Journal Issue

Pilot project Member country authorities agree to release IMF staff reports on consultation discussions

International Monetary Fund. External Relations Dept.
Published Date:
January 1999
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Among the countries that have agreed to participate in the project are Estonia, Albania, and Malta in Europe and Aruba and Trinidad and Tobago in the Caribbean. This article describes some of the issues raised in discussions between the countries’ authorities and IMF staff during their recent Article IV consultations.


Estonia is a leading reformer among transition economies, according to the IMF staff, and has benefited from its currency board arrangement and the stability of its exchange rate against the deutsche mark and, more recently, the euro. It enjoyed 10 percent growth in 1997 before the economy and aggregate demand cooled in 1998 and early 1999 because of the October 1997 stock market crash, tighter macroeconomic policies (implemented as part of the 1997 program supported by the IMF; see IMF Survey, January 12, 1998, page 11) and spillover effects from the Russian crisis. Reflecting in large part the weakened economy, the budget balance turned in a substantial deficit in the second half of 1998 and widened markedly in the first quarter of 1999. Nonetheless, inflation continued to decline in 1998 and early 1999.

Discussions between the Estonian authorities and IMF staff in the Article IV consultation, conducted in May 1999, centered on the 1999 budget, which, in the opinion of the IMF staff, was formulated on the basis of unrealistic growth and revenue projections. The previous government was reluctant to alter the budget—particularly in light of the elections held in March—maintaining that GDP growth and revenues would exceed IMF staff projections. The new government agreed with the IMF staff’s assessment and implemented expenditure cuts equivalent to 1.2 percent of GDP in a June supplementary budget. Although it recognized that additional cuts would be desirable, the government felt that room for further correction was very limited. It would, however, aim for a balanced budget in 2000. The IMF staff supported the authorities’ intention to reduce the role of the government sector in GDP and their desire to balance the budget in 2000.

Privatization is an important part of the transition to a market economy. The Estonian authorities have been very successful in their privatization efforts thus far and intend to complete the process in the near future, including facilitating the privatization of land. The IMF staff supports the government’s intention to resist using privatization revenues to finance current expenditures and instead to set them aside for later use, possibly to fund a major pension reform. Other structural reforms will be driven by the need to meet the requirement for membership in the European Union (EU) and include pension and health reforms. In its report, the IMF staff encourages these efforts and supports the authorities’ intention to address the future of the oil shale sector.


Having emerged in 1991 from 45 years of isolationist communist rule, Albania has encountered more bumps in its path than has Estonia. Recently, it has begun to recover from the disturbance caused by the collapse of fraudulent pyramid finance schemes in 1997 and to restore macroeconomic stability. The authorities have achieved success in fiscal consolidation and have pursued a prudent monetary policy, thereby meeting all performance criteria under the country’s Enhanced Structural Adjustment Facility (ESAF) Arrangement (see IMF Survey, June 21, page 201) to date.

While Albania has not yet completed the transformation to a market-oriented economy and has a long way to go to catch up with middle-income European countries, the authorities have made progress in structural reforms and the country is currently enjoying price stability, a comfortable level of reserve cover, and positive output growth. The Kosovo crisis has presented new challenges to macro-economic stability and structural reform. However, the IMF staff is optimistic that the country’s recent successes will help it deal with these challenges, which include ensuring that governance is not relaxed and addressing a worsening balance of payments position. The staff expects that, if Albania continues along the same path, its balance of payments should recover next year.

Fiscal discipline remains key to Albania’s macroeconomic strategy. The IMF staff indicates that the authorities must redouble their tax collection efforts to free up resources for investment and other development and social priorities and, at the same time, broaden the tax base, in particular by taxing the agricultural sector.

Overall, the staff believes that Albania is following a strong and appropriate program of macroeconomic stabilization and structural reform whose objectives, despite the refugee crisis, are within reach. Given Albania’s satisfactory performance under the first annual ESAF Arrangement, the staff supports the authorities’ request for its second annual arrangement under the ESAF and for an augmentation of the arrangement.


After a period of commendable growth earlier in the decade, Malta’s economy has slowed in recent years, with a high external current account deficit and growth of less than the 4-5 percent that the IMF staff considers feasible. The deterioration can be attributed to persistent weaknesses in structural policies and a loss of fiscal discipline. The challenge facing the authorities is to jump-start the growth process, which the staff believes can be achieved through labor-saving structural reforms in the public sector. These, combined with further trade liberalization, EU membership, and promotion of Malta as a destination for foreign direct investment, would enable the country to realize its growth potential. Despite progress toward this end, the IMF staff believes that Malta requires technical assistance to guide its efforts and notes that a number of recent measures—including decisions to reverse utility price increases and raise civil service salaries–have compounded fiscal pressures.

