Abstract

Executive Directors welcomed the first comprehensive stocktaking of the Fund’s lending operations since the 2008 global financial crisis. They noted the finding that three-quarters of Fund-supported programs had achieved success or some success, despite the extremely challenging post-crisis environment. Directors agreed that there is room for improvement, drawing lessons for future program design from success and failure and case studies. They broadly agreed with the findings and, with some caveats, supported the key recommendations, some of which would require further discussions in the upcoming reviews of relevant Fund policies.

Use of Fund Resources

Conditionality

The Chairman’s Summing Up—2018 Review of Program Design and Conditionality Executive Board Meeting 19/35, May 3, 2019

Executive Directors welcomed the first comprehensive stocktaking of the Fund’s lending operations since the 2008 global financial crisis. They noted the finding that three-quarters of Fund-supported programs had achieved success or some success, despite the extremely challenging post-crisis environment. Directors agreed that there is room for improvement, drawing lessons for future program design from success and failure and case studies. They broadly agreed with the findings and, with some caveats, supported the key recommendations, some of which would require further discussions in the upcoming reviews of relevant Fund policies.

Growth optimism

Directors shared the assessment that growth assumptions were often too optimistic, driven largely by global forecasting errors and the underestimation of the impact of policy adjustment and overestimation of structural reform payoffs. Directors thus welcomed the proposals to increase the scrutiny of baseline assumptions, deepen the discussion of risk scenarios, and improve contingency planning in program design. While inflation was not a major issue during the period, Directors supported exploring reforms to modernize the review-based monetary policy conditionality framework.

Quality of fiscal adjustment

Most Directors saw room for more granular fiscal conditionality, particularly capital spending floors or revenue targets, to help improve the quality, composition, and growth orientation of fiscal adjustment. At the same time, they stressed the need to retain sufficient flexibility and take due account of member countries’ implementation capacity. Where relevant, Directors also supported focusing on the quality of social spending and prioritizing structural conditions on social issues. They favored taking a case-by-case approach and streamlining conditions to maintain parsimony. Directors emphasized the importance of close collaboration with other international financial institutions, as appropriate, and of early engagement with country authorities, which would also help strengthen ownership.

Public debt

Directors welcomed the comprehensive analysis of debt vulnerabilities, which were a key concern during the review period. In cases of high debt vulnerabilities, the review found that, based on a limited sample, programs that included debt operations tended to be more successful than those without such undertakings, but mainly in small and non-systemic cases. While the positive impact of debt restructuring on program outcomes could not be generalized, Directors saw a need to mitigate bias in judgment on debt sustainability and to carefully evaluate, on a case-by-case basis, the costs and benefits of debt operations. Directors also noted various factors at play in programs that experienced a large overshooting of public debt, most of which went off track. They welcomed ongoing efforts to improve debt transparency, strengthen data reporting capacity, and sharpen debt sustainability analysis (DSA) tools. For PRGT-supported programs, enhancing domestic resource mobilization and the quality of investment is also important, which could help strengthen the Fund’s catalytic role in mobilizing external concessional financing. Directors looked forward to further discussion of debt-related issues in the context of the reviews of DSA for market access countries and of the Fund’s debt limits policy, including plans to update guidance on the treatment of collateralized debt in the program context.

Structural conditionality

Noting the marked increase in the volume of structural conditions, Directors called for further prioritization of reforms critical to specific program objectives to ensure both the parsimony and depth of structural conditionality. They agreed that the selection of conditions should be informed by structural gaps identified in surveillance and technical assistance, and involve collaboration with relevant institutions. A number of Directors called on the Fund to continue building expertise in shared areas of responsibility such as labor, product, and financial market reforms, which are key to competitiveness and private-sectorled growth. Some Directors felt that the Fund should further strengthen cooperation with other international institutions, notably the World Bank, on emerging issues such as governance and anti-corruption.

Given difficulties with implementation of structural conditions, Directors stressed the need for more realistic implementation timetables and estimates of reform payoffs. Most Directors welcomed, or were open to considering, the proposed follow-up paper to explore the case for longer-duration arrangements in the General Resources Account (GRA)for members seeking to address large and persistent structural challenges, along with appropriate measures to safeguard Fund resources. Some Directors expressed concern that longer engagement could increase the risk of reform fatigue and undermine the revolving nature of Fund resources. Directors generally saw merit in greater use of successor Policy Coordination Instruments to support ongoing structural reforms.

Ownership

Reflecting the lessons from case studies, Directors highlighted the benefits of anchoring Fund-supported programs with integrated national reform plans and improving two-way communication to support broad public buy-in. They welcomed plans to strengthen the analysis of institutional and political capacity. Where programs have gone off track, Directors encouraged greater use of staff-monitored programs (SMPs) to ensure monitoring of macroeconomic policies while authorities build support for delayed critical reforms. More broadly, Directors called on staff to consider ways to de-stigmatize SMPs, promoting their use for building policy track record, which would help facilitate access to Fund resources.

