The new IMF chief should not be chosen by Europe alone

It may not be widely known, but the International Monetary Fund (IMF) has always been headed by a European, and the World Bank by a US citizen. This is the unwritten convention, or gentlemen’s agreement, that has held since these twin global financial institutions were established in the aftermath of the second world war.

Yet those with an interest in how, and for whom, the global economy is run have long been deeply unhappy about this cosy arrangement. And these concerns have once again been brought into sharp focus after Christine Lagarde, the IMF managing director, announced she is stepping down next month.

An all-European shortlist was once again drawn up by the EU. But the European establishment has struggled to agree on who it wants to fill the role ahead of a 6 September deadline for nominations, with the Bulgarian Kristalina Georgieva chosen to be the EU’s nominee after a divisive round of voting on Friday.

“The truth is that there is no readily available tried-and-tested European all-rounder,” a European minister told CNBC.

Surely, with a final decision on Lagarde’s successor expected on 4 October, now is the moment for such regressive and anti-democratic leadership conventions to be scrapped. In April I chaired a discussion inside the World Bank in New York among 200 civil society leaders, and explicitly questioned the World Bank’s executive directors, arguing that it was “unbelievable that the recruitment and appointment to the [leadership of the] bank came from one single nation”.

This governance issue is about so much more than mere cosmetics. As the world becomes ever-more politically polarised and vulnerable to populist leadership, and as the US administration turns away from multilateralism and takes a sceptical approach on the climate crisis, there is all the more reason for these major institutions – which are so keen to boast of their globalist credentials – to take an inclusive, merit-based approach to what ought to be a diversified recruitment process. The coming window for new leadership is an opportunity for the IMF to demonstrate a different model that is democratic and – crucially – inclusive of candidates from the global south.

It simply cannot be right that the leadership of the institutions with the greatest power to tackle the climate crisis excludes applicants from those countries where that crisis is wiping out the lives and livelihoods of many millions of people. The IMF aims to create sustainable growth and to reduce poverty in the world. How can it do so when it is run on fundamentally undemocratic principles?

It is time for all members of the IMF to stand together and vote against a model that mocks the principles and values that the same countries place above all else. The hypocrisy and double standards are damaging world peace and development progress. It is time to see leaders who have the courage and boldness to evidence the values they champion. The most vulnerable people in our communities are paying a huge price for weak leadership that serves the interest of the few in the name of the rest.

And this is not just a question of figureheads. It goes to the heart of inherent deficiencies with these institutions. The growth-focused narratives at the IMF and the World Bank are simply not working for the world’s poorest and most marginalised. Instead they drive ever greater destruction of the natural systems on which we all rely, and ever greater global concentration of wealth and power. What is desperately needed are ways of reorganising the economy around principles of sustainability to keep within our boundaries of a single shared planet, and create democratically owned economic systems that will meet the needs of everyone, without giving way to the greed of the very few.

Gentlemen’s agreements have no place in a world of diverse economies, communities, peoples, races and nations. They are not fit for purpose in a global institution of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

The IMF, like the World Bank, needs to modernise, or it is in danger of outliving its usefulness to the world. Now must be the time to act. We need global institutions that are fit for where we are going and not for where we have come from. Let us safeguard the future with the right values and actions.

(The Guardian)

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EU finance ministers set to vote on Europe’s IMF candidate

EU finance ministers are to vote on Europe’s candidate to succeed Christine Lagarde as the next managing director of the IMF in the hope of breaking an impasse that has divided northern and southern eurozone capitals. 

 After weeks of negotiations that have failed to reach consensus, ministers from the EU’s 28 national capitals will vote via email on Friday morning on a shortlist of at least four names, according to officials involved in the process. 

The decision to hold a vote — an option that had initially been rejected by some capitals including Berlin — is designed to whittle down the possible candidates. It comes after Bruno Le Maire, the French finance minister who has been chairing negotiations, failed to broker a deal. 

European diplomats involved in the talks said the decision was designed to pressure some candidates into withdrawing from the race after none of the five candidates in the fray withdrew. 

The shortlist is made up of Jeroen Dijsselbloem, the former Dutch chair of the Eurogroup of EU finance ministers, Olli Rehn, Finland’s central bank governor, Nadia Calviño, Spain’s finance minister, and Kristalina Georgieva, the Bulgarian World Bank chief executive. 

Candidates must submit their names for inclusion in the ballot by Thursday evening; the vote will be held under the EU’s qualified majority rules in which bigger member states carry more weight. After an initial vote, there could be a second round run-off between the final two candidates. 

 The UK, which has a new government, asked for more time to consider whether to field a candidate but did not make a nomination before the deadline on Thursday evening. Former chancellor George Osborne threw his hat into the ring early in the contest but failed to attract much support. 

Meanwhile, the Canadian Bank of England governor Mark Carney is widely regarded as a competent candidate but deemed by some national capitals “not European enough” — despite holding British and Irish passports. 

Traditionally Europe has nominated the head of the IMF while the US chooses one of its nationals to lead the World Bank. Europe’s failure to unite on a candidate has raised expectations that alternative candidates, including Mr Carney, could have a chance. 

Europe’s attempt to settle on a candidate has descended into recriminations; EU capitals have remained intractably divided despite the urgency to unite around a candidate in order to prevent emerging economies from rallying around a non-EU candidate.

Southern countries such as Spain, Italy and Portugal have vehemently opposed the candidacy of Mr Dijsselbloem who has the backing of Germany. Northern capitals insist they should get the IMF pick as the eurozone’s economic establishment is dominated by southern European nationals. In a bid to win over his critics, Mr Dijsselbloem has been on a tour of southern capitals — visiting Madrid and Athens this week. 

