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Cover IMF Staff Country Reports
Sri Lanka: Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka
International Monetary Fund. Asia and Pacific Dept
Sri Lanka fell into an unprecedented crisis as a result of a series of shocks and policy missteps. Debt rose to unsustainable levels resulting from large fiscal imbalances, and access to international capital markets was lost soon after large tax cuts and the onset of the COVID-19. Reserves were depleted, leading to a sharp exchange rate depreciation, and debt service was suspended in the spring of 2022. Sizable monetary financing to meet fiscal obligations contributed to a surge in inflation. Sri Lanka’s economy is in deep recession and financial stability is at risk given the tight financialsovereign nexus. People are suffering from food and energy shortages, exacerbating deep-rooted public dissatisfaction and creating a vulnerable political and social environment.
Cover IMF Staff Country Reports
Cameroon: Third Reviews Under the Extended Credit Facility and the Extended Fund Facility Arrangements, and Requests for Waivers for Performance Criteria Applicability, Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon
International Monetary Fund. African Dept.
Cameroon, a fragile and conflict affected state, proved resilient to the COVID- 19 shock but is now facing increased challenges in an uncertain global environment. The recovery, which was supported by higher oil prices and non-oil production in 2021, continued in 2022, against the backdrop of Russia’s war in Ukraine, inflationary pressures, supply chain disruptions, and tight global financial conditions. Cameroon has successfully completed two reviews since the approval in July 2021 of the three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for SDR 483 million (about US$689.5 million, or 175 percent of quota). Completion of the third review will allow the total disbursement of SDR 55.2 million (about US$73.3 million).
Keywords:
EFF review discussion; IMF team; paced borrowing policy; transparency policy; mechanism reform; Energy subsidies; Credit; Fiscal stance; Global; Central Africa
Cover Policy Papers
The Chair’s Summing Up Independent Evaluation Office—The IMF’s Emergency Response to the COVID-19 Pandemic
International Monetary Fund
(IEO), which provides an early evaluation of the Fund’s emergency response to the initial stage of the COVID-19 pandemic and seeks to draw lessons from the experience for responding to possible future global crises. They highlighted the report’s key finding that the Fund’s response was effective and agile to a crisis like no other, despite the extraordinary challenges and risks, as the Fund rapidly adapted its lending framework and internal processes to serve the membership, help to close large financing gaps, and give confidence to the membership and markets by making its resources available expeditiously under adequate safeguards. Besides lending, Directors noted that the Fund also undertook useful analytical work and gave extensive and timely policy advice and capacity development. They welcomed the report’s finding that the Fund’s corporate response was adapted quickly, including by reprioritizing work, introducing HR and budget initiatives, and swiftly embracing the virtual environment. Directors especially commended staff for their strong dedication during these challenging circumstances.
Keywords:
IEO recommendation; IEO evaluation; enterprise risk assessment; COVID-19; Global
Cover Policy Papers
Statement by the Managing Director on the Independent Evaluation Office Report on The IMF’s Emergency Response to the COVID-19 Pandemic: Executive Board Meeting March 13, 2023
International Monetary Fund
As the evaluation notes, the Fund’s rapid response was not without costs and risks. The decision to provide extraordinary access, including through emergency financing, in the face of this unprecedented crisis has inevitably raised pressures on the Fund’s own, and its members’, balance sheets. Moreover, according to the report, some stakeholders did not feel adequately consulted in the initial weeks of the pandemic, staff experienced enormous work pressures, and in at least a few instances, national authorities did not perceive that the way policy guidance on 2 access was applied was entirely evenhanded. I am confident we can learn from the experience and do even better in the future; and I believe the IEO’s high-level recommendations will help us to do so.
Keywords:
lending toolkit; risk assessment; emergency financing access limit; COVID-19; Emergency assistance; Crisis management; Global
Cover High-Level Summary Technical Assistance Reports
BOTSWANA: Domestic Bond Market Development
Trever A Lessard
,
Laszlo Buzas
, and
Bill Northfield
At the request of the authorities, an IMF team undertook a technical assistance mission to Botswana, from August 17–26, 2022, to support efforts to develop the local currency government bond market. The mission assessed the current stage of the sovereign debt market and formulated policy recommendations for each of the six building blocks included in the Guidance Note for Developing Local Currency Bond Markets.
Keywords:
sovereign debt; debt management; local currency bond market development; financial market development
Cover IMF Working Papers
Peering Through the Fog of Uncertainty: Out-of-Sample Forecasts of Post-Pandemic Tourism
Mr. Serhan Cevik
This paper uses an augmented gravity model framework to investigate the historical impact of infectious diseases on international tourism and develops an out-of-sample prediction model. Using bilateral tourism flows among 38,184 pairs of countries during the period 1995–2017, I compare the forecasting performance of alternative specifications and estimation methods. These computations confirm the statistical and economic significance of infectious-disease episodes in forecasting international tourism flows. Including infectious diseases in the model improves forecast accuracy by an average of 4.5 percent and as much as 7 percent relative to the standard gravity model. The magnitude of these effects, however, is likely to be much greater in the case of COVID-19, which is a highly contagious virus that has spread fast throughout populations across the world.
