## fd090123

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---

### Climate Financing That Puts People First — current shortfall, allocation, and priorities
- Current climate financing: "$632 billion" is spent annually.
- About "60 percent" of developing economies’ needs are not included in their Nationally Determined Contributions.
- The $100 billion pledge made in 2009 at COP15 in Copenhagen is described as pitifully inadequate.
- Just "7 percent" of climate financing today is earmarked for resilience and adaptation.
- Global Commission on Adaptation 2019 estimate: investing "$1.8 trillion" in initiatives such as early-warning systems and climate-smart practices over 10 years could yield "$7.1 trillion" in total benefits.
- Recent shocks worsening financing and development risks:
  - COVID-19 pandemic and Russia’s invasion of Ukraine increased food and energy prices and tightened financial conditions, adding fiscal burden on emerging market economies.
  - World Bank estimate: climate change could push "132 million" people into poverty by 2030, particularly in Africa and South Asia.
- Scale of resources needed and potential sources:
  - If multilateral development banks dedicated all their funds to the green transition, it would amount to about "4 percent" of the financing needed (World Bank 2020).
  - Shifting only "1–1.5 percent" of global private sector assets—worth over "$450 trillion"—would bridge the climate financing gap.
  - "77 percent" of developing economies’ sovereign credit ratings are “non-investment grade.”
  - Philanthropic climate-mitigation financing in 2020 ranged between "$6 billion and $10 billion", less than "2 percent" of all philanthropic financing worldwide.
- Information gaps, risk perception, and mechanisms to mobilize capital:
  - Closing information gaps is critical to clarify risk-return profiles, lower transaction costs, and generate Paris-aligned investable projects.
  - Collective action and multistakeholder partnerships are required to unlock public, private, and philanthropic funds.
  - Innovative financing instruments include blended finance and debt swaps for climate action.
- Country example — Egypt’s NWFE:
  - Egypt launched the Country Platform for the Nexus of Water, Food and Energy (NWFE) during COP27 to adopt a country-led, programmatic, bottom-up approach.
  - NWFE produced investable mitigation and adaptation projects, mobilized concessional financing, and catalyzed private investment using blended finance and debt swaps.
- Just Financing and operational principles:
  - The Sharm El Sheikh Guidebook for Just Financing introduced the first definition of “just financing” and includes 12 guiding principles.
  - Emphases: equitable allocation of benefits and burdens; safeguard social dimensions of the transition; operationalize common but differentiated responsibilities by addressing country ownership, access, affordability, and resource allocation bias.
  - Promotes “additionality” and good governance; frames just financing to account for historical responsibility while ensuring equitable access to quality and quantity climate financing.
- Recommendations and priorities (implied):
  - Close information gaps to reveal risk-return profiles and enable new financing mechanisms.
  - Mobilize concessional and private finance through programmatic, country-led platforms producing investable projects.
  - Use blended finance and debt swaps to catalyze private investment.
  - Restructure global financial architecture and leverage initiatives like the Bridgetown Initiative and the G20 Capital Adequacy Framework.
  - Prioritize resilience and adaptation funding given high benefit-cost outcomes.

### African demographic transformation — key findings and projections
- Global population reached 8 billion last November; India overtook China as the world’s most populous country in April.
- Africa’s population:
  - Estimated about "140 million" in 1900, representing "9 percent" of the world’s population at that time.
  - Increased tenfold to now stand at over "1.4 billion".
  - UN projects by "2050" Africa’s population will reach close to "2.5 billion".
  - By "2050", more than "25 percent" of the world’s population will be African; by the end of the century Africa’s share is set to reach close to "40 percent".
- Demographic drivers and concentration:
  - The UN expects just eight countries to account for more than half of global population increase over the next three decades; five are in Africa.
  - Working-age population in these African countries will grow faster than any other age group.
- Median age: median age in Africa as of "2021": "18.6".
- Policy implication: investment in human capital, including education, is critical to realize a potential demographic dividend.

### Middle East and North Africa (MENA): macro stability, reforms, and resilience
- Fiscal context and constraints:
  - Many governments increased spending during COVID-19 and the cost-of-living crisis, often financed by borrowing; higher debt servicing costs reduce fiscal space.
  - Example: in Tunisia, public sector wage and rigid outlays account for four-fifths of revenues.
- Fiscal and monetary policy guidance:
  - Mobilize revenue by withdrawing ineffective exemptions and improving tax equity.
  - Limit spending on untargeted subsidies and control the public sector wage bill.
  - Central banks should be forward-looking with a clear focus on price stability while maintaining financial stability.
- Social safety nets and subsidies:
  - Replace generalized price subsidies with targeted support.
  - Country examples: Morocco removed fuel subsidies in 2016; Egypt introduced an automatic fuel price index mechanism in 2019; Mauritania substantially reduced untargeted fuel subsidies while increasing cash transfers.
  - Morocco reached informal workers during the pandemic using digital payments; Jordan improved cash transfer targeting.
- Structural reforms and private sector expansion:
  - Private sector generates more than "90 percent" of jobs in developing economies.
  - State-owned enterprises’ large presence creates inefficiencies; stronger economic governance and anti-corruption policies are necessary.
  - Remove legal barriers and discriminatory practices to bolster female labor force participation.
- Climate and energy transition:
  - Climate change exacerbates water and food needs; Tunisia’s tourism and fishing sectors face beach erosion risks.
  - Mauritania: growth could fall by as much as "1 percentage point" as drought intensifies; expanding access to electricity could cut the losses in half.
  - Morocco built the Noor-Ouarzazate concentrated solar plant covering "3,000 hectares".
  - World Bank simulations for Morocco: investment in water infrastructure would reduce GDP losses by almost "60 percent" and cap the rise in public debt.
- Digitalization:
  - World Bank: GDP per capita in the region could rise by more than "40 percent" as digitalization elevates efficiency, inclusion, and resilience.
  - Tunisia’s Startup Act (2018) aimed to simplify administrative procedures to encourage entrepreneurship.
- Reform sequencing and political economy:
  - Governments’ full ownership and transparent communication are essential; sequencing reforms to deliver quick wins can build support.