The Dutchman came under fire from southern countries after he failed to apologise for comments where he said crisis-hit countries had wasted their money on “alcohol and women”. 

Ms Georgieva, who is from a non-eurozone country, has been pushed by France but has little support among larger EU countries. Her candidacy would require the IMF to change its rules, which prevent candidates over the age of 65 from applying, because she is above the age limit. 

France’s steering of the negotiations and support for Ms Georgieva has been criticised by some other EU countries, and forced Paris to enlist the help of Berlin in coordinating a common position. 

“We don’t know what their strategy is or what they want to achieve,” said one EU ambassador. The IMF has set a September deadline for nominations and hopes to conclude the process in early October.

(FT.com) 

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Acting IMF chief says ‘global economy is fragile,’ urging US and China end trade war

Acting IMF Managing Director David Lipton, in a veiled appeal Thursday on CNBC, called on the U.S. and China to come to an agreement and end their yearlong trade war.

Lipton told “Squawk on the Street ” that the global economic slowdown has been “certainly affected by the trade tensions,” though he did not mention the U.S. or China by name.

The latest round of trade talks between the world’s two biggest economies on Tuesday and Wednesday in Shanghai made little progress. Negotiations are set to resume in September in Washington.

Tensions between the White House and Chinese technology giants may also be contributing to the global economic slowdown, Lipton said.

“It’s time for the countries to have dialogue, to reach agreements, to try to find a way through this, since the global economy is fragile,” he said.

Global trade has been lower in the first six months of this year compared with the same period in 2018, Lipton said, adding that it’s a “time for vigilance.”

“Global trade is actually contracting, and that is not a good situation,” he warned.

Lipton said that if a global recession were to start, central banks, including the Federal Reserve, would be in weakened positions to fight it because of all the easy monetary policies.

Case in point, the Fed lowered interest rates by 0.25% on Wednesday.

Lipton moved into the acting director role after Christine Lagarde resigned as head of the International Monetary Fund. Largarde has been nominated to be the next president of the European Central Bank.

(CNBC)

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IMF and World Bank complicit in “climate debt trap” following Mozambique cyclones

In April, the IMF approved a $118 million loan to Mozambique in the wake of Cyclone Idai. The rapid loan was designed to address Mozambique’s “financing gaps arising from reconstruction needs”. At the time, Mozambique, the world’s sixth poorest country, was already experiencing an “illegitimate” debt crisis (see Observer Summer 2018), which has led to public spending per person falling by 30 per cent, according to UK-based civil society organisation (CSO) Jubilee Debt Campaign (JDC).

The IMF specified that, “reconstruction needs will have to be covered by the international community mostly in the form of grants”. Under the Paris Climate Agreement, governments have recognised this climate change-related financing need as ‘loss and damage’, as separate from finance for adaptation and mitigation. Yet, so far, the international community has failed to provide adequate finance for ‘loss and damage’, even as major natural disasters aggravated by climate change have materialised. This was evident with Dominica’s 2017 Hurricane Maria and Fiji’s 2016 Cyclone Winston, which left 77 and 87 per cent of their loss and damage unfunded respectively.

Instead, the IMF and World Bank are trying to plug this gap through loans, as was suggested in a June IMF discussion paper on resilience. The rising trend of financing climate change-related loss and damage through further indebting countries that have contributed least to climate change, is “a shocking indictment of the international community” according to Sarah-Jayne Clifton, of JDC , which is urging the IMF to write off debt to countries hit by Cyclone Idai.

To finance the estimated $300 billion per year that climate-related ‘loss and damage’ will cost developing countries within the next decade, UK-based CSO Stamp out Poverty and partners have proposed a “climate damages tax”, designed to make those most responsible pay, in order to provide new and additional finance for loss and damage.

(Bretton Woods)

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Madagascar Gets $44 Million Installment From IMF to Boost Growth

The International Monetary Fund released $43.7 million to Madagascar under a longer-term arrangement to support growth and control inflation in the Indian Ocean island nation.

The total amount given is now $304.5 million, the IMF said in a statement on its website. The objective is to support the country’s efforts to “reinforce macroeconomic stability and boost sustained and inclusive growth.”

According to IMF,Madagascar’s performance under its economic program supported by the Extended Credit Facility (ECF) arrangement has remained generally strong. Growth has been solid, inflation has been moderate, and the external position has remained robust.

Going forward, the authorities’ continued commitment to strong policies and an ambitious structural reform agenda will be key to mitigating internal and external risks, strengthening macroeconomic stability, and achieving higher, sustainable, and inclusive growth, the statement added.

(CGTN)

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IMF sees prolonged anaemic growth in euro zone, urges ECB stimulus

The euro zone economy faces rising risks stemming from trade tensions, Brexit and Italy, the International Monetary Fund said on Thursday in an annual report, where it also backed the European Central Bank’s (ECB) plans for fresh stimulus.

In the report, its last on the euro zone before the Fund’s managing director Christine Lagarde leaves in November to head the ECB, the IMF said the bank’s plans to keep monetary policy accommodative were “vital” as the currency bloc faces “a prolonged period of anaemic growth and inflation”.

The report also said the euro remained slightly undervalued despite having appreciated last year, confirming a Reuters report last month. It urged countries with large trade surpluses, including Germany and the Netherlands, to invest more to help rebalance the exchange rate.

