IMF Policy Research Articles

Foreign Currency Deposits and International Liquidity Shortages in Pakistan

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper studies the implications of foreign currency deposits (FCDs) for international liquidity shortages in Pakistan. The analysis focuses on how the large volume of FCDs and the specific institutional characteristics of those deposits have made the Pakistan economy highly vulnerable to exogenous shocks. The analysis shows that FCDs created another channel for government borrowing, and fiscal sustainability in a “closed” system may be very different from sustainability in a more “open” system. There is a need to think of these issues in terms of total balance sheet vulnerability, and we recommend measures that would make domestic-currency-denominated assets attractive to investors. JEL Classification Numbers: E52; F41 Keywords: Capital Account Liberalization, Financial Development, Dollarization

Two Years of Fighting the COVID-19 Pandemic: An Analysis of the Policy Plurality and Response Performance of Emerging Economies

The COVID-19 pandemic has ruined the faster growth patterns of emerging economies. Emerging economies with their constrained of resource availability and resource allocation response to the epidemic differently based on the extent of damage and recovery required. While there is no ‘one size fits for all’ approach in policy responses, a combination of policy tools employed by rising nations may provide critical insights into their actual economic capabilities. In this paper, from January 2020 to December 2021, we examine and evaluate the policies adopted by emerging economies to combat the pandemic. IMF's Policy Tracker database is used to encode, analyze, and assess 25 selected emerging economies' policies at the global, regional, and income levels. Emerging economies use a wider portfolio of policy tools with better coverage, with budgetary biases. Findings could help understand the heterogeneity of policy responses across emerging economies during the pandemic’s economic disaster.

Managing Capital Flows: Theoretical Advances and IMF Policy Frameworks

Abstract We analyze recent theoretical advances in the area of capital flow management and compare them with the IMF’s policy frameworks in the area, as laid out in the IMF’s Institutional View and related documents. Although the Institutional View represented an important leap forward, we discuss several tensions with the academic literature. We also emphasize the important role that the IMF guidance could play in building a better set of policy instruments to deal with volatile capital flows. More broadly, individual countries need sufficient policy space to pursue their individual welfare objectives. Finally, we propose how to strengthen the IMF’s analytical framework for international spillovers.

On the Impact of IMF Loans and Conditions: A Gender Lens

This paper attempts to examine the impact of IMF programs and subsequent policy conditions from a gender lens. We argue that the IMF’s orthodox adjustment policies deteriorate the development outcomes of women disproportionately, mainly due to undermining recipient states’ expenditure capacity on female-dominated work and service sectors. Consequently, women face hardships in managing their dual roles -in both the market and the domestic spheres- which affects the efficiency of society's productive and reproductive sectors. First, we detect the main macro and political-economic determinants of IMF participation using a probit estimation. Second, we use the predicted probabilities in stage one to conduct a Heckman selection procedure between the participation in an IMF program and the observation of policy conditionalities. Finally, we estimate the impact of the IMF conditionality on different gendered outcomes. Our results indicate that a 1% increase in conditionality increases female unemployment, maternal mortality rates, girls' secondary school drop-out rates, and gender inequality by 1.1%, 6.7%, 6.8%, and 0.8% respectively. Furthermore, the results of our extended model confirm the crucial role of different institutions that protect women’s rights - including laws and conventions that prohibit gender-based discrimination- in mitigating the adverse impacts of IMF policy conditions on gendered outcomes.

