Dear maria,
In today's edition we focus on Africa's uncertain recovery, a carbon price floor proposal, facts about food prices, emerging markets in flux, Thailand's economic challenges, and much more. On that note, let's dive right in.
THE ROAD AHEAD FOR AFRICA
Africa is now facing the world's fastest growth rate for new COVID-19 cases, with an exponential trajectory even more alarming than the second wave in January. Based on current trends, this wave will likely surpass previous peaks within the next week. IMF Managing Director Kristalina Georgieva sounded the alarm this week on a worrying trend, which could further delay the region's recovery.
The IMF projects the global economy will grow 6 percent this year, but only half that--3.2 percent--in Africa. In remarks to the African Development Bank's annual meeting, she outlined three policy priorities for getting growth back on track in Africa.
End the pandemic everywhere. IMF staff recently proposed a $50 billion plan that could vaccinate 60 percent of the world's population by mid-2022. It would be the best public investment of our lives—and it would be a game changer for Africa.
Help Africa deal with a growing debt burden. Public debt in sub-Saharan Africa jumped by more than 6 percentage points to 58 percent of GDP in 2020, the highest level in almost two decades. The G20 Debt Service Suspension Initiative has provided much-need breathing space. Now is the time to make the Common Framework for debt resolution fully operational.
Mobilize the international community. IMF membership has supported efforts to scale up financing. That includes a new allocation of Special Drawing Rights (SDRs) of 650 billion. Once approved, it will directly and immediately make about $33 billion available to African members. In addition, we are working towards magnifying the impact of the new allocation—by encouraging voluntary channeling of some of the SDRs and/or budget loans to reach a total global ambition of $100 billion for the poorest and most vulnerable countries.
Read the full remarks here.
A CARBON PRICE FLOOR PROPOSAL
The amount of carbon dioxide and other greenhouse gases being released into the atmosphere must be cut anywhere between a quarter and a half over the next decade if we want to restrict global warming to below 2°C. The fastest and most practical way to achieve this is by creating an international carbon price floor arrangement, the IMF's Vitor Gaspar and Ian Parry write in a recent blog.
A new paper from IMF staff, still under discussion with the IMF Board and membership, proposes the creation of an international carbon price floor arrangement that complements the Paris Agreement and is launched by the largest emitters, anchored on a minimum carbon price, and designed pragmatically.
An illustrative example shows that reinforcing Paris Agreement pledges with a three-tier price floor among just six participants (Canada, China, European Union, India, United Kingdom, United States) with prices of $75, $50, and $25 for advanced, high, and low-income emerging markets, respectively and in addition to current policies, could help achieve a 23 percent reduction in global emissions below baseline by 2030. This is enough to bring emissions in line with keeping global warming below 2°C.
Read the full blog.
FOUR FACTS ABOUT RISING FOOD PRICES
Rising world food prices for producers are making headlines and causing concerns among the public. The most recent data show a moderation in consumer food price inflation, globally, but that could change in the coming months, the IMF's Christian Bogmans, Andrea Pescatori, and Ervin Prifti write in a new blog.
Four facts:
Food price inflation started increasing before the pandemic.
Early lockdown measures and supply chain disruptions induced a spike in consumer food prices.
Shipping and transport costs are rising and will eventually increase consumer food inflation.
Global food producer prices have rallied to multi-year highs.
What's the outlook? Based on the four facts presented, it is plausible that consumer food price inflation will pick up again in the remainder of 2021 and 2022. Indeed, the recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices in some regions as retailers, unable to absorb the rising costs, are passing on the increases to consumers. More is likely to come, however, since international food prices are expected to increase by about 25 percent in 2021 from 2020 and stabilizing in 2021.
The impact will vary by country but if producers pass through pass-through 20 percent (13 percent in the first and 7 percent in the second year) of their increased prices it would cause an increase in consumer food price inflation of about 3.2 percentage points and 1.75 percentage points on average in 2021 and 2022, respectively. An additional 1 percentage point to the 2021 global consumer food inflation could be added by the higher freight rates.
Read the full blog.
️ NEW PODCAST: WOOING INVESTORS TO AFRICA'S DEVELOPMENT
With public finances stretched to the limit and the pandemic making things worse by the day, new IMF research looks at innovative ways to get the private sector more involved in financing Africa's development needs. Economist Luc Eyraud led this research. In this podcast, he says while fixing the business environment is a good place to start, sometimes it is simply not enough.
