Policy Papers
2017
August 3, 2017
Negative Interest Rate Policies—Initial Experiences and Assessments
Description:
The depth of the crisis and the weakness of the ensuing recovery led to new ways
to implement monetary policy. At the onset of the crisis, central banks in several
advanced economies quickly moved policy rates to zero and initiated large-scale asset
purchases. In more recent years, with inflation still below target and limited support
from fiscal policy, several central banks lowered their policy rates below the previous
zero lower bound, embarking on so-called negative interest rate policies (NIRPs).
This paper explores the implications of NIRPs for monetary policy transmission
and banks’ behavior. It considers potential differences between interest rate cuts in
positive versus negative territory on deposit and lending rates, as well as banks’ interest
rate margins and profitability, and market functioning. The paper focuses on the bank
transmission channel, where differences between positive and negative policy rates
could arise. Finally, the paper reviews cross-country experiences through case studies.
August 2, 2017
The Role of the Fund in Governance Issues - Review of the Guidance Note - Preliminary Considerations - Background Notes
Description: The Background Notes in this Supplement provide essential context and analysis needed to understand the problem of governance and corruption, its impact on the economies of Fund members, and the history and nature of Fund engagement on these issues. They also seek to support the assessment of the Fund’s overall approach to promoting good governance and reducing corruption—including through the lenses of key stakeholders—with a view to identifying strength and closing any remaining gaps.
August 2, 2017
The Role of the Fund in Governance Issues - Review of the Guidance Note - Preliminary Considerations
Description: Following the request of the IMFC, this paper represents a first step in reassessing the Fund’s approach to tackling governance issues, the guidelines for which are contained in a 1997 Guidance Note. The paper examines the record of implementation of these guidelines in the period since the last such review was conducted in 2004, focusing on the handling of issues relating to corruption.
July 31, 2017
Collaboration Between Regional Financing Arrangements and the IMF
Description:
The Global Financial Safety Net (GFSN) has expanded considerably since 2008, including
in the non-traditional elements of the safety net such as Regional Financing
Arrangements (RFAs). The resulting multi-layered structure of the GFSN makes
collaboration between its various elements more important than in the past.
Specifically, stronger collaboration between the Fund and RFAs would help increase the
effective firepower of the GFSN and ensure a timely deployment of resources. The
Fund’s experience in macroeconomic adjustment and its universal risk pooling would
combine with the greater regional knowledge and country ownership brought the RFA.
In this way, improved collaboration between the Fund and RFAs, including in
co-financing, would significantly reduce the risk of contagion by encouraging countries
to seek early assistance from the Fund.
This paper is part of a broader set of proposals to fortify the GFSN (IMF, 2017b, c, d). It
proposes both modalities for collaboration—across capacity development, surveillance,
and lending—and some operational principles to help guide future co-lending between
the Fund and the various RFAs. To date, the only operational guidance to facilitate
collaboration has been limited to the high-level 2011 G20 Principles for Cooperation
between the IMF and RFAs. Building on several case studies and the principles derived
from them, this paper proposes an operational framework for future engagement. It
aims to start a more structured dialogue between the Fund and individual RFAs on the
modalities of how best to work together.
July 28, 2017
Poverty Reduction and Growth Trust--2017 Borrowing Agreements with the Bank of Italy
Description: On July 17, 2017, the Fund, as Trustee of the Poverty Reduction and Growth Trust (PRGT or Trust), entered into a new borrowing agreement (the “Agreement”) with the Bank of Italy (hereafter, Italy or Purchaser), by which Italy will provide new resources to the Extended Credit Facility Loan Account of the PRGT in the total amount of up to SDR 400 million
July 28, 2017
The Medium-Term Debt Management Strategy: An Assessment of Recent Capacity Building -- Annexes
July 28, 2017
The Medium-Term Debt Management Strategy: An Assessment of Recent Capacity Building
Description:
This report to the Boards of the International Monetary Fund (IMF) and the World Bank (WB) is the third in a series regarding the evolution of the Medium-Term Debt Management Strategy (MTDS) framework and the associated capacity building efforts. In 2007 the two Boards endorsed the development of the MTDS and ancillary tools, and mandated a program of technical assistance to help countries build capacity in this area. This endorsement and mandate reflect a recognition that sound debt management is critical both to macroeconomic stability and to the development and functioning of the financial sector.
The IMF and the WB have collaborated to deliver a large volume of MTDS-based technical assistance to numerous, diverse countries, with a focus on middle- and lower-income countries. Donors have recognized the importance of this work and have been generous in their support. The assistance has taken many forms, including country visits by staff and experts, the delivery of regional training events, and the organization of forums. As documented here, modes of delivery have evolved, with greater emphasis on tailoring to country circumstances, ownership, and coordination within and across agencies in the recipient countries.
The report and accompanying annexes describe how capacity building on MTDS has been adapted to keep abreast of country needs. An increasing number of countries have market access (such as through the issuance of Eurobonds or local currency bonds), and face the potential realization of contingent claims, which requires that the MTDS framework consider additional risk factors; more diverse scenarios and market risk metrics; and a wider range of strategies. In many countries, effective capacity building in MTDS was complemented by efforts to strengthen institutions and governance arrangements; debt recording; and government cash management. Linkages with the formulation of annual borrowing plans (ABP) and debt sustainability analysis (DSA) have been strengthened, but more work is needed. Providing a sustained stream of support, rather than one-off missions, often produced better results. Country ownership, often reflected in commitments under IMF- or WB-supported programs, has proven critical to the sustained enhancement of debt management capacity.