Tailoring and uniformity of treatment (evenhandedness)

Directors welcomed the finding that Fund-supported programs were generally well-tailored to country needs and perceived as being consistent with the principle of uniformity of treatment. However, they saw scope for better tailoring and streamlining program objectives and structural conditions, particularly for fragile and small states, in light of their economic circumstances and capacity constraints. Many Directors also encouraged staff to ensure the application of the 2017 Staff Guidance Note on the Fund’s Engagement with Small Developing States, and to integrate critical resilience-building measures into the programs.

Directors noted the concerns among some stakeholders regarding the perceived lack of evenhandedness in program access, both within and between the GRA and PRGT. They acknowledged that differences in access are largely driven by underlying Fund policy frameworks. They were generally open to further discussion on the proposals to increase PRGT access norms and limits, and to promote more blending of GRA and PRGT resources, while maintaining PRGT self-sustainability. They looked forward to further discussion in the context of the forthcoming review of facilities for low-income countries.

Directors welcomed ongoing efforts to improve the Monitoring of Fund Arrangements (MONA) database and looked forward to periodic reports to the Board on program performance. These efforts will enhance transparency, support the monitoring and evaluation of programs on a timely basis, and improve Board oversight including with respect to evenhandedness—an area in which a number of Directors also saw a role for the Independent Evaluation Office. Directors also noted that the observed increase in off-track programs warrants scrutiny, including by the Board. Some Directors called for further consideration of ways to improve the Board’s monitoring of delays in program implementation.

Next steps

Directors recognized the multiple tradeoffs involved in program design and the potential benefits of a shift toward more realism, granularity, gradualism, and parsimony. They agreed that the Guidelines on Conditionality remain broadly appropriate, and that most of the recommendations could be implemented through a revised Operational Guidance Note and delivery of related workstreams. Directors considered that successful implementation of the recommendations would require a change in culture, and continued adaptation and learning.

SU/19/62 May 15, 2019

Credit Tranche Policies and Facilities

The Fund’S Financing Role—Reform Proposals on Liquidity and Emergency Assistance—Rapid Financing Instrument (RFI)

1. The Fund decides that resources in the credit tranches may be made available under the Rapid Financing Instrument (RFI), in accordance with the terms and conditions specified in this Decision.

2. The Fund will approve a member’s request for resources under the RFI only where it is satisfied that:

(a) the member is experiencing an urgent balance of payments need that, if not addressed, would result in an immediate and severe economic disruption;

(b) the member either (i) has a balance of payments need that is expected to be resolved within one year with no major policy adjustments being necessary, or (ii) is unable to design or implement an upper credit tranche-quality economic program given the urgent nature of the balance of payments need or due to its limited policy implementation capacity; and

(c) the member will cooperate with the Fund in an effort to find, where appropriate, solutions for its balance of payments difficulties. Where warranted, the Managing Director may request that the member implement upfront measures before recommending that the Fund approve a purchase under this Decision.

3. If a member has made a purchase under this Decision within the preceding three years, any additional purchases under this Decision may be approved only if the Fund is satisfied that (a) the member’s urgent balance of payments need was caused primarily by an exogenous shock; or (b) the member has established a track record of adequate macroeconomic policies over a period of at least six months immediately prior to the request.

4. A member requesting assistance under this Decision shall describe in a letter the general policies it plans to pursue to address its balance of payments difficulties, including its intention not to introduce or intensify exchange and trade restrictions and other measures or policies that would compound these difficulties. The member shall also commit to undergoing a safeguards assessment, provide staff with access to its central bank’s most recently completed external audit reports and authorize its external auditors to hold discussions with Fund staff. The timing and modalities for the safeguards assessment for a member that has received assistance under the RFI would be determined on a case-by-case basis, but normally the safeguards assessment would need to be completed before Executive Board approval for the member of any subsequent arrangement to which the Fund’s safeguards assessment policy applies.

5. Assistance under this Decision shall be made available to members in the form of outright purchases. Access by members to resources under this Decision shall be subject to (a) an annual limit of 50 percent of quota, and (b) a cumulative limit of 100 percent of quota, net of scheduled repurchases, provided that the annual access limit shall be 80 percent of quota and the cumulative access limit shall be 133.33 percent of quota, net of scheduled repurchases, where (i) the member requests assistance under the RFI to address an urgent balance of payments need resulting from a natural disaster that occasions damage assessed to be equivalent to or to exceed 20 percent of the member’s gross domestic product (GDP), and (ii) the member’s existing and prospective policies are sufficiently strong to address the natural disaster shock.

6. In order to carry out the purposes of this Decision, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this Decision or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this Decision.

7. Decision No. 12341-(00/117), adopted November 28, 2000, which established the special GRA policy on emergency assistance, is hereby repealed. (SM/11/284, Sup. 3, 11/22/11)

Decision No. 15015-(11/112), November 21, 2011, as amended by Decision Nos. 15595-(14/46), May 21, 2014, 15820 (15/66), July 1, 2015, 15821 (15/66), July 1, 2015, 16183-(17/35), May 5, 2017, and 16517-(19/42), May 24, 2019