ūüďö Weekend Read: Climate Change | Cyber Risk and Financial Stability | COVID-19 and Global Poverty | Middle East in Focus | Volatile Capital Flows | Combating Corruption

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IMF Weekend Read

Dear Colleague,

In today's edition we focus on fighting climate change and accelerating a green recovery from the pandemic, the connection between cyber risk, financial inclusion and financial stability, COVID-19 and global poverty, managing volatile capital flows, how the IMF combats corruption and much more. On that note, let's dive right in.

ūüď£ But first, starting today at 9:20 AM ET, watch¬†Managing Director Kristalina Georgieva delivers live remarks at the Singapore Fintech Festival on reimagining payments for the digital era.

SPOTLIGHT ON FIGHTING CLIMATE CHANGE

This week marks the fifth anniversary of the adoption of the Paris Agreement. Carving out a way forward, Managing Director Kristalina Georgieva spoke to Mark Carney, UN Special Envoy for Climate Action and Finance, about how we can shape a greener economy for the future, the role of the financial sector in fighting climate change, and the role of the IMF in accelerating a green recovery from the pandemic.

What’s clear is that climate change and COVID-19 have a great deal in common. Both are human tragedies and economic catastrophes. They are also most devastating for vulnerable people and communities around the world. But the two crises share something else in common: A strong, coordinated, green public investment push can help address both. Watch the 25-minute discussion here.

Building on these themes, Christian Bogmans and Claire Mengyi Li of the IMF's Research Department published a new blog about how a greener future begins with a shift to coal alternatives. They write that while demand for coal remains strong and helps fuel economic development in emerging markets, many countries, seeking a more sustainable future, have been taking steps to reduce their dependence on fossil fuels, especially coal.

But there are several factors that make it difficult to steer away from coal: incentives to switch to alternative energy sources are currently weak because of insufficient carbon pricing, the long lifespan of coal power plants, and moving away from coal typically means losses for the domestic mining industry and its workers.

Policy recommendations: In the case of emerging markets and low-income countries, the international community can provide financial and technical assistance (e.g., the know-how needed to build grids that work with intermittent power sources, such as wind and solar) and limit financing of new coal plants, at least where alternatives exist. Cleaner alternatives like natural gas can also help bridge the energy transition towards a greener future. Carbon capture and storage technology may be a viable solution to ease the transition away from coal, but it is currently less cost-competitive than other low-carbon energy sources such as solar and wind. Read the full blog here.

Also, did you know that African forest elephants fight climate change by contributing in surprising ways to natural carbon capture? Learn more here.

CYBER RISK, FINANCIAL INCLUSION, AND FINANCIAL STABILITY

"COVID-19 accelerates our digital advancements, and opportunities are multiplying at an even faster pace. But so are the risks. And if we want to harness the great power of technology to lift people up, we need to deal effectively with the threats that can bring technology down and harm lives and livelihoods," said MD Georgieva at a recent conference on the topic co-hosted by the IMF. "This matters tremendously for financial inclusion, an area where the digital transformation creates so many opportunities. Financial inclusion is one of the most powerful tools we have to fight poverty and lift up living standards. It is also crucial for empowering women."

While¬†an additional 1.2 billion adults worldwide have gotten access to a bank account since 2011. Today, 69 percent of adults have an account.¬†But while we have made progress, much remains to be done. Close to one-third of adults‚ÄĒ1.7 billion‚ÄĒare still unbanked. About half of unbanked people include women from poor households in rural areas or out of the workforce.

Policy recommendations: First, prioritizing development finance for digitalization and financial inclusion is paramount if we want to prevent the danger of a more unequal world. Second, we need to build a safe, secure, and robust system that supports digital financial inclusion. Nowhere are there more possibilities for damaging disruptions from cyber attacks than in the financial sector. A major cyber attack could seriously threaten financial stability. And third: we must work together to share our knowledge and foster collaboration. Read her full remarks here.

