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(PHOTO: THAWEESAK SAENGNGOEN/ISTOCK BY GETTY IMAGES)
Capital flows can help countries to grow and to share risks. But economies with large external debts can be vulnerable to financial crises and deep recessions when capital flows out. External liabilities are riskiest when they generate currency mismatches—when external debt is in foreign currency and is not offset by foreign currency assets or hedges.
In a new blog, the IMF’s Tobias Adrian, Gita Gopinath, Pierre-Olivier Gourinchas, Ceyla Pazarbasioglu, and Rhoda Weeks-Brown explain why the Fund is updating its “Institutional View” on capital flows to give countries greater flexibility to manage inflows.
--Substantial benefits: There is no change to the IMF’s view, set out in 2012, that capital flows are desirable because they can bring substantial benefits to recipient countries but also pose risks to macroeconomic and financing stability.
In its advice a decade ago, the IMF said measures to restrict capital might be appropriate for a limited period when a surge in inflows constrains the policy space to address currency overvaluation and economic overheating.
--Pre-emptive measures: The main change, the authors say, is that countries should have the option of introducing measures to curb capital inflows pre-emptively—even when there is no surge in inflows.
“Our goal is that countries can make use of this updated toolkit to preserve macroeconomic and financial stability while at the same time reaping the benefits that capital flows can provide.”
Read more about the IMF's Institutional View on capital flows, including benefits and cost, currency mismatches, design principles and more, here.
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(PHOTO: ABLOKHIN/ISTOCK BY GETTY IMAGES)
Labor shortages have pushed up wage growth, benefitting low-wage workers but adding to inflation risks, the IMF's Romain Duval, Myrto Oikonomou and Marina M. Tavares write in a new blog. Bringing more workers back into the labor force would ease these pressures while making the recovery more inclusive, the authors say, drawing on the findings of a staff paper launched at the Peterson Institute for International Economics.
Curbing COVID-19 outbreaks would enable older and low-wage workers to reenter the labor force, thereby easing labor market pressures and inflation risks. Keeping schools and daycares open will also be important for women with young children to fully get back to work.
--Job matching: Well-designed active labor market policies could also speed up job matching, including through short-term training programs that help workers build up their skills. To accommodate shifting worker preferences, labor laws and regulations also need to facilitate telework. And where the decline in immigration amplifies labor shortages, its resumption could further “grease the wheels” of the labor market.
--Preserving pay: Tighter labor markets in several advanced economies have been good news so far. They have increased pay, especially for low-wage workers, with a manageable impact on price inflation (the surge has predominantly been driven by other factors).
But some workers who left during the pandemic have yet to return, while others have lingering concerns about their current jobs and new expectations, restricting labor supply. By doing more to help these workers, governments can make the labor market recovery more inclusive while curbing inflation risks.
📺 Watch a video of the authors discussing their findings with the PIIE's Olivier Blanchard, the IMF's Romain Duval and others.
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CREDIT: ISTOCK/ MICHAEL CONLIN
Across the world, countries are coming up with innovative solutions to strengthen public finances, improve accountability and transparency in the public sector, and even generate cash for conservation. Three case studies highlight these novel policy approaches, which could hold lessons for other countries.
--Belize: In Belize, a debt-for-nature swap has cut the Caribbean country’s stock of external debt by a striking 10 percent of GDP and is generating cash for conservation to protect the longest coral reef in the Western Hemisphere. There is scope for similar swaps to fund conservation or climate work in other countries with expensive debt on their books.
--Colombia: Transparency organizations, meanwhile, are using open-source technologies to publicize undeclared conflicts of interest by public officials in Colombia. This data can be used by Colombia’s watchdog, the Office of the Comptroller General, to investigate corruption, and by companies that want to avoid reputational risk.
--Ghana: And in West Africa, Ghana is turning to technology to improve access to public services and expand its revenue base. The authorities are consolidating a database of taxpayers, establishing a digital address system, and tapping a fast-growing mobile money system to bring more people into the tax system. So far 15.5 million people have signed up for an official digital ID, and most of the adult population could be covered by the end of this year.
In an article for the March issue of F&D, Analisa Bala, Adam Behsudi and Nick Owen look at these three case studies of innovative technological approaches to public finances. Â
Check out our March Issue of Finance & Development, which focuses on "Rethinking Fiscal: Public Finance and Fairness in a Changed World".
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