IMF Member Research Articles

Public participation in the budgetary process in the Republic of Croatia

The International Monetary Fund’s fourth review of the Fiscal Transparency Code from 2014 sets out the principle of participation according to which the government must provide citizens with a brief, simple and easily understandable overview of the implications of all budgetary measures and with an opportunity to participate in the budgetary decision-making process. The Fiscal Transparency Code must be implemented in Croatia, which is an IMF member state, so this paper uses an interdisciplinary approach to point out the importance and economic effects of public participation in the budgetary process, identify the normative mechanisms of public participation in the budgetary process, and look into what they comprise of and whether they can help in achieving “participation in budgetary decision-making†, as provided for by point 2.3.3. of the Code in Croatia. It is assumed that the Croatian legal system provides various normative mechanisms of public participation in the budgetary process, which enables the implementation of the participation principle set out in the Code. These mechanisms are, however, not specific to the budgetary process itself, but rather represent general normative mechanisms of public participation, which apply in the legislative process as well.

List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months

List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months

Choosing the Exchange Rate Regime-a Case for Intermediate Regimes for Emerging and Developing Economies

The main objective of the paper is to verify the vanishing interim regime hypothesis (so-called bipolar view) and to analyse factors that may influence the probability of use of intermediate exchange rate regimes, especially in emerging and developing economies. In order to accomplish the research objectives the evolution of exchange rate regimes is presented with the special consideration of decisions of IMF member states in this respect. Next a logistic regression model that estimates the probability of use of an intermediate regime is applied. The results achieved allow a challenge to the vanishing interim regime hypothesis. Empirical observations support this hypothesis only in advanced countries and not in their emerging and developing peers.

List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months

In accordance with Executive Board Decision No. 15106-(12/21), the Fund will publish on its external website a list of member countries whose Article IV consultations or mandatory financial stability assessments have been delayed by more than 18 months, as of the date of publication, since the expected deadline for conclusion.

Calculable Power: A Case Study of IMF Quotas and Voting Rights Reform

Voting procedure is an important mechanism for public choice in collective bodies such as international organizations. This paper measures and compares IMF member countries’ voting power before the 2008 reform and after the 2010 reform on the basis of datasets on IMF quotas and voting rights distribution provided by IMF. Our study verifies that IMF’s quotas and voting rights reforms do help to reduce the voting power gap among member countries. The 2008 and 2010 reforms produce a greater improvement in emerging members’ voting power under the 70 percent majority rule than the 85 percent rule; the 70 percent majority rule means the United States would lose its absolute veto. Moreover, the paper disproves the underlying assumption that regards a member’s voting power as proportional to its voting rights. Countries with different amounts of voting rights can still have the same voting power.

List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months

In line with a framework introduced in 2012 for addressing excessive delays in the completion of Article IV consultations, this report lists the IMF members for which the Article IV consultation has been delayed by more than 18 months at end-May, 2017. The delay is counted past the stipulated date for the consultation plus any applicable grace period. There are no countries for which the mandatory financial stability assessments are delayed by more than 18 months at end-May, 2017.

Eligibility to Use the Fund's Facilities for Concessional Financing for 2017

The review of PRGT-eligibility, conducted biennially, is guided by a transparent, rules-based, and parsimonious framework. The framework determines which IMF members can access concessional resources based on an assessment of their level of income per capita, market access, and serious short-term vulnerabilities. Application of the framework should be consistent with the self-sustainability of the PRGT’s lending capacity over time. This paper concludes that the existing framework remains generally appropriate. The PRGT-eligibility framework is broadly aligned with the World Bank’s International Development Association practices, with minor differences between the lists of eligible countries explained by differences in the mandates of the two institutions and the timing of their respective review cycles. None of the countries that have graduated from the PRGT-eligibility list are at immediate risk of re-entering it. No country is proposed for graduation from or entry onto the PRGT-eligibility list. While thirteen countries meet either the income or market access graduation criterion, all are assessed to be facing serious short-term vulnerabilities and thus none are proposed for graduation. No non-PRGT-eligible country meets the criteria for entry onto the PRGT-eligibility list. The proposal to keep the list of PRGT-eligible countries unchanged is consistent with the self-sustained capacity of the PRGT.

Expanding Global Liquidity Insurance: Myths and Realities of the IMF's Precautionary Credit Lines

Despite increasing volatility in the global economy, the uptake of the IMF’s two precautionary credit lines, the Flexible Credit Line (FCL) and the Precautionary and Liquidity Line (PLL), has remained limited — currently to just four countries. The two new lending instruments were created in the wake of the global financial crisis of 2008 to enable IMF member states to respond quickly and effectively to temporary balance of payment needs resulting from external shocks. Both credit lines offer immediate access to considerable sums — over 10 times a country’s IMF quota in some cases with no (FCL) or very limited (PLL) conditionality. This paper addresses four misconceptions (or ‘myths’) that have likely played a role in the limited utilization of the two precautionary credit lines: 1) too stringent qualification criteria that limit country eligibility; 2) insufficient IMF resources; 3) high costs of precautionary borrowing; and 4) the economic stigma associated with IMF assistance. We show, in fact, that the pool of eligible member states is likely to be seven to eight times larger than the number of current users; that with the 2016 quota reform IMF resources are more than adequate to support a larger precautionary portfolio; that the two IMF credit lines are among the least costly and most advantageous instruments for liquidity support countries have; and that there is no evidence of negative market developments for countries now participating in the precautionary lines.

