  Dear Colleague,In today’s edition we focus on the wider economic implications of Russia’s invasion of Ukraine, food price inflation, fragile and conflict-affected states, debt, unemployment, hidden assets, and much more.
War in Ukraine Reverberates Around World: Analysis of the war’s global economic impact was provided in a blog co-authored by the IMF’s Alfred Kammer, Jihad Azour, Abebe Aemro Selassie, Ilan Goldfajn, and Changyong Rhee. “Beyond the suffering and humanitarian crisis from Russia’s invasion of Ukraine, the entire global economy will feel the effects of slower growth and faster inflation.” They identified three main channels through which impacts will flow:– Higher prices for commodities like food and energy will push up inflation further, in turn eroding the value of incomes and weighing on demand.– Neighboring economies in particular will grapple with disrupted trade, supply chains, and remittances as well as an historic surge in refugee flows.– Reduced business confidence and higher investor uncertainty will weigh on asset prices, tightening financial conditions and potentially spurring capital outflows from emerging markets.””While some effects may not fully come into focus for many years, there are already clear signs that the war and resulting jump in costs for essential commodities will make it harder for policymakers in some countries to strike the delicate balance between containing inflation and supporting the economic recovery from the pandemic,” they conclude.The IMF’s Abebe Aemro Selassie expanded on the conflict’s impact on Africa in an interview with CNBC Africa.Earlier in the week, IMF Managing Director Kristalina Georgieva said in an interview with CBS’s Face the Nation that Russia will fall into a deep recession as sanctions cripple its economy and a slide in the value of the ruble puts pressure on people’s purchasing power. The IMF’s Gita Gopinath elaborated on the economic consequences of Russia’s invasion of Ukraine in an interview with CBC.The IMF disbursed emergency assistance of US$1.4 billion to Ukraine on March 9 under the Rapid Financing Instrument (RFI) to help meet urgent financing needs including to mitigate the economic impact of the war. IMF staff remains closely engaged with the authorities to provide policy support as they continue to design and implement effective crisis mitigation measures. The IMF is also currently working with Moldova, which has requested an augmentation of its existing IMF-supported program. The Fund stands ready to support neighboring and other countries affected by the spillovers of the war through all its relevant instruments.Find all the IMF’s statements, remarks and social media posts about the Ukraine conflict here, including recently updated FAQs. InflationWar-Fueled Surge in Food Prices(PHOTO: IMF PHOTO/YAM G JUN)Global food prices are poised to keep climbing even after jumping to a record in February, placing the heaviest burden on vulnerable populations while adding to headwinds for the global economic recovery, write the IMF’s Christian Bogmans, Jeff Kearns, Andrea Pescatori and Ervin Prifti in a blog published on Wednesday.Food commodity prices rose 23.1 percent last year, the fastest pace in more than a decade, according to inflation-adjusted figures from the United Nations Food and Agriculture Organization. February’s reading was the highest since 1961 for the gauge tracking prices for meat, dairy, cereals, oils, and sugar.Now, the war in Ukraine and sanctions on Russia are upending shipments and possibly production for two of the world’s largest agricultural producers. The two countries account for nearly 30 percent of world wheat exports and 18 percent of corn, most of which is shipped through Black Sea ports that are now closed. Wheat futures traded in Chicago, the global benchmark, recently rose to a record.Price shocks will have worldwide impact, especially on poor households for whom food is a higher share of expenses. Food costs account for 17 percent of consumer spending in advanced economies, but 40 percent in sub-Saharan Africa. Though this region is highly import-dependent for wheat, the grain constitutes only a minor share of the total caloric needs.Read the full blog. Fragile statesFragile and Conflict-Affected States(PHOTO: IMF PHOTO/STEVE JAFFE)Fragile and conflict-affected states (FCS) are home to almost 1 billion people and face a variety of protracted challenges – from reduced institutional capacity, limited public service delivery, and extreme poverty to forced displacement and war. Fragility and conflict are also linked to trends such as climate change, food insecurity, and persistent gender inequalities.The IMF is stepping up its support for FCS through the adoption of its first FCS Strategy which will provide well-tailored, robust, and longer-term support to its most vulnerable member countries. Key elements of the IMF Strategy for FCS include:– Greater tailoring of Fund engagement and instruments to the country-specific manifestations of fragility and conflict. The Strategy outlines principles of engagement to ensure that the IMF’s mandate and comparative advantage will be effectively leveraged to help country authorities in FCS achieve better macroeconomic outcomes.