The latest IMF analysis of global economics, finance, development and policy issues shaping the world.
Dear maria,
In today's edition, we spotlight the trillions of dollars of renewables investment needed to combat climate change, the geo-economic puzzle facing policymakers in a more fragmented world, Japan's economic outlook, India's digital revolution, how conflict, Covid and climate change are exacerbating the world food crisis, the composition of the world's reserve currencies, and much more.
Climate Change
Green Finance in Asia
Why Countries Must Cooperate on Carbon Prices
(PHOTO: IMF PHOTO/LISA MARIE DAVID)
The world must redirect resources to low-carbon and energy-efficient activities and come up with energy-related investments of about $3.3 trillion per year until 2030 to achieve net-zero carbon emissions by 2050, IMF Managing Director Kristalina Georgieva said on Tuesday.
While this figure is large, it is small in comparison with the broader benefits, with returns from phasing out coal alone expected to run into tens of trillions of dollars a year, Georgieva told an IMF policy dialogue on climate risks and green finance in Asia and the Pacific, highlighting one of the findings of a new staff paper.
Temperatures in Asia and the Pacific are rising twice as fast as the global average, risking more frequent and severe weather-related disasters. And the region produces about half of global emissions and is home to five of the world’s largest greenhouse-gas emitters.
Ravi Menon, Managing Director of the Monetary Authority of Singapore, highlighted the large financing gap between the investment in renewables that is required to reach net-zero and that which is being realized today.
“Bank balance sheets are constrained. The risk-return tradeoff is just not there. Many bankable projects, especially in Asia, are not getting green financing,” he said.
Tobias Adrian, the IMF’s Financial Counsellor, said that tackling climate change is critical for a healthy planet but also makes good economic sense.
“Studies have shown that the social gains far outweigh the costs of climate financing.”
Watch a video of the event also featuring Maiava Atalina Ainuu-Enari, Governor of the Central Bank of Samoa, Tan Sri Nor Shamsiah binti Mohd Yunus, Governor of Bank Negara Malaysia, and IMF Deputy Managing Director Bo Li.
F&D
Geo-economic Puzzle
(CREDIT: PETER REYNOLDS)
As well as its tragic human cost, war ravages economies, reversing hard-won gains and setting back prospects for future economic development. The economic implications of the war in Ukraine risk being even more far-reaching.
In our June 2022 issue of F&D Magazine we focus on today’s geo-economic puzzle, looking at policymaking in a more fragmented world. Russia’s invasion of Ukraine has brought pressing geo-economic challenges to the fore, including supply disruptions, food and energy insecurity, more volatile financial markets, and even the prospect of a fraught period of geopolitical realignment.
“These shocks could shake social and political stability in some countries while weakening the ability of the world as a whole to confront its foremost long-term challenge, climate change,” writes F&D editor-in-chief Gita Bhatt.
In this issue, we provide cutting-edge research and analysis from accomplished authors on the economic implications of the war and its wider reverberations. In addition, we have complementary podcasts, videos, and other multimedia elements to help inform debate.
We hope this issue helps to stimulate our readers’ thinking as we try to chart a path towards a more hopeful future.
FEATURED ARTICLES:Confronting a Perfect Long Storm | Tharman Shanmugaratnam
Shifting Geopolitical Tectonic Plates | Pierre-Olivier Gourinchas
Enduring Preeminence | Eswar Prasad
Turbulence and the Lessons of History | Patricia Clavin
The Sanctions Weapon | Nicholas Mulder
The Long-lasting Economic Shock of War | Kenneth Rogoff
Investing in Refugees: Interview with Giovanni Peri | Bruce Edwards
Economics of Persuasion in Peace and War | Sergei Guriev
New Energy Imperative | Gernot Wagner
Will Inflation Remain High? | Ruchir Agarwal and Miles Kimball
War Fuels Food Crisis | Andrew Stanley
Also in this issue, Raj Chetty and Nathaniel Hendren discuss how to increase the upward economic mobility of low-income youth; Cevat Aksoy, Barry Eichengreen and Orkun Saka write on the erosion of trust among the young; Noam Angrist talks about learning losses during the pandemic; and Eric Hanushek and Ludger Woessmann discuss why the basic skills gap means meeting the SDGs is still a faraway goal.
In addition, for our Back-to-Basics series, Diego Cerdeiro and Niels-Jakob Hansen explain supply chains. Jeff Kearns reviews Scott Reynolds Nelson’s new book, Oceans of Grain: How American Wheat Remade the World. Chris Wellisz profiles Harvard’s Melissa Dell for our People in Economics series. And for Currency Notes, Analisa Bala looks at how artists in developing economies can harness nonfungible tokens (NFTs).