Keywords:
Infectious diseases; tourism flows; gravity model; predictability; out-of-sample forecasting
Cover IMF Working Papers
A Deep Dive into Tax Buoyancy: Comparing Estimation Techniques in a Large Heterogeneous Panel
Antoine Cornevin
,
Mr. Juan C Flores
, and
Juan Pablo Angel
This paper provides new empirical evidence on tax buoyancy (tax revenues responsiveness to changes in economic activity) over the period 1990-2020 using a large panel of 185 countries. This study compares short-term and long-term buoyancy coefficients for total tax revenues and different individual taxes by reviewing and contrasting a range of estimators. Our results broadly confirm the main body of the literature on long-term buoyancy hovering around one. We find evidence of lower estimates for short-term buoyancy relative to previous literature, suggesting a limited automatic stabilization power of taxes. As a robustness exercise, in addition to changes in tax rates, we introduce novel control variables for tax exemptions and bases to disentangle discretionary from automatic tax revenue changes. The marginal changes in the results when controlling for policy actions suggest that, on average, the economic cycle does not necessarily influence tax reforms.
Keywords:
Tax buoyancy; tax elasticity; cross-sectional dependence; common correlated effect; fiscal sustainability; automatic stabilization
Cover IMF Working Papers
Macroeconomic Shocks and Conflict
Patcharaporn Leepipatpiboon
,
Chiara Castrovillari
, and
Tomohide Mineyama
This paper contributes to the research on the macroeconomic origins of conflict. Based on a sample of 133 low- and middle-income countries over a 30-year period, it analyses to what extent changes in a country’s commodity terms-of-trade (ToT) can explain an increase in the incidence and intensity of conflicts through their effect on aggregate income. While the evidence from previous studies on the link between macroeconomic conditions and conflict is rather inconclusive, we find a significant relationship. Our baseline model finds that a negative commodity ToT shock leads to an increase in the number of conflict events and fatalities. Moreover, the effect plays out over several years albeit with decreasing strength after the second year; and its magnitude is twice as large for Low-Income Countries and Fragile and Conflict-affected States when compared with the sample average. In addition, our results show that macroeconomic shocks are creating more violence in countries with higher inequality and in cases where fiscal policy faces relatively stronger constraints on financing a response to the initial shock to incomes. Our results are robust to a number of plausible variations in model specification. The paper’s results, in conjunction with previous studies that emphasize the economic cost of conflicts, suggest the presence of a fragility trap—a vicious cycle of worsening economic conditions and deteriorating conflicts. Effective policies and well-tailored external financial support could be expected to help countries address this challenge.
Keywords:
Conflict; terms-of-trade shock; commodity prices; low-income countries; fragile and conflict-affected states; spillover
Cover IMF Working Papers
Monetary Policy Implications Central Bank Digital Currencies: Perspectives on Jurisdictions with Conventional and Islamic Banking Systems
Ms. Inutu Lukonga
Central bank digital currencies (CBDCs) promise many benefits but, if not well designed, they could have undesired consequences, including for monetary policy. Issuing an unremunerated CBDC or a wholesale CBDC does not change the objectives of monetary policy or the operational framework for monetary policy. CBDCs can, however, induce changes in the retail, wholesale and cross border payments that have negative spillover effects on monetary policy, through their effects on money velocity, bank deposit disintermediation, volatility of bank reserves, currency substitution, and capital flows. Countries most vulnerable are those with banking systems dominated by small retail deposits and demand deposits, low levels of digital payments and weak macro fundamentals. Proposed CBDC design features, such as caps on CBDC holdings and unremunerating the CBDC can moderate disintermediation risks, but they are not sufficient. Central banks will need to ensure that unintended macroeconomic risks are comprehensively identified and mitigated.
Keywords:
Central Bank Digital Currencies; CBDC; CBDC Pilots; Monetary Policy; Islamic Finance; impact monetary policy implementation; design option; unremunerated CBDC; monetary policy implication; deposit disintermediation; Commercial banks; Velocity of money; Islamic banking; Monetary base; Global
Cover IMF Working Papers
Determinants and Social Dividends of Digital Adoption
Utkarsh Kumar
,
David Amaglobeli
, and
Mariano Moszoro
We identify key drivers of digital adoption, estimate fiscal costs to provide internet subsidies to households, and calculate social dividends from digital adoption. Using cross-country panel regressions and machine learning, we find that digital infrastructure coverage, internet price, and usability are the most statistically robust predictors of internet use in the short run. Based on estimates from a model of demand for internet, we find that demand is most price responsive in low-income developing countries and almost unresponsive in advanced economies. We estimate that moving low-income developing and emerging market economies to the levels of digital adoption in emerging and advanced economies, respectively, will require annual targeted subsidies of 1.8 and 0.05 percent of GDP, respectively. To aid with subsidy targeting, we use microdata from over 150 countries and document a digital divide by gender, socio-economic status, and demographics. Finally, we find substantial aggregate and distributional gains from digital adoption for education quality, time spent doing unpaid work, and labor force participation by gender.
Keywords:
Social Dividends; Digitalization; GovTech; Internet use; internet price; Internet adoption; Internet coverage; internet use; Labor force participation; Income; Women; Purchasing power parity; Sub-Saharan Africa