INTERNATIONAL Monetary Fund (IMF) staff should exercise more caution
while conceiving fiscal consolidation for countries afflicted with
financial crisis, according to IMF's policy paper (PP) on review of
IMF-funded program conceived for certain countries during the global
financial crisis.
PP
released on 16 th December says that fiscal consolidation is the key to
adjustment. Its pace and size should reflect macroeconomic objectives,
available financing, and debt sustainability.
PP adds:
"Program design should take into account the effects of fiscal
consolidation on output. Where these effects are projected to be large,
with consequences for program sustainability, it would be appropriate to
seek additional financing to accommodate a more gradual consolidation;
where public debt is high, timely debt restructuring may also be
needed."
IMF
executive directors (EDs) recently reviewed the design and outcomes of
IMF-supported programs undertaken during and following the global
financial crisis.
According
to IMF release, EDs concurred that programs generally succeeded in
strengthening fiscal balances with a view to reducing public debt ratios
over time. They welcomed the attention given to output and employment
in program objectives, noting that in some programs with large fiscal
consolidations, the negative short-term effects on output can be
sizable, reflecting larger-than anticipated fiscal multipliers, as well
as other factors weighing on activity.
The release says: "In
such cases, a more gradual pace of consolidation could be desirable
while maintaining a credible adjustment path that restores confidence
and reaches a sustainable and resilient position in due time. A few
Directors noted that a more gradual fiscal adjustment could require
additional official financing."
The
review, based on PP, provides an updated assessment of 32 programs
financed from INF's general resources account (GRA) for 27 countries
between September 2008 and June 2013. Drawing on lending instruments
totaling SDR 420 billion (about US$577 billion), the Fund supported Euro
Area countries as they built firewalls against financial contagion;
emerging economies and small states as they addressed the collapse of
trade and financing flows in 2008–09; and MENA economies as they
implemented reforms after the 2011 Arab Spring.
EDs
welcomed the updated assessment of the design and outcomes of
Fund-supported programs undertaken following the global financial
crisis. They concurred that by boosting confidence and providing
resources, alongside other global efforts, Fund-supported programs
helped limit the damage and chart a path through the global financial
crisis.
A
number of Directors also considered that more timely debt operations
may be needed where public debt is high and unsustainable. A number of
other Directors, however, cautioned that the likely effects of debt
restructuring should be studied further, with the desirability of such
operations assessed on a case-by-case basis. A number of Directors
looked forward to considering options for reforming the Fund's
exceptional access framework.
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