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International Monetary Fund. Research Dept.

Abstract

The global economy is climbing out from the depths to which it had plummeted during the Great Lockdown in April. But with the COVID-19 pandemic continuing to spread, many countries have slowed reopening and some are reinstating partial lockdowns to protect susceptible populations. While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.

Mr. Nicolas Arregui, Ms. Ruo Chen, Mr. Christian H Ebeke, Jan-Martin Frie, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Andreas Jobst, Louise Rabier, Mr. James Roaf, Ms. Anna Shabunina, and Mr. Sebastian Weber
This paper discusses sectoral policies needed to achieve the ambitious greenhouse gas (GHG) emissions reduction targets announced in the European Union’s Green Deal, complementing the companion paper “EU Climate Mitigation Policy”, which focuses on broader EU-level policies. With total emissions nearly a quarter below their 1990 level, the EU has made important progress, but the new goals will require much stronger policy action. Moreover, progress has varied across sectors. Emissions from power and industry have fallen by about a third, buildings by a quarter and agriculture by a fifth – while transport emissions have risen. This paper argues that this divergence reflects differences in effective carbon prices, but also cost differences among the available abatement channels, market imperfections, and policy gaps. It discusses specific sectoral policies needed to address these factors and achieve the new emissions reduction goals.
Mr. Alexei P Kireyev
This paper reviews the significant macro-fiscal challenges posed by climate change in Djibouti and the costs of mitigation and adaptation policies. The paper concludes that Djibouti is susceptible to climate change and related costs are potentially large. Investing now in adaptation and mitigation has large benefits in terms of reducing the related costs in the future. Reforms to generate the fiscal space are therefore needed and investment for mitigation and adaptation to climate change should be built into the long-term fiscal projections. Finally, concerted international efforts and stepping up regional cooperation could help moderate climate-related macro-fiscal risks.
International Monetary Fund. Western Hemisphere Dept.
This paper discusses three important sectors of Belize economy: financial, sugar market, and energy. Belize’s banking system has continued to strengthen since the 2014 Article IV Consultation in June 2014. Despite recent improvements, some banks’ balance sheets are still weak and exposed to adverse macroeconomic developments. The sugar sector makes a very important contribution to Belize’s economy. The sector is estimated to account for about 4-5 percent of GDP, 9-10 percent of total exports, 8 percent of employment, and 5-6 percent of foreign exchange earnings. But the reform of EU sugar regime, scheduled to take full effect in 2017, will most likely cause a significant drop in the EU sugar price.
Mr. Andrea Gamba
Jordan’s initiatives to reduce its energy dependency could have substantial macroeconomic implications, but will crucially depend on the level of international oil prices in the next decade. Significant uncertainties remain regarding the feasibility of the initiatives and their potential fiscal costs, including from contingent liabilities, could be very large. Given the lead time required for such major investments, work should start now on: (i) conducting comprehensive cost-benefits analysis of these projects; (ii) addressing the challenges arising from the taxation of natural resources; and (iii) designing a fiscal framework to anchor fiscal policies if revenue from these energy projects materializes.
Semih Tumen, Deren Unalmis, Ibrahim Unalmis, and Ms. Filiz D Unsal
This paper investigates the mechanisms through which environmental taxes on fossil fuel usage can affect the main macroeconomic variables in the short-run. We concentrate on a particular mechanism: speculative storage. The existence of forward-looking speculators in the model improves the effectiveness of tax policies in reducing fossil fuel usage. Improved policy effectiveness, however, is costly: it drives inflation and interest rates up, while impeding output. Based on this tradeoff, we seek an answer to the question how monetary policy should interact with environmental tax policies in our DSGE model of fossil fuel storage.