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Focus falls on stimulus exits

While governments in the Gulf continue to spend money to boost activity amid the economic slowdown, attention elsewhere is focused on when policymakers will start to withdraw fiscal stimulus measures rolled out in the global financial crisis.

While governments in the Gulf continue to spend money to boost activity amid the economic slowdown, attention elsewhere is focused on when policymakers will start to withdraw fiscal stimulus measures rolled out in the global financial crisis. Governments run the risk of hampering an economic rebound if they unwind financial support too soon, economists warn.

India's government has already indicated it may start a gradual scale back US$162 billion (Dh594.50bn) of fiscal stimulus this year. Pranab Mukherjee, the finance minister, is keen to cut the budget deficit from 6.8 per cent of GDP to 5.5 per cent in the year starting next month. Despite positive signs of economic recovery, the US administration has indicated it is too early to reverse stimulus measures and interest rate cuts introduced in the US since the downturn.

The US President Barack Obama's government has predicted the budget deficit will expand to a record $1.6 trillion in the fiscal year ending on September 30. The UK's exit strategy has already involved the reversal of a temporary reduction in the value-added tax rate and the suspension of quantitative easing by the Bank of England, but mounting public debt is proving a problem. The country's net public sector debt is expected to increase to more than 80 per cent of GDP from next year, the British Chambers of Commerce says.

tarnold@thenational.ae

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