Policy Papers
2017
July 5, 2017
Increasing Resilience to Large and Volatile Capital Flows—The Role of Macroprudential Policies
Description:
Capital flows can deliver substantial benefits for countries, but also have
the potential to contribute to a buildup of systemic financial risk.
Benefits, such as enhanced investment and consumption smoothing, tend to be
greater for countries whose financial and institutional development enables
them to intermediate capital flows safely. Macroprudential frameworks can play an important role
over the capital flow cycle, and help members harness the benefits of
capital flows. The Fund has two frameworks to help ensure that its advice on MPPs and
policies related to capital flows is consistent and tailored to country
circumstances. The frameworks (the Macroprudential framework and the
Institutional View on capital flows) are consistent in terms of key
principles, including avoiding using MPMs and capital flow management
measures (CFMs) as a substitute for necessary macroeconomic adjustment.
The appropriate classification of measures is important to ensure targeted
advice consistent with the two frameworks. The conceptual framework for the
assessment of measures laid out in this paper will assist staff in properly
identifying MPMs and measures that are designed to limit capital flows and
to reduce systemic financial risk stemming from such flows (CFM/MPMs), and
thereby ensure the appropriate application of the Fund’s frameworks, so
that staff policy advice is consistent and well targeted. The Fund will
continue to develop and share expertise in using MPMs, and integrate these
findings into its surveillance and technical assistance, which should
contribute to building international understanding and experience on these
issues.
Post-crisis reforms, including the development of macroprudential policies
(MPPs), are helping to strengthen the resilience of financial systems
including to shocks from capital flows. The Basel III process has improved
the quality and level of capital, reduced leverage, and increased liquid
asset holdings in financial systems. Drawing on and complementing such
international reforms at the national level, robust
macroprudential policy frameworks focused on mitigating systemic risk can
improve the capacity of a financial system to safely intermediate
cross-border flows.
June 23, 2017
Eighth Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations
Description:
The Eighth Periodic Monitoring Report (PMR) on the Status of Management Implementation Plans (MIPs) in Response to Board-Endorsed IEO Recommendations assesses the progress made over the last year on actions contained in the four MIPs arising from recent IEO evaluations, and another four for which individual management actions were classified as still “in progress” in the Seventh PMR. Overall, 34 of the 77 actions included in the eight MIPs covered in this PMR remain open. Progress on the actions envisaged in the management implementation plans has been somewhat uneven, with more progress being made on the most recent MIPs. Of the 19 actions that have been implemented over the past year, only three relate to the older management actions. Many of the older actions are more broadly worded, and in many instances have no clear timetable. The actions that are progressing more slowly also tend to involve fundamental changes to institutional culture and practices, and therefore require a continuous, long-term effort. In spite of the slower progress on the older actions, significant advances have been made in several key areas. These include: Fund-wide risk analysis and management; the mainstreaming of macro financial surveillance; training on financial sector topics and macro forecasting; acknowledgement, discussion, and dissemination of information on IMF forecasts; the shift towards increasing reliance on quota resources, relative to borrowing; and the approval of the new Statement of Principles and Best Practices in Self-Evaluation. In addition, the 2015 Staff Survey showed significant improvements in several indicators related to the Fund’s internal culture and institutional values.
June 14, 2017
Building Fiscal Capacity in Fragile States
Description: The paper draws on recent country experience to describe the approach to designing and implementing fiscal reforms in fragile states (FS) taken in the IMF’s technical assistance (TA). In doing so, it highlights how the TA that the IMF provides to FS differs from that of non-FS, describes the trends in and modalities of TA delivery, and draws on recent experiences to derive lessons for future work.
June 13, 2017
If Not Now, When? Energy Price Reform in Arab Countries; April 2017 Rabat, Morocco
Description: Regulating energy prices has been a common practice around the world. The objective is, generally, to facilitate access to energy products, which are central to people’s well-being and countries’ economic development. However, energy price regulation also leads to wasteful and excessive consumption, discourages investment in the energy sector, and locks in inefficient technologies. Low energy prices also result in subsidies that erode fiscal space, while benefits for the poor are limited. All these effects have been evident in Arab countries, where domestic energy prices are among the lowest in the world. The current environment of low oil prices offers a unique opportunity for change. Lessons from international experience suggest how well thought-out and sequenced reforms can be successful.
June 6, 2017
Social Safeguards and Program Design in PRGT and PSI-Supported Programs
Description:
The Fund provides considerable support to low-income countries (LICs). This includes concessional financing from the Poverty Reduction and Growth Trust (PRGT), which currently carries an interest rate of zero percent. Since 2010, over half of Fund-supported arrangements have involved a PRGT facility. Support for poverty reduction is a core objective of arrangements supported by these facilities.
This paper examines how PRGT-supported programs safeguard spending on poor and vulnerable groups within the broader framework of promoting inclusive growth. In some cases, national poverty reduction programs seek to shift expenditures toward social programs in the context of generally higher spending supported by domestic revenue mobilization, grants, or debt financing. In other cases, the goal is to safeguard poor and vulnerable groups from fiscal adjustment and reform measures that could adversely affect them by adopting countervailing policy measures to strengthen social safety nets. In discussing social safeguards, this paper focuses on how and if these objectives are reflected satisfactorily in the design of PRGT and PSI-supported programs. The effectiveness of social spending in improving social outcomes, including by durably reducing poverty, is beyond the scope of the paper.