Output growth in the 19-nation currency bloc will slow to 1.3% this year from 1.9% in 2018, the Fund said, rebounding to 1.6% in 2020.

The IMF’s forecasts were slightly better than those released on Wednesday by the European Commission, the EU’s executive arm, which saw euro zone growth at 1.2% this year and 1.4% in 2020.

However, the Washington-based Fund sees growing risks from global trade tensions, uncertainty caused by Britain’s unclear path to leave the EU and Italy’s vulnerability caused by its high debt, of which a large portion is held by domestic banks.

Although yields on Italy’s bonds have recently fallen, the report said, a change in market sentiment could not be ruled out. That could force Italy’s anti-austerity government to adopt a “sharp fiscal tightening” even if growth slows, with risks of spillovers into other euro zone countries, the Fund said, confirming a Reuters report last month.

ECB, PLEASEDON’T TIER

The IMF also predicted inflation to remain far off the ECB’s close-to-2% target at least until 2022, and forecast a 1.3% rate this year, in line with ECB estimates.

“The undershooting of the inflation objective calls for prolonged monetary accommodation,” the Fund said, welcoming the central bank’s plans to maintain its easy-money policy.

The Fund raised doubts about possible plans for a tiered deposit rate, which would lower the charge banks pay on some of their excess cash.

“A regime of tiering (..) would have a very small impact on aggregate bank profitability and a questionable impact on credit conditions,” the report said, adding that the costs of negative rates were likely outweighed by indirect positive effects.

In case of a further worsening of inflation expectations, the IMF said that more accommodation may be necessary, and could include a new asset purchase program.

The new purchases would need to maintain the same distribution across euro zone states and could be broadened to a larger set of eligible assets, the fund said.

Whereas “there may be only limited room to cut rates,” the IMF did not rule out new stimulus measures, “such as new, cheaper liquidity facilities for banks.”

The report said the ECB’s new round of cheap multi-year loans for banks, known as TLTRO 3, was a good move, but said it also risked expanding banks’ exposure to their home country debt.

To prevent this, it said, “it is appropriate for the ECB to shorten the maturity of the new TLTROs and to offer less generous pricing terms than on TLTRO II”.

In its report, the Fund also called for centralised supervision of money-laundering risks at banks in the euro zone, after a string of cases that exposed national shortfalls in countering financial crime.


(Euro News)

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IMF board approves $6 billion loan package for Pakistan

The International Monetary Fund Executive board approved a three-year, $6 billion loan package for Pakistan on Wednesday to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.

Board approval will allow immediate disbursement of around $1 billion, with the remainder to be phased in over the period of the program, subject to quarterly review, the IMF said, highlighting the need for Pakistan to agree to tough conditions for the coming three years.

Just as important as the package itself, approval will also unlock an additional $38 billion from Pakistan’s international partners over the program period.

“Pakistan is facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth,” IMF First Deputy Managing Director David Lipton said in a statement.

The program will require “decisive fiscal consolidation” and a multi-year plan to strengthen Pakistan’s notoriously weak tax system as well as large scale reforms that are likely to pile pressure on the government of Prime Minister Imran Khan.

Khan came to power last August, inheriting an economy plagued with problems. But he was initially deeply reluctant to turn to the IMF, which has provided more than 20 bailout packages to Pakistan over the decades.

However, despite securing billions of dollars in loans from friendly countries including China, Saudi Arabia and the United Arab Emirates, mounting economic headwinds forced his government to turn to the fund.

With foreign exchange reserves shrinking to only $7.3 billion, less than the equivalent of two months’ worth of imports, and the budget deficit set to top 7% of gross domestic product this year, Pakistan faces tough economic medicine to tackle problems that have been years in the making.

Dominated by agriculture and textiles and with a large informal sector that pays no tax, the economy has struggled to develop export industries and successive governments have spent heavily to defend an overvalued exchange rate.

The $60 billion China Pakistan Economic Corridor, launched in 2015, had promised a new beginning. Its infrastructure projects were intended to become a new foundation for growth, but they also required heavy imports of capital equipment, widening the trade deficit.

According to IMF forecasts, real GDP growth is expected to slow to 2.4% in the current fiscal year to June 2020, down from 3.3% in the year just ended.

The IMF’s terms call for a “flexible market-determined exchange rate” to help correct an unsustainable current account deficit and make industries more competitive, while trying to expand the tax base in a country where only 1% of the 208 million population file returns.

The central bank, which controls the currency, has hiked interest rates to 12.25% and slashed the rupee to historic lows against the dollar, but this has piled more pressure on households facing inflation running at almost 9%.

In addition, in a bid to cut public debt, the government has set ambitious tax and revenue plans, despite failing to meet the previous year’s targets and hiked prices in the creaking energy sector, where mounting debt backlogs have acted as a growing drain on government resources.

The program also calls for expanded social spending to protect the most vulnerable.

However, the combined package of belt-tightening measures has prompted anger from opposition parties, which say the government hesitated too long before turning to the fund. They have pledged a campaign of protests this month.

(Reuters)

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Pakistan unveils austerity budget in bid to secure IMF loan

Pakistan prime minister Imran Khan’s government unveiled an austerity budget as part of a rollout of harsh measures designed to secure a desperately needed IMF bailout and restore investor confidence. 

