IMF WEEKEND READ,update

 

Dear MARIA,   In today's edition, we highlight: The debt transparency dividend Stanley Fischer (1944–2025) Timor-Leste's development opportunity How to make Germany grow again The Caribbean challenge, and more PUBLIC DEBT Disclosing Debt Boosts Confidence (Credit:IMF Photo/Valerie Plesch) Public debt is projected to reach nearly 100 percent of global GDP by the end of this decade, surpassing even pandemic-level highs. Governments, particularly those in emerging market and developing economies, are faced with both mounting debt service costs and shrinking room to maneuver in government budgets. The result, the IMF’s Yan Liu writes in a new blog, is fewer resources for social programs or investments, reduced capacity to respond to shocks, and higher borrowing costs. In addition to issuing more debt, countries are increasingly using complex and opaque forms of financing. New debt instruments such as guaranteed, securitized and collateralized debt contracts linked to public-private partnerships, state-owned enterprises and pension funds have appeared on the scene. Because of the novelty and complexity of these instruments, more debt now remains hidden from the eyes of policymakers and from the public. And often it comes to light too late, during the debt restructuring process.   When revealed, hidden debt can erode confidence in the government, in its data, and its administrative capacity to provide an accurate representation of the country’s finances, the author says. This may lead to higher borrowing costs, and, if the size of the hidden debt is substantial, put debt sustainability at risk and potentially trigger a debt crisis.    “Simply put, you cannot manage what you cannot see, and this is why we need light to cut through the fog surrounding the mountain of debt,” says Liu. “We need the right laws in both borrower and creditor countries and strong institutions to do the reporting and debt management the laws require. Debt transparency is clearly a public good.” Read the Blog IN MEMORIAM Remembering Stanley Fischer (Credit: IMF Photo/Ryan Rayburn)  Stanley Fischer, who passed away in May at age 81, was one of the most important figures in the recent history of the IMF and of macroeconomics. He spent just seven years (1994–2001) at the Fund and was only the number two official in management (first deputy managing director), but he left a huge footprint, writes James Boughton, the IMF’s former historian, in a special feature for F&D magazine. Part of Fischer’s influence resulted from the era during which he served. He arrived at the IMF in September 1994 from the Massachusetts Institute of Technology, where he had been professor of economics and chairman of the economics department. Three months later, the Mexican economy descended into financial chaos. The managing director, Michel Camdessus, was on holiday for the Christmas break, and so Fischer was in charge at headquarters. “One of Stan’s key insights in responding to the Mexican crisis was that its potential to spread to other emerging markets—even those far from the Americas—was very real and very dangerous,” says Boughton. Throughout the rest of his time at the IMF, Fischer led and oversaw much of the Fund’s crisis analysis in Washington, traveling to many crisis countries—Thailand in 1996 and 1997, Indonesia and South Korea in 1997, Brazil and Malaysia in 1998, Ecuador in 1999, Argentina on several occasions. He believed strongly that the Fund had to stay engaged with countries in crisis both financially and with its policy advice, Boughton writes. Read the Article COUNTRY FOCUS Timor-Leste's Oil Savings Can Help Its Economy To Thrive (Credit:urf/Agung Wid/iStock by Getty Images) Timor-Leste has achieved significant progress since its independence in May 2002. Asia’s youngest nation has maintained stability, strengthened institutions, and enjoyed enviable economic growth and inflation for a country emerging from conflict.   Notably, it has stockpiled proceeds from its offshore oil and gas fields in its Petroleum Fund, which now exceeds $18 billion, roughly equal to 10 times the Timorese economy’s annual gross domestic product, write the IMF’s Yan Carrière-Swallow and Raju Huidrom in a new Country Focus article. While most countries that gained from commodity booms have allowed riches to slip away, Timor-Leste has managed to grow its sovereign wealth fund, introduced two decades ago, to be one of the largest relative to the economy’s size.    