On the Impact of IMF Loans and Conditions: A Gender Lens

This paper attempts to examine the impact of IMF programs and subsequent policy conditions from a gender lens. We argue that the IMF’s orthodox adjustment policies deteriorate the development outcomes of women disproportionately, mainly due to undermining recipient states’ expenditure capacity on female-dominated work and service sectors. Consequently, women face hardships in managing their dual roles -in both the market and the domestic spheres- which affects the efficiency of society's productive and reproductive sectors. First, we detect the main macro and political-economic determinants of IMF participation using a probit estimation. Second, we use the predicted probabilities in stage one to conduct a Heckman selection procedure between the participation in an IMF program and the observation of policy conditionalities. Finally, we estimate the impact of the IMF conditionality on different gendered outcomes. Our results indicate that a 1% increase in conditionality increases female unemployment, maternal mortality rates, girls' secondary school drop-out rates, and gender inequality by 1.1%, 6.7%, 6.8%, and 0.8% respectively. Furthermore, the results of our extended model confirm the crucial role of different institutions that protect women’s rights -including laws and conventions that prohibit gender-based discrimination- in mitigating the adverse impacts of IMF policy conditions on gendered outcomes.

Monetary policy regimes: A global assessment

AbstractAn eight‐region, stochastic, general equilibrium model that incorporates global money and financial markets is used, first, to identify the distributions of regional supply side shocks in 1954–2016 from real GDP data. Second, in Monte Carlo simulations, the model is subjected to random draws from these distributions in all regions simultaneously, under a range of combinations of monetary targets. These experiments begin with a comparison of the volatilities of output and welfare (defined as the purchasing power of disposable income at regional prices) under current de facto and de jure monetary targets. The results show that the de facto targets offer significant improvement. A further analysis of targeting games suggests that a Nash equilibrium on output risk is dominated by nominal GDP targeting, while the corresponding Nash equilibrium on welfare risk has predominant inflation targeting (IT). Notwithstanding IMF policy to convert developing country central banks to inflation targeting, a fallacy of composition is observed in the spread of IT internationally. This spread tends to raise the volatility of welfare in the established open economies.

The Luxury of Lockdown.

Regression analysis based on data from Oxford COVID-19 Government Response Tracker and the World Bank datasets for 169 countries suggests that containment policies have, in general, a significant role in reducing the pandemic’s fatality rate across all countries. However (i) there is at least a three weeks lag in realising the impact, (ii) the effectiveness increases with per capita income and, more specifically, (iii) workplace closure is ineffective in low-income countries. The analysis of data from Demographic and Health Survey (the DHS Programme) and IMF Policy Tracker indicates that developing countries are unlikely to have the basis required for effectively adopting stringent lockdown measures and instead would need to consider specifically targeted lockdown policies.Supplementary InformationThe online version contains supplementary material available at 10.1057/s41287-021-00389-x.