### Fintech and digital finance in MENA — adoption, investment, and policy actions
- Adoption and market size:
  - Noncash payments in the United Arab Emirates rose from "39 percent" in 2018 to "73 percent" in 2023.
  - Only "17 percent" of consumers in the Middle East use digital banking, compared with almost "60 percent" in the United States.
  - Fintech revenues in MENA and Pakistan expected to increase from "$1.5 billion" in 2022 to "$3.5–$4.5 billion" by 2025.
  - Fintech in the banking sector forecast to grow from less than "1 percent" to "2–2.5 percent".
  - Comparable fintech penetration: Brazil "5–7 percent"; Nigeria "12–15 percent".
- Venture funding and ecosystem metrics:
  - Venture funding in fintech in MENA rose to "$925 million" in 2022 from "$587 million" in 2021, an increase of "58 percent".
  - Funding in 2022 was across "131 deals", compared with "124 deals" in 2021.
  - Sector’s share of venture funding increased from "21 percent" in 2021 to "29 percent" in 2022.
  - As of Q1 "2023", deals and funding recorded the lowest values since the start of the COVID pandemic; venture capital financing declined "13 percent" in 2023 and the number of deals dropped by "55 percent".
- Barriers:
  - Tradition of treating the financial sector as “sacred ground”; banks often owned by government, quasi-government, or elites.
  - Fragmented regional hubs limit scalability; interoperability and regulatory harmonization are weak.
  - Limited local venture capital excluding sovereign wealth funds and quasi-government entities.
- Policy actions recommended:
  - Level the playing field among incumbents, international players, and start-ups.
  - Regulatory harmonization and allow licensed players in one country to operate where feasible in another.
  - Democratize access to information through open banking and comprehensive credit registries.
  - Expand investor pool and use guarantee and incentive programs.
  - Reform education and immigration to align talent with knowledge industries; launch long-term permanent visa programs and paths to citizenship for talented expatriates.

### Hydrogen and energy transition in the Southern Rim (North Africa) — opportunities, risks, and governance
- Migration and human costs:
  - On June 14, 2023, a refugee boat capsized off the coast of Greece, leaving hundreds dead.
  - In "2022", "160,000" people attempted to cross open water toward Europe; almost "40 percent" were from Tunisia or Egypt; more than "2,300" died.
- Hydrogen investment specifics:
  - A German developer and Mauritania signed an MOU for a "$34 billion" project with annual capacity of "8 million tons" of green hydrogen and related products.
  - Proposed Mediterranean pipeline among Portugal, Spain, France, and Germany would supply "10 percent" of the EU’s hydrogen by "2030".
- Risks:
  - Large hydrogen projects risk perpetuating rent-seeking by elites and distract from urgent domestic social issues driving migration.
  - Macroeconomic implications: exchange rate appreciation, current account swings, and contingent liabilities from project failure.
  - Energy-export orientation may not deliver the types of jobs needed for young populations.
- Policy and governance recommendations:
  - Ensure utmost transparency to limit corruption.
  - Maximize citizen benefits through localization policies and broader economic restructuring.
  - Reform sequencing: demonstrate elite commitment before implementing broad-impact policies.
  - Promote regional cooperation to create a larger market and renegotiate better trade deals.

### Financing peace and stability — global public goods and instruments
- Fragility and conflict landscape:
  - Conflicts last "30 years" on average—twice as long as during the 1990s.
  - Mali and Burkina Faso: forced displacement peaked in "2022" at "2.6 million" people.
  - A study estimated annual growth in conflict-affected countries was "2.5 percentage points" lower than for countries at peace.
- Global financing needs and mechanisms:
  - United Nations estimated "$51 billion" in humanitarian aid needed to support "339 million" people affected by conflict and natural disasters this year.
  - Global Concessional Financing Facility (GCFF), launched in "2016":
    - Each "$1" in donor grants unlocked "$7" in concessional loans.
    - GCFF has funded "$800 million" in concessional credit, leveraging almost "$5.5 billion" in financing to support refugees and host communities in the Middle East.
  - IMF committed "$39 billion" in financing to "24" fragile and conflict-affected countries since the start of the pandemic.
- Policy agenda:
  - Scale up assistance focused on prevention and resilience-building tailored to country-specific fragility.
  - Increase concessional financing and ensure the Poverty Reduction and Growth Trust is sufficiently funded for low-income, fragile states.
  - Build coalitions of humanitarian, development, and peace actors for aligned prevention, stabilization, and integration programs.
  - Use catalytic mechanisms (e.g., donor guarantees) to lower borrowing costs and leverage larger financing packages.

### Debt distress in MENA — drivers, reality, and policy prescriptions
- Rising debt vulnerabilities:
  - Several MENA countries have reached very high debt levels; Egypt, Jordan, and Tunisia face precarious situations; Lebanon defaulted.
  - Drivers: governance issues, state-controlled economies, bloated public sectors, low domestic revenue mobilization, poorly targeted subsidies, fixed exchange rate regimes, and reliance on debt financing.
- Country specifics:
  - Egypt: gross financing needs in "2023" amount to "35 percent of GDP."
  - Tunisia: rigid outlays can account for four-fifths of revenues.
  - Lebanon: collapse driven by fixed exchange rate system, weak public finances, high interest rates to attract inflows, political deadlock, and banking sector influence; resulted in default.
- Restructuring challenges:
  - Collective action clauses improved restructuring speed for Eurobonds, but fragmentation of official creditors and reluctance of private creditors complicate restructuring.
  - Significant domestic debt held by local banks and pensions complicates restructuring perimeters.
  - G20 Common Framework applies only to low-income countries and thus not to most MENA middle-income countries.
- Policy prescriptions:
  - Mitigate risks through growth-boosting policies, new financing, and some fiscal consolidation while recognizing social and political constraints.
  - Urgent country-specific reforms with credible commitment to governance and structural change:
    - Egypt: reduce regulatory burden, diminish military role in the economy, pursue privatization that attracts foreign investment.
    - Jordan: implement deeper structural reforms.
    - Tunisia: reverse erosion of democracy and undertake crucial reforms.
    - Lebanon: form a government transcending confessional divisions to enable reform.
  - If unavoidable, pursue preemptive debt restructuring early as part of a broader corrective package.

### Yemen, Egypt, West Bank and Gaza — displacement, fintech inclusion, AI capacity, and entrepreneurship
- Yemen:
  - "4.3 million" civilians displaced (World Bank).
  - IMF estimates: GDP will fall by "0.5 percent" in 2023; inflation will run at "17 percent."
  - Mocha Valley initiatives support women coffee workers but face cultural barriers and competition with qat.
- Egypt — Khazna:
  - "67 percent" of the population have no access to formal banking services (Global Finance magazine).
  - Mobile phones in more than "90 percent" of households.
  - Khazna partners with businesses that employ "1.5 million" people and serves Egypt Post’s "5 million" pension customers.
  - Khazna has more than "350 employees", raised "$38 million" last March bringing total funding to more than "$47 million."
  - Labor participation: "15.4 percent" for women, "67 percent" for men.
- West Bank and Gaza — AI and start-ups:
  - Female graduates represent half of tech-based education graduates, yet female workforce participation is low.
  - Only "9 percent" of universities in the West Bank and Gaza offer programs in artificial intelligence; between "2016 and 2021" all Palestinian territories graduated just "28" students who specialized in AI.
  - AI start-ups constitute less than "1 percent" of start-ups; none are founded by women.
  - Start-up creation since 2009 has a compounded growth rate of "34 percent".
  - Nearly "40 percent" of start-up founders have been mentored.
  - Women’s participation rate in the workforce is less than "19 percent".

