ΙΜF update

Dear MARIA, We just published a new blog—please find the full text below.  Harm From ‘De-Risking’ Strategies Would Reverberate Beyond China (Credit: Nikada/iStock by Getty Images) By Diego Cerdeiro, Siddharth Kothari, and Dirk Muir China’s importance in the global economy has increased dramatically in recent decades, and it has been a particularly crucial driver of trade integration in Asia. China’s medium-term growth prospects, like that of other countries, will be determined in part by major forces such as convergence to advanced economies’ income levels and demographics. Yet key structural policy drivers, including domestic reform momentum, and external factors, including geoeconomic fragmentation, also significantly affect this path. What would be the potential implications for Asia and beyond from these different growth paths? In our latest Regional Economic Outlook for Asia and the Pacific, we assess the potential effects of a downside scenario from ‘de-risking’ between China and Organisation for Economic Co-operation and Development economies. As the Chart of the Week shows, so-called de-risking strategies by China and the United States and other OECD countries that aim to reshore production domestically or friend-shore away from one another can result in a significant drag on growth around the world even assuming no new trade restrictions with third countries—especially in Asia.  While reshoring would be particularly painful to everyone, it is notable that friend-shoring does not generate net benefits for third countries in the long term. That’s because the benefits from trade diversion are offset by the effects of the contractions in both China and the OECD. For the region, the results suggest that third countries should not expect to passively benefit from friend-shoring policies, but rather actively pursue reforms that can help them further integrate into global supply chains. For systemic economies around the world, there is an urgent need for constructive dialogue to resolve underlying sources of tensions and resist costly fragmentation outcomes. In China, the risks that fragmentation poses on medium-term growth underscore the need for comprehensive structural reforms that would help income levels converge more rapidly with those in advanced economies—such as closing productivity gaps between state-owned and private firms and further opening up sectors to competition. Our research shows that achieving this would also have significant positive spillovers for other economies in Asia. —See the Asia-Pacific Department’s recent blog outlining its latest economic outlook for the region: Asia Continues to Fuel Global Growth, but Economic Momentum is Slowing . Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org

(Photo: Courtesy of Dilip Ratha) Millions of families around the world - even some countries, rely on workers living abroad to keep their economies afloat. In fact, global remittances reached a record $647 billion in 2022—three times that of official development assistance. Dilip Ratha is lead economist for migration and remittances at the World Bank. In this podcast, journalist Rhoda Metcalfe asks Ratha about his own experiences growing up in rural India and how they led him to become a leading voice on the power of remittances to reduce global poverty. Ratha says remittances are timely, large, stable, and best of all, they are countercyclical. Read Resilient Remittances in the IMF's Finance and Development Magazine Listen to the podcast on: IMF.org | Apple Podcasts | Spotify | Libsyn | Soundcloud | Google Podcasts 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

Dear MARIA, In today's edition, we highlight: IMF resource increase Risks to banks from higher-for-longer interest rates India's central bank governor on currency intervention The drag on global growth from "derisking" strategies

IMFC Influential Committee Supports Resource Increase (Credit: IMF Photo/Joshua Roberts) The International Monetary and Financial Committee (IMFC), which provides strategic direction to the IMF’s work, has said it supports a meaningful increase in quota resources so that the Fund can remain at the center of the global financial safety net. In a statement on Saturday at the end of the annual meetings in Marrakech, IMFC chair Nadia Calviño called on the executive board to bring a proposal to the board of governors and prioritize approval of a quota increase that at least maintains the Fund’s current level of resources. Quotas are the building blocks of the IMF’s governance structure. An individual member country’s quota reflects its relative position in the world economy and is a key determinant of voting power. The meetings in Marrakech were the first to be held on the African continent for 50 years. The committee called for the creation of a new chair on the executive board for sub-Saharan Africa to improve its voice and representation. Watch the press briefing

GLOBAL BANKING Stress Tests Highlight Risks From Higher-for-Longer Interest Rates (Credit: Credit: AerialPerspective Works/Getty Images) Higher interest rates have exposed vulnerabilities in some banks, and many more would be weakened by a prolonged period of tight monetary policy, IMF economists write in a blog. The global banking system appears broadly resilient, according to a new stress test of almost 900 lenders across 29 countries, outlined in a chapter of the latest Global Financial Stability Report. But the exercise, which shows how lenders would fare under the World Economic Outlook’s baseline scenario, identified 30 banking groups with low capital levels. If beset by severe stagflation, the losses would be much greater. The number of weak institutions would rise to 153 and account for more than a third of global bank assets. Now that banking strains have abated, banks, regulators and supervisors should use this time to increase resilience, the authors say. “And they should prepare for a possible resurgence of these risks, as interest rates may stay higher for longer than currently priced in markets.”

