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Japan's Public Sector Balance Sheet
This paper compiles and reviews the evolution of Japan’s Public Sector Balance Sheet (PSBS). In the past, large crossholdings of assets and liabilities within the public sector played a role in sustaining a high level of public debt and low interest rates. The Fiscal Investment and Loan Fund (FILF) channeled all postal deposits and pension savings to financing of public sector borrowing. After the FILF refrom in 2000, however, the Post Bank and pension funds shifted their assets to the portfolio investments and are seeking to maximize risk-adjusted returns. This has changed the implications of crossholdings for public debt management. In the future, population aging is expected to add more pressures on the PSBS, which already saw a considerable decrease of net worth over the last three decades.
The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7
This paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs. In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint. A decomposition of the evolution of INFW shows that short-term fluctuations are mainly driven by fiscal policy changes, while in the long run demographic changes and health and pension obligations play a larger role. We find that on average a 10 percentage point of GDP increase in INFW reduces the (future) 10-1 year sovereign yield curve spread by 2.8 basis points. This results suggest that financial markets pay attention to governments’ future policy obligations, in addition to its current assets and liabilities.
Climate Challenges in Fragile and Conflict-Affected States
Fragile and conflict-affected states (FCS) already face higher temperatures than other countries and will be more exposed to extreme heat and weather events going forward. Using innovative approaches, the paper finds that in FCS, climate vulnerability and underlying fragilities—namely conflict, heavy dependence on rainfed agriculture, and weak capacity—exacerbate each other, amplifying the negative impact on people and economies. FCS suffer more severe and persistent GDP losses than other countries due to climate shocks because their underlying fragilities amplify the impact of shocks, in particular in agriculture. At the same time, climate shocks worsen underlying fragilities, namely conflict. Macro-critical adaptation policies are needed to facilitate the immediate response to climate shocks and to build climate resilience over time. Sizeable and sustained international support—especially grants, concessional financing and capacity development—is urgent to avoid worse outcomes, including forced displacement and migration. The IMF is stepping up support to FCS in dealing with climate challenges through carefully tailored policy advice, financing, and capacity development.
Liberia
This Technical Assistance Report presents an evaluation of the public investment management (PIM) in Liberia. The overall performance of PIM in Liberia is in line with that of comparable low-income countries, and reflects the country’s post-conflict status, which severely damaged its infrastructure, and heavy dependence on external loans and grants. About 80 percent of Liberia’s public investment is financed through external sources. grants and concessional loans, and executed outside the budget. These sources of funding are not within government’s control and have contributed to the volatility of public investment in recent years.
Republic of Lithuania
This Fiscal Transparency Evaluation (FTE) paper on the Republic of Lithuania estimated Lithuania’s public sector financial position to take a more comprehensive view of public finances in Lithuania. While Lithuania’s overall assessment is comparable to or better than other EU Member States that have undergone an FTE, there is room for further improvement. While the Lithuanian authorities publish a large volume of fiscal reports, they are somewhat fragmented and not easily comparable. The paper also highlights that fiscal risk analysis and management also meets good or advanced practice in many areas but are slightly weaker than the other pillars of the evaluation. It is recommended to consolidate the present array of fiscal reports into a smaller number of user-friendly reports that improve the consistency and comparability of information, as well as its transparency. The report also provides a more detailed evaluation of Lithuania’s fiscal transparency practices and recommended reform priorities.
Guinea-Bissau
Guinea-Bissau is a fragile state facing significant development challenges, including sustaining the recovery from the COVID-19 pandemic, supply disruptions, and the global economic slowdown. The IMF Board approved the First Review of the Extended Credit Facility (ECF) arrangement in May 2023. The reform agenda includes an ambitious fiscal consolidation to support inclusive growth while preserving debt sustainability and structural and governance reforms to strengthen state capacity. The opposition party won an outright majority at the legislative election on June 4, 2023, but a change in the government has not affected the authorities’ program commitments.
Zambia
This Technical Assistance report proposes a roadmap for completing the process of drafting and adopting an Integrated Legal Framework for Public Financial Management (PFM) in Zambia. The legal framework for PFM in Zambia is fragmented, and much of it is outdated. The government has prioritized a revision of the existing legal framework for PFM and national development planning. This revision will permit a range of important PFM reforms that are ongoing or planned to be incorporated within the legal framework. An updated legal framework would also permit other important improvements in current practices to be incorporated.
Republic of Moldova: Technical Assistance Report-Country Governance Assessment
Despite having legal and institutional frameworks largely in place, Moldova continues to suffer from significant corruption and governance vulnerabilities. These are fairly pronounced in the areas of rule of law, anti-corruption, anti-money laundering and combatting the financing of terrorism (AML/CFT), and SOE governance, while other areas assessed for purposes of this report (PFM, tax administration, central bank governance and financial sector oversight) presented some good progress in mitigating such vulnerabilities.
Republic of Armenia
This paper discusses results of a technical assistance report prepared to evaluate the quality of Armenia’s public investment institutions in the planning, budgeting, and implementation stages of public investment management. Significant gaps exist in the efficiency of public investments, both in terms of physical outputs and quality. The report also highlights that in a context of limited fiscal space, the scaling up of public investments will require the prioritization of efforts to introduce reforms in the following areas in need of urgent action. The recommendations in this report prioritize the eight actions at the key stages of the project cycle and for the Ministry of Finance’s capacity development. Recommendation is also made to establish a constraint on in-year changes in project implementation plans and complete the transformation of the Audit Chamber from the Control Chamber. Armenia is expected to have a more robust audit function when the provisions in the new Law on the ‘Audit Chamber’ are fully implemented.
Hanging Out to Dry? Long-term Macroeconomic Effects of Drought in Fragile and Conflict-Affected States
Using a comprehensive drought measure and a panel autoregressive distributed lag model, the paper finds that worsening drought conditions can result in long-term scarring of real GDP per capita growth and affect long-term price stability in Fragile and Conflict-Affected States (FCS), more so than in other countries, leaving them further behind. Lower crop productivity and slower investment are key channels through which drought impacts economic growth in FCS. In a high emissions scenario, drought conditions will cut 0.4 percentage points of FCS’ growth of real GDP per capita every year over the next 40 years and increase average inflation by 2 percentage points. Drought will also increase hunger in FCS, from alreay high levels. The confluence of lower food production and higher prices in a high emissions scenario would push 50 million more people in FCS into hunger. The macroeconomic effects of drought in FCS countries are amplified by their low copying capacity due to high public debt, low social spending, insufficient trade openness, high water insecurity, and weak governance.
