IMF Weekend Read: World Economic Outlook | Interest Rate Volatility.....

 

Dear MARIA, In today's edition, we highlight: World economic outlook Interest rate volatility Critical minerals and climate transition Ghana's economic progress India's AI education revolution Foreign debt

WORLD ECONOMIC OUTLOOK Global Economy Approaches Soft Landing, but Risks Remain (Credit: photo168/iStock by Getty Images) The global economy is approaching a soft landing, but the pace of expansion remains slow and turbulence may lie ahead, the IMF’s chief economist said on Tuesday. Writing in a blog on the latest update to the World Economic Outlook, Pierre-Olivier Gourinchas said global activity proved resilient in the second half of last year and this resilience will carry over. “Global growth under our baseline forecast will steady at 3.1 percent this year, a 0.2 percentage point upgrade from our October projections, before edging up to 3.2 percent next year.” Excluding Argentina, global headline inflation is projected to ease to 4.9 percent this year. Gourinchas warned that the biggest challenge is to tackle elevated fiscal risks. “Most countries came out of the pandemic and energy crisis with higher public debt levels and borrowing costs,” he said. “Bringing down public debt and deficits will give space to deal with future shocks.” What do the revised projections mean for different regions? See the new Regional Economic Outlook for the Middle East and North Africa, and read remarks by Krishna Srinivasan, Director of the Asia and Pacific Department.

PRESS CONFERENCE World economic outlook update

Watch the IMF’s Pierre-Olivier Gourinchas and Daniel Leigh answer reporters’ questions on the World Economic Outlook Update and other global issues at a press conference in South Africa.

MONETARY POLICY Emerging Markets Navigate Global Interest Rate Volatility (Credit: hxdyl/iStock by Getty Images) Major emerging markets have shown resilience to global rate gyrations, but more challenging times could be ahead, write the IMF's Tobias Adrian, Fabio Natalucci and Jason Wu in a blog. Global interest rates in recent months have gone on a rollercoaster, especially those on longer-term government bonds, they note. Interest rate moves in other advanced economies have been equally prodigious. Emerging market economies, however, saw much milder rate moves.  While the lower sensitivity is in part due to the divergence in monetary policy between advanced economies’ and emerging markets’ central banks over the past two years, it nonetheless challenges findings in the economic literature that show large spillovers from advanced economies’ interest rates to emerging markets.

CLIMATE FINANCE How Asia Can Unlock $800 Billion of Climate Financing (Credit: Khoa Nguyen/iStock by Getty Images) Countries in the Asia-Pacific region face a shortfall of at least $800 billion in climate financing, Ritu Basu and Cheng Hoon Lim write in a blog. With public finances depleted by the pandemic, policymakers must unlock the vast potential of private capital to join the fight more effectively against global warming. Doing so will demand a coordinated and multi-faceted approach by actors on all sides, from governments and central banks to financial supervisors and multilateral institutions, they explain. “Important strategies include phasing out fossil-fuel subsidies, which have reached a record $1.3 trillion. It will also be key to expand carbon pricing, bridge critical data gaps, and promote innovative financing along with public-private partnerships.”

Artificial intelligence is changing the way we work and for many it’s scary. But for teachers in India’s million-plus schools, AI is a welcome partner in solving the learning poverty problem. Shankar Maruwada is co-founder and CEO of EkStep Foundation, which develops AI to help improve the public education system. In this podcast, Maruwada and journalist Rhoda Metcalfe discuss how AI can close the literacy gap. Read Unlocking India’s Potential With AI in Finance & Development Magazine.

CRITICAL MINERALS Fragmentation Could Slow Clean Energy Shift (Credit: David McNew/Getty Images) A scramble by competing powers to secure strategic minerals, used to make everything from electric vehicles to solar panels and wind turbines, could slow the climate transition, the IMF’s Christopher Evans, Marika Santoro and Martin Stuermer write in an article for Finance & Development Magazine.  A trifecta of high concentration of production and low reactivity of supply and demand makes critical minerals for the energy transition highly vulnerable in the event of trade restrictions, they write. “Multilateral cooperation on trade policies and more data sharing would thwart additional obstacles to a cleaner global energy system.” Read the full article This article appears in the December issue of F&D. Read other articles by Daron Acemoglu, Simon Johnson, Ian Bremmer, Mustafa Suleyman, Anton Korinek, Hélène Landemore, Nandan Nilekani, Tanuj Bhojwani, Gita Gopinath, Robert Horn, Jeremy Wagstaff, Kerry Dooley Young, Eswar Prasad, Anil Ari, Lev Ratnovski, Gita Bhatt, Erik Brynjolfsson, Gabriel Unger, Andrew Berg, Chris Papageorgiou, Maryam Vaziri, and many more.

GHANA Transforming a Crisis Into a Journey Toward Prosperity (Credit: IMF) Ghana is making important inroads to stabilize its economy, and continued program implementation beckons a brighter future, writes the IMF’s Leandro Medina in an IMF Country Focus blog. When Ghana requested an IMF-supported program in July 2022, the country was dealing with an economic and financial crisis that was the outcome of preexisting vulnerabilities and substantial external shocks. The authorities have since made compelling progress under the program that was approved by the IMF Board in May 2023, he writes. “Looking ahead it is important for Ghana to lock in the gains so far and continue steadfast implementation of the program, despite challenges associated with potential external shocks and the political environment in the run-up to the 2024 Presidential and parliamentary elections.” Also see key questions on Ghana and watch the video.

Weekly Roundup ARGENTINA Board Approves $4.7 Billion Disbursal The IMF’s Executive Board on Wednesday completed the seventh review of the extended arrangement under the Extended Fund Facility for Argentina. The decision enables an immediate disbursement of around $4.7 billion to support the authorities’ upfront policy efforts and strong commitments to restore macroeconomic stability and help Argentina meet its balance of payments needs. This brings total disbursements under the arrangement to about $40.6 billion. CLIMATE FINANCE Support for Cameroon The IMF Board has approved a Resilience and Sustainability Facility (RSF) arrangement for Cameroon equivalent to $183.4 million. The RSF will support Cameroon’s efforts to adapt to and mitigate the impact of climate change and replace more expensive financing. The reform measures under the RSF are also expected to reinforce the growing engagement of development partners and other stakeholders in climate-resilient development and catalyze additional climate finance. STAFF PAPER Does FinTech Increase Bank Risk Taking? Motivated by its rapid growth, an IMF staff paper investigates how FinTech influence risk taking by financial intermediaries (FIs). Using a curated databased covering over 10,000 FIs and global FinTech activities, the authors find a robust relationship whereby greater FinTech presence is associated with heightened risk taking by FIs. However, the inclusion of bank-, industry-, and country-specific characteristics can alter this relationship. STAFF PAPER Foreign Currency Debt An IMF staff paper examines how emerging market economies have gained the ability to borrow abroad in their local currency. Institutional quality, sufficient depth in the domestic bond market, and adequate performance in inflation targeting are crucial for borrowing in local currency. The analysis suggests that emerging market economies with reasonably strong fundamentals are not necessarily reliant on foreign currency debt.

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FEBRUARY 6 | 8:00 AM ET | 1:00 PM UTC Africa's Development Challenges and Opportunities Join us for a conversation between Masood Ahmed, President of the Center for Global Development, and Abebe Aemro Selassie, Director of the IMF’s African Department. The discussion will focus on the challenges of tackling poverty and economic disparities, particularly on the African continent.

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