Finances – International World Of Business

IDB Projects Latin America and Caribbean to Grow 2.1% in 2026, Amid Global Uncertainty and Persistent Challenges

wpdesigns — Wed, 04 Mar 2026 19:30:14 +0000

WASHINGTON — Latin American and Caribbean economies are projected to grow by an average of 2.1% in 2026, broadly in line with its long-run average, according to the Inter-American Development Bank’s (IDB) new macroeconomic report. The analysis underscores the resilience of the region’s economies and finds that accelerating inclusive growth will demand sound macroeconomic frameworks and bold structural reforms, alongside efforts to harness opportunities in technology and commodities, amid growing global risks.

The projection reflects a gradual slowdown compared to the region’s 2.2% growth in 2025.

According to “Resilience and Growth Prospects in a Shifting Global Economy,” labor markets in the region have sustained low unemployment, inflation has been largely contained, and investor confidence has improved, as reflected in historically low borrowing costs, with the median sovereign spread falling to 209 basis points at the end of 2025, down from 268 in 2019.

Despite these gains, growth remains insufficient to close income gaps, public-debt levels are high, and higher interest payments are placing increasing pressure on public finances and external accounts.

“Latin America and the Caribbean navigated global uncertainty with resilience, supported by fiscal and monetary frameworks that have helped contain inflation and sustain macroeconomic stability,” said Laura Alfaro Maykall, IDB chief economist and economic counselor. “Looking ahead, countries have to accelerate productivity-led growth, strengthen public finances, and seize new opportunities from digitalization, artificial intelligence, and the energy to raise living standards and build more resilient and inclusive economies.”

Opportunities in critical minerals

The region is uniquely positioned to turn rapid technological advances and global energy needs into engines of growth, the report underscores. Both trends rely heavily on critical minerals, which the region holds in abundance. A striking example is lithium; global demand is projected to rise between 470% and 800% by 2050. With roughly half of global lithium resources, about 35% of global copper reserves, and more than 20% of rare-earth reserves, the region is well positioned to become a strategic supplier in the value chains of the future.

The report cautions, however, that natural wealth does not guarantee lasting development. Capturing the opportunity in critical minerals will require stronger institutions, predictable rules, diverse and reliable energy, robust environmental governance, and disciplined fiscal frameworks.

Improvement in labor market conditions

Labor-market conditions improved markedly in 2025, with unemployment rates falling in most countries between June 2024 and June 2025, and joblessness nearing its lowest levels in recent years. While women’s participation in the labor force has surged, growth remains constrained by modest productivity gains and demographic shifts that are slowing the expansion of the working-age population.

As a result, sustaining growth will increasingly depend on productivity gains and upgrading skills. Expanding access to digital training and supporting workers’ transitions into higher-productivity occupations will be essential as labor markets evolve. The report highlights skills related to artificial intelligence as the fastest-growing in the region, with job postings referencing AI rising sharply by mid-2025, to 7% of total vacancies.

Fiscal policy is entering a challenging phase, requiring urgent strengthening of fundamentals. Public debt remains above pre-2020 benchmarks, interest payments are rising, and fiscal consolidation has weakened. Average public debt in the region stands at 59% of GDP, with projections ranging between 57% and 66% of GDP by 2028 under baseline and stress scenarios. Among policy actions, the report highlights the potential of digitalization to boost tax collection when paired with credible enforcement strategies.

While inflation has largely returned to target across much of the region, higher global interest rates, shifting expectations, and the growing use of digital and foreign-currency assets are reshaping the monetary-policy landscape. The report emphasizes the importance of reaching a neutral monetary stance — neither stimulating nor restraining economic activity — while developing flexible tools to absorb external shocks.

The report concludes that policies promoting stronger competition, improved skills formation, deeper regional integration, and the development of more sophisticated regional value chains can significantly boost productivity — and should remain at the center of Latin America and the Caribbean’s policy agendas.

About the IDB

The Inter-American Development Bank (IDB), a member of the IDB Group, is devoted to improving lives across Latin America and the Caribbean. Founded in 1959, the Bank works with the region’s public sector to design and enable impactful, innovative solutions for sustainable and inclusive development. Leveraging financing, technical expertise, and knowledge, it promotes growth and well-being in 26 countries. Visit our website: https://www.iadb.org/en.

Fiscal Policy Can Help Broaden the Gains of AI to Humanity

Press Room Team — Wed, 23 Oct 2024 19:36:33 +0000

New generative-AI technologies hold immense potential for boosting productivity and improving the delivery of public services, but the sheer speed and scale of the transformation also raise concerns about job losses and greater inequality. Given uncertainty over the future of AI, governments should take an agile approach that prepares them for highly disruptive scenarios.

A new IMF paper argues that fiscal policy has a major role to play in supporting a more equal distribution of gains and opportunities from generative-AI. But this will require significant upgrades to social-protection and tax systems around the world.

How should social-protection policies be revamped in the face of disruptive technological changes from AI? While AI could eventually boost overall employment and wages, it could put large swaths of the labor force out of work for extended periods, making for a painful transition.

