(PHOTO: ASIANDREAM/ISTOCK BY GETTY IMAGES) The global economy continues to recover but the pace of growth has slowed, IMF Managing Director Kristalina Georgieva said in a blog on Wednesday ahead of a meeting of G20 finance ministers and central bankers in the Indonesian capital, Jakarta. Inflation has been higher than expected in many economies, financial markets remain volatile, and geopolitical tensions have increased sharply. “That is why we need strong international cooperation and extraordinary agility,” Georgieva said. “For most countries, this means continuing to support growth and employment while keeping inflation under control and maintaining financial stability—all in the context of high debt levels.” A new IMF staff report to the G20 underscores the complexity of this obstacle course of challenges and sets out three priorities to help policymakers find a path through it. Read a transcript of Georgieva's statement to the G20 meeting. (PHOTO: ISTOCK) Digital means of payment such as El Salvador’s Chivo government e-wallet have an important role to play in promoting financial inclusion, but there are large risks associated with using Bitcoin as legal tender, the IMF’s El Salvador team tell Country Focus in an interview. “We don’t recommend it,” said the team, led by Alina Carare, Deputy Division Chief in the Western Hemisphere Department. “In the short-term, the costs and risks largely outweigh the benefits.” After a sharp decline in 2020, the IMF expects the economy to expand by around 10 percent in 2021, but medium-term growth is likely to slip to around 2 percent, below the historical average, as policy stimulus in the US wanes. --Unsustainable Situation: Persistent budget deficits and continuous expansionary fiscal policies have resulted in a rapidly growing public debt-to-GDP ratio. “Unless decisive policy actions are taken, public debt will continue to grow, demanding more resources from the budget as borrowing costs increase,” the team said. “This situation is unsustainable.” (PHOTO: IMF PHOTO/CYRIL MARCILHACY) When countries asked people to stay at home to control COVID-19, consumers cut spending on services and bought more manufactured goods instead. Shortages of industry inputs from chemicals to microchips caused the manufacturing recovery to stall and prices to spike—sparking a debate about inflation and monetary policy. In a new blog, IMF Managing Director Kristalina Georgieva, Europe Director Alfred Kammer and Oya Celasun estimate that without supply disruptions euro-area GDP last year would have been about 2 percent higher—equivalent to about one year’s worth of growth in pre-pandemic times. About half of the increase in manufacturing price inflation can be explained by supply shocks, the authors say. --Reining in Inflation: If euro-area authorities can overcome supply disruptions, it is less likely that they will have to restrict economic growth to rein in inflation, according to the blog, which is based on an IMF staff paper available here. (PHOTO: ISTOCK/DEM10; GETTY/DEM10; GETTY/ALENGO) In his latest book, The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance, Cornell University professor Eswar Prasad describes how digital currencies and other financial technologies are reshaping everything from consumer banking to monetary policy and international payments. In a conversation with F&D’s Chris Wellisz, Prasad lays out the advantages and perils of the new forms of money. "The convenience of digital payments to both consumers and businesses makes it highly unlikely that cash will survive much longer," Prasad says. Listen to a new IMF Podcast where Prasad discusses his new book. Coming Soon: F&D March Issue "Rethinking Fiscal"Our upcoming issue of Finance & Development will focus on how the pandemic has forced a rethink of fiscal policy. Fresh insights and analysis from Vitor Gaspar, Olivier Blanchard, Ceyla Pazarbasioglu, Carmen Reinhart, Arminio Fraga, Ricardo Reis, Emmanuel Saez, Felipe Larraín, and more will delve into issues of spending, debt and the role of government in economic life. The issue will also explore how some countries are innovating in areas of climate, transparency, and digitalization; the role of taxation; and how fiscal policy can be used to curb inequalities. Want to get a print copy delivered to your home or office? Click here to subscribe. |