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Dear maria, We just published a new blog—please find the full text below.  How Countries Should Respond to the Strong Dollar (Photo: AdobeStock) By Gita Gopinath and Pierre-Olivier Gourinchas The dollar is at its highest level since 2000, having appreciated 22 percent against the yen, 13 percent against the Euro and 6 percent against emerging market currencies since the start of this year. Such a sharp strengthening of the dollar in a matter of months has sizable macroeconomic implications for almost all countries, given the dominance of the dollar in international trade and finance. While the US share in world merchandise exports has declined from 12 percent to 8 percent since 2000, the dollar’s share in world exports has held around 40 percent. For many countries fighting to bring down inflation, the weakening of their currencies relative to the dollar has made the fight harder. On average, the estimated pass-through of a 10 percent dollar appreciation into inflation is 1 percent. Such pressures are especially acute in emerging markets, reflecting their higher import dependency and greater share of dollar-invoiced imports compared with advanced economies. The dollar’s appreciation also is reverberating through balance sheets around the world. Approximately half of all cross-border loans and international debt securities are denominated in US dollars. While emerging market governments have made progress in issuing debt in their own currency, their private corporate sectors have high levels of dollar-denominated debt. As world interest rates rise, financial conditions have tightened considerably for many countries. A stronger dollar only compounds these pressures, especially for some emerging market and many low-income countries that are already at a high risk of debt distress. In these circumstances, should countries actively support their currencies? Several countries are resorting to foreign exchange interventions. Total foreign reserves held by emerging market and developing economies fell by more than 6 percent in the first seven months of this year. The appropriate policy response to depreciation pressures requires a focus on the drivers of the exchange rate change and on signs of market disruptions. Specifically, foreign exchange intervention should not substitute for warranted adjustment to macroeconomic policies. There is a role for intervening on a temporary basis when currency movements substantially raise financial stability risks and/or significantly disrupt the central bank’s ability to maintain price stability. As of now, economic fundamentals are a major factor in the appreciation of the dollar: rapidly rising US interest rates and a more favorable terms-of-trade—a measure of prices for a country’s exports relative to its imports—for the US caused by the energy crisis. Fighting a historic increase in inflation, the Federal Reserve has embarked on a rapid tightening path for policy interest rates. The European Central Bank, while also facing broad-based inflation, has signaled a shallower path for their policy rates, out of concern that the energy crisis will cause an economic downturn. Meanwhile, low inflation in Japan and China has allowed their central banks to buck the global tightening trend. The massive terms-of-trade shock triggered by Russia’s invasion of Ukraine is the second major driver behind the dollar’s strength. The euro area is highly reliant on energy imports, in particular natural gas from Russia. The surge in gas prices has brought its terms of trade to the lowest level in the history of the shared currency. As for emerging markets and developing economies beyond China, many were ahead in the global monetary tightening cycle—perhaps in part out of concern about their dollar exchange rate—while commodity exporting EMDEs experienced a positive terms-of-trade shock. Consequently, exchange-rate pressures for the average emerging market economy have been less severe than for advanced economies, and some, such as Brazil and Mexico, have even appreciated. Given the significant role of fundamental drivers, the appropriate response is to allow the exchange rate to adjust, while using monetary policy to keep inflation close to its target. The higher price of imported goods will help bring about the necessary adjustment to the fundamental shocks as it reduces imports, which in turn helps with reducing the buildup of external debt. Fiscal policy should be used to support the most vulnerable without jeopardizing inflation goals. Additional steps are also needed to address several downside risks on the horizon. Importantly, we could see far greater turmoil in financial markets, including a sudden loss of appetite for emerging market assets that prompts large capital outflows, as investors retreat to safe assets. In this fragile environment, it is prudent to enhance resilience. Although emerging market central banks have stockpiled dollar reserves in recent years, reflecting lessons learned from earlier crises, these buffers are limited and should be used prudently. Enhance resilience Countries must preserve vital foreign reserves to deal with potentially worse outflows and turmoil in the future. Those that are able should reinstate swap lines with advanced-economy central banks. Countries with sound economic policies in need of addressing moderate vulnerabilities should proactively avail themselves of the IMF’s precautionary lines to meet future liquidity needs. Those with large foreign-currency debts should reduce foreign-exchange mismatches by using capital-flow management or macroprudential policies, in addition to debt management operations to smooth repayment