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IMF Executive Board Approves New Two-Year US$8.1 Billion Flexible Credit Line Arrangement for Colombia
April 26, 2024
Central Bank Digital Currencies in the Middle East and Central Asia
April 26, 2024
Against the backdrop of a rapidly digitalizing world, there is a growing interest in central bank digital currencies (CBDCs) among central banks, including in the Middle East and Central Asia (ME&CA) region. This paper aims to support ME&CA policymakers in examining key questions when considering the adoption of a CBDC while underscoring the importance of country-specific analyses. This paper does not provide recommendations on CBDC issuance. Instead, it frames the discussion around the following key questions: What is a CBDC? What objectives do policymakers aim to achieve with the issuance of a CBDC? Which inefficiencies in payment systems can CBDCs address? What are the implications of CBDC issuance for financial stability and central bank operational risk? How can CBDC design help achieve policy objectives and mitigate these risks? The paper provides preliminary answers to these questions at the regional level. A survey of IMF teams and public statements from ME&CA policymakers confirm that promoting financial inclusion and making payment systems more efficient (domestic and cross-border) are the top priorities in the region. Payment services through CBDCs, if offered at a lower cost than existing alternatives, could spur competition in the payment market and help increase access to bank accounts, improve financial inclusion, and update legacy technology platforms. CBDCs may also help improve the efficiency of cross-border payment services, especially if designed to address frictions arising from a lack of payment system interoperability, complex processing of compliance checks, long transaction chains, and weak competition. At the same time, CBDCs could negatively impact bank profitability while introducing a substantial operational burden for central banks. However, the exact economic and financial impacts of CBDCs need further study and would depend on estimates of CBDC demand, which are uncertain and country- dependent. CBDC issuance and adoption is a long journey that policymakers should approach with care. Policymakers need to analyze carefully whether a CBDC serves their country’s objectives and whether the expected benefits outweigh the potential costs, in addition to risks for the financial system and operational risks for the central bank.
Arab Republic of Egypt: First and Second Reviews Under the Extended Arrangement Under the Extended Fund Facility, Monetary Policy Consultation, and Requests for Waiver of Nonobservance of a Performance Criterion, and Augmentation and Rephasing of Access-Press Release; and Staff Report
April 26, 2024
The IMF Executive Board approved a 46-month USD 3 billion Extended Fund
Facility (EFF) arrangement for Egypt in December 2022. The EFF-supported program
aims to safeguard economic stability, restore buffers, and pave the way for inclusive
and private sector-led growth. Following policy slippages, the first and second reviews
were delayed. The return to a fixed exchange rate in February 2023 undermined the
initial credibility boost from the announcement of a shift to a flexible regime and
hampered the execution of other program pillars such as divestment of state-owned
assets. It also led to foreign exchange (FX) shortages, a large spread in the parallel
market, and constrained imports, all of which fueled inflation and weighed on growth.
At the same time, delays in raising the policy rate in response to higher-thanexpected
inflation resulted in more negative real rates and financial repression.
Continued investment in national projects at a pace inconsistent with macroeconomic
stability contributed significantly to foreign exchange and inflation pressures.
Spillovers from the conflict in Gaza and Israel and the Red Sea disruptions have
exacerbated external pressures and widened further the financing gap. A significant
investment deal with Abu Dhabi Developmental Holding Company (ADQ), signed in
February, has improved the near-term financial outlook, providing for a more benign
external financing environment as the authorities push forward with needed reforms.
Cabo Verde: Technical Assistance Report-Climate Public Investment Management Assessment (C-PIMA)
April 26, 2024
This technical report discusses the findings and recommendations of the Climate Public Investment Management Assessment (PIMA) of Cabo Verde (CPV) undertaken in March 2023.