Building on these themes, Jennifer Elliott and Nigel Jenkinson of the IMF's Monetary and Capital Markets Department published a new blog honing in on cyber security and financial stability.

They write that given strong financial and technological interconnections, a successful attack on a major financial institution, or on a core system or service used by many, could quickly spread through the entire financial system causing widespread disruption and loss of confidence. Transactions could fail as liquidity is trapped, household and companies could lose access to deposits and payments. Under extreme scenarios, investors and depositors may demand their funds or try to cancel their accounts or other services and products they regularly use.

In their view, many national financial systems are not yet ready to manage attacks, while international coordination is still weak. New IMF staff research suggests six major strategies that would considerably strengthen cybersecurity and improve financial stability worldwide. They include cyber mapping and risk quantification, converging regulation, stronger deterrence and others. Click here to learn more.

COVID-19, GLOBAL POVERTY, AND THE WAY FORWARD

In a recent speech by First Deputy Managing Director Geoffrey Okamoto at the CGTN Global Action Initiative, he talked about how the pandemic is outright reversing global gains in the fight against poverty. According to the IMF’s Fiscal Monitor, the number of people in extreme poverty will increase by 80 to 90 million globally, despite all the emergency spending. They are informal and gig workers, those outside social safety systems, migrants and those receiving their remittances.

Our research on recent epidemics ‚ÄĒ SARS, H1N1, and others ‚ÄĒ found that they raised income inequality and hurt employment prospects of those with lower education. These events also increased social unrest and instability. Tackling these problems will be harder because countries are in worse financial health.¬†Countries are doing the right thing now: spending what is needed to support health and social protection. But that spending, combined with the sharp output decline and the collapse in government revenue, will push public debt to record levels.

We are all hopeful about the potential vaccines on the horizon. But we need to be realistic about when they might be available, and the formidable logistical challenges of vaccination at global scale. This could take most or all of 2021.

Policy recommendations: Economic support must be maintained to blunt the effects of future containment efforts. Once the health emergency is controlled, our focus should turn to advancing reforms that can boost a country’s growth potential, generate better jobs and increase resilience. Digital infrastructure is an example. Expanding internet access in Africa by 10 percent of the population could increase GDP per capita growth by as much as 4 percentage points. Public investment, when possible, creates jobs and stimulates private investment.

MANAGING VOLATILE CAPITAL FLOWS

In a continuous effort to help countries manage volatile cross-border capital flows, the IMF has taken a major step toward a new analytical macroeconomic framework that can guide appropriate policy responses. International capital flows provide significant benefits for economic development but can also generate or amplify shocks. This dilemma has long posed challenges for policymakers in many open economies. Learn about our latest thinking on these issues in a new blog by Tobias Adrian of the Monetary and Capital Markets Department, Gita Gopinath of the Research Department, and Ceyla Pazarbasioglu of the Strategy, Policy, and Review Department.

INCLUSIVE GROWTH IN THE MIDDLE EAST AND NORTH AFRICA

Over the past two decades, countries in the Middle East and North Africa have made progress against several socioeconomic indicators. That progress has slowed, however, and the pandemic has magnified existing challenges, highlighted the deficiencies in health infrastructure and social safety nets, and disproportionately impacted the most vulnerable. The IMF’s recently published paper highlights the importance of investing in health, education, and social protection as a policy lever for supporting and promoting inclusive growth. It also makes the case for spending efficiency, which is dependent on fiscal transparency and well-targeted social protection schemes.

Earlier this week, the IMF’s Jihad Azour led a renowned panel of experts from across the region for a timely discussion moderated by Abderrahim Foukara, Al Jazeera’s Washington Bureau Chief. Learn more about how the region compares to global peers on social spending and socioeconomic indicators, and see how social spending can support inclusive growth to build forward better during and after COVID-19. Watch the event here.

