INTERNATIONAL MONETARY FUND URGES SOVEREIGN SAVINGS

The International Monetary Fund (IMF) has urged Australia to establish a sovereign fund from the wealth generated from its mining boom, according to a report aired by the ABC.

 

In its Regional Economic Outlook for Asia and the Pacific, the IMF has found that increased dependency on Asian demand for commodities has left Australia at risk of serious economic damage should demand drop.

 

However, the IMF has expressed its confidence in the continued strong economic growth of the Asia-Pacific region, stating that the Asian markets will add an additional 20% to Australia’s economy over the next 10 years.

 

ABC business editor, Peter Ryan, says the fund has urged the Australian Government to create the fund to ensure equitable distribution of wealth from the profits of the mining industry.

 

The IMF  report commented that  "Some of the boost to government revenues could be saved in order to ensure a more equal distribution of its benefits across generations and reduce long-term fiscal vulnerabilities from an ageing population and rising healthcare costs.”

 

However, the Australian Government has rebuffed the calls from the IMF, stating the use of superannuation as a wealth distributor is sufficient.

 

The concern from the IMF for Australia’s mineral wealth has been born out of the increasing anxiety over Asian inflation, with many Asian economies growing at rates that will cause growing inflation fuelled by low interest rates. The IMF has voiced its concern that Australia’s inflation may expand beyond the Reserve Bank’s targeted 2% - 3% Consumer Price Index.

 

The fund has found that Australia’s Gross Domestic Product (GDP) would drop by .3% for every percentage drop in the Asian economies.

 

In a separate review by consulting firm Macroeconomics, the commodity industry is currently adding $35 billion to the country’s GDP, while it is expected to grow to $42 billion over the next year.

 

The strength of commodity markets is already boosting the budget bottom line by $35bn this year.