Lessons from past automation waves and the IMF’s modeling suggest more generous unemployment insurance could cushion the negative impact of AI on workers, allowing displaced workers to find jobs that better match their skills. Most countries have considerable scope to broaden the coverage and generosity of unemployment insurance, improve portability of entitlements, and consider forms of wage insurance.

At the same time, sector-based training, apprenticeships, and upskilling and reskilling programs could play a greater role in preparing workers for the jobs of the AI age. Comprehensive social-assistance programs will be needed for workers facing long-term unemployment or reduced local labor demand due to automation or industry closures.

To be sure, there will be important differences in how AI impacts emerging-market and developing economies—and thus, how policymakers there should respond. While workers in such countries are less exposed to AI, they are also less protected by formal social-protection programs such as unemployment insurance because of larger informal sectors in their economies. Innovative approaches leveraging digital technologies can facilitate expanded coverage of social-assistance programs in these countries.

Should AI be taxed to mitigate labor-market disruptions and pay for its effects on workers? In the face of similar concerns, some have recommended a robot tax to discourage firms from displacing workers with robots.

Yet, a tax on AI is not advisable. Your AI chatbot or co-pilot wouldn’t be able to pay such a tax—only people can do that. A specific tax on AI might instead reduce the speed of investment and innovation, stifling productivity gains. It would also be hard to put into practice and, if ill-targeted, do more harm than good.

So, what can be done to rebalance tax policy in the age of AI? In recent decades, some advanced countries have scaled up corporate tax breaks on software and computer hardware in an effort to drive innovation. However, these incentives also tend to encourage companies to replace workers through automation. Corporate tax systems that inefficiently favor the rapid displacement of human jobs should be reconsidered, given the risk that they could magnify the dislocations from AI.

Many emerging market and developing countries tend to have corporate tax systems that discourage automation. That can be distortive in its own way, preventing the investments that would enable such countries to catch up in the new global AI economy.

How should governments design redistributive taxation to offset rising inequality from AI? Generative-AI, like other types of innovation, can lead to higher income inequality and concentration of wealth. Taxes on capital income should thus be strengthened to protect the tax base against a further decline in labor’s share of income and to offset rising wealth inequality. This is crucial, as more investment in education and social spending to broaden the gains from AI will require more public revenue.

Since the 1980s, the tax burden on capital income has steadily declined in advanced economies while the burden on labor income has climbed.

To reverse this trend, strengthening corporate income taxes could help. The global minimum tax agreed by over 140 countries, which establishes a minimum 15-percent effective tax rate on multinational companies, is a step in the right direction. Other measures could include a supplemental tax on excess profits, stronger taxes on capital gains, and improved enforcement.

The latest AI breakthroughs represent the fruit of years of investment in fundamental research, including through publicly funded programs. Similarly, decisions made now by policymakers will shape the evolution of AI for decades to come. The priority should be to ensure that applications broadly benefit society, leveraging AI to improve outcomes in areas such as education, health and government services. And given the global reach of this powerful new technology, it will be more important than ever for countries to work together.

IDB, IDB Invest and IDB Lab Launch 2024 Report on Results and Impact of Operations

Press Room Team — Thu, 10 Oct 2024 21:07:36 +0000

Study highlights 75% compliance with Corporate Results Framework 2020-2023 goals

The Inter-American Development Bank (IDB), IDB Invest and IDB Lab launched their “Development Effectiveness Overview (DEO) 2024” report, which analyzes the results and impacts of their operations during 2023, showing that more than 34 million people benefited from health services, 3.4 million women were included in economic empowerment initiatives, and 6.6 million citizens participated in employment support initiatives in Latin America and the Caribbean. These results support the achievement of the U.N. Sustainable Development Goals.

The report was released in the midst of a renewed approach to development effectiveness as the IDB Group seeks to reinforce the importance of impact within its structure, operations, organizational culture, and incentives in order to achieve greater impact and scale.

The DEO highlights that over the past four years the IDB made major strides in aligning its new projects with strategic priorities, dramatically improving its ability to support institutional capacity, gender equality and diversity, and climate change mitigation and adaptation.

The report also shows that 75% of the targets set out in the 2020-2023 Corporate Performance Framework have been met and a further 15% have shown improvement over pre-2020 levels.

Generating impact in the region

DEO 2024 examines the performance of projects during implementation and closure, and highlights progress towards comprehensive reform to redefine the IDB’s Development Effectiveness Framework.

It also shows how IDB Invest’s Impact Management Framework has proven its effectiveness in assessing and monitoring operations throughout their life cycle. For the first time, the DEO, through a sector- and region-level analysis, demonstrates how IDB Invest has strengthened its ability to examine performance data concerning both monitoring and evaluation, to identify the determinants of performance and better manage the portfolio to generate more impact.

As for IDB Lab, the report underscores its transformation to consolidate itself as an investment vehicle to support early-stage innovations and ecosystems in Latin America and the Caribbean. In addition, the study looks into the scaling potential of the innovations supported by IDB Lab and the lessons learned from failed projects, two fundamental issues for an innovation lab.