The value and effectiveness of these capacity building efforts are documented in the report using qualitative and quantitative metrics. The responses from national authorities to a questionnaire on their experience with MTDS technical assistance and the evolution of various quantitative indicators suggest that there were benefits and these were generally sustained. In particular, the majority of countries that had received technical assistance indicated that it helped them to introduce a structured and coherent approach to designing a debt management strategy (DMS) and raise awareness of risks among senior officials and broader stakeholders. Countries also appreciated advice on institutional and governance reforms and integrating debt management into macroeconomic policy formulation and implementation. The observations are supported by case studies detailing how technical assistance was successfully tailored to country needs. It is shown that many recipient countries are now better able to integrate debt management into overall economic policy formulation and adapt their debt management strategies to changing countries’ circumstances. For some, risk exposure indicators have improved even as debt levels have increased.
Looking forward, the report suggests that the MTDS framework and modes of delivery should continue to be updated and refined, while maintaining core functions. Some countries will need more sophisticated techniques both to analyze cost-risk trade-offs and to implement their chosen strategy. Others are still in the process of building a solid foundation for debt management. In addition to hands-on trainings, greater use of on-line learning may further enhance effectiveness and efficiency. Building institutional capacity in debt management is a long-term endeavor, often times requiring a more “programmatic” approach, and sustained client ownership. Such an approach would involve diagnosis followed by an actionable reform plan supported by tailored technical assistance.
The Boards are asked for their views on priorities in a strategy for future development of capacity building in this area, and how best to ensure that improvements in debt management are sustained.
July 28, 2017
2017 External Sector Report
Description:
Global current account imbalances were broadly unchanged in 2016, with minor shifts adding to the reconfiguration under way since 2013. The fall in commodity prices, uneven cyclical recoveries in systemic economies, and differences in policy responses contributed to the rotation of imbalances. Current account surpluses of oil-exporting economies, as a group, shifted from large surpluses to small deficits, while deficits in emerging and developing economies narrowed markedly. At the same time, surpluses and deficits in key advanced economies widened. These trends were generally supported by real exchange rate movements.
Overall excess current account imbalances (i.e., deficits or surpluses that deviate from desirable levels) represented about one-third of total global imbalances in 2016, remaining broadly unchanged since 2013, although increasingly concentrated in advanced economies. In particular, excess imbalances narrowed in emerging and developing economies, led by a smaller excess surplus in China and smaller excess deficits in others (Brazil, Indonesia, South Africa, Turkey). This narrowing, however, was accompanied by a widening of excess imbalances in some advanced economies. The persistence of large excess surpluses in several advanced economies (e.g. Germany, Korea, the Netherlands, Singapore, Sweden) remains a distinguishing feature of the constellation of imbalances, an issue that is explored in greater detail in this year’s report.
Persistent global excess imbalances suggest that automatic adjustment mechanisms are weak. While the rotation of excess imbalances toward advanced economies—with deficits increasingly concentrated in the United States and United Kingdom—likely entails lower deficit-financing risks in the near term, the increased concentration of deficits in a few economies carries greater risks of disruptive trade policy actions. Diverging stock positions coupled with continued overreliance on demand from debtor countries could also pose risks to global growth and raise the likelihood of disruptive adjustments down the road.
With nearly-closed output gaps in most systemic economies, addressing external imbalances in a growth-friendly fashion requires a recalibration of the policy mix in deficit and surplus economies alike. Excess deficit countries should move forward with fiscal consolidation, while gradually normalizing monetary policy in tandem with inflation developments. Excess surplus economies with fiscal space should reduce their reliance on easy monetary policy and allow for greater fiscal stimulus. Where monetary policy is constrained from playing a role, as in individual euro area members, fiscal and structural policies to facilitate relative price adjustments should take priority. Meanwhile, structural policies in excess surplus countries should focus on lifting distortions that constrain domestic demand or limit trade competition; while in excess deficit economies, policies should be directed to improving external competitiveness and overall saving. Protectionist and mercantilist policies should be avoided as they are detrimental to global growth.
July 28, 2017
2017 External Sector Report Individual Economy Assessments
Description:
The external sector assessments use a wide range of methods, including the External Balance Assessment (EBA) developed by the IMF’s Research Department to estimate desired current account balances and real exchange rates (see IMF Working Paper WP/13/272 for a complete description of the EBA methodology and Annex I of the 2015 External Sector Report for a discussion of more recent refinements). In all cases, the overall assessment is based on the judgment of IMF staff drawing on the inputs provided by these model estimates and other analysis. Since estimates are subject to uncertainty, overall assessments are presented in ranges. The external sector assessments are based on data and IMF staff projections as of June 15th, 2017.
The external assessments discuss a broad range of external indicators: the current account, the real effective exchange rate, capital and financial accounts flows and measures, FX intervention and reserves and the foreign asset or liability position.[1] The individual economy assessments are discussed with the respective authorities as a part of bilateral surveillance.