Finance and Development, June 2016
Finance and Development, June 2017
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This paper, prepared by a working group of IMF staff, provides a preliminary assessment of the risks and potential impact to the global economy and financial system from a possible avian flu pandemic, discusses the IMF’s role in helping member countries prepare their economic and financial systems for such a pandemic, and summarizes common elements of business continuity planning in the financial sector
1. There is growing concern about the possibility of an avian flu pandemic (AFP) and its implications for humans and the global economic and financial system. While such pandemics are not new—the last one occurred in 1968—health experts are particularly concerned about the current strain of the virus (H5N1). This strain has spread quickly in bird populations, caused high mortality among poultry, and occasionally infected humans, with about half of the cases proving fatal. But human infections remain rare as the strain has not been spreading easily from birds to humans, nor has it been spreading from person to person.2
5. If the pandemic is severe, the economic impact is likely to be significant, though predictions are subject to a high degree of uncertainty. The severity of a pandemic will, inter alia, depend on its attack and fatality rates,4 its duration, and the behavior and preparedness of households and firms, as well as the capacity and preparedness of health care systems. A pandemic similar to the 1918 Spanish flu could result in high levels of illness and death, and a sharp but only temporary decline in global economic activity (Box 1). Economic disruptions on the supply side would come directly from high absenteeism, as people may be asked to stay at home, or may choose to do so to care for sick relatives or because of fear of being exposed themselves. There may also be disruptions to transportation, trade, payment systems, and major utilities, exposing some financially vulnerable enterprises to the risk of bankruptcy. Moreover, demand could contract sharply, with consumer spending falling and investment being put on hold. Financial repercussions could further exacerbate the economic impact.
12. The need to help prepare for a pandemic is becoming an important focus for many governments and international organizations, including the Fund. At the Beijing International Conference, US$1.9 billion was pledged to support efforts at all levels to help fight avian flu and prepare for a possible human flu pandemic. The World Bank, the World Health Organization, the Food and Agriculture Organization, and the World Organization for Animal Health are taking the lead in preparing a global coordinated response strategy on the possibility of an avian flu crisis, and helping members improve surveillance and control capacity and to develop national action plans that focus primarily on human and animal health.
KEY ISSUESThe Ebola outbreak has inflicted a heavy toll on Guinea’s economy notwithstandingthe supportive macroeconomic policies the authorities put in place. Fiscal policy hasexpanded to reflect revenue shortfalls and higher Ebola-related spending, resulting in amarkedly higher budget deficit. Monetary policy has also been supportive, as inflationcontinued to trend downwards and reserve coverage of imports has remained adequate.Performance under the ECF program has been satisfactory. All quantitativeperformance criteria have been met. With the authorities focused on combating the Ebolaoutbreak, however, structural reform has advanced at a slower pace than previouslyenvisaged, delaying the implementation of a number of structural benchmarks.Macroeconomic policies in 2015 will remain supportive to help deal with the Ebolaoutbreak, which looks set to persist well into the year and induce a slight economiccontraction. The 2015 budget foresees a widening of the deficit to provide space forEbola-related spending, finance a significant salary increase for civil servants, and supportthe economy. Monetary policy will be relaxed to provide adequate liquidity to the privatesector and facilitate bank financing of the government budget. A concerted internationaleffort is needed to help the authorities fully implement their Ebola response plan. The2015 structural reform agenda focuses on finalizing growth-friendly measures.Risks are tilted to the downside. A prolonged presence of the Ebola epidemic couldfurther disrupt economic activity. The renewal of political tensions and politicaluncertainty in the run-up to the presidential elections in 2015 could discourage investorsand affect growth. However, Guinea would benefit from the recent decline in oil pricesStaff supports the completion of the 5th review under the ECF arrangement andfinancing assurances review and requests for: (i) an extension of the currentarrangement to end-2015; (ii) an augmentation in access; and (iii) disbursement of25 percent of quota as budget support under the 5th review. Completion of the reviewwill result in disbursement of SDR 45.135 million (42.1 percent of quota).
This paper discusses Liberia's Fourth Review Under the Extended Credit Facility (ECF) Arrangement and Requests for Waivers of Nonobservance of Performance Criteria (PC), Modification of PC, and Rephasing and Extension of the Arrangement. The end-June 2014 quantitative PC on government revenues and central bank net foreign exchange position, and one indicative target on net domestic assets were not met. Only three out of seven structural benchmarks for the fourth review were met. Based on the authorities' corrective actions, the IMF staff supports completion of the delayed fourth ECF review, and the authorities' request for an extension and re-phasing of the program to end-December 2016.
Recovery from the twin shocks of Ebola and the collapse of the iron ore sector continues. Non-iron ore sector growth is projected to be 3.7 percent in 2016, led by manufacturing and trade. Iron ore growth is also recovering, with the main company now operating with moderate profitability. Overall growth is projected to be 4.9 percent. Inflation was 10.9 percent at end-September, while the exchange rate has depreciated 19 percent over the last year. The budget is under severe pressure, in part because the rapid depreciation has stripped the government of all excise revenue from retail fuel, and led to explicit subsidies from the budget to keep retail fuel prices fixed. All end-June performance criteria were met while some structural benchmarks were missed. However, the ceiling on net domestic financing was met in part through the accumulation of arrears. There was also a minor non-observance of the continuous ceiling on external debt and a temporary multiple currency practice was introduced in recent months. This is the last review under this ECF arrangement, which expires on December 21, 2016. The authorities have expressed interest in negotiating a successor program in early 2017.