IMF – Some Key Challenges Going into the Next Decade

June 13, 2019

[As prepared for delivery]

Today I’d like to touch on a few topics that I feel will be important for the Fund and its membership to engage in over the medium and longer run. Among such challenges, I would like to focus on Fintech and climate change. In many respects these issues are fundamentally different, one involving the Earth’s complex climatic system and its interactions with the economy, while the other concerns technical innovations shaping the structure of the financial system. But they have some similarities, most importantly in the fundamental need for close cooperation within the global community.


Financial technologies, or “Fintech,” are advancing rapidly, and have already significantly altered the way that many people and companies make payments, borrow money, manage their savings and investments, insure their risks, and receive financial advice. Fintech builds on the foundations of mobile communications especially smartphones, cryptography, and on the interlinked rise of Big Data and data science including AI.

Sweden has been on the cutting edge of these developments, as seen in the rapid rise in digital payments via Swish, a company that I enjoyed visiting earlier today! It is also seen in the efficiency of Swedish banks measured by their relatively low cost-to-revenue ratios.

On top of reducing financial service costs, Fintech holds promise for financial inclusion. This has already been evident in low income countries where mobile phones have bought payment and credit services with profound impacts on economic opportunities. In Kenya, for example, about 90 percent of the population over 14 years of age pays with M-Pesa.

So there are good reasons for countries to be open to the development and use of Fintech. But, we need to be aware that new technology can also lead to very rapid change. One scenario is that “Big Tech” companies enter the payments and credit markets, and quickly become major players in financial services given their large user base. Another scenario is that some banks adapt more quickly to Fintech than others, leading to sizable movements in market shares over time.

Change is part of the process of benefitting from Fintech. But very rapid and deep changes in financial systems can entail stability risks. Recall the financial liberalizations of the 1980s, when the transition from credit controls and other regulation to reliance on market forces led to an easing in credit standards, asset price booms especially in commercial real estate, culminating in serious banking crises including in the Nordic countries.

Countries around the world therefore face a shared challenge of finding a balanced framework that promotes financial innovation while preserving stability. As the Nordic‑Baltic region is now aware, financial integrity is also essential to a sound and stable financial system, so the framework for Fintech must also address money laundering and other threats to integrity along with consumer protection.

The IMF is an institution charged with a mandate for economic and financial stability, including by supporting inclusive growth, so we must find ways to support countries in developing such frameworks.

How are we doing our job? In October 2018, we launched the “Bali Fintech Agenda” which is a framework of 12 high-level issues for consideration by countries, that is organized around four objectives:

- Building an enabling environment for fintech innovation;

- Ensuring an adequate financial sector policy framework;

- Addressing risks and resilience; and

- Encouraging international collaboration.

In terms of an enabling environment for Fintech, it is clear that small start-up companies are not ready to deal with multiple financial regulators, or to properly manage the type of off‑site and on-site supervision expected of an established intermediary. So the authorities in some countries are using regulatory “sandboxes” and other tools to facilitate Fintech.

But new entrants should not gain competitive advantage from lighter regulatory standards, nor should consumer protection, financial integrity, or macroprudential goals, be compromised. Supervisors around the world need to keep a close eye on market developments, and act quickly to ensure the playing field remains level.

Sweden’s FSA set a sound example in this respect by applying consistent consumer protection and macroprudential requirements to nonbanks entering into the mortgage market. This approach, of applying financial sector policies to activities rather than entities, will be critically important to managing stability and integrity risks from Fintech.

Central banks and supervisors have well developed tools for monitoring and reporting on financial sector risks. This work will increasingly need address how technology is reshaping the system and its risks. Ensuring that the data used covers financial activities wherever they occur is key. Sweden’s Financial Stability Council, and their equivalents elsewhere, have an essential role in avoiding supervisory gaps related to Fintech.

International collaboration is more important than might first appear. By the nature of the internet and telecommunications, Fintech is global in reach, and payments and other financial services can cross borders at little cost seeking arbitrage opportunities. Fintech innovations can also spread rapidly across countries. In many respects, this mobility is welcome, but it also calls on countries to keep an eye on trends beyond their borders.

We at the IMF need to help countries by providing visibility on emerging Fintech developments, and also on practices that could help countries enjoy the benefits of Fintech and manage stability and integrity risks. But I should caution that the effects of technological change can be difficult to anticipate, so we are all in a “learning by doing” process.

It is therefore very encouraging that Sweden, as a leader in thinking through the implications of many Fintech issues, is also active in sharing its experiences with other countries.

Climate Change

I will now turn to the second topic of relevance to the Fund and its membership in the medium and long term. Indeed, it is a topic that deserves our full attention, given its potential to affect the entire world in the years ahead. The process of climate change is set to have a significant economic impact on many countries, with a large number of lower-income countries being particularly at risk.

Climate change matters to the IMF because it may have profound implications for economic and financial stability, which we are charged to protect under the IMF’s Articles of Agreement. The world will need to learn to live with climate change over the medium and longer term, and this adaptation will have macroeconomic and fiscal implications. But with concerted action, the world can also do more to mitigate climate change.

Given our fiscal policy expertise and universal membership, the Fund is uniquely positioned to help countries formulate their climate strategies. Our climate-related work at the Fund encompasses carbon taxation, climate mitigation and adaptation; resilience to natural disasters, and energy subsidy reforms. For example, a recent Executive Board paper develops, for 135 countries, a tool for assessing the emissions, fiscal, and economic welfare impacts of carbon pricing and a range of other mitigation instruments to help policymakers understand tradeoffs.

Finance ministries around the world remain poised to play a pivotal role. A key challenge for you is how best to use your expertise and experience with macroeconomic and fiscal policy, public financial management, and financial regulation to respond to the climate crisis. Your actions will be critical, whether this be in administering charges on the carbon content of fuels and ensuring the revenues are put to good use, or by providing other incentives to reduce energy consumption, use cleaner fuels, and mobilize private finance.

At the Fund, our work has found that carbon taxation is a practical way to price carbon. It raises revenue that permits tax reductions in other areas and creates incentives to shift to cleaner forms of energy. In many cases, carbon taxes are a straightforward extension of existing motor fuel excises, which are well established in many countries and among the easiest of taxes to administer. Countries need only build a carbon charge into the existing tax scheme and apply similar charges to other fossil fuel products.

Of course, some countries may prefer other ways of pricing carbon, for example, through emissions trading systems. The point is to establish, one way or another, a price on CO2 emissions and thereby incentivize the entire economy to shift to cleaner energy sources and conserve on the use of electricity and fuels. Our own message here at the Fund continues to be “price it right, do it smart, and do it now.”

Support for concerted action is growing, as is the commitment among policymakers to act. At the grassroots level, the younger generation—people like Greta Thunberg—are increasingly urging that stronger action be taken now. Likewise, at the international level, encouraging steps are underway. At the IMF-World Bank Spring Meetings last April, a group of finance ministers committed to respond to the threat posed by climate change by implementing the Helsinki Principles that will help strengthen nuts-and-bolts policymaking. The principles are designed to support finance ministers to share best practices and experiences on macro, fiscal, and public financial management policies for low-carbon, climate-resilient growth.

For its part, the IMF is committed to strengthening the international community’s ability to address climate change through the policy advice and capacity development that we offer to governments, with our research capabilities, and by providing programs and financing tailored to climate-related needs.

I look forward to hearing your views on the Fund’s climate-related work during today’s discussion.

IMF Communications Department

PRESS OFFICER: Gediminas Vilkas

Phone: +1 202 623-7100Email: