Policy Papers
2018
January 16, 2018
Key Trends in Implementing the Fund's Transparency Policy
January 16, 2018
The Exchange of Documents between the Fund and Regional Financing Arrangements
Description:
The changing contours of the global economy and the rapid transformation of the global financial safety net (GFSN) have strengthened the case for more structured collaboration between its different layers, particularly with Regional Financing Arrangements (RFAs). RFAs have become an important part of the GFSN, and their roles have also evolved. Over recent years, their coverage has expanded to encompass many major advanced and emerging market economies; the resources under their control has risen. Moreover, since the global financial crisis, some RFAs have become key financing counterparts of Fund-supported programs. These developments have heightened the importance of close and timely collaboration with RFAs.
However, there is currently no formal framework for an exchange of Board documents with RFAs, leaving a gap in Fund collaboration with RFAs. The Fund has a long-standing practice for collaborating and sharing documents with other international organizations, primarily under the Transmittal Policy that was amended most recently in November 2017. However, some RFAs do not meet the criteria under the Transmittal Policy and, in view of the unique and heterogeneous institutional and governance structures of RFAs, there is a need for a dedicated and coherent framework that facilitates the exchange of documents on both routine and non-routine bases.
This paper proposes a policy framework for the exchange of documents between the Fund and RFAs. The proposed framework establishes a set of criteria to be met by RFAs for document exchange—based on the consideration of whether a certain entity shares common operational interest with the Fund, and provides satisfactory confidentiality and reciprocity assurances. Under routine document sharing arrangements with RFAs, Board documents would be provided after Board consideration. In cases of UFR arrangements involving current or potential co-financing by the Fund and RFAs, or Policy Coordination Instruments (PCIs) and Policy Support Instruments (PSIs) that may help unlock RFA financing to the country, staff proposes that relevant Board documents be exchanged prior to their consideration by the Board, following notification to the Board. The proposed framework builds on the principles of the Transmittal Policy and does not impact the transmittal of documents to international organizations currently governed by the Transmittal Policy.
January 10, 2018
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 June 29, 2018. The current deadline is due to expire on December 29, 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 June 29, 2018.
2017
December 28, 2017
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 the date of publication, since the expected deadline for conclusion.
December 26, 2017
General Arrangements to Borrow
Description: This notification summarizes the outcome of consultations with Washington-based representatives of participants in the General Arrangements to Borrow (GAB) on a possible renewal of the GAB decision. By way of background, the GAB was established in 1962 and is a standing agreement between the Fund and 11 participants to supplement the Fund’s quota resources (see Box 1). The GAB decision stipulates that the arrangements are subject to periodic renewal, and that decisions on renewal must be taken one year prior to expiration. The last renewal became effective in December 2013. Accordingly, the Fund would need to adopt a decision on renewal not later than twelve months before the end of the current period, i.e., not later than December 25, 2017.
December 19, 2017
Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform
Description:
Heightened and protracted global uncertainty combined with frequent episodes of capital flow volatility have intensified demand for liquidity support. In response to calls from the IMFC and the G20, the Fund has identified gaps in the global financial safety net (GFSN) and the Fund’s lending toolkit for crisis prevention, including insufficient coverage against liquidity pressures resulting from volatile capital flows. The proposals in this paper draw on the previous Fund work on the adequacy of the GFSN, the review of the Fund’s current toolkit for crisis prevention, and extensive consultations with the membership. The review of the FCL concludes that the FCL has been effective in providing precautionary support against external tail risks. Successor FCL arrangements and associated access levels have been in line with the assessment of external risks and potential balance of payments needs. However, there is scope to strengthen the transparency and predictability of the qualification framework by adding indicator-based thresholds to complement and inform judgment. To enhance crisis resilience while improving the Fund’s toolkit coherence and resource use, the paper proposes three complementary reforms: The paper also discusses possible reforms of the current commitment fee policy to promote a more balanced use of Fund resources. Possible options include increasing the commitment fee at high access levels or introducing a new time-based commitment fee.
