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Business and Economics > Public Finance

You are looking at 1 - 10 of 523 items for :

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Cover IMF Working Papers
Pension Reform and Stock Market Development
Shujaat Khan
,
Bo Li
, and
Yunhui Zhao
We highlight the strong connection between developing fully-funded, individually-owned, collectively-managed, mandatory/incentivized (FICMI) pension schemes and the development of domestic stock markets. We do so by building a stylized model and complementing the analysis with cross-country empirical analysis and case studies. We also highlight the challenges of individual impatience, network externalities, and coordination failure in long-term equity investments, which are crucial for stock market development and technological innovation. We find that FICMI pension schemes—when sufficiently wide in coverage and large in size—can serve as coordination devices to support long-term equity investments. Such investments will not only promote domestic stock market development and make it easier for firms to raise long-term equity capital, therefore supporting long-term economic growth, but also enhance financial inclusion and enable more households to benefit from the overall economic development, therefore contributing to inclusive growth. Moreover, we find that the introduction of FICMI pension schemes can impact household savings in two ways: first, FICMI pension can increase household savings through “forced/incentivized” savings channel, where households save too little without FICMI pension (such as in many EMDEs); and second, FICMI pension can decrease household savings and increase household consumption by reducing non-pension savings and decreasing precautionary savings, where households save too much without FICMI pension (such as in China). In both cases, FICMI pension schemes can help move the economy closer to the optimal level of household savings, and may also help improve the structure of such savings. Finally, we discuss the enabling conditions (such as a strong political commitment to the reform and a well-designed fiscal strategy for financing the transition) and policy design for FICMI pension schemes.
Keywords:
Pension Reforms; Stock Market Development; Equity Financing; Innovation' Financial Inclusion; Intertemporal Optimization; Public Pensions; Funded and Private Pensions; FICMI pension schemes; household saving; savings channel; IMF working paper No. 25/49; Pension spending; Pensions; Stock markets; Pension reform; Capital markets; East Asia
Cover IMF Working Papers
Government Debt and Growth: The Role of R&D
Can Sever
Economic growth in the advanced economies (AEs) has been slowing down since the early 2000s, while government debt ratios have been rising. The recent surge in debt at the onset of the Covid-19 pandemic has further intensified concerns about these phenomena. This paper aims to offer insight into the high-debt low-growth environment in AEs by exploring a causal link from government debt to future growth, specifically through the impact of debt on R&D activities. Using data from manufacturing industries since the 1980s, it shows that (i) government debt leads to a decline in growth, particularly in R&D-intensive industries; (ii) the differential effect of government debt on these industries is persistent; and (iii) more developed or open financial systems tend to mitigate this negative impact. These findings contribute to our understanding of the relationship between government debt and growth in AEs, given the role of technological progress and innovation in economic growth.
Keywords:
Government debt; fiscal policy; economic growth; R&D; innovation; financial development; economic growth in the advanced economies; R&D activity; impact of debt; debt level; affect tax dynamics; Financial sector development; Manufacturing; Productivity; Aging; Global
Cover IMF Staff Country Reports
South Africa: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for South Africa
International Monetary Fund. African Dept.
A new Government of National Unity (GNU) has been in place since June 2024, which the markets have welcomed. The GNU faces difficult challenges: declining GDP per capita, high unemployment, poverty and inequality, and rising public debt and debt service, which crowd out other urgent spending needs. Its fresh mandate represents an opportunity to pursue ambitious reforms to safeguard macroeconomic stability and address these challenges, placing the economy on a path toward higher, more inclusive, and greener growth.
Keywords:
support policy credibility; headline inflation; debt management strategy; Policy recommendation; implementation framework; Policy credibility; Government debt management; Exchange rate arrangements; Currency markets; Africa; Global; private sector; short-term debt; Financial sector stability; Inflation
Cover Regional Economic Outlook, Sub-Saharan Africa, October 2024
Regional Economic Outlook, Sub-Saharan Africa, October 2024
Reforms amid Great Expectations
International Monetary Fund. African Dept.

