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Dear maria, We just published a new blog—please find the full text below. Social Unrest is Rising, Adding to Risks for Global Economy (PHOTO: ERLUCHO/ISTOCK BY GETTY IMAGES) By Philip Barrett After a pause in popular protest during the first year of the pandemic, people are returning to the streets. This year, large and long-running anti-government demonstrations have occurred in some advanced economies where unrest is relatively rare, such as Canada and New Zealand. And in several emerging and developing economies, coups and constitutional crises have sparked widespread protests. A recent body of IMF work aims to understand the economic drivers and costs of such unrest. Measuring social unrest consistently is difficult. The IMF’s Reported Social Unrest Index attempts to do so by counting media mentions of words associated with unrest across 130 countries. The fraction of countries experiencing large spikes in this index, which typically reflect major unrest events, rose to around 3 percent in February. As the Chart of the Week shows, this is close to its highest levels since the onset of the pandemic. Prior to the pandemic, unrest rose around the world. Perhaps most prominent was a wave of protest which began in Chile and swept through parts of Latin America in October and November 2019. Significant unrest also occurred at around the same time in the Middle East, notably in Algeria, Iran, Iraq, and Lebanon. Unrest declined sharply at the start of the pandemic amid an increase in social distancing, both voluntary and mandatory. IMF research shows that this is consistent with experience during past pandemics. That is not to say that social unrest halted completely. Some significant unrest events occurred in the second and third quarters of 2020, including in the United States, which saw large racial justice protests; Ethiopia, as inter-ethnic tensions became more pronounced; and large anti-government protests in Brazil, Lebanon and Belarus. Social unrest continued through the later stages of the pandemic, with events in both advanced and emerging and developing economies. In the former, protests erupted in places where major social unrest is usually rare, often with anti-government or anti-lockdown motives, including in Canada, New Zealand, Austria, and the Netherlands. In emerging markets and developing economies, the apparent motives for recent unrest have been more diverse, with examples including anti-government protests in Kazakhstan and Chad; a coup in Burkina Faso; regional protests in Tajikistan; and a constitutional crisis in Sudan. Causes and costs In coming months, two important factors could lead to an increased risk of future unrest. First, as governments relax restrictions and public concerns about catching COVID in crowds diminish, pandemic-related disincentives for protest might abate. And second, public frustration with rising food and fuel prices may increase. Although the economic causes of civil disorder are complex, and unrest is exceptionally hard to predict, steep price increases for food and fuel have been associated with more frequent protests in the past. Any rise in social unrest could pose a risk to the global economy’s recovery, as it can have a lasting impact on economic performance. In a paper last year, IMF staff showed that unrest can have a negative economic impact as consumers become spooked by uncertainty and output is lost in manufacturing and services. As a result, 18 months after the most serious unrest events, gross domestic product is typically about 1 percentage point lower than it would have been otherwise. Although social unrest remains low relative to pre-pandemic levels for now, the lifting of pandemic-era restrictions and the continued cost-of-living squeeze mean that protests may yet increase. This could impose significant economic costs. Why Countries Must Cooperate on Carbon Prices (PHOTO: IMF PHOTO/TAMARA MERINO) By Jean Chateau, Florence Jaumotte and Gregor Schwerhoff Recent surges in food and fuel costs are hurting households everywhere. The global spike in energy prices since Russia’s invasion of Ukraine underscores the need to transition away from dependence on energy sources that are subject to recurrent disruptions. The war has also impacted food security, which is already under pressure from crop failures and extreme weather events due to higher temperatures. These developments make clear the importance of accelerating a green transition that would limit further temperature rises, while protecting vulnerable groups who are most dependent on high-carbon fuels and jobs. While carbon pricing is among the most effective policy tools to direct spending and investment out of dirty energy and into green alternatives, many countries are reluctant to use this policy lever. They fear a loss of international competitiveness, especially in high-emission sectors such as steel or chemicals. One way to square this circle is through an international carbon price floor (ICPF) agreement. This was proposed by IMF