profiles. In addition to fundamentals, with financial markets tightening, some countries are seeing signs of market disruptions such as rising currency hedging premia and local currency financing premia. Severe disruptions in shallow currency markets would trigger large changes in these premia, potentially causing macroeconomic and financial instability. In such cases, temporary foreign exchange intervention may be appropriate. This can also help prevent adverse financial amplification if a large depreciation increases financial stability risks, such as corporate defaults, due to mismatches. Finally, temporary intervention can also support monetary policy in the rare circumstances where a large exchange rate depreciation could de-anchor inflation expectations, and monetary policy alone cannot restore price stability. For the United States, despite the global fallout from a strong dollar and tighter global financial conditions, monetary tightening remains the appropriate policy while US inflation remains so far above target. Not doing so would damage central bank credibility, de-anchor inflation expectations, and necessitate even more tightening later and greater spillovers to the rest of the world. That said, the Fed should keep in mind that large spillovers are likely to spill back into the US economy. In addition, as a global provider of the world’s safe asset, the US could reactivate currency swap lines to eligible countries, as it extended at the start of the pandemic, to provide an important safety valve in times of currency market stress. These would usefully complement dollar funding provided by the Fed’s standing Foreign and International Monetary Authorities Repo Facility. The IMF will continue to work closely with our members to craft appropriate macroeconomic policies in these turbulent times, relying on our Integrated Policy Framework. Beyond precautionary financing facilities available for eligible countries, the IMF stands ready to extend our lending resources to member countries experiencing balance of payments problems. Asia Sails Into Headwinds From Rate Hikes, War, and China Slowdown (Photo: Markus Winkler/Unsplash) By Krishna Srinivasan and Shanaka J. Peiris Asia’s strong economic rebound early this year is losing momentum, with a weaker-than-expected second quarter. We have cut growth forecasts for Asia and the Pacific to 4 percent this year and 4.3 percent next year, which are well below the 5.5 percent average over the last two decades. Despite this, Asia remains a relative bright spot in an increasingly dimming global economy. Waning momentum reflects three formidable headwinds, which may prove to be persistent: A sharp tightening of financial conditions, which is raising government borrowing costs and is likely to become even more constricting, as central banks in major advanced economies continue to raise interest rates to tame the fastest inflation in decades. Rapidly depreciating currencies could further complicate policy challenges. Russia’s invasion of Ukraine, which is still raging and continues to trigger a sharp slowdown of economic activity in Europe that will further reduce external demand for Asian exports. China’s strict zero-COVID policy and the related lockdowns, which, coupled with a deepening turmoil in the real estate sector, has led to an uncharacteristic and sharp slowdown in growth, that in turn is weakening momentum in connected economies. Broad slowdown After near-zero growth in the second quarter, China will recover modestly in the second half to reach full-year growth of 3.2 percent and accelerate to 4.4 percent next year, assuming pandemic restrictions are gradually loosened. In Japan, we expect growth to remain unchanged at 1.7 percent this year before slowing to 1.6 percent next year, weighed down by weak external demand. Korea’s growth in 2022 was revised up to 2.6 percent due to a strong second-quarter growth but revised down to 2 percent in 2023 reflecting external headwinds. India’s economy will expand, albeit more slowly than previously expected, by 6.8 percent this year and 6.1 percent in 2023, owing to a weakening of external demand and a tightening of monetary and financial conditions that are expected to weigh on growth. Southeast Asia is likely to enjoy a strong recovery. In Vietnam, which is benefitting from its growing importance in global supply chains, we expect 7 percent growth and a slight moderation next year. The Philippines is forecast to see a 6.5 percent expansion this year, while growth will top 5 percent in Indonesia and Malaysia. Cambodia and Thailand will expand faster in 2023 on a likely pickup in foreign tourism. In Myanmar, which has endured a deep recession due to the coup and pandemic, growth this year is expected to stabilize at a low level amid continued unrest and suffering. The outlook is more challenging for other Asian frontier markets. Sri Lanka is still experiencing a severe economic crisis, though the authorities have reached an agreement with IMF staff on a program that will help to stabilize the economy. In Bangladesh, the war in Ukraine and high commodity prices has dampened a robust recovery from the pandemic. The authorities have preemptively requested an IMF-supported program that will bolster the external position, and access to the IMF’s new Resilience and Sustainability Trust to meet their large climate financing need, both of which will strengthen their ability to deal with future shocks. High debt economies such as Maldives, Lao P.D.R., and Papua New Guinea, and those facing refinancing risks, like Mongolia, are also facing challenges as the tide changes. We expect growth across Pacific Island Countries to rebound strongly next year to 4.2 percent