(PHOTO: ISTOCK/NIKADA)
Japan's Outlook
Japan’s economy is recovering from the pandemic as related uncertainty and supply constraints subside and consumption gradually rebounds, write the IMF’s Piyaporn Sodsriwiboon, Purva Khera, and Rui Xu. They highlight the importance of efforts to enhance growth that can foster inclusion, reduce inequality, and ensure a sustainable future—and see particular promise from greater digitalization.
(PHOTO: IMF PHOTO/JOSHUA ROBERTS)
Digital India
The rise of digital payments is a revolution that can lead to significant economic benefits but also risks, the IMF’s First Deputy Managing Director, Gita Gopinath said in opening remarks at an event on India’s digital payment system. Other speakers represented the Reserve Bank of India, the Monetary Authority of Singapore, the National Payments Corporation of India, and Paytm, India's largest mobile e-commerce website.
(CREDIT: CANVA/IMF)
Food Crisis
Three compounding crises—conflict, COVID, and climate change—are giving rise to another: hunger. In an interactive Picture This article for F&D, the IMF’s Andrew Stanley shows what’s behind the rise in food costs and how the world’s poorest are paying the price.
(PHOTO: IMF PHOTO/TAMARA MERINO)
Essential Reading: Climate Change
Check out our e-Library section on climate change. It includes our latest climate notes as well as links to IMF research related to climate, energy, and natural resources.
The US dollar continues to play an outsized role in global markets even as the American economy has been producing a shrinking share of world output over the past two decades. But although the currency’s presence in global trade, international debt, and non-bank borrowing still far outstrips the US share of trade, bond issuance, and international borrowing and lending, central banks aren’t holding the greenback in their reserves to the extent that they once did. As shown in the Chart of the Week by the IMF’s Serkan Arslanalp and Chima Simpson-Bellshows, and Barry Eichengreen of the University of California, Berkeley, the dollar’s share of global foreign-exchange reserves fell below 59 percent in the final quarter of last year, extending a two-decade decline.
WEEKLY ROUND-UP
01. Climate Change and Income Inequality
Climate change is seven times more likely to widen income inequality in developing countries than it is in advanced economies owing to weaker capacity for adaptation and mitigation, the IMF’s Serhan Cevik and João Tovar Jalles say in a new staff paper. Focusing on 158 countries between 1995 and 2019, the authors say that an increase of one percentage point in climate vulnerability leads to of 1.5-percent rise in income inequality. “Our econometric findings have direct policy implications, especially for developing countries that are relatively more vulnerable to risks associated with climate change.”
02. Climate Change's Corporate Costs
Firms in countries that are more vulnerable to climate change find it more difficult to access debt financing even at higher interest rates, according to an IMF staff paper by Serhan Cevik and Fedor Miryugin. Firms in these countries are also less productive and less profitable than those in countries with lower vulnerability to climate change, the authors say. “Policymakers need to strengthen structural and financial resilience to absorb shocks to economic activity and help alleviate the financial burden of climate change adaptation and mitigation on private firms,” they say.
03. Climate Transparency in Georgia
Climate change could reduce Georgia’s GDP per capita by 13 percent and increase public debt by 18 percent of GDP by the end of the century, according to a technical assistance report prepared by IMF staff. Georgia’s government is a pioneer in the Caucasus when it comes to fiscal transparency and addressing fiscal risks related to climate change. The IMF report provides methods to analyze exposure to climate change fiscal risks.
04. Climate Innovation Challenge
Five projects will receive up to $50,000 in seed funding from the IMF and its partners, the Swiss State Secretariat for Economic Affairs and the World Resources Institute, to develop functional pilots. The winning projects, which were announced on May 26, will also receive technical support. They focus on practical tools that leverage macroeconomic frameworks for assessing climate impact; use scenario analysis to integrate climate change into macroeconomic forecasting; monitor disaster-related trade disruptions from space; develop a machine learning-based toolbox for climate policy analysis; and adapt external sector assessments to climate change.
05. French Cartels and Collusion
Breaking up cartels would increase France’s aggregate productivity by 2 percent and welfare by 3.5 percent by reducing collusion and over-charging, the IMF’s Flavien Moreau and Ludovic Panon say in a staff paper. Drawing on cases investigated by the French Competition Authority since the mid-1990s, the authors say that cartels are common and are made up of firms that are larger and more productive than non-cartel members. “Our results suggest that antitrust enforcement and competition laws that aim to break down cartels can yield sizeable gains.”
MARK YOUR CALENDAR
01. Fragility and Conflict
Policymakers, practitioners and academics will gather on June 6-7 to explore the nexus between fragility, conflict, and macroeconomic policy at a conference jointly organized by the IMF and the UK Foreign, Commonwealth & Development Office. Speakers including the IMF’s chief economist Pierre-Oliver Gourinchas
Seventy-five percent of economies in Francophone Africa have regulations which restrict women’s employment.
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