III. Introduction to Financial Programming
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund
  • | 2 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund


A financial program (also called an adjustment program) is a comprehensive and consistent set of policy measures designed to achieve a given set of macroeconomic objectives. Financial programming is the process of designing these measures, which a country is generally required to develop before receiving financial support from the IMF. However, financial programming can be used in any situation in which national authorities desire to formulate an internally consistent set of macroeconomic policies aimed at maintaining or improving economic performance. Frequently, the policies are designed to correct disequilibria between aggregate domestic demand and supply, imbalances that are typically reflected in balance of payments problems, rising inflation, and low output growth.

1. Introduction

A financial program (also called an adjustment program) is a comprehensive and consistent set of policy measures designed to achieve a given set of macroeconomic objectives. Financial programming is the process of designing these measures, which a country is generally required to develop before receiving financial support from the IMF. However, financial programming can be used in any situation in which national authorities desire to formulate an internally consistent set of macroeconomic policies aimed at maintaining or improving economic performance. Frequently, the policies are designed to correct disequilibria between aggregate domestic demand and supply, imbalances that are typically reflected in balance of payments problems, rising inflation, and low output growth.

Where macroeconomic imbalances exist, some form of correction (or adjustment) will ultimately be necessary in order to bring claims on resources in line with available resources. Unless deliberate policy actions are taken, the adjustment is likely to be disorderly and inefficient—for example, international reserves may be depleted, and creditors may become unwilling to provide further funding. A drastic cut in imports can ensue, with consequent negative effects on economic growth and welfare. To avoid such disruptions, a financial program seeks to ensure an orderly adjustment through the early adoption of corrective policy measures and the mobilization of appropriate amounts of external financing. An important aim is to minimize output losses and unemployment during the initial adjustment period, while simultaneously creating conditions conducive to a sustainable balance of payments position.

The measures employed in a financial program are typically centered around monetary and fiscal policies, with special emphasis on the exchange rate. These policies often focus primarily on containing aggregate demand and adjusting relative prices and have the advantage of taking effect relatively quickly. In addition, as a practical consideration, the financial data necessary to monitor the implementation of these policies tend to be available on a more timely basis than other economic data.

In recent years, adjustment programs have placed increasing emphasis on the policies needed to address structural deficiencies. These policies concentrate mainly on reducing imbalances by increasing aggregate supply. Such policies usually have an impact on the key areas of fiscal and monetary policy and the exchange rate regime and thus have implications for any demand management policies that are being implemented. Moreover, they typically extend into other areas of economic policy, particularly institutional reform—which, by its nature, takes time to yield results.

Any assessment of the sustainability of a country’s balance of payments must be based on the expected evolution of the external current account balance over the medium term. While circumstances may vary from one country to another, in general, a sustainable current account position is one that can be financed on a lasting basis with expected financial inflows and, at the same time, remains consistent with adequate growth, price stability, and the country’s ability to meet all its external debt servicing obligations.

These considerations mean that financial programs need to be set in a forward-looking time frame. Typically, such programs are worked out in considerable detail for periods of about one year. In many cases, they are set in a three-year rolling policy framework that can be updated annually as circumstances change. Assessing policies that address the sustainability of the balance of payments involves developing scenarios that generally cover at least five years; clearly, such analyses are complicated by the lack of reliable information and inevitable uncertainties. Despite such difficulties, however, the process of financial programming is helpful in assessing the effectiveness of a country’s overall policy stance.

2. The Financial Programming Framework

At the outset, it is useful to define objectives, targets, and instruments. The government may have a number of policy objectives—such as controlling inflation, promoting growth, and achieving a sustainable balance of payments—that are not directly under its control. The financial programming process is then used to formulate a number of intermediate targets for variables such as monetary expansion that have some impact on these objectives through behavioral relationships. Since even these target variables are not completely under the control of the authorities, it is necessary to identify certain operating targets, such as reserve money growth, that can be more directly (even if not completely) influenced by available policy instruments. The framework for analysis outlined below can be used to assess the changes needed in targets and policy instruments within the overall objectives of the program.

The starting point is the accounting framework. The formulation of financial programs requires an integrated system of macroeconomic accounts, as described in Chapter II. Data from national income and expenditure accounts, the balance of payments accounts, government finance statistics, and the monetary accounts provide the basic information needed to assess a country’s economic performance and the size of any necessary adjustment. These accounts also provide a framework for policy analysis and help ensure consistency. The accounting relationships highlight the fact that any sector whose spending exceeds its income must be financed by saving in other sectors, so that excess spending by an entire economy is possible only when external financing is available.