Models of Public Debt Management in the World and Lessons for Vietnam

Vietnam embarked on fundamentally building a public debt management system since 2009 as the Law of Public Debt Management was designed and promulgated. From then Vietnam has been following the typical model of public debt management used by developing countries, the market – based model which encompasses gradual building and completion of domestic market for government bond. However, because of several limitations in the national system of public debt management, the current model needs to be improved in alignment with the development level of Vietnam’s economy. Especially, economic shocks such as the 2009 financial crisis or Covid 19 which has increased dramatically the scope of public debt also urge a more technical and effective model. The paper focuses on analyzing the practical models of public debt management in the world and subsequently the current situation of Vietnam’s model. On that basis, the author figures out the limitations of the model and proposes a number of solutions to upgrade the model in accordance with the international practice regarding model of public debt management suitable with development level of economy. 
 Keywords
 Public debt, sustainable public debt, public debt management, risk management, model of public debt management.
 References
 [1] D.Q. Bao, The science of Management and Organization Statistical Publishing House, Hanoi, 1999 (in Vietnamese),[2] IMF, Defining the Government’s debt and deficit, Working paper, WP/15/238, 2015.[3] IMF, Revised guidelines for public debt management, IMF Policy paper, 2014.[4] WB, Government debt management: Designing debt management strategies, Debt management learning & training note, 2017. [5] E. Currie, J. Dethier and E. Togo, Institutional arrangements for Public Debt Management, World Bank Policy Research Working Paper 3021, 2003.[6] E.C. Pascal, The debt office and the effective debt management functions: an institutional and operational framework, Public debt and Public Finance Working Paper, 2006.[7] H. Bohn, Tax Smoothing with Financial Instruments, American Economic Review, 80/5 (1990) pp 1217–1230.[8] J. Tobin, An Essay on the Principles of Debt Management, Fiscal and Debt Management Policies, 2 (1963), Reprinted in J. Tobin Essays in Economics, vol.1, Amsterdam: North Holland, 1971.[9] E. Togo, Coordinating Public Debt Management with Fiscal and Monetary Policies: An Analytical Framework, World Bank Policy Research Working Paper, No. 4369, 2007.[10] L. Hoogduin, B. Ozturk & P.Wierts, Public debt managers’ behavior: interactions with macro policies, DNB Working paper No.273, 2010.[11] WB, Debt management performance assessment (DeMPA) methodology, 2015.[12] R. Cabral, How strategically is public debt being managed around the globe? A survey on public debt management strategies, WB Financial advisory and Banking department report, 2015.[13] C. Aslan, A. Ajazaj & S.A. Wahidh, Study on Public debt management system and results of a survey on solutions used by debt management office, WB Financial advisory and Banking department report, 2018.[14] IMF, G-20 note: Improving public debt recording, monitoring, and reporting capacity in low and lower middle-income countries: proposed reforms, 2018.[15] A.A. Badurina, S. Svaljek, Public debt management before, during and after the crisis, Finance theory and practice, 36(1) (2012) 73 – 100.[16] I. Storkey, Sound practice, in: M. Williams and P. Brione (Eds.), Government Debt Management: New Trends and Challenge, Central Banking Publications Ltd, London, 2006, pp 300 – 325.[17] G. Wheeler, Sound Practice in Government Debt Management, The World Bank Publication, Washington D.C, 2004. doi. 10.1596/0-8213-5073-0.[18] National Treasury Management Agency, Ireland Information Memorandum 2010, National Treasury Management Agency, Dublin, 2010.[19] M. Williams, The growing responsibilities of debt management offices, in: M. Williams, P. Brione (Eds.), Government Debt Management: New Trends and Challenge, Central Banking Publications Ltd, London, 2006, pp 258 – 273.[20] H.N. Au, Public debt management in Vietnam in the international integration period (in Vietnamese), https://hcma.vn/Uploads/2018/8/8/Hoang%20Ngoc%20Au%20-%20Luan%20an%20-%20CN%20Quan%20ly%20kinh%20te.pdf, 2018 (accessed 20 August 2020).[21] T. Phung, Firmly maintaining the country’s credit rate (in Vietnamese), http://tapchitaichinh.vn/su-kien-noi-bat/tiep-tuc-giu-vung-muc-xep-hang-tin-nhiem-quoc-gia-325601.html, 2020 (accessed 21 August 2020).[22] N.T. Binh, The factors affecting the efficiency of public debt management in Vietnam (in Vietnamese), http://www.tapchicongthuong.vn/bai-viet/cac-yeu-to-anh-huong-toi-hieu-qua-quan-ly-no-cong-o-viet-nam-73005.htm, 2020 (accessed 22 August 2020).[23] T. Anh, Six solutions for public management in the new context (in Vietnamese), http://tapchitaichinh.vn/su-kien-noi-bat/6-giai-phap-quan-ly-no-cong-trong-boi-canh-moi-308263.html, 2019 (accessed 23 August 2020).

Designing Labor Market Institutions in Emerging Market and Developing Economies: A Review of Evidence and IMF Policy Advice

This paper reviews the state of theory and evidence on the design of labor market institutions in emerging markets and developing economies. Compared with advanced economies, these economies tend to have larger market failures, which creates a strong case for government intervention. But they also face larger risks of policy failures due to informality and limited administrative capacity. We draw specific implications from this tension for the design unemployment insurance, job protection legislation, minimum wages and wage bargaining systems. We then use text mining techniques to identify and review a decade of IMF recommendations in these areas for 30 emerging market and developing economies.