The DEO also explores lessons learned from the work of the IDB, IDB Invest and IDB Lab, and learnings related to social protection, human capital development, access to essential services and economic inclusion, along with gender equality and inclusion of diverse groups in the region. The report also includes a look ahead to the ongoing efforts under the umbrella of IDBStrategy+ to further strengthen the focus on the impact of the Group’s three institutions.

For more information, you can download the fu

Publication Date

October 8, 2024

About the IDB
The Inter-American Development Bank (IDB), a member of the IDB Group, is devoted to improving lives across Latin America and the Caribbean. Founded in 1959, the IDB works with the region’s public sector to design and enable impactful, innovative solutions for sustainable and inclusive development. Leveraging financing, technical expertise and knowledge, it promotes growth and well-being in 26 countries. Visit our website www.iadb.org/en.

About IDB Invest
IDB Invest, a member of the Inter-American Development Bank Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $21 billion in assets under management and over 394 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries. Visit our website www.idbinvest.org/en.

About IDB Lab
IDB Lab is the innovation and venture capital arm of the Inter-American Development Bank Group. We discover new ways to drive social inclusion, environmental action and productivity in Latin America and the Caribbean. IDB Lab leverages financing, knowledge and connections to support early-stage entrepreneurship, foster new technologies, activate innovative markets and catalyze existing sectors. Visit our website www.idblab.org.

The role of space agencies in boosting R&D and business development

Press Room Team — Sun, 22 Sep 2024 20:48:41 +0000

The space sector has historically been a source of innovation and technological change. Today, we are facing the New Space context, where private sector participation in space activities has grown exponentially. This is why many space agencies have adapted their roles in order to maximize the impact of their operations on the economies of their respective countries. To this end, they have adopted strategies and developed instruments to drive innovation and foster business development through interaction with the private sector. In this way, the New Space is driving a redefinition of the role of space agencies in the global economy, which in many cases are moving from being isolated government entities to active players in the promotion of public-private collaboration.

A recent study developed with the Inter-American Development Bank (IDB) explored the practices of space agencies in Canada, France, Germany, India, Italy, Japan, Korea, Spain and India, revealing how these entities seek to address the challenges and take advantage of the opportunities of this new environment. The study highlights that the different agencies must effectively adjust their strategies in response to their own resources and capabilities, adapting their approaches according to the particularities of each country.

Antes de la era del New Space, la actividad espacial se regía, principalmente, por un paradigma dominado por programas gubernamentales de gran escala, donde el acceso al espacio estaba reservado para unas pocas naciones y empresas altamente especializadas. Hoy, los avances tecnológicos han reducido significativamente los costos de acceso al espacio, democratizando las oportunidades para que nuevas empresas y actores privados participen en la industria. Este proceso ha sido acelerado por la proliferación de tecnologías disruptivas que han permitido que más actores participen en la economía espacial, como los satélites pequeños, las plataformas de lanzamiento reutilizables, el uso de herramientas de machine learning, y la utilización de componentes “off-the-shelf” más baratos.

Instrumentos y recursos para impulsar la innovación y el desarrollo empresarial

Los recursos y activos de agencias espaciales que buscan vincularse con el sector privado no solo incluyen la capacidad técnica y científica, sino también el know-how y la experiencia de décadas de misiones espaciales que se articulan en instrumentos orientados a solucionar desafíos a los que se enfrentan las empresas.

Uno de los aspectos clave que destaca el estudio es la diversidad de recursos que las agencias espaciales ponen a disposición de las empresas para fomentar su innovación y desarrollo (I+D). Estos recursos incluyen financiación de investigaciones, desarrollo de producto, costos de producción, y también abarcan una amplia gama de propuestas que incluyen las colaboraciones público-privadas y el acceso a infraestructuras e instalaciones de prueba a tecnologías avanzadas, conocimientos técnicos especializados y la experiencia adquirida en misiones anteriores. Así, las agencias facilitan la creación de sinergias entre los sectores público y privado, impulsando las actividades de innovación y apoyando a las empresas con entornos donde pueden probar y perfeccionar sus tecnologías antes de llevarlas al mercado.

Promoviendo el desarrollo empresarial a través de la cooperación

El alcance de las iniciativas de las agencias espaciales no se limita a las empresas del sector espacial, ya que muchos instrumentos están diseñados para crear encadenamientos y derrames que beneficien a empresas en otros sectores productivos. De hecho, la conexión de la tecnología espacial con otros sectores no es nueva, y existen vastos antecedentes sobre su adaptación y aplicación exitosa en sectores como la agricultura, diversos sectores industriales, la medicina y la gestión de recursos naturales.

Los instrumentos que se utilizan para lograr estos objetivos varían en complejidad y alcance. Por un lado, existen iniciativas puntuales que abordan necesidades específicas, como la solución de problemas técnicos, o incluso comerciales, asociados a la implementación de negocios basados en tecnología espacial. Entre estas iniciativas se destacan los programas de mentoría y capacitación. Por otro lado, hay programas más integrales, que incluyen desde la incubación de startups hasta la asociación entre las agencias y empresas privadas para llevar adelante emprendimientos basados en tecnología espacial.