### Industrial policy — Growth Strategy Trilemma and international examples
- Growth Strategy Trilemma: balancing economic growth, financial and fiscal stability, and establishing national champions—pursuing any two tends to come at the cost of the third.
- Strategy typology:
  - Strategy A: safe champions (stability + champions).
  - Strategy B: bold champions (growth + champions, accepting higher instability risk).
  - Strategy C: fair-market capitalism (stability + growth without national champions).
- International examples and figures:
  - United States: CHIPS Act — "$39 billion" allocated from the "$280 billion" CHIPS Act for advanced semiconductor manufacturing.
  - US Inflation Reduction Act: "$370 billion" in subsidies for clean energy.
  - Japan: subsidies worth more than "$500 million" to 57 companies.
  - European Union: set aside "€160 billion" of its COVID-19 recovery fund for digital innovations.
  - COMAC (China): invested up to "$70 billion" in Commercial Aircraft Corporation of China.
- Caution: industrial policy can succeed (Airbus example) but may lead to costly distortions or global subsidy races.

### Climate debt — measurement, magnitudes, scenarios, and fiscal implications
- Concept: climate debt equals sum of emission damages valued using the social cost of carbon.
- Historical and projected magnitudes:
  - Climate debt estimated at "$59 trillion" over "1959–2018".
  - Projected to increase by another "$80 trillion" during "2019–35".
  - As of "2018", largest contributors: United States ("$14 trillion"), China ("$10 trillion"), and Russia ("$5 trillion").
- Per capita and fiscal comparisons:
  - Climate debt per capita is highest in the United States — some "6 times" higher than in China for "1959–2018" and "25 times" as high as in India.
  - In G20 countries, climate debt is about "81 percent of GDP", compared with average general government debt of "88 percent of GDP" in "2020".
  - Net present value of projected increases in public spending on health and pensions averages "25 percent of GDP" in G20 countries during "2020–35".
- Scenario analysis:
  - Scenario 1 (full implementation of NDCs): reduction in accumulation of climate debt by "$9.6 trillion (24 percent)". Even then, countries with large emissions declines (China, United States) would still contribute the most to accumulation ($12.9 billion and $5.4 billion, respectively).
  - Scenario 2 (additional reductions beyond NDCs to achieve 1.5°C): additional reductions based on each G20 country’s share of total emissions would lower projected climate debt by another "$6.4 trillion". Climate debt per capita in the United States and other advanced economies would still far surpass that of G20 developing economies.
- Policy implications:
  - NDC implementation alone is insufficient for fair burden sharing by "2030"; advanced economies may need longer timeframes or provide aggressive compensation through climate financing.
  - Government taxation and spending policies (including carbon taxation with complementary measures to protect low-income households) are potent tools to tame growth of climate debt.
  - IMF’s Resilience and Sustainability Facility is extending concessional financing for climate transition and pandemic preparedness to developing economies.
  - Current climate finance “has not yet reached the goal of $100 billion a year and is clearly inadequate.”

### DFID, AfCFTA, and AI — aid commitments, intra-African trade, and automation
- DFID and multilateral leadership:
  - DFID committed "0.7 percent" of gross national income on official development assistance, equal to an annual budget of about "$20 billion".
  - Merger into the Foreign Office removed a dedicated voice and means for international development leadership.
- AfCFTA potential and constraints:
  - Launched in "January 2021" to dismantle barriers across Africa.
  - Import tariffs within Africa average "6 percent"; nontariff measures equivalent to an import tariff of "18 percent".
  - Projected gains from full reform:
    - Median goods trade within Africa could increase by "53 percent".
    - Trade with the rest of the world could rise by "15 percent".
    - Real per capita GDP of the median African country rising more than "10 percent".
    - An estimated "30– 50 million" people lifted out of extreme poverty.
    - Services exports could be boosted by some "50 percent".
  - Challenges: infrastructure gaps, persistent nontariff barriers, digital divide, access to finance for SMEs (example: letter of credit costs "2–4 percent" in West Africa vs "0.25–0.5 percent" in advanced economies), and high debt.
  - Policy priorities: invest in physical and human capital, prudent debt management, improved business environment, and partnerships with international community and private sector.
- AI and labor:
  - Current AI wave can automate cognitive tasks in variable environments.
  - Short-term impacts (next five years): tools can enable lower-skilled people to perform at higher-skilled levels, likely reducing skill premia in certain occupations, increasing employment opportunities, and increasing productivity.
  - Policy playbook: make AI competitively provided and available through trade; monitor adoption, identify adverse consequences, and experiment with policy interventions.

*Italicized source: Content compiled from IMF Finance & Development September 2023 materials (fd090123).*

### 2050.  Today,  by  comparison,  a  mere

### Climate Financing That Puts People First

### Current financing shortfall and allocation
- $632 billion is spent annually (current climate financing).
- About 60 percent of developing economies’ needs are not included in their Nationally Determined Contributions.
- The $100 billion pledge made in 2009 at COP15 in Copenhagen is described as pitifully inadequate.
- Just 7 percent of climate financing today is earmarked for resilience and adaptation.
- The Global Commission on Adaptation 2019 estimated that investing $1.8 trillion in initiatives such as early-warning systems and climate-smart practices over 10 years could yield $7.1 trillion in total benefits.

### Recent shocks worsening financing and development risks
- The COVID-19 pandemic and Russia’s invasion of Ukraine have led to higher food and energy prices and tighter financial conditions, adding to the fiscal burden on emerging market economies and testing socioeconomic and environmental resilience.
- These cascading events have siphoned money and resources from sustainability projects and caused sharp capital retrenchment that threatens to reverse decades of development gains.
- The World Bank estimates that climate change could jeopardize development progress by pushing 132 million people into poverty by 2030, particularly in Africa and South Asia.

### Scale of resources needed and potential sources
- The cost of implementing the climate agenda—in adaptation and mitigation—far exceeds available deployed resources; a bigger pool of funds is needed.
- If multilateral development banks dedicated all their funds to the green transition, it would amount to about 4 percent of the financing needed (World Bank 2020).
- Shifting only 1–1.5 percent of global private sector assets—worth over $450 trillion—would, however, bridge the climate financing gap.
- The problem includes that 77 percent of developing economies’ sovereign credit ratings are “non-investment grade” and hence associated with high risk, plus large information gaps about opportunities, investor appetite, and investment impact.
- Philanthropic climate-mitigation financing in 2020 ranged between $6 billion and $10 billion, which is less than 2 percent of all philanthropic financing worldwide.
- The text highlights calls for a restructured global financial architecture and mentions the Bridgetown Initiative and the G20 Capital Adequacy Framework as ambitious proposals.

### Information gaps, risk perception, and mechanisms to mobilize capital
- Closing information gaps is critical for governments and investors to clarify risk-return profiles, lower transaction costs, enable new financing mechanisms, and generate high-impact investable projects that are Paris-aligned and contribute to country priorities.
- Collective action and multistakeholder partnerships are required to unlock funds from public, private, and philanthropic actors and boost climate financing to developing and emerging market economies.
- Innovative financing instruments cited include blended finance and debt swaps for climate action.