– Closer proximity to our most vulnerable members. As exiting fragility and building resilience take time, the Strategy will lead to an expanded Fund presence in FCS to help country authorities respond swiftly to the economic challenges associated with fragility and conflict through well-tailored support over the long run.– Enhanced partnerships to amplify the Fund’s impact in FCS. The Strategy spells out how the IMF will work with development, humanitarian, and peace actors that play a key role in helping FCS make sustained progress.Watch a recording of the FCS Strategy launch event, organized in partnership with Devex. The panel discussion focused on the importance of coordinated action in strengthening global support for FCS, and highlighted how macroeconomic policy can contribute to existing efforts to support FCS. Speakers:— Kristalina Georgieva, Managing Director, IMF– Ali Alawi, Deputy Prime Minister and Minister of Finance, Iraq– David Beasley, Executive Director, World Food Programme– Nicolas Kazadi, Minister of Finance, Democratic Republic of Congo– Moderated by Raj Kumar, President & Editor-in-Chief, DevexRead our blog on FCS and listen to our podcast.F&DA Fine Balancing Act(ART: PETER REYNOLDS)Before the global financial crisis of 2008, the general consensus was that the most important contribution fiscal policy could make to macroeconomic policy was to avoid becoming a source of instability, the IMF’s Vitor Gaspar writes in an article for F&D Magazine. But in response to the pandemic, fiscal policy took on a crucial role in macroeconomic stabilization.As prices and demand plummeted and central banks in many advanced economies were hamstrung by interest rates that could go no lower, fiscal policy took on new importance—extending lifelines to vulnerable households and firms and limiting the impact of business shutdowns on economic activity and employment.With inflation and interest rates on the rise, the issue is becoming how, and how fast, deficits and debt levels will be reduced. There is reason to fear that the burden of policies aimed at reducing deficits and debt, such as spending cuts and tax increases, will fall predominantly on people already hit hardest by the pandemic—such as caregivers, low-wage earners, and less-qualified workers.Read the entire article. Check out our March Issue of Finance & Development, which focuses on “Rethinking Fiscal: Public Finance and Fairness in a Changed World”. Want to get a print copy delivered to your home or office? Click here to subscribe.(PHOTO: SIMONKR/ISTOCK BY GETTY IMAGES) E-commerce in PandemicSpikes in the share of online spending are dissipating overall, but there’s significant variation by industry, the IMF’s Prachi Mishra and Antonio Spilimbergo write in a blog co-authored with Joel Alcedo, Bricklin Dwyer (both Mastercard Economics Institute), and Alberto Cavallo (Harvard Business School). Real Value of Hidden AssetsMost governments don’t know what their assets are worth because they only account for cash, explains Ian Ball in a podcast. Building on his recent F&D article, he discusses the advantages of a basic accounting exercise that dates back to the time of William the Conqueror.(PHOTO: IMF) Essential Reading: Capital FlowsCheck out our e-Library section on capital flows. It includes IMF research on capital flows related to emerging market and developing economies, monetary policy spillovers, climate shocks, e-government, and more. Analyze This! EmploymentIn our latest Analyze This! video, the IMF’s Romain Duval explains how the job market works and why we’re seeing an increase in unfilled job vacancies. Heavily reliant on commodity exports, remittances and tourism, the economies of the Caucasus and Central Asia and their financial systems are vulnerable to volatile external shocks. This Chart of the Week by the IMF’s Rayah Al-Farah, Klakow Akepanidtaworn and Sanan Mirzayev shows how exposed countries in the region are to such disruptions, which in the past have caused economic downturns and financial distress. Although the situation remains uncertain, the ongoing pandemic and the war in Ukraine could also have a substantial impact.WEEKLY ROUND-UP01. IMF Press BriefingThe IMF’s Gerry Rice answered journalists’ questions at Thursday’s press briefing. Topics included IMF and international support for Ukraine and the war’s economic impact across regions, as well as Argentina, Lebanon, Pakistan, South Africa, Sri Lanka, and Tunisia. The recording is available in English and Spanish.02. Climate CooperationDespite COP 26 commitments, there is still an ambition and a policy gap at the global level to keep temperature increases below the 2°C agreed in Paris. Avoiding the worst outcomes of climate change requires an urgent scaling up of climate policies. A |
