Tag Archives: International Monetary Fund

IMF sees “critical role” as world transitions to digital money

NEW YORK (Reuters) – The International Monetary Fund must ramp up its resources as it seeks to “monitor, advise on, and help manage this far-reaching and complex transition” to digital money, according to an IMF paper published on Thursday.

Digital money can make payments more accessible, faster and cheaper, the paper said. But to make that happen, policymakers must step up to key challenges: digital cash must be trustworthy, must protect domestic economic and financial stability, and the stability of the international monetary system should remain.

“The Fund has a critical role to play to help its members harness the benefits and manage the risks of digital money,” the paper said.

Importantly, digital money “must be regulated, designed, and provided so countries maintain control over monetary policy, financial conditions, capital account openness, and foreign exchange regimes”.

The paper makes the distinction between central bank digital currencies, stable coins and e-Money, on which it focuses, and cryptoassets including bitcoin. “While different types of digital money are considered, this paper does not take a stand on which form may predominate.”

The paper, dated March, discussed by the IMF board in April and published on Thursday, offers a vision for the evolution of the Fund and how it seeks to partner with other organizations like central banks, regulators and the World Bank.

“The Fund too must step up,” the paper said.

“The Fund must rapidly strengthen, widen, and deepen its well-established work on digital money, while coordinating and collaborating closely with other institutions within the confines of its mandate. The Fund must also rapidly ramp up its resources devoted to these topics.”

In a separate blog post earlier this week, the director of the IMF’s monetary and capital markets department and the director of its legal department said any attempt to use cryptoassets as national currencies would be risky.

Advantages “including the potential for cheaper and more inclusive financial services, should not be overlooked”, they said.

“Governments, however, need to step up to provide these services, and leverage new digital forms of money while preserving stability, efficiency, equality, and environmental sustainability. Attempting to make cryptoassets a national currency is an inadvisable shortcut.”

(Reporting by Rodrigo Campos; Editing by Catherine Evans)

IMF urges countries to shift from economic rescue to reforms

By David Lawder

WASHINGTON (Reuters) – The International Monetary Fund’s No. 2 official on Tuesday called on countries to pivot from saving their economies from collapse to reviving growth-oriented policy reforms to boost their recovery prospects and make them more sustainable.

IMF First Deputy Managing Director Geoffrey Okamoto said in a blog posting on the IMF website that the COVID-19 pandemic delayed and reversed some pro-growth reforms and restoring these can help make up for output lost during the pandemic.

Reforms that allow for faster restructurings and resolution of unviable businesses and labor policies to help retrain workers and line them up with job openings can help shift workers and capital to more promising, dynamic parts of the economy, Okamoto said.

Improved competition policy frameworks such as those being debated in Europe and the United States can reduce the concentration of market power among a few firms and create more dynamic competition and innovation.

“Using this moment for some of these difficult reforms means that the monetary and fiscal stimulus still flowing will serve as a springboard to a brighter and more sustainable future rather than a crutch to a weaker version of the pre-COVID-19 economy,” Okamoto said. “Seizing the opportunity could deliver years of solid post-COVID-19 growth and progress in living standards.”

The call for a renewed focus on reforms comes as the IMF is shifting from non-conditional emergency COVID-19 pandemic financing toward the negotiation of more traditional IMF loan programs, which require recipient countries to meet policy reform benchmarks.

The Fund last week approved a new, $1.5 billion, three-year Extended Credit Facility arrangement for the Democratic Republic of Congo, which includes reforms to boost revenue collections, improve natural resource management governance and strengthen the country’s monetary policy framework to ensure central bank independence.

The IMF is also negotiating a new Extended Fund Facility with Argentina, which has struggled under a $57 billion IMF loan, arranged in 2018, the Fund’s largest-ever.

The IMF estimates that comprehensive growth-enhancing reforms in product, labor and financial markets could lift annual GDP per capita growth by over 1 percentage point in emerging market and developing economies in the next decade.

Countries taking such steps would be able to double their speed of convergence with advanced economies’ living standards relative to pre-pandemic years, Okamoto said.

For advanced economies, pro-growth reforms that target the supply side could guard against persistent inflationary risks caused by excess demand pressures.

These reforms can boost investor confidence in emerging market countries that have been able to maintain access to global capital markets during the pandemic and help these countries cope with any tightening of financial conditions, especially if inflation persists in advanced economies, prompting interest rate hikes.

