## IMF Survey: IMF Support Helping Restore Growth but Key Risks Ahead

_IMF News, April 15, 2011_

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## Bibliographic details
- Published: April 15, 2011

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### Crisis assessment and overall findings
- IMF financing during the 2007–09 global economic crisis helped stabilize economies when access to financial markets was seriously curtailed.
- The study encompassed 29 countries with IMF-supported programs.
- Since the start of the crisis, the IMF committed more than $250 billion in loans to its member countries.
- Almost all countries with IMF-supported programs are seeing a return to growth.
- The study finds ongoing risks: many countries need further fiscal consolidation, job creation is lagging behind the recovery, and political will to implement difficult reforms is flagging.
- A second group of countries that sought IMF support in 2010–11 (including Greece and Ireland) face significant challenges: further fiscal consolidation to reduce high public debt will be needed for years, and reforms to improve growth potential will require strong social cohesion and national unity.

### Country groups, timelines, and program waves
- First wave of countries seeking IMF assistance (2008–mid-2009): Armenia, Belarus, Bosnia & Herzegovina, Costa Rica, El Salvador, Georgia, Guatemala, Hungary, Iceland, Latvia, Mongolia, Pakistan, Romania, Serbia, Seychelles, Sri Lanka, and Ukraine.
- Second wave of countries seeking IMF assistance (late 2009–2011): Angola, Antigua and Barbuda, Dominican Republic, Greece, Iraq, Jamaica, Maldives, Moldova, Honduras, Ireland, Kosovo, and Macedonia.
- Separately, Flexible Credit Lines (FCL) were granted to Colombia, Mexico, and Poland.

### Program design, flexibility, and policy approach
- Programs were designed to support countries’ efforts to absorb the shock; policies were customized rather than one-size-fits-all.
- Program design was more flexible than in past crises:
  - Programs were adjusted to allow automatic stabilizers to operate in full and to permit more government spending where output collapsed faster than expected (examples: Hungary, Latvia, Ukraine).
  - Some programs incorporated capital controls to allow more time for adjustment (Iceland is the most prominent example).
  - The IMF respected countries’ exchange rate choices and advised on policy design consistent with countries’ chosen regimes (example: Latvia retained its peg to the euro while pursuing strong adjustment).
- The IMF’s fiscal policy approach during the crisis was pragmatic:
  - Where fiscal space existed (low and sustainable public debt), large fiscal accommodation was encouraged.
  - In other cases, immediate fiscal consolidation was advised to maintain market credibility.
  - The analysis found fiscal deficits were set consistently with country-specific conditions.

### Effectiveness measures and comparative differences with past crises
- Effectiveness was assessed against country needs: stabilizing economies and avoiding excessive adjustment were primary goals for many first-wave countries.
- Compared with past crises, the recent cases exhibited:
  - Less severe fiscal adjustment,
  - Less overshooting of exchange rates,
  - Fewer acute banking sector problems,
  - Less inflation.
- Large-scale IMF financing enabled countries to avoid severe compression of domestic demand and imports; the contraction would have been much worse without financing from the IMF, the European Union, and other partners.
- Severe banking sector outcomes (bank runs, full-blown collapses) were generally avoided; notable exceptions with major banking problems included Iceland and Ireland.
- The European Bank Coordination Initiative helped roll over debt and convinced parent banks to maintain exposure in crisis-hit countries.

### Social spending and protection of vulnerable groups
- The IMF worked to protect and even increase social spending to shield vulnerable groups.
- In Costa Rica, social spending increased by over 3 percentage points of GDP in 2009 and 2010 despite a substantial decline in fiscal revenues.
- In Iceland, automatic stabilizers were allowed to operate with few limits in 2009, allowing the extensive social safety net to cushion vulnerable groups.
- "Our new study reveals that social spending as a share of total public spending increased in almost all IMF-supported programs."
- The increase in social spending was largest in countries with the lowest initial share of social spending.

### Key challenges and risks ahead
- High public debt levels in some countries (examples cited: Hungary and Greece); some countries (example: Ireland) now face debt sustainability questions due to decisions to rescue banking systems.
- Long adjustment processes will be needed to restore fiscal sustainability and market credibility.
- For central and eastern European countries nearing program expiry:
  - The main challenge is to avoid reform fatigue and implement measures to restore growth and jobs.
  - With prior growth fueled by unsustainable credit booms, these countries must shift toward exports as a driver of future growth.
- For advanced European cases under joint programs with the European Union and the European Central Bank:
  - Success is defined as ensuring sustainable growth and jobs, improving competitiveness, restoring public finance sustainability, and regaining market credibility.
  - Credible national implementation and an adequate regional framework at the European level are key.

### Notable success stories and examples
- Latvia: significant adjustment that avoided extreme outcomes while retaining exchange rate peg.
- Romania and Latvia: examples of countries that turned economies around with political and social perseverance.
- Iceland and Ireland: experienced major banking problems, but broader program efforts helped avoid full-blown systemic collapses in many other countries.

*IMF Survey interview, April 15, 2011 — Strategy, Policy, and Review Department study covering IMF-supported programs (29 countries); IMF committed more than $250 billion in loans during the 2007–09 global economic crisis.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [In The News](https://www.imf.org/en/news/search)
- [Crisis program review](https://www.imf.org/external/np/spr/2011/crisprorev/index.htm)
- [Watch slide presentation](http://www.imf.org/external/np/spr/2011/crisprorev/index1.htm)
- [IMF reviews surveillance](https://www.imf.org/external/pubs/ft/survey/so/2011/POL032411A.htm)
- [IMF and capital inflows](https://www.imf.org/external/pubs/ft/survey/so/2011/NEW040511B.htm)
- [Greece](https://www.imf.org/external/pubs/ft/survey/so/2010/INT121710A.htm)
- [Ireland](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR121610A.htm)
- [loans to its member countries](https://www.imf.org/external/np/exr/map/lending/index.htm)
- [Latvia](http://blog-imfdirect.imf.org/2011/01/07/toughing-it-out-how-the-baltics-defied-predictions/)
- [Iceland](https://www.imf.org/external/pubs/ft/survey/so/2010/int100610a.htm)
- [European Bank Coordination Initiative](https://www.imf.org/external/pubs/ft/survey/so/2009/INT102809A.htm)
- [Romania](https://www.imf.org/external/pubs/ft/survey/so/2011/int032511a.htm)
- [social spending](https://www.imf.org/external/np/exr/facts/protect.htm)
- [previous study](https://www.imf.org/external/pubs/ft/survey/so/2009/POL092509A.htm)
- [responsive](https://www.imf.org/external/np/exr/facts/changing.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew041511a_