World Bank wants financial crises clipped

THE Word Bank has called for the strengthening of macroeconomic policy frameworks to deal with the financial crises currently being experienced by countries due to Covid-19.

The multilateral institution indicated that the pandemic had shown once again how financial crises or deep recessions could set back years of per capita income gains.

This is contained in the World Bank’s January 2021 Global Economic Prospects report

According to the report, policies to moderate business and financial cycles remained one of the key components of a growth-enhancing policy agenda.

To be effective, the World Bank said, such policies should be conducted within robust and credible frameworks.

“Resilient monetary policy frameworks allow policy makers more room for proactive monetary policy.

“Exchange rate passthrough from depreciation to inflation tends to be smaller in countries with more credible, transparent, and independent central banks; inflation-targeting monetary policy regimes; and better-anchored inflation expectations,” the World Bank said.

The World Bank stressed that establishing and maintaining resilient monetary policy frameworks was especially important against the backdrop of the recent launch of unconventional monetary policy tools.

It indicated that fiscal rules could help prevent fiscal slippages and ensuring that revenue windfalls during times of strong growth were prudently managed.

“Strong fiscal frameworks have also been associated with lower inflation and inflation volatility, suggesting that they tend to support the central bank in delivering its mandate,” the World Bank said.

At the country level, the Bank said, some of the most pressing reforms were long overdue while other long-standing reform needed have been cast into a new, more urgent light by the pandemic.

The World Bank said where fiscal positions were stretched, the most urgent and most cost-effective reforms need to be prioritised.

It indicated that areas that needed to be shielded from fiscal consolidation to ensure future growth need to be identified.

“In countries with long-standing challenges in raising government revenues, domestic resource mobilisation could be prioritised,” the World Bank said.