A New Jersey school district suspended its unpaid meals policy following backlash from the community. 

On Sept. 13, Deptford Township School superintendent Kevin Kanauss sent a letter to the community obtained by the Philadelphia Inquirer. The letter stated that students with school breakfast and lunch debt of $50 or more would be impacted.

Under the policy, impacted students in preschool and kindergarten would still receive breakfast as well as an alternative lunch but be barred from field trips and receiving report cards, according to the Philadelphia Inquirer.

Impacted elementary school students would not receive any breakfast and receive alternative lunch and also be barred from field trips, receiving report cards and attending school dances. Impacted middle and high school students would not receive breakfast or lunch and be barred from field trips, receiving report cards, attending dances and the prom, and attending graduation. These restrictions would remain for the students until the outstanding balances were paid by their parents or guardians. 

In the initial letter, Kanauss said the policy was implemented due to the “huge financial burden from families failing to pay their meal balances for their scholars.”

“Such financial losses impact our programs, staff and supplies for students,” Kanauss wrote.

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The policy sparked backlash from the community as well as politicians, including U.S. Senator John Fetterman (D-Pennsylvania) who called the ruling “evil.”

On Sept. 19, Kanauss sent another letter to the school community, stating the district had suspended their policy following feedback and discussion with the New Jersey Department of Agriculture.

“All students will be offered school breakfast and lunch, regardless of the balance of their meal account,” Kanauss wrote in the most recent letter. 

A spokesperson for New Jersey Gov. Phil Murphy also confirmed with NBC10 that they worked with the Deptford School District to immediately terminate the policy. The spokesperson said the New Jersey Department of Education reached out to the Executive County Superintendent (ECS) to confirm they would contact the Deptford Township School District to help bring them into compliance with the Hunger-Free Students’ Bill of Rights Act and the Working Class Families Act.

“The district’s policy went against protections outlined in the Hunger-Free Students’ Bill of Rights Act and the Working Class Families Act, which seek to eliminate school meal policies that stigmatize students over lunch debt and improve identification and participation of students in free and reduced-price meal programs,” the spokesperson wrote. “The Governor and his Administration do not support policies that ostracize New Jersey students and thank the district for their cooperation in discontinuing this harmful policy.”

Kanauss said they would still “reevaluate” their policy and process for collecting past due balances.

“We encourage families to complete the free and reduced lunch application, and for those paying out of pocket to remain current on their balance,” he wrote. “However, as stated above, these factors will not affect a student’s ability to receive a school meal.”

Kanauss also told NBC10 on Wednesday that the district is working to help families who qualify for the free lunch program.

“One of our objectives is to ensure that families who qualify for the USDA’s free lunch program are aware of this benefit, and that we are here to assist them if they need help completing the application. Our goal is a 100% participation rate among families who qualify,” Kanauss wrote. “In addition to benefitting these families directly, increased participation in this federal program has the potential to see more of our schools designated as Title I, resulting in additional funding to support current and new programs for our students.”

Kanauss also said the district plans to hold a policy committee meeting at some point next week to “evaluate all the feedback and recommendations from the Department of Agriculture and our community, as we adjust this policy to create an equitable solution for all involved.”

Source : NBC

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According to reports citing analysts, July will be a “key policy window” for Chinese markets, with investors hoping for policies that can lead to credit expansion. Beijing’s typical playbook of using large-scale stimulus to boost demand may however prove to be ineffective at this time, having led to massive oversupply in property and industry, and surging debt levels among local governments.

What exactly is the problem?

China is facing a slew of issues including sluggish consumer spending, a crisis-ridden property market, flagging exports, record youth unemployment and towering local government debt. The impact of these strains is starting to reverberate around the globe, impacting everything from commodity prices to equity markets. The risk of Fed hikes tipping the US into recession has also heightened the prospect of a simultaneous slump in the world’s two economic powerhouses.

What are the latest updates?

