Selected Issues Papers
IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodic consultations with member countries.
2024
July 24, 2024
Upskilling the UK Workforce: United Kingdom
Description: The UK workforce has larger and more chronic skills gaps than in most peer countries, with surveys reporting widespread recruitment difficulties, with implications for output, in high-skill sectors like digital and software, manufacturing, medicine and life sciences, teaching, and construction. This partly reflects declines in primary and post-secondary education outcomes (particularly science scores, over the past two decades) and in workplace training and apprenticeships, particularly for the young. Moreover, the recent increase in non-EU migrants has not fully offset the adverse impact from Brexit on the availability of needed skills, including because smaller firms face more recruitment hurdles with regard to non-EU hires. Against this backdrop, there is an urgent need to upskill the UK workforce, both by building on ongoing efforts, as well as additional concrete measures to: (i) encourage students and young workers to join and excel in STEM; (ii) ensure adequate vocational and on the job training, particularly for the young; (iii) retain the talent produced by UKs world leading universities; (iv) upskill the existing labor force; and (v) facilitate attraction and retention of in-demand skills through adjustments to the visa regime.
July 24, 2024
Monetary Policy Issues in the UK: United Kingdom
Description: After hiking rates 14 consecutive times between December 2021 and August 2023 to arrest above-target inflation, the Bank of England (BoE) has held rates at 5.25 percent since then. As the BoE prepares for easing, this paper examines three concurrent monetary policy questions: (a) how have the macroeconomic and financial effects of BoE monetary tightening during the current cycle compared with experiences in other major advanced economies (AEs), and with previous UK tightening cycles; (b) what is the impact of US Fed decisions on UK monetary transmission, and the attendant implications thereof for BoE communications; and (c) how do model-based predictions of UK monetary policy paths (which seek to stabilize inflation and the output gap) compare with staff’s recommended path in the 2024 Article IV consultation. We find that (a) monetary transmission has largely mirrored previous episodes (and experiences in other major AEs), with the most notable exception of the mortgage channel, which has been slower due to a higher share of fixed-rate mortgages; (b) an outsized impact of Fed announcements on UK financial markets places a premium on BoE communications in a context where the BoE may diverge from the Fed; and (c) optimal rate path predictions are close to staff’s recommended path, although if the BoE attached a high weight to concerns about a prolonged period of above-target inflation leading to de-anchoring of inflation expectations, a slower pace of cuts would be warranted. A technical assistance mission from the IMF's Statistics Department visited Cambodia during April 10-21, 2023, to support the authorities in continuing to improve the compilation and dissemination of government finance statistics (GFS) and public sector debt statistics (PSDS).
July 24, 2024
Public Spending Pressures in the UK: United Kingdom
Description: This paper characterizes UK public spending pressures over a ten-year horizon and their implications for public deficits and debt levels. The analysis is based on a ‘bottom-up’ scenario for total public expenditure, that includes, inter alia, implementation of the NHS Long-Term Workforce Plan, public investment to support the Balanced Pathway to Net Zero, and state pension spending under the Triple Lock policy. This scenario is approximately consistent with IMF staff’s baseline projection for the medium term (to FY2029/30) shown in the 2024 Article IV consultation staff report, which assumes real growth in Departmental Expenditure Limits (DEL) of two percent per year after FY2024/25. Assuming revenue stabilizes in FY2028/29 at the level projected by IMF staff (40.8 percent of GDP), public debt does not stabilize over ten years, reaching 101.3 percent of GDP by FY2034/35. Stabilizing debt will require the primary balance to be 0.8–1.4 ppts of GDP higher per year (on average after FY2024/25), depending on the time horizon for stabilization (5 or 10 years) and the target probability of debt stabilization (50 or 75 percent).
