- Jan Martijn, Gabriel Di Bella, Shamsuddin Tareq, Benedict Clements, and Abebe Aemro Selassie
- Published Date:
- July 2006
© 2006 International Monetary Fund
Production: IMF Multimedia Services Division
Typesetting: Choon Lee
Figures: Theodore F. Peters, Jr.
Designing monetary and fiscal policy in low-income countries / Aemro Selassie … [et al.] — Washington, D.C. : International Monetary Fund, 2006.
p. cm. — (Occasional paper ; 250)
Includes bibliographical references.
1. Monetary policy — Developing countries. 2. Fiscal policy — Developing countries. 3. Poverty Reduction and Growth Facility (International Monetary Fund) 4. Inflation — Developing countries. I. Abebe Aemro Selassie. II. Series : Occasional paper (International Monetary Fund) ; no. 250
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- I Introduction
- II Stylized Facts of PRGF-Supported Programs in Mature Stabilizers
- III Monetary Policy Issues in PRGF-Supported Programs
- IV Fiscal Policy Issues in PRGF-Supported Programs
- V Conclusions
- 1.1. The PRGF
- 1.2. Why the “Mature Stabilizer” Moniker?
- 2.1. Targets and Projections in IMF-Supported Programs
- 2.2. Social and Poverty-Reducing Spending
- 3.1. Seigniorage Income
- 3.2. Monetary Programming in IMF Program Design
- 4.1. Treatment of Concessional Loans in Fiscal Accounts
- 4.2. Public Debt Sustainability: The Case of Ethiopia
- 4.3. Absorptive Capacity Constraints and Policies to Ameliorate Them
- 1.1. Economic and Social Indicators in PRGF-Eligible and Other Developing Countries
- 2.1. Inflation Targets in Original PRGF-Supported Programs
- 2.2. Inflation Targets in Consecutive Program Updates
- 2.3. Fiscal Targets and Performance
- 2.4. External Targets versus Outcomes in the Mature Stabilizer Sample
- 3.1. Empirical Studies on Kinks in the Relationship between Inflation and Growth
- 3.2. De Facto Exchange Regimes, 2001
- 3.3. Monetary Projections and Projection Deviations
- 3.4. Credit to the Private Sector
- 4.1. NPV of Public Sector Debt for Selected Poststabilization Countries
- 4.2. Evolution of the Revenue Structure of Poststabilization Countries in the 1990s
- 4.3. Selected VAT and Corporate Income Tax (CIT) Indicators
- A1.1. Accuracy of Program Updates
- A1.2. Test of the Accuracy of Program Projections (Theil’s U-Statistic)
- A2.1. Test of the Weak Efficiency of Program Projections
- A4.1. Average Augmented Primary Balance, 2000–03
- 2.1. Real GDP Growth: 1980–2003
- 2.2. Projected Real GDP Growth
- 2.3. Expenditure Targets in PRGF Programs, 2000–03
- 2.4. Revenue Targets in PRGF Programs, 2000–03
- 2.5. External Development Indicators in the Mature Stabilizers
- 2.6. Actual and Debt-Stabilizing Current Account Balances
- 2.7. Ratio of Private Investment to GDP
- 3.1. Inflation: One-Year-Ahead Projections and Outcomes
- 3.2. Dispersion of Monthly Exchange Rate Changes to the U.S. Dollar—Kernel Density Diagram
- 3.3. Deviations from Previous-Year Projections for CPI and Broad Money Growth
- 3.4. Projected and Actual Percentage Change in Velocity
- 3.5. Projected and Actual Percentage Change in the Reserve Money Multiplier
- 3.6. Deviations from the Programmed Levels of NDA and NFA
- 3.7. Exchange Rate Variability and Deviations from Previous-Year Broad Money Projection
- 3.8. Cumulated Growth in Credit and GDP, 1995–2002
- 3.9. Domestic Debt and Private Sector Credit in Low-Income Countries
The following conventions are used in this publication:
- In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
- An en dash (–) between years or months (for example, 2005–06 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).
- “Billion” means a thousand million; “trillion” means a thousand billion.
- “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
In 1999, the IMF established the Poverty Reduction and Growth Facility (PRGF) to make the objectives of poverty reduction and growth more central to lending operations in its poorest member countries. Against this backdrop, in this study, the IMF staff takes a close look at the IMF’s monetary and fiscal policy advice, as well as program design in the context of PRGF-supported programs. In view of the marked improvement in macroeconomic outcomes in many low-income countries in recent years, the analysis focuses, in particular, on those countries that have established a certain level of macroeconomic stability—the so-called mature stabilizers.
Designing Monetary and Fiscal Policy in Low-Income Countries was prepared by a team comprising staff members from the Policy Development and Review (PDR) and Fiscal Affairs (FAD) departments. In PDR, the team included Abebe Aemro Selassie, Jan Kees Martijn, Gabriel Di Bella, and Zaijin Zhan. In FAD, the team consisted of Michael Keen, Benedict Clements, Shamsuddin M. Tareq, Kevin Fletcher, Mario Mansour, Todd Mattina, and Alejandro Simone. Qiang Cui of FAD and Luzmaria Monasi of PDR provided valuable research assistance. Overall supervision was exercised by Mark Plant and Peter S. Heller.
This paper was originally prepared as background for the IMF Executive Board discussion of the 2005 review of PRGF program design. The views expressed are those of the authors, however, and do not necessarily reflect the views of national authorities, the IMF, or IMF Executive Directors.
Consumer price index
Corporate income tax
Debt sustainability assessment
Fiscal Affairs department
Foreign direct investment
Heavily Indebted Poor Countries
Independent Evaluation Office
International Financial Statistics
Millennium Development Goal
Net domestic assets
Net foreign assets
Net international reserves
Net present value
Policy Development and Review Department
Poverty Reduction and Growth Facility
Poverty Reduction Strategy Paper
Private sector credit growth
Public expenditure management
Root mean squared error
World Economic Outlook