• China and Hong Kong stocks notched small gains on Tuesday as investors bet the country would take more measures in July to shore up its economy.
• The National Development and Reform Commission – China’s top economic regulator – has pledged to tackle issues faced by enterprises and create a better development environment for the private sector.
• China’s central bank has continued to lend support to prevent the yuan from weakening too fast and too far. 
• China’s yuan finished the domestic session at a one-week high against the dollar on Tuesday as the People’s Bank of China (PBOC) set a stronger-than-expected official midpoint rate. In addition, major state banks lowered their dollar deposit rates for the second time in a month.
• “While it may take time to prepare the deployment of a massive stimulus package to mitigate under-delivery risk until the Politburo meeting at end-July, imposing a yuan fixing counter-cyclical factor to buy some time maybe a feasible policy option,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank, referring to the much strengthened guidance rate.
• Chinese firms’ dollar-bond issuance hit the lowest level in a decade during the second quarter, and there are few near-term catalysts to reverse the trend as cheap onshore borrowing costs and economic uncertainty persist.
• Chinese President Xi Jinping’s elevation of a long-serving technocrat as the central bank’s top Communist Party official also signals that policy makers will avoid any drastic shifts for now as the world’s second-biggest economy struggles to regain momentum.

Source: Live Mint

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“The saga over the raising of the U.S. debt ceiling has been brewing for some time. Regardless of what bill that the U.S. Congress adopts eventually, the global economy has already been significantly impacted,” Wichai Kinchong Choi, senior vice president of leading Thai bank Kasikornbank, said in a recent interview with Xinhua.

U.S. President Joe Biden signed the Fiscal Responsibility Act of 2023 into law on Saturday to avoid a historic default on government debt.

The bipartisan act suspends the public debt limit through Jan. 1, 2025 and increases the limit to the actual debt level on Jan. 2, 2025.

Since 1945, the United States has raised its debt ceiling 103 times.

The periodic U.S. debt crisis typically features the Republicans and Democrats bickering for their self-interests, which causes concerns and unease in markets, said Choi.

“It’s clear that the intense partisanship is increasingly politicizing the issue,” he said.

Although the U.S. Congress has agreed on the bill to raise the debt ceiling at the last minute to avoid a debacle, the measures taken by the U.S. government in response to the crisis have, to some extent, already indicated signs of deterioration in the country’s fiscal position and difficulties in revitalizing its economy, said Choi.

According to the banker, raising the debt limit is but a short-term fix. The root cause lies in the severe U.S. fiscal imbalance and budget deficit coupled with the reliance on the U.S. dollar hegemony to implement ultra-loose monetary policies in the face of economic crises.

The U.S. government bonds have long been considered a safe asset, but investors’ confidence has been affected by the repeated debt crises which erode the creditworthiness of the U.S. government and the value of dollar assets like Treasury Bonds, said Choi, pointing out that some agencies in Thailand have advised investors to consider selling dollars, Treasury Bonds, and U.S. tech stocks to mitigate investment risks.

He opined that the U.S. debt crisis further exposes the harm of dollar hegemony. In recent years, many businesses in countries like Thailand have begun to adopt “de-dollarization” methods in international trade due to the fluctuations of the greenback, the slump in the U.S. economy as well as potential political risk.

Following the outbreak of the Ukraine crisis, the United States and the West have implemented sweeping financial sanctions against Russia, excluding Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.

The weaponization of the dollar has compelled countries to seek a reduction in their dependence on the currency and establish a financial settlement system that is efficient, low-risk, and not subject to the whims of the U.S. financial system, said Choi.

“The U.S. debt crisis has made people wary of the U.S. dollar and Treasury Bonds. Such awareness has prompted many countries to begin reassessment. The current situation requires governments to develop a risk management system that caters to themselves and choose effective risk mitigation tools,” he concluded. 

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Asia and the Pacific remains a dynamic region despite the somber backdrop of what looks to be shaping up as a challenging year for the world economy.

Global growth is poised to decelerate as rising interest rates and Russia’s war in Ukraine weigh on activity. Inflation remains stubbornly high, and banking strains in the United States and Europe have injected greater uncertainty into an already complex economic landscape.

