Part 1. Overview
- International Monetary Fund
- Published Date:
- September 2016
About the IMF
The International Monetary Fund is a global organization of 189 member countries set up to promote the health of the world economy. It works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
The IMF, which oversees the international monetary system to ensure its effective operation, has among its key purposes to promote exchange rate stability and to facilitate the expansion and balanced growth of international trade. The IMF’s mission enables countries (and their citizens) to buy goods and services from one another and is essential for achieving sustainable economic growth and raising living standards.
All of the IMF’s member countries are represented on its Executive Board, which discusses the national, regional, and global consequences of each member’s economic policies and approves IMF loans to help member countries address temporary balance-of-payments problems, as well as capacity-building efforts. This Annual Report covers the activities of the Executive Board and IMF management and staff during the financial year May 1, 2015, through April 30, 2016. The contents reflect the views and policy discussions of the IMF Executive Board, which has actively participated in preparation of this Annual Report.
Message from the Managing Director
The year covered in this Annual Report was marked by difficult challenges and milestone achievements.
The IMF membership—which grew to 189 in April 2016 with the addition of Nauru—faced the difficult task of reinvigorating modest growth at a time of uncertainty about a complicated global economy. At the 2016 Spring Meetings, the membership endorsed a three-pronged approach of monetary, fiscal, and structural policies to get the world economy back on a stronger and safer growth track. This remains our highest priority, and the Fund strengthened its commitment to supporting the community of nations by taking several important steps.
First, wide-ranging IMF quota and governance reforms approved in 2010 finally went into effect. These reforms significantly increase the Fund’s core resources and—crucially—make it more representative of the twenty-first century world economy by solidifying the voice of emerging market economies and developing countries.
Second, the Fund responded to the United Nations’ call for attainable steps to enable developing countries to build the foundations for inclusive and sustainable growth over the next 15 years under the United Nations (UN) Sustainable Development Goals. The IMF stepped forward at the Third International Conference on Financing for Development, held in Addis Ababa, Ethiopia, in July 2015, offering a package of concrete commitments. These included increased financial support, enhanced policy advice, and technical assistance and other forms of capacity development focused on the unique challenges of development.
Third, to better understand the issues facing the global economy, the Fund embarked on an effort to identify the shortcomings and vulnerabilities of the international monetary system and to refine our role at the center of the global economy. This effort will continue the process of assimilating the lessons of the global financial crisis and define the policy response to new issues as they arise.
A crucial piece of this work was the completion of the regular review of the basket of currencies that make up the Special Drawing Right (SDR)—a process that ended in a decision to include the Chinese renminbi in the basket. This was an important step to integrate the Chinese economy into the international financial system and strengthen the global economy.
Fourth, there was a major unexpected event: the mass migration of refugees from Syria and other conflict-afflicted states. The movement of millions, while primarily a severe humanitarian crisis, also has serious economic repercussions. The IMF is working with the countries affected in both the Middle East and Europe to analyze the macroeconomic issues they face and to help put in place the appropriate responses.
And lastly, a number of high-profile corruption cases have fueled international concern, and with a growing consensus that corruption can seriously undermine a country’s ability to deliver inclusive economic growth, addressing corruption globally—in both developed and developing countries—has become increasingly urgent. The IMF helps the membership address corruption through its policy advice on governance reforms, along with technical assistance and training.
This Annual Report highlights all of these issues, plus a wide range of policy matters that the Executive Board addressed during the year. The IMF membership speaks through the Board—literally on a daily basis—and the input of Executive Directors is at the core of our activities.
FY2016 Key IMF Activities
During the financial year from May 1, 2015, to April 30, 2016, the IMF supported its membership by becoming more agile, integrated, and member focused.
The IMF provided financing to countries affected by lower commodity prices and natural disasters.
Knowledge on the macroeconomic implications of emerging issues, such as migration, the global trade slowdown, and income and gender inequality, has been broadened.
Deeper analyses on structural reforms are ongoing, including a World Economic Outlook chapter highlighting the complementarity between structural reforms and macroeconomic policies.
The adequacy of the global financial safety net and the size of the Fund are being assessed to support a more active and forward-looking dialogue on the ongoing effectiveness of the international monetary system and the IMF.
The Fund is implementing a structured approach for capacity development in fragile states tailored to their absorptive capacity.
The IMF took an integrated approach to assessing transition spillovers to member countries, particularly from China’s rebalancing and global low commodity prices.
Work on enhancing focus on macro-financial and macro-structural issues in surveillance is underway.
The second phase of the Group of Twenty (G20) Data Gaps Initiative began in January 2016, with increased focus on risk identification, interconnections, and spillovers.
Efforts to integrate emerging issues into surveillance continued. Analyses on climate change, gender, and inequality have been piloted in countries where these issues are macro-relevant, that is, where they may affect a country’s domestic or balance-of-payments stability.
