June 16, 2016
- IMF proposes three-pronged approach—monetary, fiscal, structural—to spur growth
- Focus to be on new and emerging issues along with longstanding areas for reform
- Ongoing transitions in global economy call for strong global cooperation
The IMF has released its work program for the next twelve months, with emphasis on getting the global economy back on a stronger and safer track to growth.
This work program is in line with the directions laid out in the Global Policy Agenda and the International Monetary and Financial Committee communiqué released in April.
The work program highlights the IMF’s activities to support the three-pronged approach of monetary, fiscal, and structural actions to boost growth. It also lays out work to help member countries address emerging issues (such as climate change and inequality) and strengthen the international monetary system.
“The global economy has been impaired by growth that has been too slow for too long,” said IMF Managing Director Christine Lagarde in a statement to the IMF Executive Board.
Addressing policy challenges
Against the backdrop of weaker global growth, the work program aims to help countries achieve a more balanced and potent policy mix.
Monetary policy. The IMF will continue to study the implications of unconventional monetary policies and their spillovers to other economies, particularly emerging markets. A related area of focus is capital flow management. Over the coming year, the Fund will review member country experience in dealing with capital flows in recent years, with a view to getting a clearer picture of the associated macroeconomic and financial stability risks.
Financial sector surveillance. The IMF’s efforts to deepen macrofinancial analysis will also intensify, as will work on strengthening members’ supervisory and regulatory frameworks. The IMF will take stock of progress on global and regional financial regulatory reforms in light of the increased risks to global financial stability. The agenda also includes several items related to managing financial sector vulnerabilities and reducing risk. In particular, the IMF will analyze the existing evidence on the drivers and consequences of the trends in correspondent banking relationships and discuss the role that the Fund can play.
Fiscal policy. The work program notes that fiscal policy needs to do more in some countries, as monetary policy cannot bear the entire burden of responding to current challenges. Fiscal policy can play a bigger role in supporting demand, in countries where fiscal space exists. The IMF will work on a set of considerations for how to assess fiscal space, with the goal of producing consistent assessments across countries. How and whether to use fiscal space would be informed, in addition, by country specific considerations, such as fiscal rules and frameworks.
The IMF will also spearhead an infrastructure policy support initiative, focused on helping countries increase the efficiency of public investment, and where appropriate, identify options to sustainably scale up infrastructure spending. The initiative—to be piloted in a number of countries—is expected to shed light on which policies should be prioritized in order for infrastructure investment to achieve strong and durable growth.
With respect to low-income countries, the institution will continue to support efforts to boost domestic revenue mobilization in developing countries and plans to outline a framework for building fiscal management capacity in fragile states.
Structural reforms. The IMF will increase its focus on the role of structural reforms in improving productivity and growth. Staff will develop a toolkit on structural reforms for country teams to use in their annual assessments of member country economies, taking into account such factors as the stage of a country’s development, the cyclical position of the economy, and the available policy space for reforms. The institution is also acknowledging the critical role of trade in promoting growth and development, and will produce a new reference note on trade and trade policy issues—the first since 2010—in the course of the coming year.
In other work related to raising growth, IMF staff will undertake a review of the role of the Fund in governance issues early next year, given the obstacles posed by endemic corruption to achieving inclusive growth in many countries.
Emerging issues
The IMF is enhancing and refining its policy advice on emerging issues. New challenges—whether social, political, demographic, environmental, biological, or technological—can have a dramatic effect on the macroeconomic stability of IMF member countries, so the institution will continue to build expertise in these areas as it works in collaboration with other specialized agencies.
Efforts to integrate climate change and energy issues in IMF surveillance will continue. The IMF is developing a tool to evaluate a range of fiscal and other measures relating to the mitigation of climate change for use in country work. The institution is also focusing on the particular role of climate change and natural disasters in the economies of small states and other vulnerable economies.
IMF staff will continue its work on demographic transitions and migration, building on previous analysis on the impact of migration on countries receiving immigrants. Staff will also examine the impact of economic emigration on private sector activity, competitiveness, public finance, and ultimately the growth and convergence of countries whose citizens emigrate.
The institution will also continue to integrate its work on gender analysis in surveillance and strive for a better understanding of inequality in developing countries, in addition to beginning some innovative analytical work on the interplay of finance and technology.
International monetary system
More broadly, given the ongoing transitions in the global economy, the IMF is studying how best to strengthen global mechanisms for adjustment and liquidity provision to boost the effectiveness of the international monetary system. The staff will work on key areas for reform, such as mechanisms for crisis prevention and adjustment, enhanced global cooperation on policies affecting global stability, and the global financial safety net (GFSN). The IMF will also undertake further work on the role of the Special Drawing Right (SDR).
With regard to the GFSN, the IMF will explore how it can strengthen coordination with regional financing arrangements. It will also revisit its lending toolkit with a view to seeing how best to assist countries hit by the historic decline in commodity prices.
The Fund will also take a close look at lending and program design to ensure that IMF-supported programs in developing countries place sufficient emphasis on softening the adverse impact of some macroeconomic policies.
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