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Cover IMF Working Papers
Guaranteeing Trade in a Severe Crisis: Cash Collateral over Bank Guarantees
Antonis Kotidis
,
Ms. Margaux MacDonald
, and
Dimitris Malliaropulos
Banks guarantee international trade through letters of credit. This paper analyzes what happens to trade when the critical role of banks as trade guarantors is compromised. Using the case of the Greek capital controls in 2015, the events around which led to a massive loss of confidence in the domestic banking system, we show that firms whose operations were more dependent on domestic banks suffered a steep decline in imports and, subsequently, exports. This operated through letters of credit, which during the capital controls period had to be backed by firms’ own cash collateral rather than the bank guarantee. As a result, cash-poor firms imported relatively less. Public intervention to guarantee transactions is shown to help mitigate some of the decline in imports.
Keywords:
Bank guarantee; letters of credit; imports; exports; capital control; trade guarantor; cash-poor firm; outflow control; log letters of credit; bank intermediation channel; Capital controls; Credit; Commercial banks; Capital outflows; Asia and Pacific
Cover IMF Working Papers
Global Supply Chain Disruptions: Challenges for Inflation and Monetary Policy in Sub-Saharan Africa
Zo Andriantomanga
,
Marijn A. Bolhuis
, and
Shushanik Hakobyan
The Covid-19 pandemic has led to a large disruption of global supply chains. This paper studies the implications of supply chain disruptions for inflation and monetary policy in sub-Saharan Africa. Increases in supply chain pressures have had a sizeable impact on headline, food, and tradable inflation for a panel of 29 sub-Saharan African countries from 2000 to 2022. Our findings suggest that central banks can stabilize inflation and output more efficiently by monitoring global supply chains and adjusting the monetary policy stance before the disruptions have fully passed through into all inflation components. The gains from monitoring supply chain disruptions are particularly large for open economies which tend to experience outsized second-round effects on the prices of non-tradable goods and services.
Keywords:
Inflation; global supply chains; sub-Saharan Africa; shipping costs; monetary policy; core inflation; food prices; oil price; monetary policy stance; inflation in sub-Saharan Africa; monetary policy in sub-Saharan Africa; inflation component; GSCPI shocks to inflation; Supply shocks; Oil prices; Central bank policy rate; Global
Cover IMF Working Papers
Differential Effects of Macroprudential Policy
Nina Biljanovska
and
Sophia Chen
We explore the differential effects of lender-based macroprudential policies on new mortgage borrowing for households of different income using a comprehensive dataset that links macroprudential policy actions with household survey data for European Union countries. The main results suggest that higher-income households on average experience a larger reduction in mortgage loan size than lower-income households when regulation targeting total lenders’ assets tightens. In contrast, lower-income households on average experience a larger reduction in mortgage loan size than higher-income households when regulation targeting lenders’ capital requirements tightens. We also provide evidence of the different channels through which the differential effects operate.
Keywords:
Household borrowing; macroprudential policy; income distribution; differential effect; higher-income household; capital requirements; household income; capital requirement; Income; Mortgages; Loans; Macroprudential policy instruments; Global
Cover High-Level Summary Technical Assistance Reports
Jordan: Retail Central Bank Digital Currency Exploration
Natsuki Tsuda
,
Ms. Marianne Bechara
,
Stephanie Forte
,
Kathleen Kao
,
Shuji Kobayakawa
,
Ashley Lannquist
, and
Frankosiligi Solomon
The International Monetary Fund (IMF) analyzed the retail payments markets of Jordan to identify pain points that retail Central Bank Digital Currency (rCBDC) could address. Retail payment systems in Jordan are highly integrated, enabling customers to make interoperable transactions between banks and non-bank Payment Service Providers (PSPs).1 The country’s cross-border remittance market is competitive, but may benefit from the reduced transactions cost associated with rCBDC. Despite generally accessible and appropriate product offerings and an enabling environment, various barriers prevent customers from extensively using digital means of payment. rCBDC might create an opportunity to overcome these barriers, thus making a cross-border rCBDC worth consideration. However, the Central Bank of Jordan (CBJ) should rigorously evaluate benefits against risks and costs before forging ahead. Meanwhile, the CBJ should develop capacity to address technology, cybersecurity, financial integrity, and legal issues.
Keywords:
central bank digital currency CBDC distributed ledger technology noncash payments payment system central bank remittances mobile banking financial intermediaries
Cover Policy Papers
Elements of Effective Policies for Crypto Assets
International Monetary Fund
This paper aims to address questions by Fund members on how to respond to the rise of crypto assets and the associated risks. To frame the discussion, the paper defines and classifies crypto assets based on their underlying features and describes their purported benefits and potential risks. The paper presents a policy framework for crypto assets that aims to achieve key policy objectives such as macroeconomic stability, financial stability, consumer protection, and market and financial integrity. The framework outlines key elements that are necessary to ensure that these objectives are met. However, such a framework will not fix any underlying crypto design flaws (for instance, the lack of a credible nominal anchor, payments finality, or scalability).
Keywords:
IMF's transparency policy; policy action; staff's policy dialogue; policy agenda; monetary unit; Virtual currencies; Currencies; Anti-money laundering and combating the financing of terrorism (AML/CFT); Blockchain and DLT; International monetary system; Global
Cover Policy Papers
Resilience And Sustainability Trust―2022 Contribution Agreements with Australia, Canada, China, Germany, Japan, And Spain
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Legal Dept.
This paper presents the first set of contribution agreements that had been finalized with contributors by the time of the operationalization of the Resilience and Sustainability Trust (RST) on October 12, 2022. The six finalized agreements provide for contributions in a total amount of about SDR 15.3 billion across the three RST accounts – the loan account, deposit account, and reserve account. These six finalized agreements deliver critical resources for the operationalization of the RST and represent an important step towards its adequate funding.
