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Business and Economics > Public Finance

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Cover IMF Working Papers
Designing Expenditure Policy Conditionality in IMF-Supported Programs
Emine Hanedar
and
Zsuzsa Munkacsi
This gap-filling paper provides granular advice on how to design quantitative and structural conditionality of IMF-supported programs in six expenditure policy areas: social assistance, energy subsidies, pension spending, health spending, education spending, and wage bill management. Such granular advice is based on a stocktaking exercise: an analysis of 105 programs approved between 2002 and July 2021 containing a ca. 1400 conditions. Conditions are key to identify outcomes or actions seen as critical for program success or monitoring, and so are essential for financial support countries can receive from the Fund.
Keywords:
IMF-supported programs; conditionality; expenditure policy; social assistance; energy subsidies; pension spending; health spending; education spending; wage bill management; policy conditionality; policy area; IMF working papers; reform plan; E. public health spending; Health care spending; Caribbean; North Africa; Middle East; East Africa; Europe
Cover IMF Working Papers
The Urgency of Conflict Prevention – A Macroeconomic Perspective
Hannes Mueller
,
Christopher Rauh
,
Benjamin R Seimon
, and
Raphael A Espinoza
Can macroeconomic policy effectively help prevent armed conflicts? This paper contends that two key criteria need to be satisfied: the long-term benefits of prevention policies must exceed the costs associated with uncertain forecasts, and the policies themselves must be directly able to contribute to conflict prevention. This paper proposes policy simulations, based on a novel method of Mueller et al (2024a) that integrates machine learning and dynamic optimization, to show that investing in prevention can generate huge long-run benefits. Returns to prevention policies in countries that have not suffered recently from violence range from $26 to $75 per $1 spent on prevention, and for countries with recent violence, the rate of return could be as high as $103 per $1 spent on prevention. Furthermore, an analysis of the available data and results in the literature suggest that sound macroeconomic policies and international support for these policies can play key roles in conflict prevention. Based on these findings, this paper proposes actionable recommendations, for both global and domestic policymakers as well as international financial institutions and multilateral organizations, to promote peace and stability through macroeconomic policy.
Keywords:
Prevention; fragile state; conflict; machine learning; policy simulation; Policy recommendation; prevention policy; et al; conflict prevention; conflict stage country; building state capacity; Fiscal stance; Caribbean; Global; Africa
Cover IMF Staff Country Reports
Guinea-Bissau: Seventh Review Under the Extended Credit Facility and Request for Modification of Performance Criteria and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Guinea-Bissau
International Monetary Fund. African Dept.
This paper presents IMF’s Seventh Review under the Extended Credit Facility and Request for Modification of Performance Criteria and Financing Assurances Review for Guinea-Bissau. Program performance was strong relative to the quantitative targets and broadly satisfactory as regards structural reforms. All nine quantitative performance criteria and all three structural benchmarks for end-June 2024 were met. Specifically, significant progress was made with regard to energy sector reforms. Growth is expected to reach 5 percent in 2024 while inflation should average 4.2 percent. The fiscal deficit is projected to reach 5 percent of GDP in 2024 and the authorities remain committed to achieving a fiscal deficit of 3 percent of GDP in 2025, in line with the West African Economic and Monetary Union target. However, the economic outlook remains subject to significant downside risks. The authorities are advancing structural reforms that are critical to the successful implementation of the program. Actions have been undertaken to mitigate fiscal risks associated with the public utility company, thereby helping restore its cost recovery.
Keywords:
staff statement; infrastructure project; disbursement request; staff appraisal; cost recovery; Debt sustainability analysis; Fiscal consolidation; Global; West Africa
Cover Technical Assistance Reports
Pakistan: Technical Assistance Report-Improving Budget Practices
International Monetary Fund. Fiscal Affairs Dept.
Pakistan’s tight fiscal situation will require strong control over the budget in coming years. This report provides recommendations on steps to strengthen the country’s fiscal institutions to deliver a more credible budget, tighten its execution and prevent policy slippages. It also advises on how to digitalize the budget process to improve monitoring and reporting.
Keywords:
Pakistan; budget credibility; digitalization; supplementary grants; budget process.; call circular; IMF resident representative; FAD team; IMF's Fiscal Affairs Department; FCDO staff; FAD expert; Budget planning and preparation; Budget execution and treasury management; Budget execution processes; Macroeconomic and fiscal forecasts; Africa
Cover IMF Staff Country Reports
Pakistan: 2024 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Pakistan
International Monetary Fund. Middle East and Central Asia Dept.
The 2024 Article IV Consultation discusses that Pakistan has taken key steps to restoring economic stability with consistent policy implementation under the 2023–2024 Stand-by Arrangement (SBA). The discussions focused on Pakistan’s medium-term prospects, which helped inform policies and define program objectives. The new government formed after the February elections has continued efforts to strengthen economic conditions and is embarking on a multi-year home-grown reform program to achieve resilient and inclusive economic growth. The program aims to reinforce the authorities’ efforts to bolster policy credibility and entrench stability and accelerate structural reforms to strengthen public finances, improve the provision of critical public services, and create a favorable environment for private-led growth.
Keywords:
reform agenda; SBP's effort; governance arrangement; exchange rate movement; Pakistani authorities; Tariffs; Global
Cover IMF Staff Country Reports
Pakistan: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper focuses on economic performance and the road ahead in Pakistan. Pakistan’s economy and living standards have lagged behind its regional peers for well over a decade. This paper highlights several macroeconomic distortions and policy-related restrictions that have contributed to the country’s underperformance. These include protectionist interventions, a cumbersome regulatory and fiscal environment, and insufficient investment in human capital. In spite of these challenges, there are also many opportunities for Pakistan to achieve efficiency gains, reallocate resources toward more technologically advanced goods and services, and improve productivity and standards of living across the country. Placing Pakistan on a new economic trajectory requires addressing many distortions as well as improving the quality and level of public investment including in human capital. Key reforms centers on removing the remnants of the old growth strategy based around protection, preferences, and concessions. The modeling results in the accompanying Selected Issues suggest that significant macroeconomic gains come from the implementation of such a distortion-reducing reforms agenda.