In an address to parliament on Tuesday evening, Hammad Azhar, the junior minister for revenue, outlined an ambitious tax revenue target of 5.55tn rupees ($36.5bn) — an increase of more than 30 per cent compared to last year — to balance its 7tn rupee budget. “Our main objective will be to increase tax collections,” said Mr Azhar, adding that only 2m people out of Pakistan’s 210m file income tax returns. “In this new Pakistan, we have to reform out tax collection system to move forward.” Projecting the fiscal deficit to be 7.1 per cent for the financial year to June 2020, Mr Azhar said the government wants to increase revenue by imposing a 17 per cent tax on ghee and poultry, and doubling a sugar tax to the same rate. As he delivered his speech, Mr Azhar was heckled by opposition polticians who held up banners saying “IMF budget is unacceptable”. The budget is part of a rollout of reforms undertaken by Mr Khan’s government as it struggles to contain a balance of payments crisis. Gross domestic product expanded by 3.3 per cent this year, well below the target of 6.2 per cent.

Pakistan and the IMF announced a $6bn preliminary loan agreement last month, but it is conditional on Pakistan implementing a series of austerity-driven measures. Mr Khan, who was elected prime minister last year, has had to postpone his dream of building an Islamic welfare state and has instead overseen government belt-tightening that is set to be a test for his administration. Pakistan has already increased gas and electricity tariffs and implemented a tax on mobile phone scratch cards, hitting consumers at a time when inflation is hovering above 7 per cent. Experts questioned whether Mr Khan’s government could deliver on its tax drive, given that previous governments have failed to increase revenues. “There is a very ambitious effort this time, whether it will succeed remains to be seen,” said Asad Sayeed, a Karachi-based economist.

“What they are trying to do is counter cyclical. If they succeed, they succeed at the expense of further dampening aggregate demand and slowing down the economy,” he added. “It’s the wrong time to do it, but the pressures are such that they will attempt it. They don’t have a choice.” Some Pakistanis expressed concern that the new measures would add further pressure on households that are already feeling squeezed. “Life has become unbearable since Imran Khan became the prime minister. I don’t have money to send my children to school now after paying for food, electricity, gas and clothes,” said Mubarak Khan, a taxi driver in Islamabad.

(FT.com)

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IMF and Ecuador reach agreement on $4.2 billion fund

The International Monetary Fund’s staff has agreed to support the economic policies of the Ecuadorean government with $4.2 billion over the next three years.

The arrangement is expected to be brought to the IMF Executive Board for its final approval in the coming weeks.

The IMF said the agreement is part of a broader effort by the international community that includes financial support of almost $6 billion over the next three years from the Development Bank of Latin America, the Inter-American Development Bank, the Latin American Reserve Fund and the World Bank.

“The government’s plan is aimed at creating a more dynamic, sustainable, and inclusive economy,” said Anna Ivanova, the IMF’s mission chief for Ecuador.

(The Province)

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IMF, World Bank see little progress in fighting corruption in Ukraine

The key donors of Ukraine – the International Monetary Fund (IMF) and the World Bank – note low effectiveness of the Ukrainian authorities in the fight against corruption.

“We see good and important progress in setting out institutions for tackling investment… Shortcomings in the judicial system and corruption are some of the key reasons why investment is so low in Ukraine. But, so far we see limited results in terms of fighting corruption. So far, no high-level official has been convicted of corruption despite the fact that Ukraine scores very unfavorably in corruption perception in the CIS,” Resident Representative of the IMF in Ukraine Goesta Ljungman said at the Fitch Ratings Annual Conference in Kyiv on Nov. 15.

World Bank Country Director for Belarus, Moldova, and Ukraine Satu Kahkonen also pointed out the acuteness of the issue.

“Governance issues – it’s basically a high level of corruption and the rule of man instead of the rule of law –have prevailed in Ukraine. And it’s keeping the investors out. We’re getting a lot of inquiries from various investors, they come to talk to us, and we see the opportunities in Ukraine, but time after time we hear the concerns about the governance, she said.

As reported, the IMF staff and Ukraine have reached an agreement on economic policies for a new 14-month Stand-By Arrangement (SBA), which will replace the arrangement under the Extended Fund Facility (EFF), approved in March 2015 and set to expire in March 2019.

The agreement is subject to approval by the fund’s management and approval by its Executive Board. The board’s meeting is expected to take place at the end of the year after the Verkhovna Rada adopts the national budget for 2019 in accordance with the recommendations of the IMF.

The World Bank under a request of the Ukrainian government is simultaneously preparing a policy-based guarantee (PBG) for the amount of $650 million to support key policy and institutional reforms to promote economic growth, fiscal sustainability, and improved governance. It is critical for the authorities to reach agreement on the fourth review of Ukraine’s program with the IMF, without which the proposed operation will be unable to proceed.

(Kyiv Post )

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IMF lifts UAE growth forecasts on oil, state spending

The International Monetary Fund lifted its forecasts for economic growth in the United Arab Emirates because of expectations that oil production and state spending will rise.

The Arab world’s second biggest economy is now likely to expand 2.9 percent this year and 3.7 percent next year, Natalia Tamirisa, IMF mission chief to the country, said late on Sunday. Gross domestic product grew 0.8 percent in 2017, preliminary UAE data shows.

In April, the IMF had predicted GDP would expand 2.0 percent this year and 3.0 percent next year.

A deal among global producers to cut oil output was eased in mid-2018, letting the UAE start raising output. Meanwhile, rebounding oil prices have given the government more money to spend; on Sunday, the UAE cabinet approved a 17.3 percent rise in the UAE federal budget for 2019 compared to this year.

This may compensate for sluggish growth in the private sector, which faces rising interest rates as U.S. monetary policy tightens and has also been hit by slumping property prices.

