Transcript Overview of the Fund’s response to the Crisis

IMF-supported Programs in Crisis:
Countercyclical, not Procyclical!
James Roaf, IMF
Deputy Chief, Emerging Market Division
Strategy, Policy and Review Department
Washington DC
October 15, 2009
Internal review of EM cases
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Focus: review of programs with EMs since fall ’08 (15 SBAs)
Approach: focus on 2009; comparisons with past crises and
current nonprogram EMs; robust results
Results:
Fiscal policy appropriately accommodative
 Expanded fiscal deficits in 14 of 15;
 Size of expansion explained by country factors
Social protection key element of programs
More focused structural conditionality
Avoided worst problems from past cases
 Exchange and interest rate overshooting
 Less current account adjustment and domestic demand
compression
 Few banking crises
Policies/outcomes similar to comparable nonprogram countries
Low-Income Country Programs
Review
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Vast majority of low-income countries' programs were
adapted to provide room for countercyclical fiscal policy in
2009.
 Three-quarters of low-income country programs built in
rising fiscal deficits as revenues declined.
 Two-thirds provided for significant increases in budget
spending.
 Sixteen out of nineteen programs initiated in 2008-09
envisaged higher social spending.
As food and fuel prices soared in 2007-08, programs
factored in higher inflation targets, to avoid an undue
monetary squeeze.
 Lower inflation targets in 2009 are not evidence of
monetary tightening, but of lower commodity prices and
weaker activity resulting from the global downturn.
Fiscal Policy in 2009
CEPR
Paper
Afghanistan
Armenia
Belarus
Bosnia and Herzegovina
Burkina Faso
Burundi
Central African Republic
Congo, Republic of
Costa Rica
Côte d’Ivoire
Djibouti
El Salvador
Gabon
Gambia, The
Georgia
Ghana
Grenada
Guatemala
Haiti
Hungary
Iceland
Kyrgyz Republic
Latvia
Liberia
Malawi
Mali
Mongolia
Mozambique
Niger
Pakistan
Romania
São Tomé and Príncipe
Senegal
Serbia, Republic of
Seychelles
Sierra Leone
Tajikistan
Tanzania
Togo
Ukraine
Zambia
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● Contractionary Policy
○ Expansionary Policy
Fiscal Policy in 2009
CEPR
Paper
Afghanistan
Armenia
Belarus
Bosnia and Herzegovina
Burkina Faso
Burundi
Central African Republic
Congo, Republic of
Costa Rica
Côte d’Ivoire
Djibouti
El Salvador
Gabon
Gambia, The
Georgia
Ghana
Grenada
Guatemala
Haiti
Hungary
Iceland
Kyrgyz Republic
Latvia
Liberia
Malawi
Mali
Mongolia
Mozambique
Niger
Pakistan
Romania
São Tomé and Príncipe
Senegal
Serbia, Republic of
Seychelles
Sierra Leone
Tajikistan
Tanzania
Togo
Ukraine
Zambia
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● Contractionary Policy
○ Expansionary Policy
Programs adapted to falling
output and revenues
Figure 14. Revisions to overall fiscal balance projections (and program targets) for 2009
(percent of GDP, ranked by size of deficit projection)
Oct 2008
WEO projection
0
-2
-4
-6
-8
-10
Latest WEO projection
-12
Source: Staff estimates.
Non-program
average
Program
average
BLR
GTM
HUN
CRI
SRB
BIH
PAK
SLV
MNG
ROM
UKR
GEO
ARM
LVA
ISL
-14
Programs adapted to falling
output and revenues
Figure 14. Revisions to overall fiscal balance projections (and program targets) for 2009
(percent of GDP, ranked by size of deficit projection)
Oct 2008
WEO projection
0
-2
-4
-6
-8
-10
Original program target
Latest WEO projection
-12
Revised target (latest review)
Source: Staff estimates.
Non-program
average
Program
average
BLR
GTM
HUN
CRI
SRB
BIH
PAK
SLV
MNG
ROM
UKR
GEO
ARM
LVA
ISL
-14
Evolution of 2009 growth forecasts
Growth Forecasts for 2009
(unweighted averages)
6.0
4.0
Emerging & Developing
economies
2.0
Advanced countries
0.0
-2.0
WEO
Consensus Forecasts
-4.0
-6.0
Program countries
-8.0
Apr-2008
Jul-2008
Oct-2008 Nov-2008 Jan-2009 Apr-2009
Jul-2009
Oct-2009
Real GDP growth in 2009
GDP declines due to initial conditions,
not due to programs
Growth outturns and
initial vulnerabilities
10
5
0
-20
-15
-10
-5
0
5
10
-5
-10
-15
Programs
Nonprograms
-20
Fitted real GDP growth in 2009 1/
1/ The fitted regression on real GDP includes current account deficit,
fiscal deficit, external debt, public debt, and reserves (all actuals, as of
2007).
Interest rate spikes avoided
Nominal policy rates, percent
60
50
40
past
crises
30
20
Medians and
interquartile ranges
10
0
t-12
current
programs
t-9
t-6
t-3
t
t+3
t+6
t+9
t+12
Overall supportive fiscal-monetary policy mix
Policy mix
Fiscal policy tightening
4
3
2
Non-program
countries
1
Past crises
0
-1
-2
Program countries
-3
-4
0
10
20
30
Monetary policy tightening
40
Fiscal policy: median primary balance to GDP ratios in the year before crisis (2008, circle) and the crisis year
(2009, dot). Monetary policy: median nominal interest rates six months before crisis (2008 H2, circle) and six
month into crisis (2009 H1, dot).
No currency overshooting this time
Nominal effective exchange rates
110
100
90
80
current
programs
Medians and
interquartile ranges
70
60
past
crises
50
40
30
t-12
t-9
t-6
t-3
t
t+3
t+6
t+9
t+12
More focused conditionality
Structural conditions in IMF programs
(Average per program year)
20
15
Other
10
Financial sector
Monetary and
exchange rate
5
Fiscal
0
1995-2002
2002-07
Current programs
Streamlined Conditionality in LIC
Programs
Average Number of Conditions per Review
12
2001-04
9
6
2005-07
2008-09
3
0
Sources: MONA database; and IMF Staff estimates.