For policymaking, however, the accounting framework must be complemented by a set of behavioral relationships that show the typical responses of some of the variables included in the accounting framework to changes in other variables. These behavioral relationships, together with the accounting identities, form a schematic quantitative representation of the relevant economic processes.

The process of designing financial programs is subject to many uncertainties and difficulties. Behavioral relationships, which may be difficult to specify and estimate with precision, usually vary across countries and over time and depend on institutional, political, and other factors. Moreover, when governments undertake major policy shifts and structural reforms, behavior in the post-reform period may differ greatly from historical patterns. Analysis may be further complicated by problems in assessing (i) the timing of the effects of certain policies; (ii) the impact of expectations on behavioral responses; (iii) the interrelations among measures in complex policy packages; and (iv) the credibility of the authorities implementing the policies. Finally, assumed changes in exogenous variables, which are determined independently of the processes illustrated in the model, may prove incorrect.

3. Policy Options

Our discussion of policy options can be framed around two accounting identities discussed in Chapter II. These identities are as follows:

  • gross national disposable income (GNDI) less domestic absorption (residents’ expenditure on domestic and foreign goods and services) equals the external current account balance; and

  • the external current account balance plus net capital inflows equals the change in net official international reserves.

The first identity indicates that an improvement in the external current account balance requires either an increase in a country’s output or a reduction in its expenditure. Thus, adjustment policies may aim to increase output and reduce domestic expenditure so that a greater proportion of output can be devoted to exports and a lower proportion of expenditure to imports. The second identity shows that any excess of expenditure over income (as reflected in a current account deficit) must be financed either by net capital inflows or a drawdown of reserves.

These basic accounting identities suggest various policy options, which can be grouped according to type: demand management and expenditure switching policies, structural policies, and policies to attract capital inflows.

a. Demand management and expenditure switching policies

Demand management policies address an external current account deficit by reducing domestic expenditure (also referred to as absorption or demand). Expenditure switching takes place when policies alter the pattern of expenditure in favor of exports and against imports.

Demand management policies are aimed primarily at reducing an external current account deficit or at lowering inflationary pressures. The most prominent are monetary, fiscal, and incomes policies. An exchange rate devaluation adopted under the program implies expenditure reductions, mainly through its impact on real wages and real wealth.

In many instances, the source of excess domestic demand is the public sector. In this case, a correction requires changes in fiscal policy, probably involving a combination of reduced public sector outlays and increased revenues. However, the effects of a program on demand cannot be assessed simply by measuring the government’s overall balance. Different types of financing—external, domestic nonbank, bank, and central bank—all have markedly different effects on program objectives and targets.

Domestic absorption can also be dampened by restraining monetary aggregates—for example, by introducing measures to reduce the growth of credit to the private and public sectors. Because monetary and fiscal policies are linked—the banking system often provides net financing to the public sector—fiscal restraint may be a key condition to limiting the growth of monetary aggregates.

Some programs seek to complement reductions in absorption by expenditure-switching measures—in particular, through exchange rate policy. By changing the relative prices of foreign and domestic goods (from a resident’s perspective, increasing the price of a country’s exports and imports relative to the price of domestic goods), a devaluation of the domestic currency aims to increase the global demand for domestic goods and services while discouraging imports and to raise incentives to produce goods either for export or as competition with imports.

The merits of action on the exchange rate are evident in situations where a serious overvaluation has developed, but in many cases a more circumspect approach is called for. Overvaluation typically occurs in countries with fixed exchange rate regimes when domestic inflation has outstripped international price increases over a prolonged period without corresponding adjustments to the exchange rate. In recent years, the widespread adoption of more flexible and floating regimes has limited the extent to which the exchange rate can be used as a substitute for action on other domestic policies (such as fiscal and monetary policies), largely because of the risk of perpetuating domestic inflation. However, a growing number of countries have faced large and potentially volatile inflows of foreign capital. Despite efforts to sterilize these inflows through monetary policies, in some cases the domestic currency has appreciated, leading to some loss of competitiveness. In all cases—whether of downward or upward pressure—any action on the exchange rate must be supported by an appropriate set of fiscal and monetary policies.

b. Structural policies

Structural policies become an essential ingredient of macroeconomic adjustment programs when it is evident that current account imbalances are not the result simply of short-term factors. Policies to correct these imbalances focus on enhancing supply in order to close the gap between domestic expenditure and output. This area is one in which the IMF collaborates particularly closely with the World Bank.

