Christine Lagarde called on policymakers to bolster the existing "safety net” — ranging from swap lines between central banks to access to credit lines from multilateral lenders — to prepare for crises in commodity-exporting emerging economies now coming "under severe stress”.

"One could also increase the size of the safety net,” she added.

Oil-dependent countries like Nigeria were facing a potent mix of rising budget deficits, increasing foreign exchange pressures and slowing growth and needed to accept that commodity prices were likely to stay low for some time.

Governments needed to spend more efficiently and scale down "Pharaonic” public projects, she said. They also needed to allow their currencies to trade more freely to absorb economic shocks. 

The IMF, Ms Lagarde told reporters later, was prepared to offer financial assistance to oil exporters like Azerbaijan and Nigeria if requested. But any such help, she said, should not come with a "stigma” attached. "They are clearly the victims of outside shocks” in the form of the collapse in oil and other commodity prices.

But Ms Lagarde also warned that the global economy needed to be better prepared to respond to a new round of possible crises in emerging economies driven by tumbling commodity prices.

"While the [global economy’s] safety net has expanded in size and coverage since the 2008 financial crisis, it has also become more fragmented and asymmetric,” she told students at the University of Maryland.

The IMF would in the coming months work on new proposals to improve and expand that global safety net, she said, and China, as this year’s president of the G20, had also made doing so a priority. 

 

(FT)