LONDON – Policymakers and central banks need to be “very selective” with stimulus measures to avoid jeopardizing global economic growth in the medium term, according to a senior International Monetary Fund official, identifying debt overhang and financial vulnerabilities as potential risks.

The warning comes as the IMF appears to be trying to orchestrate a delicate balancing act at its spring meetings this week.

The Washington DC-based institute has recognized the US for its praise for providing exceptional momentum in the ongoing coronavirus crisis to accelerate a global economic recovery, while warning of the potential of these measures to cause longer-term structural damage to the global economy .

“There is no question that the US incentives provide a very favorable backdrop for the growth projections we have made,” Geoffrey Okamoto, first deputy general manager of the IMF, told CNBC’s Joumanna Bercetche on Wednesday.

“I wouldn’t call it a crutch. This is a tailwind, right, that countries are or should be using to try to get through the remaining time until they can bring all of their citizens and their economies to their knees.” open again, “he added.

The IMF said in its World Economic Outlook Tuesday that the world economy was on track to grow 6% this year and improved its forecast for the second time in three months. It comes after an estimated 3.3% decline in 2020 and the worst global recession since World War II.

IMF executive director Kristalina Georgieva said the better prospects would be underpinned by the introduction of coronavirus vaccines and economic stimulus measures “particularly in the US”.

In a move aimed at accelerating US economic recovery, President Joe Biden’s $ 1.9 trillion stimulus package was passed last month. The White House has since tried to make a $ 2 trillion infrastructure plan the government’s next legislative priority.

When asked if policymakers and central banks are at risk of overeating economies due to extremely accommodative measures, Okamoto replied, “Holding too long in accommodation carries risks, both from a fiscal and monetary perspective.”

“Growth risks”

“On the monetary policy side, maintaining monetary policy arrangements for too long leads to certain weaknesses in the financial sector,” said Okamoto, adding that the institute stated in its Global Financial Stability Report that regulators need to contain these risks.

The IMF’s GFSR report, released Tuesday, said that while there is an urgent need to avoid a legacy of security flaws, the actions taken during the coronavirus pandemic may “have unintended consequences, such as stretched ratings and increasing financial vulnerabilities “.

It also shows a strong divergence between a small number of advanced economies and emerging markets, with low-income countries at risk of falling further behind during a multi-speed recovery.

A worker works on a production line to make electrical products for the domestic and Southeast Asian markets in Hai’an, a city in east China’s Jiangsu Province, on March 29, 2021.

Costfoto | Barcroft Media | Getty Images

“On the fiscal side, it doesn’t mean you can borrow unlimited money for any purpose just because interest rates stay low and your credit capacity is in place,” continued Okamoto.

“We want people to use resources wisely to survive the pandemic and make the right investments to embark on a growth path that will emerge from the crisis. But to do this we need to be very selective and make sure you get the.” Co-finance projects. ” the highest economic returns. “

Okamoto said failure to be selective on these projects would result in debt overhang, “and both debt overhang and financial vulnerabilities could pose growth risks in the medium term.”