## IMF EXECUTIVE BOARD DISCUSSION SUMMARY

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### Global economic outlook and risks
- Global expansion remains strong but "has lost some momentum" and "growth may have plateaued in some major economies."
- Prospects are diverging across countries due to "differences in policy stances and the combined impact of tighter financial conditions, rising trade barriers, higher oil prices, and increased geopolitical tensions."
- Beyond 2019, growth in most advanced economies is expected to be held back by "slow labor force growth and weak labor productivity."
- Emerging market and developing economies: growth "is projected to remain relatively robust," but "income convergence toward advanced economy levels would likely be less favorable for countries undergoing substantial fiscal adjustment, economic transformation, or conflicts."
- Near-term risks have "recently shifted to the downside and some have partially materialized."

### Trade tensions and external imbalances
- Directors judged the "recent intensification of trade tensions and the potential for further escalation" to pose a "substantial risk to global growth and welfare."
- Adverse effects identified: disruption of global supply chains, weakened investor confidence, and undermining of multilateral cooperation.
- Policy recommendations:
  - Adopt a cooperative approach to promote growth in goods and services trade and reduce trade costs.
  - Resolve disagreements without raising tariff and nontariff barriers.
  - Modernize the rules-based multilateral trading system.
- Directors also noted the "possibility of an outcome in which trade issues could be resolved in a positive way."
- On external imbalances: persistent large imbalances require sustained efforts—"mindful of countries’ cyclical positions"—to increase domestic growth potential in surplus countries and to raise supply or rein in demand in deficit countries.

### Monetary, fiscal, and structural policy priorities
- Urgency to "sustain the expansion, strengthen resilience, and raise medium-term growth prospects" given a narrowing window of opportunity.
- Fiscal policy:
  - Encourage countries to "rebuild fiscal buffers where needed."
  - Implement growth-friendly measures "calibrated to avoid procyclicality and the risk of sharp drags on activity."
- Monetary policy:
  - Where inflation is below target, "continued monetary accommodation remains appropriate."
  - Where inflation is close to or above target, "monetary support should be withdrawn in a gradual, data-dependent, and well-communicated manner."
- Structural reforms:
  - Emphasized as critical to "boosting potential output, ensuring that gains are widely shared, and improving safety nets—including to protect those vulnerable to structural change."

### Financial stability: vulnerabilities and regulatory priorities
- Near-term risks to financial stability "have increased" while medium-term risks "remain elevated."
- Key vulnerabilities: "high and rising public and corporate debt" and "stretched asset valuations in some major markets."
- Priorities for some countries include:
  - Cleaning up bank balance sheets.
  - Improving corporate governance.
  - Addressing risks from the sovereign-bank nexus (with several Directors noting regulatory issues on sovereign exposures are for the Basel Committee on Banking Supervision).
- Directors stressed completing and fully implementing the regulatory reform agenda and avoiding a rollback of reforms that have contributed to a more resilient financial system "ten years after the global financial crisis."
- Supervisory actions and tool development:
  - Regulators and supervisors should remain vigilant and "stand ready to act."
  - Special attention to liquidity conditions and new risks, including cybersecurity, financial technology, and activities outside prudential regulation.
  - Further develop and proactively deploy policy tools, "including macroprudential policies," and enhance cross-border coordination.

### Emerging market and developing economies: preparedness and resilience
- As monetary policy normalization proceeds in advanced economies, emerging market and developing economies need to prepare for "an environment of tighter financial conditions and higher volatility."
- Recommended policy mix: appropriate use of fiscal, monetary, exchange rate, and prudential policies.
- Capital flow management measures may be appropriate in certain circumstances but "not as a substitute for macroeconomic adjustment."
- Markets have differentiated among these economies "based on their fundamentals and idiosyncratic factors."
- Emphasis on maintaining credible policy and institutional frameworks, strengthening governance, and improving human and physical capital.
- The Fund should offer "granular, tailored policy advice" and stand ready to provide financial support as needed.

### Low-income developing countries and commodity exporters
- Priorities: building resilience, lifting potential growth, improving inclusiveness, and making progress toward the 2030 Sustainable Development Goals.
- Commodity exporters should prioritize economic diversification.
- Create room for development expenditure by:
  - Broadening the tax base.
  - Improving revenue administration.
  - Prioritizing spending on health, education, and infrastructure.
  - Cutting wasteful subsidies.
- Urgent action called for to contain rising debt vulnerabilities; "both debtors and creditors share a responsibility for ensuring sustainable financing practices and enhancing debt transparency."

### Public sector balance sheet analysis
- Directors agreed public sector balance sheet analysis is a useful tool to analyze public finances by revealing public assets in addition to debt and nondebt liabilities.
- Benefits cited: helps governments identify risks, manage assets and liabilities, potentially reduce borrowing costs, and raise returns on assets.
- Long-term intertemporal analysis is "particularly relevant in aging societies" and added transparency can enrich the policy debate.
- Limitations acknowledged: data quality and differences in accounting practices hinder cross-country comparisons, so the balance sheet approach should be used with caveats to complement traditional fiscal analysis.

*Discussion concluded by the Chair on September 20, 2018 (Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook).*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2018/oct/ch1/doc/board-sum.pdf_