Sri Lanka: Technical Assistance Report-Governance Diagnostic Assessment
September 30, 2023
At the request of the authorities of Sri Lanka, an interdepartmental (LEG/FAD/MCM, FIN) Governance Diagnostic Assessment (GDA) mission was conducted during March 20 - March 31, 2023. In line with the IMF’s 2018 Framework on Enhanced Fund Engagement on Governance, the diagnostic assessment focused on corruption vulnerabilities and governance weaknesses linked to corruption in macroeconomically critical priority areas of: (i) the anti-corruption, anti-money laundering and combating the financing of terrorism; (ii) fiscal governance (e.g., public financial management, tax policy and revenue administration, state enterprise management, and public procurement); (iii) central bank governance; (iv) financial sector oversight; and (v) enforcement of contract and protection of property rights. Annex 1 provides additional information on the methodology and scope of the Governance Diagnostic.
Annual Update on SDR Trading Operations
September 29, 2023
This paper provides an update on the status of the SDR trading market and operations. For more than three decades, SDRs have exclusively been exchanged for freely usable currencies in transactions by agreement, primarily through the Voluntary Trading Arrangements (VTAs). Since the last annual update, SDR trading has continued to be dominated by SDR sales, although SDR acquisitions have increased significantly. From September 2022 to August 2023, SDR 17.9 billion were sold through the VTA market, of which SDR 8.9 billion were exchanged by 29 participants into currencies and SDR 8.0 billion were sold by the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST) for liquidity management and to facilitate the investment of SDR contributions. On the purchase side, the volume and number of transactions increased from the previous year as more participants needed to replenish their SDR holdings to cover charges to the IMF, reflecting the rising SDR interest rate. The VTAs continue to have ample capacities to meet the demand for exchange of SDRs into currencies.
Resurgence of Inflation and the New Geopolitical Realities Redesigning Macroeconomic Policy
September 29, 2023
Reassessing GDP Growth in Countries with Statistical Shortcomings - A Case Study on Turkmenistan
September 29, 2023
Reliable national accounts are essential for proper economic analyses and informed policymaking by national authorities as well as other stakeholders. Nevertheless, in many countries, national accounts statistics are subject to serious shortcomings, which are often manifested as overestimated growth rates. In cases where official data are not adequate for surveillance, IMF staff compile alternative estimates by applying various forecasting methods. This study proposes a more holistic, bottom-up approach, which is based on the compilation of GDP by the expenditure method with limited source data. The study also discusses the case of Turkmenistan, where this method was implemented in practice.
Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications
September 29, 2023
We develop a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology. We then estimate financial condition indexes (FCIs) across European economies, both at the aggregate and sectoral levels. We decompose the changes in FCs into several factors including credit availability and costs, price of risk, policy stance, and funding constraints. Our results show that FCs loosened during the pandemic thanks to policy support but started to tighten significantly since mid-2021. Using the inverse probability weighting method over the sample period from 2000 to 2023, we find that a shift from a neutral to a tight FCI regime such as the ongoing episode for most European countries will on average lower output and inflation by 2.2 percent and 0.7 percentage points respectively and increase unemployment by 0.3 percentage points over a three-year horizon.
Putting Out the NBFIRE: Lessons from the UK's Liability-Driven Investment (LDI) Crisis
September 29, 2023
Liability Driven Investment (LDI) funds were at the center of the severe stress that emerged in the UK gilt market in the aftermath of the September 2022 UK "mini-budget". The episode, which came on the heels of the “Dash for Cash” and “Archegos” stress episodes in the previous two years, highlights underlying vulnerabilities in the large and diverse non-bank financial institution (NBFI) sector. This paper seeks a deeper understanding of the factors that amplified the gilt market turmoil which ultimately led the Bank of England (BoE) to undertake temporary gilt purchases on financial stability grounds in late September/early October 2022 to restore orderly market conditions and enable LDI funds to build their capital positions. With the gilt market stress and the BoE’s purchases now fully unwound, this paper identifies the key reasons for the success of the BoE’s intervention. Then, drawing also on findings of the 2022 UK Financial Sector Assessment Program (FSAP), the paper discusses key gaps and policy issues related to the monitoring of financial stability risks in the broader NBFI sector for both individual jurisdictions and international standard-setting bodies.
Identifying News Shocks from Forecasts
September 29, 2023
We propose a method to identify the anticipated components of macroeconomic shocks in a structural VAR. We include empirical forecasts about each time series in the VAR. This introduces enough linear restrictions to identify each structural shock and to further decompose each one into “news” and “surprise” shocks. We estimate a VAR on US time series using forecast data from the SPF, CBO, Federal Reserve, and asset prices. Unanticipated fiscal stimulus and interest rate shocks we identify have typical effects that match existing evidence. In our news-surprise decomposition, we find that news drives around one quarter of US business cycle volatility. News explains a larger share of the variance due to fiscal shocks than for monetary policy shocks. Finally, we use the news structure of the shocks to estimate counterfactual policy rules, and compare the ability of fiscal and monetary policy to moderate output and inflation. We find that coordinated fiscal and monetary policy are substantially more effective than either tool is individually.
Republic of Armenia: Review of Tax Expenditures
September 29, 2023
Supporting the authorities’ objective to consolidate revenue, this technical assistance report assesses tax expenditures in Armenia. The report covers major tax expenditures related to the value-added tax, excise taxes, the profit tax, and the personal income tax. With total estimated tax expenditures in excess of 5.5 percent of GDP in 2021, streamlining preferential regimes, exemptions and incentives has strong potential for boosting revenue while improving the equity and efficiency of the tax system.
Vietnam: Technical Assistance Report-Macroeconomic Framework Technical Assistance–Ministry of Planning and Investment: Scoping Mission
September 29, 2023
This technical assistance (TA) report presents the outcomes of the scoping mission of a new TA project aimed at building capacity in macroeconomic analysis and forecasting in the Ministry of Planning and Investment (MPI). The MPI is establishing a Core Working Group (CWG) under MPI’s coordination that will carry out macroeconomic analysis using Macroeconomic Projection Tool (MPT) and integrate the results in the policy making process. Based on the mission’s finding and assessment, the mission team and the authorities agreed on a three-year TA action plan that includes training components during the early stage of the project. During Phase 1 (2023-24), the activities would focus on developing and operating the Macro-Framework Foundation Tool (MFT) and the Public Debt Dynamics Tool (DDT) to produce macroeconomic analysis and forecasting. Depending on progress, the MPT could be enhanced during Phase 2 (2025-26) and the tentative plan is to develop Comprehensive Adaptive Expectation Model (CAEM). The CWG will take the lead in implementing the activities and targets identified in the TA action plan and will be supported by the IMF TA team.