Structural policies can be divided into those designed to raise output by allocating existing resources more efficiently and those that seek to expand an economy’s productive capacity. In practice, it is often difficult to distinguish between the two. Conceptually, however, the first category includes all measures that bring prices back in line with marginal costs by reducing distortions arising from price controls, imperfect competition, taxes and subsidies, and trade and exchange restrictions, among other things.

The second category includes policies that encourage investment and saving. Examples include (i) measures aimed at maintaining realistic interest rates or reallocating public expenditures toward growth-enhancing activities; (ii) measures that create conditions conducive to saving, including institutional reforms and financial sector policies; and (iii) policies that help allocate resources to those investments with the highest rates of return.

By their nature, structural policies may take substantial time to implement, and their effects may not be immediately evident. Thus, these policies must be supported by sound demand management and an adequate volume of external capital inflows.

c. Financing options

The ability to attract capital inflows to sustain an external current account deficit without running into debt servicing problems depends, among other things, on how potential lenders judge a country’s creditworthiness and efficiency in using borrowed funds. In general, a country will have few problems attracting external capital if it uses foreign borrowing to fund investments that generate returns sufficient to finance loan repayments. However, if it uses resources inefficiently or devotes them to consumption, it is likely to have debt servicing problems. Changes in world economic conditions, such as fluctuations in international interest rates, may also significantly affect the availability and cost of funds.

Considerations relating to external debt management have become an increasingly important part of program design. Indeed, this concern has become a primary focus of the medium-term frameworks developed in the context of IMF-supported programs. These frameworks provide a means of assessing key debt relationships over the medium term, using alternative assumptions about a country’s policies and the behavior of the external environment, including interest rates.

Borrowing is a form of voluntary external financing, as is drawing down international reserves. However, the latter method is limited by the size of the initial stock of reserves. In extreme circumstances, some countries have resorted to financing external deficits by accumulating arrears. Accumulated arrears swiftly undermine creditors’ confidence in a country’s ability to manage its finances and significantly reduce the amount of new capital inflows that can be mobilized. In addition to complicating relations with external creditors, arrears also constitute payments restrictions and are therefore contrary to the IMF’s Articles of Agreement.

d. Further considerations

To be effective, the policies of a financial program need to be formulated and implemented in a mutually supportive manner. For example, any depreciation of the exchange rate—even if warranted by circumstances—that is not supported by policies to restrain demand is unlikely redirect resources to the external sector and may merely increase inflationary pressures in an economy.

Similarly, in designing a policy package, policymakers must take into account the trade-offs among different objectives and the policies needed to achieve them. For example, policies aimed at sharply reducing inflation may not be consistent with strong output growth in the short run, particularly if prices are not fully flexible in a downward direction. Balance of payments surpluses can lead to excessive monetary growth and inflationary pressures. Supply-side measures to liberalize trade may result in an initial deterioration in the overall balance of payments position as pent-up demand for imports is unleashed, and lifting price controls is likely to raise price levels initially. A depreciation of the exchange rate may reduce the external current account deficit but can also raise the costs (in domestic currency terms) of servicing external debt so that, in the absence of other measures, the fiscal deficit will rise.

4. Steps in Financial Programming

Preparing a financial program requires assessing economic problems in the light of national objectives in order to determine the nature and size of any needed adjustment. Policymakers must identify and quantify a coordinated set of policy instruments. This task requires analyzing the major macroeconomic sector accounts to construct—and assess the feasibility of—alternative scenarios that could be generated by the various policy “packages.” The extensive linkages among the accounts suggests that the exercise requires an iterative approach in order to produce internally consistent programs.

As a first step in this financial programming exercise, the workshop series is developed sector by sector as a means of projecting likely developments in the Sri Lankan economy for 1991, assuming that existing policies remain unchanged. The intention is twofold: first, to provide an understanding of the issues and methods needed to forecast developments in individual sectors; and second, to develop consistent macroeconomic projections of the Sri Lankan economy in 1991 and the implications for the country’s medium-term balance of payments position. The set of projections that emerge from this part of the exercise are often referred to as the baseline (or reference) scenario. The baseline scenario provides a foundation for assessing whether the existing problems are likely to be resolved by themselves, to remain the same, or to worsen.