from 0.8 percent this year as tourism-based economies benefit from eased travel restrictions. Inflation remains elevated Inflation now exceeds central bank targets in most Asian economies, driven by a mix of global food and energy prices, currencies falling against the US dollar, and shrinking output gaps. Core inflation, which excludes volatile food and energy prices, has also risen and its persistence—driven by inflation expectations and wages—must be closely monitored. Meanwhile, the US dollar has strengthened against most major currencies as the Federal Reserve raises interest rates and signals further hikes to come. Most Asian emerging market currencies have lost between 5 percent and 10 percent of their value against the dollar this year, while the yen has depreciated by more than 20 percent. These recent depreciations have started passing through to core inflation across the region, and this may keep inflation high for longer than previously expected. Finally, spikes in global food and energy prices early this year threatened to abruptly raise the cost of living across the region, with particularly strong implications for the real incomes of lower-income households that spend more of their disposable income on these commodities. Policy for challenging times Amid lower growth, policymakers face complex challenges that will require strong responses. Central banks will need to persevere with their policy tightening until inflation durably falls back to target. Exchange rates should be allowed to adjust to reflect fundamentals, including the terms of trade—a measure of prices for a country’s exports relative to its imports—and foreign monetary policy decisions. But if global shocks lead to a spike in borrowing rates unrelated to domestic policy changes and/or threaten financial stability or undermine the central bank’s ability to stabilize inflation expectations, foreign-exchange interventions may become a useful part of the policy mix for countries with adequate reserves, alongside macroprudential policies. Countries should urgently consider improving their liquidity buffers, including by requesting access to precautionary instruments from the Fund for those eligible. Public debt has risen substantially in Asia over the past 15 years—particularly in the advanced economies and China—and rose further during the pandemic. Fiscal policy should continue its gradual consolidation to moderate demand alongside monetary policy, focused on the medium-term goal of stabilizing public debt. Accordingly, measures to shield vulnerable populations from the rising cost of living will need to be well-targeted and temporary. In countries with high debt levels, support will need to be budget-neutral to maintain the path of fiscal consolidation. Credible medium-term fiscal frameworks remain an imperative. Beyond the short term, policies must focus on healing the damage inflicted by the pandemic and war. Scarring from the pandemic and current headwinds are likely to be sizable in Asia, in part because of elevated leverage among companies that will weigh on private investment and education losses from school closures that could erode human capital if remedial measures aren’t taken today. Strong international cooperation is needed to prevent greater geoeconomic fragmentation and to ensure that trade aids growth. There is an urgent need for ambitious structural changes to boost the region’s productive potential and address the climate crisis. Latin America Faces a Third Shock as Global Financial Conditions Tighten (Photo: FerreiraSilva/iStock by Getty Images) By Santiago Acosta-Ormaechea, Gustavo Adler, Ilan Goldfajn, and Anna Ivanova As Latin American countries continue to grapple with the effects of two previous shocks, the pandemic and Russia’s invasion of Ukraine, they face a third shock: the tightening of global financial conditions. Growth momentum is currently positive, reflecting the return of service sectors and employment to pre-pandemic levels, and the overall support of favorable external conditions—high commodity prices, strong external demand and remittances, and rebounding tourism. This has led to several upward revisions to growth this year. But financing is becoming scarcer and costlier as major central banks raise interest rates to tame inflation. Capital inflows to emerging markets are slowing and external borrowing costs are increasing. Domestic interest rates in emerging markets are also rising as their central banks are hiking rates to battle inflation as well, but also because of reduced investors’ appetite for risker assets. For Latin America, these factors result in a deceleration in activity as higher borrowing costs weight on domestic credit, private consumption, and investment. Earlier this year, surging commodity prices and solid growth momentum helped offset the effects of tighter global financial conditions, as investors were attracted by a region that hosts major commodity exporters amid global needs for food and energy supplies. But higher interest rates are pushing commodity prices down as the global economy decelerates, reducing their cushioning effect. The slowdown may also reduce exports, remittances, and tourism to the region. Uncertainty about global interest rates and whether inflation can be brought back under control smoothly—a so called ‘soft landing’—means spikes in volatility and investor risk aversion are also possible. In other words, the transition to higher global interest rates may be bumpy. Solid growth but deceleration Amid positive surprises in activity, we have upgraded our growth projection for Latin America and the Caribbean this year to 3.5 percent from 3 percent in July. But with the changing winds ahead, growth