Fiscal Costs of Hidden Deficits: Beware—When It Rains, It Pours


By Elva Bova, Marta Ruiz-Arranz, Frederik Toscani, and Elif Ture

(Version in Español)

Budgets can be full of surprises. And not always good ones. Often times, debt increases significantly because an unforeseen obligation materializes. These contingent liabilities, as they are known in the economist’s jargon, can have significant economic and fiscal costs. In fact, on many occasions, large and unexpected increases in debt across the world were due to the materialization of contingent liabilities. That is why they are often called hidden deficits.

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Migration: A Global Issue in Need of a Global Solution


2014MDNEW_04By Christine Lagarde

(Versions in عربي中文Français, 日本語, РусскийTürk, and Español)

As the Group of Twenty leaders gather in Turkey this weekend, they will have on their minds heartbreaking images of displaced people fleeing countries gripped by armed conflict and economic distress.  The surge of refugees in the last few years has reached levels not seen in decades. And these numbers could increase further in the near future. 

The immediate priority must be to help the refugees—who bear the heaviest burden, and too often tragically—with better access to shelter, health care and quality education.

Many of the countries neighboring conflict zones—which have welcomed most of the refugees—have stretched their capacity to absorb people to the limit. To support additional public services for refugees, they will require more financial resources. The international community must play its part. With the IMF’s support, for example, Jordan has been able to adjust its fiscal targets to help meet this need.

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Bad Debt in Emerging Markets: Still Early Days


by John Caparusso, Yingyuan Chen, Evan Papageorgiou and Shamir Tanna

(Versions in 中文, PortuguêsРусский, and Español)

Emerging markets have had a great run. The fifteen largest emerging market economies grew by 48% from 2009 to 2014, a period when the Group of Twenty economies collectively expanded by 6%.

How did emerging markets sustain this growth? In part, they drew upon bank lending to drive corporate credit expansion, strong earnings, and low defaults. This credit boom, combined with falling commodity prices and foreign currency borrowing, now leaves emerging market firms vulnerable and financial sectors under stress, as we discuss in the latest Global Financial Stability Report.

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Trading Out of Trouble in Latin America


By Natalija Novta and Fabiano Rodrigues Bastos

(Versions in Español and Português)

Growth in Latin America and the Caribbean is suffering a double whammy—economic activity has slowed down sharply and the medium-term outlook continues to deteriorate. It is therefore not surprising that policymakers across the region are eagerly searching for ways to revitalize growth.

One answer may be more trade—both within the region and with the rest of the world. Our new study analyzes the export performance in developing and emerging market regions over the past two decades to assess the potential for future export growth in Latin America. We find evidence that most countries in the region “undertrade” compared to what standard models would predict. This has been an entrenched problem for almost a quarter of a century, partly as a result of the region’s geography and a legacy of protectionist policies.

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What Future for Unconventional Monetary Policies


Maurice Obstfeld2By Maurice Obstfeld

How quickly should the United States tighten monetary policy and exit from quantitative easing?  Is the neutral real interest rate lower than before the crisis? Should we raise inflation targets?  What can we learn from the unconventional policies that emerging markets adopted during the crisis? Are we entering an environment of global deflation?  And if so, can the existing central bank toolkit stave off that threat?

Seven years after the crisis, the effects of unconventional monetary policies continue to be a matter of debate. There is little consensus not only about the effectiveness of these policies in promoting aggregate demand, but also about possible unintended side effects on financial stability.

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Sovereign Wealth Funds in the New Era of Oil


By Rabah Arezki, Adnan Mazarei, and Ananthakrishnan Prasad 

(Versions in عربي and 中文)

As a result of the oil price plunge, the major oil-exporting countries are facing budget deficits for the first time in years. The growth in the assets of their sovereign wealth funds, which were rising at a rapid rate until recently, is now slowing; some have started drawing on their buffers.

In the short run, this phenomenon is not cause for alarm. Most oil exporters have enough buffers to withstand a temporary drop in oil prices. But what will happen if low oil prices persist, and how will policymakers react?

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Empowering Women, Tackling Income Inequality


By Sonali Jain-Chandra, Kalpana Kochhar, and Monique Newiak

(Versions in عربي中文Français日本語Русский, and Español)

Despite progress, wide gaps between women and men’s economic empowerment and opportunity remain, which policymakers need to tackle urgently. In most countries, more men than women work, and they get paid more for similar work. Also, there are considerable gender gaps in access to education, health and finance in a number of countries. There is mounting evidence that the lack of gender equity imposes large economic costs as it hampers productivity and weighs on growth.

Our new study analyzes the links between these two phenomena—inequality of income and that of gender.  We find that gender inequality is strongly associated with income inequality across time and countries of all income groups.

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