Bridge builders in Allahabad, India: IMF work agenda will study how structural reforms such as more infrastructure investment will spur growth (photo: Prabhat Kumar Verma/Sipa USA)
IMF WORK PROGRAM
A key focus of the agenda discussed by the IMF’s Executive Board on November 24 will be to spur inclusive, job-rich growth. The new work program stresses the need to manage monetary normalization in advanced economies, enhance the quality of public expenditure, safeguard financial stability, and carry out structural reforms to raise productivity and strengthen growth.
The twice-yearly discussion of the IMF’s work agenda translates the Global Policy Agenda into a specific action plan for the institution over the next 12 months. The Global Policy Agenda was presented by Managing Director Christine Lagarde at the IMF-World Bank Annual Meetings in October.
IMF Survey spoke with Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, about the main features of the work program.
IMF Survey: The 2014 Annual Meetings highlighted the urgency of preventing the global economy from settling into a “new mediocre” of poor growth and paltry job creation. How does the work program address this problem?
Tiwari: Indeed, the current global economic situation is disconcerting, with around 200 million people still unemployed six years after the global financial crisis. Our view is that supportive fiscal and monetary policies need to work in tandem with structural policies to accelerate the recovery.
The IMF will examine in the coming months how structural reforms such as increasing infrastructure investment, lowering barriers to trade, reducing tax distortions, and promoting financial deepening and inclusion can jump-start growth. This work will be complemented by looking at the role fiscal policy can play to raise long-term growth. Obviously, there is not a one-size-fits-all approach and our analysis will focus on the needs of different groups of countries.
In addition, the 2014 Triennial Surveillance Review also made recommendations on how we can address structural reform issues in the IMF’s surveillance, and we will be following through with these recommendations in the months ahead. Bold measures are needed to help overcome the risk of getting stuck in a “new mediocre” and, as usual, the IMF will be there to assist its members.
IMF Survey: You mentioned the role of fiscal policy in raising economic growth. What work is planned in this area?
Tiwari: The forthcoming Fiscal Monitor will focus on the role of automatic stabilizers—that is, features of the tax and transfer system that offset fluctuations in economic activity without direct intervention by policymakers. Corporate and personal income taxes are examples of automatic stabilizers, as are unemployment insurance and welfare benefits.
In addition, we will explore how improving tax compliance can support growth by creating space for productive expenditures, and examine how public investment frameworks can be reformed to maximize the growth impact of investment in a fiscally sustainable way. Other work on fiscal policy and growth will analyze issues such as the linkages between fiscal policy and productivity, and how public debt restructuring and fiscal reform episodes affect growth.
IMF Survey: Monetary policy has also been a key focus for the IMF. How is this reflected in the work program?
Tiwari: In the next 12 months, we will examine new monetary policy questions raised by the global financial crisis, including the interaction between monetary policy and financial stability. Other work will cover the role of exchange rate intervention and some follow-up work on assessing what level of reserves is adequate for countries in various circumstances.
The IMF will also continue to assist low-income developing countries in strengthening their monetary policy frameworks, making them more credible, countercyclical, and forward-looking. And, of course, we will continue to provide country-specific policy advice and explore the impact and spillovers of the impending normalization of monetary policy in some major advanced economies.
I also want to highlight our work on macroprudential policies—that is, policies designed to prevent asset price bubbles and excessive credit growth. Given the importance of these policies for limiting systemic risk, we are issuing a comprehensive guidance note for IMF staff on this topic and are making it operational in our surveillance work.
IMF Survey: How will the IMF build on ongoing efforts to address financial sector vulnerabilities and promote financial deepening?
Tiwari: We are making a big push across the Fund to better integrate financial sector considerations into our standard macroeconomic analysis as we monitor the health of our member countries’ economies. In this context, we are identifying relevant analytical questions that will be covered on a pilot basis in the Article IV consultations of a few countries in each region. Other work includes strengthening balance sheet analysis in surveillance, assessing the challenges of cross-border banking linkages, and providing further analysis to support financial deepening in emerging market economies and financial inclusion.
IMF Survey: The IMF is also taking a fresh look at how it engages with low-income countries. What will this work entail?
Tiwari: The IMF is already heavily engaged in low-income countries and we intend to further deepen this engagement. With 2015 marking the deadline for achieving the Millennium Development Goals, the international community is working on a new set of objectives, the Sustainable Development Goals (SDGs), to promote human development. The Fund will actively contribute to this work in the area of financing for development, lending its expertise in analyzing how to best mobilize, deploy, and manage resources to help achieve the new SDGs.
We are also finalizing revisions to our policy on debt limits in IMF-supported programs, with the aim of making the system more flexible to specific country circumstances while safeguarding sustainability. And, last but not least, I need to mention our rapid response to the Ebola outbreak. We are currently working on measures to provide even more assistance to affected countries.
IMF Survey: What long-term global challenges is the IMF studying?
Tiwari: As a multilateral institution with near-universal membership, the IMF needs to pay attention to cross-cutting global challenges that could materially affect economic and financial outcomes in our member countries, both today and tomorrow. Work on inequality, climate change, and gender will therefore be part of staff analysis and policy discussions with the authorities in countries where such issues affect the macroeconomic health of our member countries.
IMF Survey: How does the work program address quota reform and governance?
Tiwari: The entry into force of the 2010 Quota and Governance reforms remains of utmost importance to preserve the quota-based nature of the IMF and strengthen its legitimacy, effectiveness, and relevance. If these reforms have not become effective by the end of 2014, the IMF Executive Board will discuss alternative options for rebalancing quotas and ensuring the continued availability of adequate financial resources.
