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Business and Economics > Public Finance

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Cover IMF Working Papers
Strengthening Fiscal Frameworks in the Presence of Rising Risk of Natural Disasters
Olusegun Ayodele Akanbi
,
Jessie Kilembe
, and
Do Yeon Park
This study investigates the impact of rising risk of natural disasters on rule-based fiscal frameworks. It explores the extent to which countries adhere to their fiscal rules in the presence of rising risk of natural disasters. To ensure a consistent analysis, we construct an index measuring the strenghth of fiscal rules, utilizing principal component analysis for a panel of 104 countries. The study employs a panel two-stage least squares estimation method to assess the impact of natural disaster risks on fiscal rules. The results, which are robust across various country groupings, suggest that natural disaster risks play a significant role in the determination of rule-based fiscal framework. After controlling for other determinants, the results show that countries with established fiscal rules are strengthening these rules in response to rising natural disaster risks. Nonetheless, the results are mixed across different country groups, with varying magnitude of impact. This suggests that countries currently operating fiscal rules will need to enhance their efforts to more comprehensively integrate natural disaster risks into their fiscal frameworks.
Keywords:
Fiscal Framework; Fiscal Rules; Natural Disasters; Fiscal sustainability; exposure risk index; natural disaster risk; risk of natural disasters; government climate investment profile; high-ERI country; Fiscal governance; Fiscal risks; Global
Cover Departmental Papers
Violent Crime and Insecurity in Latin America and the Caribbean: A Macroeconomic Perspective
Paul M Bisca
,
Vu Chau
,
Paolo Dudine
,
Raphael A Espinoza
,
Jean-Marc Fournier
,
Pierre Guérin
,
Niels-Jakob H Hansen
, and
Jorge Salas
Violent crime and insecurity remain major barriers to prosperity in Latin America and the Caribbean (LAC). With just 8 percent of the global population, LAC accounts for a third of the world’s homicides. Building on the existing literature, this paper aims to support economic policymakers and development partners by exploring the interplay between insecurity and macroeconomic outcomes, with emphasis on the relationship between violent crime and growth, the business climate, and public finances. The analysis shows that national-level crime indicators mask huge internal disparities, and that municipalities with 10 percent higher homicide rates have lower economic activity by around 4 percent. The paper develops an innovative measure of insecurity—the share of crime-related news—and shows its association with lower industrial production. Using firm-level data, it also estimates that the direct costs of crime, for firms, are around 7 percent of annual sales, and these are much higher when gangs and drug-trafficking organizations are present. Violent crime rises with macroeconomic instability, inequality, and governance problems. Using a large cross-country panel, the analysis finds that homicides increase when a country is affected by negative growth, high inflation, or a worsening of inequality. Victimization surveys indicate that where populations are concerned with the rule of law—impunity and police corruption—only one in five victims file their case with the police. Lack of trust and crime can be mutually reinforcing. Finally, the paper documents the fiscal burden of security provision and finds that spending tends to be inelastic to crime and that spending efficiency could be improved. The paper concludes with policy lessons and areas for additional collaboration between national authorities, international partners, and key stakeholders. These focus on data collection and analysis, economic policies that may address the root causes and manifestations of crime, strengthening rule of law institutions, and intensifying regional exchanges on security and public finance issues.
Keywords:
Crime; organized crime; homicides; homicide dates; costs of crime; macroeconomic stability; growth; drivers of crime; crime impunity; private sector development; violent crime; crime indicator; development in Latin America and the Caribbean; Public order and safety spending; Drug trafficking; Caribbean; Central America; South America; Global
Cover IMF Staff Country Reports
Mexico: 2024 Article IV Consultation and Review Under the Flexible Credit Line Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mexico
International Monetary Fund. Western Hemisphere Dept.
This paper discusses Mexico’s 2024 Article IV Consultation and Review under the Flexible Credit Line (FCL) Arrangement. Economic activity is moderating due to binding capacity constraints and restrictive monetary policy. Inflation pressures are receding, with inflation expected to reach its 3-percent target by 2025. Economic activity is moderating, with private consumption and investment decelerating, and employment growth is slowing. A frontloaded fiscal consolidation, underpinned by well-identified measures, is needed to preserve fiscal sustainability. Monetary restraint should be removed gradually. Securing sustainable and inclusive growth will require a broad set of reforms. The Mexican economy is decelerating and inflation pressures are receding. Notwithstanding the procyclical fiscal expansion in 2024, monetary policy has been successfully calibrated to reverse the upswing in inflation and the authorities are planning a sizeable front-loaded fiscal consolidation for 2025. Mexico continues to qualify for the FCL by virtue of its very strong fundamentals and institutional policy frameworks and track record of economic performance and policy implementation. The authorities intend to continue to treat the arrangement as precautionary.
