Reaping Rewards from Climate Adaptation

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All countries, rich and poor, must adapt to climate change to cope with droughts, storms, and sea-level rise. Countries can reap large rewards by investing in resilient growth and integrating adaptation into development strategies, the IMF’s Managing Director Kristalina Georgieva writes in a new blog with Vitor Gaspar and Ceyla Pazarbasioglu.

Yet countries that need to adapt the most often lack the means to do so. They typically lack the financing and the institutional capacity to implement needed adaptation programs, the authors write, drawing on the findings of three Staff Climate Notes covering climate adaptation and fiscal policy, macro-fiscal implications, and bringing climate adaptation into the mainstream of fiscal planning.

–Daunting costs: According to IMF staff estimates, annual adaptation needs exceed 1 percent of GDP in about 50 low-income and developing economies for the next 10 years. The costs can be even larger for small, island nations exposed to tropical cyclones and rising seas, up to 20 percent of GDP.

The international community can help poor and vulnerable countries adapt by providing financial support and developing institutional capacity. “These countries will suffer the most devastating impacts of climate change even though they’re not responsible for causing it,” the authors write.

Find all the IMF’s Staff Climate Notes, which cover the impact of climate change on macroeconomic and financial stability, here.

War’s Devastating Impact

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As well as a devastating impact on Ukraine’s people and economy, Russia’s war is having wider ramifications related to remittances, refugees, and energy and food prices, IMF Managing Director Kristalina Georgieva said in a live conversation with Foreign Policy magazine editor Ravi Agrawal.

For countries that depend on imports of energy and food from Russia and Ukraine, the impact will be devastating, Georgieva said. “A war in Ukraine means hunger in Africa.”

Speaking in the same conversation, the IMF’s First Deputy Managing Director Gita Gopinath agreed that developing economies especially are at risk from rising food prices. “The longer this war lasts, the more grievous the problems become,” she said. In a podcast with The Economist’s Money Talks, Gopinath expanded on the global economic implications of the war.

–Europe, Africa: The IMF’s Alfred Kammer spoke to the BBC about the war’s economic effects within Europe and beyond (20:50), while the IMF’s Papa N’Diaye described the impact on sub-Saharan Africa in a separate BBC interview (43:50).

The IMF has disbursed emergency assistance of $1.4 billion to Ukraine under a Rapid Financing Instrument. IMF staff remain closely engaged with the authorities to provide policy support.

📺 Watch Georgieva and Gopinath talk to Foreign Policy about the war in Ukraine and what it means for the global economy.

Find all the IMF’s statements, remarks and social media posts about the war in Ukraine here.

Marianne Bertrand: Inequity Detective

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Last December, there were news reports that a Black woman, Tenisha Tate-Austin, had the appraised value of her home in California raised by half a million dollars by having a white friend pretend to own it. When an economist heard of this, he shrugged and simply said, “Bertrand and Mullainathan.”

He didn’t need to say more: he was citing one of the most famous papers in economics of the past two decades, a 2004 study by Marianne Bertrand and Sendhil Mullainathan, both currently professors at the University of Chicago’s Booth School of Business.

–Explicit prejudice or unconscious bias: They sent nearly 5,000 fictitious resumes in response to job ads in Boston and Chicago and found that Black-sounding names, such as Lakisha, were 50 percent less likely to get a callback than white-sounding names, such as Emily, even though the resumes had been rigged to be alike in qualifications. It was difficult to attribute the result to anything other than explicit prejudice or unconscious bias.

It’s one of several papers that have cemented Bertrand’s reputation for documenting why so many, such as women and minorities, do not do as well as they deserve, while some, such as top CEOs, are paid a lot more than they deserve.

In an article for the March issue of F&D Magazine, the IMF’s Prakash Loungani profiles Marianne Bertrand.

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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(PHOTO: VLAD_KARAVAEV/ISTOCK BY GETTY IMAGES)

Untapped Potential

Personal income tax has untapped potential in poorer countries, the IMF’s Dora Benedek, Juan Carlos Benítez, and Charles Vellutini write in a new blog. Revenue from this tax averages only 2.5 percent of GDP in low-income countries, partly because of narrow tax bases, and it does little to lessen inequality.

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The Cost of Conflict

Our world is more interconnected than ever. So when conflicts happen, they affect the economies of many other countries, including neighboring countries and those with close trade links. The IMF’s Elizabeth Van Heuvelen explains how in our latest Analyze This! video.

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Learning Losses

Young people aged five to 19 make up one quarter of the world’s population. How have they been affected by school closures during the pandemic? We show that learning losses have been very unequal in our latest Chart in Motion.

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Essential Reading: IMF Work

What should you know about IMF work? Visit our eLibrary section to find out more about the Fund’s work on special drawing rights; surveillance, capacity development and lending; fragile states; monetary policy; and public investment and public debt.

 

Foreign direct investment positions channeled through resident Special Purpose Entities in some places are remarkably high, the IMF’s Evrim Bese Goksu, Theo Bikoi, and Padma Hurree Gobin show in a new Chart of the Week. In Luxembourg these positions are 45 times the size of its economy, it’s 30 times in Mauritius, and 28 times in Bermuda

WEEKLY ROUND-UP

01. Argentina Agreement

The IMF’s executive board meets later on March 25 to decide whether to approve Argentina’s request for $45-billion Extended Fund Facility. Earlier, the IMF Director of Communications, Gerry Rice, welcomed approval by the Argentine congress of a staff-level agreement on the economic and financial policies to be supported by the program. “The IMF places great value on broad societal support for program success and the legislative approval is an important signal that Argentina is committed to policies that will encourage more sustainable and inclusive growth,” he said in a statement.

02. Changyong Rhee

Changyong Rhee intends to retire from the IMF in April and has relinquished his role as Director of the Fund’s Asia and Pacific Department, Kristalina Georgieva announced on March 23. Rhee, who joined the Fund in Feb. 2014, has been nominated as a candidate for Governor of the Central Bank of Korea. “During his eight years at the helm of APD, Changyong has made a tremendous impact in strengthening the Fund’s relationship with Asian member countries,” Georgieva said.

03. Brazil’s Covid Cash

Brazil’s Emergency Aid program of cash transfers was one of the government’s signature responses to the economic impact of the pandemic. Costing 300 billion real, it staved off a steep rise in poverty and inequality by providing a basic income to workers in the informal sector. In a new staff paper, the IMF’s Daniel Cunha, Joana Pereira, Roberto A. Perrelli, and Frederick Toscani estimate that the program also lifted GDP by 0.5-1.5 percentage points.

04. Indonesia’s Economy

Indonesia’s economy is recovering at a brisk pace, the IMF said in its latest Article IV report. The Delta variant of the coronavirus slowed recovery in mid‑2021, but growth picked up in the fourth quarter and is expected to strengthen to 5.4 percent for 2022 and 6.0 percent in 2023. “Nevertheless, the pandemic has caused scarring and reinforced the need to tackle longstanding challenges, including a low revenue intake and shallow financial markets.”

MARK YOUR CALENDAR

The IMF Research Department’s Romain Duval and Pierre-Olivier Gourinchas will join Olivier Blanchard of the Peterson Institute for International Economics and other speakers on March 31 at 1:00 pm ET to discuss the findings of a new staff paper on labor market tightness in advanced economies. Register here to watch a live stream.