Finance

Background

How can the IMF enhance its focus on growth and poverty reduction in LICS?

20 April 2012 | Minutes

Sponsors: Save the Children Norway

Speakers: Sigbjorn Johnsen (Minister of Finance, Norway), Matthew Martin (Development Finance International), Hugh Bredenkamp (IMF)

Presentations

Matthew Martin, Development Finance International, presented the main findings of the report, which is available at the Save the Children Norway website.

Sigbjorn Johnsen, Finance Minister of Norway

  • the IMF should not be a long-term development lender
  • Keep in mind that PRGT reforms are just two years old, so all conclusions should be considered preliminary at this stage
  • Good macro policies are necessary for any country – developed, emerging, or developing; so need to be careful on inflation, deficits
  • I support the recommendation for transparent debate among governments, IMF, and civil society on spending levels.

Hugh Bredenkamp, IMF

  • It is not our mandate to monitor and control social spending; spending priorities are from the national level; there should be accountability to citizens
  • 2009 reforms – key objective is to make IMF more flexible with higher access limits, streamlined conditionality, new instruments
  • 2009 crisis had counter-cyclical fiscal policies, IMF programme countries  were able to spend more
  • We believe engagement with the Fund has allowed increased spending in priority areas
    • For example Togo: fall in health spending was from an ending in particular donor-financed health projectile to expand spending
    • Domestically-financed health expenditures were increasing
    • Need to rely on spending outcomes, not budget numbers
    • Expenditure as a share of GDP should only be examined in long-term trend, not year-to-year, especially in post-crisis period
  • IMF research paper from last year showed robust and significant increase spending on health and education with IMF LIC programmes, including absolute spending and share of government spending
  • Case studies show positive efforts to increase spending
  • LIC recovery was very quick after crisis, so counter-cyclical policy means need to start narrowing the deficit
  • Recommendations: agree on transparency of composition of public spending; agree expanded indicative targets on social spending
    • Disagree with many other recommendations – too many of them are one-size-fits-all
    • Recommended fiscal deficit range is too standard and narrow; inflation range is also too specified while the Fund takes an eclectic view
  • As we go into LIC facilities review – welcome feedback from everyone

Discussion

Matthew Martin

  • No intention to impose standard recipes for countries; we are saying these could be acceptable levels if the countries want them
  • What is the IMF’s role – IMF is not an aid organiser or an MDG advocate; but have to look at IMF role in terms of maximising growth and progress to MDGs, not just macro-stability; need see alternative scenarios developed
  • Key thing is translating research and policy work into practice in country programmes
  • We do look at real and nominal spending as well as ratio to GDP; agree that we need to get actual spend – it is difficult
  • Case studies are better than data often – and we found periods when the Fund was flexible and times when it wasn’t flexible
  • There is some good practice in the Fund – lets have more of that in all countries; needs to be in Fund policy and guidelines

Liz Stuart

  • PSIA – how can this be mainstreamed? To check distributional analysis?

Hugh Bredenkamp

  • New facilities are not only about volatility, 2009 reforms built on existing focus on poverty reduction and growth; additional focus on tracking social and priority spending
    • Primary motivation to make toolkit more relevant for different situations
  • Not realistic to scale up through aid; we think revenue mobilisation is a priority; trying to make borrowing limits more flexible
  • Difference between PSIA on particular measures (we are still trying to do), and PSIA on entire programmes/macroeconomic strategy

Sigbjorn Johnsen

  • Agree that accountability of local politics is crucial
  • Must learn from experience/knowledge
  • Must enhance DRM and building of infrastructure
  • We will support further work on this topic

Nuria Molina

  • We have come a long way in the last years on economic policy conditionality, alternative macroeconomic framework
  • Can we now walk the extra mile on reforming Fund conditionality; the Fund is very influential; there needs to exercise of responsibility with this influence
  • Need to get the impact assessment right
  • Scaling up of spending – be more willing/aggressive for scenarios and spending plans
  • We want to see that fiscal targets and macro targets diverge across programmes
  • Not all about the spending side, also have to scale up income

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