IMF weekend read

 

Dear MARIA, In today's edition, we highlight: IMF Managing Director Georgieva at UN General Assembly 2024 IMF Annual Report ECB President Christine Lagarde delivers Michel Camdessus Lecture Rabah Arezki and Jean-Pierre Landau in F&D magazine Chart of the Week, and much more UNITED NATIONS GENERAL ASSEMBLY Georgieva: Together, We Are Stronger (Credit: IMF Photo/Melissa Lyttle) While the world economy has proven to be remarkably resilient to the multiple shocks of recent years, significant challenges remain, particularly for low-income countries, said IMF Managing Director Kristalina Georgieva in remarks at the United Nations’ Summit of the Future earlier this week. “And yet, we stand at the cusp of a remarkable transformation fueled by green innovation and technological change. We can harness green growth and create green jobs if policymakers are laser focused on reshaping their economies. Technology can provide a much-needed boost to productivity if deployed properly,” said Georgieva. This global backdrop translates into three essential policy recommendations for IMF member countries, she noted: (i) continue to do what works well—implement strong policies and build strong institutions; (ii) remove the obstacles to growth both domestically and internationally; and (iii) resist excessive protectionism, in order to build a stronger global economy together. “My message today is simple: together we are stronger,” she concluded. “Let us work together to lift our ambition now, in this decade, to build a better future for all.” Read the Speech IMF ANNUAL REPORT Resilience in the Face of Change (Credit: Nazario Graziano) The recently published 2024 IMF Annual Report highlights the IMF’s work in helping its membership navigate significant challenges. This includes safeguarding macroeconomic stability, returning to fiscal sustainability, bringing inflation back to targets, and embracing transformative developments. In FY 2024, the IMF continued to support its members in its three core areas: Economic surveillance: 128 country health checks completed.   Lending: $70 billion to 30 countries, including about $15 billion to 20 low-income countries, for a total of $357 billion to 97 countries since the start of the pandemic.  Capacity development: $382 million for hands-on technical advice, policy-oriented training, and peer learning.  Read the Annual Report MICHEL CAMDESSUS LECTURE Lagarde Warns of Uncertainty Ahead (Credit: IMF Photo/Joshua Roberts) The economy is currently undergoing a transformational change, the impact of which we need to analyze and understand, said European Central Bank President and former IMF Managing Director Christine Lagarde in remarks at the Fund’s Annual Michel Camdessus Lecture. The uncertainty ahead is still profound, she warned.   Lagarde drew from the lessons of 1920s to state that structural shifts and their impact in transmission to the economy matter for monetary policy. “The effectiveness of monetary policy is intrinsically tied to the evolving structure of the economy,” Lagarde said. “In recent years, uncertainty about policy transmission has been particularly acute. We faced the worst pandemic since the 1920s; the worst conflict in Europe since the 1940s; and the worst energy shock since the 1970s. These shocks have changed the structure of the economy and posed a challenge for assessing the impact of monetary policy.” Lagarde drew a parallel between challenges faced during the “two twenties” – the 1920s and the 2020s – noting that then as now, we are seeing a setback in global trade integration, and a stride forward in technological progress. In her remarks welcoming Lagarde, IMF Managing Director Kristalina Georgieva urged central bankers to remain vigilant. “Above all, as we know central bankers face a balancing act. They must ensure that inflation sustainably returns to target — and remain there — while avoiding the risk of excessively tight policies. This is particularly important in a world faced with a low growth/high debt conundrum. In this new world, central banks must be vigilant to the potential for shocks to unleash powerful inflationary forces and create difficult tradeoffs, and they must grapple with ongoing structural changes in the financial sector and the broader economy,” she noted. Watch the Lecture F&D MAGAZINE Picking Winners is Costly and Difficult (Credit: FG Trade/iStock by Getty Images) A growing scarcity of capital amid depressed global savings makes the revival of industrial policy especially perilous, economists Rabah Arezki and Jean-Pierre Landau warn in an article for F&D magazine. One major risk is the wasting of resources, the authors say. Investment mistakes can be more easily absorbed when capital is abundant, but the misallocation of investment can prove especially damaging when capital is scarce. “The era of scarcity in global capital calls for stricter and more transparent governance of industrial policy.” Read the Article Poor households in Germany and France pay up to $2 more per ton of emitted carbon dioxide than their higher-income compatriots. That is because products and services that wealthier people are likelier to consume—such as imported goods and travel outside the European Union—are exempt from carbon pricing. In other words, carbon pricing is regressive, meaning the poor pay proportionally more than the rich, as a share of their income. New IMF research shows that correcting that distortion, in other words, equalizing