Keywords:
policy agenda; inflation pressure; data ROSC update; policy effort; policy path; policy dialogue; Inflation; Anti-money laundering and combating the financing of terrorism (AML/CFT); Credit; Global
Cover IMF Working Papers
The Political Economy of Fossil Fuel Subsidy Removal: Evidence from Bolivia and Mexico
Mariza Montes de Oca Leon
,
Achim Hagen
, and
Franziska Holz
We study the impact of fossil fuel subsidy removal on presidential popularity using difference-indifference approaches and a stylized theoretical model. Analyzing macro level data for two subsidy removal events in Mexico and Bolivia in the early 2010s, we find evidence of a negative impact on presidential approval. Our theoretical probabilistic voting model predicts that the decline in popularity is driven by high income groups if subsidies are regressive, and that lack of trust in the government lowers popularity of the removal in all income groups. We confirm these predictions using micro level data for the Mexican subsidy removal event.
Keywords:
Political economy; Fossil fuels; Subsidy removal; removal event; on approval rating; outcome variable; outcome predictor; Energy subsidies; Income; Fuel prices; Non-renewable resources; Gasoline; Caribbean
Cover Regional Economic Outlook, Western Hemisphere, October 2024
Regional Economic Outlook, Western Hemisphere, October 2024
Rebalancing Policies and Pressing on with Reforms
International Monetary Fund. Western Hemisphere Dept.

Abstract

After successfully weathering a series of shocks, most countries in the region are converging to their (tepid) potential. Growth is expected to moderate in late 2024 and 2025 while inflation is projected to continue easing, although gradually. With output and inflation gaps mostly closed but monetary policy still contractionary and public finances in need of strengthening, a further rebalancing of the policy mix is necessary. Fiscal consolidation should advance without delay to rebuild buffers while protecting priority public investment and social spending. This would support the normalization of monetary policy and strengthen credibility and resilience of policy frameworks. Most central banks are well placed to proceed with monetary easing, striking a balance between fending off the risk of reemerging price pressures and avoiding an undue economic contraction. Medium-term growth is expected to remain close to its low historical average, reflecting long-standing, unresolved challenges—including low investment and productivity growth—and shifting demographics. Worrisomely, the ongoing reform agenda is noticeably thin and could lead to a vicious circle of low growth, social discontent, and populist policies. Avoiding this requires pressing on with reforms. Improving governance—by strengthening the rule of law, enhancing government effectiveness, and tackling crime—is a priority that cuts across all areas of growth. Boosting capital accumulation requires improving the business environment, fostering competition, and increasing international trade. Greater and more effective public investment is also needed. Maintaining a dynamic labor force and increasing productivity requires tackling informality and making formal labor markets more flexible, including to adapt to new technologies. Increasing female labor participation can help boost the labor force and offset demographic shifts.

Keywords:
Growth; potential growth; medium-term growth; inflation; risks to growth; risks to inflation; labor markets; inflation expectations; fiscal slippages; fiscal consolidation; fiscal rules; policy mix; geopolitical tensions; harmful trade interventions; public debt; public investment; monetary policy; central banks; monetary easing; exchange rates; neutral rates; structural reforms; governance; rule of law; government effectiveness; crime; capital accumulation; international trade; labor force participation; climate change; green transformation.; IMF staff calculation; gender participation gap; central government debt; dynamics in Latin America; gender disparity; Labor force; Public sector; Caribbean; Central America; South America; Global; Europe
Cover IMF Staff Country Reports
Guatemala: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper explores effects of social unrest in Guatemala. The paper estimates the effects of social unrest on Guatemala’s economy from 2001 to 2023, using the monthly Reported Social Unrest Index as a measure of social unrest. The estimations of the empirical model suggest no effects of social unrest episodes on the main external sector variables. The empirical evidence suggests little to no impact of social unrest in Guatemala. Contrary to Hadzi-Vaskov et al. (2023), the analysis of the effects of social unrest in Guatemala suggests that the effects on the real, monetary, financial, and external sectors are mild, limited, and temporary if not negligible. On the one hand, the lack of cross-country dimensionality is a limitation of our analysis, but on the other hand, exploiting monthly data allows us to disentangle unrest episode effects at higher frequencies than other papers in the literature. Overall, the results are robust to different specifications; the set of controls is extensive and includes controls for future social unrest shocks autocorrelations. The results suggest that Guatemala is resilient to unrest shocks at business-cycle frequencies, even of considerable magnitude.