May 31, 2017
Second Review of the Implementation of Government Finance Statistics Framework to Strengthen Fiscal Analysis
Description:
This paper reports on the further developments since 2013 in the implementation of the 2010 Board decision concerning Government Finance Statistics (GFS) to Strengthen Fiscal Analysis, and develops a path to continued improvement of fiscal data in the Fund. The Board decision approved (i) developing a staggered migration strategy, including tailored capacity development inside and outside the Fund taking into consideration country-specific and fiscal surveillance needs; (ii) encouraging staff to continue the effort to routinely assess financial balance sheets during surveillance; (iii) gradually expanding the coverage of fiscal data, taking into consideration country-specific circumstances and fiscal risk assessments; and (iv) reaffirming the support for the phased implementation of the GFS over the medium term.
May 30, 2017
Review of the Fund's Income Position for FY 2017 and FY 2018
Description:
The Fund’s total net income for FY 2017, including surcharges, is projected at about SDR 1.7 billion or some SDR 0.7 billion higher than expected in April 2016. This mainly reflects the IAS 19 adjustment (relating to reporting of employee benefits), which is expected to contribute about SDR 0.4 billion to net income, and higher investment income. Lending income is expected to be modestly lower than the April 2016 estimates.
The paper recommends that GRA net income of SDR 1.2 billion for FY 2017 (which excludes projected income of the gold endowment), be placed equally to the special and general reserve. After the placement of GRA FY 2017 net income to reserves, precautionary balances are projected to reach SDR 16.4 billion at the end of FY 2017. The paper further proposes to transfer currencies equivalent to the increase in the Fund’s reserves from the GRA to the Investment Account.
In April 2016, the margin for the rate of charge was set at 100 basis points for the two years FY 2017 and FY 2018. The margin may be adjusted before the end of the first year of this two-year period (i.e., FY 2017) but only if warranted by fundamental changes in the underlying factors relevant for the establishment of the margin at the start of the two-year period. Staff does not propose a change in the margin.
The projections for FY 2018 point to a net income position of SDR 0.7 billion. These projections are subject to considerable uncertainty and are sensitive to a number of assumptions.
May 23, 2017
Eligibility to Use the Fund's Facilities for Concessional Financing for 2017
Description:
The review of PRGT-eligibility, conducted biennially, is guided by a
transparent, rules-based, and parsimonious framework. The framework
determines which IMF members can access concessional resources based on an
assessment of their level of income per capita, market access, and serious
short-term vulnerabilities. Application of the framework should be
consistent with the self-sustainability of the PRGT’s lending capacity over
time.
This paper concludes that the existing framework remains generally
appropriate. The PRGT-eligibility framework is broadly aligned with the
World Bank’s International Development Association practices, with minor
differences between the lists of eligible countries explained by
differences in the mandates of the two institutions and the timing of their
respective review cycles. None of the countries that have graduated from
the PRGT-eligibility list are at immediate risk of re-entering it.
No country is proposed for graduation from or entry onto the
PRGT-eligibility list. While thirteen countries meet either the income or
market access graduation criterion, all are assessed to be facing serious
short-term vulnerabilities and thus none are proposed for graduation. No
non-PRGT-eligible country meets the criteria for entry onto the
PRGT-eligibility list.
The proposal to keep the list of PRGT-eligible countries unchanged is
consistent with the self-sustained capacity of the PRGT.
May 22, 2017
State-Contingent Debt Instruments for Sovereigns - Annexes
Description: These annexes accompany the IMF Policy Paper State Contingent Debt Instruments for Sovereigns
May 22, 2017
State-Contingent Debt Instruments for Sovereigns
Description:
Background. The case for sovereign state-contingent debt instruments (SCDIs) as a countercyclical and risk-sharing tool has been around for some time and remains appealing; but take-up has been limited. Earlier staff work had advocated the use of growth-indexed bonds in emerging markets and contingent financial instruments in low-income countries. In light of recent renewed interest among academics, policymakers, and market participants—staff has analyzed the conceptual and practical issues SCDIs raise with a view to accelerate the development of self-sustaining markets in these instruments. The analysis has benefited from broad consultations with both private market participants and policymakers.
The economic case for SCDIs. By linking debt service to a measure of the sovereign’s capacity to pay, SCDIs can increase fiscal space, and thus allow greater policy flexibility in bad times. They can also broaden the sovereign’s investor base, open opportunities for risk diversification for investors, and enhance the resilience of the international financial system. Should SCDI issuance rise to account for a large share of public debt, it could also significantly reduce the incidence and cost of sovereign debt crises. Some potential complications require mitigation: a high novelty and liquidity premium demanded by investors in the early stage of market development; adverse selection and moral hazard risks; undesirable pricing effects on conventional debt; pro-cyclical investor demand; migration of excessive risk to the private sector; and adverse political economy incentives.