Social Dimensions of the IMF's Policy Dialogue

Technical Assistance

Since the IMF's inception, an important aspect of its relationship with member countries has been the provision of technical assistance to strengthen their economic and financial management. The focus of technical assistance has been on areas in which the IMF has a comparative advantage--public finance, central banking, exchange systems, and economic and financial statistics. Assistance has also extended to capacity building by developing and strengthening institutions and training local officials in new work practices, such as computerization of tax administration, improved systems for monitoring budgetary policies, compilation of statistics for economic policy, and new monetary policy instruments. In recent years, increasing efforts have been made to integrate technical assistance in program design, and through medium-term planning the IMF seeks to make this assistance available to member countries in a timely manner.

In the fiscal area, technical assistance has been provided principally in the areas of tax policy and administration, public expenditure management, and the design of social safety nets. Technical assistance in social safety nets has usually been provided in connection with IMF-supported adjustment programs to integrate fiscally sustainable social safety nets into those programs to counter adverse short-term effects of certain adjustment measures on the poor.

Technical assistance has been provided to several transition economies experiencing large changes in prices and employment (such as Armenia, Kazakhstan, the Kyrgyz Republic, Moldova, and the Russian Federation) to improve the targeting of subsidies and to restructure pensions, unemployment compensation, and other social benefits. In the Lao People's Democratic Republic, the authorities were advised on social safety net options in the context of public sector retrenchment, and, in Romania, the objective was to devise appropriate means of mitigating the short-term impact of the devaluation on specific population groups and to provide for the contingency of higher outlays on unemployment benefits. The scope of assistance has been extended to encompass the strengthening of the delivery of poverty alleviation programs, including enhanced management of social expenditures (such as in Peru). Advice has also been provided on enhancing the cost-effectiveness of social expenditures (such as in Algeria and the former Yugoslav Republic of Macedonia) and social security systems, while ensuring that the latter's role in redistributing incomes toward the poor is maintained (including in Brazil and Thailand).

To help improve the effectiveness of public projects and programs, including social programs, the IMF has provided extensive technical assistance on public expenditure management to both developing and transition economies (including Albania, The Gambia, Hungary, Lebanon, Malawi, the Russian Federation, Turkmenistan, and Ukraine). In the case of Guatemala and Peru, the assistance was provided explicitly within the context of the design of a medium-term poverty reduction strategy. The assistance has sought to establish institutions and procedures to monitor, control, and evaluate public expenditures. This should increase transparency and accountability in decision making, improve the cost-effectiveness and targeting of social and other spending, and strengthen the conduct of macroeconomic management.

In the area of tax policy and administration, advice has focused on reform of the tax system, specific taxes (such as value-added taxes or global income taxes), tax rate structures, and improved collection procedures. Improvements in tax administration have been stressed because they promote compliance and enforcement and help distribute the tax burden more equitably.

Central banking assistance has been provided on new currency issue and reform, foreign exchange management and operations, the development of a money market and payments and settlement system, and banking regulation and supervision. Improvements of institutional capacity have assisted member countries in conducting macroeconomic policies for sustained noninflationary economic growth. These improvements have also led to a deepening of financial markets, thereby increasing access to credit for different groups in society.

Advice on improving macroeconomic statistics is given with the aim of facilitating economic analysis, policy formulation and monitoring, and international comparisons. The independence and integrity of official statistics and their wide dissemination are essential for the functioning of a market economy and the promotion of good governance.