The IMF staff has developed a new tool to monitor disorderly market conditions, which can help inform country teams about domestic market issues and potential widespread stress.
Synergies between surveillance and capacity development were strengthened, including in the areas of revenue mobilization, government finance statistics standards on reporting, data gathering, inclusive growth, energy.
Activities summarized from the Managing Director’s Global Policy Agenda. See end Notes for details.
The Executive Board approved the expansion of the SDR basket to include the renminbi. IMF staff is working with SDR users and the Chinese authorities to facilitate a smooth transition to the new SDR basket in October 2016.
The 2010 quota and governance reforms were implemented, following their acceptance by the membership. The reforms will ensure that the Fund is better able to meet and represent its members’ needs in a rapidly changing environment.
The IMF staff continued to engage with and support various forums, including the G20 industrialized economies and Association of Southeast Asian Nations, and to organize peer-to-peer events as well as high-level seminars.
In response to the 2014 Triennial Surveillance Review, the Fund published a paper clarifying the principles of evenhandedness governing Fund analysis and advice in surveillance.
Technical assistance and training were scaled up in low-income countries, particularly in the areas of domestic revenue mobilization and international taxation.
Online learning further expanded the reach of Fund training.
The IMF’s Key Roles
The IMF focuses on three main roles:
Provide advice to members on adopting policies that can help them achieve macroeconomic stability, thereby accelerating economic growth and alleviating poverty.
Make financing temporarily available to member countries to help them address balance-of-payments problems, which include circumstances in which they find themselves short of foreign exchange because their external payments exceed their foreign exchange earnings.
Offer technical assistance and training to countries, at their request, to help them build and strengthen the expertise and institutions they need to implement sound economic policies.
The IMF is headquartered in Washington, D.C., and, reflecting its global reach and close ties with its members, also has offices around the world.
Additional information on the IMF and its member countries can be found on the IMF’s website, www.imf.org.
IMF Policy Challenges and Priorities
The Managing Director’s Global Policy Agenda (GPA) is presented twice a year to the International Monetary and Financial Committee (IMFC), which is the IMF’s policy guiding body. The GPA identifies the policy challenges faced by the IMF membership, assesses progress since the previous GPA, outlines the policy responses needed at the global and country levels, and lays out how the IMF can support those policy responses.
The April 2016 GPA focused on policies to put the global economy back on a stronger and safer track. It said countries should boost their commitment to growth and employ a three-pronged approach of mutually reinforcing policy levers, bolstered by a well-functioning financial sector and global cooperation.
In advanced economies, monetary policy should remain accommodative where output gaps are negative and inflation is too low. But monetary policy needs to be accompanied by other policies in providing the necessary demand support and cannot address structural bottlenecks to growth. Unconventional monetary policies are helping to support demand, although very low—and in some cases negative—interest rates may also have direct effects on bank profitability. In emerging economies, monetary policy must grapple with the impact of weaker currencies on inflation and private sector balance sheets.
There is a strong case for domestic coordination across policies. While some countries continue to suffer from high debt, elevated sovereign spreads, and low public sector savings, and need to implement their fiscal consolidation plans, those with fiscal space should commit to ease fiscal policy further. For a number of creditor countries, this would also help facilitate global rebalancing. All countries can also contribute by aiming for a more growth-friendly composition of revenue and expenditure, particularly increased spending in infrastructure in some countries.
The need for structural reforms to improve productivity and potential output is widely recognized. Many commitments have been made—including in the context of the G20—but delivery must be pulled forward. Countries with fiscal space should take advantage of synergies between demand support policies and structural reforms. Structural reforms with built-in fiscal stimulus can have positive near-term effects. Given the diversity of the structures of economies, individual structural reform priorities should be sequenced and reflect differences in stages of economic development and strength of institutions. In commodity exporters and low-income developing countries, policies to promote economic diversification and structural transformation are essential.
Financial Sector Action
Solutions are also needed to prevent de-risking from unduly impeding access to financial services, including correspondent bank relationships. Countries should take further steps to speed up the repair of private sector balance sheets, avoiding a protracted deleveraging process that weakens the credit channel of monetary policy and raises uncertainty. It is essential that the European Union’s Banking Union be completed by putting the last pillar—a common deposit guarantee scheme—in place, together with efforts to reduce risks in banking systems. Further progress is needed in consistently implementing and completing the global regulatory reform process, including policies to transform the shadow banking sector into a stable source of market-based finance.
Each country should commit to a set of policy actions that contributes to a global package of reforms to lift both national and global growth. A three-pronged approach, taken in concert by the membership, can mutually reinforce economic activity and reduce stability risks. Global cooperation is also needed. Examples include enhancing mechanisms for adjustment and liquidity provision, shoring up global trade, tackling corruption, and furthering the regulatory reform agenda.