La importancia de los contextos y capacidades locales

El potencial de adopción de estos instrumentos está condicionado por las características específicas de cada país y ecosistema productivo, y por otros factores como lo son el tipo de activos, recursos disponibles, experiencia acumulada y capacidades tecnológicas de las agencias espaciales. Estas últimas deben adaptar sus estrategias a las realidades locales, asegurándose de que las intervenciones estén alineadas con las fortalezas y debilidades del ecosistema empresarial y tecnológico de cada país, siendo esencial esta flexibilidad para potenciar los resultados de las iniciativas.

Mecanismos de apoyo y colaboración hacia un ecosistema de innovación

Dentro del abanico de mecanismos que utilizan las agencias espaciales para fomentar la innovación, la realización conjunta de actividades de I+D se destaca por permitir a las empresas trabajar directamente con expertos en tecnología espacial, acelerando el desarrollo de soluciones innovadoras. Las agencias también ofrecen licencias de tecnología, programas de formación, servicios de testeo y la utilización de infraestructuras especializadas.

Estos mecanismos, además de proporcionar a las empresas acceso a recursos valiosos, fomentan la colaboración y el intercambio de conocimientos, elementos que pueden potenciar el crecimiento del sector empresarial y de las startups tecnológicas al fortalecer sus capacidades internas y aumentar sus oportunidades de éxito en el mercado. En cuanto a los instrumentos ofrecidos por las agencias para apoyar a startups se destacan los programas de incubación y de mentorías ya que ofrecen entornos donde las empresas pueden desarrollar sus ideas con el apoyo de expertos que serían inaccesibles de otra manera, tomar visibilidad y acceder a las redes de contactos de las agencias.

De este modo, las agencias espaciales están en una posición ventajosa para propiciar un ecosistema de innovación que trascienda el sector espacial. Al alinear sus objetivos con las necesidades y oportunidades de esta nueva etapa de la actividad espacial, las agencias pueden potenciar el crecimiento de nuevas empresas tecnológicas y contribuir al desarrollo económico en una variedad de sectores. Este enfoque estratégico no solo beneficia al sector espacial, sino que también tiene un impacto positivo en la economía en general.

Conclusiones para la región

La cooperación es fundamental para maximizar el aprovechamiento de las oportunidades que ofrece el sector espacial para el sector privado. Sirve a su vez para asegurar que los beneficios de la innovación y el desarrollo tecnológico se distribuyan de manera amplia en la sociedad y permitan mejorar la competitividad de su ecosistema empresarial.

En una era en la que la tecnología y la innovación son motores clave del crecimiento económico, las agencias espaciales tienen un papel crucial que desempeñar. La adopción de enfoques que consideren sus capacidades y las realidades locales, permitirá a estos países acercarse a la frontera y, potencialmente, ser protagonistas de la nueva era espacial.

Using a mix of regulatory and soft law tax measures to combat illicit financial flows

Press Room Team — Thu, 19 Sep 2024 23:40:06 +0000

Illicit financial flows (IFFs) are often associated with illegal activities, such as money laundering, tax evasion, corruption, smuggling, human trafficking, and terrorism financing. Combatting IFFs is high on the agenda of international policy makers, and it is one of the targets of the United Nations (UN) Sustainable Development Goals (SDGs). Developing countries are most vulnerable to IFFs, making it a particularly urgent matter for development finance and multilateral development banks such as the International Finance Corporation (IFC).

IFFs can deprive developing countries of the financial resources needed for structural transformation and sustainable growth and, in doing so, undermine investment and business confidence. Africa alone is estimated to have lost over $1 trillion to IFFs over the past 50 years—a sum equivalent to the total official development assistance received by Africa over the same time frame. The continent continues to grapple with an estimated annual loss of $50 billion due to IFFs, hindering its development and making it imperative for local and global stakeholders to take action.

The fight against IFFs demands a comprehensive and multifaceted strategy that embraces a combination of government-led approaches and private sector–led voluntary initiatives. For the greatest impact, these should employ a mix of regulatory and “soft law” measures. Tax due diligence conducted by the IFC on its investee companies and their international group structures is among the relevant soft law measures available in the international community’s toolbox to stem IFFs.

What are IFFs?

There is no uniform global definition of IFFs. For the purposes of measuring IFFs in the context of the SDG targets, the UN defines IFFs as “[f]inancial flows that are illicit in origin, transfer or use, that reflect an exchange of value and that cross country borders.”⁴ The World Bank Group (WBG), which includes the IFC as its private sector arm, defines IFFs as cross-border flows “associated with activities that are deemed illegal in the local jurisdiction.” Correspondingly, the WBG’s Intermediate Jurisdictions Policy defines IFFs as “funds illegally earned, transferred, or used that cross border.”