Progress has been made in the development of a comprehensive climate change policy framework, spatial planning, coordination with municipalities and in planning for disaster risk financing. But coordination across the central government is weak with no institution positioned strategically to lead either adaptation or mitigation related investments. The regulatory and oversight framework for public enterprise (PEs) does not promote consistency between their climate-related investments and national climate policies while PEs are the main driver of public investment in Cabo Verde. The Public-Private Partnership (PPP) framework does not define how climate risks are allocated between the government and PPP partners, while the use of PPP is increasing. Investment project appraisal and selection practices do not exist. Climate-responsive spending in infrastructure is at a concept development stage but gender budgeting is a well-recognised practice. Ex post reviews or external audits of projects on climate outcomes are not conducted and climate impact is not integrated into public asset management. On these grounds, this report makes seven high-priority recommendations which could improve climate-related public investment management in Cabo Verde and support green and sustainable economic growth.
In addition, the C-PIMA report informed the design of the reform measures for a recently approved Arrangement Under the Resilience and Sustainability Facility.
Bosnia and Herzegovina-Republika Srspka: Technical Assistance Report –Public Investment Management Assessment (PIMA)
April 26, 2024
There have been significant improvements in public investment management (PIM) in Bosnia and Herzegovina - Republika Srpska (RS) over the last decade and the legal and institutional design is now ahead of many regional comparators. The effectiveness of the PIM framework is lagging behind its design, and continued strong and consistent reform efforts will be important to eliminate remaining obstacles to efficient public investment. Many of these reforms are already underway or planned.
Suriname: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria, Waivers of Nonobservance of a Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Suriname
April 26, 2024
The authorities’ commitment to fiscal discipline and macroeconomic stability
is paying off. The economy is growing, inflation is on a steady downward trend, investor
confidence is improving, donor support is increasing, and S&P has upgraded
Suriname’s credit rating. A debt restructuring agreement with EXIM China has been
signed by both parties.
Dominant Drivers of Current Account Dynamics
April 26, 2024
We estimate shocks that explain most of the variation in the current account at business cycle frequencies and over the long run. We then explore, using a standard open-economy macro model, which macroeconomic shocks are behind the empirical dominant drivers of the current account at business-cycle frequency. Rather than financial shocks or aggregate shocks to supply or demand, shocks to the relative demand between home and foreign goods are found to play a pivotal role in current account dynamics.
Public Debt Dynamics and the Impact of Fiscal Policy
April 26, 2024
Public debt-to-GDP ratios have undergone substantial fluctuations over both the short and long term. Most recently, global debt-to-GDP ratios peaked at 100% on average in 2020 due to COVID-19, retracting substantially by 2022. To understand what drives these movements, we propose a structural approach to debt decompositions based on a SVAR identified with narrative sign restrictions. We find that GDP growth shocks and the corresponding comovements of macroeconomic variables are the key drivers of debt to GDP, accounting for 40% of the observed yearly variation in 17 advanced economies since the 1980s. Discretionary fiscal policy changes, in turn, account for less than 20% of the observed changes. The analysis also finds the primary balance multiplier on GDP to be very small. We reconcile our results with the literature, underscoring the importance of accurate shock identification and accounting for cross-country heterogeneity.
At the Threshold: The Increasing Relevance of the Middle-Income Trap
April 26, 2024
We investigate the existence of a middle-income trap using finite state Markov chains, constant growth thresholds, and mean passage times. As well as studying output per head, we examine the dynamics of its proximate determinants: TFP, the capital-output ratio, and human capital. We find upwards mobility for the capital-output ratio and human capital, but not for relative TFP. The lack of upwards mobility in relative TFP, at least from an intermediate level, suggests that escaping the middle-income category can take many years, and such traps may become increasingly apparent in the years to come.
The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia
April 26, 2024
This paper investigates the effects of climate shocks on inflation and monetary policy in the Middle East and Central Asia (ME&CA) region. We first introduce a theoretical model to understand the impact of climate risks on headline and food inflation. In particular, the model shows how climate shocks could affect the path of policy rates through food prices. We then use local projections to estimate the impact of climate shocks on headline and food inflation. The results show that price stability is more easily achievable under positive climate conditions. Overall, our findings shed new light on the importance of considering climate-related supply shocks when designing monetary policy, particularly in countries where food makes up a significant part of the CPI-basket.