IMF: Better polices help emerging economies against capital flow slowdown

Net capital flows to emerging economies have slowed since 2010, while better polices narrow the impact, said the International Monetary Fund (IMF) on Wednesday.

In the analytical chapters of its biannual World Economic Outlook report, the IMF said weaker inflows and stronger outflows have slowed down net capital flows to most emerging economies since 2010.

"Much of the decline in flows can be explained by the narrowing differential in growth prospects between emerging market and advanced economies," said the IMF.

The current slowdown is similar in size and breadth to episodes in the 1980s and 1990s that were associated with a high incidence of debt crises, said the report.

But "improved policy frameworks" have made the incidence of external debt crises to emerging countries in the ongoing episode so far much lower, said the IMF.

"Crucially, more flexible exchange rate regimes have facilitated orderly currency depreciations that have mitigated the effects of the global capital flow cycle on many emerging market economies," said the report.

Higher foreign exchange reserves and lower shares of debt denominated in foreign currency have also helped to reduce the impact of slowing capital flow, said the IMF.