The categories of illegal activities that give rise to IFFs include illegal tax and commercial practices, illegal markets (trade in illegal goods and services), and other exploitation-type of activities and financing of crime and terrorism. Some IFF definitions also extend to cross-border flows generated by tax and commercial activities that are not illegal per se but illicit (see figure 1). One example of this cited by the UN is “aggressive tax avoidance” activities, such as manipulation of transfer pricing, treaty shopping, reliance on hybrid instruments and entities, as well as strategic location of debt and intellectual property, which aim to exploit weaknesses of the international tax framework to lower the tax burden of cross-border businesses in an artificial manner.⁷ The WBG Intermediate Jurisdictions Policy acknowledges the interrelationship between taxes and IFFs, through its purpose to “mitigate the risks of IFFs, tax evasion, and abusive tax planning in WBG Private Sector Operations.”

Figure 1: Categories of Activities That May Generate IFFs

How can tax measures help to address IFFs?

Tackling the illegal act of tax evasion is, by itself, a way of combatting IFFs as funds that move offshore to evade taxes ultimately meet the definition of IFFs discussed above. Similarly, under the broader definition of IFFs posited by the UN, to the extent that IFFs encompass funds originating from abusive tax planning, anti-abuse tax measures should equally assist in curbing IFFs.

Beyond this, tax measures that tackle tax evasion and other tax abuses can also have an “indirect” effect on curbing a broader spectrum of IFFs that are not necessarily driven by tax considerations. In particular, the techniques that facilitate tax evasion are often employed to facilitate other IFFs, such as payments associated with money laundering, corruption, bribery, and fraud.⁹ For instance, a recent IMF working paper draws on the close synergies between tax evasion and money laundering, which rely on similar obfuscation techniques, and advocates a whole-of-government approach to tackling both crimes. The overlapping techniques mentioned include complex cross-border structures and transactions utilizing offshore and noncooperative secrecy jurisdictions to obscure the financial trail of funds, as well as shell companies and other multi-layered legal structures to hide the true beneficial owners.¹⁰

However, such regulated tax measures form only part of the solution for addressing IFFs, and “soft law” measures focusing on voluntary compliance and private sector–led initiatives have an important role to play. At the IFC, tax due diligence is an example of soft measures that scrutinize the tax behaviors of private sector investee companies and, in doing so, help to prevent and mitigate IFF risks through: (i) applying the Global Forum on Transparency and Exchange of Information for Tax Purposes international tax transparency standards and outcomes of its peer reviews to determine an offshore jurisdiction’s eligibility in an investee group structure; (ii) reviewing investee companies’ tax strategies and encouraging adoption of responsible tax practices, such as The B Team’s Responsible Tax Principles; and (iii) examining particular tax risk flags that overlap with IFF risk. This multipronged approach allows the IFC to build a holistic picture of investee groups and, in doing so, better assess and mitigate integrity concerns, whether stemming from tax abuse, money laundering, or IFFs more generally.

ARTICLE: Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform

Press Room Team — Fri, 05 Jul 2024 00:02:23 +0000

The global economy avoided what could have been a systemic debt crisis during the turbulence of recent years, but vulnerabilities remain amid high debt servicing costs that pose an important challenge for low and middle-income countries. Some may yet confront major tests.

When countries do falter on debt, restructuring is critical to containing the damage. Restructuring should be as quick as possible because delays deepen distress by making adjustment harder and adding to the costs for both debtors and creditors. Longer waits leave people suffering when they lose jobs and face increasing poverty, while creditors watch their losses mount as they wait for recovery. It’s a lose-lose situation.

While some sovereign restructurings have faced significant delays, we are working with our counterparts to accelerate the process. The progress achieved so far shows how the world can work together to reduce risks.

Common Framework has started to deliver

The Common Framework, which brings creditor countries together to help restructure debt where needed, has started to deliver. How? By reducing the time from IMF staff level agreement – a key step toward an IMF program – to delivering the financing assurances from official creditors required for program approval. This means that the Fund can move in more quickly to provide much needed financial assistance to the country. For example, Ghana’s agreement this year took five months to cover those steps, roughly half the time it took for Chad in 2021 and Zambia in 2022. Ethiopia’s talks are likely to be faster, closer to the customary two or three months.

These improvements are possible in part because stakeholders have developed more experience working together, including with non-traditional official creditors like China, India, and Saudi Arabia. Earlier cases presented creditor coordination challenges. But becoming more familiar with the process helped parties better know what to expect, building trust, and allowing creditors to overcome more easily what had previously been stumbling blocks.

We are also seeing progress in accelerating debt restructuring for emerging market countries outside of the Common Framework. Sri Lanka’s case was faster than the process for Suriname that preceded it in 2021, reflecting improvements in creditor coordination and improved understanding of safeguards and assurances.

Global Sovereign Debt Roundtable has been effective

The IMF, World Bank and the Presidency of the Group of Twenty introduced the Global Sovereign Debt Roundtable (GSDR) early last year to help overcome various disagreements on technical issues. Discussions among creditors and debtors have made progress on several key aspects, including comparability of treatment among creditors, defining what debts are included in the restructuring, information sharing, and processes and timelines. This has helped accelerate ongoing restructuring cases and build good foundations for the future. That progress, summarized in a recent report, is a big step forward.