Asia’s domestic demand has so far remained strong despite monetary tightening, while external appetite for technology products and other exports is weakening. We project the region will contribute more than 70 percent of global growth this year as its expansion accelerates to 4.6 percent from 3.8 percent last year.

China’s reopening will provide fresh momentum. Normally the strongest effect would be from demand for investment goods in China, but this time the biggest effect is from demand for consumption. Other emerging economies in the region are on track to enjoy solid growth, though in some cases at slightly lower rates than seen last year.

Even so, the dynamic growth outlook doesn’t mean policymakers can be complacent. Some risks—such as public debt—we have recently discussed (including in our January blog) remain. Intensification of the recent global financial tremors could spark others.

Beyond these risks, persistent inflation remains a challenge. Global commodity prices have moderated after surging last year and supply chain pressures have eased, but inflation remains above central banks’ targets. Core inflation, which excludes food and energy, has also proven sticky.

Output gaps—measures of how closely demand is running to the capacity to meet demand, and hence the pressure on prices—for Asian economies are either narrowing or have already closed, while levels of economic capacity themselves might have fallen as a result of so-called economic scarring from the pandemic.

The effect of currency depreciation against the US dollar last year is still passing through to prices. The impact could be greater than usual, because of the already-high inflation, especially for emerging economies. These factors suggest that the battle to contain inflation isn’t over. With real interest rates still low—and negative in some countries—central banks may need to keep interest rates higher for longer.

The significant uncertainty about the path of global and regional financial conditions presents another challenge. The recent turbulence in some US and European banks serves as a cautionary tale about contagion risks. We have seen how some banks in Europe and the United States have struggled with rising interest rates.

Similarly, banks in Asia—particularly in advanced economies—could suffer losses from increases in wholesale funding costs and sudden declines in the market values of assets. Lenders in some emerging economies could face liquidity stresses following sudden deposit withdrawals or retrenchment in external funding lines. Some countries and sectors are significantly exposed to a sharp increase in external borrowing costs, though these risks have recently diminished somewhat.

Even aside from the potential spillovers from these kinds of external stresses, domestic vulnerabilities are evident. Leverage had increased even before the pandemic. Corporate debt is concentrated in firms at risk of insolvency and in a few sectors, such as property. Real estate prices in Asia are still historically high even after recent cooling; further declines could pressure banks’ balance sheets, especially those exposed to mortgage lending and real estate developers. Asian financial systems should be able to withstand these stresses as they are well capitalized and have strong liquidity buffers, but financial supervisors must be alert.

Fiscal consolidation amid high debt and rising interest rates is another challenge. Public debt levels in the region have increased significantly compared to before the pandemic. Most governments are expected to tighten budgets this year and next. However, the projected consolidation may not be enough to stabilize debt, and rising interest rates would make the burden even heavier.

Finally, there are heightened risks to economic growth in coming years. Although China is expected to rebound this year, it is likely to slow over the medium term, implying the lowest such growth rates for Asia in decades. In addition, China’s growth is likely to shift from investment to consumption. This could have significant implications for the region, especially for economies with sizable exports to China. Greater geoeconomic fragmentation would also add to pressures on growth potential.

What do these challenges mean for policymakers?

The best remedy for financial stress is prevention—policymakers should keep a close eye for stresses and develop contingency plans. Unless strains in financial markets increase and raise broad-based stability concerns, central banks should separate monetary policy objectives from financial stability goals. To do so, they should use available tools—such as lending and discount facilities—to ease any liquidity constraints in the banking sector, allowing them to continue to tighten policy to address inflationary pressures.

Fiscal consolidation may need to be more aggressive to ensure sustainability over the medium term—but policymakers must strike a balance between supporting growth, protecting the vulnerable, and addressing debt concerns.

The region must prioritize policy initiatives that foster innovation-driven economic development. The green transition presents a wide range of innovation opportunities that can become the region’s new growth drivers if leveraged effectively. By investing in research and development, promoting entrepreneurship, strengthening education and digitalization, Asian countries can foster sustainable, long-term growth.

Source: International Monetary Fund

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As policymakers and business leaders gather at the World Economic Forum in Davos, they are facing a Gordian knot of challenges .

