Weekend Read: How the IMF Finances Itself and Why it Matters for the Global Economy | Chile Country Focus | F&D Magazine: Europe's Elusive Savings

In today's edition, we highlight:

• Explainer: How the IMF finances itself and why it matters for the global economy

• Country Focus: Chile can grow faster

• F&D magazine: Europe's elusive savings and investment union

• IMF Fintech Note

• Chart of the Week, and more

INTERNATIONAL ORGANIZATION

Explainer: How the IMF finances itself and why it matters for the global economy

How does the IMF finance itself? Think of it as a credit union for countries—with a lending capacity of nearly $1 trillion. It’s a unique funding model that benefits creditor members and borrowing countries alike, the IMF’s Julie Kozack and Bernard Lauwers write in a new Explainer blog.

Crisis-hit countries can take out loans to get back on their feet, while others earn interest on their contributions to the IMF. Moreover, countries can count their contributions to the IMF as their own reserve assets under a funding model that does not require budget appropriations or any other taxpayer support.

In 2024, some 50 creditor countries received a total of about $5 billion in interest on the resources they had provided for IMF lending. Members also benefit from the power of pooled resources. Take, for example, the largest IMF shareholder, the United States: for every dollar the US makes available for lending, the IMF leverages four dollars from other countries.

“All this matters for the world economy,” the authors note. “By pooling member resources, the IMF plays a central role in promoting global economic stability and prosperity.”

COUNTRY FOCUS

Chile Can Grow Faster – But it Won’t Be Like the 1990s Again

Many of Chile’s current socioeconomic debates—such as those related to fiscal sustainability, pension adequacy, and college loans—can be attributed to the country’s growth slowdown over the past two decades. The IMF’s recent annual economic health check of the country (Article IV consultation) addresses how Chile can reverse this trend, write the IMF’s Si Guo and Andrea Schaechter in a new Country Focus article.

Comparing Chile to its peers, there is scope to grow faster. Higher-income countries that were once at a comparable income level to Chile grew at a rate of around 2.9 percent per year. However, Chile faces challenges that most of those economies did not encounter at the same stage of development: such as an aging population and a global slowdown, both of which will make it more difficult for Chile to reach this pace.

So, how can Chile boost its growth potential? Start by deepening supply-side structural measures such as making regulatory requirements more efficient. To address demographic challenges, Chile could increase labor force participation and ramp up R&D spending, which is substantially below the OECD average. In addition, Chile can further leverage its position as the world’s largest copper producer, second-largest lithium producer, and as a nation richly endowed with solar and wind resources. It can benefit from the high global demand for these critical minerals and it can also step up the use of low-cost renewable energy.

F&D MAGAZINE

Europe's Elusive Savings and Investment Union

Europe has ample savings but not enough investment. A savings and investment union—a pan-European financial market that mobilizes and makes savings available for investment across the European Union—is part of a long-term remedy.

But it will take more than that to generate the amount of investment the EU needs to meet its growth and geopolitical challenges, Ravi Balakrishnan and Mahmood Pradhan write in F&D.

The EU must act on various fronts simultaneously to create a positive feedback loop of lower trade barriers and less red tape, higher rates of return, more unified financial regulation and supervision, and fewer impediments to the cross-border movement of capital.

“It is a formidable task,” the authors say. “But one the EU must overcome to counter increasing growth headwinds.”

FINTECH NOTE

Growing Retail Digital Payments: The Value of Interoperability

Many countries aim to grow retail digital payments. New IMF research using novel data from India’s payment system shows how interoperability can help. 

We know that interoperable systems allow for seamless payments between users of different payment providers. This in turn brings two specific benefits. First, users can choose their favorite apps. And second, providers have stronger incentives to introduce new and better apps.  

Granular data covering all transactions on Unified Payments Interface (UPI), the world’s largest fast payment system, provides evidence of how this works in practice. By expanding users' freedom to choose their favorite app and increasing competition among providers, interoperability can increase the attractiveness of digital payments relative to cash and pull more users into the system.

CHART OF THE WEEK

The significant shocks that have buffeted the global economy over the past five years have weighed heaviest on low-income countries and fragile and conflict-affected states. The post-pandemic recovery in low-income countries has lagged emerging market economies, which began their revival in 2021, though with significant differences, write the IMF’s Chabert Guillaume and Robert Powell Robert Powell in a new blog.

Among 70 low-income countries, 38 of the more advanced—with higher income, varied exports, and international capital market access—grew by an average of 5.3 percent from 2022-24. As the Chart of the Week shows, that compares with 3.3 percent in the poorest 32 in the group. It was just 2.6 percent for fragile and conflict states.

Thank you again 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.

Miriam Van Dyck

Editor, IMF Weekend Read