Transcript Economic Impact of IMF Programs on LICs

Presented by Chris Lane and Yasemin Bal-Gunduz
CSO Forum
Annual Meetings
October 10, 2013
Outline
 Evolution of programs and IMF engagement
 Economic Impact of Fund programs
 Lessons for the future
Low Income Countries, 2012
GNI p/c US$
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
Countries with
population below
1.5 mln
Small States; 20
countries; 7 mn people
Net Oil Exporters; 8
countries; 252 mn
people
Vulnerable to
shocks, weak
institutions,
unstable political
environment,
resource
constraint, low
CPIA score 2/.
LICs not included in other
sub-groups
Core LICs; 30
countries; 765 mn
people
Export earnings and
revenues highly
sensitive to oil price
shocks.
Fragile States; 27
countries; 391 mn
people
1/ Atlas method. Country population-weighted group average. 2/ Country Policy and Institutional Assessment.
IMF Concessional Facilities from 2010
Medium-term support
Extended Credit
Facility (ECF)
Short-term support
Rapid Credit Facility
(RCF)
Standby
Credit Facility
(SCF)
Non-financial support
Policy Support
Instrument
(PSI)
Low-Income Countries: No. of Years of IMF-Supported Program
Engagement, 1986-2011
No. of Low-Income Countries with an IMF Facility in Place,
and New Concessional Commitments
(Left axis)
Outline
 Evolution of programs and IMF engagement
 Economic Impact of Fund programs
 Lessons for the future
Economic Performance of Low-Income Countries,
1980-2013
Economic Performance of Low-Income Countries,
1980-2013, Continued
Changes in Average Decadal GDP Per Capita Growth and Poverty
Gaps, 1986-2010
How to estimate the Impact?
Identify two different types of IMF-supported programs (and
what factors are important predictors):
 Longer-term engagement: Capacity and institution
building while maintaining macro-economic stability
 Short-term (episodic) engagement: Financing and policy
advice to restore macro-economic stability
Construct the control group:
 Match program and non-program countries using
similarity of initial economic and structural conditions
Impact:
 The mean difference in a range of macroeconomic
outcomes across these two groups
Results: Longer-term Engagement
Longer term support helps LICs gradually build
macroeconomic buffers:
 Significantly higher long-term real per capita GDP
 Higher reductions in growth volatility and inflation
 Significantly larger improvements in the government
balance
 Significantly greater reductions in income inequality
 Higher social spending, in particular significantly higher
education spending
 Significantly larger increases in FDI
Results: Short-term Engagement
Changes in Macroeconomic Outcomes
Real GDP Growth (%)
Macroeconomic Instability
Large shocks
2.5
Reserve Coverage
Inflation (%)
2.0
1.5
(In months of imports)
0.0
1.0
-2.0
0.9
-4.0
0.8
0.7
-6.0
0.6
1.0
-8.0
0.5
0.0
0.5
-10.0
0.4
-12.0
0.3
0.2
-14.0
-0.5
All
PS>0.5
PS>0.7
0.1
-16.0
All
PS>0.5
0.0
PS>0.7
All
Current Account Balance plus
FDI
Government Balance
(In percent of GDP)
1.6
2.8
1.4
2.4
1.2
2.0
1.0
(In percent of GDP)
1.6
0.8
1.2
0.6
0.8
0.4
0.4
0.2
0.0
0.0
All
PS>0.5
PS>0.7
All
PS>0.5
PS>0.7
PS>0.5
PS>0.7
Results: Short-term Engagement
Short-term support addressing external shocks and policy
slippages mitigates the impact of shocks and restores
macroeconomic stability
 Change in growth positive but significant only for countries
experiencing substantial prior macroeconomic imbalances
or large external shocks
 Significantly higher improvements in current account
balances and reserve coverage
 Larger reductions in inflation and significant declines in
fiscal deficits
 Improvements in all outcome variables increases with prior
macroeconomic imbalances or large external shocks
Channels supporting better performance under IMFsupported programs
Policy advice and
conditionality
Capacity building
Debt relief
Catalytic
financing
Ensuring a
consistent
macroeconomic
framework
Country Example: Georgia
(GNI per capita in current U.S. dollars)
Outline
 Evolution of programs and IMF engagement
 Economic Impact of Fund programs
 Lessons for the future
Graduation from IMF Concessional Financing
1995
St. Kitts and Nevis
Dominican Republic
Philippines
2000
2001-02
China
Equatorial Guinea
Egypt
2003
2004-09
Macedonia, FYR
Bosnia and Herzegovina
2010
2011
2012
India
Sri Lanka Albania
2013
Armenia
1996
1997-98
1999
Pakistan
Georgia
Angola Azerbaijan
The Projected Number of Countries Eligible for
Concessional IMF Financing is Expected To Shrink
Financing needs of LICs likely to evolve
Declining reliance on continuous IMF Financing
 Many countries will graduate from using the Extended
Credit Facility as their balance of payments
strengthens
 Demand for non-financial instruments should
increase
 Shocks financing likely to continue (RCF, SCF)
 But, fragile states may still require repeated IMF
support (RCF and ECF) while they strengthen their
macroeconomic positions.
Poverty Reduction and Growth Trust Average Annual
Lending Commitments, 1988-2035
(In billions of Special Drawing Rights)
Strategic priority: achieving higher sustainable growth
22
22
Comments and questions?