Abstract

Sub-Saharan African countries are implementing difficult and much needed reforms to restore macroeconomic stability, and while overall imbalances have started to narrow, the picture is varied. Policymakers face three main hurdles. First, regional growth, at a projected 3.6 percent in 2024, is generally subdued and uneven, although it is expected to recover modestly next year to 4.2 percent. Second, financing conditions continue to be tight. Third, the complex interplay of poverty, scarce opportunities, and weak governance--compounded by a higher cost of living and short-term hardships linked to macroeconomic adjustment--are fueling social frustration. Within this environment, policymakers face a difficult balancing act in striving for macroeconomic stability while also working to address development needs and ensure that reforms are socially and politically acceptable. Protecting the most vulnerable from the costs of adjustment and realizing reforms that create sufficient jobs will be critical to mobilize public support.

Keywords:
Sub-Saharan Africa; Fiscal consolidation; Policy adjustment; Structural reforms; Macroeconomic imbalances; Growth; Inflation; Funding squeeze; Poverty; Governance; Social acceptability of reforms; Political pressures; Job creation; IMF staff calculation; IMF financing arrangement; headline inflation; balancing act; financing constraint; countries in Sub-Saharan Africa; Government debt management; Emerging and frontier financial markets; Global; Africa
Cover IMF Working Papers
Fiscal Discourse and Fiscal Policy
Yongquan Cao
,
Era Dabla-Norris
, and
Enrico Di Gregorio
We study the supply of fiscal ideas leveraging thousands of electoral platforms from 65 countries in the Manifesto Project to link how political parties discuss fiscal policy with fiscal outcomes. We provide three sets of results. First, fiscal discourse has become increasingly favourable to higher government spending since at least the 1990s in advanced and emerging economies and across the political spectrum. This pattern does not track survey trends in voter preferences, suggesting that parties have played a role in shifting the focus of political campaigns to fiscal issues to win over voters. Second, fiscal discourse turns conservative under more adverse fiscal conditions, including in the aftermath of debt surges and after the adoption of fiscal rules, but only to a limited extent. Third, over the medium-run, relative discourse changes in favor of government expansion and away from fiscal restraint are followed by higher fiscal deficits. Together, our results suggest that adverse shifts in the supply of fiscal ideas could add to fiscal pressures over time.
Keywords:
Fiscal Discourse; Fiscal Policy; Elections; Manifesto; trend increase; IMF working paper No. 2024/194; survey trend; expansion discourse; Government debt management; Fiscal rules; Emerging and frontier financial markets; Global
Cover IMF Working Papers
The Role of IMF Arrangements in Restoring Access to International Capital Markets
Joseph Kogan
,
Romina Kazandjian
,
Shijia Luo
,
Moustapha Mbohou
, and
Hui Miao
Using a database of emerging market fundamentals and bond index spreads across 56 frontier and emerging market countries rated below investment grade during the period 2002-22, we assess whether IMF arrangements can restore access to international capital markets (ICM) for countries in distress through liquidity and conditionality channels. We find that global financial conditions and debt/GDP are the most important determinants of access to ICM within the horizon of a typical IMF arrangement. Using an event study methodology, we show that spreads increase prior to the start of an IMF arrangement and then decrease gradually. By exploiting different characteristics of IMF arrangements, we find evidence that the reforms implemented under the IMF arrangement, as measured by rounds of successful IMF reviews, matter more in the medium term than the IMF’s role as a liquidity provider. These results are consistent with our analysis of 55 credit rating upgrades to ICM access levels, which suggests that debt reduction plays the largest role and that IMF arrangements lend credibility to reforms.
Keywords:
International capital markets; market access; IMF; debt crisis; debt rescheduling; default; sovereign debt; sovereign debt restructuring; sovereign bonds; Eurobonds; IMF arrangement; IMF review; IMF working paper 2024/173; capital markets department; IMF effect; Credit ratings; Bonds; Current account balance; Global
Cover IMF Staff Country Reports
Indonesia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Indonesia
International Monetary Fund. Asia and Pacific Dept
The 2024 Article IV Consultation highlights that Indonesia’s growth remains strong despite external headwinds. Inflation is firmly in the target range and the financial sector is resilient. The authorities have been pursuing an ambitious growth agenda to reach high-income status by 2045. This comprises public spending, institutional reforms, and Industrial Policy. Risks are broadly balanced. Key downside risks include persistent commodity price volatility from geopolitical shocks), an abrupt slowdown in Indonesia’s key trading partners, or adverse spillovers from tighter-for-longer global financial conditions. A slightly narrower deficit would support both growth and a more balanced policy mix. The policy rate is above neutral; with financial risks contained, accommodative macroprudential policy has supported credit growth while liquidity remains comfortable. Monetary policy should remain data-driven, based on the evolution of domestic conditions, and the exchange rate serving as a shock absorber. Bridging structural gaps will be needed to achieve higher and inclusive potential growth and reach high income status, as envisaged in the country’s national development strategy—the Golden Vision 2045.
