“A rising tide lifts all boats,” goes an oft-repeated line generally attributed to John F. Kennedy. With their call for coordinated action to address soaring global debt, International Monetary Fund officials may be taking a page from the same playbook.
The IMF Tuesday released its World Economic Outlook for October 2016. The overall forecast is unchanged since July, with downgrades for the United States and United Kingdom offsetting progress in Japan, Germany, India, and Russia. Meanwhile, global debt has risen to its highest level ever, and – at $152 trillion – represents a record 225 percent of GDP worldwide.
Slow growth is making it harder for countries to pay off their debts, possibly increasing the risk of financial crisis, according to the IMF. The organization is calling for action to counter this, saying countries must work together to adopt growth-friendly policies that will stabilize the world’s economies. Economic openness is already supporting development in some countries in Asia and sub-Saharan Africa.
“Consistent and well-communicated policies harness the power of stabilizing expectations. Coordination among countries ... confers beneficial spillovers, making the whole greater than the sum of its parts. If widely adopted, this general approach, based on the three policy prongs the IMF has been recommending, can raise growth now,” Maurice Obstfeld, Economic Counsellor and Director of Research at the IMF, wrote in a blog post on Tuesday.
The report comes as national economic officials meet in Washington, D.C., this week, and may encourage countries to modify their national policies in pursuit of greater economic growth.
Political events had a significant effect on the IMF’s October forecast. Brexit uncertainty continues to cast a shadow over the British economy, causing a 0.2 percent downgrade from the June forecast, which occurred shortly after the referendum. In the US, the 2016 forecast is down 0.6 percent this year, at 1.6 percent, due to the polarized presidential election, as well as low oil prices.
Elsewhere in the G-20, Turkey’s outlook fell after the attempted coup in July. Political uncertainty in South Africa contributed to the country’s drop in this forecast.
Despite global financial uncertainty, one country stands apart: India. The country is projected to enjoy 7.6 percent growth for each of the next two years. Bold reforms could produce a decade of 9 percent growth, Harvard University professor and former chief economist of the World Bank, Lawrence Summers, told the Hindustan Times Leadership Summit in 2014.
While he “wouldn’t go so far as to say it’s a model for the rest of the world,” Pravin Krishna, professor of international economics and business at Johns Hopkins University, says the Indian move toward a market economy has brought great benefits for the country, lifting hundreds of millions out of poverty. It’s an example some developing states may benefit from, he tells The Christian Science Monitor in a phone interview.
India’s history may play an important role in its current economic success, Professor Krishna suggests. With very rapid growth in the early 2000s came a deceleration of reforms, amid a sense that the country had done enough. But this slowing of reforms led to a drop in growth, and the government that slowed reforms was voted out of office. The current government promised to drive the country forward, he says.
“Their economic platform is what brought them into power. They have that mandate from a population that ... recalls, I think, what no reforms and low growth look like.”
Consensus on the need for growth — and the need for a market economy to drive that growth – exists across the Indian political spectrum. Though “the opposition ... will oppose [reform] for its own sake,” he tells the Monitor, their policy prescriptions look very similar to those of the government. That broad base of political support stands in contrast to more elite-led reform programs in other countries.
India may be the most successful economy in terms of recent growth, but it is by no means the only emerging or developing country to enjoy IMF confidence. On average, “We have slightly marked down 2016 growth prospects for advanced economies while marking up those in the rest of the world,” Mr. Obstfeld wrote on Tuesday. Some states in sub-Saharan Africa that are not reliant on commodity exports may grow at a rate of more than 5 percent this year.
For the IMF, continued economic integration is uppermost. In India, a recent “game-changing reform,” as Krishna terms it, which creates one level of taxation across India, makes it easier to do business within the country and trade in global markets.
Protectionism is not the answer to current slow growth, the Fund underlines. The IMF calls for governments to lower market barriers and develop resilience in their labor forces through retraining and other programs.
Of course, not everyone agrees with the IMF’s attitudes and priorities. Environmentalists, in particular, advocate for a move away from consumption to a “no-growth” economy. Both Bernie Sanders and Donald Trump have expressed support for economic protectionism, saying it would keep jobs at home.