staff in a paper last year that called for the world’s largest emitters to pay a floor price of $25-$75 per ton of carbon depending on their level of economic development. The proposal recognizes that some countries may use alternative policies to carbon pricing—regulations, for example—but these alternatives should achieve at least the same emissions reductions as the carbon price floor. We develop this proposal in a recent staff paper which shows that an ICPF introduced by all countries simultaneously—and with the same tiered price floors based on income level—would combine several important advantages over alternative schemes. First, it would reduce emissions sufficiently to accomplish the 2-degree target. In fact, it is the only feasible option out of all those we considered in the paper to prevent the planet from heating to dangerously high temperatures. A price worth paying Second, it would have only a small impact on global economic growth—provided countries also invest in low-carbon energy. According to our estimates, the ICPF would reduce global gross domestic product by 1.5 percent by 2030 relative to what it would have been in the absence of the price floor, with the world’s poorest countries seeing a much smaller slowdown (just 0.6 percent). This is a price worth paying to prevent the far larger costs of failing to curb carbon emissions—many trillions of dollars—as spelled out in a recent report by the United Nations Intergovernmental Panel on Climate Change. And third, it would ensure that the costs of transition are allocated according to differentiated responsibilities between countries of different income levels through differentiated carbon price floors. The ICPF proposal sets price floors per ton of carbon at $25 for low-income countries, $50 for middle-income countries, and $75 for high-income countries. This would be fairer than a uniform global carbon price and there would be less need for additional transfer payments between countries which have proven politically problematic in the past. These are only floor prices. Many countries (especially high-income ones) have committed to ambitious climate policy in their nationally determined contributions (NDCs). These countries might have to set a higher price to achieve these goals. For many middle- and low-income countries, meanwhile, our analysis shows that the floors are higher than those implied by their NDCs which do not go far enough to limit the increase in temperature. Strengthening the contributions of middle- and low-income countries—which account for a fast-growing share of global emissions—is indeed key to keep global temperatures in check. Competitiveness preserved In the absence of a global agreement, high-income countries that have proposed ambitious climate policy have considered imposing a tariff on carbon emissions of imported products (a so-called border carbon adjustment or BCA). The intention is to protect domestic industry from foreign competitors that face less stringent climate policies. Our study confirms previous work showing that while BCAs can protect energy-intensive and trade-exposed industries they do not incentivize enough emissions reductions to achieve global temperature goals. This is because they only tax exported goods from countries that do not have a domestic carbon tax. A fourth advantage of a simultaneous and differentiated ICPF is that there would be no need for high-income countries to impose a BCA tariff. All country groups would be acting together, and high-income countries would suffer no major losses to competitiveness. This would hold true even with differentiated carbon price floors: goods from middle- and low-income countries are typically more carbon-intensive, so the lower carbon price and the higher carbon intensity offset one another. A given good would thus require similar carbon payments in all income groups. Geopolitical tensions have increased since Russia’s invasion and the prospects for international cooperation may seem slim as countries signal retreat into rival camps. Yet climate change is a global challenge that can—and must—concentrate minds as more frequent floods, droughts and weather disasters exacerbate the food crisis and impose other economic and human costs. Our proposal for an international carbon price floor phased in by 2030 would be a big step towards limiting global warming to below 2 degrees Celsius. Healing the Pandemic’s Economic Scars Demands Prompt Action (PHOTO: IMF PHOTOS) By Mehdi Benatiya Andaloussi, Lone Engbo Christiansen, Ashique Habib and Davide Malacrino The Group of Twenty economies continue their recoveries from the pandemic, but the unprecedented shock could still leave long-lasting scars that reduce economic prospects compared with their pre-crisis trends. Pandemic-induced losses for both economic output and employment will be significant in coming years, as discussed in our April World Economic Outlook. Emerging market economies are likely to endure greater losses because they had relatively less access to vaccines and their pandemic-support