How healthy is a ‘healthy economy’? Incompatibility between current pathways towards SDG3 and SDG8

Abstract Background The link between health and the economy is well known. However, economic growth as measured in SDG8, continues to leave people behind and the funding gap for realizing SDG3 for good health and well-being remains vast. International financial institutions, i.e. the IMF, influence national policies in ways that may undermine the SDGs. We examine incoherencies between economic growth and health goals in Malawi, Uganda, and Tanzania. Methods We conducted qualitative research based on policy analysis. To analyse IMF policy advice in the three countries we reviewed relevant program documents, article IV consultation reports (2016-18) and literature on structural adjustment. We accessed health information from WHO and World Bank databases, and national policies. Results In all three countries, some indicators, e.g. infant and child mortality, improved, but others lag behind. Underfunding is a major cause for poor health and inequities. GDP increases (as a measure of economic growth) do not automatically translate to increases in health spending. Health expenditure from domestic public resources remains much lower than international thresholds. To achieve this level of spending domestically, GDP in these countries would require an unrealistic manifold increase. IMF policy advice and loan conditionality that focus on GDP growth and tight monetary and fiscal targets impair social spending, while suggested taxation measures are generally regressive. Conclusions The GDP-focused SDG8 can delay efforts towards the SDG3 if governments opt to focus on GDP growth without measures to equally distribute wealth and invest in social sectors, often under IMF's influence. Although the IMF has acknowledged the importance of social development, its policy advice still adheres to austerity, harming population health. To realize the SDGs everywhere, governments should abandon GDP growth as a policy objective, strive for equitable economic development and emphasise global co-operation. Key messages GDP increases do not automatically translate to an increase of health spending, partly a result of IMF structural adjustment programs and policy advice. To realize the SDGs everywhere, governments should abandon GDP growth as a policy objective and place more emphasis on SDG17 on global co-operation.

Text-Mining Imf Country Reports – An Original Dataset

This article introduces an original panel dataset based on the text of country reports by the International Monetary Fund. It consists of a total of 5561 Article IV consultation and program review documents, published between 2004 and 2018 on 201 countries. The text of these reports provide indications of the perceived policy weaknesses, economic risks, ongoing reforms and implemented or neglected policy advice. Thus the content of IMF reports are widely used in the economics, political science and IR literature. To our knowledge this is the first comprehensive dataset that aggregates these country reports. The paper gives a detailed account on the data acquisition and management process. To demonstrate and validate the dataset's application for research we present three validation exercises. We find that Article IV reports can indicate incoming institutional reforms, show changes in IMF policy advice over time and identify potential gains from recently discovered natural resources in certain cases. Taken together, this paper contributes an original dataset of IMF country reports and demonstrates how it can be a useful foundation for further research into the role of international financial institutions.

Patterns of distributive justice: social housing and the search for market dynamism in Amsterdam

Housing policy changes in the Netherlands have been in line with OECD and IMF policy advice to increase market dynamism by downsizing the large social rental sector. The impact of such policies on households, however, is rarely acknowledged. Therefore, in this article, distributive effects on social housing tenants in Amsterdam between 2004 and 2014 are evaluated against two standards for distributive justice: sufficiency and priority. These standards befit the policy aim to provide adequate (sufficient) housing for households with a certain need (priority). The analysis shows housing policies have amplified the impacts of the global financial crisis on households. The occurrence of sufficiency increased significantly until 2008, but decreased thereafter. In regards of the priority standard more households with a significant need benefitted from social housing after 2008. However, many of these households still do not meet the sufficiency threshold. While spatial patterns remained rather stable, the impact has been greater in the areas with already relatively low residual incomes.

