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International Monetary Fund
Macroeconomic Developments and Prospects in Low-Income Developing Countries
-----------The IMF and the 2030 Development Agenda
Sean Nolan and Stefania FabrizioStrategy, Policy, and Review Department
February 2016
Structure of the Presentation
• The 2015 Low-Income Developing Countries (LIDCs) report
A) Recent Macroeconomic Developments and Outlook
B) Short and Longer-term Macroeconomic Vulnerabilities
C) Private Capital Inflows to LIDCs
• The 2030 development agenda
– New IMF Deliverables
2
Low-income Developing Countries
3
LIDC Sub-Groups by GNI per Capita and Population, 2014
A) Macroeconomic Developments and Outlook
4
Global Growth and LIDC Performance
5
Real GDP Growth, 2010-16(Weighted average, percent)
LIDC
World
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016
WEO Oct 2014
WEO Jan 2016
WEO Oct 2014
WEO Jan 2016
The Game Changer: Commodity Price Movements
6
Commodity Prices, 2010-16(Index, 2010=100)
Petroleum
Price
Nonfuel Price
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016
WEO Oct 2014
WEO Jan 2016
WEO Oct 2014
WEO Jan 2016
Commodity Price Declines: The Income Effect
7
Net Impact of Commodity Prices on
Income of LIDCs, 2014-15(In percent of GDP)
-18 -15 -12 -9 -6 -3 0 3
Oil exporters
Commodity (non-oil) exporters
Diversified exporters June 2014-June 2015
June 2014-December 2015
…with Oil Exporters Hardest Hit
8
Net Impact of Commodity Prices on Income , 2014-15(In percent of GDP)
Selected Oil-ExportersSelected Diversified Exporters
-36 -32 -28 -24 -20 -16 -12 -8 -4 0
Congo, Rep.
Nigeria
Ghana
June 2014-June 2015
June 2014-December 2015
-4 -2 0 2 4 6 8 10
Myanmar
Vietnam
Bangladesh
Ethiopia
Kenya
June 2014-June 2015
June 2014-December 2015
Commodity Price Declines: Second Round Effects
• Supply response: exports and employment
• Investment response
• Income distribution: locals versus foreigners
9
Divergent Growth Experience
10
Real GDP Growth, 2014-16(Weighted average, percent)
0
1
2
3
4
5
6
7
Commodity Exporters* Diversified Exporters
* Excluding Yemen.
2014 2015 2016 WEO Jan 2016
Fiscal Positions are Hit
11
Government Fiscal Balance, 2014-16(Percent of GDP; PPP-GDP weighted average)
Public Debt, 2014-16(Percent of GDP; PPP-GDP weighted average)
-6
-5
-4
-3
-2
-1
0
2014 2015 2016
WEO Jan 2016
2014 2015 2016
Commodity Exporters Diversified Exporters
0
5
10
15
20
25
30
35
40
45
50
2014 2015 2016
WEO Jan 2016
2014 2015 2016
Commodity Exporters Diversified Exporters
External Positions Weaken—but Drivers Vary
12
Current Account Balance, 2014-16(Percent of GDP; PPP-GDP weighted average)
External Debt, 2014-16(Percent of GDP; PPP-GDP weighted average)
-6
-5
-4
-3
-2
-1
0
2014 2015 2016
WEO Jan 2016
2014 2015 2016
Commodity Exporters Diversified Exporters
0
5
10
15
20
25
30
35
40
45
50
2014 2015 2016
WEO Jan 2016
Commodity Exporters*
* Excluding Nigeria.
2014 2015 2016
Diversified Exporters
Reserve Positions and Funding Costs
13
0
2
4
6
8
10
2014 2015 2016 2014 2015 2016
Floating Fixed
Commodity Exporters
Medians
75th percentile
25th percentile
Reserve Coverage, 2014-16(Months of imports, percentiles)
EMBIG Sovereign Spread(Basis Points, USD-denominated, as of 2/3/2016)
0
300
600
900
1200
1500
1800
Bo
livia
Mo
ng
olia
Vie
tnam
Co
te d
'Ivo
ire
Gh
an
a
Ken
ya
Nig
eri
a
Mo
zam
biq
ue
Tan
zan
ia
May-Jun 2013 Average2014 Average2015 AverageCurrent
Currencies: Sizeable Declines, Low Pass-Through
14
-40
-30
-20
-10
0
Zam
bia
Mala
wi
Mo
zam
biq
ue
Nig
eri
a
Mo
ng
olia
Afg
han
ista
n
Pap
ua N
ew
Gu
inea
Ug
an
da
Mad
ag
asc
ar
Mo
ldo
va
Tan
zan
ia
Gh
an
a
Commodity Exporters Diversified Exporters
Depreciation of Currencies (Selected LIDCs, June 2014-September 2015)
Policy Messages
• Key commodity prices are unlikely to rebound; exporters need to recalibrate policies
• A reminder: countries need to build macroeconomic policy space to handle external shocks
• A warning: concerns about volatility of access to external capital markets are not theoretical
15
B) Assessing Macroeconomic Vulnerabilities
16
Vulnerability to a Growth Shock has Increased Steadily
17
0
20
40
60
80
100
2011 2012 2013 2014 2015 2016
High Medium Low
Growth Decline Vulnerability Index, 2009-16(LIDCs with low, medium and high vulnerabilities; in
percent of total, unweighted)
Growth Decline Vulnerability Index by Country Groups,
2016(Share of LIDCs, in percent, unweighted)
Rising Debt Vulnerabilities: How Significant?
