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Dear maria, We just published a new blog—please find the full text below.  The AI Awakening (Credit: Jun Cen) By Gita Bhatt Full disclosure: This issue of Finance & Development was produced entirely with human intelligence. But someday soon at least parts of this magazine may be assisted by artificial intelligence—a topic that has dominated global discourse since ChatGPT's introduction one year ago. Generative AI has introduced tantalizing new possibilities in both the public and private spheres. Think how these “machines of the mind” can improve health care diagnoses, close education gaps, tackle food insecurity with more efficient farming, drive planetary exploration—not to mention eliminate the drudgery of work. Yet the initial excitement surrounding AI has given way to genuine and growing concerns—including about the spread of misinformation that disrupts democracy and destabilizes economies, threats to jobs across the skills spectrum, a widening of the gulf separating the haves and have-nots, and the proliferation of biases, both human and computational. This issue is an early attempt to understand AI’s implications for growth, jobs, inequality, and finance. We bring together leading thinkers to explore how to prepare for an AI world. In our lead article, Stanford’s Erik Brynjolfsson and Gabriel Unger sketch two wildly different potential outcomes (beneficial or detrimental) for AI’s effect on each of three important facets of the economy—productivity growth, income inequality, and industrial concentration (the collective market share of the largest firms in a sector). The future that emerges will be a consequence of many things, including technological and policy decisions made today, they note. For MIT’s Daron Acemoglu and Simon Johnson, AI’s ultimate impact depends on how it affects workers. Innovation always leads to higher productivity, but not always to shared prosperity, depending on whether machines complement or replace humans. The economists outline policies, such as giving labor a voice, that can redirect efforts away from pure automation toward a more “human-complementary” path that creates new and higher-quality tasks. AI progresses by leaps and bounds. Given its inherent unpredictability, Anton Korinek, of the University of Virginia, recommends scenario planning. He lays out how different technological paths, depending on whether—and how soon—AI exceeds human intelligence, would lead to vastly different outcomes for the economy and workers. Policymakers should prepare reforms for these multiple scenarios and revise as the future unfolds, he notes. This leads us to AI governance. Ian Bremmer, president of Eurasia Group, and Mustafa Suleyman, CEO of Inflection AI, point to regulatory challenges amid a race for AI supremacy among governments. They warn that governing AI will be among the international community’s most difficult challenges in coming decades and outline principles for AI policymaking. The IMF’s Gita Gopinath urges balancing innovation and regulation in developing a unique set of policies for AI. Because AI operates across borders, we urgently need global cooperation to maximize the enormous opportunities of this technology while minimizing the obvious harms to society, she writes. In other thought-provoking articles, Daniel Björkegren and Joshua Blumenstock show how Kenya, Sierra Leone, and Togo adapted AI to benefit the poor. Nandan Nilekani describes how India is on a cusp of an AI revolution to address pressing economic and social challenges. And we profile Harvard labor economist Lawrence F. Katz, whose defining work on inequality illuminates the discussion on AI. AI can develop in very different directions, underscoring the role of society in actively and collectively determining its future. What is clear is that the technology must be guided as tools that can enhance, rather than undermine, human potential and ingenuity. Ultimately, it’s about what AI can do to help people. Thanks, as ever, for reading. —Online newsletter subscription: https://public.govdelivery.com/accounts/USIMF/signup/13131 —Print subscription: https://bookstore.imf.org/books/finance-development-december-2023 Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

Dear maria, We just published a new blog—please find the full text below.  How the Middle East and Central Asia Can Better Address Climate Challenges (Credit: Joel Carillet/iStock by Getty Images) By Jihad Azour, Hasan Dudu, and Ling Zhu The Middle East and Central Asia face a sobering climate reality. Temperatures have risen twice as fast as the global average, and rainfall has become scarcer and less predictable. Fragile states are disproportionally affected and conflicts may worsen. The toll this is taking on people and economies is poised to worsen. This week’s United Nations Climate Change Conference, or COP28, provides a forum to discuss the policies needed to stave off more disruptive climate change. It comes at a vital time: our new analysis shows current global commitments would reduce emissions by just 11 percent by the end of this decade, well short of the 25 percent to 50 percent that’s needed to meet the goals of the Paris Agreement. All countries must step up. Devasting impact, economic disruption From devasting floods in Libya and Pakistan to drought in Somalia, the far-reaching impact of climate change is obvious. Record temperatures amid scorching heatwaves are becoming a new normal. Droughts leave farmland parched and rivers depleted. Violent storms batter coastal areas. In addition to the human toll, climate change has huge economic and social costs. Over the past three decades, changing temperature and rainfall patterns have eroded per