Against this background, the Maltese authorities and the IMF staff focused their discussions on ways to advance the fiscal and structural agenda. The staff welcomed the steps that the authorities had taken to correct the fiscal deficit in 1999 and to formulate a medium-term fiscal framework, which would form the core of the administration’s economic program. Other key elements include privatization and labor retraining. Malta has initiated a vigorous privatization program, which the staff welcomes while urging the authorities to take the next steps as soon as possible. Extensive facilities for retraining labor in both the public and the private sector are available, although it was agreed that the beneficiaries should contribute more to the costs.

Official projections for 1999 show increases in the rate of growth, trade imbalances, and inflation; staff projections were broadly similar although more optimistic on the outlook for inflation and the balance of trade in goods and services.


Aruba’s strong economic growth for much of the past decade has been underpinned by generally sound and stability-oriented monetary and fiscal policies. The IMF staff notes in its report, however, that fiscal policy was relaxed unduly in 1996, leading to growing budgetary imbalances. In mid-1998, the Aruban authorities recognized the crucial need to restore fiscal discipline and took steps to curb spending, clear overdue taxes, and reverse the buildup of arrears. They also made an effort to reduce public sector employment, contain wage costs, and develop a phased program for public investment. As a result, expenditure declined by 1½ percentage points of GDP, and the budget deficit was reduced to less than 1 percent of GDP.

The staff supports these measures and emphasizes that they should not be open to reversal. Both the staff and the Aruban authorities agree, however, that initiatives to bring tax assessments up to date and speed up the collection of tax arrears are not a substitute for far-reaching reform that would permanently increase the elasticity of the tax system and strengthen tax administration.

The challenge the authorities face is to maintain a prudent fiscal stance to avoid jeopardizing the economy’s satisfactory growth and low inflation. In the authorities’ discussions with the IMF staff, it was agreed that this policy stance should encompass reforms in social entitlements to safeguard public finances over the longer term. The problems that must be addressed include imbalances in the pension and health care systems.

The authorities outlined the steps, taken or planned, to restore lasting budgetary discipline. Their official projection for 1999 called for a small surplus of about ½ of 1 percent of GDP. The staff agreed with the substance of the 1999 budget but considered the authorities’ revenue projections overly optimistic.

Trinidad and Tobago

In Trinidad and Tobago, the economic expansion over the past five years can be partly attributed, according to the IMF staff report, to sound macroeconomic management and continued progress in liberalization and structural reform. The country’s external debt has declined, inflation has slowed, and unemployment has dropped. The staff expects economic performance to continue to be favorable, with growth accelerating to about 4½ percent in 1999 and inflation slowing to 4½ percent.

The staff’s main concern for 1999 is that lower oil and petrochemical prices will make it difficult for the country to achieve its budgetary objectives. The authorities hope to keep the budget in balance by curbing spending to compensate for the lower oil prices, but prices have only recently begun recovering, putting the fiscal target at risk.

As for revenues, the staff expects them to fall short of the budget by 1½ percent of GDP, primarily because of shortfalls in collections on oil and nontax revenues. The staff encourages the authorities to focus on raising revenues by increasing some excises, broadening the base of the value-added tax, limiting provisions in the income tax to carry losses forward, and strengthening tax and customs administration. The staff also encourages the authorities to raise the existing ceiling on domestic debt to broaden the options for financing the deficit, reducing reliance on central bank financing. In light of the long-term trend in commodity prices and Trinidad and Tobago’s gradually declining oil output, the staff emphasizes that the government should strengthen revenues from sources other than oil.

Exchange rate stability is one of Trinidad and Tobago’s principal policy goals. The authorities are committed to a market-determined exchange rate and are pursuing prudent monetary and fiscal policies to keep inflation low. Over the past two years, there has been a moderate real appreciation of the currency and, in 1998, a significant deterioration in the terms of trade. The staff considers that, although the exchange rate appears to be broadly competitive, the authorities should use market mechanisms—including interest rates and, if necessary, central bank intervention—to smooth supply and demand. The authorities said the lumpy nature of foreign exchange inflows necessitated some smoothing of the exchange rate.

In the opinion of the IMF staff, the medium-term outlook for Trinidad and Tobago remains favorable because of the large volume of energy sector investment now under way and the soundness of fiscal and monetary policies. The staff expects that even a small improvement in the terms of trade will lead to a considerable narrowing in 1999 of the current account deficit and that the fiscal balance will improve over the next several years.

The full texts of these Article IV staff reports may be found on the IMF’s website ( The IMF invites reader comments on the reports before October 5, 2000. They may be sent by e-mail to

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