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Most governments don't know what their assets are worth because they only account for cash

Ian Ball: Real Value of Hidden Assets March 17, 2022 Governments with strong balance sheets are known to recover from shocks more quickly. Yet many of them don't have balance sheets, or even know what assets and liabilities they have. The IMF estimates these often-overlooked global public assets at twice the value of global GDP. Ian Ball is a professor at Victoria University in Wellington and behind the New Zealand government’s net worth approach to determining its fiscal position. Ball co-authored an article in Finance and Development about the benefits of digging up all government assets, hidden or otherwise. In this podcast, he sits down with journalist Rhoda Metcalfe to discuss the advantages of this basic accounting exercise that dates back to the time of William the Conqueror. Listen to the podcast   ***** 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

Dear maria, We just published a new blog—please find the full text below. War-Fueled Surge in Food Prices to Hit Poorer Nations Hardest (PHOTO: IMF PHOTO/YAM G JUN) By Christian Bogmans, Jeff Kearns, Andrea Pescatori and Ervin Prifti Global food prices are poised to keep climbing even after jumping to a record in February, placing the heaviest burden on vulnerable populations while adding to headwinds for the global economic recovery. Food commodity prices rose 23.1 percent last year, the fastest pace in more than a decade, according to inflation-adjusted figures from the United Nations Food and Agriculture Organization. February’s reading was the highest since 1961 for the gauge tracking prices for meat, dairy, cereals, oils, and sugar. Now, the war in Ukraine and sanctions on Russia are upending shipments and possibly production for two of the world’s largest agricultural producers. The two countries account for nearly 30 percent of world wheat exports and 18 percent of corn, most of which is shipped through Black Sea ports that are now closed. Wheat futures traded in Chicago, the global benchmark, recently rose to a record. The Chart of the Week shows how price shocks will have worldwide impact, especially on poor households for whom food is a higher share of expenses. Food costs account for 17 percent of consumer spending in advanced economies, but 40 percent in sub-Saharan Africa. Though this region is highly import-dependent for wheat, the grain constitutes only a minor share of the total caloric needs. Differences in diet are also significant. In Europe, where bread is deeply embedded in many aspects of its culture, wheat makes up about a quarter of diets. In Southeast Asia, wheat accounts for only 7 percent versus 42 percent for rice, for which price increases so far have been relatively contained. Country-level averages, however, mask substantial differences within nations as poor households tend to eat more cereals but less meat, vegetables, and fruits compared with middle-income households. Finally, disruption may be even greater for countries with close trade links to Russia and Ukraine, including in Eastern Europe, the Caucasus, and Central Asia. High wheat prices will weigh even more on economies in the Middle East and North Africa, such as Egypt, which are especially reliant on Russian exports. Looking forward, reduced fertilizer supplies and higher oil prices will increase costs for harvesting, transporting and processing food. Policymakers must prevent those pressures from fueling food insecurity by avoiding protectionism and increasing social assistance for the poorest. The world may also call upon the two largest economies if the situation worsens. In the United States, where about 40 percent of corn production goes to ethanol, policymakers could reassess that use. And China, which holds more than half of global wheat and corn reserves, could consider releasing supplies to lower prices. 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!

The conflict is a major blow to the global economy that will hurt growth and raise prices.

