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Middle East and Central Asia > Saudi Arabia

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Cover IMF Exchange Rate Policy Advice
IMF Exchange Rate Policy Advice
Revisiting the 2007 IEO Evaluation
Louellen Stedman
,
Mr. John Hicklin
, and
Roxana Pedraglio

Abstract

This report is the seventh in a series of evaluation updates by the Independent Evaluation Office of the IMF (IEO) that return to past IEO evaluations and assess the continuing relevance of their main conclusions. The report revisits the 2007 evaluation of IMF Exchange Rate Policy Advice, which found that the IMF was “not as effective as it needed to be” in fulfilling its responsibilities for exchange rate surveillance in the period 1999–2005. While acknowledging the inherent complexity of providing exchange rate policy advice, including the lack of professional consensus on many of the key issues, the evaluation observed serious weaknesses in the IMF’s work on key analytical issues and in its engagement with members. The update finds that the IMF has substantially overhauled its approach to exchange rate policy advice since 2007. Key steps taken include: adoption of a more comprehensive approach to exchange rate surveillance under the 2012 Integrated Surveillance Decision; development of enhanced analytical tools; a new institutional view on capital flows; and introduction of the annual External Sector Report that provides an integrated picture of the external balances of major economies. The IMF continues to work on further enhancements of its approach. Nonetheless, the update concludes that challenges remain that impact the effectiveness of the IMF’s work in an area central to its mandate. The approach for assessing external balances and exchange rates continues to be contentious, in part reflecting differing views across the membership about the process of external adjustment. There are also ongoing questions in other areas, including considerations for exchange rate regime choice, attention to policy spillovers, the institutional view on capital flows, and data availability. The update suggests that the persistence of key issues identified in 2007 merits a full evaluation by the IEO.

Keywords:
IEOR; IEO; Policy advice; evaluation; advice; policy; IMF engagement; IMF analysis; a number of IMF staff; IMF's methodology; Exchange rate policy; Exchange rates; Exchange rate arrangements; External balance assessment (EBA); Current account; Global
Cover Policy Papers
2016 External Sector Report
International Monetary Fund
After narrowing in the aftermath of the global financial crisis and remaining broadly unchanged in recent years, global imbalances increased moderately in 2015, amid a reconfiguration of current accounts and exchange rates. Shifts in 2015 were driven primarily by the uneven strength of the recovery in advanced economies, the redistributive effects of the sharp fall in commodity prices, and tighter external financing conditions for emerging markets (EMs). A relatively stronger U.S. outlook led to a further appreciation of the USD and a depreciation of the yen and the euro. The sharp decline in commodity prices, reflecting both supply shocks and concerns about rebalancing and growth in China, brought about a significant redistribution of income from commodity exporters to importers, and a weakening of commodity exporters’ currencies. Meanwhile, heightened global risk aversion, contributed to softer capital inflows and depreciation pressures in many EMs. This moderate widening of current account imbalances was largely driven by systemic economies. Surpluses in Japan, the euro area and China grew, supported by improved terms of trade and currency depreciation, while the current account deficit in the U.S. widened amid the steep appreciation of the USD. These widening imbalances were only partially offset by narrowing surpluses in large oil exporters and smaller deficits in vulnerable EMs and some euro area debtor countries. Similarly, excess imbalances expanded in 2015. External positions in the U.S. and Japan moved from being broadly in line with fundamentals to being “moderately weaker” and “moderately stronger”, respectively. This was partly offset by a further narrowing of excess deficits in vulnerable EMs and euro area debtor countries. Meanwhile, excess surpluses persisted among the larger surplus countries, some of which remain “substantially stronger” than fundamentals (Germany, Korea). Currency movements since end-2015 helped to partially reverse the trends observed last year, although market volatility following the result of the U.K. referendum to leave the European Union have led to a strengthening of the USD and yen along with a weakening of the sterling, euro, and EM currencies. The implications for external assessments going forward, especially for the U.K. and the euro area, remains uncertain and will likely depend on how the transition is managed and on what new arrangements are adopted. With output below potential in most countries, and limited policy space in many, balancing internal and external objectives will require careful policy calibration. In general, a more balanced policy mix that avoids excessive reliance on policies with significant demanddiverting effects is necessary, with greater emphasis on demand-supportive measures and structural reforms. Surplus countries with fiscal space have a greater role to play in supporting global demand while reducing external imbalances. Global collective policy action, especially if downside risks materialize, would also help address global demand weakness while mitigating its effects on external imbalances.