Keywords:
transparency policy; deposit account claim; contribution agreement; totaling SDR; SDR equivalent; Loans; SDR interest rate; Environmental sustainability
Cover IMF Staff Country Reports
St. Kitts and Nevis: Technical Assistance Report-Strengthening Core Business Functions Audit Capacity (RTAT)
International Monetary Fund. Western Hemisphere Dept.
The Inland Revenue Department, St. Kitts and Nevis, benefited from a remote Capacity Development (CD) activity delivered by CARTAC over the period November 2021 – March 2022 on auditing of financial institutions. The main objective of this CD was to strengthen the capacity of the auditors to perform audits and verify the accuracy of reporting by taxpayers in the Financial Sector. The training included (i) an overview of the financial sector, financial products/instruments and business processes; (ii) guidance in auditing the banks and insurance companies; and (iii) awareness of the key tax risks within this sector. A total of 22 auditors from the large, medium and small taxpayers’ unit, participated in the training. The training was held over a fifteen (15) day period and concluded with the auditors developing an audit schedule and preparation of audit notification letters to taxpayers selected for audit.
Keywords:
Strengthening audit capacity; core business functions audit capacity; IRD audit team; team Training Program; IRD auditor; World Bank staff; a number of audit case; Auditing; Financial sector; Training and development in revenue administration; Financial audit; Insurance companies; Caribbean
Cover IMF Staff Country Reports
Costa Rica: Technical Assistance Report-Upgrading the Rule-Based Fiscal Framework
International Monetary Fund. Fiscal Affairs Dept.
The fiscal rule that came into force in 2020 has bolstered fiscal discipline and served Costa Rica well. The rule sets ceilings on nominal expenditure growth for current and total expenditures linked to past nominal GDP growth and debt levels. The rule—explicitly identified in the Law 9635—is transparent, relatively simple, and allows flexibility in crises through an escape clause. The rule has been instrumental in the policy framework. It not only guides the fiscal policy in the budget, but also coalesces public opinion on the need for fiscal discipline. Along with other fiscal reforms, the government commitment to the fiscal rule has been instrumental to fiscal adjustment in 2021-22.
Keywords:
expenditure rule; government expenditure growth; expenditure growth; expenditure ceiling; IMF's Fiscal Affairs Department; fiscal rule; Fiscal rules; Budget planning and preparation; Current spending; Global; Central America; Caribbean
Cover Policy Papers
Applications To Become Holders of SDRS
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Legal Dept.
The International Monetary Fund (IMF) approved on February 8, 2023 the applications of the Caribbean Development Bank (CDB), the Development Bank of Latin America (known as Corporacion Andina de Fomento or CAF), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the Inter-American Development Bank (IADB) to become prescribed holders of Special Drawings Rights (SDRs). The SDR is an international reserve asset created by the IMF to supplement the reserves of IMF members that participate in the SDR Department. The IMF’s Articles of Agreement authorize the IMF to prescribe (i.e., approve) as holders of SDRs (i) non-members, (ii) members that are not participants in the SDR Department; (iii) institutions that perform functions of a central bank for one or more IMF member countries, and (iv) other official entities (which all five entities approved on February 8 are). Prescribed holders may acquire, hold and use SDRs in transactions by agreement and in operations. Approval of these five institutions brings the number of prescribed holders to twenty.
Keywords:
transparency policy; IMF decision; members channeling SDRS; SDR market; SDRS channeling; Reserve assets; Multilateral development institutions; Investment banking; Operational risk; Freely usable currencies; Caribbean; West Africa
Cover IMF Working Papers
Personal Income Taxes in the Middle East and North Africa: Prospects and Possibilities
Mario Mansour
and
Eric M. Zolt
Personal income taxes (PITs) play little or no role in the Middle East and North Africa, often yielding less than 2 percent of GDP in revenue—with the exception of few North African countries. This paper examines how PITs have evolved in recent decades, and what they might look like in the next 20 years. Top marginal tax rates on labor and business income of individuals have declined substantially, a trend that mirrors reductions in advanced and developing economies. Taxation of passive capital income has changed very little, and the revenue intake from this source remains low throughout the region (less than 1 percent of GDP on average and concentrated in oil-importing non-fragile states). Social security contributions (SSC) have increased in importance in nearly all MENA countries, and some countries have introduced additional payroll taxes. The combination of reduced marginal tax rates, light taxation of income from capital and business activities, and increase of SSC, have resulted in income tax systems that create disincentives to work and incentives for informality, and contribute little to government revenue and income redistribution. Given differences in economic and political structures, demographics, and starting points, the path to PIT/SSC reforms will vary across the region. Countries with relatively mature PIT/SSC systems, where revenue performance has improved in the past two decades, will increasingly need to balance the revenue and equity objectives against effciency objectives (in particular labor market incentives and infromality). Countries with no PITs will have to weigh whether a consumption tax/SSC system that mimic a flat tax on labor income is sufficient to diversify revenue away from oil and whether to adopt PITs to address rising income and wealth inequality. Finally, fragile states, who face more political volatility and weaker fiscal institutions, will have to focus on simplicity of tax design and collection to be able to raise revenue from PITs.
Keywords:
Personal income taxes; social security contributions; payroll taxes; fragile and conflict states; Middle East and North Africa; Gulf-Cooperation Council; SSC reform; SSC system; revenue performance; PIT objective; PIT revenue; Personal income tax; Income tax systems; Income; Income and capital gains taxes; Corporate income tax; North Africa; Middle East; East Africa; Global