Policy Papers
2017
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.
July 26, 2017
Adequacy of the Global Financial Safety Net--Proposal for a New Policy Coordination Instrument
Description:
The global financial safety net (GFSN) has become larger and more
decentralized, creating a need for greater coordination. The expanded GFSN
has created multiple sources of official financing for countries in need of
support to address balance of payments shocks. Enhanced coordination among
these layers would facilitate a more efficient use of global resources and
provide better incentives for implementing sound policies.
A new non-financing Policy Coordination Instrument (PCI) would address gaps
in the GFSN and the Fund’s toolkit. The new Policy Coordination Instrument
is designed for countries that are seeking to unlock financing from
multiple sources and/or to demonstrate a commitment to a reform agenda. It
would enable a closer policy dialogue between the Fund and countries, more
regular monitoring of economic developments and policies, as well as Board
endorsement of those policies. It would be available for all member
countries. The key design features draw on Fund financing arrangements and
the Policy Support Instrument (PSI), with some important differences. These
include no qualification criteria, a review-based approach for monitoring
of conditionality, and a more flexible review schedule.
The PCI is part of a broader set of Fund policy proposals to improve
coordination with RFAs, enhance liquidity provision for members, and ensure
the cohesion of the Fund’s toolkit. The IMFC and the G20 called for further
work to strengthen the GFSN and to improve cooperation between the Fund and
regional financing arrangements (RFAs). In response, the Fund has produced
a diagnostic of the GFSN and the Fund’s toolkit and identified important
gaps. Introduction of the PCI, when considered together with the other
proposals, will help to move towards a GFSN with improved coverage, more
reliable support, and better coordination between the various layers.
July 24, 2017
Statement by the Managing Director on the Independent Evaluation Office's Report on the IMF and Social Protection
Description: I welcome the report of the Independent Evaluation Office (IEO) on the IMF and Social Protection. This is an area in which the Fund has broadened its engagement in recent years, responding to the needs of the membership. The conclusion that I draw from the report—that the Fund has made strong progress—is therefore an encouraging one, even as I recognize that there is scope to do better. The IEO’s analysis and findings have much in common with recent work by Fund staff, while providing a broader perspective that is very valuable. Overall, I find the IEO’s recommendations for refining the Fund’s approach to social protection to be well-judged, and the proposals have my support.
July 20, 2017
Use of Supervisory Standards in the Financial Sector Assessment Program—Understandings with Standard Setting Bodies
Description:
This paper informs the Executive Board of the staff-level understandings reached with global Standard Setting Bodies (SSBs) on the use of the three financial sector supervisory standards in FSAPs:
As graded assessments of compliance with supervisory standards are voluntary, FSAPs have adopted a flexible approach to the use of supervisory standards. A standard is either assessed in full, resulting in grades, or used as the basis for a deeper analysis of selected elements of the oversight framework in a focused review, without grades. The
SSBs and Fund staff have reached understandings on a refinement of the existing flexible approach, with sets of “base principles” serving as the starting points for focused reviews.
July 20, 2017
Statement by the Managing Director on the Work Program of the Executive Board - Executive Board Meeting - June 19, 2017
Description: This Work Program (WP) translates the policy priorities and strategic directions laid out in the Spring 2017 Global Policy Agenda (GPA) and the International Monetary and Financial Committee (IMFC) Communiqué into an Executive Board agenda for the next twelve months. The Managing Director’s GPA, welcomed by the IMFC, called on members to continue using supportive policies based on a three-pronged approach to sustain the recovery, to work together within the multilateral framework toward strong and more balanced growth, and to provide economic opportunities for all. It outlined how the Fund would support the membership by promoting efforts to sustain the recovery, lift productivity and increase resilience, and by promoting sustainable policies toward a more inclusive global economy, while facilitating multilateral solutions to global challenges. Where the work extends beyond traditional areas, the WP will focus on macro-relevant issues that are systemically important or relevant for many countries and amenable to change through economic policies.
July 7, 2017
List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months
Description: In line with a framework introduced in 2012 for addressing excessive delays in the completion of Article IV consultations, this report lists the IMF members for which the Article IV consultation has been delayed by more than 18 months at end-May, 2017. The delay is counted past the stipulated date for the consultation plus any applicable grace period. There are no countries for which the mandatory financial stability assessments are delayed by more than 18 months at end-May, 2017.
July 7, 2017
Extension of the Periods for Consent to and Payment of Quota Increases
Description:
This paper proposes a further six-month extension of the period for members to consent to an increase in their quotas under the Fourteenth General Review of Quotas (“Fourteenth Review”) through December 29, 2017. The current deadline is due to expire on June 30, 2017. However, Board of Governors Resolution No. 66-2 provides that the Executive Board may extend the period for consent as it may determine. An extension under Resolution No. 66-2 will also extend the periods of consent for quota increases under the 2008 Reform of Quota and Voice (Resolution No. 63-2) and the Eleventh General Review of Quotas (Resolution No. 53-2).
This paper also proposes a further six-month extension of the period for payment of quota increases under the Fourteenth Review, and an extension for the payment of the quota increases under the 2008 Reform, through December 29, 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.