How Do Member Countries Receive IMF Policy Advice

This paper applies state-of-the-art deep learning techniques to develop the first sentiment index measuring member countries’ reception of IMF policy advice at the time of Article IV Consultations. This paper finds that while authorities of member countries largely agree with Fund advice, there is variation across country size, external openness, policy sectors and their assessed riskiness, political systems, and commodity export intensity. The paper also looks at how sentiment changes during and after a financial arrangement or program with the Fund, as well as when a country receives IMF technical assistance. The results shed light on key aspects on Fund surveillance while redefining how the IMF can view its relevance, value added, and traction with its member countries.

How Do Member Countries Receive IMF Policy Advice: Results from a State-of-the-Art Sentiment Index

This paper applies state-of-the-art deep learning techniques to develop the first sentiment index measuring member countries' reception of IMF policy advice at the time of Article IV Consultations. This paper finds that while authorities of member countries largely agree with Fund advice, there is variation across country size, external openness, policy sectors and their assessed riskiness, political systems, and commodity export intensity. The paper also looks at how sentiment changes during and after a financial arrangement or program with the Fund, as well as when a country receives IMF technical assistance. The results shed light on key aspects on Fund surveillance while redefining how the IMF can view its relevance, value added, and traction with its member countries.

IMF Policy Paper: Building Resilience in Developing Countries Vulnerable to Large Natural Disasters

IMF Policy Paper: Building Resilience in Developing Countries Vulnerable to Large Natural Disasters

International actors and trade unions during postsocialism and after: the case of Romania

PurposeThe purpose of this paper is to explain why, in spite having a relatively powerful labour movement at the start of the economic transformation, Romania ended up with a highly deregulated system of industrial relations in the aftermath of the global economic crisis of 2009 and with trade unions which seem incapable to defend their interests.Design/methodology/approachThe authors trace the changing role that Romanian trade unions had in national policy making and show that the beginning of 2000s represents a critical point for the power loss sustained by organised labour.FindingsThe authors argue that a key element for explaining labour’s decline is the growing pressure exercised by various international organisations for the adoption of deregulatory labour market reforms. While during the 1990s this pressure was circumvented by successive governments which peddled back and forth between union wage pressure and fiscal austerity measures, beginning with 2000s, EU accession conditionalities coupled with IMF and World Bank policy recommendations enabled the international deregulation agenda to be implemented without much opposition.Originality/valueThe paper brings new evidence on the impact of international actors on the Romanian collective bargaining and labour market institutions.

Uloga i uticaj MMF-a u kreiranju ekonomske politike - primer Srbije

The process of transformation the world economy is extremely dynamic and complex. In such conditions it is difficult to conduct a successful economic policy. Such circumstances require a continuous monitoring of the situation in the country, as well as other countries' perspectives in preserving the stability and sustainability of the economy. One of the world's leading institutions that supervises the world's economic system is the IMF. As such, it defines the rules of the game. However, unlike the laws that are mandatory, IMF has an advisory role in implementing economic policy. The aim of this research is to point out the advantages and disadvantages of relying entirely on the recommendations of the IMF in implementing economic policy. The confirmation of this claim are also examples of successful and unsuccessful fiscal consolidations and economic recovery based on IMF's policy recommendations. The first part of the paper gives an insight into the basic characteristics and mechanisms of the IMF. The second part analyzes both the positive and the negative sides of the countries' cooperation with the IMF, as well as evidence of relations with Serbia over time. The last segment refers to the potential possibility of continuing collaboration after the expiration of the Stand-By Arrangement.