next year is poised to decelerate more rapidly than we projected in July, slowing to 1.7 percent. Commodity exporters—South American countries, Mexico and some Caribbean economies—are likely to see their growth rates halved next year, as lower commodity prices amplify the impact of rising interest rates. The economies of Central America, Panama and the Dominican Republic will also slow as trade with the United States and incoming remittances weaken, though they will benefit from lower commodity prices. Tourism-dependent Caribbean economies will continue recovering, albeit slower-than-anticipated in July amid weaker tourism prospects. Fighting stubborn inflation Despite slowing growth, Latin America will continue facing high inflation for some time. The swift response of major central banks in the region, which hiked interest rates ahead of other emerging market and advanced economies, will help bring down inflation, but this will take time as monetary policy needs to tame domestic demand to exert downward pressure on prices. Also, price pressures have recently broadened, affecting items of the consumption baskets beyond food and energy. This has been the case in Brazil, Chile, Colombia, Mexico and Peru, where inflation recently reached a two-decade high of 10 percent and is testing the hard-won credibility of inflation targeting frameworks. We have, therefore, raised our inflation forecasts. Price increases for those five countries will reach around 7.8 percent by year-end and remain elevated at about 4.9 percent—still above central banks’ tolerance bands in most cases—by the end of next year. Healthy banks, debt risks Rising global interest rates will also test the resilience of private and public balance sheets. The region’s generally healthy banking systems mitigate the risk of financial distress, and regulation and supervision have improved in many countries. But pockets of vulnerabilities remain. For example, corporate debt has grown considerably over the last decade, especially outside the banking system. Monitoring these vulnerabilities will be key to identify potential sources of stress and take early action. While the region’s high levels of international reserves and strong central bank credibility will help mitigate the impact of tighter financial conditions, rising borrowing costs will test public finances through higher interest payments, as public debt and financing needs remain elevated. Balancing act Central banks in the region have acted fast and kept long-term inflation expectations anchored. Going forward, monetary policy should stay the course and not ease prematurely. Setting monetary policy amid high uncertainty is challenging, but having to restore price stability later if inflation becomes entrenched would be very costly. Fiscal policy should focus on rebuilding policy space, where needed. This will require reining in public spending, improving the design of the tax systems, and strengthening fiscal frameworks to secure sustained discipline. With dire social needs in the region, however, policies to reduce debt and deficits can only be effective and durable if they are inclusive—that is, if they protect the poor. Even where fiscal space exists, fiscal policy should also go hand in hand with monetary policy, focusing on supporting vulnerable groups, especially while high inflation persists and growth weakens, but without fueling domestic demand. This will require careful calibration to offset spending measures to protect the poor. Getting this balancing act right is key to achieving inclusive and sustainable growth, and this is the best way to build resilience against future shocks. Interest Rate Increases Volatile Markets Signal Rising Financial Stability Risks  (Photo: Chunyip Wong/iStock by Getty Images) By Tobias Adrian Financial conditions have tightened as central banks continue to hike interest rates. Amid the highly uncertain global environment risks to financial stability have increased substantially. Major issues facing financial systems include inflation at multi-decade highs, continuing deterioration of the economic outlooks in many regions, and persistent geopolitical risks, as we discuss in our latest Global Financial Stability Report. To avoid inflationary pressures from becoming entrenched, central banks confronting stubbornly high inflation have had to accelerate monetary policy tightening. What’s more, those in advanced and emerging economies alike also face magnified risks and vulnerabilities across different sectors and regions. Financial vulnerabilities are elevated for governments, many with mounting debt, as well as nonbank financial institutions such as insurers, pension funds, hedge funds and mutual funds. Rising rates have added to stresses for entities with stretched balance sheets. At the same time, the ease and speed with which assets can be traded at a given price has deteriorated across some key asset classes due to volatile interest rates and asset prices. This poor market liquidity, together with pre-existing vulnerabilities, could amplify any rapid, disorderly repricing of risk, were it to occur in the coming months. Global markets are showing strains as investors have recently become more risk-averse amid heightened economic and policy uncertainty. Financial asset prices have fallen as monetary policy has tightened, the economic outlook has deteriorated, recession fears have grown, borrowing in hard currency has become more expensive, and stress in some nonbank financial institutions has accelerated. Bond yields are rising broadly across credit ratings, with borrowing costs for many countries and companies already rising to the highest levels in a decade or more. Property concerns