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International Monetary Fund (IMF) economists attend a news conference at the IMF headquarters in Washington D.C., capital of the United States, Sept. 27, 2012. Emerging countries need to improve their policy frameworks and rebuild policy buffers to maintain their resilience to new shocks from home and abroad, IMF said in the analytical chapters of its World Economic Outlook (WEO) on Thursday. (Xinhua/Wang Yiou)
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WASHINGTON, Sept. 27 (Xinhua) -- Emerging countries need to improve their policy frameworks and rebuild policy buffers to maintain their resilience to new shocks from home and abroad, the International Monetary Fund (IMF) said on Thursday.
"The resilience of emerging market and developing economies - measured by their ability to sustain economic expansions and recover quickly from downturns - has increased markedly," the IMF said in the analytical chapters of its World Economic Outlook (WEO) .
The Washington-based global lender noted in the flagship report that the increased duration of expansions during the past decade can be attributed to both good policies and a lower incidence of external and domestic shocks.
"These economies have not become immune to shocks, however," it cautioned. "Terms-of-trade busts in emerging market and developing economies could rise if commodity prices drop. Further spikes in global uncertainty are possible, and sudden stops could emerge once again if greater risk aversion leads to capital outflows," it added.
The report cautioned that domestic vulnerabilities could also emerge and strong credit growth in some emerging market and developing economies, which likely supported domestic demand, may raise concerns about financial stability.
"There is no guarantee that the relative calm emerging economies have enjoyed over the past two years will continue," said IMF economist Abdul Abiad at a news conference.
While situation differs from country to country, the emerging economies in general need to rebuild their policy space, so they can respond if growth slows more dramatically than expected, he added.
According to the report, there is a significant risk that advanced economies could experience another significant downturn, as continuing sovereign and banking tensions in Europe and the so- called fiscal cliff in the United States threaten to put the brakes on growth.
IMF managing director Christine Lagarde warned Monday that the global growth would even weaker than the forecast made in July. The Fund will release its updated global economic forecast during the annual meetings next month.
While characterizing the growth rate for emerging economies as still "pretty solid", Jorg Decressin, deputy director of the IMF research department, stressed the importance of bringing their fiscal balances back to where they were before the crisis and strengthening their financial systems, many of which have seen rapid increase in credit over the last few years.
"These economies will be more resilient to new shocks if recent improvements in their policy frameworks - including greater exchange rate flexibility and more countercyclical macroeconomic policies - are maintained, while policy buffers are being rebuilt, " said the report.
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