Construction worker in Paris: IMF will look in the coming months at how fiscal policy, long-term growth, and employment interact (photo: Mal Langsdon/Reuters/Newscom)
IMF Work Program
The twice-yearly Executive Board discussion of the IMF’s Work Program centered on translating the directions laid out in the Global Policy Agenda and the Communiqué of the International Monetary and Financial Committee (the IMF’s policy steering committee) in April into a concrete plan for the next twelve months.
The new work program highlights the need to manage monetary normalization, the role of public investment in growth, the focus on structural reforms to boost jobs and growth and reduce vulnerabilities, and steps to facilitate external rebalancing.
In the following interview, Siddharth Tiwari, Director of the IMF’s Strategy, Policy, and Review Department, discusses the institution’s priorities in the coming months.
IMF Survey: Managing the unwinding of extraordinary monetary support has been a major focus in recent months. How will the IMF take this work forward?
Tiwari: Issues related to the unwinding of extraordinary monetary support will remain high on the IMF’s work agenda. There are several policy challenges involved for the membership. For advanced economies that have deployed unconventional monetary policy, the question is when and how to unwind the extraordinary stimulus smoothly, considering also the possible repercussions for the rest of the world (spillovers) and the possible consequences for advanced economies themselves, which we call spillbacks.
For emerging and developing countries, the question is how to respond if capital flows and currencies become more volatile in this process. These countries want to know to what extent they can calibrate exchange rates and other policies to manage spillovers and have questions on how financial deepening can enhance their resilience that we will try to answer.
Looking beyond near-term challenges, we intend to take a more fundamental look at how monetary policy should be conducted once financial conditions normalize.
A key priority for many countries is to advance fiscal consolidation while at the same time preserving growth. How is the IMF assisting with this effort?
Tiwari: This issue is important for many advanced economies that face high unemployment, subdued growth, and high debt levels—but also for those emerging and frontier market economies that are confronting slowing growth rates, declining policy space, and increased market volatility. Staff will undertake analytical work to assess how fiscal policy, long-term growth, and employment interact.
We will also explore ways to enhance the productivity of public investment given declining public capital stocks and limited fiscal space for new projects in many regions. Of course, the IMF will also help build capacity in areas such as public financial management and tax policy, and stands ready to provide financial support as appropriate.
The IMFC has been urging countries to carry out structural reforms at this time of transition in the global economy. How does the work program address this issue—as well as the need to make growth more sustainable, job rich, and inclusive?
Tiwari: Indeed, with the space for supportive macroeconomic policies narrowing in many countries, structural reforms are increasingly needed as a policy lever. Structural reforms can take many forms, such as reforms to labor market policies, and education and health policies, just to name a few. We obviously cannot provide advice and assistance in every area. That is why the 2014 Triennial Surveillance Review—to be completed this fall—will provide guidance on the structural reforms on which the IMF should focus.
In the meantime, our work program already includes several items that examine the role of structural reforms in making growth more sustainable, job rich, and inclusive. The forthcoming World Economic Outlook will examine the importance of public infrastructure for boosting growth. We will also deliver work on the role that financial deepening can play in emerging market and developing economies to support growth and enhance resilience.
Other analytical work on structural reforms will be tailored to each country’s needs—for Euro Area countries, policymakers worry about funding for small and medium enterprises and youth unemployment, while for low-income countries the “buzz words” are transformation and diversification.
How will the IMF build on ongoing efforts to foster policy cooperation and coherence?
Tiwari: The world is increasingly interconnected—we are all in the same boat, so to speak. With subpar global growth and markets being jittery from time to time, it is of utmost importance that we cooperate to support growth and limit policy risks. To foster cooperation, we will continue to analyze the multilateral consistency of our members’ policies and the impact of policy actions in one country on others, including through our Spillover and Pilot External Sector Reports, which will be forthcoming in July. In addition, work is planned to extend our external sector assessment methodology to a broader group of countries and to assess experiences with global rebalancing.
At the same time, it’s important to think about how we can deepen our understanding of risks and spillovers, and how we can leverage this to provide policy advice tailored to the challenges countries face today—building resilience against shocks and achieving more durable growth. Given that the effectiveness of our advice increasingly hinges on how countries work together, the 2014 Triennial Surveillance Review mentioned above also considers the IMF’s role in global cooperation.
We also want to increase clustered Article IV consultations—that is, consultations for a group of countries that face similar challenges, characteristics, or are economically linked. We recently completed one on the Baltics, and new clustered consultations are envisaged in the next 12 months for ASEAN 5 economies and European economies with housing busts. Clustering countries is a recent innovation—it makes us all realize that we have more things that unite us than separate us, and sends a message that cooperation is necessary.
What is planned on low-income countries?
Tiwari: Low-income countries have so far shown impressive resilience and strong growth. The main forward-looking challenge for them is to sustain accelerated growth, including by deepening trade and investment, to deliver higher living standards. We have recently completed analytical projects on the importance of structural transformation and diversification to boost growth, and on how to manage natural resource wealth—the next step is to make this work operational to help policymakers in our member countries.
This fall, we will also step back and take stock of the prospects and vulnerabilities of low-income countries. In addition to our lending engagements, which remain numerous, the IMF will continue to build capacity on the ground, including through our regional technical assistance centers, to help set up more robust monetary policy frameworks, enhance statistics, and provide other assistance.