carbon prices across countries, would spread the economic burden of emission reductions more evenly across households and alleviate the weight on poorer Europeans. The average highest-income household in Europe paid about $10.75 per ton of carbon dioxide in 2020. As the Chart of the Week shows, the lowest-income households pay on average $1.25 more. This gap rises to $1.75 and $2 in countries such as Germany and France, and $5 in Bulgaria. Read our analysis IMF MANAGEMENT Yan Liu Appointed IMF General Counsel and Director of the Legal Department (Credit: IMF Photo/Cory Hancock) IMF Managing Director Kristalina Georgieva has announced her intention to appoint Yan Liu as General Counsel and Director of the Legal Department. Liu will succeed Rhoda Weeks-Brown and is expected to formally take up her appointment on October 7, 2024. Liu joined the Fund in 1999 as Counsel and has risen through the ranks to Deputy General Counsel—the current role in which she leads key strategic initiatives to ensure that the Legal Department continues to fulfill its mandate and contribute to the Fund’s policy work and operations. Additionally, as a well-recognized expert in sovereign debt, Liu has played a key role in shaping the Fund’s policies in this area and supporting the Common Framework and the Global Sovereign Debt Roundtable. “Yan brings to her new role over 25 years of legal expertise and deep understanding of the Fund policy and operations,” said Georgieva. “She is a thought leader and a trusted advisor who is also well known for her dedication to mentoring and supporting staff in their career journeys. The hallmark of Yan’s work is her collaborative and constructive approach in service to the institution.” With all the instability within the Middle East and North Africa region of late, Egypt has nonetheless managed to reign in soaring inflation and win its largest-ever foreign investment. Egypt’s efforts to restore macroeconomic stability in recent years have led to an arrangement under the IMF’s Extended Fund Facility for Egypt, which makes available US$820 million to help support its reform agenda. Ivanna Vladkova Hollar leads the IMF’s work in Egypt. In this podcast, she says that while stabilizing its economy is positive, Egypt’s next big step is an economic transformation that will lift its private sector.  Weekly Roundup FISCAL POLICY Governments Everywhere are Facing a Seemingly Impossible Choice: Gaspar Public debt and deficits have surged to alarming levels. Global growth is flagging, and the path of interest rates is highly uncertain. In many respects, the world economy echoes the early 1980s, when fiscal challenges took center stage after a period of focus on inflation and monetary policy. But the situation now is different in several ways. More and bigger global challenges such as climate change, population aging, and the fight against poverty and inequality are adding even more pressure to government budgets. At the same time, along with the return of populism, public demand for fiscal restraint has weakened substantially over the last two decades. This unique set of conditions has produced a fiscal policy trilemma, writes the IMF’s Vitor Gaspar in Foreign Policy magazine. STAFF PAPER Systemic Implications of Financial Inclusion The effect of financial inclusion (FI) on financial stability has gained substantial attention in recent years, underscoring its critical importance for effective policymaking. Only very recently has the literature begun to investigate the effect of FI on financial stability, particularly within the banking system, which is the main provider of formal finance. So far, current research has mainly focused on assessing individual banking risk using indicators which may not fully capture the relationship between FI and financial stability. While individual risks are significant, relying solely on the idiosyncratic risk dimension falls short in comprehensively addressing the potential broader repercussions of a bankruptcy on the entire economy, particularly in cases where the financial sector lacks sufficient capitalization. A new IMF staff paper fills this gap by examining FI’s effects across multiple risk dimensions, including systemic risk, which has received limited attention to date. STAFF PAPER Rising Temperatures, Nuanced Effects Climate change is an enormous challenge for humankind. Understanding the impact of rising temperature, the most basic manifestation of climate change, on economic activity is fundamental to adaptation and mitigation efforts. Using quarterly temperature and sectoral value-added data for a large sample of advanced economies (AEs) and emerging markets and developing economies (EMDEs), a new IMF staff paper uncovers nuanced effects of temperature on economic activity. For EMDEs, hotter spring and summer temperatures reduce growth in real value-added of manufacturing, and most significantly, of agriculture, while a warmer winter boosts it. For advanced countries (AEs), a hotter spring hurts growth in real value-added of all considered sectors: services, manufacturing and agriculture. For both country groups, the negative effect of a hotter spring is larger and more persistent than the positive effect of a warmer winter. Furthermore, the adverse impacts of hotter temperatures in advanced economies have accentuated in recent decades. This result suggests increased vulnerability to rising temperatures. Thank you 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