Policy Papers
2016
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.
April 12, 2016
Case Studies on Managing Government Compensation and Employment - Institutions, Policies, and Reform Challenges
Description: This supplement presents country case studies reviewing country experiences with managing wage bill pressures, which are the basis for the compensation and employment reform lessons identified in the main paper. The selection of countries for the case studies reflects past studies carried out by either the IMF or the World Bank in the context of technical assistance or bilateral surveillance (Table 1). These studies provide important insights into the different sources of wage bill pressures as well as the reform challenges governments have faced when addressing these pressures over the short and medium term. The studies cover 20 countries, including five advanced economies, six countries from sub-Saharan Africa, two countries in developing Asia, one country in the Middle East and North Africa, three countries in Latin America and the Caribbean, and three countries in Central and Eastern Europe and the CIS. The structure of each case study is similar, with each study starting with a presentation of the institutional coverage and framework for setting and managing the wage bill; a description of employment and compensation levels, including their comparison with the private sector; and a discussion of the challenges that motivated the need for reforms and, when applicable, the reforms implemented and lessons derived from these.
April 8, 2016
Review of the Fund's Income Position for FY 2016 and FY 2017-2018
Description:
The Fund’s total net income for FY 2016 including surcharges is projected at about SDR 1.0 billion or some SDR 0.15 billion higher than expected in April 2015. Lending income continues to be the main source of income and is in line with April 2015 estimates. Investment income has fallen reflecting the decline in equity markets that exceeded the modest returns on fixed income securities. As a result of the 5-yearly review of key actuarial assumptions, the IAS 19 adjustment (relating to reporting of employee benefits) is expected to contribute about SDR 0.3 billion to net income in FY 2016.
The paper recommends that GRA net income of SDR 1.1 billion for FY 2016 (which excludes projected losses of the gold endowment), be placed equally to the special and general reserve. After the placement to reserves, precautionary balances are projected to reach SDR 15.2 billion at the end of FY 2016.
Following the completion of the Board’s review of the investment strategy for the Fixed-Income Subaccount, the paper further proposes to transfer currencies equivalent to the increase of the Fund’s reserves for FY 2014 and FY 2015 (totaling SDR 2.6 billion) and FY 2016 (estimated at SDR 1.1 billion), from the GRA to the Investment Account.
The paper proposes that the margin for the rate of charge be set at 100 basis points for the two years FY 2017 and FY 2018. This follows a comprehensive review of the underlying factors relevant for the establishment of the margin this year and also takes into account the impact of the inclusion of the renminbi in the SDR basket on Fund income and borrowing costs. The projections for FY 2017 and FY 2018 point to a net income position of SDR 1 billion and SDR 0.7 billion, respectively. These projections are subject to considerable uncertainty and are sensitive to a number of assumptions.
April 8, 2016
Managing Government Compensation and Employment - Institutions, Policies, and Reform Challenges
Description: Government compensation and employment policies are important for the efficient delivery of public services which are crucial for the functioning of economies and the general prosperity of societies. On average, spending on the wage bill absorbs around one-fifth of total spending. Cross-country variation in wage spending reflects, in part, national choices about the government’s role in priority sectors, as well as variations in the level of economic development and resource constraints.
April 8, 2016
The Consolidated Medium-Term Income and Expenditure Framework
Description:
The medium-term income projections have been updated from the April 2015 outlook and the February review of the adequacy of precautionary balances. The main changes to the outlook stem from a more gradual rise in the SDR interest rates and lower surcharge income following the lowering of the surcharges threshold.
The revised projections still show a positive forecast for net operational income (and surcharges) over the medium term, albeit lower than projected a year ago. Lending income (excluding surcharges) is marginally higher compared with earlier estimates. Surcharge income is estimated to be lower, reflecting the adjustment of the surcharges thresholds following the implementation of quota increases under the 14th General Review. Projected income from the Fixed-Income Subaccount of the Investment Account and interest-free resources are expected to increase more gradually over the medium-term as market indicators now point to a slower rise in interest rates from their current low levels. The expenditure path includes an increase in real terms of about ½ percent in the net administrative budget for FY 2017 to accommodate rising costs for physical and IT security. Moreover, reflecting further upward pressure over the medium term and uncertainty about the scope for offsetting savings, the traditional baseline assumption of a constant real spending envelope in the outer years is complemented by an alternative scenario with a further moderate spending increase of 1½ percent, phased in over FY 2018–19. In addition, a lower projected U.S. dollar/SDR exchange rate increases the expenses in SDR terms.