📚 Weekend Read: Global Imbalances and COVID-19 | Policies for Emerging Markets | Tourism and the Pandemic | Focus on Rwanda, South Africa and Latin America | New Issue of F&D on Resilience


IMF Weekend Read

Dear Colleague,

Our weekly round-up is back!

In today's edition we focus on our new External Sector Report, the impact of the pandemic on low-income countries and how some emerging markets are responding to the crisis, the impact of COVID-19 on tourism worldwide, age and fiscal stimulus programs, and much more. On that note, let's dive right in.

📅 But first, our 2020 Annual Meetings take place in mid-October, for which we produce a special daily briefing that guides you through the week—pointing to all of the key publications, live events and more. If you'd like to receive this special 7-day update, click here, press send and I'll add you to the list.


The world entered the COVID-19 pandemic with persistent, pre-existing external imbalances. The crisis has caused a sharp reduction in trade and significant movements in exchange rates but limited reduction in global current account deficits and surpluses. The outlook remains highly uncertain as the risks of new waves of contagion, capital flow reversals, and a further decline in global trade still loom large on the horizon.

Our new 2020 External Sector Report shows that overall current account deficits and surpluses in 2019 were just below 3 percent of world GDP, slightly less than a year earlier. Our latest forecasts for 2020 imply only a further narrowing by some 0.3 percent of world GDP, a more modest decline than after the global financial crisis 10 years ago.

The immediate policy priorities are to provide critical relief and promote economic recovery. Once the pandemic abates, reducing the world’s external imbalances will require collective reform efforts by both excess surplus and deficit countries. New trade barriers will not be effective in reducing imbalances. Read the full blog here by the IMF's Martin Kaufman and Daniel Leigh.

Interested in digging deeper? Watch the 60-minute briefing on the launch of the report and our latest 3-min video explainer on stock imbalances.


While the COVID-19 crisis is sending shockwaves around the globe, low-income developing countries (LIDCs) are in a particularly difficult position to respond, write Daniel Gurara, Stefania Fabrizio, and Johannes Wiegand in a new blog

LIDCs entered the COVID-19 crisis in an already vulnerable position—for example, half of them suffered high public debt levels. Since March, LIDCs have been hit by an exceptional confluence of external shocks: a sharp contraction in real exports, lower export prices, especially for oil, less capital and remittances inflows, and reduced tourism receipts.

Take remittances, for example, that exceeded 5 percent of GDP in 30 (out of 59) LIDCs in 2019. Between April and May, they fell by 18 percent in Bangladesh, and by 39 percent in the Kyrgyz Republic, compared to the previous year. The repercussions are likely to be felt widely where remittances are the main source of income for many poor families.

The support of the international community is key to enable LIDCs to tackle the pandemic and recover strongly. Priorities include: (1) guaranteeing essential health supplies, including cures and vaccines when they are discovered; (2) protecting critical supply chains, especially for food and medicines; (3) avoiding protectionist measures; (4) ensuring that developing economies can finance critical spending through grants and concessional financing; (5) ensuring that LIDCs’ international liquidity needs are met, which requires International Financial Institutions to be resourced adequately; (6) reprofiling and restructuring debt to restore sustainability where needed, which, in many cases, may require relief beyond the G20/Debt Service Suspension Initiative; and (7) keeping sight of the United Nations’ SDGs, including by reassessing needs when the crisis subsides. Read the full blog here.


"COVID-19 is still to play out fully in the emerging market universe, posing risks to both people and economies. While countries such as China, Uruguay, and Vietnam have managed to contain the virus, others such as Brazil, India, and South Africa continue to grapple with a rise in infections," write the IMF's Martin Mühleisen, Tryggvi Gudmundsson, and Hélène Poirson Ward in a new blog published in early August.

The economic impact has been even more severe as emerging market economies were buffeted by multiple shocks. Compounding the effects of domestic containment measures has been a decline in external demand. Particularly hit are tourism-dependent countries due to a decline in travel and oil exporters as commodity prices plummeted. With global trade and oil prices projected to drop by more than 10 percent and 40 percent respectively, emerging market economies are likely to face an uphill battle. This is even as capital outflows have stabilized and sovereign spreads retreated compared to the sharply volatile market conditions seen in March.

Not surprisingly, the IMF’s latest World Economic Outlook Update projects emerging market economies to shrink by 3.2 percent this year—the largest drop for this group on record. By way of comparison, in the global financial crisis, growth for the group took a significant hit but still bottomed out at a positive 2.6 percent in 2009.

Policy support by advanced economies provided emerging market economy policymakers with wiggle room to soften the economic blow. Unlike previous episodes, where emerging market economies tended to tighten policy to avoid rapid capital outflows and the inflationary effect of exchange rate depreciations, the current crisis has seen emerging market economies’ policy reaction more in line with that of advanced economies (see the IMF’s policy tracker). Most emerging market economies used reserve buffers more sparingly and allowed exchange rates to adjust to a larger extent, while many countries injected liquidity as needed to ensure market functioning. Countries like Poland and Indonesia further eased macroprudential policies to support credit.


Public infrastructure investment will play a key role in the recovery. But with resources tight, governments need to spend taxpayer money wisely on the right projects. For this, countries need good infrastructure governance—strong institutions and frameworks to plan, allocate, and implement quality public infrastructure, write Gerd Schwartz, Manal Fouad, Torben Hansen, and Geneviève Verdier in a new blog.

