Selected Issues Papers
IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries.
2024
August 13, 2024
Monetary Policy Analysis with a Quarterly Projection Model: Hungary
Description: The calibration of monetary policy is particularly challenging at a time of large shocks. Interest rates in Hungary rose sharply in response a significant increase in inflation and depreciation in the forint in 2022. As inflationary pressures have eased, the base rate has been reduced but remains restrictive. Balancing the risks of loosening too quickly and inflation taking longer to return to target against those of loosening too slowly with larger costs to output requires careful calibration. This paper uses a Quarterly Projection Model to provide a quantitative guide to the calibration of monetary policy in Hungary. As underlying inflation remains elevated and second-round effects continue to push up services inflation, the model suggests that further cuts in interest rates should proceed cautiously and gradually.
August 13, 2024
Regional Disparities in Hungary: Drivers and Implications of the Digital and Green Transitions
Description: Hungary is gradually converging to the average income level of the EU, but regional disparities remain persistently high and may worsen with the digital and green transitions. This paper employs income convergence and growth decomposition techniques to pin down the drivers of regional disparities in Hungary and analyze these trends through the lens of the ongoing digital and green transitions. The results indicate that divergence in productivity and labor force participation has played an outsized role in driving regional disparities, especially due to the concentration of economic activity in low-value-added and carbon-intensive sectors in lagging regions. Targeted reforms, particularly aimed at strengthening governance, increasing female labor force participation, and incentivizing migration, can promote economic dynamism and growth in lagging regions. Enhancing digital infrastructure and literacy has a statistically significant effect in reducing the urban-rural productivity gap, while investment in reskilling workers and incentivizing green R&D can promote an inclusive transition from brown to green jobs in regional economies.
August 13, 2024
Hungary’s Corporate Sector Risk: A Machine Learning Approach
Description: In recent years, Hungary’s non-financial corporations were confronted with multiple shocks, ranging from the pandemic and rising geopolitical tensions to the historic tightening of domestic monetary policy. Employing machine learning techniques, this paper examines the determinants of Hungarian listed firms’ credit risk evolution over this period. Our analysis shows that both firm-specific and macroeconomic factors played a role in explaining the observed rise in firms’ default probability at onset of the pandemic, although Hungarian corporates proved broadly resilient, with risk indicators quickly improving a year after. Firms’ credit risk rose again in 2022, however, as both long-term interest rates and sovereign risk premia sharply increased, despite continued improvements in firms’ financial ratios. This development merits continued monitoring, particularly since a significant portion of corporate loans are set to mature within the next few years and could be repriced at higher interest rates.
August 13, 2024
Spillovers from China’s Growth Slowdown to the Singapore Economy: Singapore
Description: This paper examines the impact of China's economic deceleration on Singapore, highlighting how the deepening trade integration and China's pivotal role in Global Value Chains (GVCs) amplify these spillover effects. Utilizing multi-region input-output tables, empirical estimates, and the IMF's Global Integrated Monetary and Fiscal model, it identifies significant sectoral and aggregate impacts, particularly in electrical and machinery manufacturing, petrochemicals, and financial services. The analysis underscores the vulnerability of Singapore's economy to shifts in Chinese demand and productivity, emphasizing the need for vigilant monitoring and strategic adaptation to mitigate potential risks associated with China's slowdown.
August 13, 2024
Impact of AI on Singapore's Labor Market: Singapore
Description: Singapore is well-prepared for AI adoption but stands highly exposed to the increasing use of artificial intelligence (AI) technologies in the workplace, due to a large share of skilled workforce. While half of the highly exposed segment of the labor force stands to benefit from the appropriate use of AI to complement their tasks, potentially boosting their productivity, the other half may face greater vulnerability to AI’s disruptive effects due to lower levels of AI complementarity. Estimates suggest that women and younger workers are more exposed to the effects of AI, which, in the absence of appropriate policies, could worsen income inequality in Singapore. Targeted training policies, leveraging on the existing SkillsFuture program, can harness AI's potential. Additionally, focused upskilling can mitigate the disruptive impact of AI on vulnerable workers.
August 13, 2024
Exchange Rate Pass-Through to Inflation in Singapore: Singapore
Description: Singapore has addressed high inflation over the past years amid a tight labor market through several rounds of tightening of the exchange rate-based monetary policy. This paper estimates the exchange pass-through to inflation in Singapore with a particular focus on the role of labor market conditions. The paper first finds a strong exchange rate pass-through to inflation in Singapore, after accounting for the potential endogeneity of changes in the exchange rate. Further, it uncovers that labor market tightness dampens exchange rate pass-through and therefore could weaken monetary policy transmission. Overall, the results suggest that monetary policy should be more vigilant under a tight labor market condition. The paper then draws policy implications for taming inflation under tight labor market conditions.
August 1, 2024
Deep Dive on the Climate Transition for France: Macroeconomic Implications, Fiscal Policies, and Financial Risks
Description: Climate change presents an unprecedented long-term challenge to the French and global economy. While France has made significant progress towards reducing greenhouse gas emissions, important additional policy efforts will be needed to meet key mitigation targets. Decarbonization costs and risks can be significant, highlighting the need to identify efficient and equitable fiscal and regulatory policy options to meet emission goals. To accelerate the green transition and mitigate its costs, France has increasingly relied on green spending measures, which could be complemented by higher carbon pricing and other revenue-neutral schemes. Recycling of revenues via cash transfers could offset the price impact on lower-income households. Over the medium term, new measures for road transportation, such as distance-based charges, could also be considered. Ensuring a timely and orderly climate transition will be critical to mitigate the credit risk impact on banks. French banks should also continue to mitigate climate transition risks by integrating them into their governance, strategy, and risk management processes.
August 1, 2024
Options for Creating Fiscal Room for Investment and Other Spending Needs: Germany
Description: Germany needs substantially higher levels of public investment. At the same time, the country is facing rising pension, healthcare, long-term care, and defense expenditures. If Germany were eventually to ease moderately its national fiscal rules, as recommended by IMF staff, this would create some fiscal room but would not be sufficient on its own. This paper therefore explores options for Germany to generate additional fiscal room by reducing its public spending and increasing its revenues, while minimizing the associated costs to the economy. To aid this exploration, this paper also examines areas where Germany’s spending and revenue levels stand out in international comparison. The options for generating fiscal room include: (i) finding efficiencies in healthcare spending; (ii) stabilizing the finances of the social security system; (iii) eliminating environmentally harmful subsidies; (iv) raising revenues from goods and services taxes; (v) raising property taxes and closing loopholes in inheritance taxes; and (vi) earning higher returns on the government’s financial assets.
August 1, 2024
Financial Stability Risks from Commercial Real Estate: Germany
Description: Following post-pandemic tightening of monetary policy in advanced economies, commercial real estate (CRE) markets have been under pressure globally, including in Germany. This paper explores the channels of CRE impact for the German financial sector, and the potential size of impact for individual German banks based on publicly available data. It finds that German banks, in aggregate, are adequately capitalized and sufficiently liquid to absorb potential losses. However, elevated CRE-related credit risks suggest the need for close monitoring of some individual institutions, conservative capital distributions, adequate loan-loss provisions, retention of macroprudential buffers, and testing of financial safety arrangements.
July 31, 2024
State-Owned Enterprises in Mozambique: Current Situation and Policy Options
Description: This paper documents the role of state-owned enterprises (SOEs) in Mozambique, discusses some important fiscal issues, and makes the case for improvements in governance and transparency. A first step is to enhance timely and regular collection of data that is easily accessible to better assess the performance of SOEs and raise awareness about associated fiscal costs and risks.