Dear maria, We just published a new blog—please find the full text below.  How War in Ukraine Is Reverberating Across World’s Regions (IMAGE: ANDREW STANLEY/IMF) By Alfred Kammer, Jihad Azour, Abebe Aemro Selassie, IIan Goldfajn and Changyong Rhee Beyond the suffering and humanitarian crisis from Russia’s invasion of Ukraine, the entire global economy will feel the effects of slower growth and faster inflation. Impacts will flow through three main channels. One, higher prices for commodities like food and energy will push up inflation further, in turn eroding the value of incomes and weighing on demand. Two, neighboring economies in particular will grapple with disrupted trade, supply chains, and remittances as well as an historic surge in refugee flows. And three, reduced business confidence and higher investor uncertainty will weigh on asset prices, tightening financial conditions and potentially spurring capital outflows from emerging markets. Russia and Ukraine are major commodities producers, and disruptions have caused global prices to soar, especially for oil and natural gas. Food costs have jumped, with wheat, for which Ukraine and Russia make up 30 percent of global exports, reaching a record. Beyond global spillovers, countries with direct trade, tourism, and financial exposures will feel additional pressures. Economies reliant on oil imports will see wider fiscal and trade deficits and more inflation pressure, though some exporters such as those in the Middle East and Africa may benefit from higher prices. Steeper price increases for food and fuel may spur a greater risk of unrest in some regions, from Sub-Saharan Africa and Latin America to the Caucasus and Central Asia, while food insecurity is likely to further increase in parts of Africa and the Middle East. Gauging these reverberations is hard, but we already see our growth forecasts as likely to be revised down next month when we will offer a fuller picture in our World Economic Outlook and regional assessments. Longer term, the war may fundamentally alter the global economic and geopolitical order should energy trade shift, supply chains reconfigure, payment networks fragment, and countries rethink reserve currency holdings. Increased geopolitical tension further raises risks of economic fragmentation, especially for trade and technology. Europe The toll is already immense in Ukraine. Unprecedented sanctions on Russia will impair financial intermediation and trade, inevitably causing a deep recession there. The ruble’s depreciation is fueling inflation, further diminishing living standards for the population. Energy is the main spillover channel for Europe as Russia is a critical source of natural gas imports. Wider supply-chain disruptions may also be consequential. These effects will fuel inflation and slow the recovery from the pandemic. Eastern Europe will see rising financing costs and a refugee surge. It has absorbed most of the 3 million people who recently fled Ukraine, United Nations data show. European governments also may confront fiscal pressures from additional spending on energy security and defense budgets. While foreign exposures to plunging Russian assets are modest by global standards, pressures on emerging markets may grow should investors seek safer havens. Similarly, most European banks have modest and manageable direct exposures to Russia. Caucasus and Central Asia Beyond Europe, these neighboring nations will feel greater consequences from Russia’s recession and the sanctions. Close trade and payment-system links will curb trade, remittances, investment, and tourism, adversely affecting economic growth, inflation, and external and fiscal accounts. While commodity exporters should benefit from higher international prices, they face the risk of reduced energy exports if sanctions extend to pipelines through Russia. Middle East and North Africa Major ripple effects from higher food and energy prices and tighter global financial conditions are likely. Egypt, for example, imports about 80 percent of its wheat from Russia and Ukraine. And, as a popular tourist destination for both, it will also see visitor spending shrink. Policies to contain inflation, such as raising government subsidies, could pressure already weak fiscal accounts. In addition, worsening external financing conditions may spur capital outflows and add to growth headwinds for countries with elevated debt levels and large financing needs. Rising prices may raise social tensions in some countries, such as those with weak social safety nets, few job opportunities, limited fiscal space, and unpopular governments. Sub-Saharan Africa Just as the continent was gradually recovering from the pandemic, this crisis threatens that progress. Many countries in the region are particularly vulnerable to the war’s effects, specifically because of higher energy and food prices, reduced tourism, and potential difficulty accessing international capital markets. The conflict comes when most countries have minimal policy space to counter the effects of the shock. This is likely to intensify socio-economic pressures, public debt vulnerability, and scarring from the pandemic that was already confronting millions of households and businesses. Record wheat prices are particularly concerning for a region that imports around 85 percent of its supplies, one-third of which comes from Russia or Ukraine. Western Hemisphere Food and energy prices are the main channel for spillovers, which will be substantial in some cases. High commodity prices are likely to significantly quicken inflation for Latin America and the Caribbean, which already faces an 8 percent average annual rate across five of the largest economies: Brazil, Mexico, Chile, Colombia, and Peru. Central banks may have to further defend inflation-fighting credibility. Growth effects of costly commodities vary. Higher oil prices hurt Central American