International Monetary Fund:Weekend Read: Georgieva's Annual Meetings Curtain-Raiser Speech ...

 

Dear MARIA, welcome to a special edition of the Weekend Read   In today's edition, we highlight: Georgieva's Annual Meetings curtain-raiser speech Countries stand to benefit from IMF lending reforms How high economic uncertainty may threaten global financial stability AI can make markets more efficient - and more volatile Support for economic reforms hinges on communication, engagement, and trust Global inflationary episode offers lessons for monetary policy Global public debt is probably worse than it looks, and much more FULL SCHEDULE ANNUAL MEETINGS CURTAIN-RAISER SPEECH Georgieva: We Can Do Better (Credit: IMF Photo) IMF forecasts point to an “unforgiving combination of low growth and high debt,” said the Fund’s Managing Director Kristalina Georgieva in her “curtain-raiser” speech ahead of next week’s IMF/World Bank Annual Meetings. The good news is that "the big global inflation wave is in retreat,” she said. “This has been done without tipping the global economy into recession and large-scale job losses—something we saw after past inflation episodes and which many feared we would see again." Yet, despite this “big achievement,” the world is facing a “troubling picture” of high and rising public debt and the prospect of “lackluster” medium-term growth. “Not enough growth to eradicate world poverty. Nor to generate the number of jobs we need. Nor the tax revenue needed to service government debt loads while supporting our vast investment needs,” she noted. Georgieva also warned of geo-economic fragmentation, with major economies increasingly resorting to industrial policy and protectionism: “It is like pouring cold water on an already-lukewarm world economy.” So, what can policymakers do? Start by reducing debt and rebuilding buffers for the next shock. “Budgets need to be consolidated—credibly, yet gradually in most countries,” she said. “This will involve difficult choices on how to raise revenues and make spending more efficient, while also making sure that policy actions are well-explained to earn the trust of the people.” Boosting medium-term growth will be critical to deliver jobs, tax revenues, fiscal space, and debt sustainability. To get there, we need fundamental economic reforms: from improving governance and cutting red tape, to stepping up labor market reforms, to harnessing the power of AI. We also need a revival of international cooperation, especially on trade and climate. “Countries need to relearn how to work together. And institutions like the IMF—born from the basic idea that pooling resources is efficient—play a vital role,” Georgieva said. Watch the Speech IMF LENDING Countries Stand to Benefit from IMF Lending Reforms (Credit: IMF Photo) The IMF’s membership has agreed to two key sets of reforms to IMF lending, focused on (1) borrowing charges and surcharges and (2) lending under the Poverty Reduction and Growth Trust (PRGT). On October 11, IMF members reached consensus on a comprehensive package that substantially reduces the cost of borrowing, while safeguarding the IMF's financial capacity to support countries in need. The approved measures will lower IMF borrowing costs for members by 36 percent, or about US$1.2 billion annually, while the expected number of countries subject to surcharges in fiscal year 2026 will fall from 20 to 13, IMF Managing Director, Kristalina Georgieva, said in a statement. “This reform helps ensure that the IMF can continue serving our members in a changing world.” Read our FAQs on the review of charges and the surcharge policy. On October 16, the IMF’s membership adopted a comprehensive reform and financing package for the PRGT to bolster the IMF’s support to low-income countries. The package includes a framework to deploy IMF net income and/or reserves to generate about US$8 billion in additional subsidy resources for the PRGT over the next five years. Combined with other reforms and last year’s fundraising, this would increase the PRGT’s long-term annual lending envelope to about US$3.6 billion, more than twice the pre-pandemic level, and help catalyze significant additional flows from public and private sources, IMF Managing Director, Kristalina Georgieva, said in a statement.  “Our global membership has demonstrated once again its shared commitment to support our low-income members in challenging economic times.” Read our FAQs on the review of the PRGT. Read the Statement FINANCIAL SECTOR STABILITY How High Economic Uncertainty May Threaten Global Financial Stability  (Credit: IMF Photo/Jeenah Moon) Uncertainty is not as easily measured as traditional indicators like growth or inflation, but economists have built some reliable proxies, write the IMF’s Mario Catalán, Andrea Deghi, and Mahvash S. Qureshi in a new blog. One of the best-known gauges is the Economic Policy Uncertainty Index, which tallies how many news stories in major publications cite uncertainty, the economy, and policy. Others track the difference between published economic data and what economists previously projected. “With measures like these still elevated after years of disruption from the pandemic, the surge in inflation, fraying geopolitics and war, climate disasters and rapidly evolving technologies, we now have a better understanding of how greater uncertainty can threaten financial stability,” the authors say. “It can exacerbate risks of financial market turmoil, delay consumption and investment decisions by people and businesses, and prompt lenders to tighten the credit supply.” One important observation is that uncertainty about the economy may not always be in step with uncertainty reflected in financial markets. As shown in a chapter of the Global Financial Stability Report, disconnects between high economic uncertainty and low financial market volatility can persist over time. But if a shock brings market volatility roaring back, it can have much broader implications for the economy.  