The IMF’s work program for the next six months focuses on emerging economies and the transitions currently under way in the global economy (photo: IMF)
IMF Work Program
The IMF Executive Board’s twice-yearly discussion of the IMF’s work agenda focused on translating the directions laid out in the Global Policy Agenda and the Communiqué of the International Monetary and Financial Committee (the IMF’s policy steering committee) in October into a concrete plan for the institution.
The work program for the next twelve months emphasizes the need to manage a series of transitions already under way in the global economy, including the normalization of global financial conditions, a shift in growth dynamics, a rebalancing of global demand, and the completion of global financial system reform.
In the following interview, Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, talks about the IMF’s priorities in the period ahead.
Emerging market economies are playing a greater role in the global economy, but they are also exposed to greater risk. How is the IMF helping these countries meet their challenges?
One major shift in the work program is an increased focus on emerging market economies. Emerging markets are rising in importance—together with developing countries, they already account for about half of global GDP in Purchasing Power Parity terms; in another decade, they will account for close to two-thirds. First, we are seeking to understand what factors drove their recent rapid growth, and why they are now slowing. We are examining to what extent the slowdown is connected with the tightening of global financial conditions, to what extent it is the result of more homegrown issues, and what these countries can do to maintain strong and well balanced growth going forward. Another part of our work agenda focuses on the role of financial deepening in emerging markets, which is important to provide greater resilience to shocks and support growth. Finally, we will also look at the consequences of the global regulatory reform agenda for the stability of emerging market economies.
What work is planned on unconventional monetary policy and the impact of its unwinding?
Issues related to the exit from unconventional monetary policy will be a key part of our work, both for advanced and developing economies. There are several immediate challenges. For advanced economies that use unconventional monetary policy, the question is quite fundamental: when and how to unwind the stimulus smoothly with minimal repercussions. For emerging and frontier economies, the episodes of market uncertainty in emerging markets over the summer following the U.S. taper talk raised important questions of how to manage the risks and implications of sudden movements of capital. These countries want to know to what extent they can calibrate monetary policy, exchange rates, and other policies, and they have questions about the broader design of policy frameworks and instruments that can provide financial insurance. After the first phase of work is done, we will take a more fundamental look at the topic with next fall’s umbrella paper “Monetary Policy: Its Role Now and in the Future,” which will discuss principles and architecture issues for the future conduct of monetary policy.
The IMF has been putting greater emphasis on the need for policy coherence across countries, taking into consideration the cross-border spillovers of policies. How is this reflected in the work program?
We will continue to analyze the multilateral consistency of members’ policies through the implementation of the Integrated Surveillance Decision and our work on Spillover Reports and the pilot External Sector Report. Our member countries have said we need to do a better job of bringing the multilateral aspect into our bilateral surveillance activities—for example, by integrating the spillover work and exchange rate work into individual Article IV Consultation analyses. The Triennial Surveillance Review, which is coming up next fall, will, among other issues, assess how well we are doing at considering the broader picture in our bilateral surveillance.
One new area of work focuses on spillovers and international taxation. We are seeing that differences in national tax policies create opportunities for avoidance and evasion that can lead to economic dislocations and a level of taxation that is lower than countries would otherwise prefer. So we will look at current international income tax rules and practices, assess their macroeconomic importance, and explore possible policy responses.
High deficits and debt remain a concern in many countries. How will the work program address these concerns?
It is useful to distinguish between policies to limit the risk of an unsustainable accumulation of debt and polices to handle situations where debt burdens are already severe.
Staff is in the process of completing a review of the IMF’s policies on debt limits in Fund-supported programs, with the primary effort focused on low-income countries, where issues of weak institutional capacity and the importance of promoting lending on concessional terms are of particular concern. The new policy, once approved by the Executive Board, is intended to be more flexible, in terms of allowing borrowing countries greater choice in exploring their financing options, while at the same time seeking to ensure that borrowing levels and terms do not threaten debt sustainability. In addition, we are doing work on the IMF-World Bank guidelines on debt management.
Sovereign debt restructuring is another area of upcoming work. Here we will focus on strengthening the contractual approach to debt restructuring and bolstering the IMF’s framework for lending in high debt situations. We will reach out to various stakeholders in both the public and private sectors and take into account their comments.
How will the IMF build on ongoing efforts to generate jobs and enhance growth?
At the end of the day, our surveillance, program work, and capacity building has to translate into jobs. One emphasis of the new work program is on structural reforms, and how these reforms can support growth. With the space for fiscal and monetary policy diminished significantly, the focus of jobs and growth is now on structural reforms. For the 2014 Triennial Surveillance Review, there will be a background paper that will explore whether the institution is focused on macro-critical structural reforms and whether we have given consistent advice in these areas.
By structural reforms, I mean reforms to reduce the inefficiencies in the economy. One good example of this is fossil fuel subsidy reform, something the IMF focused on last year. These reforms help release fiscal resources to cut deficits and support more productive and better targeted government spending, including on education, infrastructure, and training.
Looking beyond the immediate threats to the global economy, what long-term challenges is the IMF studying?
We are looking at where the world could be in 2030 or 2050. It is pretty clear that we will move to a multipolar world—United States, European Union, China, and perhaps even India could have similar GDP weights; clearly, the role of emerging markets will increase. We are also looking at where the world might be more vulnerable—whether from fragile states or water shortages—and thinking about the IMF’s role in resolving these vulnerabilities.
We have already begun to look at such challenges as whether inequality in countries threatens macroeconomic stability and whether an increase in the female labor force participation rate is a source of boosting growth. These issues are not the IMF’s core area of work, but they are trends we should think about, as they affect jobs, growth, and the macroeconomy.