IMF is reforming its debt policies

The IMF is building on our sovereign debt restructuring experience to make the process even faster. The Executive Board in April adopted significant reforms to our debt policies:

They provide tools that generally would allow IMF program approval within two or three months of a staff-level agreement, including through safeguards that help us proceed in cases where there are coordination problems among creditors. Approval in principle for programs, which enables disbursement as soon as financing assurances materialize, will increase transparency and help complicated cases move along on such a schedule.
They create a new procedure for establishing financing assurances, which should provide greater flexibility over time. Accordingly, the Fund would assess that a “credible official creditor process” is underway, based on actions by the creditors and accounting for the creditor’s track record in delivering. This will eventually be considerably faster than the present practice of waiting for formal letters.

These reforms will facilitate faster engagement with the debtor country—a key step since delays can intensify a crisis. The reforms will also provide more information to creditors to help them reach restructuring decisions faster (either because the program can be approved more quickly, or through approval in principle). This would include information about our economic projections, policy commitments, and our debt sustainability analysis. This complements other Fund efforts to improve transparency and share information in a timely manner with all stakeholders involved in the restructuring process.

High geopolitical tensions have made global economic cooperation more difficult. Yet we can take heart from the fact that creditors and Fund shareholders more broadly are coming together unanimously to assist countries that need debt restructuring. This is critical to further improve the international debt architecture which is a key priority, especially given the high debt levels and prohibitive debt servicing costs in some countries.

What’s next

As we strive to reduce delays, it is important to note that sovereign defaults and requests for comprehensive debt relief have tapered off since 2021 and 2022. The last notable request was Ghana’s more than a year ago. Markets have reopened earlier this year for low-income countries, with Benin, Cote d’Ivoire, Kenya, and Senegal having raised money from foreign investors. Emerging market bond spreads are back to pre-pandemic levels, signaling investor confidence that those countries can repay debt.

However, spreads for about 15 percent of emerging markets are at distressed levels, underscoring vulnerability. Likewise, low-income countries still need to refinance about $60 billion of external debt each year over the next two years—about triple the average in the decade through 2020. Around 15 percent of low-income countries are in debt distress and another 40 percent are at high risk of distress.

So, progress on debt must continue. The GSDR will continue to address remaining key restructuring challenges such as how official and private creditor processes can move in parallel, and ways to address liquidity challenges. This could involve a potential menu of options for countries including the use of the Common Framework for coordinated liquidity relief; liquidity management operations such as debt swaps or buy backs; and ways to support new inflows including through risk-sharing instruments.

The IMF will distill our policies in a sovereign debt handbook that we plan to publish later this year. This clarity should further underpin more efficient processes. We are also reviewing the debt sustainability framework for low-income countries, jointly with the World Bank, to ensure it remains fit for purpose.

Easing the liquidity squeeze

More will be needed to address debt challenges and avoid distress amid elevated interest rates and financing needs, against a backdrop of enormous long-term financing needs for economic development and to cope with climate change.

Borrowing countries, creditors, and the international community have roles to play. Borrowers must foster economic growth and boost government revenues so that they can create space to finance development and climate-related spending while maintaining debt on a sustainable path. Given that policy reforms in borrowing countries will take time to deliver results, official creditors should consider mobilizing more funding at reduced cost, particularly grants. The Fund will continue to help support these efforts and provide adequate financing, including through the review of our concessional facilities.

A forthcoming blog will elaborate on how the international community must keep working together to help ease the burden of borrowing and alleviate the liquidity squeeze facing many emerging and low-income countries.

Dollar Dominance in the International Reserve System: An Update

Press Room Team — Fri, 28 Jun 2024 03:21:59 +0000

The US dollar continues to cede ground to nontraditional currencies in global foreign exchange reserves, but it remains the preeminent reserve currency

Dollar dominance—the outsized role of the US dollar in the world economy—has been brought into focus recently as the robustness of the US economy, tighter monetary policy and heightened geopolitical risk have contributed to a higher greenback valuation. At the same time, economic fragmentation and the potential reorganization of global economic and financial activity into separate, nonoverlapping blocs could encourage some countries to use and hold other international and reserve currencies.

Recent data from the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) point to an ongoing gradual decline in the dollar’s share of allocated foreign reserves of central banks and governments. Strikingly, the reduced role of the US dollar over the last two decades has not been matched by increases in the shares of the other “big four” currencies—the euro, yen, and pound. Rather, it has been accompanied by a rise in the share of what we have called nontraditional reserve currencies, including the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won, Singaporean dollar, and the Nordic currencies. The most recent data extend this trend, which we had pointed out in an earlier IMF paper and blog.

These nontraditional reserve currencies are attractive to reserve managers because they provide diversification and relatively attractive yields, and because they have become increasingly easy to buy, sell and hold with the development of new digital financial technologies (such as automatic market-making and automated liquidity management systems).

This recent trend is all the more striking given the dollar’s strength, which indicates that private investors have moved into dollar-denominated assets. Or so it would appear from the change in relative prices. At the same time, this observation is a reminder that exchange rate fluctuations can have an independent impact on the currency composition of central bank reserve portfolios. Changes in the relative values of different government securities, reflecting movements in interest rates, can similarly have an impact, although this effect will tend to be smaller, insofar as major currency bond yields generally move together. In any event, these valuation effects only reinforce the overall trend. Taking a longer view, over the last two decades, the fact that the value of the US dollar has been broadly unchanged, while the US dollar’s share of global reserves has declined, indicates that central banks have indeed been shifting gradually away from the dollar.

