'Low-income states weathering storm': Lagarde

Because the scope for countercyclical fiscal policy has become more limited, monetary and exchange rate policy could be used more actively, provided that inflation is moderate, says Christine Lagarde, managing director of the International Monetary Fund.

Lagarde addressed delegates to the IMF's high-level seminar on commodity price volatility and inclusive growth in low-income countries yesterday.

Low-income countries had coped well with the economic recession, she said, adding that growth was expected to reach a strong 5% in the average low-income country.

Downside risks to global growth had increased markedly, at a time when the capacity of many low-income countries to absorb further shocks had yet to be rebuilt from the last two crises, Lagarde said.

In the face of a more uncertain global environment, policy makers in low-income countries should be prepared to adapt policies as needed, according to country-specific circumstances, she said.

Lagarde advised that, in the event of a sharp downturn, the key would be to protect vital spending in order to mitigate the impact on growth, and to protect the most vulnerable in society.

Lagarde said that, during strong growth periods and favourable external conditions, deficits should be reined in while reserves were built.

Another priority would be to strengthen social safety nets during those periods so that, in times of crisis, support could reach the most vulnerable quickly and efficiently.

The IMF would continue efforts to help low-income countries build up their capacity to design and implement policies.

"In this context, we will be opening our 9th regional technical assistance centre next month, and our fifth in Africa, in Mauritius," she said.

Where low-income countries were concerned, Lagarde urged the international community to meet aid commitments, keep trade channels open and encourage private investment.