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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 84 items for :

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Cover External Sector Report, 2023
External Sector Report, 2023
External Rebalancing in Turbulent Times
International Monetary Fund. Research Dept.

Abstract

Global current account balances—the overall size of headline current account deficits and surpluses—widened for a third consecutive year in 2022. Main drivers were Russia’s invasion of Ukraine, the uneven recovery from the pandemic, and the rapid tightening of US monetary policy. Concurrently, the US dollar appreciated substantially, and the uphill capital flow reappeared. IMF’s external sector assessments suggest that the overall size of excess current account deficits and surpluses has remained unchanged since 2021, after declining for several years. This highlights the importance of efforts in both excess surplus and deficit economies to promote external rebalancing. The US dollar appreciation under the “global dollar cycle”, which is driven primarily by global financial risks, has negative spillovers on activity and imports that fall on emerging market economies more severely than on advance economies. More flexible exchange rates and more anchored inflation expectations can mitigate negative spillovers to emerging markets.

Keywords:
Current account; Capital flows; Exchange rate; Global dollar cycle; Spillovers; External sector; dollar appreciation; dollar cycle; commodity exporter; CA deficit; CA surplus; CA gap; Real effective exchange rates; Current account balance; Emerging and frontier financial markets; Global; Africa
Cover Policy Papers
Review Of The Adequacy Of The Fund’s Precautionary Balances
International Monetary Fund. Finance Dept.
On December 12, 2022, the IMF’s Executive Board reviewed the adequacy of the Fund’s precautionary balances. The review took place on the standard two-year cycle, after an interim review in December 2021. Precautionary balances comprise the Fund’s general and special reserves. They are a key element of the IMF’s multi-layered framework for managing financial risks. Precautionary balances provide a buffer to protect the Fund against potential losses, resulting from credit, income, and other financial risks. In conducting the review, the Executive Board applied the rules-based framework agreed in 2010. Precautionary balances have risen further since the 2021 interim review and coverage metrics have strengthened. At the same, credit and other financial risks have also increased. The pace of reserve accumulation is expected to remain adequate. Against this background, Executive Directors endorsed staff’s proposal to retain the current medium-term target of SDR 25 billion and the minimum floor of SDR 15 billion. The Board also discussed the role of surcharges, which are primarily a component of the Fund’s risk management framework but also contribute to reserves accumulation.
Keywords:
concentration risk; D. financial risks; risk management framework; Fund credit; transparency policy; fund financial risks; Income; Credit; Credit risk; Credit ratings; Emergency assistance; Global; Caribbean; Western Hemisphere
Cover IMF Working Papers
IMF Programs and Financial Flows to Offshore Centers
Mr. Shekhar Aiyar
and
Manasa Patnam
This paper examines whether IMF lending is associated with increases in outflows to offshore financial centers (OFCs), known for bank secrecy and asset protection, relative to other international destinations. Using quarterly data from the BIS on bilateral bank deposits, we are unable to detect any positive and statistically significant effect of IMF loan disbursements on bank deposits in OFCs. The result holds even after restricting the sample to the duration of the IMF program, where disbursement quarters and non-disbursement quarters should be subject to similar degrees of macroeconomic stress. It is also robust to using the scheduled tranche of disbursements as an instrument for actual disbursements. While the effects vary by the type and conditionality of the IMF program, as well as the amount of lending, none of the effects are found to be positive and statistically significant. We also estimate whether the recent surge in emergency lending, during the Covid-19 crisis, is associated with an increase in outflows to OFCs but find no evidence to support this.
Keywords:
IMF loan disbursement; IMF disbursement; disbursement quarter; IMF emergency lending; IMF loan tranche; IMF aid disbursement; Offshore financial centers; Corruption; Loans; Bank credit; Global
Cover IMF Staff Country Reports
Seychelles: Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Seychelles
International Monetary Fund. African Dept.
This paper refers to Seychelles’ Request for Purchase Under the Rapid Financing Instrument (RFI). The near-term economic fallout of the coronavirus disease 2019 pandemic is expected to be severe. Restriction in travel will hinder tourism and weaken fiscal and external positions, creating large additional financing needs. The authorities reacted swiftly by taking immediate measures of containment, including border closures, strengthening health policy responses and supporting households and firms. The emergency IMF support under the RFI provides timely resources to the authorities to address the urgent balance of payments and budgetary needs. The assistance of other international financial institutions and development partners is crucial to close the remaining financing gaps, ease the adjustment burden, and preserve economic growth. The authorities are committed to transparency and good governance in the use of emergency financing by providing monthly reports of pandemic-related expenditure to the National Assembly and undertaking an independent audit of such spending and procurement and publishing the results.