At the same time, statistical tests do not indicate an accelerating decline in the dollar’s reserve share, contrary to claims that US financial sanctions have accelerated movement away from the greenback. To be sure, it is possible, as some have argued, that the same countries that are seeking to move away from holding dollars for geopolitical reasons do not report information on the composition of their reserve portfolios to COFER. Note, however, that the 149 reporting economies make up as much as 93 percent of global FX reserves. In other words, non-reporters are only a very small share of global reserves.

One nontraditional reserve currency gaining market share is the Chinese renminbi, whose gains match a quarter of the decline in the dollar’s share. The Chinese government has been advancing policies on multiple fronts to promote renminbi internationalization, including the development of a cross-border payment system, the extension of swap lines, and piloting a central bank digital currency. It is thus interesting to note that renminbi internationalization, at least as measured by the currency’s reserve share, shows signs of stalling out. The most recent data do not show a further increase in the renminbi’s currency share: some observers may suspect that depreciation of the renminbi exchange rate in recent quarters has disguised increases in renminbi reserve holdings. However, even adjusting for exchange rate changes confirms that the renminbi share of reserves has declined since 2022.

Some have suggested that what we have characterized as an ongoing decline in dollar holdings and rise in the reserve share of nontraditional currencies in fact reflects the behavior of a handful of large reserve holders. Russia has geopolitical reasons to be cautious about holding dollars, while Switzerland, which accumulated reserves over the last decade, has reason to hold a large fraction of its reserves in euros, the Euro Area being its geographical neighbor and most important trading partner. But when we exclude Russia and Switzerland from the COFER aggregate, using data published by their central banks from 2007 to 2021, we find little change in the overall trend.

In fact, this movement is quite broad. In our 2022 paper, we identified 46 “active diversifiers,” defined as countries with a share of foreign exchange reserves in nontraditional currencies of at least 5 percent at the end of 2020. These include major advanced economies and emerging markets, including most of the Group of Twenty (G20) economies. By 2023, at least three more countries (Israel, Netherlands, Seychelles) have joined this list.

We also found that financial sanctions, when imposed in the past, induced central banks to shift their reserve portfolios modestly away from currencies, which are at risk of being frozen and redeployed, in favor of gold, which can be warehoused in the country and thus is free of sanctions risk. That work also showed that the demand for gold by central banks responded positively to global economic policy uncertainty and global geopolitical risk. These factors may lie behind the further accumulation of gold by a number of emerging market central banks. Before making too much of this trend, however, it is important to recall that gold as a share of reserves still remains historically low.

In sum, the international monetary and reserve system continues to evolve. The patterns we highlighted earlier—very gradual movement away from dollar dominance, and a rising role for the nontraditional currencies of small, open, well-managed economies, enabled by new digital trading technologies—remain intact.

Mapping the World’s Readiness for Artificial Intelligence Shows Prospects Diverge

Press Room Team — Tue, 25 Jun 2024 21:49:52 +0000

New AI Preparedness Index Dashboard tracks 174 economies based on their digital infrastructure, human capital, labor policies, innovation, integration and regulation.

Artificial intelligence can increase productivity, boost economic growth, and lift incomes. However, it could also wipe out millions of jobs and widen inequality.

Our research has already shown how AI is poised to reshape the global economy. It could endanger 33 percent of jobs in advanced economies, 24 percent in emerging economies, and 18 percent in low-income countries. But, on the brighter side, it also brings enormous potential to enhance the productivity of existing jobs for which AI can be a complementary tool and to create new jobs and even new industries.

Most emerging market economies and low-income countries have smaller shares of high-skilled jobs than advanced economies, and so will likely be less affected and face fewer immediate disruptions from AI. At the same time, many of these countries lack the infrastructure or skilled workforces needed to harness AI’s benefits, which could worsen inequality among nations.

As the Chart of the Week shows, wealthier economies tend to be better equipped for AI adoption than low-income countries. The data draw from the IMF’s new AI Preparedness Index Dashboard for 174 economies, based on their readiness in four areas: digital infrastructure, human capital and labor market policies, innovation and economic integration, and regulation.

Measuring preparedness is challenging, partly because the institutional requirements for economy-wide integration of AI are still uncertain. As the dashboard shows, different countries are at different stages of readiness in leveraging the potential benefits of AI and managing the risks.

Under most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers can work to prevent. To this end, the dashboard is a response to significant interest from our stakeholders in accessing the index. It is a resource for policymakers, researchers, and the public to better assess the AI preparedness and, importantly, to identify the actions and design the policies needed to help ensure that the rapid gains of AI can benefit all.

AI can also complement worker skills, enhancing productivity and expanding opportunities. In advanced economies, for example, some 30 percent of jobs could benefit from AI integration. Workers who can harness the technology may see pay gains or greater productivity—while those who can’t, may fall behind. Younger workers may find it easier to exploit opportunities, while older workers could struggle to adapt.

