Exclusive-G7 to vow diversifying of supply chains, filling bank regulatory gaps -draft

(Reuters) -Finance leaders of the Group of Seven (G7) advanced economies set a year-end deadline for launching a new scheme to diversify global supply chains, and vowed to address regulatory gaps in the banking system, according to a final draft of their communique seen by Reuters.

In the draft communique, the G7 central banks said they remained "strongly committed" to achieving price stability and ensuring inflation expectations stayed well-anchored.

"The global economy has shown resilience against multiple shocks including the COVID-19 pandemic, Russia's war of aggression against Ukraine, and associated inflationary pressures," the draft communique said.

"Nevertheless, we need to remain vigilant and stay agile and flexible in our macroeconomic policy amid heightened uncertainty about the global economic outlook," it said.

The finance ministers and central bank governors of the G7 rich democracies will issue the communique after their three-day meeting in the Japanese city of Niigata concludes later on Saturday.

The draft communique made no mention of the U.S. debt ceiling stalemate, which overshadowed the G7 gathering as policymakers fretted over the risk of a potential U.S. default.

China has also been much on the minds of the G7 finance leaders, with this year's chair Japan spearheading efforts to diversify supply chains and reduce their heavy reliance on the world's second-biggest economy.

Under the new partnership scheme, the G7 economies would offer aid to low- and middle-income countries so they can play a bigger role in supply chains for energy-related products, such as by refining minerals and processing manufacturing parts.

"Diversification of supply chains can contribute to safeguarding energy security and help us to maintain macroeconomic stability," the draft communique said.

The G7 would work with interested countries and relevant international organizations with the aim of launching the scheme "by the end of this year at the latest," it said.

"Spillovers from Russia's war against Ukraine and disruptions caused by the pandemic have made clear the importance of diversified and resilient supply chains," U.S. Treasury Secretary Janet Yellen said in a bilateral meeting with her Japanese counterpart Shunichi Suzuki on Saturday.

The draft communique made no mention of an idea, flagged by the United States, to consider imposing targeted restrictions on investments to China to combat Beijing's use of "economic coercion" against other countries.

But it said G7 countries will work to ensure foreign investment in critical infrastructure "does not undermine the economic sovereignty of host countries."

The discussions among the finance leaders will lay the groundwork for next week's G7 summit in Hiroshima.

The G7 finance chiefs met at a time when worries over the U.S. debt ceiling standoff are adding to uncertainty over the global outlook, already clouded by signs of weakness in China's economy, stubbornly high inflation, and the recent failure of several U.S. banks.

On banking-system woes, the draft communique said the financial system was resilient due to regulatory reforms implemented after the 2008 global financial crisis.

"We will address data, supervisory, and regulatory gaps in the banking system," the draft communique said.

The G7 reiterated their condemnation of Russia's "illegal, unjustifiable, and unprovoked war of aggression" against Ukraine, and said it will continue to strengthen coordination in monitoring cross-border transactions between Russia and other countries, the draft communique showed.

(Reporting by G7 reporting team, writing by Leika Kihara; Editing by David Dolan and Rosalba O'Brien)