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International Monetary Fund. Strategy, Policy, & Review Department
This Guidance Note provides guidance to country teams for surveillance under Article IV consultations. It supersedes the 2015 Guidance Note and its supplement. Fund surveillance continuously adapts to the evolving economic and financial landscape. The 2021 Comprehensive Surveillance Review (CSR) identified priorities for Fund surveillance, both in terms of content and modalities. This Guidance Note covers: Scope and requirements: The note lays out the coverage of, and formal requirements for, Article IV consultations and staff reports. It also outlines best practices aimed at enhancing the traction of Fund analysis and policy advice. Priorities and focus. The note reflects the four surveillance priorities identified in the CSR: (i) confronting risks and uncertainties, (ii) preempting and mitigating spillovers, (iii) ensuring economic sustainability, and (iv) adopting a more unified approach to policy advice. The note also provides guidance on sharpening the focus and selectivity of Article IV staff reports. Policies. The note discusses the content of surveillance in the areas of fiscal policy, macrofinancial analysis and financial policies, monetary policy, external sector policies, and macrostructural policies. Applications. The note considers several applications of such policies, such as with respect to the Integrated Policy Framework, climate change, and gender. Process and procedures. The note describes the Article IV consultation cycle and process, lays out drafting and publication guidelines for staff reports, and covers the treatment of confidential information.
International Monetary Fund. Strategy, Policy, & Review Department
The war in Ukraine risks derailing the global economic recovery at a time when many countries have yet to overcome the consequences of the Covid-19 pandemic. Disruptions have already a severe impact on commodity markets, trade, and financial conditions, while inflation has become a major challenge in many countries and is adding to social pressures. The combination of shocks amplifies complex policy trade-offs that require astute macroeconomic management, for Emerging Market and Developing Economies (EMDEs), this includes preparing for higher interest rates that would translate into costlier terms of borrowing. Fuel and food price increases as well as food insecurity affect vulnerable populations the most, especially in low-income developing countries (LIDCs). Moreover, many LIDCs have only minimal or no policy space to absorb the war’s economic and financial spillovers. Reallocating spending and raising more revenues is paramount, as is advancing reforms that promote resilience. However, LIDCs also need support from the international community to finance priority expenditures and deal with often elevated debt burdens. Multilateral cooperation is more important than ever, and the IMF stands ready to help its members through policy advice, capacity development, and, where needed, financial support.
International Monetary Fund. Western Hemisphere Dept.
Dominica has been hit hard by the Covid-19 pandemic, with an estimated decline in GDP of 11 percent in 2020 underpinned by a sharp reduction in tourism receipts that affected connected sectors and by lockdown measures to limit virus contagion. The output decline was contained by health spending, social transfers, and public investment resilient to natural disasters which increased significantly, leading to an increase in public debt to 106 percent of GDP despite record-high Citizenship-by-Investment (CBI) revenue. The financial sector remained stable and liquid, but vulnerability continue to be significant in the under-capitalized non-bank sector.
Matteo Ruzzante and Nelson Sobrinho
This paper investigates the dynamic impact of natural resource discoveries on government debt sustainability. We use a ‘natural experiment’ framework in which the timing of discoveries is treated as an exogenous source of within-country variation. We combine data on government debt, fiscal stress and debt distress episodes on a large panel of countries over 1970-2012, with a global repository of giant oil, gas, and mineral discoveries. We find strong and robust evidence of a ‘fiscal presource curse’, i.e., natural resources can jeopardize fiscal sustainability even before ‘the first drop of oil is pumped’. Specifically, we find that giant discoveries, mostly of oil and gas, lead to permanently higher government debt and, eventually, debt distress episodes, specially in countries with weaker political institutions and governance. This evidence suggest that the curse can be mitigated and even prevented by pursuing prudent fiscal policies and borrowing strategies, strengthening fiscal governance, and implementing transparent and robust fiscal frameworks for resource management.