Determining what constitutes an “unchanged” policy stance for the purposes of the baseline scenario involves a certain degree of subjective judgement. For example, if an exchange rate “rule” can be discerned—for instance, if adjustments have been made based on the differential between domestic and trading partners’ inflation rates—this rule can be regarded as an element of an unchanged policy. Similarly, if large overruns on budgeted expenditures or shortfalls in budgeted revenues are a regular feature of fiscal performance, they can be considered representative of an unchanged policy stance. Baseline scenarios may vary for a number of reasons, including differences in the relative importance analysts attach to various economic problems; in interpretations of what constitutes an unchanged policy stance; in assessments of policy trade-offs; and in the methods used for forecasting. Repeated cross-checks of the sectoral forecasts are necessary to ensure overall behavioral and accounting consistency. In addition, the coverage must be comprehensive, encompassing fiscal, monetary (including interest rate), exchange rate, and structural issues; otherwise, the assessment may not be accurate.

The second step in the financial programming exercise is to elaborate a normative program scenario based on an explicit policy package designed to achieve a desired set of objectives. The baseline scenario provides a benchmark for assessing the impact of the policy package included in the program scenario. The following paragraphs suggest some general guidelines for preparing a financial program. The more technical details are treated separately in the individual workshops contained in Chapters IV-VIII.

a. Evaluating economic problems

An understanding of a country’s economic,. Institutional, and sociopolitical structures, recent economic developments, and available policy instruments is essential to forecasting and policy analysis. A diagnosis should be made regarding:

  • the nature of the economic imbalance. If the problem is expected to be short-lived (cyclical or seasonal, for instance), all that may be required is some bridge financing or a temporary drawdown of reserves. More permanent imbalances are likely to require a package of stabilization and structural adjustment measures.

  • the source of the imbalance. Determining where the cause of the problem lies—for example, in the fiscal sector or in external factors such as a terms of trade deterioration—will affect the design of the policy package.

  • the seriousness of the imbalance. This issue is related to, among other things, the dimensions of the problem and the availability of financing. The more urgently the imbalances need to be addressed, the more drastic are the adjustment measures that will be needed.

b. Identifying factors outside the authorities’ control

A financial program must take into account the impact on key economic variables of factors over which the authorities have no control. Even the best-formulated programs are vulnerable to adverse exogenous developments, especially external sector forecasts, which involve relationships with the rest of the world. These forecasts must, therefore, consider developments in the world economy, including prospects for commodity and other foreign trade prices, world interest rates, and output and demand growth in partner and competitor countries.1 However, since considerable uncertainty underlies these forecasts, it is useful to perform sensitivity analyses of the effects of deviations from projected levels of some of the more important external variables.

c. Quantifying objectives, setting preliminary targets, and developing policy packages

In most IMF-supported adjustment programs, the objectives are to achieve progress toward a sustainable external position and to promote noninflationary growth. These objectives are translated into specific targets, which typically involve the balance of payments—that is, the current account balance and/or the level of international reserves—prices, and output.

Variables that are targets in a program scenario are treated differently under the baseline scenario. In the latter, preliminary values for the target variables are derived as an outcome by assuming a continuation of existing policies. By contrast, the first step in a program scenario is to set the targets and then to identify policy measures. The outcome of the baseline scenario should provide a benchmark for establishing appropriate targets for the program scenario.

d. Preparing sectoral forecasts

Since the process of developing a scenario is iterative, there are many possible approaches and starting points. This set of workshops starts with preliminary price and output projections, followed by projections for the balance of payments, the fiscal sector, and the monetary sector. Finally, a medium-term projection of key economic aggregates is undertaken to assess the sustainability of recommended policies. At various stages there will be a need to review and revise earlier projections—that is, to iterate the sectoral forecasts to ensure accounting and behavioral consistency and the feasibility of achieving the stated targets. The following examples are representative of the cross-checks that are needed.

In the external sector, two independent projections of imports need to be made and reconciled.2 The first is based on the preliminary targets for prices, real output, and changes in net international reserves. The economy’s capacity to import can be estimated as a residual from a projection of exports, other current account items, and capital flows, combined with the target for net international reserves. The second projection, demand for imports, is derived from the projected level of nominal output, relative import prices, and possibly some other variables and constitutes a behavioral relationship. If, as often happens, the demand for imports is greater than the capacity to import, some adjustment must be made. The basic options for making the adjustment include:

  • seeking additional foreign exchange (this option could entail developing policies to increase export receipts or seeking sources of additional financing);

  • lowering the initial target for net international reserves;

  • reducing the initial projection or target for nominal output (or other explanatory variables) to lower the demand for imports; and

  • a combination of some of the above.

