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Safeguard growth: WB to developing countries

January 16, 2013 11:24 IST

DollarsThe World Bank has asked the developing countries like India and Brazil to safeguard their economic growth, given that the world economy remains fragile and growth in high-income countries is weak four years after the onset of the global financial crisis.

Developing countries need to focus on raising the growth potential of their economies, while strengthening buffers to deal with risks from the euro area and fiscal policy in the US, the Bank said in its latest report Global Economic Prospects, which was released on Tuesday.

"The economic recovery remains fragile and uncertain, clouding the prospect for rapid improvement and a return to more robust economic growth," World Bank Group president Jim Yong Kim said.

"Developing countries have remained remarkably resilient thus far.

"But we can't wait for a return to growth in the high-income countries, so we have to continue to support developing countries in making investments in infrastructure, in health, in education.

"This will set the stage for the stronger growth that we know that they can achieve in the future," he said.

According to the World Bank report in 2012, developing countries recorded among their slowest economic growth rates of the past decade, partly because of the heightened euro area uncertainty in May and June of 2012.

Since then, financial market conditions have improved dramatically.

International capital flows to developing countries, which fell 30 per cent in the second quarter of 2012, have recovered and bond spreads have declined to below their long-term average levels of around 282 basis points, it said.

Developing-country stock markets are up 12.6 per cent since June, while equity markets in high-income countries are up by 10.7 per cent.

However, the real-side of the economy has responded modestly.

Output in developing countries has accelerated, but is being held back by weak investment and industrial activity in advanced economies, the report said.

"With governments in high-income countries struggling to make fiscal policies more sustainable, developing countries should resist trying to anticipate every fluctuation in developed countries and, instead, ensure that their fiscal and monetary policies are robust and responsive to domestic conditions," senior vice president and chief economist at the World Bank Kaushik Basu said.

"China is growing at a phenomenal rate right from 1978 or 1980 and you can't grow at 10 per cent for more than a couple of decades.

"China has done it for 30 years and this has been expected in China and expected by us that China will continue to grow very rapidly but it will probably come down from these great highs," Basu said.

"If it comes down to 7.9 per cent. . .I think not. India was growing from 2003 to 2008 at close to nine per cent per annum, with the last couple of years actually over nine per cent, and we expect that India, having taken off only about 10 years ago, to have some still to go.

"So, there is going to be a catch-up of India's growth getting closer to China's growth and, who knows, a couple of years down that road, they may be completely neck to neck," Basu said in response to a question.

Basu said the next one or three years will remain difficult as structural reforms are put in place primarily in the euro zone countries, but even elsewhere in the world.

Lalit K Jha in Washington
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