capita incomes and significantly altered the sectoral composition of output and employment. We see this pattern emerging in all corners of the world, but it is especially true for countries in the Middle East and Central Asia. A recent IMF study shows the fundamental economic disruptions brought about by climate change not only endanger food security but also undermine public health, with a ripple effect on poverty and inequality, displacement, political stability and even conflict. Past climate disasters have resulted in permanent gross domestic product losses of 5.5 percent in Central Asia and 1.1 percent in the Middle East and North Africa. And these disasters will only become more frequent. Climate effects are particularly pronounced in fragile and conflict-affected states. They suffer four times higher output losses after climate-related weather shocks, compounding their existing fragility. Climate displacement crises, such as in Somalia, demonstrate the destructive consequences and human toll of climate change, especially for vulnerable countries and regions. Climate change can even make conflicts deadlier. Policy priorities Frontloading action on climate change is a must. So, governments in the Middle East and Central Asia must step up their goals both to adapt to climate change and to reduce their own contribution to global warming. Investment of up to 4 percent of GDP annually is needed to sufficiently boost climate resilience and meet 2030 emissions reduction targets, according to recent IMF studies on adaptation and mitigation. Amid higher borrowing costs and already constrained government spending powers, attracting more private finance is crucial to bridge the financing gaps. Measures such as accelerated fuel-subsidy reform and carbon taxes, and other climate regulations could also help ease the funding burdens and give investors clearer signals. The good news is that many countries in the Middle East and Central Asia are already taking steps to alleviate the devastating impacts of climate change. For instance, Morocco, Jordan, and Tunisia have improved water management practices, helping to enhance their resilience amid prolonged droughts. Countries also are gearing up to contain their carbon footprint, from fossil-fuel subsidy reforms in Jordan to solar power projects in the United Arab Emirates and Qatar. IMF research sheds light on fiscal policies that can help countries in the region achieve their climate pledges by cutting per capita greenhouse gas emissions by up to 7 percent by 2030 and accelerate policies further to achieve net-zero emissions by 2050. However, much more ambitious climate action is needed in the Middle East and Central Asia. Both the adaptation and mitigation policies currently in place must be expanded and reinforced. Nations must prioritize comprehensive strategies that not only address the immediate crises but also prepare for the longer-term consequences of climate change. Policymakers should prioritize investment in “no regret” measures such as climate-resilient infrastructure and agriculture, disaster risk management, and social protection. Managing trade-offs The policy options, however, often require economic tradeoffs. Reducing fuel subsidies or putting a price on carbon emission, for example, promise long-term gains but may raise transition costs in the near term due to large shifts in economic behavior. Boosting investment in renewable energy through additional government spending and subsidies—such as the development of the world’s largest solar power plant in Saudi Arabia, led by its sovereign wealth fund—might seem easier in the near term. Yet, it would make the energy transition more costly overall, as it won’t deliver the economic efficiency resulting from carbon pricing. For these reasons, policymakers should find a mix of policies to balance these trade-offs. Ultimately, more action also requires more multilateral support. It can help spark action where it is needed most, transfer valuable technical knowledge and policy experiences, and catalyze other funding sources to meet the region’s large adaptation and mitigation climate financing needs—all particularly important for low- and lower-middle income countries. The IMF’s Resilience and Sustainability Facility will help address climate vulnerabilities. An example in the region is the recent $1.3 billion RSF climate program with Morocco. Yet the scale of the challenge means that global and regional initiatives such as COP28 remain instrumental to foster cross-border collaboration and promote private sector climate finance. This should include securing additional climate funding for the most vulnerable countries. Dear maria, We just published a new blog—please find the full text below.  World Needs More Policy Ambition, Private Funds, and Innovation to Meet Climate Goals  (Credit: Adobe Stock) By Simon Black, Florence Jaumotte, and Prasad Ananthakrishnan With each passing year, the stark reality of a hotter planet becomes clearer and the ensuing risks to the global economy intensify. But as the world is waking up to the scale of the climate crisis, geopolitical tensions and fragmentation risks are undermining our ability to coordinate global actions to solve this planetary problem. Eight years on from the Paris Agreement, policies remain insufficient to stabilize temperatures and avoid the worst effects of climate change. Collectively, we are not cutting emissions fast enough and are falling short on the needed investment, financing, and technology. The window is closing, but we still have time—just—to change our trajectory and leave a healthy, vibrant, and livable planet to the next generation. Limiting global warming to 1.5 degrees to 2 degrees Celsius and reaching