Keywords:
ISCR; CR; monetary policy; financing; balance of payments financing need; Seychelles economy; Seychellois authorities; Executive Board discussion; prudent monetary policy stance; Emergency assistance; Fiscal stance; Budget planning and preparation; Global; Sub-Saharan Africa; COVID-19
Cover IMF Staff Country Reports
Kyrgyz Republic: Request for Purchase Under the Rapid Financing Instrument and Disbursement under the Rapid Credit Facility-Press Release; and Staff Report
International Monetary Fund. Middle East and Central Asia Dept.
This paper focuses on the Kyrgyz Republic’s Request for Purchase Under the Rapid Financing Instrument and Disbursement Under the Rapid Credit Facility. The coronavirus disease 2019 pandemic has hit the Kyrgyz economy very hard and increased an already urgent balance of payments need. All sectors are being severely affected while measures are being taken to stop the spread of the virus. The IMF emergency support addresses the urgent balance of payments need, shores up confidence, and catalyzes donor support. In order to ensure that the financing provided is efficiently spent on addressing the crisis, the authorities have committed to strengthen procurement rules. The health care contingency plan and the initial package of economic measures already adopted by the authorities to provide health and economic relief are welcome, as is the second, larger, package of measures under preparation. In their attached letter of intent, the authorities remain committed to temporarily loosening macroeconomic and financial policies to finance health and economic relief and support a recovery. They have also made additional commitments to strengthen procurement rules, including steps to enhance transparency, to help ensure that financing received is efficiently spent on addressing the crisis.
Keywords:
ISCR; CR; IMF emergency support; support; Executive Board discussion; enterprise; procurement rule; donor support; balance of payments gap; International reserves; Credit; Debt service; COVID-19
Cover IMF Staff Country Reports
Kyrgyz Republic: Request for Purchase Under the Rapid Financing Instrument and Disbursement under the Rapid Credit Facility-Press Release; and Staff Report
International Monetary Fund. Middle East and Central Asia Dept.
The outbreak of the COVID-19 pandemic has weakened the macroeconomic outlook. The authorities have launched a health care contingency plan and an initial package of economic measures, together totaling $31 million (0.4 percent of GDP), and are preparing a second, larger package of economic measures of about $400 million (5.2 percent of GDP). To help address an urgent balance of payments need arising from the pandemic, estimated at about $500 million, the authorities request an additional purchase under the Rapid Financing Instrument (RFI) of 33.3 percent of quota (SDR 59.2 million) and a disbursement under the Rapid Credit Facility (RCF) of 16.7 percent of quota (SDR 29.6 million) under the “exogenous shock” window of the RCF. This follows Board approval on March 26, 2020 of the authorities’ earlier request for the same amounts, before the doubling of the annual access on emergency financing under the “exogenous shock” window of the Rapid Credit Facility (RCF) to 100 percent of quota was approved on April 6, 2020. This additional request will bring the total purchases under the RFI and the disbursements under the RCF to 100 percent of quota in 2020.
Keywords:
ISCR; CR; IMF emergency support; support; Executive Board discussion; enterprise
Cover IMF Staff Country Reports
Dominican Republic: Request for Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Dominican Republic
International Monetary Fund. Western Hemisphere Dept.
This paper analyzes Dominican Republic’s Request for Purchase Under the Rapid Financing Instrument (RFI). The RFI provides timely resources to the authorities which they intend to mobilize for essential coronavirus disease 2019 (COVID-19)-related health expenditure and support to the vulnerable population. The pandemic has significantly weakened the Dominican Republic’s macroeconomic outlook for 2020 and created financing needs that require additional support. The authorities are also seeking support from other multilateral institutions. Macroeconomic and financial policies have been accommodative in response to the pandemic. The temporary fiscal measures to accommodate higher public healthcare spending and targeted transfers to the most vulnerable are appropriate. The IMF emergency assistance under the RFI is expected to help provide the much-needed resources to address the urgent balance of payments needs and support essential COVID-19-related health expenditure. The support of other international financial institutions and development partners would be crucial to close the remaining financing gaps, ease the adjustment burden, and preserve the Dominican Republic’s dynamic economic growth.