packages were smaller. For many economies, the outbreak of the war in Ukraine is adding to the challenges. Our new analytical work finds that, among the key causes of scarring from the pandemic are the prospective weak labor market recoveries in emerging market economies and the severe disruptions to schooling over the past two years across both advanced and emerging economies. Policymakers must act promptly to repair the damage from the crisis and prevent decades of diminished economic output from lost human capital. Recessions often have lasting impacts on workers who lose jobs at the depths of the downturn. They may find it hard to find a new position during the recovery and may lose some skills from prolonged joblessness. Such losses harm not only affected workers but also reduce overall economic output. This time around, the prospects for such job market scarring look very different between G20 advanced and emerging market economies. In fact, advanced economies have experienced strong labor market recoveries, thanks to robust policy support and widespread vaccination. Moreover, initial worries that the pandemic would create large-scale mismatch between workers’ skills and employers’ labor demand—due to persistent shifts in activity across sectors, for example—haven’t materialized so far. However, workers in many G20 emerging market economies face a very different outlook, with employment rates remaining below pre-pandemic projections due to weaker economic recoveries. We also see a marked impact on the extent of informal work—which is widespread in many of these economies. In fact, informal work fell sharply at the peak of the crisis when contact-intensive sectors, which tend to have higher shares of informal employment, were hit hard by social distancing efforts. Since then, however, informal employment rebounded much more than formal employment in several G20 emerging market economies, including Brazil, Indonesia, Mexico, and South Africa, with the share of informal work relative to total employment exceeding pre-pandemic levels for some economies by late 2021. As contact-intensive sectors continue to recover, the share of informal employment could rise even further. Moreover, as informal workers often earn lower wages and enjoy less access to social safety nets, this increase in informality could weigh on incomes for the affected workers if it becomes persistent. The unprecedented school closures during the pandemic have hurt students’ learning across many G20 economies, but particularly students in emerging market economies. Within countries, that impact was more severe for children from poorer families. The effects are already becoming apparent. For example, the share of students in the United States performing below grade level in mathematics has risen, especially for those in lower grades and from lower-income households. If these learning losses aren’t addressed, affected students could experience a lifetime of depressed earnings. And, as our research shows, today’s students will account for close to 40 percent of the combined working-age populations across G20 economies for decades. Such long-lasting impacts on the labor force will significantly affect economies. While much is still unknown, our simulations show that, once all such students are in the labor market, gross domestic product for advanced G20 economies could be as much as 3 percent lower in the long run relative to the baseline scenario. And with poorer households suffering the worst learning losses, their prospects could be particularly diminished, further widening income inequality. In addition to the challenges in the labor market and from schooling disruptions, there are other channels for scarring as well. For example, the increase in corporate debt and vulnerabilities in the industries hit hardest by the pandemic could also contribute to scarring by weighing on investment and productivity for years to come, according to new research presented in the IMF’s April World Economic Outlook. Policies to heal scars Many economies face mounting challenges as the war in Ukraine comes atop a continuing pandemic, and room for policy action is increasingly constrained as elevated debt and rapid inflation make further support difficult. Even so, policymakers can minimize the pandemic’s scars—if they act decisively. Time is short for limiting learning losses because education is cumulative, each year building on the last. To minimize enduring harm, countries must quickly assess setbacks to learning and implement the appropriate measures to help students. This could include, for example, additional tutoring or a longer school year. In addition, pandemic-era support measures for firms and workers that helped limit pandemic scarring, such as credit guarantees and job retention policies, will need to be scaled back as recoveries strengthen. Doing so will help avoid holding back the reallocation of workers and resources to their most productive uses as the pandemic eases, and help foster productivity growth. Instead, policies could shift to helping people to adjust to changing labor markets, such as through well-targeted job-search programs and additional support for training to build new skills. Moreover, to limit elevated pockets of corporate distress turning into significant business failures or investment slumps, it’s also crucial to ensure well-functioning mechanisms for corporate insolvency and out-of-court restructuring. While the challenges are many, by taking appropriate action now, G20 policymakers can repair the damage and set the stage for strong and inclusive recoveries in the world’s largest economies.   We Want To Hear From You! Click here for a 3-question survey on IMFBlog. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org

