Policy Papers
2016
June 23, 2016
Assessing Fiscal Space - An Initial Consistent Set of Considerations
Description:
Fiscal space is a multi-dimensional concept reflecting whether a government
can raise spending or lower taxes without endangering market access and
debt sustainability. Making such a determination requires a comprehensive
approach considering, among other things, initial economic and structural
conditions, market access, the level and trajectory of public debt, present
and future financing needs, and dynamic analysis of the liquidity and
solvency of the fiscal position under alternative policies. Balancing these
considerations involves careful analysis and judgment.
Fund staff has over the years developed a variety of indicators to inform
assessments of fiscal space in bilateral and multilateral surveillance. The
Fund’s core operational framework for such analysis is the debt
sustainability framework, which includes a number of indicators, while
allowing room for staff judgment. Surveillance also relies importantly on
indicators developed by the Fiscal Affairs Department (FAD)––including
those that have been used in the internal Vulnerability Exercise and Fiscal
Monitors––while more recent methods based on fiscal stress tests and
probabilistic approaches proposed in IMF (2016) are also promising. In
addition, teams have used scenario analysis and general equilibrium
modeling approaches to evaluate fiscal policy choices and their
implications for sustainability. When applied to fiscal space, each
indicator and approach has pros and cons and none covers all the relevant
factors. Ultimately, therefore, assessing fiscal space requires judgment,
informed by a broad range of tools.
This note seeks to bring together various approaches developed by Fund
staff to outline a consistent set of considerations and indicators to help
inform assessments of fiscal space, especially for advanced and emerging
markets. The intent is to facilitate continued consistency between country
team assessments by providing some common considerations and approaches to
inform their judgment. The proposed framework will support Fund
surveillance and policy advice going forward, informing discussions of the
appropriate fiscal stance at all stages of the economic cycle.
Read More
June 20, 2016
Implementation Plan in Response to the Board-Endorsed Recommendations for the IEO Evaluation Report on Self-Evaluation at the IMF
Description:
This paper sets out Management’s response to the Independent Evaluation Office’s (IEO) evaluation report on Self-Evaluation at the IMF.
The implementation plan proposes specific actions to address the recommendations of the IEO that were endorsed by the Board in its September 18, 2015 discussion of the IEO’s report, namely: (i) adopt a broad policy or general principles for self-evaluation in the IMF, including its goals, scope, outputs, utilization, and follow-up; (ii) give country authorities the opportunity to express their views on program design and results, and IMF performance; (iii) for each policy and thematic review, explicitly set out a plan for how the policies and operations it covers will be self-evaluated; (iv) develop products and activities aimed at distilling and disseminating evaluative findings and lessons.
The implementation of some of these proposed actions is already underway. The paper also explains how implementation will be monitored.
June 8, 2016
Statement by the Managing Director on the Work Program of the Executive Board - Executive Board Meeting - June 8, 2016
Description: The Managing Director’s Global Policy Agenda (GPA) presented to the International Monetary and Financial Committee (IMFC) in April called on member countries to reinforce their commitment to strong, sustainable, inclusive, job-rich, and more balanced global growth and to employ a three-pronged approach with monetary, fiscal, and structural actions (Figure 1). The global economy has been impaired by growth that has been too slow for too long, but it can get back on a stronger and safer track with a more forceful and balanced policy mix. Building on the approach of being agile, integrated, and member-focused, the GPA outlined how the Fund would support members in crafting a better policy mix toward durable global growth. The Fund would assist by clarifying the contours of available policy space, providing more tailored financial support and capacity development, and continuing to address new challenges.