It’s natural that Timor-Leste would draw from its substantial savings to improve the livelihoods of its citizens. But the nation’s hard-earned wealth must be spent better and more slowly. To ensure a prosperous future for the next generation of Timorese, the government needs a medium-term plan to gradually align its spending with the country’s sustainable income stream, the authors say. Read the Article F&D MAGAZINE Making Germany Grow Again (Credit: Getty Images/Westend61) More than a quarter century after The Economist first dubbed Germany the “sick man of Europe,” the label applies again. And this time, the illness is a chronic condition, requiring a long-term treatment plan, Ulrike Malmendier and Claudia Schaffranka of the German Council of Economic Experts write in F&D. The new government’s fiscal plan to fund infrastructure investment and increased defense spending is a start, the authors say. “But Germany must also open its economy to future-oriented technologies, push for greater market integration in Europe, and build stronger capital markets at home.” For the past five years, Germany’s economy has been stagnant, growing by just 0.1 percent since 2019. Over the same period, the US economy has grown by 12 percent and the euro area as a whole by 4 percent. The forecast does not look any brighter. The economy does not lack jobs; it lacks workers. In the next 10 years the situation will worsen as 20 million workers are expected to retire while only 12.5 million enter the labor market. Older workers are less likely to work, and those who do, will work fewer hours. The aging population will worsen the labor crunch the country is experiencing today, further driving up labor costs. Labor costs are in fact the main driver of the decline in German price competitiveness, even more so than rising energy costs. Sluggish productivity growth, combined with rising wages, has led to a deterioration in unit labor costs, also compared with other major European economies such as France and Spain. Read the Article LATIN AMERICA AND THE CARIBBEAN Growth and Resilience Amid Global Uncertainty (Credit: IMF Photo/Melissa Lyttle) Most Caribbean countries face a challenging outlook. The Fund’s latest World Economic Outlook already projected tepid growth in the Caribbean region—even before accounting for the US trade policy announcements. Stronger performance in some countries—such as Jamaica and Trinidad and Tobago—was offset by slower growth in others. Slower growth is unfortunately not new to the Caribbean, said IMF Deputy Managing Director Nigel Clarke in remarks in Brasilia at the 55th annual meeting of the Caribbean Development Bank. Declining growth trends in the Caribbean region have loomed over the longer horizon as well. “This presents the Caribbean with an aggravated challenge – to reverse the trend of slower growth at a time when global growth is also declining,” said Clarke. “The challenge is to reverse the trend of slower growth when the wind in the proverbial sail is weaker and has changed direction.” To address these challenges, the goal for policymakers is clear, Clarke noted: to foster resilient and inclusive growth that sustainably raises living standards. This should be achieved through maintaining and entrenching macroeconomic stability, and decisively and comprehensively addressing the factors that raise growth potential. Read the Speech EAST ASIA AND PACIFIC Countries Must Put Their Fiscal Houses In Order (Credit: IMF Photo/Joshua Roberts) Heightened uncertainty, together with tighter financial conditions, is weighing on growth prospects, amplifying debt risks in countries where debt levels are already high. In these uncertain times, fiscal policy can be an anchor for confidence and stability. Prudent policies, within a robust fiscal framework, can deliver growth and prosperity for all, said IMF Deputy Managing Director Kenji Okamura in remarks at the Tenth Tokyo Fiscal Forum this week. “In this rapidly changing environment, countries must prioritize putting their own fiscal house in order. This includes countries in the Asia-Pacific,” said Okamura. “Strengthening fiscal frameworks helps governments in the region tackle long-standing challenges and build fiscal buffers against uncertainties. For countries with high or rising debt, it would help reduce risks, while avoiding disruptive fiscal adjustments, ultimately improving long-term growth prospects.” Read the Speech After four long years of numerous crises, sub-Saharan Africa’s hard-won recovery has been disrupted by yet another shock. The sudden shift in the global outlook has clouded the region’s short-term prospects and significantly complicated policy making. Economist Andrew Tiffin and his team produce the IMF Regional Economic Outlook for sub-Saharan Africa. In this podcast, Tiffin says the current shake-up in global value chains, while disruptive, can create new trade and investment opportunities. Listen to the Podcast 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 Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431