The FINANCIAL — The Executive Board of the International Monetary Fund (IMF), on July 6, 2015, discussed the IMF’s role in supporting the post-2015 development agenda, ahead of the upcoming third United Nations (UN) Conference on Financing for Development (FfD) to be held in Addis Ababa from July 13–16, 2015.
Having adopted a package of measures to expand developing countries’ access to Fund resources on July 1, the Board supported new initiatives by the IMF to enhance its support for developing country members as they pursue their development goals. The IMF’s policy positions on FfD and the initiatives it proposes to take are discussed in the staff paper “Financing for Development: Revisiting the Monterrey Consensus.”
This year is pivotal for global action on development, with the global community set to agree on the objectives and policies for promoting development that is economically, socially, and environmentally sustainable for the next fifteen years. The first stage in completing the debate on these issues will be during the upcoming Third UN Conference on FfD, which will be held in Addis Ababa. The conference aims to reach an international consensus on the actions needed to ensure that sufficient financing is available for developing countries in pursuing sustainable development, according to IMF.
The staff paper discusses the IMF’s policy positions on key topics in the FfD debate that fall within its mandate and it also illustrates the IMF’s role in supporting sustainable development. This role includes: assisting developing countries in designing national policies that support domestic development; and promoting policies at the global level that are crucial to providing an enabling external environment for developing countries.
The staff paper discusses several initiatives that the IMF could undertake to strengthen its support for developing countries as they pursue their development goals. These include: boosting access to its resources for developing countries to provide them with a wider safety net to manage adverse external shocks; scaling up support for national capacity building in the key area of domestic revenue mobilization; expanding assistance for countries seeking to address large infrastructure gaps and boost growth—through use of diagnostic tools and capacity building measures, while maintaining medium-term public debt sustainability; intensifying engagement on policy issues relating to inclusion, gender, and environmental sustainability, where they are important for growth and economic stability, drawing on the expertise of other institutions as needed; strengthening the effectiveness of the IMF’s work in fragile and conflict-affected states, both in assisting in policy-making and supporting capacity building; enhancing IMF technical assistance for domestic financial market development, in collaboration with other international organization; and strengthening statistical data dissemination through expanded use of new technologies.
Executive Board Assessment
Executive Directors agreed that, given the Fund’s mandate and global membership, it should be actively engaged in the global dialogue on mobilizing resources in support of the new Sustainable Development Goals (SDGs), including at the upcoming UN Financing for Development Conference in Addis Ababa.
Directors underscored that success in achieving the SDGs will require a strong partnership between advanced, emerging, and developing countries. They emphasized that sound national policies and ownership will play a critical role in achieving an economically, socially, and environmentally sustainable development process. In this context, Directors concurred that the pace of national economic development will be clearly boosted by an enabling global environment, characterized by: systemic economic and financial stability; strong growth of international trade in goods and services facilitated by broad-based trade liberalization; and steadily growing levels of official development assistance, including targeted technical support, where needed most. Directors noted that delivering this enabling environment will require policy actions by both advanced and large emerging economies. They also agreed that, as part of its core mandate, the Fund should continue to work closely with member countries on the design and calibration of macroeconomic and financial policies to achieve growth, while maintaining stability over time.
Directors agreed that developing countries need a strong domestic revenue base to finance essential public services, including health, education, and infrastructure. They concurred that well-targeted external technical support could boost fiscal revenues significantly over time. Directors agreed that the Fund should continue to support developing countries in strengthening domestic revenue mobilization and management through its extensive technical assistance and training, while stressing the need to further customize policy advice to country circumstances. Directors supported further work by the Fund to help developing countries address international tax issues, such as protecting revenue bases from base erosion and profit-shifting, building on the G20-OECD initiative, and containing inefficient tax competition. Some Directors called for a broader work agenda, covering the various components that collectively constitute “illicit financial flows.”
Directors noted that efforts to boost domestic revenue mobilization should be accompanied by measures to use these revenues effectively, both through appropriate prioritization of spending needs and through institutional and administrative reforms to improve public service delivery. Social safety nets are necessary to protect the economically vulnerable, but policies need to be effectively targeted to achieve their objectives at an affordable fiscal cost.
Directors noted that domestic financial market deepening is important for economic development, increasing the capacity of both governments and enterprises to finance capital spending. In this context, they saw need for appropriately-focused regulatory frameworks and strong oversight to safeguard financial stability. Directors supported the Fund’s efforts, through policy advice and technical assistance, to help developing countries lay the basis for sound and sustainable financial market development. Noting that foreign capital flows are important in generating financing for domestic investment, Directors agreed that the Fund should continue to provide tailored advice on handling capital flows in the context of surveillance and program engagement.
Directors concurred that addressing large infrastructure gaps is critical for boosting growth. In view of the substantial levels of external borrowing needed for infrastructure investment, Directors underscored that the Fund has an important role to play in assisting countries in evaluating the trade-offs between growth and debt sustainability when planning infrastructure scaling up. Using borrowed funds efficiently will be essential, underscoring the importance of building government capacity to manage and implement public investment projects. In this context, Directors stressed the importance of strengthening debt management capacity and called on the Fund to support member countries in this endeavor.
Directors noted the importance of policies to ensure the social and environmental sustainability of economic growth. They called for targeted Fund support for countries seeking to develop policies to promote economic inclusion, including gender inclusion, while underscoring that Fund engagement in these areas should focus on policy issues deemed macro-critical for achieving sustained economic growth and be based on a close collaboration with other institutions such as the World Bank. They also supported the Fund’s analytical work and technical assistance on environmental issues, focused as it is on the specific tax and pricing issues in which the Fund has strong expertise.
Directors called on advanced economies to meet their commitments to boost official development assistance, while ensuring that aid flows are better targeted toward the poorest countries. They also called for further policy actions by G20 and other countries to reduce the costs of remitting funds to their home countries by emigrants and migrant workers, recognizing that these remittances are a key source of foreign exchange for many developing countries.
Directors supported the proposed initiatives to enhance Fund support for developing countries as they seek to accelerate economic development on a sustainable basis. Directors welcomed:
• the planned intensification of support for country-owned programs to strengthen domestic revenue mobilization;
• the proposed policy support package for infrastructure provision;
• the plans to strengthen non-financial support for fragile and conflict-affected states, focused on building institutional capacity over the medium term;
• the plans to deepen analytical work on equity and inclusion issues, including gender, and, drawing also on the experience of institutions such as the World Bank, to bring concrete policy lessons to operational work in countries where tackling these issues is important for sustaining growth;
• continuation of analytical and advisory work on energy pricing and environmental tax issues; and
• selected expansion of the Fund’s technical assistance for financial market development, and further strengthening its statistical data dissemination and knowledge-sharing, including through greater use of web-based tools and open data platforms.
Directors noted that implementation of the proposed initiatives at significant scale would likely require additional funding. Some Directors took the view that an effectively-targeted scaling up of these activities warranted such support; others called for better prioritization of existing activities and efficiency improvements, noting that any case for additional resources would need to be made as part of the Accountability Framework and the budget process.
Directors called for a productive dialogue at the upcoming UN Financing for Development Conference in Addis Ababa that would lay the basis for strong cooperation between advanced, emerging, and developing economies in support of the post-2015 sustainable development agenda.