IMF Country Focus

 

Mongolia Tighter Fiscal Policy Can Help Mongolia Control Inflation (Credit: heckepics/iStock by Getty Images) Discussions at the Bank of Mongolia’s recent international conference marking its centennial highlighted an important policy issue: how to better align monetary and fiscal policies to tackle high inflation. Ideally, monetary and fiscal policies should operate like a rider on a horse, working in concert but also within their mandates and objectives. In Mongolia, there is room to make the monetary-fiscal ride smoother to arrive at target inflation more quickly. The Bank of Mongolia—one of Asia’s oldest central banks in a country that was an early initiator of coin and paper note circulation dating back eight centuries to the Mongol Empire—has played a major role in Mongolia’s transition from a centrally planned economy to a market economy. The Bank established a two-tier banking system in 1991 to separate the central bank from commercial lenders, scrapped the fixed exchange rate in 1993 to promote exports and improve the balance of payments, and phased out direct controls in favor of a market-oriented monetary policy framework.  The Bank also introduced elements of an inflation targeting framework in 2013 but its journey toward full-fledged inflation targeting remains incomplete. While the central bank has a mandate to maintain stable prices, two obstacles impede the journey: a lack of operational independence and the significant impact of fiscal policies on monetary policy outcomes, given the large share of the government in the economy. Improving government policies can therefore play an important role in keeping inflation in check.

ΙΜF,update

 

Dear MARIA, In today's edition, we highlight: China's economy Georgieva on global economic cooperation AI and the Next Economic Downturn Energy security in Europe New F&D coming soon, and much more

CHINA Growth Outlook Brighter, but Challenges Remain (Credit: IMF Photo/Raul Ariano) China's economic development over the past few decades has been remarkable, but these achievements have been accompanied by imbalances and headwinds to growth have emerged, said IMF First Deputy Managing Director Gita Gopinath in a press conference on China’s Article IV consultation. “The authorities recognize these challenges and are focused on achieving high quality growth,” said Gopinath. “In our view, a more comprehensive policy approach would help China navigate the headwinds facing the economy.” The Fund projects that China's economy will grow by 5 percent in 2024 and 4.5 percent in 2025. This reflects upward revisions of 0.4 percentage points for both years compared to the April World Economic Outlook projections, driven by a strong first quarter GDP growth in 2024 and recent policy measures. The ongoing housing market correction, necessary for steering the sector towards a more sustainable path, must continue, said Gopinath, welcoming measures the authorities have implemented to guide the property market transition, including recent policy announcements regarding lending support for affordable housing.

ΙΜF Podcast

 

(Photo: ANDRE M. CHANG/ZUMAPRESS/NEWSCOM) Nigeria’s eNaira was the first Central Bank Digital Currency in Africa and only the second in the world when it launched in October 2021, but a growing number of countries across the globe are now planning to follow suit with their own CBDCs. What can they learn from Nigeria’s experience? Jookyung Ree is an economist in the IMF African Department and assigned to Nigeria when the CBDC was introduced. Ree has since studied its impact on the economy and found that existing mobile money networks are proving a challenge to the eNaira’s adoptability. In this podcast, Ree says the eNaira will need to complement mobile money systems to convince more Nigerians to use it.   Read the paper   Listen to the podcast on: IMF.org | Apple Podcasts | Spotify | Libsyn |  Soundcloud | Google Podcasts   Read the transcript     Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@imf.org.   Bruce Edwards Producer, IMF Podcasts

ΙΜF COUNTRY FOCUS

Libya After a Decade-Long Hiatus, IMF Surveillance Resumes in Libya Photo Credit: Cinoby/iStock by Getty Images By the Libya team, IMF Middle East and Central Asia Department Libya has been mired in conflict and political uncertainty since the fall of the Ghaddafi regime in 2011. Until recently, the country’s fragmentation hampered policymaking and the collection of key economic data. However, the country has made significant efforts to move forward and overcome the economic challenges brought by political conflict. As Libya paves the way for its economic recovery, it has made recent improvements in data collection, sharing, and transparency that have enabled the IMF to resume its surveillance after a decade-long hiatus.

INTERNATIONAL MONETARY FUND update

 

Dear maria, We just published a new blog—please find the full text below.  How Blended Finance Can Support Climate Transition in Emerging and Developing Economies (Photo: Adobe Stock) By Bo Li, Fabio Natalucci, and Prasad Ananthakrishnan Emerging market and developing economies account for two-thirds of global greenhouse gas emissions, and many are highly vulnerable to climate hazards. These economies will need significant financing in coming years to reduce emissions and adapt to the physical effects of climate change. Many also have high debt and constrained budgets because of the pandemic and face higher government borrowing costs amid rising interest rates around the world, making it especially difficult for public finance to meet pressing climate financing needs. These factors mean mobilizing private capital on a large scale will be key to achieving their climate objectives. Financial markets alone can’t do the job, but combining public and private capital offers unique advantages by reducing investment risk and attracting greater funding. Multilateral development banks and international financial institutions can provide support through creating blended financing structures to alter the risk-return profile for the climate transition in emerging economies

ΙΜF interesting latest news

 