HOW THE IMF COMBATS CORRUPTION

Earlier this week IMF's General Counsel Rhoda Weeks-Brown¬†wrote a guest post on Harvard's Global Anticorruption Blog¬† stressing the fact that the dire economic effects expected from the COVID crisis‚ÄĒincluding declines in living standards, increases in inequality, and a reversal of the decades-long declining trend in global poverty‚ÄĒhave made fighting corruption more urgent than ever before.

In only seven months, the institution has provided lending assistance of more than US$100 billion to over 80 countries, including over US$31 billion in emergency financing to 78 countries, and¬†despite the speed of the IMF‚Äôs response, we have focused on safeguards to ensure that appropriate governance, transparency and accountability measures are in place even for our rapid emergency financing. This financing supports countries‚Äô commitments to level up healthcare spending and provide income support for affected households and businesses. Our advice to countries has been ‚Äúspend what you need, but keep the receipts.‚ÄĚ Governments in turn have made firm commitments (PDF) to address governance, transparency and accountability.¬†Read more here.

THE POST-PANDEMIC BRAVE NEW WORLD

In our cover story for the winter 2020 issue of Finance & Development, Financial Times’ European economics commentator Martin Sandbu explains why policymakers’ choices during this pandemic could shape their economies for decades to come. In "The Post-Pandemic Brave New World," he writes that the fundamental economic fact about the pandemic is that it intensified existing societal fault lines, and that the preexisting policy debates about them have intensified too. What can be done moving forward?

Two things seem clear, he writes. The first is that the¬†nature and quality of work are central, and any reform program must focus on creating higher-quality jobs for more people in more places. The second is that it¬†must be big in scope and scale‚ÄĒsomething with ambition and motivational power comparable to the New Deal or the Marshall Plan. Curious to learn more?¬†Click here.

2021: A TURNING POINT FOR DEVELOPING COUNTRIES

MD Georgieva stressed support for low-income countries should be an urgent priority to prevent deep scars and an irreversible shift in trends.

"One particular issue we have to put to our hearts...is investing in people, investing in health, investing in education, investing in social protection. I give you my word that the IMF will be prioritizing the resilience of people on equal footing as the resilience of the financial system," she said during an IMF-hosted conference this week looking at how the pandemic has affected developing countries.

The MD highlighted at least one key figure showing the disparity between rich and poor countries: advanced economies have spent nearly $10 trillion supporting their populations against the crisis. Meanwhile, low-income countries have been able to spend only $40 billion on similar efforts--much of which has come from IMF funding.

A word on debt: Efforts to suspend debt payments may provide a reprieve for some countries that are able to resume a growth path once they emerge from the crisis. Many other economies will need help to address unsustainable debt, the MD said.

"You kick the can down the road, but the can is so heavy that if you continue kicking you break your foot," she said. "We have to recognize the need for case-by-case debt restructuring that may also include debt reduction."

Watch the full conference here.

IMF LENDING

Check out our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19. We are also 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, 78 countries have been approved for emergency financing, totaling over US$31 billion. Looking for our Q&A about the IMF's response to COVID-19? Click here.¬†We are also continually producing a special series of notes‚ÄĒmore than 50 to date‚ÄĒby IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more.

FINAL THOUGHT

Don't forget to tune in on Monday December 14 at 9:30 AM ET: IMF Chief Economist Gita Gopinath discusses how governments can stop COVID-19 from increasing inequality with Sierra Leone's Finance Minister Jacob Jusu Saffa, ICRICT Commissioner Jayati Ghosh, Development Finance International's Matthew Martin, and Oxfam International's new Executive Director, Gabriela Bucher. Watch on IMF Live.

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. 

And if you're on LinkedIn, subscribe to this newsletter in a more ūüďą visual format.

Sincerely,

Rahim Kanani

Rahim Kanani
Editor, IMF Weekend Read
rkanani@IMF.org

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