Poor nations face debt woes
JACKSON HOLE: The problems that rich nations face in preparing for a surge of older citizens pale besides those of poorer countries that carry big debts, a senior International Monetary Fund (IMF) official said on Friday.
“Most of these countries are starting from a much less comfortable base,” Anne Krueger, the IMF’s first deputy managing director, told a Federal Reserve symposium in Jackson Hole, Wyoming.
“They are grappling with fiscal and other macroeconomic pressures that would be daunting even without demographic change,” Krueger said, adding that the global lender has been trying to impress a sense of urgency on them.
She said, “They do not have the breathing space that the delayed demographic changes might imply. They need to take remedial action now to establish much sounder fiscal positions at a time when the global economic environment is unusually benign.”
Demographics, or the study of population change and specifically how to reform health and retirement systems to prepare for a growing proportion of older citizens, is the theme of this year’s gathering of global central bankers.
Some participants noted that an additional challenge for poorer countries arose from the fact that their youngest and brightest citizens often migrated to industrial nations where they earned more, creating a “brain drain” at home.
Krueger said many emerging market-economies of the type that borrow from the IMF ran debt levels well in excess of those in industrial countries and had not taken advantage of current low interest rates and global expansion to reduce debt levels. She noted that the issue of a rising older population was more frequently associated with developed countries but it was also a significant challenge for emerging economies.
Krueger said India, which is not a borrower from the IMF, had a budget deficit that exceeds 10 percent of its national output and called that “a cause for considerable concern.”
But Turkey, one of the IMF’s biggest borrowers, has a surplus of over six percent and Brazil, which is the largest borrower from the IMF, has committed itself to a primary surplus target of 4.25 percent that should get its budget into balance by the end of the decade, Krueger said.
She said that in many emerging market economies, there were problems in making tax collections, dealing with corruption and ensuring that retirement and other benefits did not go disproportionately to the wealthy. She said the IMF and other global lenders were doing all they could to urge necessary fiscal reforms but there were limits to what lenders could do.
“We can alert them to the problems they face; we can offer advice on how to respond; we can try to cajole them into prompt action; we can warn of the consequences of delay,” Kruger said, but ultimately “it is for the policymakers and citizens of emerging market countries to confront the challenges they face.” reuters