Infrastructure Investment: Part of Africa’s Solution


Antoinette SayehBy Antoinette M. Sayeh

Tremendous efforts are under way to upgrade sub-Saharan Africa’s infrastructure. But the needs on the ground are still immense as evidenced by the frequent electricity blackouts, poor roads, and insufficient access to clean water in many countries.

Infrastructure is one of the key challenges facing policymakers in the region—I experienced it first hand when I was finance minister of Liberia before coming to the IMF. The benefits are fairly clear: with improved infrastructure, new growth opportunities in the manufacturing and services sector can be generated, barriers to intraregional trade can be reduced, and economies will be better positioned to transition from low to higher productivity activities. Without improved infrastructure, I fear the increase in productivity and greater economic diversification necessary to sustain Africa’s current growth momentum will not materialize.

In this spirit, in the latest Regional Economic Outlook: Sub-Saharan Africa economists from the IMF’s African Department looked at progress so far in addressing the infrastructure deficit and discussed policies needed going forward.

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China PMI Batters Global Markets…Are you kidding me?


Steve BarnettSteven Barnett

(Version in  中文)

“Economic Shifts in U.S. and China Batter Markets” continuing “Stocks Slide Globally…Investors Head for Exits” read the front page headline in last week’s New York Times. Not sure about the U.S. part, I’ll leave that to others. But, as for China, this seems quite a stretch. Could be the pundits are erring in blaming the market slide on China, or perhaps the markets are misreading news coming out of China.

The purported China trigger was a survey of manufacturers. The Purchasing Managers’ Index (PMI) fell somewhat, crossing the magic threshold from expansion to contraction. PMIs are useful, but let’s not get carried away. China’s PMI is not the best indicator for growth, the decline was rather small, and January and February data (because of the Lunar “Chinese” New Year) are hard to interpret.

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The Ties That Bond Us: What Demand For Government Debt Can Tell Us About the Risks Ahead


by Serkan Arslanalp and Takahiro Tsuda

It’s not news that emerging markets can be vulnerable to bouts of market volatility. Investors often pull sudden stops—they stop buying or start selling off their holdings of government bonds.

But what has become apparent in recent years is that advanced economy government bond markets can also experience investor outflows, and associated runs. At the same time, some traditional and new safe haven countries have seen their borrowing costs drop to historic lows as they experience rising inflows from foreign investors.

Our new research shows that advanced economies’ exposure to refinancing risk and changes in government borrowing costs depend mainly on who is holding the bonds— the demand side for government debt.

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IMF’s Christine Lagarde on the U.S. Fiscal Cliff


by iMFdirect

The head of the IMF Christine Lagarde has weighed in on the ongoing U.S. fiscal cliff debate. Three weeks before a series of automatic tax increases and spending cuts are due to kick in if lawmakers don’t reach a new deal, Lagarde said she favors a comprehensive fix, rather than a quick one.

“My view is that the best way forward is to have a balanced approached that takes into account both increasing revenues and cutting spending as well.”

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Time Not On Our Side: Tough Decisions Needed to Strengthen Financial Stability


By José Viñals

(Versions in  عربي中文EspañolFrançaisРусский日本語)

Recent policy actions in Europe, the United States, in emerging markets, and here in Japan, where I’m attending the IMF-World Bank annual meetings, have improved investor sentiment and helped markets rebound in recent months.

Yet our latest assessment is that confidence is still very fragile and risks have increased, when compared to the IMF’s last report in April. Policymakers need to do more to gain lasting stability.

The principal risk remains the euro area. The forces of financial and economic fragmentation have widened the divide between countries at the core and the “periphery” of the euro zone. Faltering confidence and policy uncertainty have led to a pullback of cross-border private capital flows from the periphery—quite an extraordinary phenomenon within a currency union.

This has driven up funding costs to governments and banks, as well as for companies and households, and, in turn, threatening a vicious downward economic spiral.

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Global Financial Stability: What’s Still To Be Done?


By José Viñals

(Versions in Español, عربي)

The quest for lasting financial stability is still fraught with risks. The latest Global Financial Stability Report has two key messages: policy actions have brought gains to global financial stability since our September report; but current policy efforts are not enough to achieve lasting stability, both in Europe and some other advanced economies, in particular the United States and Japan.

Much has been done

In recent months, important and unprecedented policy steps have been taken to quell the crisis in the euro area. At the national level, stronger policies are being put in place in Italy and Spain; a new agreement has been reached on Greece; and Ireland and Portugal are making good progress in implementing their respective programs. Importantly, the European Central Bank’s decisive actions have supported bank liquidity and eased funding strains, while banks are reinforcing their capital positions under the guidance of the European Banking Authority. Finally, steps have been taken to enhance economic governance, promote fiscal discipline, and buttress the “firewall” at the euro area level.

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2011 In Review: Four Hard Truths


By Olivier Blanchard

(Versions in  عربي中文, EspañolFrançaisРусский, 日本語)

What a difference a year makes …

We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope. The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation.

It was a long agenda, but one that appeared within reach.

Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.

I draw four main lessons from what has happened.

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