A similar iterative procedure must be carried out for the fiscal and monetary sectors. For instance, projections for prices, output, and net foreign assets underlie any estimate of net domestic credit of the banking system. If the implied bank credit to the government sector is not enough to cover the estimated fiscal deficit, the following options are available:

  • introducing a package of fiscal measures to reduce the public sector deficit, potentially lowering real output growth;

  • redirecting credit from the private to the government sector, possibly resulting in a decline in real output growth that is greater than the corresponding increase in public sector value added;

  • raising additional external financing, thereby adversely affecting the country’s future ability to service its debts;

  • increasing nonbank domestic financing, with possible consequences for monetary policy, especially interest rates;

  • increasing bank credit to the government and accepting the likely negative effects on inflation and/or the balance of payments; and

  • implementing a combination of some of the above measures.

In general, abstracting from some of the peculiarities and discrepancies evident in any data set, the following accounting relations should hold:

  • the level of output should be consistent with the data on the expenditure side, including fiscal data for government consumption and investment and external sector data for net exports of goods and nonfactor services;

  • the government’s recourse to banking system credit, as shown in the fiscal data, should be consistent with the change in net domestic credit to the government, as reported in the monetary accounts;

  • government recourse to external financing, as shown in the fiscal data, and changes in the net foreign asset position in the balance sheet of the banking system should have counterpart entries in the balance of payments; and

  • changes in net foreign assets (expressed in domestic currency) in the monetary accounts should be consistent with the aggregate expressed in foreign currency in the external sector accounts.

Key behavioral relationships that need to be considered include:

  • the demand for real money balances and its relationship to output, prices, and other variables;

  • the demand for real imports and its relationship to expenditure, relative prices, and other variables;

  • the relationship between private sector bank credit and private investment and imports;

  • the relationship between government revenue and nominal output; and

  • where public (or state-owned) enterprises are identified separately in the economic accounts (that is, the monetary sector), the relationship between bank credit to this sector and its investment and imports.

e. Monitoring an IMF-supported program

This step is relevant to the program scenario. A decision that a program should be supported with IMF resources requires consideration of a number of factors, including the amount of the resources that will be received directly from the IMF, the catalytic effect on other sources of finance (official, bank, and private flows), and the policy framework and monitoring arrangements involved in designing a program that qualifies for IMF support.

The IMF provides financial resources to members on certain conditions designed to encourage appropriate economic adjustment and to ensure that the use of IMF resources is only temporary. IMF programs are monitored by various devices: performance criteria, quantitative and structural (or qualitative) benchmarks, and indicative targets. These devices are intended to be limited to those necessary to evaluate program implementation in order to minimize IMF involvement in the details of economic policymaking.

Performance criteria are a direct link between program implementation and disbursement of IMF resources. Observance of the criteria is a necessary condition for the release of quarterly or semi-annual disbursements under an IMF arrangement. If the criteria are not observed, further purchases under the arrangement can only be made after the IMF has reviewed the circumstances surrounding the nonobservance of the criteria and granted a waiver or modified the criteria.

Benchmarks and indicative targets do not have the same “legal” status as performance criteria, but they are used to assess the implementation of a program at the time of the reviews (monthly, quarterly or semi-annual) that characterize most IMF arrangements. They may relate to macroeconomic variables or to specific policy commitments, such as changes in key structural areas of the program.3

The following are the most commonly used types of performance criteria. In some programs, these criteria are also used as quantitative benchmarks:

  • a ceiling on the expansion of domestic bank credit or on the net domestic assets of the banking system;

  • a subceiling on net domestic bank credit to the government or on the nonfinancial public sector;

  • ceilings on nonconcessional external borrowing that often specify separate subceilings for debt classified as short term (with a maturity of less than 1 year), medium term (1–5 years) and long term (up to 12 years);4

  • a floor on net international reserves; and

  • understandings that there will be no new exchange and import restrictions and no intensification of existing restrictions.

Bank credit ceilings may be set at the level of either the monetary survey or the monetary authorities’ accounts. The former provides immediate consistency with intermediate targets (through the inflation and growth rates used in predicting the demand for money and the change in net foreign assets) but leaves open the measures the authorities may take to limit monetary aggregates. Setting the ceilings at the level of the monetary authorities’ accounts offers policymakers the advantage of dealing with aggregates—operating targets—over which the authorities have some control, but in this case consistency with intermediate targets depends on the stability of the assumed money supply function.

