Dear MARIA, In today's edition, we highlight: - New F&D magazine: Europe's moment for revival
- Alfred Kammer on Europe's integration imperative
- How to spur economic growth in Africa’s fragile and conflict-affected states
- Capacity development in Central America, Panama, and the Dominican Republic, and more
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Not many places match the European Union for quality of life. Its workers enjoy more time off than in many other regions, yet their living standards are among the highest. Its core values of solidarity are exemplified in social contracts that ensure the state will care for those who need it. Yet lately the EU has lost confidence in its economic model. Wealthier than China and more populous than the United States, it has been trailing both in growth and has fallen back in technological innovation since the global financial crisis. The growth gap is widening as the continent’s workforce shrinks, productivity stagnates, and trade tensions rise. And now governments are scrambling to boost defense spending to rely less on the United States for their security. Can the EU rouse itself to meet the challenges of a new era marked by rapid geopolitical shifts and policy uncertainty? The newest issue of Finance & Development examines that question in depth, F&D Editor-in-Chief Gita Bhatt writes in a new blog. |
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Europe faces the most daunting set of challenges since the Cold War. Russia’s invasion of Ukraine, the first major war of aggression on European soil since 1945, has forced a fundamental questioning of old certainties. Economic recovery has stalled and stagnant productivity is dragging down medium-term growth prospects. Yet if history is a guide, the European Union can turn adversity to advantage, Alfred Kammer, the director of the IMF’s European Department, writes in F&D. After World War II, European nations faced the monumental task of rebuilding their economies, restoring political stability, and preventing future conflict. They met these challenges through economic integration and political cooperation, aspiring to the free movement of goods, services, people, and capital across borders. The case for completing and deepening the single market has become even more compelling as external challenges multiply, Kammer writes. “Europe needs more growth and more economic resilience. A more fully integrated economy can deliver both.” |
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(Credit: IMF Photo/Ebunoluwa Akinbo) |
More than half of sub-Saharan Africa’s population lives in fragile and conflict-affected states (FCS)—economies that face profound challenges such as stagnant economic growth, weak institutions, inadequate public services, extreme poverty, war, and forced displacement of people. Some countries have transitioned out of extreme fragility by implementing sound macroeconomic policies, diversifying the economy, and strengthening institutions. However, as explained in an analytical note in the IMF’s Regional Economic Outlook for sub-Saharan Africa, recovering from the successive shocks of recent years is likely to be difficult for many FCS, faced with erratic growth, political instability, exposure to natural disasters, and heavy resource dependency, write the IMF’s Wenjie Chen, Michele Fornino, Hamza Mighri, and Can Sever in a new blog. With strained budgets, vast development needs, and insufficient funding, fragile states in the region consistently rank at the bottom of global development indicators, say the authors. And many fragile states struggle to sustain the bursts of faster growth needed to escape poverty. As the Chart of the Week shows, while non-FCS economies in sub-Saharan Africa managed to keep growing after the pandemic—albeit more slowly than previously forecast—fragile states in the region haven’t been able to regain lost ground, with inflation-adjusted income per person still, on average, below its 2019 level. When FCS suffer a downturn, they lose revenue and have limited access to affordable financing, forcing them to cut expenditures more sharply than in non-FCS. This results in a relatively longer and deeper fiscal contraction, exacerbating the initial shock, as shown in a recent IMF working paper. |
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For over 15 years, the Regional Technical Assistance Center for Central America, Panama and the Dominican Republic (CAPTAC-DR) has been helping build skills and strengthen macroeconomic policies across the region. As a collaborative effort among seven member countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, and the Dominican Republic), external partners, and the IMF, CAPTAC-DR, based in Guatemala City, has helped guide change across a complex region, in areas ranging from public finance to central banking. The center has helped governments collect better data, manage public money with care, and prepare for challenges. Through shocks like COVID-19, it adapted fast—switching to screens, staying present, and never missing a beat. The work unfolds quietly yet echoes across the region, resulting in better budgets, faster customs lines, and more trusted statistics. More than 12,000 officials have been trained since the center opened its doors. Reforms have taken root. And now, with a new phase ahead, the staff of CAPTAC-DR remain focused, steady, and always close to the countries they serve. Read the full story in the CAPTAC-DR 15-Year Anniversary Brochure. |
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GLOBAL FINANCIAL STABILITY NOTE |
This note examines the transmission of credit risk of banks to the sovereign using the collapse of the Silicon Valley Bank in March 2023—an event that reverberated globally across banking sectors—as an exogenous shock to identify the effect. The findings suggest a strong transmission of credit risk from the banking sector to the sovereign in the United States, as well as in other major economies, in the face of adverse shocks to the banking sector. This impact is more pronounced in economies with higher public debt (relative to GDP), greater exposure of the banking sector to domestic sovereign debt, and less well-capitalized banking systems. These results suggest that investors view banking sector stress as particularly economically costly for such countries. |
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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. |
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| | Editor | IMF Weekend Read |
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This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431 |
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