“Non-oil activity remains subdued amid continued corporate restructuring, real estate overhang, and tightening financial conditions,” Tamirisa said in a statement after annual consultations between the IMF and the UAE.

Last month, S&P cut its credit ratings for two Dubai state-owned companies, saying weakness in the Dubai economy had reduced the government’s ability to provide financial support to the firms if needed.

Tamirisa’s statement urged the UAE to monitor liabilities related to government enterprises more closely. Debt problems at Dubai state companies in 2009 triggered a financial crisis which nearly caused Dubai to default on its debt.

Tamirisa told Reuters, however, that Dubai government finances were not at present a source of concern.

The ratio of Dubai’s public debt to GDP is manageable at 30 percent, not high by international standards, and is expected to rise only moderately in the next couple of years as Dubai prepares to host the Expo 2020 world’s fair, she said.

Tamirisa also noted Dubai state firms had been restructuring and in some cases deleveraging, which left them more able to manage risks. “We do not expect pressures on Dubai finances.”

Plunging property prices helped to trigger the Dubai crisis of 2009, but Tamirisa said current UAE property price falls still looked fairly moderate from a long-term perspective.

She noted that since the crisis, authorities had taken steps to limit risks to the banking sector from property lending, and many measures were working well. “Overall, risks are manageable.”

The UAE’s consolidated fiscal deficit, including individual emirates as well as the federal government, is expected to remain stable at about 1.6 percent of GDP this year and turn to a surplus next year, the IMF said.

(Reuters)

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IMF ready to start bail-out talks as Angolan economic growth slows

The IMF said on Tuesday it will begin talks with Angola over providing financial support after the oil producing country’s economic growth is weaker than expected in 2018.

Africa’s second-largest oil producer has been hit by lower oil prices, which have caused a dollar liquidity squeeze. This has made it difficult for foreign firms to repatriate profits and has discouraged many from investing.

Angola’s finance ministry said on Monday it has sought financial support from the IMF but did not provide further details on how much money would be involved.

"We expect to initiate programme discussions with the Angolan authorities as soon as feasible," deputy MD of the IMF Tao Zhang said in a statement, which confirmed the fund has received a letter from the Angolan authorities to start talks.

The request came after the IMF was invited to Luanda in October to negotiate the programme, which will last for two years and then be extendable for one more.

"The IMF stands ready to help the authorities address Angola’s economic challenges by supporting their economic policies and reforms based on the government’s macroeconomic stabilisation programme and in the national development plan for 2018-22," Zhang said.

Angola’s economy has struggled because of lower oil prices, a situation made worse by declining production. Output is expected to fall to 1.5-million barrels per day in 2018, from 1.6-million in 2017 and 1.9-million a decade ago.

The IMF expects the country’s economy to grow 2.2% in 2018, well below an original government forecast of 4.9%.

President João Lourenço, who took over in 2017 after 38 years of rule by José Eduardo dos Santos, has said he wants to bring about an economic miracle in Angola by opening up to foreign investment and diversifying away from oil.

(Reuters) 

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IMF's Lagarde says global economic outlook darkening by the day

International Monetary Fund chief Christine Lagarde led an attack by global economic organizations on U.S. President Donald Trump’s “America First” trade policy on Monday, warning that clouds over the global economy “are getting darker by the day”.

Trump backed out of a joint communique agreed by Group of Seven leaders in Canada at the weekend that mentioned the need for “free, fair and mutually beneficial trade” and the importance of fighting protectionism.

The U.S. president, who has imposed import tariffs on metals, is furious about the United States’ large trade deficit with key allies. “Fair trade is now to be called fool trade if it is not reciprocal,” he tweeted on Monday.

In response, Lagarde unleashed a thinly veiled attack on Trump’s trade policy, saying challenges to the way trade is conducted were damaging business confidence, which had soured even since the weekend G7 summit.

The Washington-based IMF is sticking to its forecast for global growth of 3.9 percent both this year and next, she said, before adding: “But the clouds on the horizon that we have signaled about six months ago are getting darker by the day, and I was going to say by the weekend.”

“The biggest and darkest cloud that we see is the deterioration in confidence that is prompted by (an) attempt to challenge the way in which trade has been conducted, in which relationships have been handled and in which multilateral organizations have been operating,” Lagarde said.

The IMF managing director spoke after a meeting in Berlin with German Chancellor Angela Merkel and the chiefs of the World Trade Organisation (WTO), the World Bank, the Organisation for Economic Cooperation and Development (OECD), the International Labour Organization and the African Development Bank.

Merkel said on Sunday the EU would implement counter-measures against U.S. tariffs and described Trump’s rejection of the G7 communique as “sobering and a bit depressing”.

Investors are fearful of a tit-for-tat trade war, though markets were relatively calm on Monday after an early wobble.

(Reuters)

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Zimbabwe needs immediate economic reforms, warns IMF

Zimbabwe must act quickly to dig its economy out of a hole and access international financial aid, the International Monetary Fund has warned.

Government spending and foreign debt are too high and it needs structural reform, Zimbabwe mission chief Gene Leon told Reuters news agency.

The country's incoming leader Emmerson Mnangagwa has pledged to grow the economy and provide "jobs, jobs, jobs".

The once-thriving economy is now seen as a regional basket case.

"The economic situation in Zimbabwe remains very difficult," Mr Leon told Reuters.

He said high government spending should be reined in and Zimbabwe should address the large international debt it has defaulted on.

"Immediate action is critical to reduce the deficit to a sustainable level, accelerate structural reforms, and re-engage with the international community to access much needed financial support," Mr Leon said.