The higher growth by reforms can help poorer countries avoid harsh fiscal austerity, allowing them to maintain social and health spending while investing in the future, Okamoto said.

(Reporting by David Lawder; Editing by Andrea Ricci)

IMF says more vaccine spending is fastest way to shore up public finances

By David Lawder

WASHINGTON (Reuters) – The COVID-19 pandemic will continue to swell global public debt in 2021, but spending more money to accelerate vaccinations is the fastest way to start to normalize government finances, the International Monetary Fund said on Wednesday.

The IMF said in its 2021 Fiscal Monitor report that if faster global vaccinations bring the virus under control sooner, more than $1 trillion in additional global tax revenue could be collected through 2025 in advanced economies.

If that same upside scenario in the Fund’s economic forecasts materializes, global GDP output could increase by $9 trillion during the same period as businesses reopen and hire more quickly, the IMF said.

“Vaccination will, thus, more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution,” the IMF said in the report.

The IMF and the World Bank during their virtual Spring Meetings this week are urging member countries to keep up fiscal support for their economies and vulnerable citizens and businesses until the pandemic is firmly under control.

The Fund estimated governments have deployed some $16 trillion in pandemic-related fiscal support since the pandemic started through March 17 this year. That includes $10 trillion from additional spending and foregone revenue, and $6 trillion worth of government loans, guarantees and capital injections for businesses.

In 2021, the Fund projects fiscal deficits will shrink slightly in most countries as pandemic-related support expires or winds down, unemployment claims drop and revenues start to recover as businesses reopen.

Average overall budget deficits reached 11.7% of GDP for advanced economies in 2020 — quadruple their 2.9% share in 2019 — but they should narrow to 10.4% in 2021, the IMF said.

Deficits in emerging economies will also shrink slightly in 2021 to 7.7% of GDP for emerging market economies and to 4.9% for low-income economies.

Average worldwide public debt is projected to hit a record 99% of GDP in 2021 and to stabilize at that level after rising slightly from 97% in 2020. For advanced economies, debt will peak at 122.5% in 2021, up from 120.1% in 2020.

The IMF called for more targeted support for vulnerable households, including minorities, women and workers in low-paying jobs in the informal sectors of many economies. More focused support for small businesses was also needed, it said.

But it said some advanced countries with high debt levels may need to start rebuilding fiscal buffers to prepare for future shocks. It said those countries should develop multi-year frameworks for increasing revenues and rationalizing spending, giving priority to investments to fight climate change and reduce economic inequality.

In a Fiscal Monitor chapter released last week, the IMF said advanced economies could use more progressive income taxes, inheritance and property taxes, and taxes on “excess” corporate profits to help reduce inequalities exposed by the COVID-19 pandemic.

(Reporting by David Lawder; Editing by Ana Nicolaci da Costa)

Yellen says more work needed to shore up weaknesses revealed by pandemic

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said a rapid recovery in the United States would boost overall global growth, but more work was needed to shore up weaknesses the COVID-19 crisis exposed in the non-bank financial sector, global supply chains and the social safety net.

Yellen on Tuesday told leaders of the International Monetary Fund and the World Bank that the Biden administration had decided to “go big” with its COVID-19 response to avert the negative “scarring” impact of long-lasting unemployment, adding that she hoped the U.S. economy would return to full employment next year.

Speaking during the IMF and World Bank spring meetings, Yellen said the crisis had dealt a huge blow worldwide, and it was the responsibility of advanced economies to ensure that years of progress in reducing poverty were not reversed by the crisis.

“We are going to be careful to learn the lessons of the (global) financial crisis, which is: ‘Don’t withdraw support too quickly,'” Yellen said, “And we would encourage all those developed countries that have the capacity… to continue to support a global recovery for the sake of the growth in the entire global economy.”

Yellen said she hoped global finance officials make progress on approving a new allocation of the IMF’s emergency reserve, or Special Drawing Rights, during the meeting, and said it was critical to tackle global debt issues exacerbated by the crisis.

She also underscored the Biden Administration’s commitment to tackling climate change at home and ensuring the needed “transfer of resources” to enable similar actions in developing countries.

“We need to make sure that we help developing countries meet their climate goals along with their development objectives. And the availability of green finance is critical to that,” she said, noting that addressing climate change would also bring opportunities for investment to the private sector.

