Restoring balance to the world economy will require shifts in global demand and exchange rates, and governments must not stand in the way of the process, the International Monetary Fund said yesterday.

In the April edition of the semiannual World Economic Outlook, the IMF renewed a warning about the threat posed by trade distortions, and said that a fall in the US dollar and a rise in some Asian currencies is one prerequisite to resolving them.

IMF chief economist Raghuram Rajan later said while the fund was not urging a weaker dollar, it was pressing governments to remove rigidities in foreign exchange markets.

"I'm not asking for a depreciation of the dollar by any means," he told a news conference.

"Exchange markets do what they do.

"What is important is to allow them to do what they do - which is to remove rigidities in areas where those rigidities exist so that exchange rates can support the adjustment," Mr Rajan added.

The fund's warnings over imbalances came as it projected another year of brisk expansion for the world economy, lifting its forecast for 2006 global growth to 4.9 per cent from a September projection of 4.3 per cent.

Should that forecast materialise, it will be the fourth straight year global growth has topped 4 per cent, a stellar performance underpinned by favourable financial market conditions and accommodative fiscal and monetary policies.

"The baseline forecast is for continued strong growth, although risks remain slanted to the downside, the more so since key vulnerabilities - notably the global imbalances - continue to increase," the monetary fund said.

The IMF lamented the lack of action to tackle this risk, citing only "modest signs" of improvement in US savings, limited adjustments in exchange rate policies in emerging Asia, and more room for reforms in the euro zone and Japan.

"An orderly resolution of global imbalances will require measures to facilitate a rebalancing of demand across countries and a realignment of exchange rates over the medium term," the IMF said.

"The longer the adjustment is delayed, the larger these exchange rate adjustments will ultimately need to be and the greater the risk of overshooting," it added.

Energy prices were also a growing peril, the fund said.