The faltering property sector in many countries raises concerns about risks that could broaden and spill over into banks and the macroeconomy. Risks to housing markets are growing because of rising mortgage rates and tightening lending standards, with many more potential borrowers now being squeezed out of markets. Stretched housing valuations could adjust sharply in some market segments. Emerging markets are confronting a multitude of risks, including high external borrowing costs, stubbornly high inflation and volatile commodity markets. They also face heightened uncertainty about the global economy, and policy tightening in advanced economies. Strains are particularly severe in frontier markets —generally smaller developing economies—where challenges are driven by a combination of tightening financial conditions, deteriorating fundamentals, and high exposure to commodity price volatility. Investors have so far continued to differentiate across emerging economies. While many frontier markets are at risk of sovereign default, many of the largest emerging markets are more resilient to external vulnerabilities to date. Having said that, after the stabilization of outflows in the first half of the year, foreign investors are again pulling back. Emerging and frontier market bond issuance in US dollars and other major currencies has slowed to the weakest pace since 2015. Without improved access to foreign funding, many frontier market issuers will have to seek alternative sources and/or debt reprofiling and restructurings. The global banking sector has been bolstered by high levels of capital and ample liquidity buffers. However, the IMF’s Global Bank Stress Test warns these buffers may not be enough for some banks. In the event a sharp tightening of financial conditions causes a global recession next year amid high inflation, 29 percent of emerging-market banks (by assets) would breach capital requirements. Most banks in advanced economies would fare much better, the stress test indicates. The challenging macroeconomic environment is also putting pressure on the global corporate sector. Credit spreads have widened substantially, and high costs are eroding corporate profits. For small firms, bankruptcies have already started to increase because of higher borrowing costs and diminished fiscal support. Policy recommendations Central banks must act resolutely to bring inflation back to target and avoid a de-anchoring of inflation expectations, which would damage their credibility. Clear communication about policy decisions, commitment to price stability, and the need for further tightening will be crucial to preserve credibility and avoid market volatility. Exchange rate flexibility helps countries adjust to the differential pace of monetary policy tightening across countries. In cases where exchange rate movements impede the central bank’s monetary transmission mechanism and/or generate broader financial stability risks, foreign exchange intervention can be deployed. Such interventions should be part of an integrated approach to addressing vulnerabilities as laid out in the IMF’s Integrated Policy Framework . Emerging and frontier markets should reduce debt risk through early engagement with creditors, multilateral cooperation, and international support. For those in distress, bilateral and private sector creditors should coordinate on preemptive restructuring to avoid costly defaults and prolonged loss of market access. Where applicable, the Group of Twenty Common Framework should be used. Policymakers face an unusually challenging financial stability environment. Though no globally systemic event has materialized so far, they should contain further buildup of vulnerabilities by adjusting selected macroprudential tools to tackle any pockets of risk. In this highly uncertain environment, striking a balance between containing these potential threats and avoiding a disorderly tightening of financial conditions will be critical. —This blog is based on Chapter 1 of the October 2022 Global Financial Stability Report, “Financial Stability in the New High-Inflation Environment.” Policymakers Need Steady Hand as Storm Clouds Gather Over Global Economy (Photo: Joshua Rawson-Harris/Unsplash) By Pierre-Olivier Gourinchas The global economy continues to face steep challenges, shaped by the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China. Our global growth forecast for this year is unchanged at 3.2 percent, while our projection for next year is lowered to 2.7 percent—0.2 percentage points lower than the July forecast. The 2023 slowdown will be broad-based, with countries accounting for about one-third of the global economy poised to contract this year or next. The three largest economies, the United States, China, and the euro area will continue to stall. Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession. In the United States, the tightening of monetary and financial conditions will slow growth to 1 percent next year. In China, we have lowered next year’s growth forecast to 4.4 percent due to a weakening property sector and continued lockdowns. The slowdown is most pronounced in the euro area, where the energy crisis caused by the war will continue to take a heavy toll, reducing growth to 0.5 percent in 2023. Almost everywhere, rapidly rising prices, especially of food and energy, are causing serious hardship for households, particularly for the poor. Despite the economic slowdown, inflation pressures are proving broader and more persistent than anticipated. Global inflation is now expected to peak at 9.5 percent this year before decelerating to 4.1 percent by 2024. Inflation is also broadening well beyond food and energy. Global core