Emerging Market Corporate Sector Debt: A Stitch in Time Could Save Billions


By Julian Chow and Shamir Tanna

(Versions in Español)

Much has been said lately about growing private sector debt in emerging market economies. In our recent analysis, we examined the corporate sector in a number of countries and found their rising levels of debt could make them vulnerable.

Low global interest rates in the aftermath of the global financial crisis and ample amounts of money pouring in from foreign investors have enabled nonfinancial corporations to raise record levels of debt.

figure 1

Credit was readily available in the aftermath of the crisis, and economic expansion enabled earnings to grow healthily, thus helping to prevent leverage from rising too far and too fast.  Recently though, slowing growth prospects are beginning to put pressure on firms’ profitability. Moreover, higher debt loads have led to growing interest expense, despite low interest rates. As a result, the ability of firms to service their debt has weakened (Figure 1).

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Arab Economic Transformation Amid Political Transitions


Masood Ahmed #2By Masood Ahmed

(version in عربي)

The International Monetary Fund released today a new paper entitled “Toward New Horizons—Arab Economic Transformation amid Political Transitions.”

The paper makes the case for the urgency of launching economic policy reforms, beyond short-term macroeconomic management, to support economic stability and stronger, job-creating economic growth in the Arab Countries in Transition—Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen.

These countries face the risk of stagnation if reforms are delayed further.Economic conditions have deteriorated from transition-related disruptions, regional conflict, an unclear political outlook, eroding competitiveness, and a challenging external economic environment.

As economic realities fall behind peoples’ expectations, there is a risk of increased discontent. This could further complicate the political transitions, impairing governments’ mandates and planning horizons and, consequently, their ability to implement the policies necessary to catalyze the much-needed economic improvements.

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Less Red Tape, More Credit: How the Private Sector Can Flourish in the Middle East


Min ZhuBy Min Zhu

(Versions in عربي)

To almost all economists it is clear that the private sector is critically important in creating jobs and achieving strong growth. The public sector is already overburdened in most countries. But what is not clear is how to support the private sector for it to play this important role.

To shed some light on how to facilitate strong job creation and growth by the private sector in the Middle East and North Africa, we held a conference in Riyadh, Saudi Arabia, in December 2013, jointly with the Council of Saudi Chambers and the International Finance Corporation.

As the date of the conference approached, registrations kept increasing, and by the time we opened the conference, the registration numbers had skyrocketed to more than 800! I can think of no better sign of the importance of this topic for the people in this region.

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An Open and Diverse Economy To Benefit All Algerians


Christine LagardeBy Christine Lagarde

(Version in عربي)

I was in Algiers last week, my first time as the Managing Director of the IMF. It was a good visit: we reaffirmed the special partnership between Algeria and the IMF, and I was able to gain a deeper insight into Algeria’s aspirations—and also its challenges in reaching a hopeful future.

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The Power of Cooperation


by iMFdirect

The planet’s most successful species are the great cooperators: ants, bees, termites, and humans.

In an article in the new issue of Finance & Development magazine, President Bill Clinton shares his experience working with governments, business, and civil society as part of his Clinton Global Initiative.

He says they are making the most progress in places where people have formed networks of creative cooperation where stakeholders come together to do things better, faster and cheaper than any could alone.

Bridging the Gap: How Official Financing Can Ease the Pain of Adjustment


By Nicolás Eyzaguirre

After three and a half demanding and fulfilling years at the International Monetary Fund, I’ve had a chance to see, up close, countries trying to cope with the global economy in the same way a cook might operate a blender without the lid on—carefully, while creating as little mess as possible.

As I step down from my position as Director of the IMF’s Western Hemisphere Department, I would like to share some reflections on one of the central issues facing many countries—adjustment under fixed exchange rates.  It goes without saying that these reflect a personal and not an institutional view.

A lot of ink has been spent over the question of why you would lend money to a country trying to bring down its government debt and deficit. The answer is simple: to give the reforms needed to make economies competitive again time to kick in.

In the old days, fixed exchange rates were the norm rather than the exception. A body of literature and a wealth of country experience have accumulated on how to adjust under such exchange rate regimes, mostly in emerging economies. The expression “adjustment and financing” came to summarize what economies should do when faced with severe funding constraints brought on by high borrowing costs for government debt in financial markets.

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Mind The Gap: Policies To Jump Start Growth in the U.K.


By Ajai Chopra

The U.K. economy has been flat for nearly two years. This stagnation has left output per capita a staggering 14 percent below its precrisis trend and 6 percent below its pre-crisis level.

Weak growth has kept unemployment high at 8.1 percent, with youth unemployment an alarming 22 percent.

The effects of a persistently weak economy and high long-term unemployment can reverberate through a country’s economy long into the future—commonly referred to by economists as hysteresis.

Our analysis of such hysteresis effects shows that the large and sustained output gap, the difference between what an economy could produce and what it is producing, raises the danger that a downturn reduces the economy’s productive capacity and permanently depresses potential GDP. 

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Seven Billion Reasons to Worry: the Financial Impact of Living Longer


By S. Erik Oppers

Everyone wants at some point to stop working and enjoy retirement.  In these uncertain economic times, most people worry about their pension. Now take your worries and multiply those several billion times. This is the scale of the pension problem. And the problem is likely bigger still: although living longer, healthier lives is a good thing, how do you afford retirement if you will live even longer than previously thought?

This so-called longevity risk, as discussed in the IMF’s Global Financial Stability Report has serious implications for global financial and fiscal stability, and needs to be addressed now.

Here’s the issue: governments have done their analysis of aging largely based on best guesses of population developments. These developments include further drops in fertility and some further increase in longevity. The trouble is that in the past, longevity has been consistently and substantially underestimated. We all live much longer now than had been expected 30, 20, and even just 10 years ago. So there is a good chance people will live longer than we expect now. We call this longevity risk—the risk we all live longer than anticipated.

Risky business

Why is that a risk, you may ask. We all like to live longer, healthy lives. Sure, but let’s now return to those pension worries. If you retire at 65 and plan your retirement finances expecting to live another 20 years (assuming you have enough savings for at least that period), you would face a serious personal financial crisis if you actually live to 95, or— well in your 100s.

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Africa: Changing the Narrative


Jeremy CliftBy Jeremy Clift

Enduring poverty and conflict are so stark in Africa that it is sometimes difficult to see what else is happening.

In April 2011, a study published by the Columbia Journalism Review titled “Hiding the Real Africa” documented how easily Africa makes news headlines in the West when a major famine, pandemic, or violent crisis breaks. But less attention is given to positive trends and underlying successes.

In many cases, despite accelerated economic growth over the past 10 years, the rise of a middle class of consumers, and a more dynamic private sector attracting indigenous entrepreneurs, the narrative about Africa has remained focused on the bad news.

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Downturn After Boom: Slow Credit Growth in Middle East, North Africa


By Masood Ahmed

In the midst of an early and uncertain economic recovery from the global crisis, countries in the Middle East and North Africa (MENA) region have been experiencing a sharp slowdown in the growth of credit to the private sector, by about 30 percentage points on average relative to precrisis peak rates.

For many sectors, firms, and households that depend on bank financing, this slowdown may be forcing them to scale back their spending plans, or to resort to scarce or costly alternative avenues for financing. Slow credit growth may therefore be constraining the strength of the recovery in the short run, in addition to limiting prospects for longer-term growth. Policymakers are understandably concerned.

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