Keywords:
PP; monetary policy; commodity exporter; current account gap; fiscal policy; CA regression; foreign exchange; TOT index; regression policy gap contribution; commodity terms of trade; foreign currency; EBA CA; current account balance; reserve currency; output gap; Current account; Exchange rates; Current account imbalances; Currencies; Global; Africa
Cover Policy Papers
2015 External Sector Report
International Monetary Fund
After narrowing modestly in 2013, the global scale of current account imbalances, and of excess imbalances, held steady in 2014. Over the last several years, while the country composition of imbalances has rotated somewhat, overall there has been little progress on reducing excess imbalances. Excess deficits narrowed in some cases, but widened in others; progress on reducing excess surpluses has stalled. An unfinished policy agenda to reduce excess imbalances remains. Efforts by both surplus and deficit economies would be mutually reinforcing and support growth. Several significant recent developments will affect external positions in 2015: sharply lower oil prices, cyclical divergence and different monetary policies among the major economies, and related currency movements. Those developments do not overturn the previous pattern of excess imbalances and associated policy agenda, but they will have significant effects and raise new issues.
Keywords:
PP; exchange rate; current account gap; ESR economy; exchange rate movement; U.S. dollar; trade balance; terms of trade; Current account; Real effective exchange rates; Oil prices; Exchange rates; Global
Cover Policy Papers
2013 Pilot External Sector Report - Individual Economy Assessments
International Monetary Fund
The external sector assessments use a wide range of methods, including the External Balance Assessment developed by the IMF’s Research Department to estimate desired current account balances and real exchange rates (Boxes 6, 7 and Annex III of the Pilot Report describe the methodology and challenges). In all cases, the overall assessment is based on the judgment of IMF staff drawing on the inputs provided by these model estimates and other analysis and the estimates are subject to uncertainty. The assessments were initially based on the Spring 2013 WEO and an exchange rate reference period of the average of 2012. Potential policy responses are those which would work to reduce imbalances.
Keywords:
PP; fiscal policy; current account deficit; short-term debt; net capital; reserve currency; central bank; trade balance; investment position; financial crisis; nominal exchange rate; foreign exchange; labor market; liability position; output gap; Current account; Real exchange rates; Current account deficits; Real effective exchange rates; Global; Africa
Cover Policy Papers
Quota Formula Review - Initial Considerations
International Monetary Fund
The Board of Governors has asked the Executive Board to complete a comprehensive review of the quota formula by January 2013. This review is an mportant part of the 2010 quota and governance reforms. At the Seoul Summit, G-20 Leaders welcomed the reforms, which they noted include “Continuing the dynamic process aimed at enhancing the voice and representation of emerging market and developing countries, including the poorest, through a comprehensive review of the quota formula by January 2013 to better reflect the economic weights; and through completion of the next general review of quotas by January 2014.” At its most recent meeting in September 2011, the IMFC stressed that governance reform is crucial to the legitimacy and effectiveness of the IMF. The IMFC committed to intensify its efforts to meet the 2012 Annual Meetings target for effectiveness of the 2010 reform, and called for a report on progress in the quota formula review by the time of its next meeting.
Keywords:
PP; quota formula; PPP GDP; disp-formula id; IMF Quota; advanced economy; fund resource; quota share; emerging market; transition economy; International investment position; Income; Purchasing power parity; Public investment and public-private partnerships (PPP); Emerging and frontier financial markets; Global; Middle East; Western Hemisphere; Africa; Asia and Pacific
Cover Policy Papers
Quota Formula Review - Data Update and Further Considerations
International Monetary Fund
In March 2012, the Executive Board held its first formal discussion on the comprehensive review of the quota formula. This review, to be completed by January 2013, is an important part of the quota and governance reforms agreed in 2010. Directors stressed the importance of agreeing on a quota formula that better reflects members’ relative positions in the global economy for future discussions on the 15th General Review of Quotas. This view was reiterated in April by the IMFC, which looked forward to an agreement by January 2013: "…on a simple and transparent quota formula that better reflects members’ relative positions in the world economy." The IMFC also reaffirmed its commitment to complete the 15th quota review by January 2014. It noted that any realignment is expected to result in increases in the quota shares of dynamic economies in line with their relative positions in the world economy, and hence likely in the share of EMDCs as a whole; and that steps shall be taken to protect the voice and representation of the poorest members. The Board held an informal follow-up meeting on June 13, 2012.
