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Linkages between the real and financial sectors in an economy can lead to a buildup of balance sheet mismatches of key entities-corporates, financial institutions, households, and the public sector. Once such imbalances have built up, they can make the economy vulnerable to macroeconomic shocks, whether external or domestic in origin. This paper discusses the key mismatches that can make entities vulnerable to shocks and how such vulnerability can build up during the business cycle. Against this backdrop, the paper then discusses a framework and potential indicators that may be useful to monitor such developments. These indicators are being developed as part of the MFM macro-financial monitoring effort. The paper is organized as follows. Section two provides a brief discussion of the risks associated with these different balance sheet mismatches. Section three discusses how positive shocks in the real sector-such as an upturn in domestic business cycles (which in turn are often instigated or accompanied by external developments such as capital inflows)-can interact with the financial sector and lead to a build-up of balance sheet mismatches. Section four then describes how, once such vulnerability has been built up, a negative shock can lead to a downward spiral of credit contraction and economic downturns. Finally, section five discusses a possible set of indicators for measuring the buildup of vulnerability.

Business Cycles and Stabilization Policies --- Economic Conditions and Volatility --- Macroeconomic Management --- Macroeconomics and Economic Growth

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Strong economic growth continued in 2014-15, but the drought slowed down Ethiopia's growth to 8 percent in 2015-16. Exports have had their worst performance in the last decade and the current account balance remained large. Inflation is remarkable stable given the recent drought and even declining; it stood at 5.6 percent in October 2016. Understanding the nature of urban labor markets is important for a successful transition to a manufacturing and service-oriented economy and to further reduce poverty. Many urban labor market trends are moving in the right direction although there has been little change in the structure of urban labor markets over time. Although jobs are being created faster than growth in the urban workforce, not enough jobs are being created for those with primary and secondary education. This economic update offers five policy recommendations to enhance urban labor markets: encourage firm creation and firm growth that creates jobs for non-graduates; increase labor productivity in the low-skill population segment by addressing constraints faced by firms in accessing capital (financial and physical) to ensure that the marginal product of labor increases above the nutrition-based wage; invest further in job training and technical training programs to build the skills of those in the job market: both for low-skilled workers to increase their productivity and for those with higher levels of education to increase their skill base; introduce targeted urban safety nets and labor market programs to invest in skills of low skilled employees and the unemployed, and provide financial support to enable their job search; and enhance the use of information communication and technology (ICT) to provide information on job vacancies throughout the city and reduce the cost of job search.

Analysis of Economic Growth --- Economic Growth --- Economic Management --- Fiscal & Monetary Policy --- Labor Market --- Labor Markets --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Monetary Policy --- Social Protections and Labor --- Unemployment

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The Royal Government of Bhutan (RGoB) places high priority on good governance, and sound public financial management is one of the key elements of good governance. Over the past decade, Bhutan has been making steady progress in strengthening public financial management covering budget preparation, budget execution, control, reporting and oversight. There is increased legislative oversight on budget approval through a Finance Committee and of audit reports through a Public Accounts Committee. As in other countries, the public at large has become more demanding in terms of transparent and efficient government. The purpose of the assessment of the Public Financial Management (PFM) performance of the Royal Government of Bhutan (RGoB) was threefold: (i) to assess the quality (strengths and weaknesses) of PFM in the country against generally accepted international standards; (ii) to assess progress since the last Public Expenditure and Financial Accountability (PEFA) assessment in 2010, and (iii) to provide RGoB and other stakeholders with a common source of information as a basis for further dialogue on PFM reforms. This assessment was carried out under the approach of full ownership by RGoB and self-assessment by its officials, with technical support from World Bank and International Monetary Fund (IMF).

Accounting --- Governance --- Local Government --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Other Accountability/anti-Corruption --- Public Expenditure, Financial Management and Procurement --- Public Sector Development --- Public Sector Governance

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Since 2009, insecurity in the North-East of Nigeria has led to the loss of over 20,000 lives and the displacement of over two million people. Throughout the region livelihoods have been disrupted, and homes, public buildings and infrastructure destroyed. In a part of Nigeria where 80 percent of people rely on agriculture for their livelihoods, much has been lost. People have been forced from their land and livestock has been killed. In many areas, land mines and other remnants of war bring challenges for safe and voluntary return. While Borno, Adamawa and Yobe States bore the brunt of the direct impacts of the conflict, the three neighboring states of Gombe, Taraba and Bauchi have taken in scores of people who have been displaced, taxing their communities, economic resource, social services and infrastructure. Schools have been damaged, health clinics destroyed and many people have been left vulnerable by this crisis. The Government of Nigeria has made great strides in retaking and stabilizing large portions of the North-East, but the work to restore the lives of those affected is just beginning. This assessment, led by the Government of Nigeria and supported by local, national and international partners, has helped quantify the physical, social and economic impacts of the crisis in the North-East, and will inform the process of stabilization, peace building and recovery in the region. The RPBA is a necessary tool that will help us gather the resources and develop the capacities to address these challenges. The results will help reduce suffering in affected communities, restore a sense of normalcy and regain the trust of people in the region.

Conflict --- Conflict and Development --- Employment --- Gender --- Human Rights --- Infrastructure --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Post Conflict Reconstruction --- Poverty Reduction --- Social Development --- Youth

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Cambodia's economic activity continues to expand, led by solid growth in garment exports and strong construction activity. Real growth is projected to reach 7.0 percent in 2016, in line with the resilient performance across the region. The economy is projected to sustain its high growth trajectory, expanding at 6.9 percent in both 2017 and 2018 propelled by exports and government consumption. The agriculture sector is expected to improve slightly due to better weather conditions this year and to expand gradually in the near term, thanks to concerted efforts by all stakeholders, in particular the public sector. Risks, however, include potential uncertainty related to commune and general elections in 2017 and 2018, respectively, a sharp decline in the construction and real estate sector, fallout from a rise in US interest rates, regional tensions and slower global growth. Although severe drought caused by El Nino is a challenge, the downward trend of poverty is expected to continue over the next few years, albeit driven mainly by the garment, construction, and services sectors. The agriculture sector, which was the main driver of poverty reduction in the past has recently eased.

Agriculture --- Analysis of Economic Growth --- Economic Growth --- Economic Management --- Fiscal & Monetary Policy --- Fiscal Policy --- Footwear Industry --- Foreign Direct Investment --- Garment Industry --- Industry --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Monetary Policy --- Poverty --- Trade Policy