There is first an over-extension phase during which financial imbalances build up, accompanied by benign economic conditions. In this phase, asset prices are buoyant and their surge tends to feed, and be fed by, rapid credit expansion, domestically or internationally. Leverage, in overt or hidden forms, accumulates in balance sheets, masked in part by the favourable asset price developments.
We have to work to ensure macroeconomic stability, which means strengthening growth, especially through investment, maintaining a moderate current account deficit, achieving a fiscal deficit consistent with the government’s fiscal roadmap, and reducing inflation. The government has to be commended for its efforts to revive growth, narrow the current account deficit, and meet fiscal targets.