"Our analysis shows that, on average, countries waste about 1/3 of their infrastructure spending due to inefficiencies. The loss can surpass a staggering 50 percent in low-income countries. Unlocking this potential should play an important role as countries recover from the pandemic. The good news is that efficiency losses and wasteful spending in infrastructure are not inevitable. Our estimates show that over half of these losses could be made up through better infrastructure governance." Read more here.


Pandemic-related lockdowns, flight cancellations, and border closures may be putting a crimp on summer vacation plans. However, the precipitous drop in tourism will have an outsized impact on countries that rely on foreign travelers—with potentially large-scale effects on their economies’ national accounts.

Costa Rica, Greece, Morocco, Portugal, and Thailand could be among the hardest hit with losses in tourism proceeds exceeding 3 percent of GDP, according to our new 2020 External Sector Report. For some economies, a drop in tourism (which is considered an export) could have an impact on overall current account balances.

For example, in Thailand, a decrease in tourism due to COVID-19 could bring the country’s overall exports down by 8 percentage points of GDP and have a direct net impact of about 6 percentage points of GDP on its current account balance in 2020. That could erode part of the 7 percent overall current account surplus the country had in 2019. Learn more in a new blog by the IMF's Cyril Rebillard.


In the midst of the current COVID-19 pandemic, policymakers around the world are undertaking fiscal stimulus—a combination of spending increases and tax reductions—to support their economies. Even before the present crisis, the importance of fiscal policy has been increasing, with monetary policy constrained by near-zero interest rates. Our new staff research by the IMF's Jiro Honda and Hiroaki Miyamoto finds that age also matters when considering fiscal stimulus. Specifically, they find that fiscal policy isn’t as effective in boosting growth in economies with older populations, compared to economies with younger populations. Read the highlights in a new blog


In a conversation with IMF Country Focus, Rwanda’s Minister of State in Charge of National Treasury Richard Tusabe explains how his government is leveraging technology and grass-roots networks to fight the spread of COVID-19 and ensure financial support for households and businesses.

"Most of the impact has been on Rwanda’s services sector, which has been adversely affected by limitations on international travel and social distancing measures," said Minister Tusabe. "The services sector is projected to grow by only 1 percent in 2020 due to lower trade (imports are expected to fall by 7 percent) and travel. Travel to Rwanda has fallen by 70 percent, which has caused a major impact on the tourism industry." Click here to learn more about how Rwanda is responding to the crisis.

Interested in the broader development story of Rwanda? The IMF's Laure Redifer, Emre Alper, Neil Meads, Tunc Gursoy, Monique Newiak, Alun Thomas, and Samson Kwalingana just published a new departmental paper that explores some of the key factors behind the country's successes.

In another recent conversation with IMF Country Focus, the Director-General of South Africa’s National Treasury Dondo Mogajane explains how the government has responded to the COVID-19 crisis, how IMF financing will help to stabilize the economy, and strategies for addressing debt and spurring growth.

"COVID-19 brought many challenges: a decline of about 18 percent in employment between February and April; every third income earner in February did not earn income in April; job losses were felt most among women and manual labor. Those at the bottom of the income distribution have suffered a great deal," said Director-General Mogajane. Read more here about South Africa's efforts to deal with the pandemic.


Our latest issue of F&D, once again produced by a team of teleworkers, was just printed and published. In this edition, we focus on resilience.

“As the world seeks to comprehend the new normal, we face many unknowns. Will jobs come back? How will we travel again? What will recovery look like? Much is still a question mark. What we do know is that the age of COVID-19 has painfully exposed and widened existing economic and social divisions and created new ones,” writes editor-in-chief Gita Bhatt. “Yet this crisis and the fault lines it is exposing are inspiring calls for a rethinking of our priorities and reconsidering the very structure of the world economy toward a future that is more equitable, adaptable, and sustainable—more resilient. This issue of F&D gives voice to diverse contributors on what needs to be done.”

📢 Also, whether you live in New York or Nairobi, if you're interested in receiving a free print copy of the magazine every quarter in your preferred language, click here to access an exclusive mailing form for newsletter subscribers.


While our work environments changed literally overnight, the impact of lockdowns on the nature of work is likely to last well beyond the pandemic. In a study published by the National Bureau of Economic Research, scholars from Harvard and Stern Business Schools look at the ongoing challenges for organizations and workers struggling to adapt and perform amid the global pandemic. Jeffrey Polzer is a Professor in the Organizational Behavior Department at Harvard Business School and a coauthor of the study. In this new 23-min podcast, Polzer says the pandemic has dramatically affected the way people are collaborating and doing their work. In a hurry? Skim the transcript here.


In 1990, Latin America’s average GDP per capita was a little over a quarter of the United States’ income level, while emerging and developing Asian countries’ GDP per capita was only 5 percent. In 2019, Asian countries had grown fourfold, but Latin America was still at the same level. What explains this weak relative income growth? Since Asia has twice the investment level of Latin America, it is tempting to blame low growth on low investment. But Central, Eastern, and Southeastern Europe casts doubt on this narrative, having achieved faster growth than Latin America with lower investment than Asia.

In a new working paper by the IMF's Bas B. Bakker, Manuk Ghazanchyan, Alex Ho, and Vibha Nanda, they compare the experiences of these three regions (before COVID-19) and conclude that Latin America is poorer because of lower levels of human capital and productivity, not investment. Read the full article here in IMF Country Focus.


We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.

To date, 75 countries have been approved for emergency financing, totaling over US$30 billion. Looking for our latest Q&A about the IMF's response to COVID-19? Click here. We are also continually producing a special series of notes—more than 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more.


Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note

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Rahim Kanani

Rahim Kanani
Editor, IMF Weekend Read


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