macroeconomic developments and prospects in low- … · macroeconomic developments and prospects in...

International Monetary Fund

Macroeconomic Developments and Prospects in Low-Income Developing Countries

-----------The IMF and the 2030 Development Agenda

Sean Nolan and Stefania FabrizioStrategy, Policy, and Review Department

February 2016

Structure of the Presentation

• The 2015 Low-Income Developing Countries (LIDCs) report

A) Recent Macroeconomic Developments and Outlook

B) Short and Longer-term Macroeconomic Vulnerabilities

C) Private Capital Inflows to LIDCs

• The 2030 development agenda

– New IMF Deliverables

2

Low-income Developing Countries

3

LIDC Sub-Groups by GNI per Capita and Population, 2014

A) Macroeconomic Developments and Outlook

4

Global Growth and LIDC Performance

5

Real GDP Growth, 2010-16(Weighted average, percent)

LIDC

World

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016

WEO Oct 2014

WEO Jan 2016

WEO Oct 2014

WEO Jan 2016

The Game Changer: Commodity Price Movements

6

Commodity Prices, 2010-16(Index, 2010=100)

Petroleum

Price

Nonfuel Price

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016

WEO Oct 2014

WEO Jan 2016

WEO Oct 2014

WEO Jan 2016

Commodity Price Declines: The Income Effect

7

Net Impact of Commodity Prices on

Income of LIDCs, 2014-15(In percent of GDP)

-18 -15 -12 -9 -6 -3 0 3

Oil exporters

Commodity (non-oil) exporters

Diversified exporters June 2014-June 2015

June 2014-December 2015

…with Oil Exporters Hardest Hit

8

Net Impact of Commodity Prices on Income , 2014-15(In percent of GDP)

Selected Oil-ExportersSelected Diversified Exporters

-36 -32 -28 -24 -20 -16 -12 -8 -4 0

Congo, Rep.

Nigeria

Ghana

June 2014-June 2015


-4 -2 0 2 4 6 8 10

Myanmar

Vietnam

Bangladesh

Ethiopia

Kenya

June 2014-June 2015


Commodity Price Declines: Second Round Effects

• Supply response: exports and employment

• Investment response

• Income distribution: locals versus foreigners

9

Divergent Growth Experience

10

Real GDP Growth, 2014-16(Weighted average, percent)

0

1

2

3

4

5

6

7

Commodity Exporters* Diversified Exporters

* Excluding Yemen.

2014 2015 2016 WEO Jan 2016

Fiscal Positions are Hit

11

Government Fiscal Balance, 2014-16(Percent of GDP; PPP-GDP weighted average)

Public Debt, 2014-16(Percent of GDP; PPP-GDP weighted average)

-6

-5

-4

-3

-2

-1

0

2014 2015 2016

WEO Jan 2016

2014 2015 2016

Commodity Exporters Diversified Exporters

0

5

10

15

20

25

30

35

40

45

50

2014 2015 2016

WEO Jan 2016

2014 2015 2016


External Positions Weaken—but Drivers Vary

12

Current Account Balance, 2014-16(Percent of GDP; PPP-GDP weighted average)

External Debt, 2014-16(Percent of GDP; PPP-GDP weighted average)

-6

-5

-4

-3

-2

-1

0

2014 2015 2016

WEO Jan 2016

2014 2015 2016


0

5

10

15

20

25

30

35

40

45

50

2014 2015 2016

WEO Jan 2016

Commodity Exporters*

* Excluding Nigeria.

2014 2015 2016

Diversified Exporters

Reserve Positions and Funding Costs

13

0

2

4

6

8

10

2014 2015 2016 2014 2015 2016

Floating Fixed

Commodity Exporters

Medians

75th percentile

25th percentile

Reserve Coverage, 2014-16(Months of imports, percentiles)

EMBIG Sovereign Spread(Basis Points, USD-denominated, as of 2/3/2016)

0

300

600

900

1200

1500

1800

Bo

livia

Mo

ng

olia

Vie

tnam

Co

te d

'Ivo

ire

Gh

an

a

Ken

ya

Nig

eri

a

Mo

zam

biq

ue

Tan

zan

ia

May-Jun 2013 Average2014 Average2015 AverageCurrent

Currencies: Sizeable Declines, Low Pass-Through

14

-40

-30

-20

-10

0

Zam

bia

Mala

wi

Mo

zam

biq

ue

Nig

eri

a

Mo

ng

olia

Afg

han

ista

n

Pap

ua N

ew

Gu

inea

Ug

an

da

Mad

ag

asc

ar

Mo

ldo

va

Tan

zan

ia

Gh

an

a


Depreciation of Currencies (Selected LIDCs, June 2014-September 2015)

Policy Messages

• Key commodity prices are unlikely to rebound; exporters need to recalibrate policies

• A reminder: countries need to build macroeconomic policy space to handle external shocks

• A warning: concerns about volatility of access to external capital markets are not theoretical

15

B) Assessing Macroeconomic Vulnerabilities

16

Vulnerability to a Growth Shock has Increased Steadily

17

0

20

40

60

80

100

2011 2012 2013 2014 2015 2016

High Medium Low

Growth Decline Vulnerability Index, 2009-16(LIDCs with low, medium and high vulnerabilities; in

percent of total, unweighted)

Growth Decline Vulnerability Index by Country Groups,

2016(Share of LIDCs, in percent, unweighted)

Rising Debt Vulnerabilities: How Significant?