Dear maria, In today's edition we discuss the advantages of carbon pricing in combatting climate change, policies to heal the pandemic's economic scars, the Federal Reserve's latest nominee, a plan to address growing food insecurity, international taxation, special drawing rights, social unrest, inflation, remittances in Central America, and much more. Climate Change Carbon Price Cooperation Why Countries Must Cooperate on Carbon Prices (PHOTO: IMF PHOTO/TAMARA MERINO) The global spike in oil and gas prices since Russia’s invasion of Ukraine underscores the need to transition away from energy sources that are frequently disrupted, the IMF’s Jean Chateau, Florence Jaumotte and Gregor Schwerhoff write in a blog. And the war’s impact on food security, which was already under pressure from crop failures and extreme weather due to climate change, shows the importance of accelerating the green transition to limit further temperature rises, they add. Carbon pricing is among the most effective policy tools to direct spending and investment out of dirty energy and into green alternatives, yet many countries are reluctant to use this lever. They fear a loss of international competitiveness, especially in high-emission sectors such as steel or chemicals. --International Carbon Price Floor: One solution is an international carbon price floor (ICPF) agreement, the authors say. This was proposed by IMF staff in a paper last year that called for the world’s largest emitters to pay a floor price of $25-75 per ton of carbon depending on their level of economic development. A recent staff paper develops this proposal by showing that an ICPF introduced by all countries simultaneously—and with the same tiered price floors based on income level—would combine several important advantages over alternative schemes. As the authors say, “Our proposal for an international carbon price floor phased in by 2030 would be a big step towards limiting global warming to below 2 degrees Celsius.” Watch Gita Gopinath, the IMF's First Deputy Managing Director, discussing the macroeconomics of the green energy transition at the Brussels Economic Forum on Tuesday.   Find all the IMF's work on climate change including blogs, speeches, videos and more here.   Global Economy Healing the Pandemic's Economic Scars (PHOTO: IMF PHOTOS) Among the key causes of scarring from the pandemic are the prospective weak labor market recoveries in emerging market economies and the severe disruptions to schooling over the past two years across both advanced and emerging economies, according to the Fund’s new analytical work for the G20. Policymakers must act promptly to repair the damage from the crisis and prevent decades of diminished economic output from lost human capital, say the IMF’s Mehdi Benatiya Andaloussi, Lone Engbo Christiansen, Ashique Habib and Davide Malacrino in a new blog. Time is short for limiting learning losses because education is cumulative, each year building on the last. To minimize enduring harm, countries must quickly assess setbacks to learning and implement the appropriate measures to help students. --Adjusting to Changing Labor Markets: Policies such as well-targeted job-search programs and additional support for training to build new skills can helping people adjust. Moreover, to limit elevated pockets of corporate distress turning into significant business failures or investment slumps, it’s also crucial to ensure well-functioning mechanisms for corporate insolvency and out-of-court restructuring. While the challenges are many, by taking appropriate action now, G20 policymakers can repair the damage and set the stage for strong and inclusive recoveries in the world’s largest economies. Read our April World Economic Outlook.   F&D New Fed Nominee: Lisa Cook (PHOTO: BRITTANY GREESON) Last week, the U.S. Senate approved Lisa Cook as a member of the Federal Reserve Board of Governors, making her the first Black woman to fill this position. Cook sat down with F&D back in 2020 to talk about her life, work, and economics. The Michigan State University professor spoke about how racism and sexism have affected her from an early age, and how as an economist she has drawn attention to the social and economic costs of prejudice. Cook described how she has navigated major obstacles throughout her life, including racial abuse, injuries stemming from a serious car crash, and being on the end of dismissive attitudes from others in her profession.  “Lisa has been willing to take the risk of not getting the professional plaudits she deserves by pursuing research in areas that have not been plumbed by anyone yet,” says William A. Darity Jr., a professor of economics and African American studies at Duke University in Durham, North Carolina. “People are now acknowledging the significance of her contributions.” Read the full article     Visit Us Online For other recent articles, including  Cevat Aksoy, Barry Eichengreen and Orkun on how public health disasters can erode young people’s trust in politicians and scientists for years, check out F&D online.   Also read our three-part series on The Future of Inflation, by Ruchir Agarwal and Miles Kimball.   Want to a print copy delivered to your home or office?    Click here to subscribe.   (PHOTO: IMF)   Food Security The Fund has partnered with other international financial institutions to help address food insecurity. “Working closely with the World Bank and other International Financial Institutions, the IMF will provide policy advice, capacity development assistance, and financial support to catalyze and complement financing from other institutions,” said IMF Managing Director Kristalina Georgieva in a statement. (PHOTO: TAX JUSTICE NETWORK)   International Taxation Combined global revenue losses from cross-border tax abuse by people with undeclared offshore assets and of multinational companies amount to some $483 billion a year, according to the Tax Justice Network. Its chief executive, Alex Cobham, talks to us about his F&D article, Taxing for a New Social Contract. (PHOTO: IMF)   Special Drawing Rights The IMF Executive Board recently carried out its five-yearly review of the method of valuation of the basket of currencies that make up the Special Drawing Rights (SDR). The review covers the composition and weighting of the SDR currency basket, and it also reviews the financial instruments used to determine the SDR interest rate. Read our Q&As on the valuation review and watch our video asking What is the SDR? (PHOTO: IMF)   Essential Reading: Latin America Check out our e-Library series on Latin America, which highlights recent publications related to the region. It also includes links to all Spanish language IMF publications.   After a pause in popular protest during the first year of the pandemic, people are returning to the streets. The percentage of countries experiencing large spikes in the IMF’s Reported Social Unrest Index (RSUI)—which typically corresponds with serious protest—has risen almost to its highest level since the onset of the pandemic, as shown in the Chart of the Week by the IMF's Philip Barrett. WEEKLY ROUND-UP 01. A Difficult Year This year will be very difficult for the global economy as China’s growth slows sharply amid lockdowns of whole cities and shocks from the war in Ukraine push up food and fuel prices around the world, IMF Managing Director Kristalina Georgieva said in a speech on Wednesday. “What lessons can we learn from these crises? The first and obvious one is that we are interdependent,” she said in a speech at the University of National and World Economy (UNWE) in the Bulgarian capital of Sofia. “We cannot overcome these challenges unless we work together.” 02. Currencies and Climate Shocks Do more flexible exchange rates help economies to recover faster from climate shocks? In a new staff paper, the IMF’s Selim Elekdag and Maxwell Tuuli say that a 1-degree Celsius increase in temperature subtracts around 1.4 percentage points from medium-term growth in countries with a pegged exchange rate—twice as much as for countries with currencies that are more flexible. “This finding bolsters the idea that exchange rate flexibility not only helps mitigate the initial impact of the shock but also promotes a faster recovery.” 03. Understanding Inflation Economists usually use the Phillips Curve to explain the relationship between employment and inflation. But in advanced economies a disconnect has opened up between these two measures since the early 2000s, a phenomenon sometimes described as “missing reflation”. In a staff paper, the IMF’s Weicheng Lian and Andreas Freita disentangle different explanations for the disconnect. “The approach has potential to help understand forces shaping price pressures during the pandemic and in the post-pandemic period ahead.” 