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Cover Selected Issues Papers
Nigeria—Fostering Financial Inclusion through Digital Financial Services: Nigeria
Torsten Wezel
and
Mr. Jack J Ree
Financial inclusion in Nigeria has had undeniable successes, with the onboarding of residents to the banking sector consistently progressing. But the overall exclusion rates continue to exceed official targets, not least due to low financial literacy. Going forward, Nigeria’s financial inclusion strategy should more systematically leverage rapidly developing digital instruments. Uptake of digital financial services, notably mobile money, is still lower than in peer countries, and overcoming this would require improving digital financial literacy, upgrading digital infrastructure, and promoting incubation and sound practices of fintech firms. Nigeria’s CBDC also has an enabling potential if accompanied by a comprehensive package of supportive policies.
Keywords:
Central Bank Digital Currency; digital financial services; financial inclusion; financial literacy; mobile money; Nigeria's CBDC; exclusion rate; account ownership; bank account; money transfer; Mobile banking; Fintech; Sub-Saharan Africa; Africa
Cover FinTech Notes
Trust Bridges and Money Flows: A Digital Marketplace to Improve Cross-Border Payments
Mr. Tobias Adrian
,
Mr. Rodney Garratt
,
Mr. Dong He
, and
Mr. Tommaso Mancini Griffoli
Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualized as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenization of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenized money directly across borders.
Keywords:
cross-border payments; cross-border payment; tokenized money; liquidity swap lines; money flow; Tokenized money; issuers of money; marketplace model; trust relationship; Currencies; Digital currencies; Currency markets; Correspondent banking; Global
Cover IMF Working Papers
Unbearable Costs: When Is Inflation Impeding Job Creation? Evidence from Sub-Saharan Africa
Ibrahima Camara
,
Rasmané Ouedraogo
, and
Mr. Amadou N Sy
Covid-19 and war-induced commodity price fluctuations, and broadening price pressures have led to a surge in inflation in many sub-Saharan Africa (SSA) countries. To adjust to increasing costs, firms have resorted to several measures including shuttering offices, reducing businesses, laying off, and freezing hiring, thus putting at risk job creation and raising concerns of youth unemployment. This paper explores the effects of inflation on private employment growth in SSA using a large firm -level dataset from the World Bank’s Enterprise Surveys. We find a non-linear relationship between inflation and job creation in SSA, with job creation being negatively correlated with inflation rate when the latter is above 14 percent. This finding holds regardless of the sector of activities of firms and the exchange rate regime. In addition, the paper finds some differential effects based on the type of products. An increase in fuel prices tends to be more detrimental to job creation than food prices. The study also provides evidence that the state of implementation of structural reforms matters. The results show that inflation reduces job opportunities mostly in countries with bad or no structural reforms.
Keywords:
Inflation; Jobs; reforms; sub-Saharan Africa; broadening price pressure; evidence from Sub-Saharan Africa; Survey dataset; firm assessment; rising prices; Job creation; Exchange rate arrangements; Employment
Cover IMF Working Papers
Capital Account Liberalization and Wage Inequality: Evidence from Firm Level Data
Kodjovi M. Eklou
and
Shakeba Foster
Firms play an important role in shaping income inequality at the aggregated country level, given that wages represent a significant proportion of household income. We investigate the distributional consequences of capital account liberalization, relying on firm level data to explore the implications for betweenfirms earning inequality in ASEAN5 countries over the period 1995-2019. We find that between-firms wage dispersion alone, accounts for a nontrivial proportion of the variation in the market Gini. Our empirical findings show that capital account liberalization increases between-firms wage inequality, as wages grow faster at initially high-paying firms and slow-down at firms at the lower portion of the wage distribution. These results are robust to a battery of robustness checks. Further, the directions and categories of capital account liberalization matter as results are pronounced for inflow liberalization and equity capital flows. We also show that capital account liberalization induces an increase in Profit-to-Wage ratios. Furthermore, the impact depends on country characteristics (wage setting institutions, the level of financial development and the size of the informal sector) as well as industry characteristics (export orientation and external finance dependence).
Keywords:
Wage Inequality; Firm heterogeneity; Capital Account Liberalization; wage dispersion; inflow liberalization; Shakeba foster; baseline result; Income inequality; Wages; Total factor productivity; Wage adjustments
Cover IMF Working Papers
Inflation Dynamics in the Western Balkans
Gohar Minasyan
,
Ezgi O. Ozturk
,
Magali Pinat
,
Mengxue Wang
, and
Zeju Zhu
After trailing Euro Area inflation closely in the recent past, inflation in the Western Balkans has accelerated faster since early 2022 on the back of the shocks to global commodity prices, strong recovery from the pandemic, and lingering supply bottlenecks. This paper employs two complementary empirical approaches of an augmented Phillips curve and structural VAR, adapting them to the data availability and country specificities of the Western Balkans, to analyze the inflation dynamics in the region. It finds that international food prices affect not only headline but also core inflation as well as inflation expectations. Further, inflation in the Western Balkans is not just determined by foreign shocks, and domestic factors, aggregate demand shocks in particular, have a significant impact on inflation. These findings imply a possible role for policies to temporarily limit an immediate and complete pass-through of international to domestic food prices while also stressing the importance of an appropriate domestic macroeconomic policy mix to keep inflation expectations anchored and safeguard credibility in the face of high inflation persistence.
