IMF pushes for labour market reforms to boost growth

Emerging market economies have seen USD 1.23 trillion of net capital outflows between 2010 and 2015, says an International Monetary Fund (IMF) report.After five years of a sustained decline, capital flows to these markets continue to remain subdued.Why this sustained slowdown?The report points out that much of this current slowdown in capital flows is explained by a decline in the expected differential in growth in the emerging markets (EM) versus the advanced economies.However, flexible exchange rates have helped mitigate the slowdown associated with a declining growth differential, as have better policy frameworks.Also, in contrast with the past, emerging markets now have much higher foreign reserves, which can be deployed as buffer. It isn't surprising that emerging countries with lower public debt, higher foreign exchange (forex) reserves and greater exchange rate flexibility do tend to be more insulated than others.The IMF argues that, if anything, the current slowdown in capital inflows reinforces the need for a continued policy upgrade, prudent fiscal policies being a necessity. It also makes a point for advanced economies to push for additional product and labour market reforms to raise the potential factory output and employments levels. Further, it says the political environment is currently conducive to such reforms, at least for product markets, given the worries about weak growth.Because product and labor market reforms don't offer a quickfix, the IMF says, policymakers should undertake them in combination with other growth-oriented reforms.