Emerging nations need to guard against economic imbalances:BIS

Posted By: Pti
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Geneva, Jun 27: Geneva Bank for International Settlements, the watchdog for central banks, on Jun 26 warned nations like India and China, where debt is fuelling huge gains in property prices and consumption, that they were running the risk of "building up the imbalances" that now plague the advanced economies.

Arguing that "lessons of the (financial) crisis apply to emerging market economies," BIS said in its 81st annual report that the nations should handle their debt cautiously.

The report also cautioned of global financial mayhem and devastation if investors flee from the sovereign debt of a "major economy" underscoring the need to address "overindebtedness" on a war footing.

With the growing fears of a likely financial contagion if the Greek government defaults over its USD 300 billion debt, it said "the lessons of the crisis apply to emerging market economies".

Countries like India and China where "debt is fuelling huge gains in property prices and consumption are running the risk of building up the imbalances that now plague the advance economies," it said.

Notwithstanding the bulging foreign exchange currency reserves, India needs to remain vigilant about its growing current account deficit as well as short term debt.

India is also experiencing a sudden drop in invisibles, analysts said.

India must be also careful about placing heavy emphasis on cross-border capital flows to fund its infrastructure in the 12th five year plan as "any reversal" in such flows "can inflict damage on financial systems and ultimately on the real economy". .


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