### Country example: Egypt’s Country Platform for the Nexus of Water, Food and Energy (NWFE)
- Egypt launched NWFE during COP27 to emphasize country ownership and adopt a country-led, programmatic, bottom-up approach.
- NWFE introduces the missing link of investable projects and bridges the information gap, harmonizing efforts to ensure sustainable and productive interaction between stakeholders.
- Through design, structuring, and preparation of concrete and implementable mitigation and adaptation projects, NWFE mobilized concessional financing and catalyzed private investment.
- NWFE made use of innovative financing, including blended finance and debt swaps for climate action (Al-Mashat and Berglöf 2023).

### Just Financing and operational principles
- The Sharm El Sheikh Guidebook for Just Financing (launched by Egypt during its COP27 presidency) aims to help stakeholders move from pledges to implementation by identifying key players, clarifying opportunities, risks, and potential partnerships for a climate-resilient future.
- The guidebook introduced the first definition of “just financing” to transcend notions of climate justice and just transition and puts people first.
- Key emphases: equitable allocation of benefits and burdens; safeguarding the social dimension of the transition; operationalizing common but differentiated responsibilities and respective capabilities by addressing country ownership, access, affordability, and resource allocation bias.
- The initiative promotes “additionality” (benefits attributable solely to an intervention) and good governance.
- Just financing is framed to “account for historical responsibility for climate change while ensuring equitable access to quality and quantity climate financing that supports resilient development pathways, leaving no one behind.”
- The guidebook includes 12 corresponding guiding principles.

### Recommendations and priorities (implied by text)
- Close information gaps to reveal risk-return profiles, lower transaction costs, and enable new financing mechanisms.
- Mobilize concessional and private finance through programmatic, country-led platforms that produce investable projects.
- Use innovative financing instruments such as blended finance and debt swaps to catalyze private investment.
- Restructure global financial architecture and leverage initiatives like the Bridgetown Initiative and the G20 Capital Adequacy Framework to crowd in private investment for countries most in need.
- Prioritize resilience and adaptation funding (currently 7 percent of climate finance) given high potential benefit-cost outcomes (example: $1.8 trillion over 10 years yielding $7.1 trillion in benefits per Global Commission on Adaptation 2019).

*Point of View by Rania Al-Mashat, Egypt’s minister of international cooperation.*

### references

### References (fd090123)

### African demographic transformation — key findings and projections
- Global population reached 8 billion last November; in April, India overtook China as the world’s most populous country.
- Africa’s population:
  - Estimated about 140 million in 1900, representing 9 percent of the world’s population at that time.
  - Has increased tenfold and now stands at over 1.4 billion.
  - UN projects by 2050 Africa’s population will reach close to 2.5 billion.
  - By 2050, more than 25 percent of the world’s population will be African; by the end of the century Africa’s share is set to reach close to 40 percent.
- Demographic drivers and concentration:
  - The UN expects just eight countries to account for more than half of the increase in global population over the next three decades; five of those countries are in Africa.
  - The working-age population in these African countries will grow faster than any other age group.
- Median age:
  - Median age in Africa as of 2021: 18.6.
- Policy implication:
  - Investment in human capital, including education, is critical to realize a potential demographic dividend.

### Middle East and North Africa (MENA): macroeconomic stability, reforms, and resilience
- Macroeconomic context and constraints:
  - Many governments increased spending during COVID-19 and the cost-of-living crisis, often financed by borrowing; higher debt servicing costs reduce fiscal space.
  - Example: In Tunisia, public sector wage and rigid outlays account for four-fifths of revenues.
- Fiscal and monetary policy guidance:
  - Mobilize revenue by withdrawing ineffective exemptions and improving tax equity.
  - Limit spending on untargeted subsidies and control the public sector wage bill.
  - Central banks should be forward-looking with a clear focus on price stability while maintaining financial stability.
- Social safety nets and subsidies:
  - Replace generalized price subsidies with targeted support to deliver immediate improvements to those most in need.
  - Country examples: Morocco removed fuel subsidies in 2016; Egypt introduced an automatic fuel price index mechanism in 2019; Mauritania substantially reduced untargeted fuel subsidies while progressively increasing cash transfers.
  - Morocco reached informal workers swiftly during the pandemic using digital payments for cash transfers; Jordan improved targeting of its cash transfer system.
- Structural reforms and private sector expansion:
  - Private sector generates more than 90 percent of jobs in developing economies; requires enabling environment and public sector role in institution building and correcting market failures.
  - State-owned enterprises’ large presence creates inefficiencies and weighs on productivity growth; stronger economic governance and anti-corruption policies are necessary.
  - Remove legal barriers and discriminatory practices to bolster female labor force participation.
- Climate and energy transition:
  - Climate change exacerbates water and food needs; Tunisia’s tourism and fishing sectors face beach erosion risks.
  - Mauritania: growth could fall by as much as 1 percentage point as drought intensifies; expanding access to electricity could cut the losses in half.
  - Morocco built the world’s largest concentrated solar plant (Noor-Ouarzazate complex), covering 3,000 hectares.
  - World Bank simulations for Morocco: investment in water infrastructure would improve resilience to drought, reducing GDP losses by almost 60 percent and capping the rise in public debt.
- Digitalization:
  - World Bank: GDP per capita in the region could rise by more than 40 percent as digitalization elevates efficiency, inclusion, and resilience.
  - Tunisia’s Startup Act (2018) aimed at simplifying administrative procedures to encourage entrepreneurship.
- Reform sequencing and political economy:
  - Governments’ full ownership and transparent communication are essential; sequencing reforms to deliver quick wins can build support.
  - “Plans are nothing; planning is everything.” (Quotation attributed to Dwight D. Eisenhower in the source.)

