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The Armenian government has had various lending arrangements with the IMF for 10 years (2009 to 2017). Over this period, IMF was rather quiet about Armenia’s law on public debt – enacted in 2008 – that drove the country’s fiscal consolidation exercise. The World Bank called it ‘one of the most ambitious’ in the region and documented its pernicious impact on public investment and growth. The IMF agreed, but did not explicitly point out the need for revising the 2008 public debt law – until now.

In its July 2017 review of Armenian macroeconomic policy, the IMF notes that:

‘…the authorities agree with staff that the implementation of the fiscal rule is overly contractionary at this conjunction. From a legislative perspective, the current fiscal framework is quite unique in the international landscape…such a framework does not provide a useful anchor when debt is sufficiently below the ceiling and…is likely to bind when economic activity is weak, resulting in a pro-cyclical bias…This may, therefore aggravate the economic downturn and thereby undermine the credibility of the fiscal framework. The authorities are currently being assisted by (the) IMF to revise and modernize their fiscal rule…’

The draft of a new fiscal rule is expected to be debated by the National Assembly in October 2017.

This current approach by the Fund represents a sharp change from previous positions. Indeed, in its December 2016 review, the IMF accepted the fact that:

‘…the authorities remain committed to fiscal consolidation and debt sustainability, as embodied in their fiscal rule, which aims to ensure that debt remains below 60 percent of GDP over the medium term. In this context, they have developed a fiscal consolidation plan for 2017 and beyond’.

One wonders why it took the IMF – a body with vast expertise on fiscal affairs – ten years to urge the Armenian government to revise its now discredited fiscal rule. Such a rule – and its manifest inadequacies – was  public knowledge by the time the IMF entered into a lending arrangement with Armenia in 2009 and acquiesced in the unveiling and implementation of a fiscal consolidation programme that has turned to be damaging to growth and employment. Indeed, I do not feel flattered at all that I drew attention to the Armenian government (and more specifically the Ministry of Labour) to the problems that were embedded in its fiscal rule when I wrote a report on behalf of the Moscow office of ILO in May 2017 (see blog entries for June 2017).

In one of its latest reports, The  Independent Evaluation Office (IEO), examined IMF’s changing role in providing advice and assistance to member states in strengthening social protection systems. While being mildly critical, the IEO commended the Fund for the role that it played since the 1990s in placing social protection as a ‘macro-critical’ issue when engaging with member states, both operationally through its various lending arrangements and through its advisory and surveillance roles.  The IEO then suggested various recommendations  to strengthen the IMF’s capacity in offering advice and support to member states in enacting and implementing social protection policies. There is, however, one area where the IEO frankly acknowledges the IMF faces a major challenge, namely, institutional collaboration with UN agencies, most notably UNICEF and ILO.

The challenge of developing  productive collaboration between the IMF and UN agencies stems from different approaches to social protection. The IMF generally favours a ‘targeted’ approach to social protection in which means-testing is used to allocate scarce public funds to help the poor and the needy. Given its mandate, the IMF is understandably concerned about the fiscal sustainability of social protection policies. The UN agencies, on the other hand, subscribe to a ‘rights-based’ approach which ‘…emphasizes universal benefits and targeting by category (e.g. demographic groups) rather than income’. Combining the two different approaches into a unified position has proven to be rather difficult.

The IEO also notes that ‘IMF-World Bank cooperation on social protection generally worked well’ but worries that this might not necessarily be the case in the future. This is because in 2015 the World Bank decided to ‘…adopt the goal of universal social protection’.  How that proclamation will manifest itself in practice remains to be seen, but at least there is a formal change in approach. As the World Bank group President puts it, ‘…universal coverage and access to social protection are central to the World Bank Group’s twin goals, to end extreme poverty by 2030 and boost shared prosperity’.

There is in addition the Sustainable Development Goals (SDGs) endorsed by 193 member states of the UN system which supports universal social protection. For example, under goal 1 (ending extreme poverty in all its forms) the SDGs proclaim: ‘Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable’. The IMF has, as a good citizen of the international community, subscribed to the SDGs. Yet, at the same time, it adheres to a fiscal-centric and targeted approach to social protection.  Resolving this tension, especially in light of the World Bank moving in the direction of the UN agencies in the area of social protection, will remain a major challenge for the Fund. Unless it does so, it will be unable to appease its critics that it really is serious about social protection beyond helping the poor and the needy through means-tested programmes.

