Allow exchange flexibility - IMF

By BUSINESS REPORTER EMERGING markets such as Zambia should allow exchange rate flexibility to cushion the impact of adverse external shocks, says the International Monetary Fund (IMF).

The IMF says this in its Global Economic Outlook released on Monday this week.

According to the fund, allowing for exchange rate flexibility in emerging markets would be an important means for cushioning the impact of adverse external shocks.

“In general, allowing for exchange rate flexibility will be an important means for cushioning the impact of adverse external shocks, although the effects of exchange rate depreciations on private and public sector balance sheets and on domestic inflation expectations need to be closely monitored,” the IMF says.

The IMF indicates that many emerging markets and developing economies need to enhance resilience through an appropriate mix of fiscal, monetary, exchange rate, and prudential policies to reduce vulnerability.

This would also tighten global financial conditions, sharp currency movements, and capital flow reversals.

“With debt levels rising rapidly in both emerging and lowincome economies over the past decade, fiscal policy should focus on preserving and rebuilding buffers where needed, through growth-friendly measures that protect the most vulnerable.

“To raise potential growth and enhance its inclusiveness, structural reforms remain essential to alleviate infrastructure bottlenecks, strengthen the business environment, upgrade human capital, and ensure access to opportunities for all segments of society,” the IMF says.