### Fintech and digital finance in MENA — adoption, investment, and policy recommendations
- Adoption and market size indicators:
  - Noncash payments in the United Arab Emirates rose from 39 percent in 2018 to 73 percent in 2023.
  - Only 17 percent of consumers in the Middle East use digital banking, compared with almost 60 percent in the United States.
  - Fintech revenues in the Middle East, North Africa, and Pakistan region expected to increase from $1.5 billion in 2022 to $3.5–$4.5 billion by 2025.
  - Fintech in the banking sector forecast to grow from less than 1 percent to 2–2.5 percent.
  - Comparable fintech penetration: Brazil’s 5–7 percent; Nigeria’s 12–15 percent.
- Venture funding and ecosystem metrics:
  - Venture funding in fintech in MENA rose to $925 million in 2022 from $587 million in 2021, an increase of 58 percent.
  - Funding in 2022 was across 131 deals, compared with 124 deals in 2021.
  - The sector’s share of venture funding increased from 21 percent in 2021 to 29 percent in 2022.
  - As of Q1 2023, deals and funding recorded the lowest values since the start of the COVID pandemic; venture capital financing declined 13 percent in 2023 and the number of deals dropped by 55 percent.
- Barriers and structural issues:
  - Regional tradition of treating the financial sector as “sacred ground”; banks often owned by government, quasi-government, or elites; protective regulatory regimes favor incumbents.
  - Fragmented regional hubs limit scalability; interoperability and regulatory harmonization are weak.
  - Limited local venture capital: excluding sovereign wealth funds and quasi-government entities, the pool of local players able to fund large financing rounds is limited.
- Policy actions recommended:
  - Level the playing field among incumbents, international players, and start-ups to increase competition and IT investment.
  - Regulatory harmonization to ease market expansion and transparency across regulatory regimes; allow licensed players in one country to operate freely in another where feasible.
  - Democratize access to information through open banking regulations and comprehensive credit registries.
  - Expand the pool of investors (local and international institutional investors) and use guarantee and incentive programs.
  - Human capital and immigration policies: reform education to align talent with knowledge industries; public-private partnerships and targeted programs to upskill; launch long-term permanent visa programs and paths to citizenship for talented expatriates.

### Hydrogen and energy transition in the Southern Rim (North Africa) — opportunities and risks
- Migration and human costs:
  - On June 14, 2023, a refugee boat capsized off the coast of Greece, leaving hundreds dead.
  - In 2022, 160,000 people attempted to cross open water toward Europe; almost 40 percent of them were from Tunisia or Egypt; more than 2,300 died.
- Hydrogen investment hype and specifics:
  - A German developer and Mauritania signed an MOU with a consortium for a $34 billion project with annual capacity of 8 million tons of green hydrogen and related products.
  - A proposed Mediterranean pipeline among Portugal, Spain, France, and Germany would supply 10 percent of the EU’s hydrogen by 2030.
- Risks for Southern Rim nations:
  - Large hydrogen projects risk perpetuating rent-seeking by elites and distract leaders from urgent domestic social issues driving migration.
  - Macroeconomic implications: exchange rate appreciation, current account swings, and contingent liabilities associated with large projects (failure or abandonment).
  - Energy-export orientation may not deliver the types of jobs needed for young, majority-young populations.
- Policy and governance recommendations:
  - Ensure utmost transparency in the hydrogen sector to limit corruption.
  - Maximize citizen benefits through localization policies and broader economic restructuring to remove roadblocks to decent job creation.
  - Reform sequencing: political and administrative elites and cronies should demonstrate commitment before implementing policies affecting the broader population.
  - Promote regional cooperation among North African nations to create a larger market attractive for investment and renegotiate better trade deals.

### Financing peace and stability — global public goods and instruments
- Fragility and conflict landscape:
  - Conflicts last 30 years on average—twice as long as during the 1990s.
  - Mali and Burkina Faso: forced displacement peaked in 2022 at 2.6 million people.
  - A study estimated annual growth in conflict-affected countries was 2.5 percentage points lower than for countries at peace.
- Global financing needs and mechanisms:
  - The United Nations estimated $51 billion in humanitarian aid needed to support 339 million people affected by conflict and natural disasters this year.
  - The Global Concessional Financing Facility (GCFF), launched in 2016:
    - Each $1 in donor grants unlocked $7 in concessional loans.
    - The GCFF so far has funded $800 million in concessional credit, which leveraged almost $5.5 billion in financing to support refugees and host communities in the Middle East.
  - IMF: committed $39 billion in financing to 24 fragile and conflict-affected countries since the start of the pandemic.
- Policy agenda for peace as a global public good:
  - Scale up assistance with a strong focus on prevention and resilience-building, tailored to country-specific manifestations of fragility.
  - Increase concessional financing and ensure the Poverty Reduction and Growth Trust is sufficiently funded for low-income, fragile states.
  - Build broad coalitions of humanitarian, development, and peace actors for aligned programs supporting prevention, stabilization, and economic integration.
  - Use catalytic mechanisms (e.g., donor guarantees) to lower borrowing costs and leverage larger financing packages for prevention and refugee response.

### Debt distress in MENA — drivers, recent reality, and policy prescriptions
- Rising debt vulnerabilities:
  - Several MENA countries have reached very high debt levels; Egypt, Jordan, and Tunisia face precarious situations; Lebanon defaulted.
  - Drivers include governance issues, state-controlled economies, bloated public sectors, low domestic revenue mobilization, poorly targeted subsidies, fixed exchange rate regimes, and reliance on debt financing.
- Country-specific notes:
  - Egypt: gross financing needs in 2023 amount to 35 percent of its GDP.
  - Tunisia: rigid outlays (public sector wage bill and subsidies) can account for four-fifths of revenues (cited earlier in the content).
  - Lebanon: collapse driven by fixed exchange rate system, weak public finances, high interest rates to attract inflows, political deadlock, and banking sector influence; resulted in default.
- Restructuring challenges:
  - Collective action clauses in sovereign bond contracts have improved restructuring speed for Eurobonds, but restructuring is more difficult because:
    - Emergence of China and other non–Paris Club creditors fragments official creditor base.
    - Private creditors have been reluctant and slow in providing debt relief.
    - Significant domestic debt—often held by local banks and pensions—complicates restructuring perimeters.
    - The G20 Common Framework applies only to low-income countries and thus not to most MENA middle-income countries.
- Policy prescriptions and outlook:
  - Mitigate risks through growth-boosting policies, new financing, and some fiscal consolidation, recognizing social and political constraints to spending cuts.
  - Urgent country-specific reforms with credible commitment to governance and structural change:
    - Egypt: reduce regulatory burden, diminish military role in the economy, and pursue privatization that attracts foreign investment.
    - Jordan: implement deeper structural reforms to avert crisis.
    - Tunisia: reverse erosion of democracy and undertake crucial reforms.
    - Lebanon: form a government transcending confessional divisions to enable reform.
  - If unavoidable, pursue preemptive debt restructuring as part of a broader corrective package; treat restructuring as a last resort but act early to limit harm.

*Italicized attribution: Source content compiled from the provided IMF Finance & Development September 2023 materials (fd090123 - references).*

### references

### fd090123 - references

### MENA trade performance and structure
- The MENA region accounted for "7.4 percent" of total global trade in 2022.
- Total trade in goods as a percent of GDP in the MENA region was "65.5 percent" in 2021.
- Intra-regional trade remains low:
  - Intra-regional trade represented "17.8 percent" of total trade.
  - Intra-regional trade represented "18.5 percent" of total exports.
- Commodity-dependent nations have shown improvements on the Global Economic Diversification Index (trade subindex) by reducing dependence on fuel exports, reducing export concentration, or changing export composition.
- Examples of export composition change:
  - Saudi Arabia’s medium- and high-tech exports rose to "almost 60 percent" of overall manufacturing exports right before COVID from "less than 20 percent" in 2000.

