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Dear Colleague,

In today's edition, we highlight:

• The best response to major economic shocks
• Mounting cyber security threats
• Globalization
• India's greenhouse gases
• Jamaica's climate reforms

ECONOMIC GROWTH

In Major Economic Shocks, All-Out Response Is Best

(Credit: fotoVoyager/iStock by Getty Images)

Economists will be studying the pandemic for generations to learn from the dramatic global downturn and the ensuing credit crunch, but one important lesson about the scope of action needed to contain the next global crisis is already coming into focus.

In a blog, IMF economists say that all-out responses that combine large fiscal, monetary and prudential measures may be needed to support corporate borrowing and credit growth in major future crises.

The authors analyzed a dataset made available last year tracking national announcements of economic and financial policy responses to the pandemic and set out their findings in a new working paper.

“Our results underscore the importance of decisive action in terms of breadth and intensity of pandemic policy responses,” they say.

An all-out approach can have unintended consequences, however.

“Large fiscal and monetary packages could support credit and the economy but also fuel sharp inflationary pressures. In countries with high debt, an increase in discretionary spending could strain debt sustainability.”

INTERNATIONAL WOMEN'S DAY

Message from the Managing Director

Well-designed economic and financial policies can benefit women, girls, and society in general, Kristalina Georgieva said in a video message. The managing director also spoke to CNN and CNBC on International Women's Day.

CYBER SECURITY

Mounting Threats Mean Financial Firms Need Better Safeguards

(Credit: Peter Nguyen/Unsplash)

Cyber attackers continue to target the financial sector. What will happen when an attack takes down a bank or other critical platform, locking users out of their accounts?

Tight financial and technological interconnections within the financial sector can facilitate the quick spread of attacks through the entire system, potentially causing widespread disruption and loss of confidence. Cybersecurity is a clear a threat to financial stability.

Among emerging market and developing economies, most financial supervisors haven’t introduced cybersecurity regulations or built resources to enforce them, Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, writes in a blog based on a survey of 51 countries.

“The strength of cyber defenses depends on the weakest link,” Adrian writes. “With growing interconnections across the world, curbing risk requires an international effort.”

The longtime critics of globalization are having another moment, claiming supply chain shortages, high inflation, and increasing migration are products of an overly globalized world. But in this podcast Princeton international relations professor Harold James says history suggests more globalization, not less, can help counter those disruptions in the global economy.

FINANCE & DEVELOPMENT

Rethinking Monetary Policy in a Changing World

(Credit: Pete Reynolds)

The predominant intellectual framework central banks have followed since the global financial crisis that began in 2008 neither stresses the most pressing looming issues nor mitigates their potential dire consequences in today's climate, writes Princeton economics professor Markus Brunnermeier in the March edition of F&D.

Brunnermeier discusses the main challenges central banks will face, which monetary theories will be in the limelight, and how central banks can avoid becoming complacent and end up fighting the last war.

“Central banks should return to a monetary approach in which stabilizing inflation expectations is a central priority.”

INDIA

Balancing Emissions and Economic Growth

(Credit: Memories Over Mocha/Adobe Stock, jpeter2/pixabay, Sudarsan Thobias/Adobe Stock)

India is poised to be one of the world’s fastest- growing economies in coming years and this will sharply boost energy demand. Whether the country meets those needs with fossil fuels or green alternatives has the potential to shift the trajectory of its greenhouse gas emissions for many more years to come, the IMF’s Margaux MacDonald and John Spray write in a Country Focus article.

While a modest increase in short-term emissions may be necessary to meet the country’s poverty reduction and energy security goals, a more rapid scaling up of current policies could bring India closer to a path to net zero by 2070, the authors say.

Greener policies would generate enough fiscal revenues to compensate the poorest for a modest loss of income (relative to projections based on current policies) to such an extent that the policy would be progressive overall.

The authors say that lower emissions would have significant benefits, too, including greater energy security, less pollution, longer lives and fewer lost school and work days.

RESILIENCE AND SUSTAINABILITY FACILITY

Jamaica Taps Climate Facility

(Credit: Adobe Stock / Zach)

Jamaica has become the fifth country in as many months to tap the Resilience and Sustainability Facility, the IMF’s new facility to provide affordable financing to countries struggling to adapt to climate change or other long-term risks.  

The IMF’s Executive Board approved a $764 arrangement under the RSF to strengthen the Caribbean nation’s resilience to climate change, advance decarbonization of the economy and manage transition risks.

The RSF reforms, built on Jamaica’s home-grown climate policy, were prepared in close collaboration with the World Bank and other international partners, Kenji Okamura, IMF Deputy Managing Director and Acting Chair of the Board, said in a statement.

“They create incentives to switch to renewables, reduce energy consumption, develop green financial instruments, and require proper management of climate risks in the financial sector.”

Jamaica joins four other countries—Bangladesh, Barbados, Costa Rica and Rwanda—to have accessed the RSF since its launch in October.

One year after Russia’s invasion of Ukraine upended agricultural commodity markets, remain elevated even after retreating from their record highs in early 2022. With two of the world’s largest exporters of wheat and other crucial crops entering a second year of war, many vulnerable countries still face heightened food insecurity. Fragile and conflict-affected states, home to 1 billion people, are at particular risk. As the Chart of the Week shows, inflation-adjusted prices in February remained above than the average level for recent years, though they are now back in line with levels seen before the war in Ukraine.

Weekly Roundup

FUND FINANCING

IMF Lending Limits Raised

To better support the Fund’s members in a particularly challenging and uncertain economic environment, the IMF Board agreed to temporarily increase the limits on members’ annual and cumulative access to Fund resources in the General Resources Account. For a period of 12 months, this raises the annual limit in the GRA from 145 to 200 percent of quota and the cumulative limit from 435 to 600 percent of quota.

FOOD SHOCK WINDOW

South Sudan Receives Food Shock Financing

The IMF Board has approved a disbursement under the Food Shock Window of about $114.8 million to South Sudan, where 8.3 million people, or two-thirds of the population, face acute food insecurity. This emergency financing will provide South Sudan with fiscal space to address food insecurity while maintaining social and growth-enhancing spending as well as boosting reserves.

VIDEO DISCUSSION

Impact of Russia’s War in Ukraine

How is the war affecting countries in the Caucasus and Central Asia? IMF Deputy Managing Director Bo Li discussed the regional impact with Erik Berglöf, the Asian Infrastructure Investment Bank’s chief economist, and Carnegie Senior Fellow Paul Stronski. They also explored how countries in the region can prepare for potential shocks and sustain their ongoing economic transformation.

STAFF PAPER

Costs of COVID Supply Disruptions

The causes and consequences of supply-side disruptions during the COVID-19 pandemic have been the subject of intense debate. A recent IMF staff paper finds that supply shocks weighed negatively on the global recovery and contributed positively to inflation. Prior to Russia's war in Ukraine, supply disruptions subtracted between 0.5 and 1.2 percent from global value added in 2021, while adding about 1 percent to core inflation that same year.

STAFF PAPER

Wage Inequality

Firms play an important role in shaping income inequality, given that wages represent a significant proportion of household income. A recent IMF staff paper shows that capital-account liberalization increases wage inequality between firms, as wages grow faster at high-paying firms while slowing down at firms at the lower portion of the wage distribution, though the impact depends on country and industry characteristics.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.