Capital control reconsidered: financialisation and economic policy

We consider capital controls and their impact on selected countries, providing a critique of IMF policy. We show how the warning signs of the 1970s were ignored and the consequences became apparent during the ensuing period of neoliberal hegemony. We contend that promoting increased capital mobility is counterproductive as it reduces macroeconomic ‘policy space’. We introduce a development of the international policy ‘trilemma’ in the form of a variant of the idea of the ‘quadrilemma’. We suggest that, in most cases, the key policy driving economic growth is fiscal policy but it may be that its unconstrained use (and that of monetary policy) is not possible either under fixed exchange rates or when free capital mobility exists; a nation may face a ‘demi-quadrilemma’. We contend that, in practice, a country can only adopt ‘two from four’; if it chooses to retain free use of monetary and fiscal policy, it must sacrifice both fixed exchange rates and capital mobility. We advocate the rejection of fixed exchange rates and free capital mobility allowing the retention of requisite monetary and fiscal policy space, and that a multinational approach to the capital control policy would effectively contribute to a growth and development strategy.

‘Shari’ah’ Based Banking and Green Financing: Evidence from Bangladesh

Environmental protection and sustainability is the part of Islamic finance to ensure the fulfilment and establishments of spirit of Islamic tenants. The need to care for the environment and the forms of life that Allah has created on this earth that includes proper usage of natural resources (Al-Fajr: 11-14). Green finance involves the allocation of funds to the environmental friendly projects that help the mankind from any harmful and compliance to the ‘Shari’ah’ rules. The main purpose of the study is to examine the role of ‘Shar’ah’ based banking on green financing in Bangladesh. The study has used the structural questionnaire for primary data that includes various dimensions on green financing of ‘Shari’ah’ based banking in Bangladesh. The study has also used secondary data relevant to articles, journals, books, and conference papers for theoretical development. In order to validate the findings, the necessary statistical measures include 5 point Likert scale, mean, and rank are used in the study. The study revealed that ‘Shari,ah’ based banking have made significant contribution in green financing that promote the preservation of natural resources and the need to respect all living things. The study seems to carry an enormous academic value since a few studies have been undertaken in this area. The results could be useful to the government, Bangladesh Bank, NGOS, Donors, international agency, World Bank, IMF, Academic researchers and national policy makers who have been making endeavor to save the environment in developing countries as well as Bangladesh as a whole.

The IMF in the Arab World: Lessons Unlearnt

The IMF has a track record of enforcing aggressive liberalisation in trade and investment alongside contractionary policies, such as austerity measures and regressive taxation, with negative impacts on growth, employment and inequality. However, statements released by the IMF since the 2008 financial crisis have indicated that the organisation was revising its stance by depicting itself as a more flexible lending institution, focusing more on inclusive growth and social inclusion. This rhetoric of a policy shift became more evident after the 2011 Arab uprisings. Post 2011, country-specific strategies produced by the IMF for Arab countries consistently highlighted issues of social and economic inclusion as key priorities of IMF policy, indicating that they had broken with past practice and would now place more emphasis on policies aimed at inclusive growth. The post-Arab uprisings period provides an opportunity to evaluate the degree of change in IMF policies in the region. In May 2011, a group of international institutions and the G8 governments gathered under the umbrella of the Deauville Partnership and pledged up to $40 billion in loans and other assistance towards what they termed the “Arab Countries in Transition” (ACT). By 2012, the IMF had signed four loan agreements in the region: two-year loan packages with Morocco and Jordan, an emergency credit line with Yemen and a precautionary financing arrangement with Tunisia. Egypt has gone through two controversial rounds of negotiations with the IMF for a potential loan program, neither of which ultimately resulted in a loan. This report surveys the IMF’s impact on post revolutionary Arab states by documenting the history of IMF involvement in the region. It traces the change in IMF rhetoric and practice before and after 2011 in four Arab countries: Tunisia, Morocco, Jordan, and Egypt. These countries were selected because they have adopted extensive structural reforms on encouragement of the IMF and were often put forward by international financial institutions (IFIs) as successful reformers. The reports finds that IMF’s rhetoric of change, especially on social issues, was not borne out in its policy-making, either in terms of conditions attached to lending or its advice through surveillance. In light of these case studies, the implications of the IMF’s experience in the region are considered, concluding with recommendations for the future role of the IMF in the developing world, including Arab states.