IMF update

 

Dear MARIA, In today's edition, we highlight: Georgieva on Europe's competitiveness AI and Fiscal Policy Central Bank Digital Currencies in the Middle East Guinea Country Focus Harold James on the IMF's history June 2024 F&D Magazine Daniel Susskind on growth, and much more

EUROPEAN UNION Kristalina Georgieva on Strengthening Europe's Competitiveness (Credit: Monacoshots) Europe’s core strength is the single market; its prosperity, competitiveness, and its market power are derived from its cohesion. Preserving and sharpening Europe’s competitive edge in the face of its many challenges will require a well-thought out, multi-pronged strategy, said IMF Managing Director Kristalina Georgieva in remarks to the Eurogroup on a Strategy for European Competitiveness in Luxembourg this week. She noted that industrial policy may have a role to play in this strategy but emphasized that it should be a small one. “Be generous in protecting and building the single market. Be stingy in using industrial policy. Promote the ideas of the future, not the industries of the past. Have a comprehensive strategy for competitiveness,” she advised. Georgieva provided her view on the necessary aspects of such a strategy. “Many parallel efforts will be needed…..You need to remove trade barriers within the EU. You need to strengthen the labor market by allowing workers to move more freely with skills that are continuously upgraded and recognized across the union. You need to invest in EU infrastructure, including cross-border electricity grids for energy security. And you need to mobilize unprecedented volumes of money for the green transition,” she said. She also spoke of the need for a more ambitious EU budget and the need to build a single European financial system, comprising both a banking union and a capital market union. Read the Speech

ARTIFICIAL INTELLIGENCE Fiscal Policy Can Broaden AI Gains (Credit: 9comeback/iStock by Getty Images) New generative-AI technologies hold immense potential for boosting productivity and improving the delivery of public services, but the sheer speed and scale of the transformation also raise concerns about job losses and greater inequality, write the IMF’s Era Dabla-Norris and Ruud de Mooij in a new blog. Given uncertainty over the future of AI, governments should take an agile approach that prepares them for highly disruptive scenarios. A new IMF paper argues that fiscal policy has a major role to play in supporting a more equal distribution of gains and opportunities from generative AI, but this will require significant upgrades to social protection and tax systems. More generous unemployment insurance could cushion the negative impact of AI on workers, allowing displaced workers to find jobs that better match their skills, and sector-based training, apprenticeships, and upskilling/reskilling programs could also play a greater role in preparing workers for the AI age. On the taxation side, governments should design redistributive taxation to offset rising inequality from AI, including by strengthening taxes on capital income to protect the tax base against a further decline in labor’s share of income and to offset rising wealth inequality. The priority for governments should be to ensure that the applications of AI broadly benefit society, leveraging AI to improve outcomes in areas such as education, health, and government services. For this to happen, global cooperation will be more important than ever, the authors conclude. In a conversation with the Washington Post’s Heather Long, IMF First Deputy Managing Director Gita Gopinath also discussed the role of fiscal policy in broadening the gains of AI. Developing countries face particular challenges, she noted, give the much larger numbers of informal workers that makes it harder to bring them into a social safety net; the size of their tax bases compared to more advanced countries; and the number of young people that are neither in school, nor working or in any kind of training. “These are areas were developing countries will have to invest more in providing a stronger digital infrastructure and more on education and training, so that they can also benefit from this technology,” she said. Gopinath also stressed the importance of collaboration with the private sector in these efforts. “I think it is a responsibility for all corporate leaders who are working in this space to ensure that ultimately, AI benefits humanity,” she said. Read the Blog