Dear maria, We just published a new blog—please find the full text below.  Personal Income Tax Has Untapped Potential in Poorer Countries (PHOTO: VLAD_KARAVAEV/ISTOCK BY GETTY IMAGES) By Dora Benedek, Juan Carlos Benítez, and Charles Vellutini Many governments aiming to achieve a durable economic recovery from the pandemic must raise significant amounts of revenue in the fairest way possible. The personal income tax—levied on wages, salaries, and other income—is a suitable instrument for this challenge. In new research, we examine the scope for making greater use of this fiscal tool in developing countries, where many people earn a living at low incomes. Still in its infancy, but growing The personal income tax had become the predominant tax by the eve of World War II in many advanced economies, where it now raises approximately 9 percent of gross domestic product. In addition to bringing in revenue, it is progressive—imposing steeper rates on those with a higher income—and reduces inequality measurably. In most emerging market and low-income countries, on the other hand, such taxes are still in their infancy. Revenue from this source averages only 2.5 percent of GDP in these countries, in part because of their narrow tax base, and it does little to lessen inequality. But gradual changes have been taking place. In the two decades preceding the pandemic, income tax revenue more than doubled in low-income countries, rising from the equivalent of 1 percent of GDP to 2.1 percent, while emerging markets saw an increase from 2.1 percent to 3.1 percent. These were also reflected in share of the tax in overall tax intake, which went from 5 percent to 8 percent of total tax revenue in low-income countries and from 9 percent to 11 percent in emerging markets. Our research on this progress focuses on three questions: what drives personal income tax growth, how increases affect total revenue performance, and how these levies influence income redistribution. Our findings hold important lessons for developing countries, particularly as they grapple with the post-pandemic challenge of building the capacity to raise more tax revenue. What drives revenue growth? In examining the progress of the personal income tax in developing countries, we distinguish between observable tax policy changes and broader economic changes. Policy changes have targeted top and bottom statutory rates as well as the level of exempt income. Remarkably, we find that this hasn’t contributed much to the increase in revenue in low-income countries. And in emerging market economies, this shift has sometimes actually reduced revenue. This is the case in part because many emerging markets have introduced flat tax systems with low rates and those with progressive schedules have reduced rates over the last two decades. Economic variables, on the other hand, played a very important role. We looked at increases in per capita incomes and the size of the public-sector wage bill and the reduction in the size of the informal sector, as measured by the share of self-employed workers in the labor force and the share of agriculture in the economy. These developments have clearly been the driving force behind the growth in personal income tax revenues. As economies develop, we can expect this tax to take on greater importance. Improvements in tax administration also potentially play a role in boosting revenues, though that also extends to other taxes. Moreover, the accelerated shift into digitalized services because of the pandemic can pave the way for better income tax design and enforcement. What about the redistributive impact of the income tax in developing countries? To explore this, we separate the effects of policy design from the size of the population covered by the tax. Interestingly, the design of this tax in low-income countries is typically progressive; it is instead the narrow coverage that makes the overall contribution to redistribution very small compared to that seen in advanced economies. In emerging markets, however, it’s not progressive. It would seem, then, that there is significant potential to improve inclusion in this latter group of countries (several of which have a flat income tax). Is there scope to increase personal income tax revenue in the post-pandemic recovery? To answer this question, we look at how additional revenue is raised from alternative sources. Here again, there is a large difference between advanced economies, where additional revenue is predominantly sourced from the income tax, and low-income countries, where it plays a much more modest role. Other taxes will likely have to play a significant role, therefore, in raising revenue over the medium term, with the value-added tax and other indirect taxes remaining the main contributors. But income taxes can still be important for inclusive growth if properly designed and revenues well spent. Our research—together with the history of the tax in advanced economies—shows that the personal income tax should evolve into a more significant source of revenue as countries develop.     Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

Prakash Loungani profiles Chicago’s Marianne Bertrand, an advocate for inclusive growth.

Dear maria, Last December, there were news reports that a Black woman, Tenisha Tate-Austin, had the appraised value of her home raised by half a million dollars by having a white friend pretend to own it. When I mentioned this to an economist friend, he shrugged and simply said, “Bertrand and Mullainathan.” He didn’t need to say more: he was citing one of the most famous papers in economics of the past two decades, a 2004 study by Marianne Bertrand and Sendhil Mullainathan, both currently professors at the University of Chicago’s Booth School of Business. They sent nearly 5,000 fictitious resumes in response to job ads in Boston and Chicago and found that Black-sounding names, such as Lakisha, were 50 percent less likely to get a callback than white-sounding names, such as Emily, even though the resumes had been rigged to be alike in qualifications. It was difficult to attribute the result to anything other than explicit prejudice or unconscious bias. It’s one of several papers that have cemented Bertrand’s reputation for documenting why so many, such as women and minorities, do not do as well as they deserve, while some, such as top CEOs, are paid a lot more than they deserve. In an article for the March issue of F&D Magazine, the IMF's Prakash Loungani profiles Marianne Bertrand. Read the full article Recently Published: F&D March Issue "Rethinking Fiscal" In our March 2022 issue of F&D Magazine, published last week, we focus on “Rethinking Fiscal: Public Finance and Fairness in a Changed World”. The pandemic underscored the importance of fiscal policy in saving lives and livelihoods. Now, governments face the tricky task of returning debts to sustainable levels, even as the war in Ukraine riles world markets. In this issue, a lineup of accomplished authors provide insight and analysis on some of the biggest issues policymakers face when it comes to fiscal policy ranging from debt to institutional frameworks to taxation. In addition, we have complementary podcasts, videos, and other multimedia elements to stimulate your thinking. Want to get a print copy delivered to your home or office? Click here to subscribe. Nick Owen Senior Editor F&D Magazine nowen@IMF.org