Yellen said it was critical to ensure the world was better prepared for the next global health crisis, citing the need to improve the resilience of supply chains and social safety nets around the world.

She said the core banking sector had been strengthened after the 2008-2009 financial crisis, but some areas in the non-bank financial sector “showed tremendous stress” during the pandemic and would require attention.

(Reporting by Andrea Shalal and David Lawder; Editing by Chris Reese and Dan Grebler)

IMF chief sees ‘high degree of uncertainty’ in global outlook

By Andrea Shalal

WASHINGTON (Reuters) – The head of the International Monetary Fund said on Monday the global economic outlook remained highly uncertain given the coronavirus pandemic, and a growing divergence between rich and poor countries required the IMF to find more resources.

IMF Managing Director Kristalina Georgieva told reporters a new allocation of the IMF’s own currency, Special Drawing Rights, would give countries more fiscal space to address the health crisis and accelerate moves to a digital and green economy.

Under President Donald Trump, the United States, the IMF’s largest shareholder, has blocked such a move, arguing it would provide more resources to richer countries since the allocation would be proportionate to their shareholding.

Swedish Finance Minister Magdalena Andersson, the new chair of the IMF’s steering committee speaking at an online news conference with Georgieva, said it was clear the need for liquidity remained great, and she would consult with member countries on options for expanding liquidity.

Georgieva said the IMF had rapidly increased concessional financing to emerging market and developing economies, including through donation of some $20 billion in existing SDRs. That would continue to play an important role, but further steps were needed, she said.

“It will continue to be so important, even more important, for us to be able to expand our capacity to support countries that have fallen behind,” Georgieva said.

The option of carrying out a new SDR allocation – something akin to a central bank printing money – had never been taken off the table by IMF members, she said, adding that some members continued to discuss it as a possible move.

(Reporting by Andrea Shalal; Additional reporting by Simon Johnson in Stockholm; Editing by Mark Heinrich and Bill Berkrot)

IMF tells G20 countries to “keep spending” on COVID-19 crisis

By Andrea Shalal

WASHINGTON (Reuters) – The International Monetary Fund on Monday warned Group of 20 major economies that the coronavirus crisis is not over and called on the United States, Britain and other countries to increase the amount of fiscal spending currently planned.

Premature withdrawal of fiscal support at a time of continued high rates of unemployment would “impose further harm on livelihoods and heighten the likelihood of widespread bankruptcies, which in turn could jeopardize the recovery,” senior IMF officials warned in a blog published Monday.

The blog, entitled, “The Crisis is Not Over, Keep Spending (Wisely),” said swift and unprecedented action by G20 and emerging market economies had averted an even deeper crisis, with G20 countries alone providing $11 trillion in support.

The IMF last month forecast a 2020 global contraction of 4.4% and a return to growth of 5.2% in 2021, but warned that the situation remained dire and governments should not withdraw stimulus prematurely.

On Monday, it said COVID infections were continuing to spread, but much of the fiscal support provided was now winding down, with cash transfers to households, deferred tax payments and temporary loans to businesses either having expired or being set to do so by year-end.

In economies where deficits dropped by 10% of gross domestic product this year, fiscal balances are expected to narrow by more than 5% of GDP in 2021, largely due to a sharp withdrawal of relief measures, they said.

“Larger support than currently projected is desirable next year in some economies,” the IMF said in a longer report to G20 countries also published Monday. It singled out Brazil, Mexico, Britain and the United States, citing large drops in employment in these economies and projected fiscal contractions.

Democratic lawmakers and Republican President Donald Trump have been unable to reach agreement on a new stimulus package for the United States, the world’s largest economy. New spending may not be agreed until early 2021, depending on the outcome of the presidential election on Tuesday.

The IMF said countries should maintain support for poor and vulnerable groups hit disproportionately hard by the crisis, as well as targeted support for viable firms to maintain employment relationships. It listed India, Mexico, Russia, Saudi Arabia, Turkey and the United States as examples.

However it warned against providing support for firms that hindered a transfer of resources from sectors that may permanently shrink to those sectors that will be expanding.

(Reporting by Andrea Shalal; Editing by Chizu Nomiyama and Nick Macfie)

Global economic outlook ‘somewhat less dire’ than expected: IMF

By Andrea Shalal

WASHINGTON (Reuters) – The global economic outlook is not quite as dark as expected even just three months ago, a top International Monetary Fund official said on Thursday, citing better-than-anticipated economic data from China and other advanced economies.

