Weekend Read: Georgieva on the US Economy | Sovereign Debt Restructuring Process Improving | Dominican Republic Country Focus

In today's edition, we highlight:

• Kristalina Georgieva on the US economy
• Sovereign debt restructuring process improving
• Country Focus: Dominican Republic
• Masood Ahmed on the IMF and climate change
• June 2024 F&D Magazine
• Nigeria's Olayemi Cardoso on regaining stability and trust
• Chart of the Week, and much more

UNITED STATES

Kristalina Georgieva: US Economy's Performance Remarkably Strong

The US economy’s performance has been remarkably strong, with activity and employment exceeding expectations and the disinflation process proving less costly than most feared, said IMF Managing Director Kristalina Georgieva in a press briefing marking the conclusion of the United States’ 2024 Article IV Consultation.

“The US is the only G-20 economy whose GDP level now exceeds the pre-pandemic trend. This is good for the US–and good for the global economy,” said Georgieva. 

At the same time, the IMF called for urgent action on the fiscal side. It projects an increase in the debt-to-GDP ratio to 140 percent by 2032. "Such high deficits and debt create a growing risk to the U.S. and global economy, potentially feeding into higher fiscal financing costs and a growing risk to the smooth rollover of maturing obligations," said the IMF in an accompanying statement.

In her press briefing, Georgieva added, "There is a temptation to postpone decisions related to debt and deficits for the future, rather than take them when the sun is shining and conditions are good."

PUBLIC DEBT

Sovereign Debt Restructuring Process Improving Amid Cooperation and Reform

Sovereign debt restructuring agreements are taking shape at a faster pace, reducing uncertainty for countries and investors, writes Ceyla Pazarbasioglu in an IMF Blog.

The global economy avoided what could have been a systemic debt crisis during the turbulence of recent years, but vulnerabilities remain amid high debt servicing costs that pose an important challenge for low and middle-income countries. Some may yet confront major tests, Pazarbasioglu writes.

“When countries do falter on debt, restructuring is critical to containing the damage. While some sovereign restructurings have faced significant delays, we are working with our counterparts to accelerate the process. The progress achieved so far shows how the world can work together to reduce risks.”

COUNTRY FOCUS

Fiscal Reform Key to Realizing the Dominican Republic’s Full Potential

The Dominican Republic leads Latin America in GDP growth, with an average annual rate of around 5 percent per year since the 1970s. Reaching investment grade on its sovereign bonds would further accelerate progress by lowering interest rates, increasing capital flows, and broadening the investor base, as well as reduce private sector financing costs and boost the economy's growth potential. A comprehensive tax reform could help the country boost revenues and earn an investment grade rating, say the authors of a new IMF Country Focus article. 

“Considering the Dominican Republic’s potential, the challenges it currently faces and the uncertainty of the global outlook, delaying a comprehensive fiscal reform would not only be costly but also a missed opportunity on its journey towards investment grade,” note the authors. “Undertaking these key reforms could further boost the level of GDP by around 2 and 5 percent after 10 and 30 years respectively.”

Streamlining tax incentives and exemptions is crucial for simplifying the tax system and reducing evasion, the authors say. Permanently raising tax revenues by at least 2 percent of GDP would allow for sustainable increases in key public investment (including making public infrastructure more resilient to climate events) and social spending.

Comprehensive fiscal reform should include the adoption of a fiscal rule imposing long-term limits on public debt. Long-standing inefficiencies in the electricity sector must be addressed to eliminate losses in the sector and provide further fiscal space for development needs, note the authors.

F&D MAGAZINE

The IMF's Climate Change Debate

Climate change poses a special challenge to the International Monetary Fund. While the IMF’s World Economic Outlook offered its first substantive discussion of the matter back in 2008, the executive board didn’t agree on a strategy for helping member countries address it until 2021.

Writing in the latest issue of Finance & Development, Masood Ahmed , president of the Center for Global Development, explains why the climate change provokes strong reactions both from those who want the IMF to do more and those who say it has already strayed beyond its core mandate and expertise.

