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State-Owned Enterprises in Middle East, North Africa, and Central Asia: Size, Costs, and Challenges
Prior to the COVID-19 shock, the key challenge facing policymakers in the Middle East, North Africa, and Central Asia region was how to generate strong, sustainable, job-rich, inclusive growth. Post-COVID-19, this challenge has only grown given the additional reduction in fiscal space due to the crisis and the increased need to support the recovery. The sizable state-owned enterprise (SOE) footprint in the region, together with its cost to the government, call for revisiting the SOE sector to help open fiscal space and look for growth opportunities.
Estimating Fiscal Multipliers Under Alternative Exchange Rate Regimes: The Case of Bolivia
Empirical (employing the Blanchard-Perotti framework) and modeling (using a country-specific DSGE model) approaches are used to estimate fiscal multipliers by policy instrument for Bolivia, to evaluate possible adjustments in a fiscal consolidation strategy. Multipliers are also estimated using alternative assumptions about the accompanying exchange rate regime and capital mobility, highlighting the importance of the policy mix in determining the impact of fiscal adjustments. The study exploits the DSGE modeling structure to assess this interaction of fiscal and monetary policy in a lower middle-income country under different exchange rate regimes. It finds that expenditure multipliers fall into the range of 1/3 to 2/3, with public investment multipliers slightly higher than government consumption multipliers over longer horizons, and multipliers generally higher under a peg than inflation targeting. Tax multipliers are shown to be about half of expenditure multipliers.
Cross-Border Impacts of Climate Policy Packages in North America
We quantify cross-border effects of the recent climate mitigation policies introduced in Canada and the U.S., using the global general equilibrium model IMF-ENV. Notably, with the substantial emission reductions from Canada’s carbon tax-led mitigation policies and the U.S.’ Inflation Reduction Act, these two countries would bridge two-thirds of the gap toward their Nationally Determined Contribution (NDC) goals. While the broadly divergent policies are believed to elicit competitiveness concerns, we find the aggregate cross-border effects within North America to be very limited and restricted to the energy intensive and trade exposed industries. Potential carbon leakages are also found to be negligible. A more meaningful difference triggered by policy heterogeneity is rather domestic, especially with U.S. subsidies increasing energy output while the Canada model with a carbon tax would marginally decrease it. This analysis is complemented by a stylized model illustrating how such divergence can affect the terms of trade, but also how these effects can be countered by exchange rate flexibility, border adjustments or domestic taxation.
Decomposing Climate Risks in Stock Markets
Climate change poses an unprecedented challenge to the world economy and the global financial system. This paper sets out to understand and quantify the impact of climate mitigation, with a focus on climate-related news, which represents an important information source that investors use to revise their subjective assessments of climate risks. Using full-text data from Financial Times from January 2005 to March 2022, we develop machine learning-based indicators to measure risks from climate mitigation, and the direction of the risk is identified through manual labels. The documented risk premium indicates that climate mitigation news has been partially priced in the Canadian stock market. More specifically, stock prices react positively to market-wide climate-favorable news but they do not react negatively to climate-unfavorable news. The results are robust to different model specifications and across equity markets.
Well Spent
Drawing on the Fund’s analytical and capacity development work, including Public Investment Management Assessments (PIMAs) carried out in more than 60 countries, the new book Well Spent: How Strong Infrastructure Governance Can End Waste in Public Investment will address how countries can attain quality infrastructure outcomes through better infrastructure governance—an issue becoming increasingly important in the context of the Great Lockdown and its economic consequences. It covers critical issues such as infrastructure investment and Sustainable Development Goals, controlling corruption, managing fiscal risks, integrating planning and budgeting, and identifying best practices in project appraisal and selection. It also covers emerging areas in infrastructure governance, such as maintaining and managing public infrastructure assets and building resilience against climate change.
Public Perceptions of Canada’s Investment Climate
Canada’s muted productivity growth during recent years has sparked concerns about the country’s investment climate. In this study, we develop a new natural language processing (NPL) based indicator, mining the richness of Twitter (now X) accounts to measure trends in the public perceptions of Canada’s investment climate. We find that while the Canadian investment climate appears to be generally favorable, there are signs of slippage in some categories in recent periods, such as with respect to governance and infrastructure. This result is confirmed by both survey-based and NLP-based indicators. We also find that our NLP-based indicators would suggest that perceptions of Canada’s inve...
Finance and Inequality
The study examines empirical relationships between income inequality and three features of finance: depth (financial sector size relative to the economy), inclusion (access to and use of financial services by individuals and firms), and stability (absence of financial distress). Using new data covering a wide range of countries, the analysis finds that the financial sector can play a role in reducing inequality, complementing redistributive fiscal policy. By expanding the provision of financial services to low-income households and small businesses, it can serve as a powerful lever in helping create a more inclusive society but—if not well managed—it can amplify inequalities.
Pakistan
While the Covid-19 shock temporarily disrupted Pakistan’s progress under the program supported by the IMF’s Extended Fund Facility (EFF), the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. Aside from health-related containment measures, their response included a temporary fiscal stimulus, large expansion of social safety nets, monetary policy support, and targeted financial initiatives. These measures, supported by sizable emergency financing from the international community, including under an RFI, helped contain the first Covid-19 wave of cases and the impact on the economy. Growth slowed to –0.4 percent in FY 2020 (July–June), but is expected to recover to 1.5 percent in FY 2021. The external position improved, and inflation continued to decelerate through early 2021 despite supply-driven spikes in food prices. However, a second Covid-19 wave is unfolding, triggering exceptionally high uncertainty and downside risks.
The Pass-through of Wages to Consumer Prices in the COVID-19 Pandemic: Evidence from Sectoral Data in the U.S.
We study the pass-through of labor costs to prices using a novel data-set that links industry-level wages to sectoral consumer prices through input-output tables. Pass-through increased during the COVID-19 pandemic recovery, temporarily in goods and persistently in services. Our analysis suggests that the elevated pass-through contributed at least 0.8 percentage points to goods inflation in 2021 and 0.7 percentage points and 0.5 percentage points to services inflation in 2021 and 2022, respectively. We find that the increase in pass-through reflects elevated demand in goods sectors and firms' difficulty in absorbing high wage growth in services sectors. The analysis suggests it will take a reduction in wage growth to bring PCE inflation back to target. Fiscal and monetary policies that help to re-balance the labor markets can facilitate this process.
Grand Corruption
This book examines the nature, causes, and consequences of grand corruption, showing how it can be assessed, measured, and attacked from within and without. The volume brings together in a single, definitive text some of the best analyses on how to measure the costs of grand corruption and dissects the legal approaches and institutions to counter grand corruption and kleptocracy. Through a series of compelling country case studies, the book explores how corrupt political elites and public officials have stolen from the public purse for personal gain at the expense of their own people and their country’s social and economic development. It also highlights the role of financial and legal int...