Read the Blog ARTIFICIAL INTELLIGENCE AI Can Make Markets More Efficient—and More Volatile  (Credit: Lewis Tse Pui Lung/iStock by Getty Images) The adoption of the latest iterations of artificial intelligence by financial markets can improve risk management and deepen liquidity; but it could also make markets opaque, harder to monitor, and more vulnerable to cyber-attacks and manipulation risks, write the IMF’s Nassira Abbas, Charles Cohen, Dirk Jan Grolleman, and Benjamin Mosk in a new blog. The new Global Financial Stability Report looks at new market data to understand where this technology might be taking us. IMF staff conducted extensive outreach across various stakeholders—from investors to technology providers to market regulators—to show how financial institutions are harnessing advances in AI for capital market activities, and the potential impact of its adoption. To prepare for a faster reacting market where nonbanks may continue to rise in importance, various aspects of regulation and supervision in AI-related areas should be enhanced, the authors say. Financial sector authorities and trading venues should determine if they need to design new volatility response mechanisms—or modify the existing ones appropriately—to respond to “flash crash” events potentially originated in AI-driven-trading. Similarly, financial sector authorities should continue to strengthen oversight and regulation of nonbank financial intermediaries by requiring them to identify themselves and disclose AI-relevant information; as well as require financial institutions to regularly map interdependencies between data, models, and technological infrastructure supporting AI models. Read the Blog ECONOMIC GROWTH Support for Economic Reforms Hinges on Communication, Engagement, and Trust  (Credit: IMF Photo/rogeranis.photo) The global economy is stuck in a low-growth gear, largely because of aging populations, weak business investment, and structural frictions that prevent capital and labor from flowing to where it can be most productive. As demographic pressures intensify and the green and digital transitions call for significant investment and resource reallocation across companies and industries, some countries are poised to fall further behind. This makes it even more urgent to update the rules that shape how economies operate, write the IMF’s Silvia Albrizio, Bertrand Gruss, and Yu Shi in a new blog. Although specific policy priorities differ across countries, many economies share the need to ease market entry for new businesses, foster competition in the provision of goods and services, encourage workers to stay in the labor force, and better integrate immigrant workers. “Reforms like these need broad societal support, yet public discontent has mounted since the global financial crisis,” write the authors. “To build trust and public support, policymakers need to improve communication, engage the public when designing reforms, and recognize some people may need support if reforms hurt them, as we show in new analysis highlighted in a chapter of the latest World Economic Outlook.” Their analysis suggests a multi-faceted strategy can ease resistance to structural reforms: information - effective communication; engagement - two-way dialogue between officials and the public; mitigation – acknowledging that reforms may hurt some groups and addressing those concerns with tailored mitigating measures; and trust – the critical pillar on which the three above rely. Read the Blog INFLATION Global Inflationary Episode Offers Lessons for Monetary Policy  (Credit: winhose/iStock by Getty Images) The inflation surge over the past three years followed a unique disruption to the global economy, write the IMF’s Jorge Alvarez, Alberto Musso, Jean-Marc Natal, and Sebastian Wende in a new blog. “Pandemic lockdowns initially tilted demand away from services and toward goods,” the authors note. “But this came at a time when unprecedented fiscal and monetary stimulus boosted demand, and many firms were not able to ramp up production fast enough, resulting in mismatches between supply and demand and rising prices in some sectors.” For example, ports were stretched to or beyond their capacity, partly due to pandemic-related staffing shortages, so as demand for goods surged, this resulted in backorders. When economies reopened, demand for services came roaring back and Russia’s invasion of Ukraine sent commodity prices soaring, in turn pushing global inflation to its highest level since the 1970s. Their latest chapter of the latest World Economic Outlook reflects on this episode, drawing lessons—both new and old—for monetary policy, the authors write. Read the Blog PUBLIC DEBT Global Public Debt Is Probably Worse Than it Looks  (Credit: IMF Photo/Tuane Fernandes) Global public debt is expected to exceed $100 trillion, or about 93 percent of global GDP by the end of this year and will approach 100 percent of GDP by 2030. This is 10 percentage points of GDP above 2019, write the IMF’s Era Dabla-Norris, Davide Furceri, Raphael Lam, and Jeta Menkulasi in a new blog. While the picture is not homogeneous—public debt is expected to stabilize or decline for two thirds of countries—the October 2024 Fiscal Monitor shows that future debt levels could be even higher than projected. And much larger fiscal adjustments than currently projected are required