Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey : IMF Continues Dialogue with Parliamentarians
September 18, 2015
- IMF and WTO meet with parliamentarians from Central Asia and the Caucasus
- Legislators exchange views on economic issues facing their region
- Fiscal management and energy subsidies among topics discussed at workshop
As part of continued efforts to engage with parliamentarians from across the world, the IMF cohosted a forum for Members of Parliament from across Central Asia and the Caucasus to exchange views on the economic issues facing the region.
MPs from across Central Asia and the Caucasus attend workshop session on energy subsidy reform (Photo: Konstantin Reyer)
LEGISLATOR OUTREACH
The IMF’s Middle East and Central Asia Department and Joint Vienna Institute (JVI), in cooperation with the World Trade Organization (WTO), held a two-day workshop aimed at exposing parliamentarians to the role of the IMF and WTO in the region and explaining the economic policies recommended by the IMF. Held in Vienna, Austria on July 27–28, it provided a forum for parliamentarians to exchange views on their experiences in economic policymaking, including emerging challenges and issues. The JVI is supported by six international organizations and the Austrian Authorities (Oesterreichische Nationalbank and the Ministry of Finance) and provides policy-oriented training to public sector officials from countries in Central, Eastern and Southeastern Europe, the Caucasus and Central Asia.
Members of Parliament (MPs) from 7 countries—Armenia, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan attended the two-day workshop. Most of the MPs currently sit on budget/finance committees.
The workshop sessions included presentations by IMF and JVI staff on the role of the IMF and the region’s economic outlook. WTO staff delivered presentations on various trade-related topics, including the trade and development and the WTO’s trade facilitation agreement.
Fiscal Management
One of the topics generating a lot of discussion at the workshop was fiscal management and how fiscal policy can balance the goals of macroeconomic stability and growth; income redistribution and provision of social safety nets; and the provision of other public goods, like healthcare and education. Procyclical spending, where government spending tends to increase during periods of economic growth, means governments often forego setting up “stabilization funds” or paying down existing debt. Excessive government debt can also hinder governments’ ability to help stabilize economies during periods of slow economic growth. Public debt across the region ranges from 8 percent of GDP in Uzbekistan to 53 percent of GDP in the Kyrgyz Republic.
Efficient fiscal management should attempt to avoid procyclical spending. A more prudent approach when the economy is flourishing would be to set money aside or pay down debt, so that governments are better able to step up spending during economic downturns. Fiscal rules can help contain pressures to overspend (provided they are adhered to), in particular in good times, to ensure fiscal responsibility and debt sustainability. Such rules can, for example, set limits for public debt in percent of GDP or could take the form of budget balance rules.
Commodities and energy subsidies
For a number of countries across the region, the export of commodities has led to sizable revenue gains for government. But while the revenue is welcomed, there are potential pitfalls of which governments need to be aware. Resource windfalls are often followed by capital flow surges, and participants heard how this has different implications for fixed versus flexible exchange rate systems. Commodity booms can also attract labor away from other sectors in the economy, which sometimes leads to output declines in these sectors.
For oil and natural gas producing countries, there is sometimes the temptation to help their citizens by ensuring prices for energy remain affordable. This is usually accomplished through some form of subsidy, perhaps paid directly to producers or consumers, or sometimes even by way of laws that keep consumer prices artificially low. But participants heard how subsidies are expensive for governments—and therefore taxpayers—to finance and can compete with other priority public spending on roads, schools, and healthcare. All consumers—both rich and poor—benefit from subsidies by paying lower prices. Governments could better help those who really need it by reducing subsidies and targeting the money directly to programs that help only the poor.
Trade considerations
During the lectures on trade, MPs heard how trade can be a powerful source of growth and development. Indeed Asian and Latin American economies have witnessed trade growth faster than economic output in recent years—yet, even though the Central Asian and Caucasus region launched the Eurasian Economic Union in 2014, trade within the region remains relatively weak. Experts at the workshop noted that trade can expand markets, facilitate competition and disseminate knowledge, raise productivity, and facilitate assimilation and exposure to new technologies.
At the same time, the WTO cautions that trade liberalization will not automatically lead to growth and development, and countries will need to ensure their path to increased trade is tailored to their own unique circumstances. Strong institutional infrastructure; competent financial institutions; and a transparent legal framework are also needed.
Engagement benefits all
The workshop was the latest example of how, in recent years, the IMF has attempted to expand its dialogue with legislators from across the world. This engagement helps improve legislators’ overall understanding of the work of the IMF and how its advice to individual countries is formulated. At the same time, the IMF acquires a better understanding of the issues facing legislators and their countries.
Through its increased commitment to transparency, the IMF has begun collaborating regularly with organizations such as the Parliamentary Network on the World Bank the IMF, as well as Commonwealth Parliamentary Association, to engage directly with members of parliament. Interaction with parliamentarians through workshops or other venues ultimately contributes to greater transparency, ownership, and accountability of economic policy choices.