For policymakers, those in advanced economies should expand social safety nets, invest in training workers, and prioritize AI innovation and integration. Coordinating with one another globally, these countries also should strengthen regulation to protect people from potential risks and abuses and build trust in AI. The policy priority for emerging market and developing economies should be to lay a strong foundation by investing in digital infrastructure and digital training for workers.

—For more on how artificial intelligence affects economies, see the December issue of Finance & Development, the IMF’s quarterly magazine, and the recent Analyze This! video.

IDB Invest and Financial Entities Share Experiences in Document Management

Press Room Team — Sun, 23 Jun 2024 22:21:37 +0000

The event featured interactive sessions and discussion panels to share the experiences of each invited financial entity.

IDB Invest organized the “Reality and Challenges of Document Management in Financial Entities” event in Costa Rica. Experts in information management from Banco Nacional, Banco Popular, Banco Davivienda, and Banco de Costa Rica participated.

The event took place during International Archives Day, celebrated on June 9. IDB Invest led this initiative to exchange knowledge and experiences in document management, the challenges faced by financial entities in Costa Rica due to continual technological changes, and the challenges and risks in the custody of sensitive and high-impact information.

The event featured interactive sessions and discussion panels, during which each invited financial entity shared its experiences in document management.

Proper information management ensures the protection and confidentiality of data and plays a crucial role in optimizing operations and generating continuous process improvements.

As a multilateral development entity, IDB Invest takes concrete action by promoting dialogue and learning of best practices to advance in document management and ensure that strategies align with the highest standards of quality and efficiency.

About IDB Invest

IDB Invest, a member of the Inter-American Development Bank Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $21 billion in assets under management and 394 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.

IDB Invest Joins Forces with CIBC Caribbean to Support Sustainable Development Projects in the Caribbean

Press Room Team — Sun, 09 Jun 2024 22:48:11 +0000

Projects will focus on supporting SMEs, gender, diversity and inclusion, renewable energy and digitalization

IDB Invest and CIBC Caribbean have announced an agreement establishing a Memorandum of Understanding (MoU), signaling a significant step toward collaborative efforts in advancing sustainable development across the Caribbean region. James Scriven, CEO of IDB Invest, and Mark St. Hill, CEO of CIBC Caribbean, participated in the signing ceremony.

The MoU creates a comprehensive framework of cooperation between the two financial institutions, focusing on initiatives aimed at fostering the growth of small and medium-sized enterprises (SMEs); championing gender, diversity, and inclusion (GDI) efforts; promoting renewable energy and energy efficiency; and driving digitalization. The partnership also aims to bolster climate-resilient financing across sectors, aligning with broader sustainability goals.

“We are honored to maximize collaboration efforts with CIBC Caribbean, combining resources and sharing knowledge to scale the impact in the Caribbean region,” James Scriven, CEO, IDB Invest.

“As we forge this strategic partnership with IDB Invest through the signing of our MoU, we are not just pledging to support sustainable finance and resilient infrastructure; we are also committing to the heart and soul of the Caribbean,” stated Mark St. Hill. Chief Executive Officer of CIBC Caribbean. “Our collaboration recognizes the alignment of our organization’s vision to foster transformation in environmental and social initiatives that will empower our communities and strengthen our islands. This is more than an agreement; it’s a promise to our future.”

The objective of the partnership is to formalize a strategic alliance that facilitates seamless collaboration between IDB Invest and CIBC Caribbean. By leveraging their respective strengths and resources, both organizations are poised to drive impactful programs and projects that support sustainable development in the Caribbean.

Under the MoU, both parties have committed to active participation and collaboration in several key areas including financing projects for economic cooperation and development impact, supporting biodiversity and ecosystem services creating short-term facilities and risk-sharing solutions, facilitating local currency funding for long-term projects, optimizing resource utilization strategies, and promoting various areas of cooperation such as financial and advisory services and private-public partnerships.

Furthermore, the collaboration will extend to the usage of financing solutions; guarantees, loans, co-financings, capital market issuances among others, across the identified thematic areas. Additionally, the parties will collaborate on the development of critical infrastructure projects across the region. The MoU also provides for the exchange of information and consultation to identify further areas for cooperation, including environmental, social, and governance sustainable actions and corporate governance.

About IDB Invest

About CIBC Caribbean

CIBC Caribbean is a leading pan-Caribbean institution offering a full suite of products and services to its personal, business, corporate and sovereign clients throughout the region. CIBC Caribbean has proudly operated in the region for over 100 years, with operations in 12 regional markets and over 2,650 staff across 48 full-service branches. CIBC Caribbean is a member of the CIBC Group, a leading North American financial institution with over 150 years of banking experience, serving clients in Canada and around the world. CIBC is rated Aa2/A+/AA/AA by Moody’s, Standard & Poor’s, DBRS and Fitch respectively. CIBC Caribbean aims to be the first choice for financial services in the region by putting our clients at the heart of everything we do. We offer clients a full-service team dedicated to providing the highest quality of customer service.