Why should an issue that is widely considered an existential threat to the planet raise such controversy about the work of the IMF? 

The world has changed markedly since the IMF was founded 80 years ago. In F&D’s June issue, we explore how the IMF can adapt to remain effective.

Authors include Kristalina Georgieva, Ceyla Pazarbasioglu, Raghuram Rajan, Mia Amor Mottley, William Ruto, Pablo García-Silva, Harold James, Martin Wolf, Adam S. Posen, Edwin M. Truman, Masood Ahmed, Axel A. Weber, Anna Postelnyak, Réka Juhász, Nathan Lane, Mark Aguiar, James M. Boughton, Atish Rex Ghosh, Andrew Stanley, Adam Jakubik, Elizabeth Van Heuvelen, Henny Sender, Melinda Weir, Vivek Arora, Douglas A. Irwin, and Lisa Kolovich.

Nigeria’s new administration has set out on an ambitious reform path to stabilize its currency, regain market confidence, and tame inflation. In this podcast, Governor Olayemi Cardoso and IMF Africa Department head Abebe Aemro Selassie discuss the role of Nigeria’s central bank in restoring macroeconomic stability. The conversation took place as part of the Governor Talks series held during the IMF-World Bank Spring Meetings.

Weekly Roundup

IMF SUMMER SCHOOL

Sessions Begin Soon

The 2024 IMF Summer School will consist of four half-hour sessions on Quarterly National Accounts and High-Frequency Indicators of Economic Activity (July 11), Financial Soundness Indicators (July 25), Performance Management in Revenue Administration (August 8), and Macroeconomics of Climate Change: Mitigation Strategies (August 22). Find out more in this video and sign up here.

UKRAINE CAPACITY DEVELOPMENT FUND

First Deputy Managing Director Gopinath Welcomes New Partners

During her June 20-21 visit to Kyiv, Ukraine, the IMF’s First Deputy Managing Director Gita Gopinath welcomed the new partners of the Ukraine Capacity Development Fund, consisting of Canada, the European Union, Ireland, Latvia, Poland, and Switzerland. Their funding – coming in addition to contributions from Japan, Lithuania, The Netherlands, and the Slovak Republic – enables the IMF to scale up its technical assistance and training in support of the Ukrainian government’s ambitious economic reform agenda.

IMF PARTNERSHIP WEEK 

Domestic Resources for Sustainable Development

On June 24-27, 2024, the IMF hosted the Partnership Week on Domestic Resources for Sustainable Development in coordination with the World Bank and the Organization for Economic Co-operation and Development. The objective of this week was to further coordinate the support from these three organizations and their development partners to countries through capacity development with the aim to improve public finances and mobilize domestic resources to fund key development needs. The week also marked the 10th anniversary of the IMF’s Tax Administration Diagnostic Assessment Tool (TADAT) and the adoption of the work program of the Global Public Finance Partnership supporting the development of human and institutional fiscal capacities in 35 countries.

STAFF PAPER

Drivers of Post-COVID Private Consumption in the US

Private consumption in the US has recovered quickly from the pandemic trough and has been running above the pre-pandemic trend even as interest rates rose sharply. A new IMF staff paper examines the underlying drivers for this strong growth in consumption. The authors find that excess savings from the pandemic, large increases in household wealth (especially housing), and solid real income gains contributed to strengthening post-pandemic consumption.

Artificial intelligence can increase productivity, boost economic growth, and lift incomes. However, it could also wipe out millions of jobs and widen inequality. As the Chart of the Week shows, wealthier economies tend to be better equipped for AI adoption than low-income countries. The data draw from the IMF’s new AI Preparedness Index Dashboard for 174 economies, based on their readiness in four areas: digital infrastructure, human capital and labor market policies, innovation and economic integration, and regulation.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know in the comments what issues and trends we should have on our radar.

Miriam Van Dyck

Editor, IMF Weekend Read