MIDDLE EAST AND CENTRAL ASIA Central Bank Digital Currencies Can Boost Financial Inclusion, Payment Efficiency (Credit: JohnnyGreig/iStock by Getty Images) Almost two-thirds of countries in the Middle East and Central Asia – 19 in total - are exploring adopting a central bank digital currency, write the IMF’s Serpil Bouza, Marcello Miccoli, and Borislava Mircheva in a new blog. CBDCs can potentially help improve the efficiency of cross-border payment services, as cross-border payments tend to have frictions like varying data formats and operating rules across regions and complex compliance checks. CBDCs that address these inefficiencies could significantly cut transaction costs.  CBDCs can also advance financial inclusion by fostering competition in the payments market and allowing for transactions to be settled more directly and with less intermediation, in turn lowering the cost of financial services and making them more accessible. Adopting a CBDC, however, requires careful consideration, the authors say. Policymakers need to determine if a CBDC serves their country’s objectives and whether the expected benefits outweigh the potential costs, risks for the financial system, and operational risks for the central bank. Moreover, adoption may not be essential to achieving the intended policy goals, and addressing underlying constraints could be a more practical alternative, such as adopting or improving other digital payment systems. Read the Blog (Credit: Akarawut Lohacharoenvanich/Zurijeta/Ruffraido/iStock by Getty Images) COUNTRY FOCUS Easing Guinea’s Food Insecurity IMF emergency financing has supported Guinea’s efforts to cope with the effects of macroeconomic shocks, underpinned by the authorities’ commitment to transparency in the uses of these funds, the IMF’s Pilar Garcia Martinez, Joseph Ntamatungiro, and Neree Noumon write for IMF Country Focus. The outbreak of the war in Ukraine in February 2022 caused international food and fertilizer prices to rise sharply, exacerbating food insecurity in many parts of sub-Saharan Africa. Guinea was among the worst affected. By late 2022, 11 percent of the Guinean population—1.2 million people—were facing acute food insecurity. In December 2022, Guinea received $71 million under the IMF's Rapid Credit Facility Food Shock Window to address vulnerable populations' needs related to the food price shock. The article looks at how those funds were used, main achievements, and key lessons.

F&D MAGAZINE IMF’s History Holds Lessons for Risk Management (CREDIT: BETTMANN-GETTY-IMAGES) The 1944 United Nations Monetary and Financial Conference, held in July of that year at Bretton Woods, New Hampshire, holds out a powerful narrative about how countries may tackle global collective challenges. Writing in the June issue of F&D, Princeton professor Harold James says that the IMF’s 80-year history holds lessons for future international risk management. Security or political issues need to be solved hand in hand with economic and financial challenges, he says. “With the Russia-Ukraine war now fought all over the world, most spectacularly in Sudan, conflict and not prosperity is globalized. Finding adequate answers to uncertainties created by conflict is a key step in casting off the zero-sum thinking that in the past led the world to catastrophe.” Read the Article

The world has changed markedly since the IMF was founded 80 years ago. In F&D’s June issue, we explore how the IMF can adapt to remain effective. Authors include Kristalina Georgieva, Ceyla Pazarbasioglu, Raghuram Rajan, Mia Amor Mottley, William Ruto, Pablo García-Silva, Harold James, Martin Wolf, Adam S. Posen, Edwin M. Truman, Masood Ahmed, Axel A. Weber, Anna Postelnyak, Réka Juhász, Nathan Lane, Mark Aguiar, James M. Boughton, Atish Rex Ghosh, Andrew Stanley, Adam Jakubik, Elizabeth Van Heuvelen, Henny Sender, Melinda Weir, Vivek Arora, Douglas A. Irwin, and Lisa Kolovich.

Economic growth is often seen as the core ingredient to social development, but it’s a relatively new idea. So what did pre-growth society look like and how much growth can modern society sustain? In his latest book, Daniel Susskind argues that economic policy should consider the costs of growth more carefully and realign the drivers to better fit with the challenges of our time. Susskind is a research professor at King's College London and a senior research associate at the Institute for Ethics in AI at Oxford University. In this podcast, he says growth doesn’t come from the tangible world of things but from the intangible world of ideas. Read the review in Finance and Development

Weekly Roundup Central Banks The Importance of Independence Many central banks are under tremendous pressure, and central bank stakeholders, including parliament and market participants, have increased expectations of what the central bank can and should do. But, with a more challenging environment in terms of economic growth and inflation, as well as expanded mandates, stakeholders may increasingly scrutinize the central banks’ policies and operations and question the validity of independence. In a recent speech, the IMF's Tobias Adrian spoke about central bank independence and what central banks can do to safeguard independence and ensure policy credibility. STAFF PAPER Labor Market Gender Gaps in St. Lucia St. Lucia has a strikingly high female labor force participation rate and low participation gap vis-à-vis the male labor force. Despite the high female participation rate, a new IMF staff paper finds that childcare has disproportionate effects on female participation and unemployment, and a substantial gender gap in labor income exits for workers without higher education. The authors note that, while important tools, macroeconomic indicators like female labor participation are not always sufficient to capture progress in gender equality, and that econometric analysis should be complemented with a more holistic understanding of history and social context. STAFF PAPER Sovereign Green Bonds and Debt Market Development In traditional bond markets, sovereign bonds provide benchmarks and serve as catalysts for corporate bond market development. Contrary to the usual sequence of bond market development, sovereign issuers are latecomers to sustainable bond markets. A new IMF staff paper finds that sovereign green bond issuance can have quantitative and qualitative benefits for the development of private sustainable bond markets.

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.

Miriam Van Dyck Editor IMF Weekend Read mvandyck@IMF.org