From the global economic slowdown and climate change to the cost-of-living crisis and high debt levels: there is no easy way to cut through it. Added to this are geopolitical tensions that have made it even more difficult to address vital global issues.

Indeed, even as we need more international cooperation on multiple fronts, we are facing the specter of a new Cold War that could see the world fragment into rival economic blocs. This would be a collective policy mistake that would leave everyone poorer and less secure.

It would also be a stunning reversal of fortune. After all, economic integration has helped billions of people become wealthier, healthier, and better educated. Since the end of the Cold War, the size of the global economy roughly tripled, and nearly 1.5 billion people were lifted out of extreme poverty. This peace and cooperation dividend should not be squandered.

Rising fragmentation risks

And yet, not everyone has benefited from global integration. Dislocations from trade and technological change have harmed some communities. Public support for economic openness has declined in several countries. And since the global financial crisis, cross-border flows of goods and capital have been leveling-off.

But that’s only part of the story. Trade tensions between the world’s two largest economies have been rising amid a global surge in new trade restrictions. Meanwhile, Russia’s invasion of Ukraine has caused not only human suffering, but also massive disruptions of financial, food, and energy flows across the globe.

Of course, countries have always placed some restrictions on trade in goods, services, and assets for legitimate economic and national security considerations. Supply chain disruptions during the COVID-19 pandemic have also increased the focus on economic security and making supply chains more resilient.

Since the outbreak, mentions in companies’ earnings presentations of reshoring, onshoring, and near-shoring have increased almost ten-fold. The risk is that policy interventions adopted in the name of economic or national security could have unintended consequences, or they could be used deliberately for economic gains at the expense of others.

That would be a dangerous slippery slope towards runaway geoeconomic fragmentation.

Estimates of the cost of fragmentation from recent studies vary widely. The longer-term cost of trade fragmentation alone could range from 0.2 percent of global output in a limited fragmentation scenario to almost 7 percent in a severe scenario—roughly equivalent to the combined annual output of Germany and Japan. If technological decoupling is added to the mix, some countries could see losses of up to 12 percent of GDP.

Yet, according to new IMF staff analysis, the full impact would likely be even larger, depending on how many channels of fragmentation are factored in. In addition to trade restrictions and barriers to the spread of technology, fragmentation could be felt through restrictions on cross-border migration, reduced capital flows, and a sharp decline in international cooperation that would leave us unable to address the challenges of a more shock-prone world.

This would be especially challenging for those who are most affected by fragmentation. Lower-income consumers in advanced economies would lose access to cheaper imported goods. Small, open-market economies would be hard-hit. Most of Asia would suffer due to its heavy reliance on open trade.

And emerging and developing economies would no longer benefit from technology spillovers that have boosted productivity growth and living standards. Instead of catching up to advanced economy income levels, the developing world would fall further behind.

Focus on what matters most: trade, debt, and climate action

So, how can we confront fragmentation? By taking a pragmatic approach. This means focusing on areas where cooperation is essential, and delay is not an option. It also means finding new ways to achieve common objectives. Let me highlight three priorities:

First, strengthen the international trade system.

In a global economy beset with low growth and high inflation, we need a much stronger trade engine. Trade growth is expected to decline in 2023, which makes it even more critical to roll back the distortionary subsidies and trade restrictions imposed in recent years.

Strengthening the role of trade in the global economy begins with vigorous World Trade Organization reform and by concluding WTO-based market-opening agreements. But finding agreement on complex trade issues remains challenging, given the diverse World Trade Organization membership, increasing complexity of trade policy, and heightened geopolitical tensions.

In some areas, plurilateral agreements, among subsets of WTO members, can offer a path forward. Take the recent agreement on regulatory cooperation in service industries—from finance to call centers—which can reduce the cost of providing services across borders.

We also need to be pragmatic about strengthening supply chains. To be clear, while most supply chains have been resilient, recent disruptions to food and energy supplies have raised legitimate concerns. Still, policy choices such as reshoring could leave countries more vulnerable to shocks. IMF research shows that diversification can cut potential economic losses from supply disruptions in half.

