The IMF is fully committed to supporting our member countries, particularly the most vulnerable; we have the tools to help; and we are coordinating closely with our partner institutions.
The Maldives is recovering after the historical 2020 fall in tourism, aided by a rapid COVID-19 vaccination program rollout. While the prompt and comprehensive policy approach in early 2020 was effective, a more prolonged pandemic and ambitious infrastructure projects are further weakening large pre-pandemic fiscal and external vulnerabilities.
We study the pass-through of labor costs to prices using a novel data-set that links industry-level wages to sectoral consumer prices through input-output tables. Pass-through increased during the COVID-19 pandemic recovery, temporarily in goods and persistently in services. Our analysis suggests that the elevated pass-through contributed at least 0.8 percentage points to goods inflation in 2021 and 0.7 percentage points and 0.5 percentage points to services inflation in 2021 and 2022, respectively. We find that the increase in pass-through reflects elevated demand in goods sectors and firms' difficulty in absorbing high wage growth in services sectors. The analysis suggests it will take a reduction in wage growth to bring PCE inflation back to target. Fiscal and monetary policies that help to re-balance the labor markets can facilitate this process.
This paper develops a new data-driven metric to capture MacroEconomic Uncertainty (MEU) in the euro area. The measure is constructed as the conditional volatility of the unforecastable components of a large set of time series, accounting for the monetary union as well as cross-country heterogeneity. MEU exhibits the largest spike at the time of the COVID-19 outbreak and is noticeably different from other more financial-oriented and policy-driven uncertainty measures. It also reveals a significant increase in inflation uncertainty in 2021-2022. Our BVAR-based analysis shows that an unexpected increase in the MEU has a negative and persistent impact on euro area's industrial production, accounting for 80 percent of its reduction during the first wave of COVID-19, therefore supporting the interpretation of COVID-19 shock as a macroeconomic uncertainty shock. Public debt increases in response to this uncertainty shock. Finally, an increase in MEU negatively affects Emerging Europe countries, contributing the most to the decline in their economic activity during this COVID-19 period.
Special drawing rights are providing an important boost for countries that need one, but greater support is encouraged to strengthen our unique lending tools
In the most vulnerable countries, strengthening state capacity must adapt to more frequent economic shocks, greater political instability, and fewer resources
Although global debt recorded another significant decline in 2022, it is still high, with debt sustainability remaining a concern
The August 2021 allocation of special drawing rights supported countries amid recovery from the pandemic—and continues to offer benefits
The economic gains from $272 billion in pandemic support for 94 countries were strongest in the poorest and more vulnerable recipients of IMF concessional financing
Following exceptional pandemic support, governments should foster disinflation and financial stability while protecting the most vulnerable and safeguarding public finances
With shock upon shock hitting the world economy in the last three years, IMF Managing Director Kristalina Georgieva's customary opening speech to the Annual Meetings warned of a darker global outlook and emphasized the need for the world to come together to deal with the consequences.
