Weekend Read: Georgieva on Dangers of a Low-Growth World | Emerging Market Currency Developments | Qatar | F&D Magazine: The Evolving IMF

In today's edition, we highlight:

• Georgieva on the dangers of a low-growth world
• Emerging Market currency developments
• Qatar Country Focus
• Finance & Development Magazine: The Evolving IMF
• IMF, IDB enhance cooperation
• The IMF on WhatsApp, and much more

GLOBAL ECONOMY

A Low-Growth World is an Unequal, Unstable World:?Georgieva

The global economy is stuck in low gear, which could deal a major blow to the fight against poverty and inequality, writes IMF Managing Director Kristalina Georgieva in a new blog.

“New IMF analysis suggests periods of stagnation lasting four years or more tend to push up income inequality within countries by almost 20 percent – considerably higher than the increase due to outright recession,” she writes. “The longer we’re stuck in a world of low growth, the more unequal that world would become.”

With the right policies, she says, we can escape a low growth, rising inequality trap, while working to reduce poverty and hunger. She cites three priority policy areas: putting into place a mix of reforms to jumpstart medium-term growth, including measures to promote competition and improve access to finance, and bringing more people into the labor force; ensuring that fiscal policies support the most vulnerable members of society; and making sure there is a strong global financial safety net for countries that need support.

“One of the lessons of recent history has been that we must not ignore those left behind by economic and technological progress – be they individuals within a country, or entire nations struggling to close the gap…..with the right policies, and by working together, we can build a prosperous and equitable world for all,” Georgieva concludes.

FINANCIAL SECTOR STABILITY

Implications of Emerging Market Currency Developments

Earlier this year, the IMF’s Tobias Adrian , Fabio Natalucci , and Jason Wu flagged that emerging markets were navigating high global interest rate volatility, and also noted that while emerging markets have thus far remained resilient, rising uncertainty could lead to challenging times ahead.

A global soft landing remains the base case, as the July World Economic Outlook?update?showed.

“And yet, emerging market currencies have declined by about 4 percent year-to-date, on net, against the US dollar, even after partially recovering in recent weeks,” write Adrian, Natalucci, and Wu in a new blog. “It’s important to assess whether further declines could have adverse consequences for financial stability.”

Countries with the most pronounced narrowing—notably several Latin American countries that reduced policy rates this year in response to slower inflation—or those that have the lowest?levels?of interest rate differentials, including some Asian emerging markets, experienced the largest exchange rate depreciations against the dollar, the authors note.

Should pressures continue to build, additional policy tools can be useful, say the authors. For instance, in cases where a sharp depreciation poses material financial stability risks owing to balance-sheet mismatches, or threatens to de-anchor inflation expectations, foreign exchange intervention may be helpful in mitigating adverse impacts.

However, this and other measures can’t substitute for fundamental macroeconomic adjustments and should be only part of broader plans to address any underlying imbalances. Vigilance and planning for adverse scenarios should be the central tenet of financial policies, the authors conclude.

COUNTRY FOCUS

Qatar Charts a New Course for Economic Diversification

Qatar continues to enjoy economic gains after hosting the 2022 FIFA World Cup, which boosted its global profile. Visitor arrivals in 2023 were nearly twice pre-pandemic levels and tourism this year reached new heights, write the IMF's Ran Bi and Ken Miyajima in a new Country Focus article.

Hosting the World Cup has accelerated Qatar’s economic diversification into non-hydrocarbon sectors as its massive public infrastructure investment program built everything from ports and roads to airports. IMF analysis shows that this public investment program helped drive most of Qatar’s economic diversification over the past decade, contributing on average 5-6 percentage points annually to non-hydrocarbon real GDP growth.

“Going forward, the newly created infrastructure can be leveraged to generate new jobs, businesses, and opportunities in sectors beyond the oil and gas industries for further economic growth,” say the authors.

Looking ahead, Qatar’s key challenge remains transitioning from public sector-led growth to a more diversified, private sector-driven model, as envisioned by Qatar’s National Vision 2030. Achieving this transformation requires bold reforms to boost productivity, foster a more conducive business environment, and leverage progress in digitalization and climate actions, according to the IMF’s latest annual economic review.

