How the IMF Continues to Change To Confront Global Challenges

IMF Blog, January 18, 2022

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The IMF’s mandate—assisting members to overcome balance of payments problems without resorting to measures that threaten national or international prosperity—remains central and guides adaptations.
The Fund has periodically modernized its financing and surveillance approaches as member countries’ balance of payments problems evolved.
Historical milestones cited:
- IMF opened its doors in 1947 with a focus on very short duration balance of payments lending to maintain exchange rate parity.
- Stand-by Arrangement (SBA) introduced in 1952 providing assurances of future access to IMF resources subject to conditions.
- In the early 1970s the Fund introduced longer and more concessional financing instruments and overhauled surveillance in response to oil price shocks and widespread adoption of flexible exchange rates.
The Fund retained its character as a monetary institution focused on viable and sustainable balance of payments as a prerequisite for macroeconomic and financial stability.

The IMF enhanced fast-disbursing emergency assistance (financing and debt relief) in response to natural disasters and health crises (examples: Ebola in western Africa; earthquake in Haiti).
When the COVID 19 pandemic struck, the Fund was positioned to act quickly with temporary support and is following up with traditional lending programs as the crisis continues.
Ongoing effort: establishment of a Resilience and Sustainability Trust intended to build on the historic 2021 SDR allocation of $650 billion to meet longer-term financing requirements of members in greatest need.

Traditional short-to-medium-term financing shocks will recur as the world emerges from the pandemic.
Specific near-term risks and dynamics:
- Sharper than expected monetary tightening in advanced economies will have spillover effects on the balance of payments of emerging market countries.
- Countries with high debt burdens will need to work to avert fiscal and financing crises.
- Large commodity exporters and importers must build resilience to large price swings.
The IMF will continue to deploy its traditional toolkit of surveillance, lending and capacity building, with occasional minor modifications.

Deep-seated structural issues are becoming more prevalent and should be addressed now to prevent larger balance of payments problems later.
Key structural trends and their balance of payments implications:
- Climate change: disparate impacts across countries; can lead to higher food imports and outward migration in many affected countries.
- Digitalization: affects trade in goods and services and capital flows by accelerating financial innovation (e.g., central bank digital currencies); not all countries equally able to seize opportunities.
- Demographics: divergent pressures—young, fast-growing populations risk higher unemployment; ageing societies may face shortages of labor, goods and services.
- Income and gender inequalities are widening.
Successful responses require cooperation between the Fund and other institutions with relevant expertise (for example, the World Bank).

The IMF will:
- Revisit policy advice, lending activities, and capacity building to determine selective adaptations to meet evolving member needs.
- Add selectively to its toolkits, as it has historically, to confront emerging challenges in collaboration with other institutions.
- Remain within its mandate while addressing overlapping global public policy goals that require action from all international financial institutions.

Source: IMF blog post "How the IMF Continues to Change To Confront Global Challenges" by Ceyla Pazarbasioglu, January 18, 2022.