IMF-supported Programs in Crisis: IMF-supported Programs in Crisis: Countercyclical, not Procyclical! Countercyclical, not Procyclical!
James Roaf, IMFDeputy Chief, Emerging Market Division Strategy, Policy and Review Department
Washington DC
October 15, 2009
Internal review of EM casesInternal review of EM cases FocusFocus: review of programs with EMs since fall ’08 (15 SBAs): review of programs with EMs since fall ’08 (15 SBAs) ApproachApproach: focus on 2009; comparisons with past crises and current : focus on 2009; comparisons with past crises and current
nonprogram EMs; robust resultsnonprogram EMs; robust results ResultsResults: : Fiscal policy appropriately accommodativeFiscal policy appropriately accommodative
Expanded fiscal deficits in 14 of 15; Expanded fiscal deficits in 14 of 15; Size of expansion explained by country factorsSize of expansion explained by country factors
Social protection key element of programsSocial protection key element of programs More focused structural conditionalityMore focused structural conditionality Avoided worst problems from past casesAvoided worst problems from past cases
Exchange and interest rate overshootingExchange and interest rate overshooting Less current account adjustment and domestic demand compressionLess current account adjustment and domestic demand compression Few banking crisesFew banking crises
Policies/outcomes similar to comparable nonprogram countriesPolicies/outcomes similar to comparable nonprogram countries
Low-Income Country Programs Low-Income Country Programs ReviewReview
Vast majority of low-income countries' programs were adapted Vast majority of low-income countries' programs were adapted to provide room for countercyclical fiscal policy in 2009. to provide room for countercyclical fiscal policy in 2009. Three-quarters of low-income country programs built in Three-quarters of low-income country programs built in
rising fiscal deficits as revenues declined.rising fiscal deficits as revenues declined. Two-thirds provided for significant increases in budget Two-thirds provided for significant increases in budget
spending. spending. Sixteen out of nineteen programs initiated in 2008-09 Sixteen out of nineteen programs initiated in 2008-09
envisaged higher social spending.envisaged higher social spending. As food and fuel prices soared in 2007-08, programs factored As food and fuel prices soared in 2007-08, programs factored
in higher inflation targets, to avoid an undue monetary in higher inflation targets, to avoid an undue monetary squeeze. squeeze. Lower inflation targets in 2009 are not evidence of Lower inflation targets in 2009 are not evidence of
monetary tightening, but of lower commodity prices and monetary tightening, but of lower commodity prices and weaker activity resulting from the global downturn.weaker activity resulting from the global downturn.
Fiscal Policy in 2009Fiscal Policy in 2009
● Contractionary Policy ○ Expansionary Policy
CEPR Paper Latest
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 ○ ○
Fiscal Policy in 2009Fiscal Policy in 2009
● Contractionary Policy ○ Expansionary Policy
CEPR Paper Latest
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 ○ ○
Programs adapted to falling Programs adapted to falling output and revenuesoutput and revenues
-14
-12
-10
-8
-6
-4
-2
0
ISL
LVA
AR
M
GE
O
UK
R
RO
M
MN
G
SLV
PA
K
BIH
SR
B
CR
I
HU
N
GTM BLR
Pro
gram
aver
age
Non
-pro
gram
aver
age
Oct 2008 WEO projection
Latest WEO projection
Figure 14. Revisions to overall fiscal balance projections (and program targets) for 2009 (percent of GDP, ranked by size of deficit projection)
Source: Staff estimates.
Programs adapted to falling Programs adapted to falling output and revenuesoutput and revenues
-14
-12
-10
-8
-6
-4
-2
0
ISL
LVA
AR
M
GE
O
UK
R
RO
M
MN
G
SLV
PA
K
BIH
SR
B
CR
I
HU
N
GTM BLR
Pro
gram
aver
age
Non
-pro
gram
aver
age
Original program target
Revised target (latest review)
Oct 2008 WEO projection
Latest WEO projection
Figure 14. Revisions to overall fiscal balance projections (and program targets) for 2009 (percent of GDP, ranked by size of deficit projection)
Source: Staff estimates.
Evolution of 2009 growth forecastsEvolution of 2009 growth forecastsGrowth Forecasts for 2009
(unweighted averages)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Apr-2008 Jul-2008 Oct-2008 Nov-2008 Jan-2009 Apr-2009 Jul-2009 Oct-2009
WEOConsensus Forecasts
Emerging & Developing economies
Program countries
Advanced countries
GDP declines due to initial conditions, GDP declines due to initial conditions, not due to programsnot due to programs
-20
-15
-10
-5
0
5
10
-20 -15 -10 -5 0 5 10
Fitted real GDP growth in 2009 1/
Rea
l GD
P g
row
th in
200
9
1/ The fitted regression on real GDP includes current account deficit, fiscal deficit, external debt, public debt, and reserves (all actuals, as of 2007).
Growth outturns and initial vulnerabilities
Programs
Nonprograms
Interest rate spikes avoidedInterest rate spikes avoidedNominal policy rates, percent
0
10
20
30
40
50
60
t-12 t-9 t-6 t-3 t t+3 t+6 t+9 t+12
current programs
past crises
Medians and interquartile ranges
Overall supportive fiscal-monetary policy mixOverall supportive fiscal-monetary policy mix
Policy mix
-4
-3
-2
-1
0
1
2
3
4
0 10 20 30 40Monetary policy tightening
Fisc
al p
olic
y tig
hten
ing
Program countries
Non-program countries
Past crises
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 timeNo currency overshooting this timeNominal effective exchange rates
30
40
50
60
70
80
90
100
110
t-12 t-9 t-6 t-3 t t+3 t+6 t+9 t+12
current programs
past crises
Medians and interquartile ranges
More focused conditionality More focused conditionality
Structural conditions in IMF programs (Average per program year)
0
5
10
15
20
1995-2002 2002-07 Current programs
Other
Financial sector
Monetary and exchange rate
Fiscal
Streamlined Conditionality in LIC Streamlined Conditionality in LIC ProgramsPrograms
0
3
6
9
122001-04
2005-07
Average Number of Conditions per Review
2008-09
Sources: MONA database; and IMF Staff estimates.