2017 Handbook of IMF Facilities for Low-Income Countries

This Handbook provides guidance to staff on the financial facilities and non-financial instruments for low-income countries (LICs), defined here as all countries eligible to obtain concessional financing from the Fund. It updates the previous version of the Handbook that was published in February 2016 (IMF, 2016d) by incorporating modifications resulting from Board papers and related decisions since that time, including Financing for Development—Enhancing the Financial Safety Net for Developing Countries—Further Considerations (IMF, 2016c), Review of Poverty Reduction and Growth Trust – Review of Interest Rate Structure (IMF, 2016b), Eligibility to Use the Fund’s Facilities for Concessional Financing (IMF, 2017a), Large Natural Disasters—Enhancing the Financial Safety Net for Developing Countries (IMF, 2017b) and Adequacy of the Global Financial Safety Net – Proposal for a New Policy Coordination Instrument (IMF, 2017c). Designed as a comprehensive reference tool for program work on LICs, the Handbook also refers, in summary form, to a range of relevant policies that apply more generally to IMF members. As with all guidance notes, the relevant IMF Executive Board decisions, including the terms of the various LIC Trust Instruments that have been adopted by the Board, remain the sole legal authority on the matters covered in the Handbook

The Revenue Administration-Gap Analysis Program: An Analytical Framework for Excise Duty Gap Estimation

The IMF Fiscal Affairs Department’s Revenue Administration Gap Analysis Program (RA-GAP) assists revenue administrations from IMF member countries in monitoring taxpayer compliance through tax gap analysis. The RA-GAP analytical framework for estimating excise gaps presented in this Technical Note sets out the steps and data required for comprehensive top-down gap estimates based on a comparison of actual collections to potential collections, which is estimated from consumption (or use) and expenditure of excise commodities. The note outlines the motivation for, and different approaches to, excise gap estimation; and identifies the design criteria for robust gap estimates. The note was jointly produced by RA-GAP team and the Slovak Republic’s Institute for Financial Policy, piloting the framework for the mineral oils excise gap in Slovakia.

The Revenue Administration-Gap Analysis Program: Model and Methodology for Value-Added Tax Gap Estimation

The IMF Fiscal Affairs Department’s Revenue Administration Gap Analysis Program (RA-GAP) assists revenue administrations from IMF member countries in monitoring taxpayer compliance through tax gap analysis. The RA-GAP methodology for estimating the VAT gap presented in this Technical Note has some distinct advantages over commonly used methodologies. By using a value-added approach to estimating potential VAT revenues, as compared to the more traditional final consumption approach used by most countries undertaking VAT gap estimation, the RA-GAP methodology can provide VAT compliance gap estimates on a sector-by-sector basis, which assists revenue administrations to better target compliance efforts to close the gap. In addition, the RA-GAP methodology uses a unique measurement for actual VAT revenues, which isolates changes in revenue performance that might be due to cash management (e.g., delays in refunds) from those due to actual changes in taxpayer compliance.

List of IMF Member Countries with Delays in Completion of Article IV Consultations Mandatory Financial Stability Assessments Over 18 Months

In accordance with Executive Board Decision No. 15106-(12/21), the Fund will publish on its external website a list of member countries whose Article IV consultations or mandatory financial stability assessments have been delayed by more than 18 months, as of the date of publication, since the expected deadline for conclusion. The latest version of this list, as shown in Appendix I, will be published on the Fund’s external website on or after December 28, 2016.

List of IMF Member Countries with Delays in Completion of Article IV Consultations or Mandatory Financial Stability Assessments over 18 Months

In line with a framework introduced in 2012 for addressing excessive delays in the completion of Article IV consultations, the following table lists the IMF members for which the Article IV consultation has been delayed by more than 18 months at March 15, 2016. The delay is counted past the stipulated date for the consultation plus any applicable grace period. There are no countries for which the mandatory financial stability assessments are delayed by more than 18 months at March 15, 2016.

2016 Handbook of IMF Facilities for Low-Income Countries

This Handbook provides guidance to staff on the financial and non-financial facilities for low-income countries (LICs), defined here as all countries eligible to obtain concessional financing from the Fund. It updates the previous version of the Handbook that was published in February 2015 (IMF, 2015) by incorporating modifications resulting from Board papers and related decisions since that time, including the reform of the Fund policy on Poverty Reduction Strategy in Fund engagement with low-income countries, Financing for Development—Enhancing the Financial Safety net for Developing Countries, Proposal for Catastrophe Containment and Relief Trust, the Review of Eligibility to Use the Fund’s Facilities for Concessional Financing, and the 14th General Review of Quotas.1 Designed as a comprehensive reference tool for program work on LICs, the Handbook also refers, in summary form, to a range of relevant policies that apply more generally to IMF members. As with all guidance notes, the relevant IMF Executive Board decisions, including the terms of the various LIC Trust Instruments that have been adopted by the Board, remain the sole legal authority on the matters covered in the Handbook.

