IMF - INTERNATIONAL RELATIONS
News: IMF
retains growth projections for India; economy expected to slowdown to 6.1% in
2023 from 6.8% in 2022
What's in the news?
● The
International Monetary Fund (IMF) on January 31 said it is expecting some
slowdown in the Indian economy next
fiscal year and projected the growth to 6.1% from 6.8% during the current
fiscal ending March 31.
Key takeaways from the report:
● More
than a third of the global economy will contract this year or next year.
● The three largest
economies - the United States, the European Union, and China - will continue to
stall in the coming years.
● The
global growth, which was estimated at 3.4 percent in 2022, is now projected to
fall to 2.9 percent in 2023 before rising to 3.1 percent in 2024.
● Inflation,
which destabilized the global economy, is expected to have peaked in 2022 but
the disinflation (the fall in inflation rate) will be slow and take all of 2023
and 2024.
○ Global
inflation is set to fall from 8.8 percent in 2022 (annual average) to 6.6
percent in 2023 and 4.3 percent in 2024 - above pre-pandemic (2017–19) levels
of about 3.5 percent.
● Fall in prices:
○ Price
rise is slowing for two main reasons.
■ Monetary tightening
all across the world - higher interest rates drag down overall demand for goods
and services and that, in turn, slows down inflation.
■ In
the wake of a faltering demand,
prices of different commodities - both fuel and non-fuel have come down from
their recent highs.
● India will stay the
world’s fastest growing major economy in 2023 and 2024.
○ India’s
GDP growth rate is expected to be significantly higher than all its comparable
economies, especially China (which is set to grow at 5.4% in 2023 and 4.5% in
2024).
Go back to basics:
IMF:
● The
IMF, also known as the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in
July 1944.
● Headquartered
in Washington, D.C.
● Consisting
of 190 countries
● The
IMF is 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 while
periodically depending on the World Bank for its resources.
● It
now plays a central role in the management
of balance of payments difficulties and international financial crises.
IMF Members:
● Any
other state, whether or not a member of the UN, may become a member of the IMF
in accordance with IMF Articles of Agreement and terms prescribed by the Board
of Governors.
● Membership in the IMF is
a prerequisite to membership in the IBRD.
Pay a Quota subscription:
● On
joining the IMF, each member country contributes a certain sum of money, called
a quota subscription, which is based on the country’s wealth and economic
performance (Quota Formula).
○ It
is a weighted average of GDP (weight of 50 percent)
○ Openness
(30 percent)
○ Economic
variability (15 percent)
○ International
reserves (5 percent).
● The
GDP of a member country is measured through a blend of GDP - based on market
exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent).
● Member's voting power
is related directly to their quotas (the amount of money they contribute to the
institution).
SDR:
● Special Drawing Rights
(SDRs) is the IMF’s unit of account and not a currency.
● The
currency value of the SDR is determined by summing the values in U.S. dollars,
based on market exchange rates, of a SDR basket of currencies
● SDR basket of currencies
includes the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese
renminbi (included in 2016).
● The
SDR currency value is calculated daily (except on IMF holidays or whenever the
IMF is closed for business) and the valuation basket is reviewed and adjusted
every five years.
● Quotas are denominated
(expressed) in SDRs.
● SDRs
represent a claim to currency held by IMF member countries for which they may
be exchanged.
Reports:
● Global
Financial Stability Report
● World
Economic Outlook - It is usually published twice a year in the months of April
and October.
● Fiscal
Monitor (FM).