News and Events

Do Monetary Policy Frameworks matter in Low Income Countries (LICs)?

The IMF Economic Review has published a paper on Monetary Policy Frameworks in Low Income Countries (LICs), highlighting how LICs have been remarkably successful in reducing inflation to single-digit levels, and their engagement in reforms to make their monetary policy frameworks more systematic, transparent, and forward-looking, often with technical support from the International Monetary Fund (IMF). The paper by Alina Carare, Carlos de Resende, Andrew T. Levin and Chelsea Zhang provides new empirical evidence about how the characteristics of the monetary policy framework affects the propagation of shocks in LICs. The findings show that central banks in LICs can face policy tradeoffs similar to those which have been highlighted for more advanced economies, and the analysis underscores the key role of the monetary policy framework in fostering price stability and sustained economic growth in LICs.

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Debt-For-Climate Swaps Paper

There is significant interest in debt-for-climate swaps among African countries following Seychelles operation. The IMF Working Paper on “Debt for Climate Swaps: Analysis, Design, and Implementation” compares such swaps—partial debt relief operations conditional on debtor commitments to undertake climate-related investments—to alternative fiscal support instruments. In general, climate conditional grants and/or broad debt restructuring are superior to swaps. There is however a small perimeter where such swaps could be useful to expand fiscal space, especially if climate grants or debt restructuring are not on the table. The paper, by Marcos Chamon, Erik Klok, Vimal Thakoor, and Jeromin Zettelmeyer, explores policy actions that would benefit both debt-climate swaps and other forms of climate finance, including developing markets for debt instruments linked to climate performance.

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