Robert Mugabe, who led Zimbabwe for 37 years, stepped down earlier this week under pressure from the military and his own Zanu-PF party.

His policies, including disastrous land reforms and printing too much money, are blamed for the calamitous state of Zimbabwe's economy.

On Thursday, Zimbabwe's main opposition called for deep-rooted political reform to dismantle the repressive apparatus that sustained Mr Mugabe's regime.

The Movement for Democratic Change (MDC) said it was cautiously optimistic that a Mnangagwa presidency would not "mimic and replicate the evil, corrupt, decadent and incompetent Mugabe regime", reported AFP news agency.

It is unclear whether Zanu-PF will govern alone ahead of scheduled elections next year, or whether a coalition government of national unity that includes opposition groups will be formed.

(BBC)

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Greece reportedly to get $12 billion in bailout cash after marathon negotiations with Eurozone finance ministers

Eurozone finance ministers reached a vital deal with Greece on Wednesday to start debt relief for Athens as demanded by the International Monetary Fund, and to unlock 10.3 billion euros ($12 billion) in bailout cash.

The US-based International Monetary Fund had said that easing Greece's huge debt burden was a condition for its continued participation in the bailout programme, despite opposition from Germany to giving Athens more favours.

The 19 ministers from the countries that use the euro met two days after Greek lawmakers passed yet another round of spending cuts and tax hikes demanded by its creditors.

After hammering out a deal at late night talks in Brussels, Eurogroup chief and Dutch Finance Minister Jeroen Dijsselbloem said the ministers had achieved a "major breakthrough".

"This is an important moment in the long Greek programme, an important moment for all of us, since last summer when we had a major crisis of confidence between us," Dijsselbloem told a press conference.

Greece urgently needs the next tranche of bailout money to repay big loans to the European Central Bank (ECB) and IMF in July, and has already fallen behind in paying for everyday government duties and wages.

Dijsselbloem said the ministers had agreed to unlock the 10.3 billion euros -- the windfall for completing the first formal review of its 86 billion euro bailout programme agreed last July.

Greece's creditors would pay a first 7.5 billion tranche in June and the rest in a series of later disbursements.

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International Monetary Fund faces pressure from Germany over Greece

In Europe’s battle with the International Monetary Fund over Greece, Germany has a way to win.

Germany, Europe’s dominant economic power, is leaning heavily on the IMF to accept hypothetical assurances that Greece’s debt burden will be addressed in the future if needed, rather than the definite and far-reaching debt relief that the IMF wanted, according to people familiar with the talks.

Berlin believes the IMF will have to accept what’s on offer, even if IMF staff are unhappy about it, these people say. The IMF is also under heavy European pressure to accept Greek austerity policies that are less specific than the cuts the IMF wanted. An accord hasn’t been reached yet, and some warn it could take several weeks.

The IMF’s Achilles' heel: Its board is controlled by Germany, other European Union countries, and the U.S., none of whom want a new crisis over Greece. That power reality weakens the IMF’s threat to pull out of the Greek bailout if it is unsatisfied.

The EU currently faces multiple challenges that threaten to unravel the 60-year-old project of European integration, including the U.K.’s referendum on leaving the bloc, the migration crisis, and the rise of EU-skeptic populist parties. Germany and other European governments have no appetite for another round of brinkmanship over Greece like in 2015, and want a deal in coming weeks that settles Greece’s future—at least for now.

Any deal is nevertheless likely to include some important concessions to the IMF. German Finance Minister Wolfgang Schäuble—who until recently adopted the hard-line stance in public that Greece needs no debt relief at all—has already permitted discussions to start this week about how eurozone loans to Greece might be restructured in the future.

A deal, which many European officials are now confident of reaching in late May or early June, is expected to include a promise by Germany and other eurozone countries to keep Greece’s debt burden below a certain threshold. That promise would entail easing the terms of Greece’s loans “if necessary.”

Crucially for Berlin, however, any decision to restructure the loans would be delayed until 2018—after Germany’s 2017 elections. Mr. Schäuble and his boss, Chancellor Angela Merkel, are determined to avoid, for now, any material change to Greece’s bailout plan that would force them to hold an awkward debate in Germany’s parliament, the Bundestag, according to people familiar with their thinking.

An accord on Greek debt and austerity would allow Athens to stay afloat this summer, when large bonds fall due. But it is unlikely to resolve the country’s seven-year-old debt crisis. Participants in the troubled bailout are braced for further drawn-out negotiations in coming years about Greece’s fiscal and other overhauls.

The main source of this year’s re-escalation of the Greek debt saga is Germany’s insistence that it cannot release any further bailout funds unless the IMF agrees to resume its own lending to Athens. IMF lending has been in limbo since last July, when IMF staff stated that “Greece’s public debt has become highly unsustainable.”

The IMF is also struggling to uphold its demands on Greece’s fiscal overhauls. IMF head Christine Lagarde, in a letter to eurozone finance ministers last week, rejected Greece’s proposed formula for extra savings in case fiscal targets are missed as “ad hoc,” “not very credible” and falling short of proper reforms to Greece’s public sector.

On Monday, however, Europe accepted a modified version of Greece’s proposal. The agreement leaves open how Greece would make its budget savings permanent. The IMF previously wanted Greece to legislate concrete measures, but is now likely to win only a looser commitment, leaving many policy specifics to be negotiated in the future, according to people close to the talks.

Here too, the IMF has come under pressure from its shareholders to dilute its demands on Athens.

