Weekend Read: Getting to Growth in an Age of Uncertainty

In today's edition, we highlight:

• Getting to Growth in an Age of Uncertainty
• As Spending Pressures Grow, Fiscal Rules Foster Stability
• How Much Capital Do Central Banks Need? 
• Priorities to Lift Growth in the EU - Why, What, How?
• Supporting Costa Rica’s Remarkable Reforms
• Tech Meets Finance

GLOBAL ECONOMY

IMF 2025 Annual Report: Getting to Growth in an Age of Uncertainty

The global economy faces exceptional levels of uncertainty. The 2025 IMF Annual Report shows that low-income countries in particular, already strained by past shocks, risk falling further behind. Growth is the central challenge for all. And achieving it will require bold reforms at home and collaboration to address imbalances between countries. In these and other areas, the IMF will continue to serve its entire membership of 191 countries.

FISCAL POLICY

Fiscal Rules Foster Stability as Spending Pressures Grow 

Countries have increasingly adopted fiscal rules and frameworks that aim to give clarity and predictability to government spending. But these rules have not been as effective in keeping deficits and debt within their intended limits. According to a new report, about 40 percent of advanced economies and nearly two-thirds of emerging markets exceed their own fiscal limits. 

Strong and effective fiscal rules are essential to address mounting challenges confronting countries—from record debt and increasing spending pressures on defense to aging populations and development and social needs. With these challenges, public finances are being stretched thin. Here fiscal rules can help: they lay out numerical limits on spending, deficits, or debt, and act as guardrails to promote discipline and signal commitment to sound public finances.

CENTRAL BANKING

Stress Tests Can Help Determine How Much Capital Central Banks Need

Central banks pride themselves on being data-driven and consensus-based. Surprisingly, though, there is little consensus among policymakers on a crucial issue: how much capital should these institutions hold?

Unlike commercial banks, central banks don’t have universally prescribed minimum capital requirements. They can’t go bankrupt, because they can always issue their own currency to meet their nominal payment obligations. Even so, a weak capital position can diminish institutional credibility and potentially increase risks to independence. Therefore, central banks do care about maintaining sufficient capital buffers. But there is a diversity of views on how to get there.

“This is why we propose a new approach of stress-testing central banks to help them maintain a sound financial position,” writes Romain Veyrune . Specifically, stress-testing can help a central bank gauge the level of capital that would allow it to absorb large but plausible shocks without pushing capital to very low levels that could weaken its credibility and independence. 

EUROPE

National-Level Priorities to Lift Growth in the EU - Why, What, and How? 

Europe used to lead in productivity but fell behind the U.S. during the tech boom in the late 1990s. To catch up, EU countries need to focus on key reforms like improving labor markets, investing in human capital, and boosting innovation, said Alfred Kammer, Director of the IMF's European Department, in a speech at the EU’s Economic and Financial Affairs Council. 

Kammer also emphasized that strong political leadership and coordinated efforts at both national and EU levels are crucial to making these reforms successful. If done right, these changes could significantly increase GDP and narrow the income gap with the U.S.

COUNTRY FOCUS

New Credit Line Supports Costa Rica’s Remarkable Reforms

In early June, the IMF approved a two-year Flexible Credit Line (FCL) for Costa Rica. This followed the Central American nation’s years-long and ambitious reform agenda, which has helped to increase growth, lower debt, and reduce poverty,while also boosting international investor confidence.

The FCL is designed for countries with very strong economic fundamentals and institutional policy frameworks. It serves as a buffer during periods of heightened global uncertainty, offering access to liquidity if needed and signaling very strong policymaking to markets.

In an interview with IMF Country Focus, the Fund’s Costa Rica team discussed the significance of the new credit line and how it supports the country’s continued path toward sustainable and inclusive growth.

F&D MAGAZINE

Tech Meets Finance

Disruptive innovation has transformed the financial sector over the past decade. New fintech firms have emerged, big techs are offering payment services and credit, crypto assets and stablecoins are growing in value, and many institutionsare adopting artificial intelligence. Innovation may not always lead to the best outcomes. Emerging risks could erode financial stability, such as shocks from the crypto sector that could spill over to the traditional financial system.

To harness the potential of innovation and mitigate the risks, radical new ideas are necessary, but not sufficient. Also needed are public infrastructures, sound regulation, and practical experimentation in the public and private sectors to yield new insights and inform private investment and public policy.

Weekly Roundup

DEBT MANAGEMENT

Preparing an Annual Borrowing Plan

An Annual Borrowing Plan (ABP) guides the short-term execution of a debt management strategy, which typically spans 3–5 years. Emerging market and low-income countries have improved their ability to develop debt management strategies, but they face ongoing implementation challenges. The note describes key steps for preparing an ABP, which links debt management with broader macroeconomic components, making it a cornerstone of sound financial governance.

Thank you very much for your interest in the Weekend Read! Be sure to let us know in the comments what issues and trends we should have on our radar.