FINANCE & DEVELOPMENT MAGAZINE

The Evolving IMF

The IMF has always adapted to the evolving needs of its member countries, and the pace of change has accelerated in the past 30 years, the IMF’s?Atish Rex Ghosh?and?Andrew Stanley?write in F&D magazine’s?Picture This?series.

In response to financial crises, the IMF not only stepped-up lending but also enhanced its crisis prevention and resolution tool kits, they continue. Shifts in global economic conditions and new ways of thinking have also driven numerous reforms.

The authors add that, more recently, the IMF has helped its members address governance, gender equity, digitalization, and climate change adaptation and mitigation where these issues are macro-critical, alongside providing advice on macroeconomic, financial, and exchange rate policies.

“As the global landscape continues to evolve, the Fund remains committed to its mission, constantly innovating within its mandate to promote both domestic and external economic and financial stability. With this commitment, the IMF is well prepared to meet the complex challenges of today and the unforeseen events of tomorrow.”

The world has changed markedly since the IMF was founded 80 years ago. In F&D’s June issue, we explore how the IMF can adapt to remain effective.

Authors include Kristalina Georgieva, Raghuram Rajan, Mia Amor Mottley, William Ruto, Pablo Garcia-Silva, Harold James, Martin Wolf, Adam Posen, Edwin Truman, Masood Ahmed, Axel A. Weber, Anna Postelnyak, Réka Juhász, Nathan Lane, Mark Aguiar, James M. Boughton, Atish Rex Ghosh, Andrew Stanley, Adam Jakubik, Elizabeth Van Heuvelen, Henny Sender, Melinda Weir, Vivek Arora, Douglas Irwin, and Lisa Kolovich.

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LATIN AMERICA AND CARIBBEAN

IMF, IDB Enhance Cooperation

The IMF and Inter-America Development Bank (IDB) have agreed to enhance their collaboration to better support the efforts of common members in Latin America and the Caribbean to foster sustainable and inclusive growth and address the structural challenges of climate change. Operating within the scope of each institution’s mandate, IDB and IMF staff will increase their cooperation in the areas of general coordination and climate finance.

“We are committed to enhancing our collaboration with IDB to deliver tangible results for people, businesses and institutions throughout Latin America and the Caribbean. We do this by leveraging our respective expertise to tackle challenges posed by climate change,” said IMF Managing Director Kristalina Georgieva in a statement.

As part of their enhanced general coordination, IDB and IMF staff will deepen their cooperation on four topics: surveillance of macro-economic policies, IMF arrangements, in particular the Resilience and Sustainability Fund (RSF), IDB lending operations, including investment and policy-based loans, and capacity development.

“Our enhanced partnership with the IMF is a very significant step towards better supporting our member countries tackle climate change more effectively and seizing the opportunities that the green transition can offer and foster sustainable growth. We see a lot of synergies between the work of both institutions, and I look forward to amplifying our impact thanks to this closer collaboration,” said Ilan Goldfajn , IDB President.

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WEEKLY ROUNDUP

STAFF PAPER

Gender Diversity and Corporate Resilience to Climate Change

Climate change has exacerbated the frequency and severity of extreme weather events, making corporations’ production processes vulnerable to natural disasters such as hurricanes, flooding, drought, wildfires, sea-level rise, and heat waves. Corporate strategies toward climate risks are usually developed and decided at the board level. A new IMF working paper says that a gender-diverse board is more likely to contribute to mitigating climate change and strengthening the organization’s resilience to natural disasters. Diversity theory postulates that female directors bring a variety of abilities, perspectives, and qualities to boardroom discussions, infusing board meetings with new dynamics, assisting in the correction of informational biases during strategy and problem solving, the authors write.

STAFF PAPER

Minimum Wages, Inequality, and the Informal Sector

Earnings inequality fell substantially in Latin America throughout the 2000s, and minimum wage policies were found to be among the most important drivers of these patterns. However, most studies do not account for the fact that firms and workers can avoid labor legislation by operating informally, a ubiquitous feature in most low income and developing countries. A new IMF working paper explores the effects of the minimum wage on inequality when the informal labor market is taken into account, using Brazilian survey data on both formal and informal labor markets.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know in the comments what issues and trends we should have on our radar.

Miriam Van Dyck

Editor, IMF Weekend Read