December 19, 2017
Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform—Revised Proposals
Description:
1. This paper is the latest in the Fund’s work stream on the Adequacy
of the Global Financial Safety Net (GFSN).
The paper follows the Executive Board’s discussion of the
Adequacy of the Global Financial Safety Net—Review of the Flexible
Credit Line and Precautionary and Liquidity Line, and Proposals for
Toolkit Reform
on June 30, 2017 (the "June paper"),1 and presents revised reform proposals
in light of Directors’ views. In the absence of sufficient Executive Board
support for a new liquidity facility, the paper proposes to retain the
Precautionary and Liquidity Line (PLL). It also proposes to introduce a
Time-Based Commitment Fee (TBCF) in light of many Directors’ support for
this feature.
2. This work is part of the Fund’s broader work stream to strengthen
the GFSN
. As such, it complements the new non-financing Policy Coordination
Instrument and operational principles and framework for future Fund
engagement with Regional Financing Arrangements.2
3. The paper is organized as follows.
Section II lays out the revised set of reform proposals. Section III sets
forth issues for discussion, and proposes decisions to (i) complete the
review of the Flexible Credit Line (FCL) and the PLL; and (ii) introduce a
TBCF. The paper also includes an Annex that describes a planned revision to
the presentation of the Fund’s Forward Commitment Capacity (FCC) to provide
a breakdown between precautionary and other Fund commitments.
December 19, 2017
Adequacy of the Global Financial Safety Net—Considerations for Fund Toolkit Reform
Description:
Growing demand for liquidity in the face of increased vulnerabilities
calls for enhancing the liquidity support provided through the global
financial safety net (GFSN).
The global economy is experiencing a period of protracted uncertainty,
marked by frequent episodes of volatility. Demand for liquidity has
intensified, in particular from emerging markets, which are experiencing a
build-up of vulnerabilities and the depletion of their fiscal buffers. The
enhanced GFSN meets only partially this higher demand for liquidity. The
IMFC and G20 have called on the Fund to further strengthen the safety net.
The uneven use of the Fund’s toolkit for crisis prevention suggests the
need to reconsider its design.
Despite a major overhaul of the Fund’s lending instruments available for
precautionary financing, only a modest number of countries have used them.
In particular, the lack of access to a liquidity backstop for members with
strong policies—similar to the standing bilateral swap arrangements (BSAs)
among central banks—limits the availability of Fund support over the whole
duration of the shock during protracted periods of global uncertainty.
Moreover, the need to resort to Fund financing still carries a high
political cost (stigma) for some members.
To enhance further the Fund’s toolkit for crisis prevention,
consideration could be given to revisiting the existing toolkit and
introducing new instruments.
The toolkit could thus be enhanced by: establishing a new facility for
precautionary financing that would provide a "standing" liquidity backstop
to members with strong fundamentals and policies for use when hit by
liquidity shocks; and adjusting the existing toolkit to maintain cohesion.
Any change to the Fund toolkit would need to take into account the
tradeoffs between reducing stigma and containing moral hazard, while
simultaneously safeguarding Fund resources.
A Fund policy monitoring instrument could improve the cohesion of the
global safety net.
As the GFSN has expanded and become more multi-layered, there is a need to
improve cooperation across the different layers to unlock financing and
signal commitment to reforms. Creating a policy monitoring instrument that
is available to all Fund members could help in this regard.
Next steps
. In light of Directors’ views on these points, staff could come back with
subsequent papers that lay out specific and detailed proposals for
reforming the lending toolkit. While these papers focus on the GRA lending
toolkit, a separate forthcoming paper will assess some aspects of the
concessional lending toolkit.