July 24, 2024
Construction Planning Reforms for Growth and Investment: United Kingdom
Description: The UK construction planning system is overly stringent and the localized and discretionary system of decision-making makes it highly unpredictable. It hinders new construction (both residential and commercial) and infrastructure projects, restricting labor mobility (as workers stay trapped in suboptimal jobs due to unaffordable housing in areas with better prospects). It also raises investment costs for businesses, who often endure long and uncertain wait times or are forced to relocate to suboptimal locations. International and domestic experience suggests that a concerted overhaul of the system is needed, focusing on systemic reforms that reduce discretionary decision-making in granting permissions. While this is politically difficult, tangible progress is possible around a few key areas: (i) broader geographic and rules-based decision-making for business and large residential developments to reduce uncertainty for investors; (ii) digitalized and standardized plans at the local level which are, additionally, binding for designated growth areas; (iii) careful review of scope to release Green Belt land of little environmental or amenity value near stations with easy access to major cities; and (iv) targeted incentives (to overcome new builds resistance) and resources to local authorities (including skilled staff to facilitate compliance with new environmental requirements)
July 1, 2024
Sustainable Path to Inclusive Growth in Japan: How to Tackle Income Inequality?
Description: Market income inequality in Japan has been on a steady rise since the 1980s, and is now close to the OECD average. Gross and disposable income inequality, on the other hand, have risen much less but remain higher relative to several comparator countries. This paper employs inequality index decompositions by income source using household panel survey data from 2010-19 to identify the factors driving income inequality in Japan. Results indicate that while increase in the employment of females and the elderly in the last decade has helped lower income inequality, this has been offset by them being mostly employed in low-paid part-time nonregular jobs. Rapid aging of the population has also exacerbated income inequality over time. Moreover, while fiscal redistributive effects of social transfers are found to be a somewhat equalizing force, its impact on inequality is relatively weaker.
July 1, 2024
Startups and Venture Capital in Japan: How to Grow
Description: The startup ecosystem in Japan has seen gradual growth, supported by the government’s recent "Startup Development Five-Year Plan" and a significant interest from overseas venture capital. This paper lays out the startup financing ecosystem in Japan, with comparison to international peers, and studies potential drivers of startup financing and their relevance for startups’ performance. The results, based on country-level aggregate analysis, underscore the critical role of firm dynamism and entrepreneurship in supporting capital investment and firm valuations. Further analyses at the firm level suggest that equity funding helps startups innovate, grow, and successfully exit. Moreover, the impact of funding on the likelihood of a successful exit appears to be higher in cultures that seem to reward risk taking.
July 1, 2024
Japan’s Fertility: More Children Please
Description: Japan’s fertility has declined in the past three decades. Raising Japan’s fertility rate is a key policy priority for the government. Using cross-country analysis and case studies, this paper finds that the most successful measure to support the fertility rate is the provision of childcare facilities, particularly for children aged 0-2. Offering stronger incentives for the use of paternity leave can alleviate the burden of childcare on mothers, supporting fertility. On the other hand, there is limited evidence that cash transfers are effective in supporting fertility, based on international experience.
July 1, 2024
Why Such Few Women in Leadership Positions in Japan?: Japan
Description: The share of women in managerial and leadership roles in Japan – in both the public and private sector – are among the lowest across the globe. This paper empirically examines what drives these large gender gaps in leadership in Japan, using the SVAR model. Results suggest — (i) cultural norms where women take up significantly more burden of household and childcare work; (ii) Japan’s unique employment practices (non-regular employment, long in-person working hours); and (iii) the availability of childcare facilities — are the key drivers. Further progress on workstyle reforms, more flexible labor markets, improving the quality of childcare facilities, and raising paternity leave usage will help close these gaps.
June 24, 2024
The Bulgarian Pension System: Caught Between Adequacy and Sustainability: Bulgaria
Description: During the COVID-19 pandemic, the Bulgarian authorities increased pensions substantially to support pensioners’ living standards and aggregate demand. These increases have become permanent and improved the adequacy of pensions. However, not matched by revenue measures, they have widened the deficit of the pension system. Reforms that increase the incentives to contribute to the pension system and thus revenue would improve the financial sustainability of the pension system and reduce fiscal risks.
June 24, 2024
Bulgaria: Fiscal Risks from State-Owned Enterprises
Description: State-owned enterprises’ (SOEs) economic and financial performance may have important fiscal implications. This study evaluates related fiscal risks in Bulgaria from both aggregate and firm-level perspectives. The low level of state-guaranteed debt of SOEs poses minimal fiscal risk. However, contingent liabilities could be a fiscal concern in the long term due to the low profitability of major SOEs and their inefficient resource allocation. Given their crucial role in the production network, their inefficiencies likely negatively impact the overall economy’s productivity and competitiveness. Additionally, liquidity and solvency risks are evident in several key SOEs. These findings underscore the need for monitoring and improving SOEs’ financial performance.