Davos: Emerging markets need to reduce their dependence on external financing and push through internal reforms to differentiate themselves from others, says a report.
"Some emerging markets will need to become less reliant on external financing.
"In particular, an emphasis on narrowing current account deficits by pushing through internal reforms and improving competitiveness is likely to differentiate various emerging markets," Swiss banking major UBS said in a report released today.
The white paper on the 'New Global Context' for the World Economic Forum (WEF) emphasised the need to avoid high, inconsistent, and changing regulatory burdens.
"The key to a smooth and successful shift from QE to monetary tightening is dialogue and trust among all the economic players: governments, central banks, commercial banks, investors and borrowers," it added.
According to the report, central banks must make use of new instruments at their disposal, particularly macro- prudential oversight, to ensure a sustainable recovery.
Since the global financial crisis of 2008, central banks have implemented a series of measures to contain financial instability.
Such actions led to substantial fund flows into many emerging markets, which in turn made them vulnerable to capital flight in periods of stress.
"For the first time since the financial crisis, major central banks have adopted diverging monetary stances. There is no longer a single interest rate cycle but three separate cycle categories into which the various central banks can be grouped," the report said.
On technology transformation, UBS said there is a need to "adequately prepare workforces for the technological future", better global management of cyberspace and ability to disconnect the online digital world from the physical world.
With regard to environmental transformation, it saiid there is a need to concentrate on "global and holistic framework for environmental decisions" and sponsor certain markets to ensure "slack is maintained where appropriate".