inflation rose from an annualized monthly rate of 4.2 percent at end-2021 to 6.7 percent in July for the median country. Downside risks to the outlook remain elevated, while policy trade-offs to address the cost-of-living crisis have become more challenging. Among the ones highlighted in our report: The risk of monetary, fiscal, or financial policy miscalibration has risen sharply amid high uncertainty and growing fragilities. Global financial conditions could deteriorate, and the dollar strengthen further, should turmoil in financial markets erupt, pushing investors towards safe assets. This would add significantly to inflation pressures and financial fragilities in the rest of the world, especially emerging markets and developing economies. Inflation could, yet again, prove more persistent, especially if labor markets remain extremely tight. Finally, the war in Ukraine is still raging and further escalation can exacerbate the energy crisis. Our latest outlook also assesses the risks around our baseline projections. We estimate that there is about a one in four probability that global growth next year could fall below the historically low level of 2 percent. If many of the risks materialize, global growth would decline to 1.1 percent with quasi stagnant income-per-capita in 2023. According to our calculations, the likelihood of such an adverse outcome, or worse, is 10 percent to 15 percent. Cost-of-living crisis Increasing price pressures remain the most immediate threat to current and future prosperity by squeezing real incomes and undermining macroeconomic stability. Central banks are now laser-focused on restoring price stability, and the pace of tightening has accelerated sharply. There are risks of both under- and over-tightening. Under-tightening would further entrench inflation, erode the credibility of central banks, and de-anchor inflation expectations. As history teaches us, this would only increase the eventual cost of bringing inflation under control. Over-tightening risks pushing the global economy into an unnecessarily severe recession. Financial markets may also struggle with overly rapid tightening. Yet, the costs of these policy mistakes are not symmetric. The hard-won credibility of central banks could be undermined if they misjudge yet again the stubborn persistence of inflation. This would prove much more detrimental to future macroeconomic stability. Where necessary, financial policy should ensure that markets remain stable. However, central banks need to keep a steady hand with monetary policy firmly focused on taming inflation. Formulating the appropriate fiscal response to the cost-of-living crisis has become a serious challenge. Let me mention a few key principles. First, fiscal policy should not work at cross-purpose with monetary authorities’ efforts to bring down inflation. Doing so will only prolong inflation and could cause serious financial instability, as recent events illustrated. Second, the energy crisis, especially in Europe, is not a transitory shock. The geopolitical realignment of energy supplies in the wake of the war is broad and permanent. Winter 2022 will be challenging, but winter 2023 will likely be worse. Price signals will be essential to curb energy demand and stimulate supply. Price controls, untargeted subsidies, or export bans are fiscally costly and lead to excess demand, undersupply, misallocation, and rationing. They rarely work. Fiscal policy should instead aim to protect the most vulnerable through targeted and temporary transfers. Third, fiscal policy can help economies adapt to a more volatile environment by investing in productive capacity: human capital, digitalization, green energy, and supply chain diversification. Expanding these can make economies more resilient to future crises. Unfortunately, these important principles are not always guiding policy right now. Effects of a strong dollar For many emerging markets, the strength of the dollar is a major challenge. The dollar is now at its strongest since the early 2000s, although the appreciation is most pronounced against currencies of advanced economies. So far, the rise appears mostly driven by fundamental forces such as tightening US monetary policy and the energy crisis. The appropriate response in most emerging and developing countries is to calibrate monetary policy to maintain price stability, while letting exchange rates adjust, conserving valuable foreign exchange reserves for when financial conditions really worsen. As the global economy is headed for stormy waters, now is the time for emerging market policymakers to batten down the hatches. Eligible countries with sound policies should urgently consider improving their liquidity buffers, including by requesting access to precautionary instruments from the Fund. Countries should also aim to minimize the impact of future financial turmoil through a combination of preemptive macroprudential and capital flow measures, where appropriate, in line with our Integrated Policy Framework. Too many low-income countries are in or near debt distress. Progress toward orderly debt restructurings through the Group of Twenty’s Common Framework for the most affected is urgently needed to avert a wave of sovereign debt crisis. Time may soon run out. The energy and food crises, coupled with extreme summer temperatures, are stark reminders of what an uncontrolled climate transition would look like. Progress on climate policies, as well as on debt resolution and other targeted multilateral issues, will prove that a focused multilateralism can, indeed, achieve progress for all and succeed in overcoming geoeconomic fragmentation pressures.   Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org