Keywords:
PP; quota share; Transition economy; advanced economy; GDP ratio; PPP GDP; quota formula; reserves share; IDA contribution; International investment position; Emerging and frontier financial markets; Purchasing power parity; Options; Income; Western Hemisphere; Africa; Middle East; Asia and Pacific; Global
Cover Policy Papers
One Year After the 2011 Triennial Surveillance Review - Progress Report
International Monetary Fund
This progress report provides a short update on the first year of implementation of the 2011 Triennial Surveillance Review (TSR) in line with the Managing Director’s Statement on Strengthening Surveillance of October 2011. The report does not provide a comprehensive review of surveillance—which will be done in the 2014 TSR. Instead, its purpose is to establish, at an early stage, whether the new operational priorities are being implemented, set out key areas of progress, and discuss the challenges raised in their implementation. The report also identifies areas where further efforts may need to be directed—particularly following the change to the legal framework—to ensure even implementation and delivery of effective surveillance. The report recognizes that, while some measures have been implemented over the past year, others will take more time to come to fruition.
Keywords:
PP; policy; Article IV Review; country team; risk scenario; financial risk; TSR recommendation; EBA country; cluster country consultation; country authorities; policy advice; TSR priority; EBA methodology; risk analysis; Spillovers; External balance assessment (EBA); Financial sector stability; Capital flows; Financial sector; Global
Cover IMF Working Papers
Commodity Windfalls, Polarization, and Net Foreign Assets: Panel Data Evidenceon the Voracity Effect
Markus Bruckner
and
Mr. Rabah Arezki
This paper examines the effect that windfalls from international commodity price booms have on net foreign assets in a panel of 145 countries during the period 1970-2007. The main finding is that windfalls from international commodity price booms lead to a significant increase in net foreign assets, but only in countries that are homogeneous. In polarized countries, net foreign assets significantly decreased. To explain this asymmetry, the paper shows that in polarized countries commodity windfalls lead to large increases in government spending, political corruption, and the risk of expropriation, with no overall effect on GDP per capita growth. The paper's findings are consistent with theoretical models of the current account that have a built-in voracity effect.
Keywords:
WP; commodity; revenue windfall; country; Commodity Windfalls; Net Foreign Assets; Polarization; Political Economy; commodity windfall; world commodity supply; exported commodity goods lead; hydrocarbon commodity price; commodity price boom; Foreign assets; Commodity prices; Export price indexes; Private investment; Africa; Global
Cover IMF Staff Country Reports
Comoros: Statistical Annex
International Monetary Fund
In this study, the following statistical data are presented in detail: GDP at current market prices; prices of export crops; production and consumption of electricity; indicators of tourism activity; indicators of population, education, and employment; monetary survey; summary statement of the central bank; structure of interest rates; balance of payments; volume and value of principal exports and imports; breakdown of the government wage bill; external debt outstanding by creditors; summary of tax system; consolidated government expenditure; wage bill developments by ministry; and so on.
Keywords:
ISCR; CR; tax; enterprise; estimate; fund staff estimate; advance tax payment; unit value; tax proceeds; proceeds from petroleum products; balance of payments; Imports; Foreign assets; Tariffs; Civil service; Exports; Africa
Cover IMF Working Papers
The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries
Mr. Gian M Milesi-Ferretti
and
Mr. Philip R. Lane
Capital flows are closely monitored, but surprisingly little is known about the stocks of external assets and liabilities held by countries, especially in the developing world. This paper constructs estimates of foreign assets and liabilities and their equity and debt subcomponents for 66 industrial and developing countries for the period 1970-97. It explores the sensitivity of estimates of stock positions to the treatment of valuation effects not captured in balance of payments data. Finally, it characterizes the stylized facts of estimated stocks and asks whether there are trends in net foreign asset positions and differences in debt-equity ratios across countries.
Keywords:
WP; stock position; debt ratio; foreign assets; external debt; foreign direct investment; equity flows; net FDI stock position; debt assets; debt liability; FDI assets; debt stock; stock data; FDI liability; equity liability; FDI inflow; asset position of the country; net debt definition; debt position; Stocks; Current account; Africa