Listen to the podcast here. And if you're in a hurry, skim the transcript (PDF).
F&D: EMERGING MARKETS IN FLUX
In our latest issue of F&D, the IMF's Mahmood Pradhan chats with Richard House (chief investment officer for emerging market debt at Allianz Global Investors) and David Lubin (head of emerging market economics at Citibank) on the outlook for emerging markets.
Emerging market assets have proved remarkably resilient over the past year, confounding more dire expectations at the outbreak of the COVID-19 pandemic. The very large liquidity injections from central banks in advanced economies have undoubtedly helped. But some emerging market economies have also found more policy space, including turning to unconventional monetary policies that many would have thought available only to advanced economies. This crisis will, however, leave scars. Debt burdens of emerging markets and low-income countries are rising to unprecedented levels. Will more countries need financial assistance when the tide of global liquidity turns? And will private investors be willing to share the burden?
Two veteran market players explain why the maturity of this asset class helped limit the fallout and bodes well for its resilience and return to a more normal global liquidity environment. But they do see a need for the private sector to share the burden of adjustment in some countries. They also call for the public sector, including the IMF, to help countries take advantage of the growing demand for debt issuance that complies with environmental, social, and governance standards.
Interested in learning more? Read the full interview here.
THAILAND'S ECONOMIC CHALLENGES
Thailand took decisive action to implement a package of fiscal, monetary, and financial policies to mitigate the impact of the COVID-19 pandemic. Still, the country faces an uncertain path toward recovery. According to the IMF’s latest annual assessment or Article IV consultation, Thailand’s economy is forecast to grow at 2.6 percent in 2021, and a surge in COVID‑19 infections in the country and the region since the beginning of the year highlights the uncertainty about the path of the pandemic and the importance of continued efforts to contain the spread of the virus for a strong and durable recovery.
The IMF's Stella Kaendera and Lamin Leigh break down five things to know about Thailand's economy and COVID-19 in this latest Country Focus.
IMF AROUND THE WORLD
The IMF Executive Board this week completed the first reviews of the 38-month Extended Arrangement under the Extended Fund Facility (EFF) and 38-month arrangement under Extended Credit Facility (ECF) for Kenya. The Board also completed the second and final review of Egypt’s economic reform program supported by a 12-month Stand-By Arrangement and an Article IV economic assessment. The Board concluded Article IV consultations with the Slovak Republic, Switzerland, and Serbia.
RESPONDING TO THE CRISIS: To date, 86 countries have received more than $110 billion in financial assistance in response to the economic impact of the COVID-19 crisis. Find out more in our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.
Overall, the IMF is currently making about $250 billion, a quarter of its $1 trillion lending capacity, available to member countries.
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—about 100 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.
Sincerely,
Adam Behsudi
Deputy Editor, IMF Weekend Read
abehsudi@IMF.org
P.S. The IMF is working with Kenya to support the next phase of their COVID-19 response, address their urgent need to maintain sustainable debt levels, and improve governance. In this short video, IMF Mission Chief Mary Goodman provides an update on recent progress made and how the IMF is supporting the anti-corruption agenda.
Dear maria,
We just published a new blog—please find the full text below. Translations coming soon.
Four Facts about Soaring Consumer Food Prices
By Christian Bogmans, Andrea Pescatori, and Ervin Prifti
Rising world food prices for producers are making headlines and causing concerns among the public. The most recent data show a moderation in consumer food price inflation globally, but as we explain below, that could change in the coming months. This would only add to the high prices that consumers in many countries already lived through last year.
If prices eventually rise again, there will likely be sizeable differences between countries. Due to various factors, it is probable that the effect would be felt most by consumers in emerging markets and developing economies still wrestling with the effects of the pandemic.
Fact #1: Food price inflation started increasing before the pandemic.
The increase in consumer food price inflation predates the pandemic. In the summer of 2018, China was hit by an outbreak of African swine fever, wiping out much of China’s hog herd, which represents more than 50 percent of the world’s hogs. This sent pork prices in China to an all-time high by mid-2019 creating a ripple effect on the prices of pork and other animal proteins in many regions around the world. This was compounded by the introduction of Chinese import tariffs on US pork and soybeans during the US-China trade dispute.
Fact #2: Early lockdown measures and supply chain disruptions induced a spike in consumer food prices.