18

24 26 27 2934 33 37 35 34

28

31 31 2932

32 3335

44 4548

44 43 4439

34 3328

21 21 24

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

High / in debt distress Moderate Low

Evolution of the Risk of Debt Distress (In percent of total number of LIDCs with DSA)

Financial Vulnerabilities: Mostly from Rapid Credit Growth and Foreign-Currency Lending

19

• Financial Vulnerability Index

• Z-Score Methodology

Return on assetsRatio of bank loans

to deposits

Ratio of foreign liabilities to domestic credit

3-year growth of the credit-to GDP ratio

Capital adequacy ratio

Return on Assets

Bank credit to bank

deposit ratio

Cross border loans to

GDP

Cross border

deposits to GDP

Growth rate of M2 to

GDP

Growth rate of

private credit to GDP

2010

2013

2014

Shock-Scenario Analysis: an Illustration

20

Shock Scenario: Impact of Financial Volatility Shock

0

1

2

3

4

5

6

2014 2015 2016 2017 2018 2019

Growth

Financial volatility

Baseline

-2.0

-1.5

-1.0

-0.5

0.0

GDP growth (in percent) Cumulative Fiscal Balance

(in percent of GDP)

Growth and Fiscal Balance(Cumulative deviation from baseline, three year period)

Medium-Term Vulnerabilities: LIDCs are More Exposed to Severe Natural Disasters…

21

Average Annual Number of Droughts,

Floods, Storms(Per million square kilometers)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1985-95 1996-2005 2006-2015

LIDC EM

AM

….and They Are at Greater Risk with Respect to Climate Change than Other Countries

22

LIDCs(Percent share of countries with

vulnerability)

Rest of the World(Percent share of countries with

vulnerability)

Climate Change Exposure Index, 2015

Key Messages

• Indicators point to rising macro vulnerabilities in many LIDCs, due to weaker fiscal/external positions.

• Financial sector risks in FMs warrant attention—focused on credit growth and funding sources.

• What we “knew”: LIDCs are more exposed to natural disasters, more at risk to climate change

23

C) Private Capital Inflows to LIDCs

24

Capital Inflows to LIDCs have Grown Sharply

25

Capital Inflows to LIDCs, 2000-14

( Percent of GDP, weighted average)

-1

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cap

ital

inflo

ws

(% G

DP)

Non-FDI inflows

FDI inflows

Frontier LIDCs have Driven the Uptick in non-FDI Flows

26

Non-FDI Inflows

( Percent of GDP)

0

1

2

3

4

5

6

7

Infl

ow

s (%

GD

P)

Emerging markets

Frontier LIDCs

Portfolio flows Other flows Portfolio flows Other flows

2004 - 2007 2011 - 2014

Notes: the bars and the dots indicate, respectively, the median and third quartile of the distribution of capital inflows

Frontier LIDCs have opened their capital accounts reaching emerging markets’ levels

27

0.0

0.2

0.4

0.6

0.8

1.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

LIDC Developing Markets

EMs

Frontier LIDCs

Total Capital Account Liberalization Index (Median)

Capital Flows: Links to Investment?

28

The SDG Narrative: Borrowing to Scale up Investment ?

29

Sovereign Borrowing and Public Investment,

2005-14

( In percent of GDP)

Ghana Mongolia

Levels and Costs of Capital Flows are Responsive to Economic and Global Financial Conditions

30

Sovereign Bond Spreads around the Tapper

Tantrum in Selected frontier LIDCs

( Average)

The IMF and the 2030 development agenda

31

Three Flagship Events in 2015

Established Financing for Development Framework (July)

IMF committed to several initiativeshttp://www.imf.org/external/np/pp/eng/2015/061515.pdf

International Community adopted SDGs (September)

IMF discussed policies to achieve selected SDGs http://www.imf.org/external/pubs/ft/sdn/2015/sdn1518.pdf

Environmental Targets were set (December)

IMF spelt out its role in addressing climate changehttp://www.imf.org/external/np/pp/eng/2015/112515.pdf

https://www.imf.org/external/np/pp/eng/2015/111915.pdf



The IMF Committed to Several FfD/SDG Initiatives

33

Enhance access to IMF concessional facilities

Expand support for domestic revenue mobilization (DRM), via technical assistance (TA), new diagnostic tools, work on international tax issues

Help address efficiently large infrastructure gap

Increased access levels by 50% on July 1

- Expand scale of technical assistance (TA) on DRM- Deepen work on international tax issues of relevance for developing countries-Joint IMF-WB Initiative on Tax Support for Tax

-New tools to assess investment management capacity, PPP fiscal risks, analyze investment-growth-debt trade-offs

The IMF Committed to Several FfD/SDG Initiatives

34

Enhance support for Fragile States and small developing countries

Promote the development of

domestic financial markets

Develop policies to address equity, inclusion, and environmental sustainability

- Emphasis on medium-term capacity-building strategies- New approach on macro-frameworks and policies for countries vulnerable to natural disasters

-Expand TA to promote financial market deepening-Develop new diagnostic tools (with WB) to guide capacity building/s and medium-term action plans to underpin financial sector reforms -Serving as organizing framework for follow-up TA

-Pilot initiatives underway on inequality, gender, and energy sector issues-Expanded analytical work on jobs and growth, inequality, gender equity, financial inclusion

IMF Commitments in the Context of Climate Change

35

Further analytical work

• Benefits of energy pricing reform

• Growth impact of moving to a less carbon-intensive economy

TA, training and surveillance

• TA/training on carbon prices

• Integration of climate/energy issues in Art IV reports (via pilots)

Integrate natural disaster risks and preparedness within macroeconomic frameworks.

Work with other institutions to fully incorporate disaster management into medium-term strategies.

Work (with others) to encourage climate-related disclosures, prudential requirements, and stress testing for the financial sector

Thank you

http://www.imf.org/external/np/pp/eng/2015/111915.pdf



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