FED:Australia should save commodity gains: IMF

AAP General News (Australia)
04-28-2011
FED:Australia should save commodity gains: IMF

Eds: This story is not for publication until 1600 AEST Thursday, April 28



By Colin Brinsden, AAP Economics Correspondent

CANBERRA, April 28 AAP - The International Monetary Fund (IMF) has again signalled
the federal government should consider saving the revenue boost from higher commodity
prices in a sovereign wealth fund.

The IMF, in its Regional Economic Outlook for Asia and the Pacific released on Thursday,
says that for economies benefiting from higher commodity prices, such Australia and New
Zealand, some of the boost to government revenues could be saved.

"(This would) ensure a more equal distribution of its benefits across generations and
reduce long-term fiscal vulnerabilities from an ageing population and rising heathcare
costs," it says.

Treasurer Wayne Swan has previously dismissed calls from the IMF and the Organisation
for Economic Cooperation and Development (OECD) to set up a sovereign wealth fund.

"We've got eight million sovereign wealth funds in this country, they're called the
superannuation accounts of Australian workers," Mr Swan said on the issue earlier this
month.

"At the moment the government is intent on lifting our national savings in part by
lifting the savings of low-paid Australians through contribution to their superannuation."

More broadly, the IMF says several economies in the region have room to tighten their
budgets further.

"Fiscal consolidation would also expand fiscal space and increase the scope for governments
to respond effectively to potential future shocks," it says.

Releasing the report in Hong Kong, IMF's director of the Asia & Pacific department
Anoop Singh said economic growth in the region was expected to remain robust this year
and next.

The IMF expects the region to lead the global recovery and grow by close to seven per
cent in both 2011 and 2012.

For Australia, it expects growth to pick up to 3.0 and 3.5 per cent in 2011 and 2012
respectively, from 2.75 per cent in 2010, as demand from emerging economies of Asia for
commodities increases and as private investment in mining emerges as the main driver of
growth.

"Overall, risks to the outlook for Asia are balanced, although new downside risks have
surfaced, such as the unrest in the Middle East and north Africa, as well as uncertainties
about the effects of the tragedy in Japan," he said.

"Also, fiscal and financial vulnerabilities in advanced economies could affect Asia,
mainly through the trade channel."

The report also warns potential overheating pressures are rising, and inflation risks
remain on the upside.

For the region as a whole, consumer price inflation accelerated to about 4.5 per cent
in February 2011, largely due to the rise of fuel and food prices, which are beginning
to feed into core inflation and to "affect the poor".

Australia's own consumer price index (CPI) for the March quarter was released on Wednesday,
after the IMF report was compiled.

It showed the fastest increase in prices in five years, blamed largely on the impact
of this summer's natural disasters on fresh food prices, as well as higher fuel costs.

The CPI rose 1.6 per cent in the quarter, pushing the annual rate above the Reserve
Bank's target band to 3.3 per cent.

But the bigger shock was that measures of underlying inflation also accelerated by
a solid 0.85 per cent on average, raising the risk of an interest rate rise in coming
months.

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KEYWORD: ECONOMY IMF (WITH FACTBOX)

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