However, IMF spokesman Gerry Rice told reporters the overall global outlook remained challenging as a result of the coronavirus pandemic and its impact on many economic sectors.

The situation remained “precarious” in many developing countries and emerging markets other than China, he said, noting that the IMF was also concerned about rising debt levels.

The IMF is due to release its latest World Economic Outlook on Oct. 13. In June, it slashed its 2020 global output forecasts further, forecasting the global economy would shrink by 4.9%, compared with a 3.0% contraction predicted in April.

Rice gave no fresh numbers, but said recent data from China and other advanced economies was better than expected.

“Recent incoming data suggests that the outlook may be somewhat less dire than at the time of the WEO update on June 24, with parts of the global economy beginning to turn the corner,” he told a regular briefing.

There were also signs that global trade was slowly beginning to recover after widespread lockdowns aimed at containing the spread of the virus, Rice said.

“But I would emphasize that we are not out of the woods, and the outlook remains very challenging, especially for many emerging markets and developing countries, other than China,” he said, noting that many of those countries faced continued weakness in domestic demand, lower export demand, shrinking remittances and declines in tourism.

“Taken together, we are very concerned that this crisis will reverse the gains in poverty reduction that have been made in recent years, and roll back progress that has been made toward the Sustainable Development Goals,” he said, referring to ambitious goals set out by the United Nations five years ago to end poverty and inequality.

(Reporting by Andrea Shalal in Washington; Editing by Matthew Lewis)

Pandemic could trigger social unrest in some countries: IMF

Pandemic could trigger social unrest in some countries: IMF
By Andrea Shalal

WASHINGTON (Reuters) – New waves of social unrest could erupt in some countries if government measures to mitigate the coronavirus pandemic are seen as insufficient or unfairly favoring the wealthy, the IMF (International Monetary Fund) said in a new report on Wednesday.

Governments had already spent nearly $8 trillion to combat the pandemic and mitigate the economic fallout, but more fiscal stimulus would be needed once the crisis abated, the global lender said in its semi-annual Fiscal Monitor.

The spike in spending would sharply widen fiscal deficits, with global public debt set to rise 13 percentage points to more than 96% of gross domestic product in 2020, it said.

On Tuesday, the IMF forecast the global economy to shrink 3.0% during 2020 as a result of the pandemic, but warned that its forecasts were marked by “extreme uncertainty” and outcomes could be far worse.

Efforts to halt the disease have shut down large swaths of the global economy, with emerging market and developing countries likely to be hardest hit.

While mass protests are unlikely with strict lockdowns in place, unrest could spike when the crisis appeared to be under control, Vitor Gaspar, director of the IMF’s fiscal affairs department, told Reuters in an interview.

To avert further unrest following numerous protests in many parts of the world over the past year, policymakers must communicate with affected communities to build support for measures to tackle the virus, he said.

“This is something we have emphasized: it is crucial to provide support to households and firms that are made vulnerable by the crisis,” he said. “The goal is to support and protect people and firms that have been affected by shutdowns.”

Tensions are already becoming evident as lockdowns leave day laborers and many in the informal economy without jobs or food.

In India’s commercial capital of Mumbai, thousands of jobless migrant workers protested on Tuesday at a railway station, demanding to be allowed to return to their homes in the countryside, after Prime Minister Narendra Modi extended a lockdown of the population of 1.3 billion.

Unemployment has almost doubled to around 14.5% in India since the lockdown began in late March, according to the Centre for Monitoring Indian Economy, a private think-tank.

In India and elsewhere, shutdowns have sparked an exodus of millions of workers from city jobs in small industries and service jobs back to their home villages.

Daily wage earners are particularly vulnerable, and many are already having to skip meals, say World Bank officials.

IMF chief economist Gita Gopinath said previous crises and disasters had fostered solidarity, but there could be a different outcome this time.

“If the crisis is badly managed and it’s viewed as having been insufficient to help people, you could end up with social unrest,” she told Reuters.

To avoid future protests, she said it was critical for the international community to play a supportive role for poorer countries through concessional financing and debt relief.

The report said government spending to date included direct fiscal costs of $3.3 trillion, public sector loans and equity injections of $1.8 trillion, plus $2.7 billion in guarantees and other contingent liabilities of $2.7 trillion.

It forecast lower output and said government revenue was now forecast to be 2.5% of global GDP, lower than was projected in October.