Keywords:
Inflation; Western Balkans; international food price shocks; commodity price shocks; Phillips curve; panel data; structural VAR; inflation expectation; inflation dynamics; inflations determinant; inflation development; inflation in the Western Balkans; Food prices; Energy prices; Nominal effective exchange rate; Global; Europe
Cover IMF Working Papers
2022 Update of the External Balance Assessment Methodology
Mr. Cian Allen
,
Camila Casas
,
Mr. Giovanni Ganelli
,
Luciana Juvenal
,
Mr. Daniel Leigh
,
Mr. Pau Rabanal
,
Cyril Rebillard
,
Jair Rodriguez
, and
João Tovar Jalles
The assessment of external positions and exchange rates of member countries is a key mandate of the IMF. The External Balance Assessment (EBA) methodology has provided the framework for conducting external sector assessments by Fund staff since its introduction in 2012. This paper provides the latest version of the EBA methodology, updated in 2022 with additional refinements to the current account and real exchange rate regression models, as well as updated estimates for other components of the EBA methodology. The paper also includes an assessment of how estimated current account gaps based on EBA are associated with future external adjustment.
Keywords:
Current accounts; exchange rates; external sustainability; external sector assessments; global imbalances; OECD product market; EBA gaps adjustment; EBA current account model; EBA REER; labor market rigidity; External balance assessment (EBA); Real effective exchange rates; Current account; Current account balance; Real exchange rates; Global
Cover IMF Working Papers
Identifying Optimal Indicators and Lag Terms for Nowcasting Models
Jing Xie
Many central banks and government agencies use nowcasting techniques to obtain policy relevant information about the business cycle. Existing nowcasting methods, however, have two critical shortcomings for this purpose. First, in contrast to machine-learning models, they do not provide much if any guidance on selecting the best explantory variables (both high- and low-frequency indicators) from the (typically) larger set of variables available to the nowcaster. Second, in addition to the selection of explanatory variables, the order of the autoregression and moving average terms to use in the baseline nowcasting regression is often set arbitrarily. This paper proposes a simple procedure that simultaneously selects the optimal indicators and ARIMA(p,q) terms for the baseline nowcasting regression. The proposed AS-ARIMAX (Adjusted Stepwise Autoregressive Moving Average methods with exogenous variables) approach significantly reduces out-of-sample root mean square error for nowcasts of real GDP of six countries, including India, Argentina, Australia, South Africa, the United Kingdom, and the United States.
Keywords:
Nowcasting; Mixed Frequency; Forecasting; Business Cycles; selection procedure; Annex I. AS-ARIMAX procedure; nowcasting method; evaluation comparison; baseline model; Global
Cover IMF Staff Country Reports
Belgium: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belgium
International Monetary Fund. European Dept.
Post-pandemic recovery slowed with spillovers from Russia’s war in Ukraine and high inflation, financial conditions tightening, and elevated uncertainty. In response to the spike of energy prices, the federal and regional authorities provided timely and substantial support to households and firms. Along with automatic indexation of wages and benefits, energy support helped cushion impacts, although at significant cost, increasing the fiscal deficit in 2022 and 2023. The labor market has remained tight, with record-high job creation and low unemployment. The external current account swung to a large deficit in 2022, due largely to higher energy imports and lower vaccine exports. Energy consumption is being cut, and gas imports reoriented. A resilient financial sector is facing challenges from the weaker macro-financial environment.
Keywords:
product market reform; indexation mechanism; money market rate; policy reform; consumer confidence; Policy discussion; State secretaries Bertrand; Energy prices; Inflation; Wage indexation; Wages; Anti-money laundering and combating the financing of terrorism (AML/CFT); Global
Cover IMF Staff Country Reports
Belgium: Selected Issues
International Monetary Fund. European Dept.
Selected Issues
Keywords:
D. policy option; Policy recommendation; B. EU; EU ETS price; community government; Greenhouse gas emissions; Fiscal federalism; Carbon tax; Global; Europe; Baltics
Cover Selected Issues Papers
Fiscal Policy Options to Accelerate Emissions Reductions in Belgium: Belgium
Nate Vernon
Belgium’s current policies fall short of achieving its climate targets and promoting emissions reductions at limited economic costs. We recommend that domestic carbon pricing form the centerpiece of an emissions reduction package, as pricing promotes mitigation at the lowest economic cost, can be phased in as international energy prices fall, and generates revenue to compensate vulnerable households and reduce taxes on productive activities. Sectoral policies, such as subsidy-tax schemes to promote low emissions vehicles, should reinforce carbon pricing and regional efforts, while the social protection system can be made more efficient and environmentally friendly by switching from energy subsidies to income-based support. Belgium should also promote dialogue at the EU-level to harmonize ETS prices and include all sectors under a single trading scheme.
Keywords:
Environmental taxes and subsidies; fiscal policy; environmental economics; distributional effects; climate; ETS price; fiscal policy option; sectoral policy; B. EU; Policy recommendation; emissions reduction package; Greenhouse gas emissions; Carbon tax; Electricity; Natural gas sector; Global; Europe