04. Central America's Remittances At the start of the pandemic, migrant workers in the United States were widely expected to reduce the amount of money they sent home to relatives in Mexico and central America. Remittances did indeed fall sharply—but they soon recovered and had even surpassed pre-pandemic levels in many countries by the end of 2020. In a staff paper, the IMF’s Aleksandra Babii, Alina Carare, Dmitry Vasilyev, and Yorbol Yakhshilikov explain why this was so. 05. Sub-Saharan Africa Abebe Aemro Selassie, the director of the IMF's Africa Department, discussed the recent Regional Economic Outlook for sub-Saharan Africa in a one-on-one conversation with Zainab Usman, Director of the Carnegie Africa Program, on Wednesday. Zainab and Abe discussed Russia’s invasion of Ukraine, low COVID-19 vaccination rates, increasingly severe climate incidents, and the global economic outlook. Watch here. 06. Good Governance On Thursday IMF Deputy Managing Director Antoinette Sayeh moderated a panel on the launch of a new IMF book, Good Governance in Sub-Saharan Africa: Opportunities and Lessons. Experts from African civil society, universities, and governments discussed how the region can reap the benefits of good governance and what reforms can be implemented to improve governance, transparency, and the fight against corruption. Watch here. 07. Paths to Peace The IMF's Abebe Aemro Selassie spoke to the University Chicago’s Chris Blattman about his new book, Why We Fight: The Roots of War and the Paths to Peace, at the Fund’s headquarters in Washington on May 10. “Leaders will ignore many of the costs of war when they are unchecked and unaccountable,” Blattman said during the event, which also featured the IMF’s Franck Bousquet. Watch a video of the discussion. 08. Press Briefing Gerry Rice, the director of the IMF’s Communications Department, answered questions from international media on Argentina, Ukraine, Sri Lanka, Egypt, Ghana, Lebanon, Tunisia, El Salvador, the food action plan, and the weighting of China’s renminbi in the SDR basket at a wide-ranging press briefing on Thursday. Watch here. MARK YOUR CALENDAR 01. Corporate Vulnerability Global corporate debt increased sharply in the wake of the COVID-19 pandemic. Now that interest rates are rising and governments are scaling back support, corporate vulnerabilities will be exposed. The IMF’s Ceyla Pazarbasioglu joins Bruegel’s Guntram Wolff on May 25 at 2:30 PM CET (8:30 AM ET) to discuss principles that could guide the design of more targeted policy support and facilitate the restructuring of firms adversely impacted by the pandemic. Watch the event

Alex Cobham says taxation is what holds the social contract between citizens and states together.

Alex Cobham on Tax Injustice May 18, 2022 (Photo: Tax Justice Network) Economies grow better when they are more equal, and taxation is a powerful tool to help reduce inequalities. But increasingly, the international tax system is doing the opposite of that by allowing corporations and the world's wealthiest people to avoid paying their fair share. The Tax Justice Network estimates the combined global revenue losses from cross-border tax abuse by people with undeclared offshore assets and of multinational companies amount to some $483 billion a year. Alex Cobham is Chief Executive of the Tax Justice Network, and in this podcast, he speaks with journalist Rhoda Metcalfe about his article Taxing for a New Social Contract in Finance and Development. 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

(PHOTO: BRITTANY GREESON) Dear maria, Last week, the U.S. Senate approved Lisa Cook as a member of the Federal Reserve Board of Governors, making her the first Black woman to fill this position. Cook sat down with F&D back in 2020 to talk about her life, work, and economics. The Michigan State University professor spoke about how racism and sexism have affected her from an early age, and how as an economist she has drawn attention to the social and economic costs of prejudice. Cook described how she has navigated major obstacles throughout her life, including racial abuse, injuries stemming from a serious car crash, and being on the end of dismissive attitudes from others in her profession.  “Lisa has been willing to take the risk of not getting the professional plaudits she deserves by pursuing research in areas that have not been plumbed by anyone yet,” says William A. Darity Jr., a professor of economics and African American studies at Duke University in Durham, North Carolina. “People are now acknowledging the significance of her contributions.” Read the full article F&D March Issue "Rethinking Fiscal" In our March 2022 issue of F&D Magazine, we focus on “Rethinking Fiscal: Public Finance and Fairness in a Changed World”. The pandemic underscored the importance of fiscal policy in saving lives and livelihoods. Now, governments face the tricky task of returning debts to sustainable levels, even as the war in Ukraine riles world markets. In this issue, a lineup of accomplished authors provide insight and analysis on some of the biggest issues policymakers face when it comes to fiscal policy, ranging from debt to institutional frameworks to taxation. In addition, we have complementary podcasts, videos, and other multimedia elements to stimulate your thinking. Want to get a print copy delivered to your home or office? Click here to subscribe.   Have Your Say What do you think of this article? Please write to us directly and let us know your thoughts. We would love to hear from you. Nick Owen Senior Editor F&D Magazine nowen@IMF.org   P.S. Want to get a print copy delivered to your home or office? Click here to subscribe.