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International Monetary Fund. Western Hemisphere Dept.

Abstract

The global economy is emerging from recession, but the recovery is expected to be sluggish. While financial conditions have continued to improve, many markets remain highly dependent on public support, and downside risks prevail. In the United States and many advanced economies, growth and employment will remain weak in coming years. In turn, Canada has shown comparative resilience despite sizable shocks. A permanent loss in potential output, weak private consumption, and much higher debt levels in the United States will be negative legacies of the crisis that could adversely affect the Latin America and Caribbean region.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The LAC region is doing considerably better than in past crises, but there is growing heterogeneity within the region. External shocks to remittances and tourism are still playing out and will continue to affect countries in Central America and the Caribbean. In contrast, some of the larger economies have already bottomed out. These varying output dynamics, coupled with differing room for policy maneuver, are shaping policy challenges in the near term. In addition, long-lasting legacies from the global crisis will have significant implications for the region.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Although it has faced larger external shocks this time, the Latin America and Caribbean (LAC) region has fared noticeably better than in the earlier three global downturns since the 1980s. It has also fared better than other emerging markets. This better performance can be attributed to stronger and more credible policy frameworks, which led to lower banking, external, and fiscal vulnerabilities and allowed some LAC countries to react with monetary or fiscal policy easing.

International Monetary Fund. Western Hemisphere Dept.

Abstract

The global crisis put fiscal policymaking at the forefront, highlighting differences in policy frameworks and preparedness within the region. Countries' circumstances prior to the crisis, largely reflecting past fiscal behavior, shaped the varied fiscal policy responses that Latin American and Caribbean (LAC) governments have recently taken. The experience of 2009 confirms that some LAC governments do have “space” to support economic activity during a major downturn. But the experience also draws attention to limits on such space, as well as the need for fiscal policymaking and frameworks to evolve—to be prepared for future shocks.

International Monetary Fund

This Selected Issues paper and Statistical Appendix focuses on two analytical approaches for judging whether the current account for Australia is sustainable. The paper implements the first approach, by asking how Australia’s net external liability position is likely to evolve over time, based on assumptions of future growth and interest rates. The paper implements the second approach by exploring the implications of a model of optimal external borrowing and lending. The main conclusions are also discussed in the paper.

International Monetary Fund. Western Hemisphere Dept.

Context. Economic activity strengthened somewhat in 2014 while the external current account deficit worsened primarily as a result of Baha Mar construction-related imports. The authorities continue to make substantial progress on fiscal consolidation with successful VAT implementation in January 2015 setting the stage for continued improvements in the fiscal position. Lower oil prices helped keep inflation anchored in 2014. Still, notwithstanding the capital flow management (CFM) regime, international reserves remain low. Key policy advice: Despite the U.S. recovery and the imminent opening of the Baha Mar resort, the growth outlook remains well below pre-global crisis levels, and strong and timely measures should be implemented to strengthen competitiveness and raise potential growth. In addition, rebuilding fiscal and external buffers will be essential for sustaining macroeconomic stability: • Reigniting strong and inclusive medium-term growth. Structural reforms are needed to address longstanding competiveness issues including labor market impediments to growth. Energy sector reforms could substantially lower energy costs, boost productivity and facilitate economic diversification in the medium term. A diversification strategy should explore the potential for increasing value added in the tourism sector, including through deepening linkages with agriculture. • Rebuilding fiscal and external buffers. Notwithstanding the CFM regime, the fixed exchange rate peg constrains monetary policy, leaving fiscal policy as the main instrument for macroeconomic stabilization. Steadfast implementation of the VAT and expenditure rationalization in the context of a medium-term budgetary framework, together with public enterprise reforms, would help rebuild fiscal buffers and support international reserves. • Preserving financial sector stability. The pre-crisis credit boom has left the banking system with an overhang of non-performing loans, which will likely continue to generate headwinds for the economy. Despite this, the banking system remains very well capitalized and liquid. Measures should be put in place to resolve the debt overhang while further strengthening the regulatory and supervisory framework.