Keywords:
ISCR; CR; financing; request; resource; financing gap; Executive Board discussion; monetary policy rate; inflation targeting framework; request for emergency; headline inflation; COVID-19; Public sector; Fiscal stance; Emergency assistance; Global
Cover IMF Working Papers
Optimal Fiscal Spending and Reserve Accumulation Policies under Volatile Aid
Ioana Moldovan
,
Susan Yang Shu-Chun
, and
Luis-Felipe Zanna
This paper assesses the optimal setting of fiscal spending and foreign exchange rate intervention policies in response to volatile foreign aid, in a small open economy model that incorporates typical features of low-income countries. Within a class of policy rules, it jointly considers the optimal aid spending and international reserve accumulation policies. The results show that it is optimal to adjust government spending gradually in response to unpredictable fluctuations in aid, while partially accumulating foreign exchange reserves to offset Dutch disease effects. Also, allocating relatively more of the government spending to productive public investment, and less to government consumption, is welfare improving.
Keywords:
WP; government spending; public goods; aid; fiscal policy; foreign exchange intervention; optimal policy; low-income countries; gradual spending; depreciation rate; spending policy; CES consumption basket; hand-to-mouth consumer; consumption decision; aid spending; spending of aid; spending process; goods sector; gradual aid spending; consumption level; Public investment spending; Consumption; Reserves accumulation; Private consumption; Sub-Saharan Africa; Africa; reserve accumulation policy; impulse response; welfare change
Cover IMF Working Papers
Managing Reductions in Aid Inflows: Assessing Policy Choices in Haiti
Ioana Moldovan
,
Mrs. Marina V Rousset
, and
Chris Walker
A low-income country such as Haiti that confronts an environment of diminishing aid inflows must assess tradeoffs among the available policy options: spending cuts, monetization, sales of debt, or use of foreign reserves. To provide the analytical tools for this task, the paper draws from a set of DSGE models recently developed to evaluate policy choices in low-income countries for which external aid flows represent an important revenue source. Two simplified stylized variations of the main model are used to gain intuition and initially assess the trdeaoffs. Subsequenctly a full-scale small open economy DSGE model, calibrated to match conditions in Haiti and in similar low-income countries, is employed. Several key results are common to all model versions. While sales of foreign exchange reserves can compensate for the loss of aid inflows, this strategy is not sustainable. The remaining policy choices entail larger welfare costs, involving lower consumption levels and real depreciation. The results suggest that a mixture of spending cuts and depreciation is the best strategy, when use of foreign reserves is constrained.
Keywords:
WP; real interest rate; Dynamic Stochastic General Equilibrium Model (DSGE); Aid; Fiscal Policy; Monetary Policy; Public Investment; Foreign Reserves; Haiti; depreciation rate; open economy; labor disutility parameter; nominal exchange rate; exchange rate depreciation; government spending cut; aggregate consumption; labor income; monopolistic competition; exchange rate fluctuation; steady-state labor; labor supply decision; Consumption; Real exchange rates; Real interest rates; Western Hemisphere; Caribbean; Global
Cover IMF Working Papers
Building Resilience to Natural Disasters: An Application to Small Developing States
Ricardo Marto
,
Mr. Chris Papageorgiou
, and
Mr. Vladimir Klyuev
We present a dynamic small open economy model to explore the macroeconomic impact of natural disasters. In addition to permanent damages to public and private capital, the disaster causes temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the sovereign's creditworthiness. We use the model to study the debt sustainability concerns that arise from the need to rebuild public infrastructure over the medium term and analyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscal buffers, and contrast these policies with the post-disaster support provided by donors. Investing in resilient infrastructure may prove useful, in particular if it is viewed as complementary to standard infrastructure, because it raises the marginal product of private capital, crowding in private investment, while helping withstand the impact of the natural disaster. In an application to Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam. Helping the government build resilience on the other hand, reduces the risk of debt distress and at lower cost for donors.
Keywords:
WP; real interest rate; debt sustainability; Natural Disastes; Resilience; Adaptation; Small States; crowding in; adaptation investment; investment efficiency; capital share; depreciation rate; open economy; efficiency loss; infrastructure investment; adaptation capital; Infrastructure; Natural disasters; Public investment and public-private partnerships (PPP); Real interest rates; Public investment spending; Caribbean; Sub-Saharan Africa