IMF update

 

Dear maria, In today's edition, we highlight: IMF approves $900 million Ukraine disbursal Gita Gopinath on a new Cold War How to harness AI for global good Digital trade Somalia debt relief The Weekend Read is taking a holiday until the new year. Our coverage of IMF analysis of global economics, finance, development and policy issues will resume in January.

UKRAINE IMF Board Approves $900 Million Ukraine Disbursal (Credit: IMF Photo/Kim Haughton) The IMF’s executive board on Wednesday completed the second review of Ukraine’s extended arrangement under the Extended Fund Facility, allowing the authorities to draw the equivalent of about $900 million. Welcoming Ukraine’s President Volodymyr Zelenskyy to the IMF’s headquarters in Washington, Kristalina Georgieva praised the remarkable resilience of the people of Ukraine despite the enormous toll of the war. “We reaffirmed our close collaboration on the authorities’ economic program supported under the IMF’s $15.6 billion Extended Fund Facility, which is part of a $122 billion international support package,” the IMF managing director said in a statement. “We look forward to our continued engagement with Ukraine in preserving macroeconomic and financial stability, implementing an ambitious reform agenda, and further building the foundation for a strong economy with sustainable growth and for Ukraine’s goal of EU accession.”

GITA GOPINATH ON FRAGMENTATION A New Cold War

Fragmentation is already a reality as geopolitical alignments shape trade and investment flows, Gita Gopinath told the International Economic Association’s World Congress in Colombia on Monday. The IMF’s first deputy managing director warned in a speech that the economic costs of further fragmentation would be large. “We could find ourselves in a new Cold War,” she said.

FINANCE & DEVELOPMENT MAGAZINE Harnessing AI for Global Good (Credit: Adobe Stock) Maximizing the benefits of artificial intelligence—and managing the risks— will require innovative policies with global reach, writes IMF First Deputy Managing Director Gita Gopinath in F&D. “Because AI operates across borders,” Gopinath writes, “we urgently need a coordinated global framework for developing it in a way that maximizes the enormous opportunities of this technology while minimizing the obvious harms to society. That will require sound, smart policies—balancing innovation and regulation—that help ensure AI is used for broad benefit.” The December issue of F&D focuses on Artificial Intelligence: What AI means for economics. Read articles by Daron Acemoglu, Simon Johnson, Ian Bremmer, Mustafa Suleyman, Daniel Björkegren, Joshua Blumenstock, Anton Korinek, Hélène Landemore, Nandan Nilekani, Tanuj Bhojwani, Andrew Berg, Chris Papageorgiou, Maryam Vaziri, Robert Horn, Jeremy Wagstaff, Kerry Dooley Young, Eswar Prasad, Anil Ari, Lev Ratnovski, Christopher Evans, Marika Santoro, Martin Stuermer, Gita Bhatt, Erik Brynjolfsson, Gabriel Unger, and many more.

Artificial intelligence is transforming jobs at an astounding pace, but while it boosts productivity AI is also increasing wage inequality. When workers are replaced by machines, real wages decline, and the owners of capital prosper. So who owns AI and how should its benefits be distributed? In this podcast, the IMFs Andrew Berg and Maryam Vaziri discuss AI’s inequality problem. This podcast accompanies their recent F&D article.

INTERNATIONAL TRADE Why Digital Trade Should Remain Open (Credit: Getty Images) Digital trade, from software sales to streaming movies, plays a bigger role than ever in the global economy. Yet with many developing countries struggling to fully participate in digital trade, now is the time for policy reforms that promote inclusion, starting with retaining the current tariff-free environment, the IMF’s Michele Ruta and Adam Jakubik write in a blog. The value of global trade in digitally delivered products rose to $3.8 trillion last year, accounting for a record 54 percent share of services trade. With an 8.1 percent average annual growth rate for almost two decades, it has outpaced other categories like goods, they write. “There is no tradeoff between open and inclusive digital trade. To the contrary: open trade supports developing countries’ inclusion in global digital markets.”

LATIN AMERICA AND CARIBBEAN Climate Change Adds To Cross-Border Migration (Credit: Adobe Stock) Climate disasters such as tropical storms, hurricanes, floods and droughts significantly impact migration in Caribbean and Latin American countries, IMF economists write in a Country Focus article. Three additional climate disasters a year can be associated with an increase of about 1 percent in people leaving their home countries in the Caribbean and Central America over a five-year period, the authors write. “The increasing frequency and impact of climate shocks calls for urgent strengthening of policy responses and programs to build resilience and mitigate the impact of climate shocks on the population, including by reinforcing social safety nets.”

Weekly Roundup SOMALIA IMF, World Bank Announce $4.5 Billion Debt Relief The executive boards of the IMF and the World Bank’s International Development Association on Wednesday approved the Heavily Indebted Poor Countries (HIPC) Initiative completion point for Somalia, which provides total debt service savings for the country of $4.5 billion. Read more about the IMF’s relations with Somalia and our recent capacity development work in the country. SRI LANKA IMF Board Approves $337 Million Disbursal The IMF’s executive board on Tuesday completed the first review of Sri Lanka’s Extended Fund Facility, paving the way for a disbursal of about $337 million. “Macroeconomic policy reforms are starting to bear fruit and the economy is showing tentative signs of stabilization, with rapid disinflation, significant revenue-based fiscal adjustment, and reserves build-up,” IMF Deputy Managing Director Kenji Okamura said in a statement. Read the press briefing. EUROPE'S HOUSING Wealth Effects An IMF staff paper tracks the relationship between housing wealth and consumer spending in 20 countries across Europe since 1980. Household consumption responds positively to changes in real house prices. An average quarter-on-quarter decline of almost 2 percent in real house prices in the first quarter of 2023 in Europe could dampen consumer spending by about half a percentage point in real terms on a cumulative basis over two years. INFLATION Optimal Taxation A tax on inflation policy (TIP) would require firms to pay a tax proportional to the increase in their prices. Such a tax would effectively correct externalities in firms’ pricing decisions, tackle excessive inflation and reduce output volatility, without exacerbating price distortions, an IMF staff paper finds. Tax on inflation and monetary policies are complementary, with TIP addressing markups and inflation expectation shocks, and monetary policy addressing demand shocks.

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