December 15, 2017
Third Progress Report on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts
Description:
The IMF Executive Board endorsed in October 2014 the inclusion of key features of enhanced pari passu provisions and collective action clauses (CACs) in new international sovereign bonds.1 Specifically, the Executive Board endorsed the use of (i) a modified pari passu provision that explicitly excludes the obligation to effect ratable payments, and (ii) an enhanced CAC with a menu of voting procedures, including a “single-limb” aggregated voting procedure that enables bonds to be restructured on the basis of a single vote across all affected instruments, a two-limb aggregated voting procedure, and a series-by-series voting procedure.2 Directors supported an active role for the IMF in promoting the inclusion of these clauses in international sovereign bonds.3 The IMFC and the G20 further called on the IMF to promote the use of such clauses and report on their inclusion.
Since that time, the IMF has published periodic progress reports on inclusion of the enhanced clauses.4 These reports found that since the Executive Board’s endorsement, substantial progress had been made in incorporating the enhanced clauses, with approximately 85 percent of new international sovereign bond issuances since October 2014 (in nominal principal amount) including such clauses. The reports also found that there was no observable market impact on inclusion of the enhanced clauses. However, the reports noted that the outstanding stock without the enhanced clauses remained significant, with issuers showing little appetite for liability management exercises to accelerate the turnover.
This paper provides a further update on the inclusion of the enhanced clauses and on the outstanding stock of international sovereign bonds as of September 30, 2017. Section II reports on the inclusion of these enhanced provisions, finding that the vast majority of issuers are including these clauses, with only a few countries standing out against the market trend. Section II also provides an update on the outstanding stock, indicating that while the percentage of the outstanding stock with the enhanced clauses is increasing, a significant percentage of the stock still does not and little action has been taken by issuers to increase the rate of turnover. Section III briefly reports on the use of different bond structures, and Section IV describes the staff’s ongoing outreach efforts and next steps.
December 14, 2017
Gulf Cooperation Council: The Economic Outlook and Policy Challenges in the GCC Countries
Description:
Global economic activity is gaining momentum. Global growth is forecast at 3.6 percent this year, and 3.7 percent in 2018, compared to 3.2 percent in 2016. Risks around this forecast are broadly balanced in the near term, but are skewed to the downside over the medium term. The more positive global growth environment should support somewhat stronger oil demand. With inflation in advanced countries remaining subdued, monetary policy is expected to remain accommodative.
GCC countries are continuing to adjust to lower oil prices. Substantial fiscal consolidation has taken place in most countries, mainly focused on expenditure reduction. This is necessary, but it has weakened non-oil growth. With the pace of fiscal consolidation set to slow, non-oil growth is expected to increase to 2.6 percent this year, from 1.8 percent last year. However, because of lower oil output, overall real GDP growth is projected to slow to 0.5 percent in 2017 from 2.2 percent in 2016. Growth prospects in the medium-term remain subdued amid relatively low oil prices and geopolitical risks.
Policymakers have made a strong start in adjusting fiscal policy. While the needed pace of fiscal adjustment varies across countries depending on the fiscal space available, in general countries should continue to focus on recurrent expenditure rationalization, further energy price reforms, increased non-oil revenues, and improved efficiency of capital spending. Fiscal consolidation should be accompanied by a further improvement in fiscal frameworks and institutions. The direction of fiscal policy in the GCC is broadly consistent with these recommendations.
Policies should continue to be geared toward managing evolving liquidity situations in the banking system and supporting the private sector’s access to funding. While countries have made progress in enhancing their financial policy frameworks, strengthening liquidity forecasting and developing liquidity management instruments will help banks adjust to a tighter liquidity environment. Banks generally remain profitable, well capitalized, and liquid, but with growth expected to remain relatively weak, the monitoring of financial sector vulnerabilities should continue to be enhanced.
Diversification and private sector development will be needed to offset lower government spending and ensure stronger, sustainable, and inclusive growth. This will require stepped-up reforms to improve the business climate and reduce the role of the public sector in the economy through privatization and PPPs. Reforms are needed to increase the incentives for nationals to work in the private sector and for private sector firms to hire them. Increasing female participation in the labor market and employment would benefit productivity and growth across the region. Where fiscal space is available, fiscal policy can be used to support the structural reforms needed to boost private sector growth and employment.