The global economy faces testing times because of the danger of inflation, unbalanced trade flows and deadlocked world trade talks, International Monetary Fund chief Rodrigo Rato said.

As Mr Rato set the scene for annual meetings of the fund in Singapore, World Bank Paul Wolfowitz hit out at the host government for what he called its "authoritarian" decision to bar 27 civil rights activists from entering the city state.

Mr Wolfowitz said Singapore had violated the understanding it had come to with the two international lending agencies to allow anyone accredited into the meeting.

"Enormous damage has been done and a lot of that damage is done to Singapore and self-inflicted. This could have been an opportunity for them to showcase to the world their development process," he said at a meeting with civil society organisations.

Mr Rato, the IMF's managing director, vouched for the activists, who have been accredited by the fund and the bank for the meetings, and urged Singapore to reconsider the ban.

"If they don't, I think they would be making a mistake," he said.

But the thrust of Mr Rato's comments concerned the state of the world economy as he listed a number of risks that could derail what has been the strongest and longest burst of global growth in 30 years.

The IMF raised its projection for 2007 world growth to 4.9 per cent from 4.7 per cent last week, but Mr Rato told reporters that spare capacity was shrinking, fanning concerns about inflation that high oil prices were making worse.

"And of course, the risk of a disorderly," he added. Adjustment of global economic imbalances has not gone away, and could well be exacerbated by the other risks," he added.

At the heart of the imbalances is the US current account deficit, which has reached 6.5 per cent of its output, and corresponding surpluses in oil-producing countries and Asia.

Mr Rato said the imbalances were a complex phenomenon that had built up over years. "It would be unrealistic to expect the problem to be resolved through a magic bullet," he said.

US Treasury Secretary Henry Paulson said on Wednesday that Beijing would ignore at its own peril other countries' concerns about its exchange rate, which some US lawmakers and economists contend is undervalued by 15 per cent to 40 per cent.

Beijing has kept the yuan on a tight leash since it revalued the currency by 2.1 per cent in July 2005 and unshackled it from the dollar to float within managed bands.

Mr Rato weighed in on Friday by restating the fund's view that allowing market forces to play a greater role - code for a stronger exchange rate - was in China's self-interest.

"The decision taken by China last year to change its exchange rate mechanism was the right one. But that decision has to be implemented," Mr Rato said.

China's central bank governor and finance minister will have a working lunch with the G7 group. But Beijing has given no indication it is about to permit a faster rise in the yuan, which has gained just a further two per cent since the revaluation.

The United States hopes a plan to give China, Mexico, South Korea and Turkey more voting power in the IMF will cajole Beijing into playing a more active role in managing the global economy.

Tackling the under-representation of these four emerging powerhouses is the first step in a broader reform of the fund's shareholding structure that Mr Rato said would entail the most significant change in a generation in the way the IMF is run.

The proposed overhaul has run into opposition in Europe, which fears losing power, as well as in some developing states, which fret they will still not have a loud enough voice.

Despite the controversy, Mr Rato said he hoped the fund's members would endorse the shake-up during the Singapore meetings.