Gaspar said it was hard to predict how much more spending would be needed, but broad-based fiscal stimulus would be an important tool to foster recovery once the outbreak abated.

(Reporting by Andrea Shalal; Editing by Clarence Fernandez)

Coronavirus poses risks to fragile recovery in global economy: IMF

By Andrea Shalal

WASHINGTON (Reuters) – The coronavirus epidemic has already disrupted economic growth in China and a further spread to other countries could derail a “highly fragile” projected recovery in the global economy in 2020, the International Monetary Fund warned on Wednesday.

In a note prepared for G20 finance ministers and central bankers, the global lender mapped out a plethora of risks facing the global economy, including the fast-spreading coronavirus and a renewed spike in U.S.-China trade tensions, as well as climate-related natural disasters.

Finance ministers and central bankers from the top 20 advanced industrialized economies will gather in Riyadh, Saudi Arabia, later this week amid continued uncertainty about the impact of the coronavirus, known as COVID-19.

The IMF said it was sticking to its January forecast for 3.3% growth in the global economy this year, up from 2.9% in 2019, already a downward revision of 0.1 percentage points from its forecast in October.

But it said the recovery would be shallow and risks remained skewed to the downside. “The recovery could be derailed by a sharp rise in risk premia, triggered for example by a re-escalation of trade tensions, or a further spread of the coronavirus,” the Fund said.

Chinese state television quoted President Xi Jinping as saying China could still meet its economic growth target for 2020 despite the epidemic. But the IMF note cast doubt on that.

“The coronavirus, a human tragedy, is disrupting economic activity in China as production has been halted and mobility around affected regions limited,” the Fund wrote in the note. “Spillovers to other countries are likely — for example through tourism, supply chain linkages, and commodity price effects.

It said the impact of the virus was still unfolding, and while the current scenario assumed a quick containment of the virus and a bounce-back later in the year, the impact of the epidemic could be larger and longer-lasting.

“A wider and more protracted outbreak or lingering uncertainty about contagion could intensify supply chain disruptions and depress confidence more persistently, making the global impact more severe,” the Fund said in the note.

Cyber attacks, an escalation of geopolitical tensions in the Middle East or a breakdown in trade negotiations between China and the United States could also impede the short-term global recovery, it said. And climate-related disasters, rising protectionism and social and political unrest triggered by persistent inequality posed further economic risks.

The Fund urged policymakers to maintain fiscal and monetary policy support. Low inflation required monetary policy to stay accommodative in most economies, it said.

(Reporting by Andrea Shalal; Editing by Tom Brown)

Letter bomb at IMF’s Paris office injures employee

Police outside the International Monetary Fund (IMF) offices where an envelope exploded in Paris, France, March 16, 2017. REUTERS/Philippe Wojazer

PARIS (Reuters) – A female employee of the International Monetary Fund was injured in the face and arms on Thursday when a letter bomb posted to the world lender’s Paris office blew up as she opened it, police said.

The explosion was caused by a homemade device, said the head of the French capital’s police force.

“It was something that was fairly homemade,” police chief Michel Cadot told reporters.

Cadot said there had been some recent telephone threats but it was not clear if these were linked to the incident at the IMF’s offices.

A police source said the woman who opened the letter suffered burns on her face and arms but her life was not in danger.

Separately, at least two people were injured in a shooting at a high school in the small southern French town of Grasse, a police source said.

France, which is in the middle of a presidential campaign ahead of elections in six weeks time, has been hit by attacks by Islamist groups in the last few years that have killed scores of people and the country is still in a state of emergency with army units patrolling the streets of Paris.

A militant Greek group, Conspiracy of Fire Cells, claimed responsibility for a parcel bomb mailed to German Finance Minister Wolfgang Schaeuble on Wednesday, but there was no immediate claim of responsibility for the Paris bomb.

The IMF has been involved in discussions between Greece and its international creditors on disbursing new loans to Athens under a bailout program.

President Francois Hollande said French authorities would do all they could to find those responsible.

IMF chief Christine Lagarde condemned the explosion as “a cowardly act of violence.”

“I … reaffirm the IMF’s resolve to continue our work in line with our mandate. We are working closely with the French authorities to investigate this incident and ensure the safety of our staff,” she said.

(Reporting by Sophie Louet and Bate Felix; Writing by Adrian Croft and John Irish; Editing by Richard Balmforth)