International Monetary Fund. Strategy, Policy, & and Review Department
This paper is the sixth in a series that examines macroeconomic developments and prospects in low-income countries (LICs). LICs are defined in this report as the countries eligible to PRGT facilities (69 countries). The first section of the paper discusses recent macroeconomic developments and trends across LICs. The second section estimates LICs’ financing needs up to 2025 to resume and accelerate their income convergence with advanced economies (AEs). It does this by estimating the additional financing that would enable LICs to step up spending response to COVID, including vaccination needs, while rebuilding or keeping external buffers to enhance resilience, and then the paper considers the financing needed to allow LICs to accelerate convergence with AEs. The paper then discusses a mix of financing options, including concessional financing from the international financial institutions, grants and loans from bilateral donors, private financing and debt operations, but also domestic reforms within LICs themselves as a key component to foster growth, enhance private investment, raise public revenues, and increase efficiency of spending.
This Technical Assistance Mission has been undertaken to support the Bank of South Sudan (BSS) in improving external sector statistics (ESS). The recommendations made during the 2018 mission for the recording of oil exports and transactions with Sudan under the Transitional Financial Agreement were implemented by the BSS. The mission worked toward enhancing the inter-agency cooperation by meeting with selected public sector bodies, providing them with an overview of the balance of payments and the data that the BSS will request from them. Before the end of the mission, requested data from one of the entities, the Civil Aviation Authority was provided. A work program was developed to conduct a visitor expenditure survey and a preliminary International Reserves and Foreign Currency Liquidity template was submitted to IMF’s Statistics Department for review. In order to support progress in the various work areas, the mission recommended a detailed one-year action plan, with the several priority recommendations carrying weight to make headway in improving ESS reliability.
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This paper examines the impact of the World Bank on the financial markets and developing countries. The sound financial structure of the Bank rests on its conservative loan-to-capital ratio. Its large liquidity is an assurance to investors in Bank bonds that their investments are assured of liquidity in case the need arises. To cope with their payments difficulties, the heavily indebted developing countries have adopted more cautious fiscal and monetary policies, limited wage increases, and reduced domestic consumption and investment.
The role of exchange rate policy in economic adjustment has been widely studied and is the subject of numerous theoretical and empirical papers produced in the Fund and elsewhere. The Fund staff has reviewed from time to time the effectiveness of adjustment programs incorporating an active exchange rate policy.1 Other issues relating to exchange rate policy, including, in particular, the interaction between the exchange rate and other macroeconomic policy variables, also have received considerable attention.2 However, little detail is available on the methodology of developing and implementing exchange rate policies in the context of adjustment programs. Besides examining general issues related to formulating exchange rate policy in adjustment programs, this paper reviews the experience with development of exchange rate policy in programs supported by the Fund in 1983.
Whenever a country undertakes a program of balance of payments adjustment, it needs to consider whether a change in the exchange rate is required to achieve a viable external position and a reasonable rate of economic growth over the medium term. The ways in which exchange rate policy works to correct balance of payments problems and to improve the allocation of resources are well known and need no repetition here. To provide a setting for the discussion in the remainder of the paper, however, this section briefly considers four conceptual issues: (1) the use of indicators to assess the appropriateness of the exchange rate in adjustment programs; (2) the role of exchange rate policy in relation to other program policies; (3) the extent to which exchange rate stability should in itself be a proximate policy objective in adjustment programs; and (4) the attention given to exchange rate policy when use of Fund resources is involved.
Since the Fund granted the first stand-by arrangements in the 1950s, its policies regarding the programs supported by such arrangements consistently have emphasized the need for an appropriate structure of relative prices to promote the attainment of a viable balance of payments. In the relatively stable economic environment of the 1950s and 1960s there tended to be more emphasis on adjustments through demand management, and most programs could exclude exchange rate action without seriously compromising their objectives. At the same time, there was a general international commitment to fixed exchange rates. In the 1970s the economic environment changed. Partly in response, commitment to fixed exchange rates was regarded as less important than before, and exchange rate action began to figure in the majority of Fund-supported adjustment programs. In the 1980s, the difficult economic environment, together with the need to correct serious distortions resulting from policy failures, has contributed to a continued increase in the incidence of exchange rate action in Fund-supported programs.
The objective of Fund-supported adjustment programs is to bring about a viable balance of payments in the medium term. The formulation of exchange rate policies in such programs takes into account the overall stance of domestic and foreign policies, as well as prospective internal and external conditions over the medium term. Such an analysis may bring out the implications of various exchange rate policies, or, conversely, may be used to indicate the exchange rate policy consistent with a given set of assumptions about exogenous developments and the stance of other policies.
The 35 adjustment programs supported by the Fund with upper credit tranche stand-by or extended arrangements approved in 1983 were examined in some detail. A high proportion of the programs—71 percent—included action on the exchange rate.