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Kiribati: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Kiribati
May 10, 2024
Kiribati’s economy recovered strongly from the pandemic on the back of supportive fiscal measures including subsidies, grants, and (most recently) an increase in civil service wages. Inflation, which has decelerated from its recent peak, is projected to pick up again mainly due to increased domestic demand. Kiribati is among the most vulnerable countries to the effects of climate change. Infrastructure gaps compound already challenging constraints imposed by distance and dispersion, limiting the development of the private sector in the state-dominated economy, and cementing its reliance on imports, especially for essential commodities such as food and fuel.
Pakistan: Second and Final Review Under the Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Pakistan
May 10, 2024
The signs of economic stabilization are strengthening, with gradual disinflation underway and external pressures easing further since the first review on the back of improved fiscal balances. However, the outlook remains challenging, with downside risks remaining exceptionally high.
FY2025–FY2027 Medium-Term Budget
May 10, 2024
The Executive Board of the International Monetary Fund approved the 2025-27 financial years (FY25-27) medium-term budget. While the global economy has shown resilience to successive adverse shocks, the overall global economic context remains complex with slow and uneven growth, increased fragmentation, deepening divergence, and still high interest rates despite easing inflationary pressures. Against this backdrop, the FY25-27 budget continues to be guided by principles of agility and budget discipline, reinforced by ongoing reprioritization and savings capture. It also builds on strong cooperation with other institutions, ensuring the Fund continues to focus on areas within its mandate, even as it addresses new demands. Work to strengthen internal operations also continue, focusing on both efficiency and effectiveness in meeting changing needs in the post-pandemic workplace, where rapid technological changes are underway. With significant demands within a constrained budget environment, the budget reflects difficult tradeoffs.
Kiribati: Selected Issues
May 10, 2024
Selected Issues
Barbados: Financial Stability Report
May 10, 2024
The technical assistance is focused on enhancing the joint financial stability report of the Central Bank of Barbados and the Barbados Financial Services Commission. The mission concluded that the preparation of a detailed FSR production plan and communication strategy is of critical importance and could facilitate improvements and promote the report. The report should encompass all crucial elements of financial stability assessment and needs to be streamlined to follow the central storyline with key messages. The quality of the report could be further enhanced though advancements in the analytical toolkit employed and the utilization of all available data sources.
Georgia: Technical Assistance Report-Report on Stress Testing the Central Bank Balance Sheet and Developing Hedging Markets
May 10, 2024
This CD engagement covered two distinct areas to help the National Bank of Georgia (NBG) deliver on its price stability mandate, it: 1) provided a forward-looking analysis of the NBG’s balance sheet to assess its policy solvency and to help institutionalize such a process, and 2) outlined a strategy to develop hedging instruments in interest rate and foreign exchange (FX) markets to support monetary policy transmission.
With virtually no interest-bearing liabilities, the NBG balance sheet is robust. Under the adverse shock, it improves on account of FX revaluation gains. Higher inflation also helps, since the need for a higher policy rate generates larger domestic interest income. Institutionalizing this analysis allows for early warning of the need to reduce dividend payments (or for re-capitalization) thereby supporting operational independence.
Georgia has made good progress on many of the enabling conditions for developing hedging markets, but several structural factors provide challenges. A supportive regulatory environment is in place, market infrastructure is robust, and there is a range of instruments available to serve as the underlying instrument for derivatives. However, there is a lack of heterogeneity of financial risk profile and appetite amongst participants. Recommendations include setting up a standardized FX forward trading platform, pushing for upgrades of banks’ treasury management systems, supporting the targeted education and training efforts of the Georgian Financial Markets Treasuries Association, revising the current FX forward index to be more informative by publishing outright transacted rates; and publishing Overnight Indexed Swap benchmarks.
Forecasting Tail Risk via Neural Networks with Asymptotic Expansions
May 10, 2024
We propose a new machine-learning-based approach for forecasting Value-at-Risk (VaR) named CoFiE-NN where a neural network (NN) is combined with Cornish-Fisher expansions (CoFiE). CoFiE-NN can capture non-linear dynamics of high-order statistical moments thanks to the flexibility of a NN while maintaining interpretability of the outputs by using CoFiE which is a well-known statistical formula. First, we explain CoFiE-NN. Second, we compare the forecasting performance of CoFiE-NN with three conventional models using both Monte Carlo simulation and real data. To do so, we employ Long Short-Term Memory (LSTM) as our main specification of the NN. We then apply the CoFiE-NN for different asset classes, with a focus on foreign exchange markets. We report that CoFiE-NN outperfoms the conventional EGARCH-t model and the Extreme Value Theory model in several statistical criteria for both the simulated data and the real data. Finally, we introduce a new empirical proxy for tail risk named tail risk ratio under CoFiE-NN. We discover that the only 20 percent of tail risk dynamics across 22 currencies is explained by one common factor. This is contrasting to the fact that 60 percent of volatility dynamics across the same currencies is explained by one common factor.
Conflicts and Growth: The R&D Channel
May 10, 2024
Violent conflicts are typically associated with a long-lasting drag on economic output, yet establishing causality based on macro-data remains as a challenge. This study attempts to build causality in the conflict-growth nexus by exploiting within-country variation across industries’ technological intensity. It identifies a channel through which conflicts can impact growth, i.e., by hindering R&D activities. The analysis is based on industry-level data from two-digit manufacturing industries for a large sample of countries over the last four decades. The results show that conflicts lead to a decline in labor productivity growth, particularly in industries with higher technological intensity. The estimated magnitude of the differential effect of conflicts on labor productivity growth in high-tech industries is large. Moreover, the additional labor productivity loss in those industries in the years of conflicts does not seem to be offset in the post-conflict period neither. The findings offer insight into the observed patterns of durable declines in income in the aftermath of conflicts, considering the role of technological progress and innovation in long-term economic growth.