Shanghai’s financial district: China’s slowdown is a key trend affecting the global economy, IMF says (photo: Imaginechina/Corbis)
IMF WORK PROGRAM
The latest IMF Work Program centers on translating the directions laid out in the Global Policy Agenda in October into a concrete plan for the next twelve months.
The agenda highlights the need to support growth, invest in resilience and safeguard financial stability, implement the structural reforms needed for sustainable and inclusive medium-term growth, and fortify the international monetary system.
In the following interview, Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, discusses the institution’s priorities in the coming months.
IMF Survey: How are the IMF’s priorities shifting in response to global developments?
Tiwari: The work program is responding to three transitions under way in the global economy, all of which are relevant for the Fund and the way we engage.
One is the prospect of raising interest rates in the United States and its consequences. That transition will have an impact on advanced economies and, more importantly, emerging markets. Emerging markets have been slowing in recent years, and tightening financial conditions could put further pressure on them and make it more difficult for them to converge.
The second transition, which will be important in 2016, is China’s rebalancing. China’s economy is expected to slow as it rebalances growth, and the world is watching very closely to see what the impact will be.
The third transition—which is partly a consequence of the second—is falling commodity prices, a phenomenon that will affect many emerging market economies.
IMF Survey: The IMF Managing Director has called for the IMF to be more agile, integrated, and focused on its member countries. How does the work agenda advance this goal?
Tiwari: A key focus of this work program is “AIM,” which stands for agility, integration, and member focus. By agility, we mean responding to the transitions that are in play—being able to look at the spillovers, anticipate consequences before they happen, and focus on lifting growth in an environment where the room for policy maneuver is decreasing.
By integration, we will better align policy advice across sectors and take advantage of synergies across work streams. For example, we are focusing on integrating our capacity building activities more closely with our surveillance and lending operations.
We are also taking into greater account the “knock-on” effect of policies. Take, for example, the imminent rise in interest rates in the United States and its impact on emerging markets. Our analysis is looking at macrofinancial and other potential linkages, and how emerging markets should respond. A lot of this work used to be done separately, but it’s become clear that it's absolutely connected.
By member focused, we mean seeking to understand the concerns of the membership before, say, beginning a new study or initiating a policy change. We are engaging with the membership at the outset and then seeking feedback at the conclusion.
IMF Survey: The IMF has put a lot of emphasis on structural reforms as a means of spurring growth. How will the institution take this line of work forward?
Tiwari: After the global financial crisis, growth took a plunge, and then potential growth was revised downward. We need to raise potential growth, and an important vehicle is structural reform. In Europe, policymakers have been encouraged to focus on labor market and product market reforms. In other parts of the world, the key to raising potential growth is financial deepening, financial inclusion, and infrastructure spending.
Our work over the past year has shown that for each category of economies—low-income, emerging markets and advanced—there are two sets of structural reforms that have a large payoff. The first is banking sector reforms and the second is infrastructure spending. Then there are reforms that are specific to each stage of development. But what’s becoming clear is that there should be more focus on structural reforms to raise the growth potential rather than to respond to a crisis. These measures will make the global economy more resilient.
IMF Survey: How is the IMF leveraging the role of capacity development in its engagement with countries?
Tiwari: This important area of the IMF’s work makes countries more resilient by developing capacity on the ground and allowing for transfer of technology and skills. This skills transfer takes place through channels such as technical assistance, classroom or online training, or our regional training and technical assistance centers.
A study released a couple of years ago showed that countries with a long-term engagement with the IMF performed better in terms of growth and spending on social sectors. We analyzed this to determine why, and in the end, it was because of capacity development. There was a transfer of knowledge and a strengthening of institutions that allowed countries to prevent a crisis rather than waiting until after a crisis occurred.
IMF Survey: The IMF played a key role at the Financing for Development conference in Addis Ababa in July. How is the work program advancing the new global development agenda?
Tiwari: The IMF already delivered actions in Addis as opposed to just making commitments. In connection with that conference, we approved a series of concrete measures to help developing countries pursue the post-2015 Sustainable Development Goals. We expanded access to all of our concessional facilities by 50 percent—making more money available for eligible low-income countries—and we set the interest rate at zero for all loans extended under the Rapid Credit Facility, a facility focused on countries hit by natural disasters and fragile or post-conflict states.
We will follow up with work on the spillover effects of international tax initiatives and on financial deepening and inclusion. We will also provide support for domestic revenue mobilization, expenditure efficiency and effectiveness, and attracting and managing capital flows. These are areas where the IMF has a comparative advantage, and we will do more work on these topics over the next several months.
IMF Survey: Will the Fund continue its work on such areas as inequality, climate change, and gender, which lie outside the IMF’s traditional areas of focus?
Tiwari: The primary goal of the IMF is to promote global economic stability. When issues and topics that have mostly been outside of our traditional areas of focus begin to have an impact on the Fund’s macrostability mandate, it is incumbent on the institution to be engaged in such areas. We did that, for example, with the focus on poverty starting in the late 1990s. The current pace of global change implies that, more than ever, new issues are bearing on the Fund’s mandate and our work program needs to adapt to meet the new challenges. The key is to factor issues into our work proactively so that we can formulate appropriate positions and advice before they create macrofinancial instability. Our work program on the topics of inequality, climate change, and gender reflects this overall approach.