At the start of the pandemic, food supply chain disruptions, a shift from food services (such as dining out) towards retail grocery, and consumer stockpiling (coupled with a sharp appreciation of the US dollar) pushed up consumer food price indices in many countries—with consumer food inflation peaking in April 2020—even though producer prices of primary commodities, including food and energy, were declining sharply as demand for primary food commodities was disrupted. By early summer 2020, however, various consumer food prices had moderated, pushing down consumer food inflation in many countries.
So while food prices at your grocery store (i.e., consumer food prices) may have increased, it is an exaggeration to say that they are currently rising at their fastest pace in years. They are also not currently contributing to headline inflation, though they may do so later this year and in 2022 (see the outlook below). Producer prices, on the other hand, have recently soared (see fact #4). But it takes at least 6-12 months before consumer prices reflect changes in producer prices. Also, on average, the pass-through from producer to consumer prices is only about 20 percent. This is because consumer food prices include the shipping costs of primary food commodities, the processing, marketing and packaging of food, and final distribution costs such as transport costs.
The last two facts will help us understand what to expect for consumer food prices.
Fact #3: Soaring shipping and transport costs.
Ocean freight rates as measured by the Baltic Dry Index (a measure of shipping costs) have increased around 2-3 times in the last 12 months while higher gasoline prices and truck driver shortages in some regions are pushing up the cost of road transport services. Higher transport costs will eventually increase consumer food inflation.
Fact #4: Global food producer prices have rallied reaching multi-year highs.
From their trough in April 2020, international food (producer) prices have increased by 47.2 percent attaining their highest (real) levels on May 2021 since 2014 (highest level ever in current dollar terms). Between May 2020 and May 2021, soybean and corn prices increased by more than 86 and 111 percent, respectively.
There are three main factors behind the recent rally in producer prices: (1) Demand for staples for both human consumption and animal feed has remained high, especially from China, as countries have stockpiled food reserves due to pandemic-related worries about food security. (2) The recent 2020-2021 La Niña episode—a global weather event occurring every few years—has led to dry weather in key food exporting countries, including Argentina, Brazil, Russia, Ukraine, and the United States. This has caused, in some cases, harvests and harvest outlooks to fall short of expectations. As demand has outpaced supply, US and world stocks-to-use ratios—a measure of market tightness—reached multi-year lows for some staples. (3) Strong demand for biofuels increased speculative demand by non-commercial traders, and export restrictions are additional factors supporting world producer prices.
Outlook
Based on the four facts presented, it is plausible that consumer food price inflation will pick up again in the remainder of 2021 and 2022. Indeed, the recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices in some regions as retailers, unable to absorb the rising costs, are passing on the increases to consumers. More is likely to come, however, since international food prices are expected to increase by about 25 percent in 2021 from 2020, stabilizing in 2021. A pass-through of 20 percent (13 percent in the first year and 7 percent in the second) would, thus, imply an increase in consumer food price inflation of about 3.2 percentage points and 1.75 percentage points on average in 2021 and 2022, respectively. An additional 1 percentage point to the 2021 global consumer food inflation could be added by the higher freight rates.
The impact, however, will vary by country. Consumers in emerging markets could experience even higher increases due to the higher dependency on food imports (e.g. countries in sub-Saharan Africa and the Middle East and North Africa). The pass-through from producer prices to consumer prices also tends to be larger for emerging markets. For low-income countries struggling from the pandemic, the effects of further food inflation could be dire and risk a backslide in efforts to eliminate hunger.
Emerging markets and low-income countries are also more vulnerable to food price shocks because consumers in these countries typically spend a relatively large proportion of their income on food. Finally, for emerging markets and developing economies an additional risk factor is the currency depreciation against the US dollar—possibly due to falling export and tourism revenues and net capital outflows. Since most food commodities are traded in US dollars, countries with weaker currencies have seen their food import bill increase.
Christian Bogmans is an economist in the IMF’s Research Department.
Andrea Pescatori is an economist in the IMF's Western Hemisphere Department.
Ervin Prifti is a senior economist with the IMF's Research Department.
Thank you again for your interest in IMF Blog. Read more of our latest content here.
Take good care,
Glenn Gottselig
Blog Editor, IMF
GGottselig@IMF.org
This email was sent to politikimx@gmail.com using GovDelivery Communications Cloud on behalf of: International Monetary Fund · 1900 Pennsylvania Ave NW · Washington, DC · 20431