### Trade in services and sectoral composition
- MENA services trade ranged between "4 and 6 percent" of global services trade in the past two decades.
- OECD countries account for "more than two-thirds" of global services trade.
- Within MENA, the GCC accounts for the bulk of services trade, concentrated in lower-value-added sectors such as travel (tourism) and transportation.
- Services trade is constrained by restrictive policies, including limits on entry in sectors dominated by state-owned enterprises and high fees and license requirements in professional and transportation services.

### Trade barriers, facilitation, and infrastructure
- MENA nations apply more, and more restrictive, nontariff measures than any other region; such measures "almost doubled between 2000 and 2020."
- Other barriers include lack of uniform standards, pervasive red tape, and corruption.
- MENA underperforms on trade facilitation measures, with wide disparities across countries:
  - Dwell times for imported goods can exceed "12 days" in some MENA countries.
  - Algeria and Tunisia delays average about "20 days."
  - United Arab Emirates delays are "less than five days" (among the top three globally).
- Quality of trade- and transportation-related infrastructure is significantly lower in non-GCC MENA nations.

### Regional integration and the role of the GCC
- The six oil-exporting GCC nations—Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates—account for the bulk of intra-regional trade and can catalyze regional trade integration.
- GCC-led measures that could advance integration and lower trade costs:
  - Invest in hard infrastructure and trade-related infrastructure and logistics.
  - Integrate GCC trade infrastructure (ports, airports, logistics) with that of the wider MENA region.
  - Develop an integrated GCC power grid, potentially renewable-energy-powered and extendable to Europe, Pakistan, and India.
- Two complementary policy paths recommended:
  1. Implement the GCC Common Market, invest in digital trade, lower tariff and nontariff barriers, reduce restrictions on trade in services, facilitate labor mobility, and enhance financial and capital market linkages.
  2. Develop new deep trade agreements between the GCC and other MENA countries covering nontariff measures, direct investment, e-commerce and services, labor standards, taxation, competition, intellectual property rights, climate, environment, and public procurement (including mega projects).
- The GCC is advised to pursue an "aid for trade" policy to help partner countries implement trade-boosting reforms.

### Diversification, reforms, and new trade agreements
- The pandemic underscored the need for diversification of products and partners and for new supply chains.
- GCC economies have pursued policies and structural reforms to diversify away from fossil-fuel dependence, including increasing labor mobility and opening capital markets across borders.
- Reforms include development of free zones and special economic zones, attracting investment to higher-value-added, higher-tech manufacturing, and investing in sectors such as renewable energy, fintech, and artificial intelligence.
- The United Arab Emirates have signed comprehensive economic partnership agreements with India, Indonesia, and Türkiye covering services, investment, and regulatory aspects of trade.
- The GCC has accelerated new free trade negotiations with partners in the MENA region (including Egypt and Jordan) and in Asia (including China and South Korea).

### Social inclusion, gender, and entrepreneurship
- Female labor force participation in the Middle East and North Africa is "19 percent" compared with the global average of "nearly 50 percent."
- The rise of women entrepreneurs in the region is highlighted as a driver of innovation and inclusive growth.
- Case study and sector data:
  - Yemen exports less than "1 percent" of the world’s coffee.
  - Global coffee exports topped "$36 billion" by 2021.
  - Yemen faces severe humanitarian crisis metrics: "Approximately 22.5 million people, or about 75 percent of the entire population, require humanitarian assistance," with Yemen’s UN Human Development Index ranking near the bottom ("183rd of 191 countries") in 2021.

### Key statistics and data points (extracted exactly)
- "35% of GDP: Egypt's estimated gross financing needs in 2023."
- "7.4% is the MENA region's share of global trade."
- "65.5 percent" — MENA total trade in goods as a percent of GDP in 2021.
- "17.8 percent" — intra-regional trade share of total trade.
- "18.5 percent" — intra-regional trade share of total exports.
- "4 and 6 percent" — range for MENA services trade as a share of global services trade.
- "more than two-thirds" — OECD share of global services trade.
- Nontariff measures "almost doubled between 2000 and 2020."
- Dwell times: "more than 12 days" (general), "about 20 days" (Algeria and Tunisia), "less than five days" (United Arab Emirates).
- Saudi Arabia medium- and high-tech exports: "almost 60 percent" right before COVID from "less than 20 percent" in 2000.
- Yemen coffee exports: "less than 1 percent" of the world’s coffee.
- Global coffee exports: "$36 billion" (by 2021).
- Yemen humanitarian needs: "Approximately 22.5 million people, or about 75 percent of the entire population, require humanitarian assistance."
- Yemen HDI ranking: "183rd of 191 countries" in 2021.

*fd090123 - references — September 2023, as provided in the source content*

### 4.3 million civilians displaced,” the World Bank

### fd090123 - 4.3 million civilians displaced,” the World Bank

### Yemen: conflict impact, economic outlook, and women-led coffee entrepreneurship
- 4.3 million civilians displaced, reported by the World Bank.
- IMF estimates:
  - GDP will fall by 0.5 percent in 2023.
  - Inflation will run at 17 percent.
- Mocha Valley (launched five years ago) initiatives:
  - Provided knowledge and free training to coffee workers to meet quality standards.
  - Faces cultural barriers: women frequently discriminated against in business and excluded from qat-session deal-making.
  - Qat competes with coffee for farmland and water in a water-scarce country, and is often more lucrative for farmers.
  - Mocha Valley promotes greater participation from women and cultivates young female leaders who may become future sector leaders.

### Egypt: Khazna and financial inclusion
- Financial inclusion context:
  - 67 percent of the population have no access to formal banking services (Global Finance magazine).
  - Mobile phones are in more than 90 percent of households.
  - World Bank estimate: about 1.7 billion people around the world are currently unbanked.
- Khazna (founded 2019) business model and scale:
  - Provides an income-backed multipurpose credit line for cash advances, bill payment, purchases via a merchant network, and medical insurance.
  - Partners with businesses that employ 1.5 million people.
  - Works with Egypt Post to serve their 5 million pension customers.
  - Has more than 350 employees.
  - Raised $38 million in equity and debt last March, bringing total funding to more than $47 million.
- Gender and labor participation:
  - Labor participation: 15.4 percent for women, 67 percent for men.
  - Founder Fatma El Shenawy notes cultural and support challenges for women entrepreneurs.

### West Bank and Gaza: AI, tech entrepreneurship, and mentorship
- Education and AI capacity:
  - Female graduates represent half of tech-based education program graduates, yet female workforce participation is low.
  - AI-specific capacity: Only 9 percent of universities in the West Bank and Gaza offer programs in artificial intelligence, and none higher than a master’s degree.
  - Between 2016 and 2021, all Palestinian territories graduated just 28 students who specialized in AI.
- Start-up ecosystem dynamics:
  - AI start-ups constitute less than 1 percent of start-ups in the West Bank and Gaza, with none founded by women.
  - On average, each year, 19 more start-ups are created than in the previous year, resulting in a 34 percent compounded growth rate in start-up creation since 2009.
- Mentorship and labor force:
  - Nearly 40 percent of start-up founders have been mentored; mentorship is described as an efficient mechanism for transferring know-how and enabling access to talent, knowledge, and resources.
  - Women’s participation rate in the workforce is stated as less than 19 percent.
- Policy and capacity-building:
  - Mona Demaidi’s approach: intensive training, personal coaching, boot camps, free online courses, private sector exchanges, and open access to job boards.
  - Developed the Palestinian National Strategy for AI in 2022 to accelerate innovation and adoption.

