## June 2021

## Source details

**Canonical URL:** [June 2021](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/jun2021.pdf)

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### On the capacity to absorb public investment: How much is too much?
- Publication: World Development paper by Daniel Gurara, Kangni Kpodar, Andrea Presbitero and Dawit Tessema.
- Key finding:
  - A non-linear U-shaped relationship between public investment and project costs in a large sample of road construction projects in developing countries.
- Thresholds and conditional effects:
  - Unit costs increase once public investment is close to 10% of GDP.
  - The threshold is lower, about 7% of GDP, in countries with low investment efficiency.
  - The effect of investment scaling up on costs is especially strong during investment booms.
- Policy implication:
  - While expanding public investment helps fill infrastructure gaps, scaling up too much and too fast often leads to inefficient outcomes due to absorptive capacity constraints.

### Export Growth - Fuel Price Nexus in Developing Countries: Real or False Concern?
- Publication: The Energy Journal paper by Kangni Kpodar, Stefania Fabrizio and Kodjovi Eklou.
- Sample and period:
  - Sample of 77 developing countries over the period 2000-2014.
- Key findings:
  - An increase in domestic gasoline or diesel price adversely affects real non-fuel export growth.
  - The adverse impact phases out within two years after the shock.
  - The impact is mainly noticeable in countries with a high-energy dependency ratio and where access to electricity is limited.
  - Large fuel price shocks do not seem to lead to disproportionately large changes in exports, suggesting neither gradualism nor shock therapy dominates in fuel subsidy reforms.
- Policy implication:
  - In countries where the export sector is vulnerable to fuel price shocks, design appropriate mitigating measures to smooth the transition to higher fuel prices.

### Forecasting and Policy Analysis Systems (FPAS) Technical Assistance mission to Ghana
- Initiative: IMF-FCDO collaboration with the Bank of Ghana (BoG) to build a macroeconomic framework for monetary policy and modernize forecasting and policy analysis capacity.
- Mission details:
  - A virtual FPAS TA mission was delivered in March 2021.
- Assistance provided:
  - Helped the BoG forecasting team produce model-based analysis and medium-term projections for the March 2021 forecast round.
  - Enhanced the BoG’s near-term forecasting (NTF) toolkit.
  - Dedicated substantial time to discussions of a newly-announced fiscal package and the design of related alternative scenarios.

### Macroeconomic Policy in Fragile and Conflict-Affected States (FCS)
- Seminar series:
  - Final session of the Fragile States Internal Seminar Series held on March 12.
  - Context: renewed IMF attention to fragile and conflict-affected states (FCS, also called countries experiencing fragility, conflict, and violence, or FCV).
- Focus and participants:
  - The series addressed how macroeconomic diagnosis and policies differ in FCS and how the Fund’s interactions with FCS countries often differ.
  - Final module emphasized operational questions — the “how” — with participation from four FCS Mission Chiefs (Carol Baker, Tokhir Mirzoev, Mika Saito, and Charalambos Tsangarides), the Deputy Director in charge of Fragile States (Franck Bousquet), lead authors of the book Macroeconomic Policy in Fragile States (Ralph Chami and Raphael Espinoza), and Professor Robert Klitgaard.
  - Target audience: desk economists and mission chiefs working on FCS, with a focus on tools, policy design, and implementation challenges.
- Webinar on post-COVID-19 stabilization:
  - FCDO-IMF organized a webinar at the Euro-Mediterranean Economists Association on increased fragility in the Middle East and Africa in the context of COVID-19.
  - Discussion based on the book Macroeconomic Policy in Fragile States — coedited by Ralph Chami, Raphael Espinoza, and Peter Montiel.
  - Key themes: stabilization policies anchored in fiscal policy, trust, governance and private sector involvement; the role of international partners, coordination and solidarity; political economy issues and corruption.
- Operational lessons:
  - Participants explored operational challenges and practical lessons from FCS experience to inform policy design and implementation in fragile environments.

### Are Remittance Flows Another Casualty of COVID-19?
- Course and trainings:
  - IMF-FCDO experts assembled a course on risks and implications of a drop in remittances for economic, fiscal, and social outcomes.
  - The course was taught during two webinars at the Joint Vienna Institute and the Singapore Training Institute.
- Importance of remittances:
  - For many low-income and fragile states, loss of remittances will exacerbate the COVID-19 shock; remittances support households and provide demand and tax revenue.
  - As of 2018, remittance flows to fragile and vulnerable countries alone reached $350 billion, surpassing foreign direct investment, portfolio investment, and foreign aid as the single most important source of income from abroad.
- Target audience:
  - Officials involved in analyzing and forecasting remittance flows and their effects on social and economic outcomes.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/jun2021.pdf_