Greece’s finance minister, Euclid Tsakalotos, has succeeded in convincing Mr. Schäuble that further cuts in pensions, as the IMF wanted, are politically beyond what the Greek government can deliver, say people familiar with the matter.

Germany brought the IMF into the first Greek bailout back in 2010, against the wishes of many other European countries, to help enforce tough overhauls in Greece. Keeping the IMF on board is politically and legally necessary if the Bundestag is to release further rescue loans for Athens, German officials say.

But German leaders have grown irritated with the IMF’s pessimistic forecasts about Greece’s finances, which have made it harder to reach a deal to keep Greece afloat this year. IMF forecasts have often been wrong, so its view can’t be treated as infallible, Berlin officials say.

Mrs. Lagarde’s letter last week countered such criticism. She argued that Europe’s assumptions about Greece’s future financial health are “unrealistic.”

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Refugees hold key to German economic growth, IMF says

The International Monetary Fund has urged Germany to do more to help find work for the hundreds of thousands of refugees in the country, saying such moves would help counter the effects of an ageing population.

The country should also make the most of low borrowing costs to bolster spending on infrastructure, the IMF said in its annual assessment of Europe’s largest economy, known as an article IV report.

The IMF said Germany’s economic growth this year was expected to “remain moderate as strong domestic demand buoyed by favourable fiscal and monetary conditions is offsetting weak external demand”.

But the potential medium-term growth was forecast to drop as the population aged. As such Germany needed to push through structural reforms, the IMF said.

One key concern was the potential pressure on Germany’s labour market. “The projected decline in the labour force due to ageing after 2020 calls for measures to boost labour supply in the medium term. Additional policies to integrate the current wave of refugees into the labour market, to broaden opportunities for full-time employment of women, and to extend working lives, would be important in this regard,” the IMF said.

“These reforms would not only counter the projected growth decline in the medium term but also stimulate private consumption and investment in the short term.”

German chancellor Angela Merkel’s open-door policy towards refugees fleeing the Syrian conflict resulted in Europe’s most populous state accepting nearly one in two asylum applications made by Syrians in EU member states last year.

The IMF praised how Germany had integrated refugees into its labour market and noted “many supportive measures have been taken and more are under way”. But more support was needed.

“The government has helpfully removed a number of restrictions to access to employment and training for asylum seekers and persons with a temporary suspension of deportation. Policy measures to allow recognition of informally acquired skills and facilitate more flexible forms of vocational training, with a strong on-the-job component and intensive language teaching, should be strengthened,” the IMF said.

It also called for further reforms, such as better childcare and after-school provision, to enable more women to work full-time. Pension changes to promote longer working lives would also help “bring the double dividend of increasing employment while reducing old-age poverty”, the IMF said.

The IMF’s call for more private and public investment in Germany chimes with its recent warnings that politicians cannot rely solely on low interest rates and money printing programmes from central banks to shore up growth. The IMF director, Christine Lagarde, warned last month that the global economy was more fragile and urged governments to pursue growth-friendly policies.

(The Guardian) 

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IMF threatens to pull out of Greek rescue

Hopes of an end to the impasse between Greece and its creditors have appeared to evaporate after asurprise intervention from the International Monetary Fund.

In a letter - leaked three days before eurozone finance ministers are scheduled to discuss how best to put the crisis-plagued country back on its feet – IMF chief Christine Lagarde issued her most explicit warning yet: either foreign lenders agree to restructure Greece’s runaway debt or the Washington-based organisation will pull out of rescue plans altogether.

“For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reachthem,” she wrote, lamenting the lack of structural reforms underlying Athens’ abortive adjustment programme so far.

Six years have elapsed since Greece, revealing a deficit that was four times higher than previously thought, received its first loans from a bailout programme that has since exceeded more than €240bn (£190bn) in emergency funding. Since a third €86bn bailout last summer, talks have been largely deadlocked.

Laying bare the differences of view prevailing among those consigned to keep the insolvent nation afloat, Lagarde said it was imperative that a lower primary surplus goal was achieved.

“We do not believe it will be possible to reach a 3.5% of GDP primary surplus [in 2018] by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending and counting on one-off measures as has been proposed in recent weeks.”

The IMF managing director’s intervention came after the surprise decision of the leftist-led government in Athens to put unpopular pension and tax changes to a vote on Sunday.

The prospect of such controversial measures being passed so urgently unleashed a wave of civil unrest with a 48-hour general strike by private and public sector unions bringing Greece to a standstill. Unionists said the measures were a “barbaric” eradication of hard-won rights and would be “the last nail in the coffin” for workers whose salaries have already been savaged by relentless rounds of gruelling austerity.

“They are the worst so far,” said Odysseus Trivalas, president of the public sector union ADEDY. “At some point, Greeks won’t be able to take anymore and there will be a social explosion.”

Rallies are planned to protest against measures that include instituting a national pension of €384 a month, raising social security contributions and increasing income tax for high earners. The overhaul of the pension system is among the most contentious reforms to date.

In a repeat of the drama that dominated the eurozone last year, Athens faces the spectre of default if its fails to honour maturing European Central Bank bonds and IMF loans in July.

Long overdue rescue loans worth €5bn are at stake. Receipt of the funds depends on completion of a first progress report, or evaluation, of the economy that has been drawn out for the past nine months and has stalled over lender disagreement. With discord over Athens’ ability to achieve fiscal targets, creditors recently upped the ante, demanding an additional contingency package of €3.6bn, the equivalent of 2% of GDP.