Keywords:
climate resilience scenario; C. DIGNAR result; DIGNAR model specification; climate adaptation investment in Pakistan; nexus in Pakistan; Structural reforms; Public investment spending; Commercial banks; Government debt management; Global
Cover IMF Staff Country Reports
Pakistan: Second and Final Review Under the Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Pakistan
International Monetary Fund. Middle East and Central Asia Dept.
This paper presents Pakistan’s Second and Final Review under the Stand-By Arrangement (SBA). In order to move Pakistan from stabilization to a strong and sustainable recovery the authorities need to continue their policy and reform efforts, including strict adherence to fiscal targets while protecting the vulnerable; a market-determined exchange rate to absorb external shocks; and broadening of structural reforms to support stronger and more inclusive growth. Macroeconomic conditions have improved over the course of the program. The authorities have stabilized the energy sector’s circular debt over the course of the SBA through timely tariff adjustments and enhanced collection efforts. While these actions need to continue, it is also critical that the authorities undertake cost-side reforms to address the sector’s underlying issues and viability. Achieving strong, long-term inclusive growth and creating jobs require accelerating structural reforms and continued protection of the most vulnerable through an adequately financed Benazir Income Support Program. Priorities include advancing the reform of state-owned enterprises (SOEs), including to ensure that all SOEs fall under the new policy framework; strengthening governance and anti-corruption institutions; and continuing to build climate resilience.
Keywords:
Pakistani authorities; excl. IMF obligation; sitting government; resolute commitment; policy reform; Fiscal stance; Public sector; Global
Cover IMF Working Papers
Determinants of Zombie Banks in Emerging Markets and Developing Economies
Torsten Wezel
,
Hannah Sheldon
, and
Zhengwei Fu
While deeply undercapitalized banks have been shown to misallocate credit to weak firms, the drivers of such zombie banks are less researched, particularly across countries. To furnish empirical evidence, we compile a dataset of undercapitalized banks from emerging markets and developing economies. We classify zombie banks as those not receiving remedial treatment by owners or regulators or, alternatively, remaining chronically undercapitalized. Using logit regressions, we find that country-specific factors are more influential for zombie status than bank characteristics, alhough some become significant when disaggreating by region. The paper’s overall findings imply the need for a proper regulatory framework and an effective resolution regime to deal with zombie banks more decisively.
Keywords:
Banks; Capital Requirements; Financial Crises; summary statistics; zombie bank; zombie share; zombie status; equity ratio; Banking crises; Bank resolution; Credit; Asia and Pacific; Global; Europe; Africa
Cover IMF Staff Country Reports
Pakistan: First Review Under the Stand-by Arrangement, Requests for Waivers of Applicability of Performance Criteria, Modification of Performance Criteria, and for Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Pakistan
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Pakistan’s First Review under the Stand-By Arrangement, Requests for Waivers of Applicability of Performance Criteria, Modification of Performance Criteria, and for Rephasing of Access. Economic activity has stabilized in Pakistan, although the outlook remains challenging and dependent on the implementation of sound policies. Continued timely and consistent implementation of program policies remains critical, with no room for slippage. This requires strict adherence to fiscal targets while protecting social spending, a market-determined exchange rate to absorb external shocks, and further progress on structural reforms to support stronger and more inclusive growth. Timely and consistent implementation of program policies remains critical, with no room for slippage. Strict adherence to the fiscal targets, while protecting development needs and strengthening the social safety net, is essential to alleviate pressures and place debt on a downward path. Reforms of state-owned enterprises and of the governance framework, including safeguards for the newly created Sovereign Wealth Fund, should be accelerated to strengthen the business environment, investment, and job creation.
Keywords:
net foreign currency swap; Pakistan Muslim League-Nawaz; customs data; SBP purchase; staff appraisal; Pakistani authorities; Tariffs; Fiscal stance; Public sector; Global
Cover IMF How To Notes
How to Assess Spending Needs of the Sustainable Development Goals: The Third Edition of the IMF SDG Costing Tool
Piergiorgio M Carapella
,
Ms. Tewodaj Mogues
,
Julieth C Pico-Mejia
, and
Mauricio Soto
This note provides a technical overview and description of the 3rd edition of the IMF SDG costing tool that estimates the additional spending needs to achieve a strong performance in selected SDGs for human capital development (health and education) and physical capital development (infrastructure), in particular, water and sanitation, electricity, and roads. The 3rd edition includes data and methodological updates to, but generally remains faithful to the original approach described in, Gaspar et al. (2019). Globally, additional spending needed to achieve a strong performance in the selected SDGs in 2030 amounts to US$3.0 trillion (3.4 percent of 2030 world GDP). Estimated at 16.1 percent of 2030 LIDC GDP, the average additional SDG cost of this income group is significantly higher than in EMEs, who face additional spending amounting to 4.8 percentage points of their GDP in 2030. In contrast to EMEs and LIDCs, the additional cost for AEs is low, under 0.2 percent of their 2030 GDP.
Keywords:
SDGs; Sustainable Development Goals; expenditure; spending needs; cost; health; education; water; sanitation; electricity; roads; SDG spending; edition SDG; desk estimate; costing tool; Sustainable Development Goals (SDG); Health care spending; Infrastructure; Global; Caribbean; Central Asia and the Caucasus; Middle East; North Africa