Dubai: The global economy is heading toward a sustained recovery but given the risks of another downturn it is too soon to withdraw stimulus, International Monetary Fund deputy managing director John Lipsky said on Friday.
“We think that we are on a trajectory towards sustained growth but that the recovery is going to be relatively moderate and relatively sluggish,” he said in an interview on the sidelines of the World Economic Forum in Dubai.
“At the same time you cannot discard the risks that there could be a new stagnation.”
Concerns about a rebound in world economic growth has gripped global markets in recent days, amid rising US unemployment and worries some European economies may slip deeper into recession next year.
The IMF has urged countries to refrain from slashing extraordinarily lax policies in what is referred to as an “exit” strategy.
Lipsky said while it was time to think about withdrawing the stimulus, no action should be taken yet and governments should implement any additional stimulus already pledged for 2010.
He also said that the dollar was still a bit stronger on a multilateral, medium term equilibrium basis, while many Asian currencies were undervalued.
“The dollar is a bit on the strong side but not far from where it should be,” Lipsky said.
The IMF’s second-in-command also said Gulf Arab nations should stick with their currency peg to the US dollar.
The issue has gained momentum after the dollar’s slide to 15-month lows and an oil price recovery that is helping economies in the world’s top oil exporting region emerge from a downturn.
“For the Gulf right now, those currencies that are pegged to the dollar, their economies are not having problems with inflation,” Lipsky said. “The currency pegs have served these economies well over the last few years and continue to do so at the present time.”
Earlier this week, a Kuwaiti official said Gulf Arab countries will discuss pegging their planned single currency to a basket instead of the US dollar at a Gulf rulers summit in December. Kuwait dropped its dollar peg in 2007 in favour of a currency basket which includes the greenback.
The Kuwait remarks came after an advisor to Qatar’s ruler said on 12 November that Gulf states should be more willing to discuss the viability of linking their currencies to the greenback.
Saudi Arabia’s central bank governor on Thursday said the basket option for the planned single currency was one option though not the perfect solution.
Lipsky said there were “many options” for Gulf states to mull.
“The issue of what is best is really a pragmatic issue not a theoretical one,” he said. “For now the system is working, other options could be considered in the future and with changing circumstances potentially other options could even be preferred.
“But for now there does not seem to be a problem.”