Keywords:
social spending efficiency; remittance inflow; investment agenda; government expenditure gap; Guatemala's economy; Labor force participation; Gender inequality; Remittances; Women; Global
Cover Analytical Notes
Guidance Note For Developing Government Local Currency Bond Markets
International Monetary Fund
and
World Bank
This guidance note was prepared by International Monetary Fund (IMF) and World Bank Group staff under a project undertaken with the support of grants from the Financial Sector Reform and Strengthening Initiative, (FIRST).The aim of the project was to deliver a report that provides emerging market and developing economies with guidance and a roadmap in developing their local currency bond markets (LCBMs). This note will also inform technical assistance missions in advising authorities on the formulation of policies to deepen LCBMs.
Keywords:
AN; market development; repo market; investor base; reverse repo; government securities; price discovery; banking sector; market-making privilege; market regulation; market fragmentation; repo market development; market infrastructure; Government securities; Securities; Bonds; Securities markets; Government debt management; Global; Africa; East Asia; currency bond markets; IMF expert; government bond market development; bond market reform plans; government debt market; bond market Association; IMF Library; Yield curve; Southeast Asia; Money markets
Cover IMF Working Papers
Public Debt Dynamics During the Climate Transition
Daniel Garcia-Macia
,
Waikei R Lam
, and
Anh D. M. Nguyen
Managing the climate transition presents policymakers with a tradeoff between achieving climate goals, fiscal sustainability, and political feasibility, which calls for a fiscal balancing act with the right mix of policies. This paper develops a tractable dynamic general equilibrium model to quantify the fiscal impacts of various climate policy packages aimed at reaching net zero emissions by mid-century. Our simulations show that relying primarily on spending measures to deliver on climate ambitions will be costly, possibly raising debt by 45-50 percent of GDP by 2050. However, a balanced mix of carbon-pricing and spending-based policies can deliver on net zero with a much smaller fiscal cost, limiting the increase in public debt to 10-15 percent of GDP by 2050. Carbon pricing is central not only as an effective tool for emissions reduction but also as a revenue source. Delaying carbon pricing action could increase costs, especially if less effective measures are scaled up to meet climate targets. Technology spillovers can reduce the costs but bottlenecks in green investment could unwind the gains and slow the transition.
Keywords:
Climate change; mitigation; public debt; carbon pricing; subsidies; public investment; industrial policies; dynamic general equilibrium.; technology spillover; investment bottleneck; No. 2024/71; mix of carbon-pricing; adjustment cost parameter; Emerging and frontier financial markets; Climate finance; Climate policy; Global
Cover IMF Working Papers
An Assessment of the 2019 and 2020 Pension Reforms in Mexico
Boele Bonthuis
In recent years the Mexican pension system has changed significantly. In 2019 the existing means-tested social pension was made universal – covering everyone over the age of 65 – and the benefit level increased. In 2020, the main regime of the private sector was substantially reformed, increasing contribution rates for the funded defined contribution system, lowering the minimum years of contributions needed to receive an earnings-related pension, and increasing minimum pensions. This paper tries to assess the likely outcomes of those reforms, discusses design inefficiencies of the reforms and offers policy options to improve pension system design.
Keywords:
Pension reform; funding; pay-as-you-go; labor supply incentives; design inefficiencies; pension system design; pension calculation; minimum pension; pay-as-you-go pension accrual; design inefficiency; Pension spending; Pensions; Wages; Aging; Retirement; Caribbean; Central America
Cover IMF Working Papers
The Legal Foundations of Public Debt Transparency: Aligning the Law with Good Practices
Karla Vasquez
,
Kika Alex-Okoh
,
Alissa Ashcroft
,
Alessandro Gullo
,
Olya Kroytor
,
Yan Liu
,
Mia Pineda
, and
Ron Snipeliski
Debt opacity burdens the public and can exacerbate debt vulnerabilities in many countries. Both low-income and developing countries and emerging market economies have critical gaps in debt transparency, and the implementation of international standards and guidelines has lagged. The paper surveys the legal frameworks of sixty jurisdictions and reveals the critical weaknesses that hinder debt transparency, which include weak reporting obligations, limited coverage of public debt, inadequate monitoring, unclear borrowing and delegation processes, unfettered confidentiality arrangements and weak accountability mechanisms. Because laws entrench practices and bind the discretion of policy makers and debt managers alike, subjecting them to public scrutiny, legal reform is a necessary part of any solution to the problem of hidden debt, though it may entail a difficult and time intensive process in many jurisdictions.
Keywords:
sovereign debt; transparency; disclosure; legal institutions; debt transparency; debt opacity; statistics guide; debt bulletin; debt manager; address debt vulnerability; debt Registry; Government debt management; Debt management; Securities; Middle East and Central Asia; Global; Asia and Pacific