### Industrial policy: Growth Strategy Trilemma and international examples
- Definition and trade-offs:
  - Industrial policy: government targeting of industries/firms via subsidies, tax incentives, infrastructure, protective regulations, and R&D support.
  - Growth Strategy Trilemma: balancing economic growth, financial and fiscal stability, and establishing national champions — pursuing any two tends to come at the cost of the third.
- Strategy typology:
  - Strategy A (safe champions): prioritizes financial/fiscal stability and safe national champions.
  - Strategy B (bold champions): prioritizes economic growth and risk-taking national champions, accepting higher instability risk.
  - Strategy C (fair-market capitalism): prioritizes stability and growth without focusing on national champions; emphasizes open, competitive markets and diversified global supply chains.
- Policy drivers and leader incentives:
  - Growth anxiety and fear of instability can drive leaders to favor national champions for quick wins, jobs, or national security.
  - Risk: concentration of economic power, misallocation of resources, reduced competition, and potential long-term harm to growth and social welfare.
- International industrial policy examples and figures:
  - United States: CHIPS Act — $39 billion allocated from the $280 billion CHIPS Act for advanced semiconductor manufacturing.
  - US Inflation Reduction Act: $370 billion in subsidies for clean energy.
  - Japan: subsidies worth more than $500 million to 57 companies to encourage domestic investment.
  - European Union: set aside €160 billion of its COVID-19 recovery fund for digital innovations such as chips, batteries, and climate adaptation.
  - COMAC (China): invested up to $70 billion in Commercial Aircraft Corporation of China; project delayed by more than five years and C919 not certified by any major aviation authority outside China so far.
- Cautionary lesson: industrial policy can succeed (Airbus example) but is not a guaranteed solution and can lead to costly distortions or global subsidy races.

### Climate debt: measurement, magnitudes, and scenarios
- Concept:
  - Climate debt: sum of emission damages (cumulative negative effects of CO2 emissions) valued using the social cost of carbon; used to assess fair contributions and compensation responsibilities.
- Historical and projected magnitudes:
  - Climate debt estimated at $59 trillion over 1959–2018.
  - Projected to increase by another $80 trillion during 2019–35.
  - As of 2018, largest contributors: United States ($14 trillion), China ($10 trillion), and Russia ($5 trillion).
- Per capita and fiscal comparisons:
  - Climate debt per capita is highest in the United States — some 6 times higher than in China for the 1959–2018 period and 25 times as high as in India.
  - In G20 countries, climate debt is about 81 percent of GDP, compared with average general government debt of 88 percent of GDP in 2020.
  - Net present value of projected increases in public spending on health and pensions averages 25 percent of GDP in G20 countries during 2020–35.
- Scenario analysis:
  - Scenario 1 (full implementation of Nationally Determined Contributions, NDCs): reduction in accumulation of climate debt by $9.6 trillion (24 percent).
    - Even with NDCs, countries with large emissions declines (China, United States) would still contribute the most to the accumulation of climate debt ($12.9 billion and $5.4 billion, respectively).
  - Scenario 2 (additional emissions reductions beyond NDCs to achieve 1.5°C): if each G20 country undertakes additional reductions beyond its NDC based on its share of total emissions for that year, projected climate debt would fall by an additional $6.4 trillion.
    - Despite this, climate debt per capita in the United States and other advanced economies would still far surpass that of G20 developing economies.
- Policy implications:
  - NDC implementation alone is insufficient for fair burden sharing by 2030; advanced economies may need longer timeframes for emission reductions or provide aggressive compensation (climate financing) to developing economies.
  - Government taxation and spending policies are highlighted as potent tools for taming the growth of climate debt.

*Italic: IMF Finance & Development (September 2023) — content from fd090123 - 4.3 million civilians displaced,” the World Bank*

### references

### fd090123 - references

### References cited
- Antràs, Pol, Teresa C. Fort, and Felix Tintelnot. 2017. “The Margins of Global Sourcing: Theory and Evidence from U.S. Firms.” American Economic Review 107 (9): 2514–64.
- Grossman, Gene M., Elhanan Helpman, and Hugo Lhuillier. 2023. “Supply Chain Resilience: Should Policy Promote International Diversification or Reshoring?” Forthcoming in the Journal of Political Economy.
- Clements, Benedict, Sanjeev Gupta, and Jianhong Liu. 2023. “Who’s Responsible for Climate Change? New Evidence Based on Country-level Estimates of Climate Debt.” Economics of Energy and the Environment 12 (1). https://doi.org/10.5547/2160-5890.12.1.bcle.
- International Monetary Fund (IMF). 2019. Fiscal Monitor: How to Mitigate Climate Change. Washington, DC, September. https://www.imf.org /en/Publications/FM/ Issues/2019/09/12/fiscal-monitor-october-2019.
- Ritchie, Hannah, Max Roser, and Pablo Rosado. 2020. “CO2 and Greenhouse Gas Emissions.” Published online at OurWorldInData.org. https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions.

### Climate debt: findings and projections
- “Climate debt from CO2 emissions is large and unevenly spread across the world’s economies.”
- “Climate debt per capita is projected to be much higher in advanced than in developing economies, even under full implementation of NDCs by G20 countries.”
- “This implies that advanced economies may need to make additional efforts to achieve fair burden sharing in the fight against climate change.”
- “Implementing the required reductions in emissions to meet the Paris targets is problematic, given that advanced economies—which have accumulated a large share of the stock of climate debt—are already reducing their emissions sharply under their NDCs.”

### Policy recommendations and fiscal considerations
- Developing economies face constraints in pursuing climate action because of the impact of the pandemic on their economies and the associated steep increases in public debt.
- The US and Europe have embraced large-scale policies to subsidize clean energy to reduce climate debt, but “this option is not open to developing economies given their lack of fiscal space.”
- Both country groups “should pay attention to the revenue side, in particular higher taxation of energy, with carbon taxes to reduce climate debt.”
- “Carbon taxation must be accompanied by complementary fiscal policies to offset the tax’s short-term adverse effects on low-income households.”
- A pragmatic approach to fair distribution of the burden: advanced economies should ramp up their assistance to developing economies through climate finance to pay for mitigation and adaptation, “through grants and concessional loans.”
- The IMF’s new Resilience and Sustainability Facility “is extending concessional financing for climate transition and pandemic preparedness to developing economies.”
- Current climate finance “has not yet reached the goal of $100 billion a year and is clearly inadequate in light of the huge climate debt of advanced economies.”

