Research and Analytics
Research and Analytics
The COVID-19 health and economic crisis has once again focused attention on the fickleness of capital flows and the need to have an adequate policy toolkit to manage the risks that stem from these flows, while maximizing their benefits.
Demand for coal remains strong and helps to fuel economic development in emerging markets. Yet many countries, seeking a more sustainable future, have been taking steps to reduce their dependence on fossil fuels, especially coal. Obstacles to their efforts have proven difficult to overcome, not least because people who work in the coal industry depend on it for their livelihoods—but the right policy levers can help.
In the months and years following previous pandemics, the countries most affected saw a rise in social unrest. Based on this historical trend, the COVID-19 pandemic could pose a threat to the social fabric in many countries, but these trends do not pre-determine an outcome.
Central banks have played a pivotal role in easing financial conditions in response to the COVID-19 shock, and helped avert a catastrophic downturn. However, their work is far from done. Yet more monetary stimulus will be needed to support economic recovery, and central banks are implementing innovative new strategies to provide it.
A paper co-authored this year by economists from the IMF and other institutions confirms that wealthier people are more likely to earn higher returns on their investments. It also shows that the children of wealthy people, while likely to inherit that wealth, aren’t necessarily going to make the same high returns on investments.
With vaccines around the corner, there is increased hope that the pandemic could soon be under better control. That said, the need for cooperative efforts to work toward a better future has never been greater. Priority areas relate to the need to produce and distribute vaccines globally, tackle climate change, and bolster the economic recovery from the crisis.
When corporations have too much debt and need to restructure it, creditors often end up exchanging bonds or loans for stocks. They trade the guaranteed payout of a fixed-income investment for an equity position whose return depends on the company’s future results. In other words, investors accept to share risk. Could a similar mechanism be applied when a sovereign nation has to restructure its debt, tying payouts to its future economic performance?
As G20 leaders meet virtually this week, the global economy faces a critical juncture. Countries have started to climb back from the depths of the COVID-19 crisis. But the resurgence in infections in many economies shows just how difficult and uncertain this ascent will be.
Lockdowns, working from home, and physical distancing caused people to spend larger shares of their household budgets on food and housing, while fewer people bought nonessentials, like airline tickets and clothing. And with incomes down as millions have lost their jobs, spending on nonessential items will likely remain depressed.
Digitalization has in the past few years enabled developing countries, in particular, to leapfrog on financial inclusion. Countries like Kenya, Ghana, Rwanda and Tanzania have made great advances in connecting their citizens to financial systems by leveraging on mobile phone technology.