18
24 26 27 2934 33 37 35 34
28
31 31 2932
32 3335
44 4548
44 43 4439
34 3328
21 21 24
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
High / in debt distress Moderate Low
Evolution of the Risk of Debt Distress (In percent of total number of LIDCs with DSA)
Financial Vulnerabilities: Mostly from Rapid Credit Growth and Foreign-Currency Lending
19
• Financial Vulnerability Index
• Z-Score Methodology
Return on assetsRatio of bank loans
to deposits
Ratio of foreign liabilities to domestic credit
3-year growth of the credit-to GDP ratio
Capital adequacy ratio
Return on Assets
Bank credit to bank
deposit ratio
Cross border loans to
GDP
Cross border
deposits to GDP
Growth rate of M2 to
GDP
Growth rate of
private credit to GDP
2010
2013
2014
Shock-Scenario Analysis: an Illustration
20
Shock Scenario: Impact of Financial Volatility Shock
0
1
2
3
4
5
6
2014 2015 2016 2017 2018 2019
Growth
Financial volatility
Baseline
-2.0
-1.5
-1.0
-0.5
0.0
GDP growth (in percent) Cumulative Fiscal Balance
(in percent of GDP)
Growth and Fiscal Balance(Cumulative deviation from baseline, three year period)
Medium-Term Vulnerabilities: LIDCs are More Exposed to Severe Natural Disasters…
21
Average Annual Number of Droughts,
Floods, Storms(Per million square kilometers)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1985-95 1996-2005 2006-2015
LIDC EM
AM
….and They Are at Greater Risk with Respect to Climate Change than Other Countries
22
LIDCs(Percent share of countries with
vulnerability)
Rest of the World(Percent share of countries with
vulnerability)
Climate Change Exposure Index, 2015
Key Messages
• Indicators point to rising macro vulnerabilities in many LIDCs, due to weaker fiscal/external positions.
• Financial sector risks in FMs warrant attention—focused on credit growth and funding sources.
• What we “knew”: LIDCs are more exposed to natural disasters, more at risk to climate change
23
C) Private Capital Inflows to LIDCs
24
Capital Inflows to LIDCs have Grown Sharply
25
Capital Inflows to LIDCs, 2000-14
( Percent of GDP, weighted average)
-1
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cap
ital
inflo
ws
(% G
DP)
Non-FDI inflows
FDI inflows
Frontier LIDCs have Driven the Uptick in non-FDI Flows
26
Non-FDI Inflows
( Percent of GDP)
0
1
2
3
4
5
6
7
Infl
ow
s (%
GD
P)
Emerging markets
Frontier LIDCs
Portfolio flows Other flows Portfolio flows Other flows
2004 - 2007 2011 - 2014
Notes: the bars and the dots indicate, respectively, the median and third quartile of the distribution of capital inflows
Frontier LIDCs have opened their capital accounts reaching emerging markets’ levels
27
0.0
0.2
0.4
0.6
0.8
1.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
LIDC Developing Markets
EMs
Frontier LIDCs
Total Capital Account Liberalization Index (Median)
Capital Flows: Links to Investment?
28
The SDG Narrative: Borrowing to Scale up Investment ?
29
Sovereign Borrowing and Public Investment,
2005-14
( In percent of GDP)
Ghana Mongolia
Levels and Costs of Capital Flows are Responsive to Economic and Global Financial Conditions
30
Sovereign Bond Spreads around the Tapper
Tantrum in Selected frontier LIDCs
( Average)
The IMF and the 2030 development agenda
31
Three Flagship Events in 2015
Established Financing for Development Framework (July)
IMF committed to several initiativeshttp://www.imf.org/external/np/pp/eng/2015/061515.pdf
International Community adopted SDGs (September)
IMF discussed policies to achieve selected SDGs http://www.imf.org/external/pubs/ft/sdn/2015/sdn1518.pdf
Environmental Targets were set (December)
IMF spelt out its role in addressing climate changehttp://www.imf.org/external/np/pp/eng/2015/112515.pdf
The IMF Committed to Several FfD/SDG Initiatives
33
Enhance access to IMF concessional facilities
Expand support for domestic revenue mobilization (DRM), via technical assistance (TA), new diagnostic tools, work on international tax issues
Help address efficiently large infrastructure gap
Increased access levels by 50% on July 1
- Expand scale of technical assistance (TA) on DRM- Deepen work on international tax issues of relevance for developing countries-Joint IMF-WB Initiative on Tax Support for Tax
-New tools to assess investment management capacity, PPP fiscal risks, analyze investment-growth-debt trade-offs
The IMF Committed to Several FfD/SDG Initiatives
34
Enhance support for Fragile States and small developing countries
Promote the development of
domestic financial markets
Develop policies to address equity, inclusion, and environmental sustainability
- Emphasis on medium-term capacity-building strategies- New approach on macro-frameworks and policies for countries vulnerable to natural disasters
-Expand TA to promote financial market deepening-Develop new diagnostic tools (with WB) to guide capacity building/s and medium-term action plans to underpin financial sector reforms -Serving as organizing framework for follow-up TA
-Pilot initiatives underway on inequality, gender, and energy sector issues-Expanded analytical work on jobs and growth, inequality, gender equity, financial inclusion
IMF Commitments in the Context of Climate Change
35
Further analytical work
• Benefits of energy pricing reform
• Growth impact of moving to a less carbon-intensive economy
TA, training and surveillance
• TA/training on carbon prices
• Integration of climate/energy issues in Art IV reports (via pilots)
Integrate natural disaster risks and preparedness within macroeconomic frameworks.
Work with other institutions to fully incorporate disaster management into medium-term strategies.
Work (with others) to encourage climate-related disclosures, prudential requirements, and stress testing for the financial sector
Thank you
http://www.imf.org/external/np/pp/eng/2015/111915.pdf
http://www.imf.org/external/np/pp/eng/2015/061515.pdf
http://www.imf.org/external/np/pp/eng/2015/112515.pdf
36
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