### Ethical considerations and transition timing
- “There are important ethical considerations countries must address as they seek to implement tax and spending policies to reduce emissions. Which generation should bear the burden of adjusting to a lower-emissions economy?”
- “Given that the damage from emissions is rising over time, countries are better off acting as soon as possible.”
- “The current generation has already consumed large amounts of energy at prices that did not fully reflect its true social cost, including its damage to the environment.”
- For developing economies, “the adjustment could be phased in gradually, given these countries’ greater ability to shoulder the burden as their per capita incomes rise over time.”

### Authors and affiliations (as listed)
- Benedict Clements is a visiting professor at the Universidad de las Américas, Ecuador.
- Sanjeev Gupta is senior fellow emeritus at the Center for Global Development, Washington, DC.
- Jianhong Liu is a research analyst in the IMF’s Monetary and Capital Markets Department.

*FD090123 - references (source PDF).*

### 0.7 percent of gross national income on

### fd090123 - 0.7 percent of gross national income on

### DFID, aid commitments, and multilateral leadership
- DFID committed 0.7 percent of gross national income on official development assistance, which worked out to an annual budget of about $20 billion.
- DFID’s mission under its leadership: providing large resources to development with a strong focus on the poorest and providing leadership to the international system and mobilizing resources from other countries and international organizations.
- DFID’s clarity of purpose was to reduce world poverty; its merger into the Foreign Office and the watering down of the aid commitment removed that dedicated voice and means from the international system.
- Personal leadership attributes noted:
  - Understanding what motivates people and using that to produce ideas for reform.
  - Humanity and sincerity; ability to deliver tough messages in an inoffensive way.
  - Empathy enabling separation of the message from the person.

### Challenges facing the international system and multilateral institutions
- Current pressures:
  - Aid budgets have been slashed.
  - Russia’s war in Ukraine and geopolitical tensions threaten to cripple multilateral organizations.
  - Rising interest rates are piling pressure on heavily indebted developing economies.
- Characterization of the external context: “The external context for international organizations has not been this tough since the Cold War.”
- Policy priority emphasized: countries should carve out space for international cooperation on global public goods like climate, pandemic preparedness, and financial stability.
- Rationale: “Having a place where conversations are being had on these global issues is even more important when the bilateral channels are not working well.”

### Brexit, the Bank of England, and contingency planning
- Brexit episode recollection: the UK’s 2016 vote to leave the European Union; markets reaction observed in real time (the British pound slide) and the Bank’s role.
- Bank of England actions and contributions:
  - Attempted to inform the debate with rigorous economic analysis (mixed success).
  - Focused on contingency planning to maintain macroeconomic and financial stability across political outcomes.
  - Liquidity facilities and preparedness reassured markets so that “no support was needed.”
- Career note: left the Bank of England in 2017 for academia; wrote What We Owe Each Other during tenure as LSE president, with a later-added interest in the international social contract.

### The Drive for Trade Integration: AfCFTA’s potential and constraints
- AfCFTA overview:
  - Launched in January 2021.
  - Aim: dismantle barriers to trade and create a unified trade landscape across Africa.
- Trade environment and barriers (exact figures preserved):
  - Import tariffs within Africa are higher than those of other regions, averaging 6 percent.
  - Nontariff measures amount to the equivalent of an import tariff of 18 percent.
- Projected gains from full reform implementation (exact figures preserved):
  - Median goods trade within Africa could increase by 53 percent.
  - Trade with the rest of the world could rise by 15 percent over the long term.
  - Real per capita GDP of the median African country rising more than 10 percent.
  - An estimated 30– 50 million people lifted out of extreme poverty.
  - Services exports could be boosted by some 50 percent with stronger trade infrastructure and better access to financing.
- Structural and sectoral opportunities:
  - AfCFTA can diversify export baskets, promote services trade, and integrate African countries into regional and global value chains.
  - Examples: textile manufacturing offshoring by South African retailers to neighboring countries.
  - Digitalization and technological advancements can reduce trade costs (electronic cargo-tracking systems, cloud-based payment systems).
- Challenges and frictions to address:
  - Infrastructure gaps: inadequate transportation systems, limited access to reliable energy, logistical deficiencies.
  - Persistent nontariff barriers: customs inefficiencies and regulatory disparities.
  - Digital divide: limited digital infrastructure and inadequate access to affordable internet services.
  - Access to finance for firms, especially SMEs; comparative cost example:
    - Average price of a letter of credit in West African countries is 2–4 percent of the transaction value, much higher than 0.25–0.5 percent in advanced economies.
  - Human capital and social protection needs: investment in education, skills development, targeted training programs in digital technologies, and fiscally sustainable social safety nets to protect the vulnerable during transition.
  - Debt and financing constraints:
    - African countries face high debt.
    - Economic fallout from COVID-19 and Russia’s war in Ukraine fueled inflation and caused global monetary policy tightening, worsening the funding squeeze.
- Policy and investment priorities for AfCFTA success:
  - Significant investment in physical and human capital.
  - Prudent debt management to ensure debt sustainability while prioritizing critical infrastructure investments.
  - Improved business environment through sound policies, effective governance, and reduced bureaucracy to attract investment.
  - Partnerships with the international community and the private sector to raise revenue for infrastructure projects.
  - Concerted effort by African governments, private sector stakeholders, and international partners to address infrastructure gaps, overcome regulatory hurdles, and foster a viable trade environment.

### Embracing Artificial Intelligence (Cafe Economics conversation with Joshua Gans)
- Distinction of current AI wave:
  - Previous automation focused on physical tasks; AI provides potential to automate cognitive tasks, and crucially to operate in variable and non-standardized environments.
- Short-term impacts (next five years) expectations:
  - AI tools often enable people with lower skills and less experience to perform at levels of higher-skilled workers (example: demand prediction tools for taxi drivers in Tokyo).
  - Likely outcomes: reduced skill premia in certain occupations, increased employment opportunities for a wider set of people, increased productivity, and potential lowering of income inequality "at least at certain ranges of the income distribution."
- Overhyped and overlooked aspects:
  - Concerns about rapid displacement may be overhyped relative to the observable productivity improvements.
  - Precaution versus the cost of slow adoption: need to balance learning about adverse consequences with the losses from slow productivity adoption.
  - Speed of adoption requires intensive monitoring, identification of adverse consequences, and experimentation with policy interventions to mitigate harms.
- Implications for international organizations like the IMF:
  - Policy playbook: AI should be competitively provided and available as widely as possible through trade, analogous to policies encouraging information technology and internet access.
- Regulation and ethics:
  - Ethical issues are complex and not clear-cut; discrimination issues may be complex but AI could be easier to reprogram to be less discriminatory than people.
  - Strong policy guidance is required to induce necessary changes.

*From Finance & Development, SEPTEMBER 2023.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/september/fd090123.pdf_