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Europe > Iceland

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Cover Policy Papers
2011 Review of Conditionality - Content and Application of Conditionality
International Monetary Fund
This paper reviews the design of conditionality in Fund-supported programs from 2002 to end-September 2011, with an emphasis on recent years. It focuses on the content and application of program conditionality—especially structural conditionality—in relation to the 2002 Conditionality Guidelines (the "Guidelines"), the Staff Statement on Principles Underlying the Guidelines on Conditionality, and subsequent revisions to operational guidance on conditionality. The analysis is based on the five key interrelated principles guiding the design of conditionality: national ownership of programs, parsimony in program-related conditions, tailoring to country circumstances, effective coordination with other multilateral institutions, and clarity in the specification of conditions. In particular, the principle of parsimony requires that program-related conditions be critical (or the minimum necessary) to achieve program objectives and goals, critical for monitoring program implementation, or necessary for implementing specific provisions under the Articles of Agreement (the "criticality criterion"). Beyond assessing compliance with these guidelines and principles, the paper also examines the implementation of conditionality
Keywords:
PP; PRGT program; country authorities; Fund staff; Fund-supported program; Fund condition; program Conditionality; program design; program objective; Fund conditionality; core area; program interruption; program approval; Gra program; Structural reforms; Public expenditure review; Government debt management; Financial sector; Global
Cover IMF Working Papers
Fiscal Policy During Absorption Cycles
Mr. Ferhan Salman
and
Miss Gabriela Dobrescu
Domestic absorption cycles are relevant in assessment and design of fiscal policies. Our cross-country analysis covers 59 advanced and emerging countries for the 1990-2009 period. We show that ignoring domestic absorption cycles leads to biased fiscal stance indicators, for both advanced and emerging economies, by up to 1.5 percent of GDP. The estimates of fiscal policy reaction functions indicate that absorption booms are associated with pro-cyclical fiscal policy. We tackle the endogeneity problem in reactions functions through stripping the cyclical component of the fiscal aggregates. We also find that simple filtering methods in the computation of absorption gaps perform as better as indirect methods of estimating trade balance gaps and stripping of output gaps.
Keywords:
WP; fiscal policy; structural fiscal balance; domestic absorption; output gap; fiscal reaction function; reaction function; fiscal policy behavior; absorption gap; asset price cycle; fiscal policy reaction; fiscal policy stance; Fiscal stance; Macro-fiscal analysis; Current account; Global