Keywords:
SDR million; policy credibility; monetary policy stance; market development; policy effectiveness; Financial sector stability; Inflation; Anti-money laundering and combating the financing of terrorism (AML/CFT); Financial inclusion; Global
Cover IMF Staff Country Reports
Spain: Financial Sector Assessment Program-Technical Note on Cyber Risk and Financial Stability
International Monetary Fund. Monetary and Capital Markets Department
This paper explores a technical note on cyber risk and financial stability as part of Financial Sector Assessment Program (FSAP) in Spain. Technology risk and cyber resilience of the financial sector has become a focus area of the authorities, within the broader context of operational risk and resilience. This intensified focus by authorities is timely and important from the perspective of the continuity of financial service provision and the stability of the Spanish financial system. The FSAP found cyber risk supervisory practices of the authorities with regard to less significant institutions and financial market infrastructures in scope to be materially in line with applicable regulations and guidance and prevailing international good practice. Resource constraints are the most prominent challenge that the authorities are confronted with. A number of further weaknesses have a negative impact notwithstanding the overall strength of cyber risk supervision.
Keywords:
infrastructure regulation; banco de España; banking institution; Bolsas y Mercados Españoles; staff team of the International Monetary Fund; Cyber risk; PFM information systems; Payment systems; Financial Sector Assessment Program; External balance assessment (EBA); Global
Cover IMF Staff Country Reports
Spain: Financial Sector Assessment Program-Technical Note on Regulation, Supervision, Oversight, and Crisis Management of Financial Market Infrastructures
International Monetary Fund. Monetary and Capital Markets Department
This paper presents a technical note on regulation, supervision, oversight, and crisis management of financial market infrastructures in Spain. The Comisión Nacional del Mercado de Valores (CNMV) lacks, and should be provided, full autonomy over its recruitment of staff, including in key specialist areas. The CNMV’s effective cooperation with the Banco de España (BdE) and authorities from other jurisdictions to ensure adequate supervision of Bolsas y Mercados Españoles Clearing (BMEC) and Iberclear (IC) could be further strengthened by formalizing current arrangements with the BdE. The Financial Sector Assessment Program (FSAP) identified some enhancements to the supervision of margin practices that would make it even more robust. The CNMV should ensure that its recommendations to BMEC are implemented in timely fashion and, to the extent possible, that improvements made in one segment also benefit the others. The FSAP recommends strengthening of some aspects of IC’s recovery plan.
Keywords:
commission Delegated Regulation; infrastructure regulation; markets authority; financial instruments regulation; resolution regulation; Central counterparty clearing house; Central securities depositories; Stress testing; PFM information systems; Securities; Europe
Cover IMF Working Papers
Stepping Up Venture Capital to Finance Innovation in Europe
Nathaniel G Arnold
,
Guillaume Claveres
, and
Jan Frie
Relative to the US, productivity growth and investment in R&D in lagging in the EU, where it is more difficult to finance and scale up promising, innovative startups. Many of the most successful EU startups move elsewhere for financing, causing the EU to lose out on both the direct growth benefits and positive spillovers from these innovative firms. The EU could nurture innovative startups by accelerating the development of its venture capital (VC) ecosystem. Reducing regulatory frictions, especially ones that deter pensions funds and insurers from investing in VC, combined with well-designed tax incentives for R&D investments could help accelerate the development of the VC sector. These and other key CMU initiatives, such as the consolidation of stock markets and reforming and harmonizing insolvency regimes, will take time. Given the urgency to boost innovation, giving public financial institutions like the European Investment Fund a more active and expanded role in kickstarting VC markets where needed and in familiarizing investors with the VC asset class can be a helpful interim step.
Keywords:
Startups; Venture capital; Productivity; Capital Markets Union; EU startup; kickstarting VC market; startup financing stage; EU legislation; VC sector; Pension spending; Stock markets; Mutual funds; Insurance companies; Pensions; Europe