Imperfect adaptation: how the WTO and the IMF adjust to shifting power distributions among their members

How do international institutions adjust to shifting power distributions among their members? We argue that institutional adaptations to the rise of emerging and the decline of established powers are different from what power transition theories (PTTs) would lead us to believe. Institutional adaptations are not impossible, as pessimist PTT variants hold; and they are rarely easy to attain, let alone perfect, as optimist PTT variants imply. To bridge the gap between these versions of PTT, we propose an institutionalist power shift theory (IPST) which combines insights on the conditions and mechanisms of institutional change from functionalist, historical and distributive variants of rational institutionalism. IPST claims that institutional adaptations will succeed or fail depending on whether or not emerging powers are able to undermine the international institution and to make credible threats to this effect. To demonstrate IPST’s plausibility we analyze: (1) how India and Brazil gained the agreement of established powers to their membership in the WTO core negotiation group (“Quad”), which had previously been dominated by developed countries; and (2) how China reached agreement with established powers on (more) even-handed surveillance of IMF members’ financial stability, which, up to then, had focused on developing countries and exchange rate issues.

Reserve Accumulation, Inflation and Moral Hazard: Evidence from a Natural Experiment

This paper assesses whether international reserve accumulation can be inflationary because of moral hazard and incentive effects. It tests the hypothesis that an increase in international reserves may incentivise countries to become complacent and pursue less prudent policies due to the perceived safety provided by higher reserve holdings. The paper uses a unique natural experiment to solve the endogeneity problem between reserve accumulation and macroeconomic developments, namely the 2009 general allocation of Special Drawing Rights (SDR). This allocation – the first one in almost three decades – enables to cleanly trace the effect of an unanticipated, global exogenous shock to the reserve holdings of the 186 IMF member countries. Difference-in-differences and propensity score matching estimates suggest that inflation in countries receiving large SDR allocations was about half a percentage point higher in annual terms within the next two years following the allocation, controlling for the standard arguments of the Phillips curve and other determinants. This effect is commensurate to the size of discretionary fiscal deficits in these countries, which is also consistent with the hypothesis that reserve accumulation may be inflationary because of moral hazard and incentive effects.

List of IMF Member Countries with Delays in Completion of Article IV Consultations Over 18 Months or Mandatory Financial Stability Assessment Over 18 Months

This Staff Report Lists IMF Member Countries with Delays in Completion of Article IV Consultations over 18 Months or Mandatory Financial Stability Assessment over 18 Months, prepared by IMF staff and completed on January 28, 2015.

What Has Capital Liberalization Meant for Economic and Financial Statistics

The liberalization of capital flows both in the domestic economy and cross-border has been among the most important policies adopted by IMF member countries over recent decades. The impact has been wide-ranging. This paper looks at the impact on the field of economic and financial statistics in the past two decades, as statisticians have responded to the changing policy needs. The paper considers the historical context of changes that have occurred, draws out the key trends, and asks where these trends might lead statisticians in the foreseeable future. The paper considers that there has been nothing short of a revolution in the field of economic and financial statistics over the past two decades led by a need for greater transparency; greater standardization; new data sets to support understanding of financial interconnections and financial sector risks; and the strengthening of the governance of the statistical function through greater independence of statistical agencies.

What has Capital Liberalization Meant for Economic and Financial Statistics

The liberalization of capital flows both in the domestic economy and cross-border has been among the most important policies adopted by IMF member countries over recent decades. The impact has been wide-ranging. This paper looks at the impact on the field of economic and financial statistics in the past two decades, as statisticians have responded to the changing policy needs. The paper considers the historical context of changes that have occurred, draws out the key trends, and asks where these trends might lead statisticians in the foreseeable future. The paper considers that there has been nothing short of a revolution in the field of economic and financial statistics over the past two decades led by a need for greater transparency; greater standardization; new data sets to support understanding of financial interconnections and financial sector risks; and the strengthening of the governance of the statistical function through greater independence of statistical agencies.

2014 Handbook of IMF Facilities for Low-Income Countries

This Handbook, an updated version of a similarly titled document issued in May 2012 (IMF, 2012c), provides guidance to staff on the financial facilities for low-income countries (LICs) that became effective in January 2010 (ECF, SCF, and RCF), and the PSI, including modifications to the guidance resulting from the Review of Facilities for Low-Income Countries (IMF, 2012e and 2013d) and the Review of Eligibility to Use the Fund’s Facilities for Concessional Financing (IMF, 2013c). Designed as a comprehensive reference tool for program work on low-income countries, the Handbook also refers, in summary form, to a range of relevant policies that apply more generally to IMF members. As with all guidance notes, the relevant IMF Executive Board decisions, including the terms of the various LIC Trust Instruments that have been adopted by the Board, remain the sole legal authority on the matters covered in the Handbook.