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Giulio Lisi
The paper documents the benefits provided by IMF’s precautionary instruments (FCL and PLL) to countries in accessing international financial markets. It builds on multiple methods to show that the announcement of new FCL or PLL generally leads to a significant decline in sovereign spreads. Next, it evaluates the role of the FCL and PLL in mitigating external financial pressures, focusing on the COVID-19 pandemic as a case study. Economies which had a PLL or FCL arrangement in place during the pandemic experienced a lower increase in spreads relative to other emerging markets, even after controlling for country-specific effects and other covariates, suggesting that these arrangements help cushion external shocks. Finally, the study asks whether FCL/PLL drawdowns have an impact on financial perceptions; the analysis finds—albeit on the basis of a very small sample— no evidence of downside effects from countries drawing down on these arrangements .
Tryggvi Gudmundsson, Mr. Vladimir Klyuev, Leandro Medina, Mr. Boaz Nandwa, Dmitry Plotnikov, Francisco Schiffrer, and Di Yang
This article documents recent developments in emerging markets in the context of the COVID-19 pandemic, assesses their prospects and challenges, and discusses appropriate policy settings for the medium term. It argues that EM policymakers’ ability to grapple with an incomplete and uneven recovery will be constrained by high public debt and uncertain inflation prospects as well as external risks surrounding capital flows and exchange rate developments. The paper also discusses potential impact of a tightening in global financial conditions and appreciation of the US dollar that could be triggered by a general increase in risk aversion or a reassessment of the likely path of US monetary policy.
International Monetary Fund. Middle East and Central Asia Dept.


A year into the coronavirus (COVID-19) pandemic, the race between vaccine and virus entered a new phase in the Middle East and Central Asia, and the path to recovery in 2021 is expected to be long and divergent. The outlook will vary significantly across countries, depending on the pandemic’s path, vaccine rollouts, underlying fragilities, exposure to tourism and contact-intensive sectors, and policy space and actions. 2021 will be the year of policies that continue saving lives and livelihoods and promote recovery, while balancing the need for debt sustainability and financial resilience. At the same time, policymakers must not lose sight of the transformational challenges to build forward better and accelerate the creation of more inclusive, resilient, sustainable, and green economies. Regional and international cooperation will be key complements to strong domestic policies.