Inflation(photo: unsplash) Inflationary pressures are intensifying, and the Omicron variant is generating new uncertainties around the world. Monetary policymakers are facing new and challenging tradeoffs that differ from country to country, the IMF’s Tobias Adrian and Gita Gopinath write in a new blog. In the United States, where there has been a strong recovery, a tight labor market, and broad-based inflationary pressures, it would be appropriate for the Federal Reserve to accelerate the taper of asset purchases and bring forward the path for policy rate increases, the authors write. –Getting to the core: Core inflation, a measure that strips out more volatile fuel and food inflation, has risen most sharply in the US, followed by the United Kingdom and Canada, among advanced economies. In the euro area and Asian countries like China, Indonesia and Japan, core inflation remains below central bank targets. Among emerging markets, core inflation has risen above targets in Russia, India and Brazil and is dramatically elevated in Turkey. –Higher for longer: The risks of a further acceleration of inflation are materializing as supply disruptions and elevated demand are lasting longer than expected. Supply-demand imbalances are still expected to wane in 2022, but continuing a monetary policy stance aimed at supporting recovery could fuel substantial and persistent inflationary pressures. In countries where economic recovery is further along and inflationary pressures more acute it would be appropriate to accelerate the normalization of monetary policy. Adrian and Gopinath urge major central banks to carefully communicate their policy actions “so as not to trigger a market panic that would have deleterious effects not just at home but also abroad, especially on highly leveraged emerging and developing economies.” Debt(Photo: YOH4NN by Getty Images) About 60 percent of low-income countries are at high risk or already in debt distress, a rate that has more than doubled since 2015. The G20 Debt Service Suspension Initiative will soon expire and interest rates are poised to rise. Low-income countries are facing a future in which it will be increasingly difficult to service their debts. IMF Managing Director Kristalina Georgieva and the IMF Director of Strategy, Policy and Review Ceyla Pazarbasioglu make the case in a new blog for improving the G20’s Common Framework for debt treatments–a longer-term initiative to help countries restructure their debt and deal with insolvency and protracted liquidity problems. “The Common Framework is yet to deliver on its promise. This requires prompt action,” the authors write, adding that recent experiences with Chad, Ethiopia, and Zambia show that improvements are needed. –No time to waste: Policy space is only tightening for highly indebted countries. Georgieva and Pazarbasioglu recommend four steps to help the process: - Improve clarity on the different steps and timelines in the Common Framework process, alongside earlier engagement of official creditors with the debtor and with private creditors.
- Consider a comprehensive and sustained debt service payment standstill for the duration of the negotiation. This would provide relief to the debtor at a time when it is under stress, as well as incentivize faster procedures to get to the actual debt restructuring.
- The Common Framework should clarify further how the comparability of treatment will be effectively enforced, including as needed through implementation of the IMF arrears policies.
- The Common Framework should be expanded to other highly-indebted countries that can benefit from creditor coordination.
(Photo: bCracker by Getty Images) Restructuring domestic debt is like surgery: You only do it if you must, and you avoid it if it might do more harm than good, the IMF’s Peter Breuer, Anna Ilyina, and Hoang Pham write in a new blog. Over the past two decades, emerging market developing economies have seen their share of sovereign domestic debt—“domestic debt” for short—increase from 31 to 46 percent of their total sovereign debt. Thus, restructuring of domestic debt is likely to play a role in the resolution of future debt crises. A new IMF paper draws on the past 40 years of sovereign debt restructurings to offer some insights into the key considerations for a domestic debt restructuring that restores debt sustainability while minimizing the disruption caused. –A different kind of debt: To date, much of the Fund’s and academic work on sovereign debt problems has focused on the implications of restructuring sovereign external debt (as noted above), by altering the terms of the debt such as the amount owed or the repayment period through negotiations with different types of external creditors. But, highlighted in the paper, restructuring debt issued under domestic law is different. F&D MagazineNew F&D Issue: Safeguarding Global HealthGood health is the foundation on which to build—a life, a community, an economy. In our Winter 2021 issue of F&D Magazine we focus on safeguarding global health and well-being. The COVID-19 pandemic has exposed gaps in international cooperation and forced a rethink of public health systems. It has also made us reconsider what defines a healthy society. The crisis has shown the inextricable link between health, both physical and mental, and the economy. “The depth of the pandemic’s shock—and the lessons from it—will perhaps spur individual countries and the international community to treat health as a public policy priority that will make for happier and more productive societies. As Mahatma Gandhi said, ‘Health is the real wealth…,’” writes F&D editor-in-chief Gita Bhatt. Our latest issue features articles by World Trade Organization chief Ngozi Okonjo-Iweala, Singapore’s senior minister Tharman Shanmugaratnam, and Harvard’s Larry Summers; Nobel Laureate Michael Kremer; World Health Organization head Tedros Adhanom Ghebreyesus; IMF Chief Economist Gita Gopinath, among many others. Want to get a print copy delivered to your home or office? Click here.️ F&D Podcasts: Listen to two new podcasts with F&D contributors. | 
