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

Dear maria, Welcome to the Weekend Read! In today's edition we explore, among other things, the IMF's new forecasts for growth and the risks to recovery in Latin America and the Caribbean, how an assessment program and stress tests are shining a spotlight on financial stability, and the importance of mapping public assets and using public wealth funds to manage them. Latin America (Photo: Oleg Shuldiakov/iStock by Getty Images) Latin America Loses Momentum Economies in Latin American and the Caribbean are losing momentum after making a strong comeback last year, say the IMF's new director for the region, Ilan Goldfajn, and co-authors Anna Ivanova and Jorge Roldos in a new blog. This year growth in the region is expected to slow to 2.4 percent, a downgrade from the October forecast of 3 percent, and much slower than the estimated expansion of 6.8 percent in 2021. --Recovery Risks: Uncertainty about the evolution of the pandemic continues to cast a shadow on the recovery globally and in Latin America and the Caribbean. So too do inflationary pressures in the United States and across the region, which may call for an even faster withdrawal of monetary accommodation, and a potential change in investor risk sentiment and associated tighter global and domestic financial conditions. --Monetary Tightening: Policymakers could prepare for US monetary policy tightening by extending public debt maturities, reducing fiscal rollover needs more generally, and limiting the buildup of currency mismatches on financial sector balance sheets where possible, the authors say. If rising inflation threatens to de-anchor inflation expectations, central banks will have to raise interest rates further to signal a continued commitment to inflation targets and to avoid persistent price increases. Financial Stability (Photo: Jeff Moore/IMF Photos) Financial Stability Spotlight The Financial Sector Assessment Program is a key pillar of IMF surveillance. It undertakes a deep-dive into potential systemic risks to financial stability, including by conducting “stress tests” to gauge the ability of financial institutions to withstand adverse shocks to the economy. In a new blog, the IMF explains how FSAPs evaluate the strength of supervisory and regulatory frameworks to mitigate risks, and the adequacy of crisis management tools and safety nets to handle threats that may materialize. --Systemically Important: This year’s assessments address seven economies with systemically important financial sectors: Germany, United Kingdom, Mexico, Russia, Turkey and Ireland, which are reviewed every five years, and South Africa, which is assessed once every 10 years. The others, which requested the assessments themselves, are Colombia, Uruguay and the West Africa Economic and Monetary Union. F&D (Image: iStock/Mcdomx) Mapping the Unknown Almost a thousand years ago, in 1085, William the Conqueror commissioned a survey of his kingdom of England, acquired 19 years earlier. The goal: inventory all the assets and understand what revenue they should generate, and hence what was due to the Crown in rent or taxes. This work was called the Domesday Book. In an article for the forthcoming issue of Finance & Development, Ian Ball, John Crompton and Dag Detter write that today’s governments have largely forgotten the importance of an accurate inventory of assets. This problem, rooted in government accounting systems, impedes valuation and efficient asset management. A quick, low-cost solution is to find the hidden assets by doing an asset map and to manage them through a public wealth fund. For too long, many countries have ignored asset valuation and management, and the resulting impact of this neglect. The need to address both COVID-19 and climate change, which will strain public finances for at least a generation, demands radical action. Given that the alternative in many countries could be prolonged austerity, rethinking how governments view public assets is now a moral as much as an economic goal. Read the entire article. Check out our December Issue of Finance & Development. And look out for the March issue, on Rethinking Fiscal. Want to get a print copy delivered to your home or office? Click here to subscribe.   (Photo: sadikgulec/iStock by Getty Images)   Fragile States In a new podcast, Franck Bousquet, the deputy director coordinating the IMF's work in fragile and conflict-affected states, talks about the growing costs associated with fragility and conflict, and how the Fund is trying to help. (Photo: IMF)   Crypto Assets Which crypto asset has the largest market share? Our latest of our Charts in Motion shows the largest crypto assets on the market, taking a closer look at Bitcoin, Ethereum, Binance Coin, Cardano, and stable coins. (Photo: Zephyr18/iStock by Getty Images)   Essential Reading: Capital Flows Check out our eLibrary section on capital flows, where you can find all the latest IMF research on how rising interest rates could affect countries' external accounts and currencies. Quote of the Week "State fragility and conflict are clearly among the most enduring challenge of our times." —The IMF's Franck Bousquet talking in a podcast about fragile and conflict-affected states. WEEKLY ROUND-UP 01. Georgieva Talks to Washington Post IMF Managing Director Kristalina Georgieva joined Washington Post columnist David Ignatius on Wednesday to discuss the Fund's latest World Economic Outlook and how the organization is using its firepower to support its membership. Watch a video of the wide-ranging discussion that also took in the situation in Ukraine and the economic impact of possible sanctions. 02. Special Drawing Rights One of the most significant measures by the IMF in response to the global pandemic was the historic allocation of Special Drawing Rights equivalent to $650 billion. Ceyla Pazarbasioglu, Director of the Strategy, Policy, and Review Department, appeared alongside central bankers and government ministers on Wednesday to explore ways to exploit the power of these SDRs at a panel discussion hosted by the Center for Global Development. 03. Gender-based Violence The IMF's Ratna Sahay and Rasmané Ouedraogo joined speakers from UN Women and the Government of Rwanda on Thursday to highlight how the pandemic and associated lockdowns have led to a rise in gender-based violence in sub-Saharan Africa. Beyond the moral imperative, the speakers underlined the importance of combating violence against women from an economic standpoint. Watch here. 04. Supply Shocks The auto sector is macro-critical in many European countries. A recent IMF staff paper assesses the impact of global pandemic-induced labor supply shocks—both directly and via supply chains—during the initial phase of COVID-19 on the auto sector and aggregate activity in Europe. 05. Capacity Development A new IMF staff paper proposes reforms to widen the reach of capacity development information, including technical assistance and training, at a time when members, partners and other providers expect greater transparency and access to information. 06. IMF Online Courses The IMF’s online curriculum keeps expanding with 52 courses currently open for enrollment, including the Government Finance Statistics course now also available in French and Spanish. Find the right course for you and follow it at your own pace. The courses are available to all, and for free. You can find the full course offering here. MARK YOUR CALENDAR 01. Digital Currencies IMF Managing Director Kristalina Georgieva will join Tobias Adrian, Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department, and other speakers on Feb. 9 at 09:00 a.m. ET at the virtual launch of a new Fintech Note covering central bank digital currencies. Watch the event, hosted by the Atlantic Council, here. 02. Inclusive Growth Rising inequality and widespread poverty, social unrest and polarization, gender and ethnic disparities, declining social mobility, economic fragility, unbalanced growth due to technology and globalization, and existential danger from climate change are urgent global concerns. The Center for Global Development will host a virtual event on Feb. 10 at 12:00 p.m. ET to launch the new book, How to Achieve Inclusive Growth, co-published by the IMF and Oxford University Press, which addresses these intertwined issues. The editors will present key findings and a high-level panel from the IMF, CGD, the Government of Colombia, Oxfam America, and academia will provide their perspectives and policy experience. Our latest Chart of the Week by the IMF's Ruchir Agarwal shows the duration of disrupted classroom time for younger people aged 5 to 19, who make up about a quarter of the world’s population. While the coronavirus has taken relatively more lives from older generations, younger people may feel the impact on their livelihoods for the duration of their working years. Learning losses have been highly unequal. Closures in the first two years of the pandemic lasted roughly twice as long in developing countries compared with advanced economies. And the adverse impact of this shock is magnified because the share of those at school age in developing countries is nearly double that of advanced economies. Adam Behsudi Editor IMF Weekend Read abehsudi@IMF.org   P.S. Be sure to let us know what issues and trends we should have on our radar.