Congratulations to Claudia Goldin on winning the Nobel Prize! She pioneered the study of women’s role in the economy 40 years ago, inspired new generations of female economists, and helped bring gender economics into the mainstream. In this podcast, Goldin sat down with journalist Rhoda Metcalfe to discuss her work and how she came to write the definitive book on gender economics, Understanding the Gender Gap. Also read our profile of the Nobel Prize-winning economist in F&D magazine.

PER JACOBSSON LECTURE Emerging Markets Face Multitude of Challenges (Credit: IMF Photo/Joshua Roberts) Emerging-market economies face a multitude of challenges, from rapid inflation and food insecurity to costly borrowing and mounting debt. This year’s Per Jacobsson lecture took the form of a discussion between Lesetja Kganyago, Governor of the Reserve Bank of South Africa, and Masood Ahmed, President of the Center for Global Development, and moderated by Guillermo Ortiz, the chairman of the Per Jacobsson Foundation. Kganyago stressed the importance of rebuilding policy buffers and implementing structural reforms, especially given the need to absorb Africa’s young population into the labor market. In view of high debt levels, a just energy transition must involve non-debt financing. Kganyago also said that the IMF needs adequate permanent resources to help countries cope with economic shocks. Ahmed agreed that buffers need strengthening and added that decision-making processes must be more agile so countries can respond to shocks. International institutions must also reassess their role in a more shock-prone world, including by integrating climate and pandemic considerations into their everyday work. To build overall resilience, policymakers must come together to take practical and achievable steps, he said.

GOVERNOR TALKS India's Foreign Exchange Interventions (Credit: IMF Photo/Sarah Silbiger) India intervenes in the foreign-exchange market only to prevent excessive volatility of the rupee and does not target a particular exchange rate for the currency, the Reserve Bank of India’s Shaktikanta Das told a Governor Talk at last week’s annual meetings. Since 2019, India has amassed a war chest of about $600 billion in foreign reserves, a rise of 70-80 percent. “It was a conscious decision to build up reserves, as a buffer against spillover risks,” Das told IMF Asia Pacific Department Director Krishna Srinivasan. “When you have capital inflows, there will be a day where you will have capital outflows.” Watch all the annual meeting's Governor Talks: Botswana’s central bank governor Moses Dinekere Pelaelo Jamaica’s finance minister Nigel Clarke Qatar’s finance minister Ali Bin Ahmed Al Kuwari Spain’s central bank governor Pablo Hernández de Cos

IMF SEMINAR Financial inclusion and resilient growth

In this seminar, IMF Deputy Managing Director Bo Li, Morocco’s central bank governor Abdellatif Jouahri, the Arab Monetary Fund’s Adbulrahman Al Hamidy, the Alliance for Financial Inclusion’s Alfred Hannig, and Micro Connect’s Charles Li discuss the transformative power of financial inclusion and explore its links to financial stability and economic growth.

PANELS AND PRESENTATIONS From Artificial Intelligence To The Climate Crisis (Credit: IMF Photo/James Mertz) The annual meetings provided a forum for experts from the IMF and beyond to showcase their work in panel discussions and presentations. Catch up on all these Analytical Corner, New Economy Forum and Capacity Development talks, covering everything from artificial intelligence in Africa, food shocks in poorer countries, trade disruptions as seen from space, climate finance in conflict countries, and much more. Highlights include: Africa’s artificial intelligence potential Debt crises in poorer nations History’s inflation lessons Trade disruptions as seen from space Climate challenges in conflict countries

China’s importance in the global economy has increased dramatically in recent decades, and it has been a particularly crucial driver of trade integration in Asia. As the Chart of the Week shows, so-called “de-risking strategies” by China and the United States and other OECD countries that aim to reshore production or friend-shore away from one another can result in a significant drag on growth—especially in Asia.

Weekly Roundup FINIANCIAL STABILITY Liability-Driven Investment Funds A year ago, the Bank of England intervened to restore financial stability after a spike in government bond yields linked to stress in “liability-driven investment” funds. In a staff paper, IMF economists explain the factors that amplified the bond-market turmoil and how the central bank finally stabilized the situation. COMMODITY MARKETS Geoeconomic Fragmentation Risks Commodity trade fragmentation could cause large price changes and volatility, according to an IMF staff paper. Mineral markets critical for the clean-energy transition and some agricultural commodity markets appear most vulnerable if the world were to divide into two opposing geopolitical blocs, the authors say. GENDER GAPS Monetary Policy and Labor Markets Men’s employment falls more than women’s after monetary policy shocks, narrowing the gender gap in labor markets over time, according to a staff paper. This is because monetary policy has a greater impact on industry, which employs more men, and a larger response of the employment gap in services, which employs the largest share of men and women, the authors say.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Nick Owen Editor IMF Weekend Read nowen@IMF.org