Global policymakers need to remix fiscal, monetary and regulatory policies to create a foundation for sustainable long-term growth, according to the latest annual report of the Bank for International Settlements (BIS).

The Basel, Switzerland-based BIS says there is an “urgent need” to rebalance policy. The paper notes that growth rates are not far from their historical averages, but that the global economy is nevertheless vulnerable, amid a combination of low productivity growth, historically high global debt and declining policy flexibility.

“A key factor in the current predicament has been the inability to get to grips with hugely damaging financial booms and busts and the debt-fuelled growth model that this has spawned,” the report says.

Interest rates in the major economies have edged into negative territory over the past year (adjusted for inflation), the BIS notes. “The persistence of such exceptionally low rates has raised questions about their impact on the profitability and resilience of financial institutions, the sustainability of asset prices and the broader economy.”

The report adds: “It is essential to relieve monetary policy, which has been overburdened for far too long. This means completing financial reforms, judiciously using the available fiscal space while ensuring long-term sustainability; and, above all, this means stepping up structural reforms.”

For example, the BIS report states, “The structure of taxes and subsidies could be adjusted to remove the bias toward debt accumulation, for example, by eliminating the tax advantage of debt over equity, and the quality of public spending could be improved by focusing more on investment.”

The bank calls on policymakers to seek more robust, sustainable global growth while addressing the economy’s vulnerabilities. In particular, it calls for a stronger focus on preventing financial boom/bust cycles. It says that stronger banks will also contribute to economic resilience.