Dear maria, We just published a new blog—please find the full text below.  Countries in the IMF Financial Stability Spotlight in 2022 (Photo: Jeff Moore/IMF Photos) By IMFBlog  The Financial Sector Assessment Program is a key pillar of IMF surveillance. FSAPs can help make financial systems more resilient. In doing so, they consider country-specific features and tailor their analysis. The IMF assesses advanced economies itself and evaluates others jointly with the World Bank. Many countries entered the pandemic with strong bank capital and supervisory frameworks. Nonetheless, as economies recover from the pandemic, uncertainties remain regarding the underlying state of banks and other intermediaries. This year’s assessments address seven economies with systemically important financial sectors: Germany, United Kingdom, Mexico, Russia, Turkey and Ireland, which are reviewed every five years, and South Africa, which is assessed once every 10 years. The others, which requested the assessments themselves, are Colombia, Uruguay and the West African Economic and Monetary Union. FSAPs scheduled to conclude this year include: Colombia The Colombian economy has a large and complex financial system dominated by conglomerates with significant presence in Central America. The FSAP will assess the soundness and resilience of banks to adverse economic shocks; perform interconnectedness and contagion analysis, corporate stress testing analysis, and explore transition risks arising from climate change. The assessment will also evaluate bank oversight, macroprudential policy, and safety-net arrangements. The World Bank will focus on the role of the state, competition in the financial sector, digital financial inclusion, insurance supervision, insolvency regimes and creditor rights. Germany Banks dominate the financial sector, which includes two globally systemic-lenders, a large insurer, and one of the largest global central counterparties. Europe’s largest economy enjoyed favorable economic conditions and strong buffers before the pandemic. The FSAP will assess the financial stability implications of structural vulnerabilities associated with low banking profitability and price misalignments in the real estate sector. It will analyze the risks of adverse economic shocks such as a global resurgence of COVID-19, inflationary pressures, and implications of any shift in market sentiment against some high-debt euro area countries. The FSAP will also assess the institutional framework for macroprudential policy and the strategy for setting policy tools; conduct targeted assessments of Germany’s banking and insurance regulation and supervision, financial crisis management arrangements, deposit insurance, and institutional protection schemes; and do a deep dive assessment of the systemic financial infrastructure. The FSAP will also profile climate transition risks, analyzing their impact on banks, and will cover regulatory aspects of financial technology. Ireland This financial system has grown significantly, especially since Brexit, with many international institutions increasing their presence. The market-based financial (MBF) sector, the largest component of the financial system, is now the second largest in Europe, behind Luxembourg. The authorities have strengthened the supervisory framework considerably since the 2016 FSAP. Cross-cutting themes include the post-Brexit landscape of the financial sector, climate change, and the gradual phasing out of extraordinary COVID-19 support. The FSAP will examine the effectiveness of supervision of banking, insurance, and MBF, conduct stress testing, assess the frameworks for macroprudential policy, and that of financial safety net and crisis management, and analyze interconnectedness of the MBF sector. The FSAP will also assess insolvency and creditor rights, given comparatively low collateral recovery rates in Ireland. Mexico Latin America’s second-largest economy is tightly integrated with global trade and finance. It benefits from large buffers in the banking system. The FSAP comes amid rising risks from continued pandemic disruptions and the possibility of a sharp tightening in global financial conditions or capital flow volatility. The assessment will examine the financial sector’s resilience, including to system-wide liquidity shocks, financial sector oversight and crisis management, and challenges and opportunities stemming from climate change, cyber security, and fintech. Russia Russia’s financial system is bank dominated, largely state-owned and concentrated. Key risks include intensified economic sanctions, reliance on emission-intensive exports, rapid credit growth in riskier retail segments, and dominant banks expanding non-core businesses. The FSAP will examine progress in developing macroprudential policy tools, upgrading banking regulation and supervision, and strengthening securities oversight and crisis management and resolution arrangements. The systemic risk assessment will encompass bank solvency and liquidity stress tests and the impact of various climate policy scenarios on the economy and banks. South Africa The home of Africa’s largest financial sector features big cross-border banking groups and a well-developed investment fund and insurance sector. The assessment will examine financial strength amid subdued economic growth and large fiscal deficits, exacerbated by weak financial positions of state-owned enterprises and the ongoing pandemic. The assessment will also examine banking, insurance, and securities markets; pension and cyber risk supervision; crisis management and resolution; fintech; financial inclusion; climate risk; and capital markets development. Turkey Turkey’s bank-dominated financial system has grown rapidly in recent years. The FSAP will examine systemic risks amid a challenging macroeconomic environment. It will analyze the resilience of the banking and corporate sectors to adverse shocks, along with bank-corporate-sovereign interlinkages. Other evaluations will include the strength of banking supervision and regulation, the macroprudential framework, systemic liquidity management, the crisis management framework, and cyber risks. Uruguay Uruguay is a small, open