June 7, 2016
Strengthening the Framework for Post Program Monitoring
Description: Post-Program Monitoring (PPM) is an important part of the Fund’s safeguards architecture. It provides a framework for closer engagement with members that have substantial outstanding Fund credit but are no longer in a program relationship, and helps identify risks and provide advice on policies that will assist these members in repaying the Fund. The significant expansion in Fund credit since the global financial crisis, much of it through medium-term financing of members with high access levels, puts a premium on this form of monitoring. The design and implementation of the current policy can be strengthened. Read More
June 3, 2016
Guidance Note on the Assessment of Reserve Adequacy and Related Considerations
Description:
This note provides operational guidance to staff on reserve adequacy discussions in the IMF’s bilateral and multilateral surveillance. It is based on the views presented in the policy paper Assessing Reserve Adequacy—Specific Proposals and the related Board discussion. The note addresses key issues related to Staff’s advice on the assessment of the adequacy of reserves and related items, including answering the following questions:
May 13, 2016
Group of Twenty - Reinvigorating Trade to Support Growth: A Path Forward
Description:
Reinvigorating trade integration should be a key component of the global policy agenda to boost growth. Trade policy’s new frontiers such as services, regulatory cooperation, and trade and investment complementarities carry high potential to bolster efficiency and productivity. But with governments differing on whether to continue the WTO Doha Round, there is an urgent need to identify a path for the global trading system in today’s more complex trade policy landscape. A long interregnum without a path forward would risk fragmenting the global trade system and undermining its governance.
Tackling trade policy issues important to the global economy may require flexible approaches to multilateral negotiations, including modalities such as plurilaterals.
Enhanced coherence efforts are also needed to ensure that regional trade agreements and multilateralism coexist productively.
May 4, 2016
Analyzing and Managing Fiscal Risks - Best Practices
Description:
Comprehensive analysis and management of fiscal risks can help ensure sound fiscal public finances and macroeconomic stability. This has been underscored by the global financial crisis and the more recent collapse in commodity prices, which starkly illustrate the vulnerability of public finances to risk. Indeed, over the past quarter century, governments experienced on average an adverse fiscal shock of 6 percent of GDP once every 12 years, with some of the largest stemming from financial crises.
Countries need a more complete understanding of these potential threats to their fiscal position. Existing fiscal risk disclosure and analysis practices tend to be incomplete, fragmented, and qualitative in nature. A more comprehensive and integrated assessment of the potential shocks to government finances, in the form of a fiscal stress test, can help policymakers simulate the effects of shocks to their central forecasts and their implications for government solvency, liquidity, and financing needs. Comprehensive, reliable, and timely fiscal data covering all public entities, stocks, and flows are a necessary foundation for such analysis.
Countries should also enhance their capacity to mitigate and manage fiscal risks. Fiscal risk management practices are often blunt, ad hoc, and too focused on imposing limits on the creation of exposures. Countries need to expand their toolkits for fiscal risk management and adopt the use of instruments to transfer, share, or provision for risks. In doing so, countries need to weigh the possible benefits from reducing their exposure to shocks against the financial and other costs of the policies that may be needed.
Finally, countries should make greater use of probabilistic forecasting methods when setting long-run objectives and medium-term targets for fiscal policy. The paper illustrates how simple probabilistic tools can be used to map the uncertainty around medium-term trajectories for public debt. In combination with fiscal stress tests, these tools can provide valuable information regarding the probabilities that a country will stay within the debt ceilings embedded in their fiscal rules.
The Fund is playing an important role in supporting improvements in fiscal risk analysis and management among its members. This includes technical assistance in constructing public sector balance sheets; developing institutions and capacity to identify specific fiscal risks and to quantify their potential impact; undertaking fiscal stress tests; and integrating risks into the design of medium-term fiscal targets.
May 2, 2016
Investment and Growth in the Arab World - A Scoping Note
Description: Enhancing public and private investment, but also ensuring that this translates into higher growth and employment, have long been key policy challenges in Arab countries. Reflecting an improvement in policies and global conditions, investment rates in Arab countries have increased over the past couple of decades. In spite of this—and notwithstanding significant differences across the region—investment has on average been somewhat weaker than in peer countries and less effective at generating growth. Private investment, particularly foreign direct investment (FDI), has underperformed significantly. And while public capital spending has benefited from high oil prices in resource–rich countries, it has continued to lag in oil importers...
April 29, 2016
Economic Diversification in Oil-Exporting Arab Countries
Description:
countries face similar challenges to create jobs and foster more inclusive growth. The current environment of likely durable low oil prices has exacerbated these challenges. Greater economic diversification would unlock job-creating growth, increase resilience to oil price volatility and improve prospects for future generations. Macro-economic stability and supportive regulatory and institutional frameworks are key prerequisites for economic diversification...
April 14, 2016
Provisional Agenda for the Thirty-Third Meeting of the International Monetary and Financial Committee
Description: Provisional agenda for the Thirty-Third Meeting of the International Monetary and Financial Committee, which convenes in Washington, DC, April 16, 2016.