IMF Survey : IMF Refines Analysis and Advice on Structural Reforms

IMF News, November 9, 2015

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Canonical URL: IMF Survey : IMF Refines Analysis and Advice on Structural Reforms

Publication date: November 9, 2015
Core message: Structural reforms matter for growth; benefits tend to increase when reforms are bundled together.
Motivation: Help the IMF take a more strategic approach to structural reform areas, as called for in the 2014 Triennial Surveillance Review.

Structural reforms aim to raise productivity by improving technical efficiency of markets and institutional structures or by reducing impediments to efficient allocation of resources.
Examples of structural reforms cited: banking supervision reforms, property right laws, changes in tariff rates, rules on hiring and firing.
Context:
- Many countries have experienced a slowdown in productivity growth and weakening potential growth since the global financial crisis.
- In the six years since the crisis, policies to support demand (fiscal stimulus and unconventional monetary policy) risk losing effectiveness or are running out of space.
- Policymakers are increasingly turning to structural reforms to complement other efforts to jumpstart growth.

Positive relationship between structural reforms and productivity growth:
- The study finds a positive relationship between structural reforms and productivity growth across countries.
- Larger payoffs are observed when multiple reform episodes occur in parallel.
Heterogeneous payoffs across income groups:
- The potential payoff from different types of reforms varies across income groups—reforms effective in low-income countries might not have the same impact in more advanced economies.
Relevance of specific reform types:
- Fiscal structural reforms (e.g., measures to strengthen tax administration, spending efficiency, and budget processes) and financial sector reforms are found to be highly relevant across the IMF membership.
Supporting evidence:
- The study examines data from the past 40 years.
- Six country cases reviewed: Armenia, Australia, Malaysia, Peru, Tanzania, Turkey.
- Case studies reinforce empirical findings: the most successful reformers generally took a more comprehensive approach where sound macroeconomic policies complemented structural reforms.
Staff survey:
- A survey of IMF staff who lead country teams shows reform needs evolve as economies develop (example: agricultural reforms more relevant in low-income countries; innovation and labor market reforms higher priority for advanced economies).

Purpose: Build a richer analytical foundation and range of diagnostic tools for country teams to use in analysis and dialogue with member countries.
The study explores both large-scale reforms and “waves” of reforms implemented in parallel, and highlights the need for further work on how countries can combine and sequence reforms to yield the most effective results.

The IMF should:
- Be equipped to recognize all structural issues that are critical to the macroeconomic health of IMF member countries and highlight the macroeconomic implications in country consultations.
- Limit specific policy advice to areas where it has the necessary expertise, but explore building expertise in select areas of high impact and high demand, such as infrastructure and labor market issues.
- Strengthen collaboration with other agencies on structural reforms that are outside the IMF’s core areas of expertise.

“Strong country ownership and the ability to sustain reforms appear to be crucial for reaping the productivity and growth benefits,” — Sanjaya Panth, Deputy Director of the IMF’s Strategy, Policy, and Review Department.
“If the Fund is to invest more systematically in supporting countries’ reform needs, we need to gain a deeper appreciation of the relationship between reforms and macroeconomic performance,” — Chris Papageorgiou (co-lead of the study).
“The most successful reformers generally took a more comprehensive approach, where sound macroeconomic policies complemented structural reforms,” — Karen Ongley (co-lead of the study).

IMF Survey : IMF Refines Analysis and Advice on Structural Reforms — November 9, 2015