to stabilize or reduce it with a high probability. The report argues that countries should confront debt risks now with carefully designed fiscal policies that protect growth and vulnerable households, while taking advantage of the monetary policy easing cycle. The fiscal outlook of many countries might be worse than expected for three reasons: large spending pressures, optimism bias of debt projections, and sizable unidentified debt. Previous IMF research has shown that fiscal discourse across the political spectrum has increasingly tilted toward higher spending. And countries will need to increasingly spend more to cope with aging and healthcare; with the green transition and climate adaptation; and with defense and energy security. On the other side, past experience suggests that debt projections tend to underestimate actual outcomes by a sizable margin. Realized debt-to-GDP ratios five-years ahead can be 10 percentage points of GDP higher than projected on average. Read the Blog F&D MAGAZINE Mass Flourishing and Economic Dynamism (Credit: Chantal Jahchan) Why do some nations experience mass economic flourishing while others do not? Why did several Western nations—first the United Kingdom, then the United States, France, and Germany—see a remarkable period of innovation, economic growth, and human progress beginning about 1890? Writing in F&D magazine, Nobel laureate and Columbia University professor Edmund Phelps says that well-performing nations acquired higher levels of dynamism—the desire and capabilities of the nation’s people to innovate. “The force behind this innovative dynamism that spurred people in large numbers to conceive innovations was the rise and spread of certain modern values: individualism, vitalism, and a desire for self-expression.” Weekly Roundup STAFF PAPER Industrial Policy Coverage in IMF Surveillance—Broad Considerations Industrial policy (IP) refers to targeted government interventions aimed at supporting specific domestic firms, industries, or narrowly defined economic activities to achieve certain national (economic or non-economic) objectives. Since the mid-2010s, countries have increasingly used IP to guide structural transformation of their economies amidst the COVID-19 pandemic, escalating geopolitical tensions, and pressures to accelerate the green transition. This recent staff paper outlines broad considerations for deploying IP and guiding principles for its coverage in IMF surveillance. The note also provides examples of IP coverage in recent Article IV consultations, such as the use of trade measures (Indonesia), green IP (the USA and the Euro Area), special economic zones (Saudi Arabia), and state-owned enterprises (China). STAFF PAPER Fiscal Discourse and Fiscal Policy Global public debt is at an all-time high, with government spending outpacing the growth of tax revenues and economic activity. Mounting concerns about big government and the long-run trajectory of fiscal policy permeate public discourse. The confluence of population aging, rising geopolitical tensions, and climate transitions will likely add to spending pressures going forward. Fiscal outcomes are undoubtedly shaped by long-term transformations and voter preferences for government intervention. What is less known is how the supply side of political ideas shapes fiscal policy choices. How have political narratives on fiscal issues evolved over time? What narratives prevail among political parties as economic conditions change? Do these narratives matter for fiscal outcomes? In this paper, the authors tackle these largely unexplored questions.  OCTOBER 21, 12:30 PM ET IMF Inspired: Women, Power, and Leadership Join Claire Shipman, journalist and author of The Power Code, and Sabina Bhatia, Deputy Secretary of the IMF, for a conversation on women’s empowerment and leadership, and the need to redefine power to foster a more inclusive environment for all. Kristalina Georgieva, Managing Director of the IMF, will give opening remarks. Watch Here OCTOBER 22, 9:00 AM ET World Economic Outlook Press Briefing The World Economic Outlook (WEO) is a survey of prospects and policies by the IMF staff, usually published twice a year, with updates in between. It presents analyses and projections of the world economy in the near and medium term, which are integral elements of the IMF’s surveillance of economic developments and policies in its member countries and of the global economic system. Watch Here OCTOBER 22, 10:15 AM ET Global Financial Stability Report Press Briefing The Global Financial Stability Report provides an assessment of the global financial system and markets, and addresses emerging market financing in a global context. It focuses on current market conditions, highlighting systemic issues that could pose a risk to financial stability and sustained market access by emerging market borrowers. Watch Here OCTOBER 23, 9:00 AM ET Fiscal Monitor Press Briefing As the global economy faces increasing fiscal challenges, multilateral surveillance of fiscal developments has become an important part of the IMF’s surveillance responsibilities. The Fiscal Monitor series provides an overview of latest public finance developments, updates the medium-term fiscal outlook, and assesses fiscal implications of policies relevant to the global economy. Watch Here OCTOBER 24, 8:00 AM ET Managing Director's Press Briefing on the Global Policy Agenda IMF Managing Director Kristalina Georgieva presents the Global Policy Agenda during her opening press conference for the IMF-World Bank Annual Meetings 2024. Watch Here 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

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