World Bank urges keeping fiscal stimulus till 2012

Countries should not rush to end fiscal incentives to help their economies cope with the global economic crisis, in order to build a base for sustained long-term growth, the World Bank's chief economist said.

Justin Lin said on Sunday he expected full global economic recovery in 2013. He said countries should keep fiscal measures in place until 2012, despite concerns from policy makers about the risk of inflationary pressure from higher government borrowing to fund the plans,

"At this stage, it is more important to talk about how to improve the quality of fiscal stimulus, use the money in a way that can enhance the growth in the future," Lin told Reuters.

"If they can do that -- the debt is building up but with growth enhanced in the future -- they can pay back the debt."

He said the funds available through the incentives could be used to address other pressing issues like climate change and infrastructural deficits.

"In high income countries they can use the money to invest in a green economy to stop the problem of global warming. To reduce the CO2 emissions," Lin said.

"In the developing economies they can use this money not only in the green economy but they can also use this money to reduce their infrastructure bottlenecks."

He said that Chinese officials had indicated they would keep their stimulus programme into next year. China's economy has picked up over the course of 2009 fuelled by government stimulus spending.

Many African economies like Kenya, where a significant reduction in public debt in the half decade leading up to last year enabled it to launch wide-ranging stimulus measures in June, were headed in the right policy direction, Lin said.

"If you improve the power supply and also highways, the economies have a good potential to maintain a much higher growth rate," he said, adding African countries should also focus on diversifying their economies to cushion against falls in commodities.

A decision on the World Bank's bid to raise its capital base in order to extend more development assistance to African nations would be taken by next spring, he said.

He was optimistic that the continent would be able to resolve its numerous political and governance issues satisfactorily.