“While creditors fight this out, the political and social situation in Athens will deteriorate,” said Mujtaba Rahman, head of European analysis at risk consultancy Eurasia Group. “Time is running out for creditors to come to an agreement.”

The Greek prime minister, Alexis Tsipras, unexpectedly called Sunday’s vote before the conclusion of the negotiations in order to placate creditors and increase his bargaining power at Monday’s meeting of eurozone finance ministers.

In a first, the ministers are to discuss Greece’s debt load – which at more than 180% of GDP by far the highest in Europe – in addition to fiscal adjustment measures that could amount to 5% of GDP if contingency reforms are taken. The extra policies, as yet unspecified, will only be enacted if targets are not reached but, with its narrow three-seat majority, the Greek government has argued they will never get through parliament.

“Tsipras is looking to demonstrate to Greek voters that he and his government have done their part, and that the ball, namely that of debt relief, now lies squarely with the Europeans,” said Rahman.

“The subliminal message to creditors [in Sunday’s ballot] is therefore this: if you insist on contingency measures, you will end up with the collapse of my government and early elections.”

Along with Britain’s 23 June referendum on EU membership, that could end up being a “big headache” for Europe, he added.

(The Guardian)

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IMF warns this oil-rich Nordic country of growth risks

The International Monetary Fund (IMF) has warned Denmark, a country sandwiched between prosperous nations Sweden and Germany and one with considerable natural resources like most of Scandinavia, that its economy is facing a number of risks to its growth outlook.

"Denmark has a longstanding track record of sound economic and social policies," the IMF said in an assessment of the Danish economy published on Wednesday. "Yet output growth has been weak for an extended period."

The IMF noted that gross domestic product (GDP) growth in Denmark has been below that of peers like Sweden and Germany for a longer time and this has continued in the aftermath of the global financial crisis.

Last week, the Danish Finance Ministry lowered its GDP growth forecasts to 1.1 percent this year and 1.7 percent next year, down from a December forecast of 1.9 percent and 2.0 percent, Reuters reported. The IMF predicted growth of 1.3 percent in 2016 and 1.6 percent in 2017, however.

Comparing Denmark with its nearest northern European neighbors, Germany, to the south, expects to grow 1.7 percent in 2016 while Sweden to the north of Denmark said last month that it expects growth of 3.8 percent this year.

The IMF said the relative underperformance of Denmark partly reflected "slower growth of the working age population and a trend decline in the production of Danish North Sea oil and gas. But the persistent growth gap also reflects stubbornly low productivity growth which, over time, risks eroding the basis for living standards that today are among the highest in the world."

Denmark has considerable oil and gas wells in the North Sea and is among western Europe's largest oil and gas producers but a sharp drop in oil prices since mid-2014 has meant that it cannot rely on oil and gas revenues as much as it could before. Its other main exports are manufactured goods, food and agricultural products.

The IMF said that the "ongoing recovery is expected to remain gradual and muted" in Denmark and that private consumption continued to be the main driver of the economy, however, and that export growth was "likely to remain low, in line with the weak external environment."

What are the key risks?

The weaker global economic outlook was a particular worry for Denmark, according to the IMF which said that that "risks are tilted to the downside and could derail the recovery."

"In particular, lower-than-projected trading partner growth would adversely affect Denmark's outlook. Also, in view of high household debt and the sizable share of adjustable rate mortgages, volatility in global financial conditions leading to a spike in market interest rates could abruptly raise households' debt service and depress consumption."

House price rises in the country and especially Copenhagen drew another warning from the IMF that said "an unfettered continuation of recent rapid house price increases would raise the risk of a correction over the medium term."

(CNBC)

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IMF calls for depoliticisation of budget, steady increase in VAT

Amidst lingering crises in the 2016 budget, the International Monetary Fund, IMF, has proposed a “depoliticized” oil-based fiscal policy to shield the budget from controversies that stall smooth passage as well as hamper impactful implementation.

The multilateral financial institution made this proposal in the full report of its 2016 Article IV consultations published last weekend which shows further details of the staff report submitted to the executive board in late March, 2016, with the executive summary made public early last month.

The report failed to explain in details what it meant by depoliticisation neither did it allude to the long-drawn battle between the executive and the legislative arms of government.

In the latest report, the Fund, however, suggested a combination of the oil price over the past five years, the current price and the forward level over the next five years, together with a primary surplus target (before interest payments), to determine benchmark.

The 2016 budgeted benchmark was set at USD38 per barrel but before the budget could go through the passage process the international price had gone down to USD30 per barrel before rebounding to over USD46 previous week.

The report also calls for a steady increase in the standard tax rate with specific reference to the Value Added Tax, VAT, from 5.0 per cent to 7.5 per cent, noting that the Economic Community of West African States, ECOWAS,   require a minimum 10 per cent.

The Fund was basing its tax suggestions on the adverse effect of dependence on oil export for budget funding, a situation which has forced governments at all levels into borrowings.

The baseline fiscal projections for the federal government this year have non-oil revenue collection lower than in 2015 and a poor performance from independent revenue, of which the authorities have high hopes based upon the treasury single account, TSA.

In the first publication of the Article IV Consultation report the Fund had   favoured a more flexible foreign exchange policy to replace what it terms a “soft” or a “de facto peg”.

Central Bank of Nigeria, CBN, had imposed what the Fund views as exchange restrictions and a multiple currency practice under Article VIII of the Articles of Agreement.

The restrictions include the circular of foreign exchange restrictions covering imports of 41 items and the allocation of foreign exchange in line with the CBN’s own priorities.

(Vangurad)

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