economy with a heavily dollarized financial system and a high participation of state banks. The system has withstood the pandemic due, in part, to extensive policy support deployed by the authorities. The assessment will focus on the resilience of the financial system to a resurgence in the pandemic, and a possible rise in global borrowing costs. It will evaluate the effectiveness of bank supervision (jointly with the World Bank); the macroprudential policy framework, including measures to tackle dollarization; crisis-management arrangements; and financial integrity. The World Bank will also focus on the role of the state and prospects for developing capital markets further. United Kingdom The FSAP was discussed with national authorities along with the conclusions of the Article IV consultations in December. It recognized swift policy actions at the onset of the pandemic to restore market liquidity and maintain financial stability. The soundness of UK banks and insurers has increased since the 2008 Global Financial Crisis and they are well placed to face near-term challenges. The FSAP assessed the financial stability framework as resilient and pointed out opportunities for continued enhancements. Many of these are cross-border in nature and require international cooperation, including the bridging of data gaps in the nonbank financial institutions subsector. The FSAP highlighted the UK’s leadership on managing future risks such as climate and cyber resilience and noted the importance of preserving the primacy of financial stability objectives. West African Economic and Monetary Union The banking sector has grown rapidly in member nations Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Intra- and extra-regional banking groups now play dominant roles among lenders, and government debt constitutes a critical part of banks’ portfolios. The FSAP is evaluating the strength of the financial sector amid uncertainty about global inflation and growth. In this context, the FSAP is developing tail-risk scenarios for economic growth and inflation and assessing systemic liquidity management and macroprudential policy. The FSAP is also examining banking regulation and supervision; crisis management and bank resolution; access to finance; payment systems; climate risk; capital markets development; and the role of state-owned banks. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org     Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

Students confront their own nightmare of the enduring pandemic, and the effects may last for years.

Dear maria, We just published a new blog—please find the full text below. Pandemic Scars May be Twice as Deep for Students in Developing Countries (Photo: IMF) By Ruchir Agarwal Students confront their own nightmare of the enduring pandemic, and the effects may last for years. While the coronavirus has taken relatively more lives from older generations, younger people may feel the impact on their livelihoods for the duration of their working years. From this perspective, the economy too may have a kind of long COVID, with each generation bearing different scars. The Chart of the Week shows the duration of disrupted classroom time for those from ages 5 to 19, who make up about a quarter of the world’s population. Today, more than two years into the crisis, schools remain closed for millions worldwide—with many more shuttered again by the highly transmissible Omicron variant. Moreover, our analysis shows learning losses have been highly unequal. Closures in the first two years of the pandemic lasted roughly twice as long in developing countries compared with advanced economies. And the adverse impact of this shock is magnified because the share of those at school age in developing countries is nearly double that of advanced economies. The IMF’s April Fiscal Monitor estimates that education losses from classroom closures by the end of 2020 amounted to as much as a quarter of the school year in advanced economies and up to half in emerging and developing economies. The chart shows that these unequal learning losses across countries persisted through October. Such strains also underscore the challenge for graduates joining weak labor markets. Those entering the workforce amid economic downturns experience weaker employment and wage prospects, as was the case with the Great Recession of 2007-09. Analysis in the IMF’s October World Economic Outlook found that the labor market outlook for low-skilled workers and youth remains relatively bleak compared with other groups. This points to increasing inequality and higher vulnerability to poverty. Together, these effects may have economic consequences for decades through learning losses, lower productivity, and employment disruptions. Pandemic-era students could sacrifice as much as $17 trillion in lifetime earnings, according to a recent report by the United Nations and the World Bank. That’s why it’s crucial to end this crisis. As the IMF pandemic proposal has emphasized: The economic crunch won’t end until the health crisis is controlled everywhere. And, as the Fiscal Monitor highlighted, policymakers should keep their focus on severely strained social safety nets and health care and education services. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

As economies are picking up, why are companies having such a hard time hiring workers?

\ Ippei Shibata and Carlo Pizzinelli on the Puzzling Labor Market February 3, 2022 (iStock Images/RichLegg) When the pandemic hit two years ago, millions of people quickly found themselves unable to work because of the nature of their jobs or because of the recession that ensued. But now, as economies are picking up, why are companies having such a hard time hiring workers? In this podcast, journalist Rhoda Metcalfe asks economists Carlo Pizzinelli and Ippei Shibata what's behind the labor shortage in many advanced economies. Shibata and Pizzinelli's latest research looks at current trends in the US and UK and suggests there are many pieces to the labor market puzzle. Listen to the Podcast Read the Transcript   ***** Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@imf.org.   Bruce Edwards Producer, IMF Podcasts