Policy Papers
2017
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.
May 15, 2017
Large Natural Disasters--Enhancing the Financial Safety Net for Developing Countries
Description:
The Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) are valuable components of the disaster risk financing tool kit for Fund members, especially developing countries. They help to meet urgent balance of payments needs, and are designed to play a catalytic role in mobilizing other external financing.
This paper develops proposals for a higher annual access limit under the RCF and RFI, building on a November 2016 staff paper on small states’ resilience to natural disasters and climate change (IMF, 2016c). Directors generally supported the proposal in that paper to establish higher annual access limits of 60 percent of quota under the RCF and RFI for countries experiencing severe natural disaster-related damages.
The focus of this paper is to specify the threshold of damage from a natural disaster that would allow members experiencing urgent balance of payments needs arising from such disasters to access emergency financing at the higher annual limit. In the November 2016 paper, staff proposed, among other things, the possibility of establishing a higher access limit under the RCF and RFI where the amount of damage reached the threshold of 30 percent of GDP. Most Directors regarded the proposed threshold of disaster damage as overly restrictive, and suggested lowering the threshold to 20 percent of GDP or lower, provided that this did not jeopardize the self-sustainability of the PRGT. For a range of future disaster outcomes, a damage threshold of 20 percent of GDP could increase projected annual average PRGT loan demand in the 1-5 percent range over the next decade, which should not pose significant risks to the robustness of PRGT self-sustainability. Cautious stewardship of PRGT resources argues against a lower disaster damage threshold, pending further experience with disaster trends and associated PRGT loan demand.
This paper does not propose changes to the current cumulative access limits for the RCF and RFI. The cumulative access limits play an important role in the Fund’s financing architecture, constraining the extent to which countries can access Fund resources without implementing a Fund-supported program with upper credit tranche (UCT) conditionality and associated policies in circumstances where such a program would be more appropriate. The Board will have the opportunity to review the cumulative access limits in the context
May 13, 2017
Gender Budgeting in G7 Countries
Description:
At the request of the Italian Presidency of the G7, the IMF has prepared a
paper on gender-budgeting as a contribution to the G7 initiative on
equality. The paper provides an overview of gender-responsive budgeting
concepts and practices in the G7 countries. It summarizes recent trends in
gender equality in G7 and advanced countries, noting that while equality
has improved overall, exceptions and gaps remain. Recognizing that many
fiscal policies have gender-related implications, this paper:
The main policy implications and conclusions of the paper include: