Policy Papers

January 29, 2019

Fiscal Transparency Initiative: Integration of Natural Resource Management Issues

Description: This paper integrates into the  IMF Fiscal Transparency Code (FTC) a new fourth pillar (Pillar IV) on natural resource revenue management.
 
The newly completed FTC integrates transparency principles for natural resource revenue management in a unified four-pillar framework. Pillar IV addresses issues specific to resource-rich countries across the entire resource revenue management chain, from the ownership and allocation of resource rights, to resource revenue mobilization, its budgeting and utilization. This structure complements Pillars I-III, which were published in 2014, focusing more generally on fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis and management.
  
Pillar IV aims to reflect both established transparency practices in the extractive industries, as well as emerging norms such as the publication of resource payments and contracts, and the disclosure of beneficial owners of resource rights. It also reflects the lessons learned from pilot fiscal transparency evaluations in Peru, Tanzania, United Kingdom, Mexico, and Trinidad and Tobago, and extensive stakeholder feedback on earlier drafts of Pillar IV released for public consultation in 2015 and 2016.

Going forward, the four-pillar FTC will underpin Fiscal Transparency Evaluations for resource-rich countries. Pillar IV will also inform a second volume of the Fiscal Transparency Handbook (forming an update to the 2007 Guide on Resource Revenue Transparency).

January 29, 2019

Statement by the Managing Director on the Independent Evaluation Office Report on the IMF Financial Surveillance

Description: The IEO report provides a welcome opportunity to reflect on the IMF’s initiatives to expand and deepen its financial surveillance work in response to the Global Financial Crisis, which were made explicit in the 2012 Integrated Surveillance Decision and the 2012 Financial Surveillance Strategy. Reflecting its macroeconomic and financial expertise, global membership and governance, the IMF is well placed to make members aware of global financial stability risks while advising them on policies tailored to their circumstances.

January 17, 2019

List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months

Description: In accordance with Executive Board Decision No. 15106-(12/21), the Fund will publish on its external website a list of member countries whose Article IV consultations or mandatory financial stability assessments have been delayed by more than 18 months, as of December 15, 2018, since the expected deadline for conclusion.

January 10, 2019

Extension of the Periods for Consent to and Payment of Quota Increases

Description: On December 27, 2018, the IMF’s Executive Board approved 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 June 28, 2019. The deadline was due to expire on December 28, 2018. 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 also extends 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).

The Executive Board also approved 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 June 28, 2019.

December 6, 2018

Gulf Cooperation Council: Trade and Foreign Investment—Keys to Diversification and Growth in the GCC

Description: Diversification of the GCC economies, supported by greater openness to trade and higher foreign investment, can have a large impact on growth. Such measures can support higher, sustained, and more inclusive growth by improving the allocation of resources across sectors and producers, creating jobs, triggering technology spillovers, promoting knowledge, creating a more competitive business environment, and enhancing productivity. 
The GCC countries are open to trade, but much less so to foreign direct investment (FDI). GCC foreign trade has been expanding robustly, but FDI inflows have stalled in recent years despite policy efforts taken to reduce administrative barriers and provide incentives to attract FDI. Tariffs are relatively low; however, a number of non-tariff barriers to trade persist and there are substantial restrictions on foreign ownership of businesses and real estate. 
The growth impact of closing export and FDI gaps could be significant. In most countries, the biggest boost to growth would come from closing the FDI gap—up to one percentage point increase in real non-oil per capita GDP growth. Closing export gaps could provide an additional growth dividend in the range of 0.2-0.5 percentage point. 
Boosting non-oil exports and attracting more FDI requires a supportive policy environment. Policy priorities are to upgrade human capital, increase productivity and competitiveness, improve the business climate, and reduce remaining barriers to foreign trade and investment. Specifically, continued reforms in the following areas will be important: 

• Human capital development: continue with investments made to raise educational quality to provide knowledge and skills upgrade.
• Labor market reforms: aim to improve productivity and boost competitiveness of the non-oil economy.
• Legal frameworks: ensure predictability and protection; efforts should include enhancing minority investor protection and dispute resolution; implementing anti-bribery and integrity measures.
• Business climate reforms: focus on further liberalizing foreign ownership regulations and strengthening corporate governance; and on further reducing non-tariff trade barriers by streamlining and automating border procedures and streamlining administrative processes for issuing permits.

December 6, 2018

Gulf Cooperation Council: How Developed and Inclusive are Financial Systems in the GCC?

Description: Financial systems in the GCC have developed significantly over the last couple of decades, but there appears to be further room for progress. The development of bank and equity markets has been supported by a combination of buoyant economic activity, a booming Islamic finance sector, and financial sector reforms. As a result, financial systems have deepened and, overall, the level of financial development compares well with emerging markets. However, it still lags advanced economies and, other than for Saudi Arabia, appears to be lower than would be expected given economic fundamentals, such as income levels.
 
Financial development in the GCC has relied to a large extent on banks, while debt markets and nonbank financial institutions are less developed and access to equity markets is narrow. The non-bank financial institutions—pension funds, asset management and finance companies, and insurance—remain small. Domestic debt markets are underdeveloped. While equity markets appear to be well developed by market size, they are dominated by a few large (and often public-sector) companies.  
  
GCC countries have made progress on financial inclusion, but gaps remain in some important areas. Access to finance for SMEs, women, and youth, in particular, appears relatively low. This may partly reflect social norms, low levels of participation of women in the labor market and private sector activity, and the high level of youth unemployment.  
 
Further financial development and inclusion is likely to be associated with stronger economic growth in the GCC countries. While there is uncertainty surrounding the empirical estimates in the paper, further progress with financial development and/or inclusion is likely to go hand-in-hand with stronger growth. The growth benefits, however, are likely to vary across countries depending on the current level of financial development and inclusion. 
To realize these growth benefits, reforms to strengthen access to finance for SMEs, women, and youth are needed. Addressing institutional weaknesses and promoting financial sector competition would help boost access to finance for SMEs. Reforms to enhance financial literacy and improve SME governance structures and insolvency frameworks are critical. Other reforms encouraging female and youth employment and the use of emerging technologies in finance also appear promising. 

Additional reforms to foster financial development should focus on developing debt markets and making stock markets more accessible to a larger pool of companies and investors. To grow domestic debt markets, the authorities should develop a government yield curve, seek to increase market liquidity through secondary market trading, and ensure requirements for private issuance are not onerous. Stock market reforms should focus on enhancing corporate governance and investor protection, removing restrictions on foreign ownership, and encouraging financial market competition. The latter would also help the development of non-bank financial institutions.

November 29, 2018

Statement by the Managing Director on the Work Program of the Executive Board

Description: This Work Program (WP) translates the strategic directions and policy priorities laid out in the 
Fall 2018 Global Policy Agenda and the International Monetary and Financial Committee Communiqué into an Executive Board agenda for the next twelve months. Its main policy priorities and deliverables are as follows:

• Advise member countries to rebuild buffers, enhance resilience, and advance structural reforms for the benefit of all to respond to mounting vulnerabilities. The Spring 2019 World Economic Outlook (WEO) will analyze the macroeconomic implications of increased corporate market power. The Global Financial Stability Report (GFSR) will discuss global financial risks in light of tightening financial conditions, while the Fiscal Monitor (FM) will study how improved governance in fiscal frameworks and institutions can reduce corruption vulnerabilities and improve policy outcomes. 
• Promote cooperation to modernize the multilateral trade system and address other challenges that transcend borders. The spillover chapter of the Spring 2019 WEO will examine the determinants of trade imbalances and spillovers from different trade policies. Building on the “Bali Fintech Agenda," staff will provide a stock-take of fintech developments and study the implications for cross-border flows, financial integrity, and global monetary and financial stability in Fintech: The Experience So Far. To support Japan’s G-20 Presidency, staff will prepare a note on Macroeconomic and Fiscal Implications of Aging.
• Adapt the Fund’s policy toolkits to further enhance its surveillance, lending, and capacity development. Scoping notes for the Surveillance Review and the Financial Sector Assessment Program (FSAP) Review will establish priorities. The Review of Conditionality and the Design of Fund Supported Programs will assess the effectiveness of Fund program design and conditionality. Building on an earlier paper, the Review of Facilities for Low-Income Countries-Reform Proposals will offer proposals on adjusting these facilities to better meet evolving membership needs. The Fund will implement a multipronged approach to enhance debt transparency and sustainable financing practices. Staff will also strengthen debt sustainability analysis by reviewing the Debt Sustainability Framework for Market Access Countries and the Fund’s Debt Limits Policy. The Revised IMF Policies and Practices on Capacity Development will reflect on suggestions made in recent discussions. 
• Improve governance of the Fund and modernize its operations. Work on the 15thGeneral Review of Quotas will continue with a view to completing it by the Spring Meetings, and no later than the Annual Meetings, of 2019. The Board will receive a briefing on Modernizing HR Policies and Practices: A Progress Report on Key Initiatives and continue the discussions on the Comprehensive Compensation and Benefits Review. 

November 20, 2018

2018 Review of the Fund's Capacity Development Strategy

Description: Capacity development (CD) is one of the Fund’s three core activities and has grown in importance in recent years. It supports member countries’ efforts to build the institutions and capacity necessary to formulate and implement sound economic policies, thereby complementing the Fund’s surveillance and lending mandates. Member countries, partners, and external commentators give the Fund high marks for the quality of its CD. At the same time, efforts need to continue to strengthen Fund CD to serve members’ current and evolving needs. 
The 2018 CD Strategy Review examines progress under the Fund’s 2013 CD Strategy and proposes a CD strategy for the next five years.  

It notes substantial progress in addressing the 2013 recommendations, which included strengthening the CD governance structure, enhancing the prioritization processes, clarifying the funding model, strengthening monitoring and evaluation, promoting greater integration of TA and training, exploiting new technologies for delivery, and leveraging CD as outreach. However, background work for this review also pointed to the need to strengthen the CD framework further.

The review builds upon the existing CD strategy, focusing on two mutually reinforcing objectives. First, the impact of Fund CD needs to be increased by further strengthening integration with the Fund’s policy advice and lending operations, while continuing to make progress in framing CD through comprehensive strategies tailored to each member’s needs, capacity, and conditions, focusing on implementation and outcomes. Stronger coordination between CD and the Fund’s other core functions will better connect CD with countries’ risks and vulnerabilities and ensure surveillance and lending integrate lessons from CD more effectively. Second, the efficiency of CD needs to be increased by improving CD processes and systems. This will enhance transparency and strengthen the basis for strategic decision making.

Five specific areas of recommendations support the strategy. Likewise, they mitigate institutional risks stemming from the Fund’s CD activities. They include clearer roles and responsibilities for key internal and external stakeholders in the CD process; continued strengthening of prioritization and monitoring; better tailoring and modernization of CD delivery with a focus on implementation of TA recommendations; greater internal consultation and sharing of CD information; and further progress in external coordination, communication, and dissemination of information (Annex I).

November 8, 2018

ASEAN Progress Towards Sustainable Development Goals and The Role of the IMF

Description: Attainment of the Sustainable Development Goals (SDGs) will require that the Association of Southeast Asian Nations (ASEAN) countries continue their considerable past achievements. The Millennium Development Goals—which were to have been met by 2015—helped focus attention on achieving progress towards poverty reduction, better health outcomes, and improvements in education in the ASEAN developing countries. The 17 SDGs—adopted in 2015 and to be met by 2030—cover a wider set of interlinked development objectives, such as inclusion and environmental sustainability, which are important for all countries, including all ASEAN member countries.   

ASEAN countries have made significant progress in improving incomes and economic opportunities, including for women, and reducing poverty since 2000. Reflecting the economic dynamism of the region, strong income growth, structural transformation, and infrastructure improvements continue to support sustainable development in ASEAN. With continued income growth and strong policy efforts, most ASEAN countries are on track to eradicate absolute poverty by 2030, a major milestone. Also, several ASEAN countries already do relatively well in terms of gender equality. As a result, given support from continued income gains, economic welfare in ASEAN countries is expected to continue converging towards advanced Asia levels. 

Ensuring more inclusive and environmentally sustainable growth presents a key challenge for ASEAN. Despite some progress, income inequality remains relatively high in several countries and the shift towards manufacturing strains environmental sustainability. These challenges hamper ASEAN welfare convergence relative to advanced Asia. Policies to close these gaps in sustainable development can lead to significant gains. For the lower-middle-income ASEAN countries, in particular, more determined policy efforts are needed to improve infrastructure, as well as health and education outcomes. Remaining sustainable development challenges call for comprehensive, country-specific SDG strategies formulated in the context of national development plans and close monitoring through the voluntary review process.  

Pursuing sustainable development entails sizeable spending needs. Estimates for Indonesia and Vietnam, the two cases studies considered in this paper, show that reaching the level of best performers in their income group in infrastructure, health, and education by 2030 could entail an additional cost of 5½–6½ percent of GDP per year. While development needs vary across countries, estimates suggest large spending needs for most ASEAN countries. Meeting them will require efforts on multiple fronts, including improvements in spending efficiency, tax capacity, and support from the private sector. For developing ASEAN countries, concessional financing from development partners will be required. 

The IMF continues to engage ASEAN countries in key areas as they pursue their SDGs. As called for in their mandates, ASEAN and the IMF both strive for economic growth and sustainable development through economic integration and collaboration among their member countries. The IMF has increased its engagement with ASEAN countries to support their policy efforts through its policy diagnostics, advice, and capacity development. ASEAN countries have also received support through IMF initiatives in strengthening revenue mobilization, building state capacity for infrastructure provision, pursuing economic and financial inclusion, addressing the challenges of climate change, strengthening economic institutions for good governance, and building statistical capacity. While fundamental reforms to improve sustainable development take time to bear fruit, there is evidence that efforts have started to pay off. 

October 26, 2018

Ninth Periodic Monitoring Report on the Status of Implementation Plans in Response to Board-Endorsed IEO Recommendations

Description:

The Ninth Periodic Monitoring Report (PMR) on the Status of Management Implementation Plans (MIPs) in Response to Board-Endorsed Independent Evaluation Office (IEO) Recommendations assesses the progress made over the last year on actions contained in two “new” MIPs arising from recent IEO evaluations, and another seven for which individual management actions were classified as “open” in the Eighth PMR. Overall, 42 of the 96 actions included in the Ninth PMR remain open, representing roughly the same proportion as the previous PMR. A 25 percent net increase in open management actions over the past year is accounted for by 24 new actions from two MIPs, and 16 actions that have been implemented over the period. 

There is positive traction on the last four MIPs, but older actions appear challenging to implement. Better progress has been made with the implementation of the actions contained in recent MIPs. Fourteen of the actions implemented since the Eighth PMR relate to MIPs approved after October 2015, while only two actions (out of 24) from earlier MIPs were implemented.

Improvements in the follow-up process approved by the Board in October 2015 have contributed to speedier implementation of recent actions, but some challenges remain. There are lingering challenges with defining measures of success for numerous actions, but accountabilities are now clearer and many actions are at advanced stages at the time of the Board’s discussion of the MIPs. This PMR introduces indicators to support the process for resolving challenges with long-standing actions. 

Despite the slower progress with the older actions, significant advances have been made over the past year in several key areas. These include: protocols for engaging the IEO; risk management and analysis; the mainstreaming of macrofinancial surveillance; an overarching strategy on data and statistics; guidance on cooperation with other organizations, including Regional Financing Arrangements (RFAs); improvements in External Stability Assessments; and ongoing analytical work on surveillance and program, including macrostructural issues, emerging topics, and debt sustainability analysis. On the other hand, progress has been slower on macro forecasting, outward spillovers, and cross-country knowledge sharing.