Meanwhile, countries should carefully weigh the costs, at home and abroad, of national security measures on trade or investment. We also need to develop guardrails to protect the vulnerable from unilateral actions. A good example is the recently agreed requirement to exclude from food export restrictions the exports to humanitarian agencies such as the World Food Program.

But these efforts, while important, aren’t enough. We also need better policies at home, from improving social safety nets, to investing in job training, to increasing worker mobility across industries, regions, and occupations. This is how we can ensure that trade works for all.

Second, help vulnerable countries deal with debt.

Fragmentation could make it even more difficult to help many vulnerable emerging and developing economies that have been hard hit by multiple shocks. Take one particular challenge that many countries face: debt. Fragmentation will make it harder to resolve sovereign debt crises, especially if key official creditors are divided along geopolitical lines.

About 15 percent of low-income countries are already in debt distress and an additional 45 percent are at high risk of debt distress. Among emerging markets, about 25 percent are at high risk and facing default-like borrowing spreads.

There are signs of progress on the Group of Twenty’s Common Framework for debt treatment: Chad recently reached an agreement with its official and private creditors; Zambia is progressing toward a debt restructuring; and Ghana just became the fourth country to seek treatment under the Common Framework, sending a signal that it is seen as an important pathway for debt resolution. But official creditors have a lot more work to do.

Countries seeking debt restructuring under the Framework will need greater certainty on processes and standards, as well as shorter and more predictable timelines. And we need to improve processes for countries not covered by the Framework. To support these improvements, the IMF, World Bank and Indian G20 presidency are working with borrowers and public and private creditors to quickly establish a global sovereign debt roundtable, where we can discuss current shortcomings and make progress to address them.

These and other pragmatic actions, such as further progress on majority voting provisions in sovereign loans and climate resilient debt clauses, can help improve debt resolution. That would reduce economic and financial uncertainty, while helping countries get back to investing in their future.

Third, step up climate action.

Collective action is just as vital to address the climate crisis. Just last year, we saw climate disasters on all five continents, with $165 billion in damages in the United States alone. It shows the massive economic and financial risks of unmitigated global warming.

But last year also brought some good news. The agreement at COP27 to set up a loss and damage fund for the most vulnerable countries shows that progress is possible with enough political will. Now we must take further pragmatic steps to cut emissions and curb fossil fuels.

One potential game changer could be an international carbon price floor among major emitters. It would focus on carbon pricing or equivalent measures in an equitable process that would complement and reinforce the Paris Agreement. Or consider the “just energy transition partnerships” between groups of donors and countries such as South Africa and Indonesia.

We also need to step up climate finance to help vulnerable countries adapt. Innovative use of public balance sheets—such as credit guarantees, equity and first-loss investments—can help mobilize billions of dollars in private financing.

And, of course, we need better data around climate projects: harmonized disclosure standards and principles will help, as will taxonomies to align investments to climate goals.

The role of the IMF

In all these areas, the IMF will continue to support its members—through policy advice, capacity development efforts, and financial support.

Since the start of the pandemic, we have provided $267 billion in new financing. And thanks to the collective will of our membership, we provided a record $650 billion allocation of special drawing rights, boosting our members’ reserves. This allowed many vulnerable countries to maintain access to liquidity, freeing up resources to pay for vaccines and health care.

And we are now helping countries with stronger reserves to channel their SDRs to countries whose need is greater. This pragmatic measure could make all the difference in many countries. So far, we have around $40 billion in SDR pledges to our new Resilience and Sustainability Trust, which will help low- and vulnerable middle-income countries address structural challenges such as pandemics and climate change.

In other words, we know the global issues that matter most, and we know that confronting fragmentation in these vital areas is essential.

Pragmatic measures to fight fragmentation may not be the simple sword swipe that cuts the Gordian knot of global challenges. But any progress we can make in rebuilding trust and boosting international cooperation will be critical.

The discussions in Davos will be a hopeful sign that we can move in the right direction and foster economic integration that brings peace and prosperity to all.

Source : IMF

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