Other kinds of policies may, where appropriate, also be subject to performance criteria. In this context, additional understandings with the IMF affecting the exchange and trade system are important, including measures relating to exchange rate policy and the reduction or elimination of external payments arrears.

It is not easy to make generalizations about benchmarks, since these are tailored to the particular structural problems an economy faces. They are typically used to monitor the progress of the structural policies of a program (Box 3.1).

Prior actions may also be required—that is, certain policy measures seen as key to the effectiveness of an adjustment program may have to be implemented before an IMF arrangement is approved. Such actions are particularly important if severe imbalances exist or in cases where the record of policy implementation has been weak. Disbursements of IMF resources can also be subject to the completion of a review that typically also includes an assessment of structural and other policies that are not easily amenable to quantitative performance criteria.5

5. Issues for Discussion

A sample of the type of measures that can be adopted as structural benchmarks can be seen in the three-year SAF arrangement with Sri Lanka.6 The benchmarks included measures in the following areas:

  • Central government revenue and tax administration: new excise taxes, revenue measures aimed at reducing the budget deficit by a specific margin, and measures to improve tax administration;

  • Central government expenditure: a hiring freeze (in 1989), a phased reduction in civil service employment (in 1990), and the elimination of subsidies on fertilizer, wheat, and rice the same year;

  • Public enterprise reform: the privatization of a small number of publicly owned corporations and the “commercialization” of several more in readiness for eventual privatization;

  • Trade liberalization: simplification of the tariff structure and the introduction of a four-band tariff system (with a maximum rate of 50 percent to reduce protection); and

  • Financial sector reform: revised procedures for selling Treasury bills and (in a first step to banking reform) more rigorous loan classification and provisioning requirements for commercial banks.

The Structural Content of IMF-Supported Programs

Formulating and implementing an appropriate set of structural policies for a program is a complex and often time-consuming process. SAF/ESAF arrangements are the outcome of a collaborative effort among the country authorities, the World Bank, and the IMF to formulate an umbrella Policy Framework Paper (PFP). A PFP establishes an agenda for mutually supporting macroeconomic adjustment and structural reforms. Common features of a PFP include:

Specialities of the IMF

  • reforms of tax policy and administration;

  • changes in formulating government budgets and controlling expenditures;

  • financial sector reform (including development of indirect instruments of monetary policy, securities and money markets, and interest rate liberalization); and

  • exchange system reform.

Specialities of the World Bank

  • trade reform;

  • certain aspects of tax reform;

  • the strengthening and deepening of financial intermediation;

  • public enterprise reform;

  • public expenditure and investment;

  • sectoral pricing policies; and

  • the social dimensions of adjustment.

PFPs are prepared annually and present a rolling three-year framework for both macroeconomic and structural policies, together with an analysis of external financing requirements. The policy content is usually summarized in a “policy matrix” like that shown at the end of this chapter for Sri Lanka.

a. On the basis of information in Chapters I and II, discuss the economic problems facing Sri Lanka at the end of 1990. This review should identify the main macroeconomic and structural weaknesses separately. It should also provide an initial assessment of the causes and size of the economic imbalances and the urgency of addressing the disequilibria.

b. Assess the policy stance of the authorities in the recent past. Consider the effectiveness of their policies in achieving key economic objectives and identify the available policy instruments.

c. Review in general terms the main assumptions that will underlie the baseline scenario. In the following chapters on the individual economic sectors, you will have the opportunity to specify these assumptions in more detail and to revise them where necessary.

d. What are the major factors affecting economic performance that you consider to be outside of the authorities’ control?


Sri Lanka: Policy Matrix, 1990–93

article image
article image
article image
article image

Chapter VIII summarizes forecasts in the IMF’s World Economic Outlook that are relevant to developing projections for the Sri Lankan economy.


A somewhat different procedure is used in the preparation of medium-term projections, as outlined in Chapter VIII.


Some benchmarks or indicative targets relate to the same variables that arc used as performance criteria in other IMF-supported programs.


The concessionality of borrowing is assessed against the “grant element” in a loan using criteria specified by the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD).


In legal terms, the completion of a review constitutes a performance criterion under many types of IMF arrangements.


The benchmarks are usually precise formulations of selected and specific policies and arc identified more broadly in the Policy Framework Paper (PFP).