IMF Weekend Read

 

The latest IMF analysis of global economics, finance, development and policy issues shaping the world //

Dear maria, In today's edition we focus on the recovery prospects for the Middle East and Central Asia, the social repercussions of pandemics, the pre-pandemic debt landscape, financial innovation and rising inequality, the impact of the pandemic on youth and their job opportunities, and more. On that note, let's dive right in.  But first, did you watch Managing Director Kristalina Georgieva's recent discussion with Badr Jafar of the University of Cambridge Centre for Strategic Philanthropy? She focused on emerging markets and developing economies, the role of the private sector, and international cooperation. Click here to watch the 30-minute video. RECOVERY IN THE MIDDLE EAST AND CENTRAL ASIA The road to recovery for the Middle East and Central Asia region will hinge on containment measures, access to and distribution of vaccines, the scope of policies to support growth, and measures to mitigate economic scarring from the pandemic, writes the IMF's Jihad Azour in a new blog. The virus’s second wave, which began in September, hurt many countries in the region, where infection and death rates far surpassed those seen during the first wave . Most countries resumed selective restrictions to help lessen their negative humanitarian and economic impact, while some have started vaccination campaigns. Azour writes that access to the COVID-19 vaccine will play a critical role in the recovery ahead. For 2021, our projections relative to October are broadly unchanged but reflect significant differences among countries: those with diversified vaccine providers and production have more favorable or broadly unchanged forecasts, while the outlook for those with more limited access to vaccines and those harder hit by the second wave looks weaker. Additionally, countries that put in place stronger fiscal and monetary support in response to COVID-19 are also expected to have a stronger recovery, aided by a shallower trough in 2020. In particular, while Caucasus and Central Asia countries as a group are projected to reach 2019 GDP levels in 2021—due to their stronger COVID-19 response—those heavily impacted by the second wave will lag behind and not regain pre-pandemic GDP levels until 2022. Nonetheless, recovery in the Middle East and Central Asia region’s emerging markets is projected to lag that of their peers elsewhere, with most countries not recouping 2019 GDP levels until 2022. Fragile and conflict-affected states will be especially battered, with 2021 GDP levels projected at 6 percent lower than in 2019. Would you like to dig a little deeper? Click here to read the full analysis. SOCIAL REPERCUSSIONS OF PANDEMICS If history is a predictor, unrest may reemerge as the pandemic eases, writes the IMF's Philip Barrett, Sophia Chen, and Nan Li in a new blog. From the Plague of Justinian and the Black Death to the 1918 Influenza Epidemic, history is replete with examples of disease outbreaks casting long shadows of social repercussions: shaping politics, subverting the social order, and some ultimately causing social unrest. Why? One possible reason is that an epidemic can reveal or aggravate pre-existing fault lines in society, such as inadequate social safety nets, lack of trust in institutions, or a perception of government indifference, incompetence, or corruption. Historically, outbreaks of contagious diseases have also led to ethnic or religious backlashes or worsened tensions among economic classes. Despite ample examples, quantitative evidence on the link between epidemics and social unrest is scant and limited to specific episodes. Recent IMF staff research fills this gap by offering global evidence of this link in recent decades. Click here to read the full blog. THE PRE-PANDEMIC DEBT LANDSCAPE Higher debt can potentially reduce the ability of governments to react to the COVID-19 crisis, write the IMF's Xuehui Han, Paulo Medas, and Susan Yang in a new blog. They call attention to the latest update of the IMF’s Global Debt Database, which shows that global debt—public plus private—reached $197 trillion in 2019, up by $9 trillion from the previous year. This substantial debt created challenges for countries that faced a debt surge in 2020, as economic activity collapsed and governments acted swiftly to provide support during the pandemic. Our data show that the global average debt-to-GDP ratio (weighted by each country’s GDP in US dollars) rose to 226 percent in 2019, 1.5 percentage points higher than in 2018. Most of the increase came from higher public debt in emerging market economies and advanced economies outside of Europe. In low-income countries, total debt rose by 1.3 percentage points of GDP in 2019—mostly driven, in contrast, by higher private debt. Interested in learning more? Check out the full blog. NEW PODCAST: FINANCIAL INNOVATION AND RISING INEQUALITY With great strides in financial technology in recent years, the lower data processing costs and fees associated with investing in the stock market should have led to broader increases of household wealth. But in this new podcast, economist Roxana Mihet says while fintech has reduced barriers to access and held out the promise of gains for all, it may have worsened capital income inequality. Mihet is Assistant Professor of Finance at HEC Lausanne, and her recent study suggests the most likely beneficiaries of financial innovation are those who have access to the valuable data that inform good investments. Mihet was recipient of the ECB's Young Economists Award in 2020 for her work on Financial Innovation and the Inequality Gap. She was invited by the IMF's Strategy, Policy and Review Department to present her research.  Click here to listen to the discussion. And if you're in a hurry, skim the transcript. THE LONG SHADOW OF AN UNLUCKY START For the millions of the world’s young people who will survive the pandemic, there’s still truly difficult news ahead. Not only will the COVID-19 recession give new entrants to the job market a rocky start to their careers, it will also put them at risk to make less money for decades, commit more crimes, have less satisfying family lives, and maybe even die earlier than luckier job seekers, write Hannes Schwandt and Till Von Wachter in our latest issue of F&D on the future of work and opportunity. This bleak conclusion, they explain, is emerging from an expanding arena of research into the long-term effects of entering the job market in a recession. Researchers crunching decades of data on previous recessions have obtained a range of sobering findings for the United States. An increasing number of studies find similar results in Canada, Germany, the United Kingdom, Austria, Spain, Belgium, Norway, and Japan. Read the full 1500-word piece here, download the PDF, or continue reading the full article below for your convenience. IMF AROUND THE WORLD The IMF Executive Board this week announced the results of its economic assessments of Tonga and Bulgaria. In Tonga, Executive Directors agreed that fiscal policy should continue to support the economy. Once recovery is underway, fiscal adjustment will be needed to stabilize debt and build climate resilience. For Bulgaria, the Board emphasized the importance of addressing medium-term challenges, such as strengthening active labor market policies and the education system. The IMF opened a new Caucasus, Central Asia, and Mongolia Regional Capacity Development Center. The virtual launch this week will be followed by a physical launch of the center in Almaty, Kazakhstan. The center will be a collaborative venture between the IMF; development partners; and Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan. The Board also announced the results of its review of the IMF Debt Sustainability Framework for Market Access Countries. The review revealed scope to improve the framework’s ability to identify risk of sovereign stress and better align it with the IMF’s lending framework. IMF LENDING Check out our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19. We are also regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board. To date, 80 countries have been approved for emergency financing, totaling over US$32 billion. Looking for our Q&A about the IMF's response to COVID-19? Click here. We are also continually producing a special series of notes—more than 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more. FINAL THOUGHT Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note. Sincerely, Rahim Kanani Editor, IMF Weekend Read rkanani@IMF.org