How bad is Brexit going to be for the British economy? In a highly perceptive and iconoclastic piece, Graham Gudgin – an economist and econometric model-builder with impeccable credentials –  questions the ‘majority view …that the loss of GDP could be severe’. Gudgin shows that the so-called ‘gravity models’ that were used by the UK Treasury, for example, incorporated EU-wide, rather than UK-specific, trade gains and losses to work out the impact on GDP. Yet, when UK-specific parameters are used by Gudgin and his co-authors to replicate the results of the Treasury model, the negative consequences on GDP becomes rather moderate amounting to no more than a ‘..worst-case loss of under 2% in 2025’.

Gudgin and his co-authors found it difficult get a proper hearing. The UK Treasury ‘refused multiple requests to discuss their work’. The ‘major economics media’ also refused to grant publicity to these contrarian findings. Gudgin makes the plausible speculation that the UK Treasury is not really independent but intimidated and influenced by its political masters. The Chancellor of the Exchequer at the time (George Osborne) was a strong advocate of remaining within the EU and the Treasury was mindful of that fact. Furthermore, a professional consensus has developed among the economics fraternity that Brexit is bad for Britain. The UK Treasury seems unable – at least until now – to question that consensus.

Next time you prepare a document in Microsoft Word, be careful as to which font you use. The very use of a specific font (Calibri) apparently cost  the prime ministership of Nawaz Sharif. Well, there is nothing wrong with the font per se, it’s something else.

Remeber Panama papers? If your name appeared there, you must be a very rich person. The Panama papers listed some of the influential political leaders in Pakistan including Nawaz Sharif.  Critics alledged that Nawaz Sharif and his children were associated with some offshore companies that had been used to buy posh flats in central London using  corrupt money smuggled out of Pakistan.  Panama papers suggested Maryam Sharif, Nawaz’s daughter and considered to be his  successor in the political dynasty, was the owner of an offshore company. She claimed she was only a trustee, not an owner.  She presented a deed that was typed in 2006. And it was typed using the font ‘Calibri’!  The beta version of this font was availble in  2004, but the font was publicly available only in 2007.

Yesterday, the five-judge bench of the Pakistan’s Supreme Court gave an unimous verdict that Nawaz Sharif  failed to give a transparent account of his assets and hence, he is incompetent to run public office. Within an hour of the verdict, Mr Sharif resigned from his Prime Ministership.

Corruption is not foreign to South Asia. Based on Transparency International’s   17-month long survey, Forbes magazine reports South Asia has the five most corrupt economies of Asia. The dangerous cocktail of politics and corruption in Asia transforms politicians into tycoons and offers business tycoons the centre stage in politics (See also political connections and family firms in Bangladesh).

The notion of minimum wage has been around a long time, but it does not necessarily coincide with the notion of a ‘living wage’. As I have argued elsewhere, even in rich countries the mandated minimum wage does not provide workers and their families enough to meet their basic material needs. Not surprisingly, this has bred the phenomenon of ‘working poverty’, that is, the incidence of poverty that prevails among those who are still employed. For example, in the United States, the incidence of working poverty is 6.6 cent, while in Canada it is 5.5 per cent. In general, between to 5 to 7 per cent of the employed population are afflicted by working poverty in rich countries, requiring the state to intervene through various forms of means-tested financial assistance to such vulnerable groups. Working poverty is, of course, significantly higher in the developing world. Even in such a reasonably prosperous and middle income country like Malaysia, the incidence of working poverty is nearly 37 per cent.  

It thus appears that the time-honoured tradition of using minimum wages as a way of warding off working poverty has not been particularly effective. One could argue that this is a case of improving compliance and enforcement rather than a radical adjustment of the prevailing minimum wage to bring it up to to the standard of a ‘living wage’. Yet, systematic compilation of the available evidence by such bodies as the Living Wage Foundation in the UK has shown that the gap between a national minimum wage and estimates of a national living wage has actually grown between 2011 and 2015.

Such evidence lies behind the impetus of a ‘living wage movement’ in rich countries. Civic activism of this kind has also grown in the developing world. A good example is the ‘Asia Floor Wage Alliance’ (AFWA) which describes itself as

….an international alliance of trade unions and labour rights activist who are working together to demand garment workers are paid a living wage. It began in 2005 when trade unions and labour rights activists from across Asia came together to agree a strategy for improving the lives of garment workers.

As part of its objective of ‘improving the lives of garment workers’, AFWA provides (PPP-based) estimates of living wages in the garment industry across different parts of Asia. Based on such evidence, the prevailing minimum wage in some Asian countries is pitifully low varying between 19 per cent  (Bangladesh and Sri Lanka) and 54 per cent of the estimated living wage (Malaysia).  Clearly, if these estimates are to be believed, the minimum wage, even if adequately enforced, will not be able to deal with the scourge of working poverty in Asia.