net zero by 2050 requires cutting carbon dioxide and other greenhouse gases by 25 percent to 50 percent by 2030 compared with 2019. But, as our new analysis shows, the current global commitments reflected in nationally determined contributions would reduce emissions by just 11 percent by the end of this decade. To make matters worse, current policies are not consistent with commitments, which means that the world is set to fall short of even that meager goal. Business-as-usual policies would see annual global emissions increase by 4 percent by 2030 and reach a cumulative level sufficient to breach the 1.5-degree target by 2035. More ambition, stronger policies To get back on track with the global climate goals, we need more ambition now. A fair approach is for countries to target cuts in emissions in line with per capita incomes. For example, to keep within 2 degrees of warming, high, upper-middle, lower-middle, and low-income countries will need emissions reductions of 39 percent, 30 percent, 8 percent and 8 percent, respectively, by 2030. To stay below 1.5 degrees of warming would entail more drastic emissions cuts of 60 percent and 51 percent for high- and upper-middle income countries. Ambition alone is not enough. We also need major policy changes to achieve these more ambitious targets. These would ideally be centered on a robust carbon price—rising to a global average of at least $85 per ton by 2030—to provide broad incentives to reduce carbon-intensive energy, shift to cleaner sources, and invest in green technologies. A carbon price also generates more than enough budget revenues to support vulnerable groups. Around 20 percent of carbon pricing revenues can more than compensate the poorest 30 percent of households. This is in direct contrast to damaging fossil fuel subsidies, which have risen to a record $1.3 trillion annually in explicit fiscal costs alone. Countries must act to phase out such subsidies. At a global level, cooperation is needed to help assuage fears that carbon pricing would hurt national economic competitiveness. Here, an agreement among large emitters could spur other countries to follow—such as a progressive deal between China, the European Union, India, and the United States. This would cover over 60 percent of global greenhouse gas emissions and send a strong signal to the rest of the world. Boosting climate finance The path to net zero by 2050 requires low-carbon investments to rise from $900 billion in 2020 to $5 trillion annually by 2030. Of this figure, emerging and developing countries (EMDEs) need $2 trillion annually, a fivefold increase from 2020. Even if advanced economies meet or somewhat exceed their promise to provide $100 billion a year, the bulk of the financing for these low-carbon investments will need to come from the private sector. Our analysis shows that private sector share of climate finance must rise from 40 percent to 90 percent of the total in EMDEs by 2030. That means a broad mix of policies to overcome barriers such as foreign exchange and policy risks, underdeveloped capital markets, and too few investable projects. For example, targeted economic policies and governance reforms can lower capital costs. Meanwhile, blended finance that combines private capital with public and donor funding—including from multilateral development banks—can bring down the risk profile of green projects. Think of first-loss capital, credit enhancements, or guarantees. At the same time, global policies to increase transparency and comparability of projects, standardize taxonomies and strengthen climate-related disclosure requirements are vital in helping investors make low-carbon choices. Again, this highlights the importance of international cooperation. Scaling up innovation Of the 50 percent cut to emissions needed by 2030 to stay on track for the 1.5-degree target, more than 80 percent can be achieved from technologies available today. Getting to net-zero by 2050 will, however, require technologies that are still under development or yet to be invented. Unfortunately, patent filings for low-carbon technology peaked at 10 percent of total filings in 2010 and have since declined. Worse, key technologies aren’t spreading fast enough to emerging and developing countries. How can this trend be reversed? Recent IMF analysis shows climate policies—such as feed-in tariffs and emissions trading schemes—boost green innovation and investment flows, and help spread low carbon technology across borders. Moreover, in some countries, lowering trade barriers can accelerate imports of low carbon technologies by 20 percent to 30 percent. Yet again this points to the importance of cooperation: to avoid protectionist measures that would impede the broader spread of low-carbon technologies. Helping countries meet goals Wherever climate policy intersects with macroeconomic policy, the IMF is here to help. Our new Resilience and Sustainability Trust provides long-term financing on affordable terms to help vulnerable middle- and low-income countries cope with threats such as climate change. The $40 billion trust has already supported programs for 11 countries, with twice that number in the pipeline. For our wider membership, we add a climate lens to our economic analysis, policy advice, capacity development and data provision. Why? Because macroeconomic and financial sector policies are critical to harnessing the opportunities of the green transition: for low-carbon, resilient growth, and jobs. But no country can tackle climate change on its own. International cooperation is more important than ever. Only with concerted action, now, will we bequeath a healthy planet to our children and grandchildren.

Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!