Front Matter Page
May/2014
IMF POLICY PAPER
STAFF GUIDANCE NOTE ON THE FUND’S ENGAGEMENT WITH SMALL DEVELOPING STATES
March 24, 2014
IMF staff regularly produces papers proposing new IMF policies, exploring options for reform, or reviewing existing IMF policies and operations. The following document(s) have been released and are included in this package:
The Policy Paper on Staff Guidance Note on the Fund’s Engagement with Small Developing States, prepared by IMF staff and completed on March 24, 2014 for the Executive Board's consideration on May 19, 2014.
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Front Matter Page
STAFF GUIDANCE NOTE ON THE FUND'S ENGAGEMENT WITH SMALL DEVELOPING STATES
March 24, 2014
Executive Summary
This note highlights the unique economic characteristics and constraints facing small developing states. It provides operational guidance on Fund engagement with such countries, including on how small country size might influence the use of Fund facilities and instruments, program design, capacity building activities, and collaboration with other institutions and donors.
The guidance note draws on the March 2013 Board papers on small states and the associated Executive Board discussion. The findings of the paper and implications for Fund engagement with small states were presented to small states authorities during the 2013 Annual Meetings, as well as in regional IMF conferences with small states in the Bahamas (September 2013) and Vanuatu (November 2013).
Based on the analysis in the Board papers and the above mentioned discussions, five key thematic areas (G.R.O.W.TH.) were identified as central to the policy dialogue:
G rowth and job creation. With small states experiencing relative weak growth since the 1990s, Fund staff working on small states should ensure an explicit focus on growth in both surveillance and program-related work.R esilience to shocks. Small states experience higher macroeconomic volatility and more frequent natural disasters. Staff should be ready to advise on how to tailor macroeconomic policies to provide greater resilience to shocks.O verall competitiveness. Options to improve relative prices may include exchange rate adjustment (where possible) or measures supportive of internal devaluation (if not), and efforts to improve the business climate, including through regional initiatives.W orkable fiscal and debt sustainability options. With many small states having very high debt burdens, reducing debt to manageable levels requires sustained fiscal consolidation with supporting policies and structural reforms. In cases where the amount of adjustment needed to restore debt sustainability is not feasible or adequate financing is not available, debt restructuring may be needed.Th in financial sectors. The promotion of deeper and more competitive, yet sound financial sectors contribute to economic growth in a macroeconomic stable environment and more effective policy mechanisms.
In applying this guidance, staff should continue to tailor their engagement to specific country circumstances.
Approved By
Siddharth Tiwari
This note was drafted by Sarwat Jahan, with significant contributions from Xavier Maret, under a project supervised by Peter Allum and Seán Nolan (all SPR). The note benefited from consultations with small states authorities, inputs from members of the IMF’s Small Islands Club, and review by Fund departments and the World Bank. Fund departments also provided country case studies and examples of operational best practice (AFR, APD, FAD, MCM, and WHD). Research assistance was provided by Barbara Dabrowska, Sibabrata Das, Emmanuel Hife, Carla Intal, Lisa Kolovich, and Ke Wang, and production assistance by Neri Gomes and Nazma Nunhuck (all SPR).
Contents
ABBREVIATIONS AND ACRONYMS
INTRODUCTION
DISTINCTIVE CHARACTERISTICS OF SMALL STATES
PRIORITIES FOR POLICY DIALOGUE
A. Growth and Job Creation
B. Resilience to Shocks
C. Overall Competitiveness
D. Workable Fiscal and Debt Sustainability Options
E. Thin Financial Sectors
SURVEILLANCE AND ANALYTICAL WORK
PROGRAM DESIGN, AND FUND FACILITIES AND INSTRUMENTS
CAPACITY DEVELOPMENT
COORDINATION WITH DEVELOPMENT PARTNERS
BOXES
1. Regional Characteristics of Small States
2. Explicit Growth Focus on Small States
3. Analytical Priorities for Small States
4. Fund Financing for Small States—Useful References
TABLE
1. Selected Indicators of Small States
ANNEX TABLES
1. List of Developing Small and Micro States
2. List of Small States with Staff Monitored Programs
3. Fund Emergency Assistance in Small States
4. Fund Financing Arrangements for Small States
5. Selected Recent Examples of Sovereign Debt Restructurings in Small States
APPENDIX BOXES
1. Fiscal Rules for Small States
2. Monetary Policy in Small States
3. Devaluations in Small States: How Effective?
4. Kiribati: Donor—Supported Reform Program and IMF Involvement
5. Samoa: Supporting the Recovery from Natural Disasters
6. Solomon Islands: Restoring Fiscal Sustainability and IMF-Supported Programs
7. Guyana: From Crisis to Strong Performer
8. St. Kitts and Nevis: Trials and Tribulations of a Micro State
9. The Seychelles: An Example of Successful Adjustment
10. Comoros: African Regional Technical Assistance Center (AFRITAC) South Technical Assistance
11. The Caribbean Catastrophe Risk Insurance Facility (CCRIF)
12 Grenada: Lessons from its 2013 Ex Post Assessment
Abbreviations and Acronyms
| AFRITAC |
African Regional Technical Assistance Center |
| AML/CFT |
Anti-Money Laundering/Combating the Financing of Terrorism |
| CS |
Commonwealth Secretariat |
| CLICO |
Colonial Life Insurance Company |
| DSA |
Debt Sustainability Analysis (IMF and World Bank) |
| ECCU |
Eastern Caribbean Currency Union |
| EMs |
Emerging Markets |
| ENDA |
Emergency Natural Disaster Assistance (IMF) |
| EPCA |
Emergency Post-Conflict Assistance (IMF) |
| ESF |
Exogenous Shocks Facility (IMF) |
| FSAP |
Financial Sector Assessment Program (IMF and World Bank) |
| GNI |
Gross National Income |
| GRA |
General Resources Account (IMF) |
| IDA |
International Development Association (World Bank) |
| IFIs |
International Financial Institutions |
| LICs |
Low-Income Countries |
| MEFP |
Memorandum of Economic and Financial Policies (IMF) |
| MDBs |
Multilateral Development Banks |
| NPL |
Non-performing Loan |
| ODA |
Official Development Assistance |
| OFCs |
Off-Shore Financial Centers |
| PICs |
Pacific Island Countries |
| PFM |
Public Finance Management |
| PPPs |
Public Private Partnerships |
| PSI |
Policy Support Instrument (IMF) |
| PRGT |
Poverty Reduction and Growth Trust (IMF) |
| REO |
Regional Economic Outlook |
| RCF |
Rapid Credit Facility (IMF) |
| RDBs |
Regional Development Banks |
| RFI |
Rapid Financing Instrument (IMF) |
| RGSM |
East Caribbean Regional Governments Securities Market |
| ROSC |
Report of the Observance of Standards and Codes |
| SBA |
Standby Arrangement (IMF) |
| SMP |
Staff-Monitored Program (IMF) |
| SSF |
Small States Forum |
| TA |
Technical Assistance |
| UCT |
Upper Credit Tranche (IMF) |
| WEO |
World Economic Outlook (IMF) |