and Caribbean importers, while exporters of oil, copper, iron ore, corn, wheat, and metals can charge more for their products and mitigate the impact on growth. Financial conditions remain relatively favorable, but intensifying conflict may cause global financial distress that, with tighter domestic monetary policy, will weigh on growth. The United States has few ties to Ukraine and Russia, diluting direct effects, but inflation was already at a four-decade high before the war boosted commodity prices. That means prices may keep rising as the Federal Reserve starts raising interest rates. Asia and the Pacific Spillovers from Russia are likely limited given the lack of close economic ties, but slower growth in Europe and the global economy will take a heavy toll on major exporters. The biggest effects on current accounts will be in the petroleum importers of ASEAN economies, India, and frontier economies including some Pacific Islands. This could be amplified by declining tourism for nations reliant on Russian visits. For China, immediate effects should be smaller because fiscal stimulus will support this year’s 5.5 percent growth goal and Russia buys a relatively small amount of its exports. Still, commodity prices and weakening demand in big export markets add to challenges. Spillovers are similar for Japan and Korea, where new oil subsidies may ease impacts. Higher energy prices will raise India’s inflation, already at the top of the central bank’s target range. Asia’s food-price pressures should be eased by local production and more reliance on rice than wheat. Costly food and energy imports will boost consumer prices, though subsidies and price caps for fuel, food and fertilizer may ease the immediate impact—but with fiscal costs. Global Shocks The consequences of Russia’s war on Ukraine have already shaken not just those nations but also the region and the world, and point to the importance of a global safety net and regional arrangements in place to buffer economies. “We live in a more shock-prone world,” IMF Managing Director Kristalina Georgieva told reporters at a briefing in Washington. “And we need the strength of the collective to deal with shocks to come.” While some effects may not fully come into focus for many years, there are already clear signs that the war and resulting jump in costs for essential commodities will make it harder for policymakers in some countries to strike the delicate balance between containing inflation and supporting the economic recovery from the pandemic. 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! Heavily reliant on commodities, remittances and tourism, economies and financial systems are vulnerable to volatile external shocks. Dear maria, We just published a new blog—please find the full text below. Financial Systems of Caucasus, Central Asia Are Particularly Vulnerable to Shocks (PHOTO: IMF PHOTO/YAM G JUN) By Rayah Al-Farah, Klakow Akepanidtaworn and Sanan Mirzayev Heavily reliant on commodity exports, remittances and tourism, the economies of the Caucasus and Central Asia and their financial systems are vulnerable to volatile external shocks. The Chart of the Week shows how exposed countries in the region are to such disruptions, which in the past have caused economic downturns and financial distress. Although the situation remains uncertain, the ongoing pandemic and the conflict in Ukraine could also have a substantial impact. The CCA region’s financial systems are particularly vulnerable to the impact of external shocks on economic activity. At times, favorable external conditions have spurred large credit expansions and raised systemic risks. These booms have sometimes been followed by busts. Indeed, adverse external shocks, such as the global financial crisis and the 2014-15 oil price shock, led to sharp contractions in credit and asset prices, which created a legacy of problem loans and resulted in costly public interventions to bail out banks. Several features of regional banking systems have amplified these vulnerabilities. First, dollarization in CCA economies is well above emerging market peers. Second, banking sectors are small, concentrated, and often largely state-owned. Finally, gaps in banking regulation and supervision also contributed to the weak quality of bank loan portfolios and capitalization. The pandemic has hit CCA economies hard in the past two years, but its impact on financial sectors has remained limited, helped by emergency measures to support households, businesses, and banks. However, the COVID shock is now compounded by the implications of international sanctions imposed on Russia, a country with sizable economic and financial linkages with CCA countries. Looking ahead, stronger macroprudential policy frameworks will help increase financial sector resilience and mitigate the impact of large financial cycles and external shocks in CCA countries. As experience in a few of these countries already shows, strong macroprudential policy frameworks have a key role in moderating credit and asset price booms, building larger buffers in bank balance sheets against adverse shocks, and reducing risks from common exposures and interlink­ages between financial institutions. Enhanced regulatory and legal frameworks for bank resolution and insolvency would also limit risks to financial stability and the public sector. Finally, reforms that reduce the role of state and promote competition would support greater financial inclusion and more sustainable credit and economic growth. —Ezequiel Cabezon, Padamja Khandelwal and Iulia Teodoru contributed to this blog, which is drawn from research included in two departmental papers, “Macroprudential Policies to Enhance Financial Stability in the Caucasus and Central Asia” and “Managing Financial Sector Risks from the COVID-19 Crisis in the Caucasus and Central Asia. 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!