknesses in financial sectors need to be addressed urgently to minimize risks and limit the potential impact on public finances. With medium-term growth prospects remaining relatively subdued, implementation of structural reforms is essential to successfully diversify the region’s economies.
ARKA - What recommendations can you give to a small country with limited resources like Armenia to achieve higher rates of economic growth and overcome poverty in the country?
Tao Zhang - One of the biggest challenges Armenia faces is maintaining the reform effort to ensure sustainable, inclusive growth. These reforms will help attract foreign direct investment, improve infrastructure and education, tackle corruption, and enhance the business climate. Enhancing skills and building capacity is very important as well. Matching skills with the market requirements will help offer better jobs for Armenians and increase income levels. Also, Armenia still needs further infrastructure expansion, which in turn should help to achieve higher job-creating growth rates.
ARKA - What new programs of development and assistance does the IMF offer to countries to overcome their economic problems? What does IMF offer to countries other than lending?
Tao Zhang - The IMF helps member countries in many ways to build and maintain strong economies. First, we offer various loan instruments, tailored to a country’s needs. For example, Armenia has an Extended Fund Facility (EFF) arrangement that is built on implementing deep and sustained structural reforms. We do much more than provide loans, however: we give advice and help member countries in their economic policy making as part of our annual economic reviews (the so-called Article IV consultations). Also, we provide technical assistance and training in the core areas of the IMF’s expertise to help capacity building. This can help countries raise public revenue, modernize banking systems, and enhance the reporting of macroeconomic and financial statistics.
ARKA - What are the challenges and problems that the global economy faces and what are the factors that are holding back its growth?
Tao Zhang - The global economy is gaining momentum, but prospects differ across countries and risks remain. The risks we are primarily concerned with are: elevated policy uncertainty; China’s financial vulnerabilities; and an inward shift in countries’ policies. Ideally, we would like the focus to be on policies that boost inclusive growth in advanced economies. We also need policies that ensure stability and help lift emerging economies. And of course, multilateral cooperation is key to preserving global economic expansion. Several years ago economies of developing countries experienced pressure caused by devaluation of national currencies.
ARKA - What are the medium-term perspectives for currency of developing countries and how will dollar and euro behave in the new political reality?
Tao Zhang - Well, as you know, over the past few years, there were several economic factors that affected the global currency markets, which included the decline in oil prices and the move by the U.S. to tighten monetary policy. Meanwhile the European Central Bank has continued its quantitative easing. For the Caucasus and Central Asia, including Armenia, you can add to this the slowing growth in main trading partners’ economies. In the medium term, emerging markets currencies will remain volatile, as they are linked to expectations of faster monetary tightening in the U.S. and increased uncertainties (including of protectionist policies), with the Turkish lira and the Mexican peso most affected. One of the most widely discussed problems in the modern economy is the rapidly increasing gap between the incomes of various strata of the population and growth of inequality.
ARKA - What is the reason for such developments? What transformation in the world economy should happen to smooth the inequality? What solution does IMF see in the current situation?
Tao Zhang - You have brought up a very important point. Let me quote the IMF Managing Director, who said earlier this year that growth has been too low, for too long, and benefiting too few. That said, inequality differs within countries While inequality has increased in many countries, inter-country inequality has fallen, largely as a result of rapid per capita income growth in emerging economies like China and India. International opinion surveys suggest that rising inequality has been accompanied by growing support for redistribution, including to address gender inequalities. A range of economic policies can help to address concerns about rising inequality, including fiscal and labor market policies. However, these policies must be carefully designed to balance inequality objectives with the need to preserve incentives for efficiency. The IMF provides technical assistance on the design of policies to achieve greater fairness. A recent initiative, which began in 2015, is aimed at enhancing discussions of inequality issues during our annual economic reviews. Recently IMF has published a discussion note "Corruption: Costs and Mitigating Strategies”.
ARKA - What are the main postulates of the Report? Will IMF make substantive use of new approaches to corruption in providing funding to countries?
Tao Zhang - Indeed, the IMF is paying increasing attention to corruption issues in its work. This is a very important topic. There are three main points to highlight: corruption undermines growth and economic development; economic and social costs are high; transparency, effective institutions, and leadership are key factors of success in the fight against corruption. The Fund has stepped up its engagement on corruption, including through the publication in May 2016 of a report on “Corruption: Costs and Mitigation Strategies.” Building on that work, the IMF is conducting a review of its engagement on governance issues over the past twenty years. ---0----
