Recent setbacks in financing for development should therefore focus policymakers’ attention on the need for decisive national strategies so these best intentions might be realized. Harnessing the necessary resources could be achieved through a combination of revenue mobilization, attracting private finance, and supporting financial sector development. Policy makers will need to engage in collective action and practice a new multilateralism in support of global goals.
A new UN study, prepared with significant contributions by the IMF, the World Bank Group, the World Trade Organization, the United Nations Development Program and other UN agencies, takes a deep dive into how countries and the international community are faring in mobilizing the needed financing.
The financing needs are not small change—an IMF study earlier this year estimated additional annual spending needs by 2030 would be $2.6 trillion in low-income and emerging markets for the big-ticket SDGs delivering education, health, power, roads, water and sanitation to growing populations. The financing challenge is particularly large in low-income and fragile states given their low starting point, rapid population growth, and often weak growth trajectory accounting for one-fifth of the total financing needs.
While the financing challenges are large, they are not overwhelming for most countries.
The UN report also notes that some recent developments may make mobilizing financing more difficult. Global growth has likely peaked, trade restrictions are intensifying, some emerging markets are experiencing capital flow reversals, and debt risks are rising with about thirty low-income countries at a high risk of debt distress or in debt distress. We are indeed at a delicate moment for the global economy as the IMF Managing Director remarked earlier this month.
Meeting the financing challenge
The Financing for Sustainable Development Report makes over 40 specific recommendations to UN member states to better align financing with investments in the sustainable development goals. Four proposals merit particular attention:
Develop a financing framework. Financing is often the weakest part of national SDG plans: a recent study showed that over three-quarters of 107 national plans do not contain costings or financing details. The report makes concrete recommendations on how to operationalize a financing framework and illustrates how some countries developed plans identifying both public and private flows.
Medium-term revenue strategies. The report recommends building a national consensus for medium-term revenue strategies that can support reforms through the political cycle by highlighting the link between additional revenues and effective and equitable public services. Indonesia provides a good example of an ambitious revenue strategy that aims to raise revenue from 10 to 15 percent of GDP over the medium term (explained in this IMF book ). Revenue strategies may be bolstered by global coordination on international corporate tax reform.
Actions to support debt sustainability. An in-depth discussion of debt risks provides a rich menu of actions to help countries spot vulnerabilities early on, and better manage their debt. The report highlights that all debt crisis situations are different and discusses ongoing efforts and challenges for debt-restructuring in the Gambia, Republic of Congo, and Mozambique.
Prepare for future crises. Even the best laid plans, strategies, and tools may not prepare developing countries adequately for future financial crises and spillovers from advanced economies. The report reiterates the importance of ensuring the adequacy and comprehensiveness of the global financial safety net, including through the ongoing review of IMF financing arrangements.
While the financing challenges are large, they are not overwhelming for most countries. Particularly strong efforts will be needed to move the needle in Africa and parts of the Middle East, with national policies to support SDG investments, and international cooperation to find solutions to new and emerging challenges. The Financing for Sustainable Development Report makes an important contribution to identifying necessary actions.
Somalia, as everyone knows, has gone through traumatic times and is now settling down to normality with the help of not only its neighbouring countries but most notably by the IMF. As a matter of fact, the IMF staff commending Somalia to implement important reforms was expected but confronting Somalia’s challenging conditions and implement the IMF’s counsel might not be inopportune at this conjecture.
These were commented by the Specimen-news on July 7, 2018, in this article that we reproduce here, courtesy of the Specimen-news team.
IMF staff has commended the Somali authorities for implementing important reforms in challenging conditions, stating recent developments are broadly favorable despite difficult political and security environment.
Famine in Somalia is affecting the economy
On June 20, the management of the IMF completed the second and final review under the second 12-month Staff-Monitored Program (SMP II) with Somalia, and the Managing Director of the IMF approved a third 12-month SMP (SMP III) covering the period May 2018–April 2019. The SMPs for Somalia are designed to help maintain macroeconomic stability, rebuild key economic institutions, and build track record on policy and reform implementation.
IMF staff encourages the Somali authorities to stay the course of reform implementation under the SMP, particularly on public financial management, revenue administration and policy, and monetary and financial sector.
The IMF supports the authorities’ ongoing efforts to launch a new national currency.
Economic activity is rebounding from the effects of the drought in 2017. Reflecting a strong rainy season, sustained remittances and grant inflows, growth in 2018 is projected to increase to 3.1 percent from an estimated 2.3 percent in 2017, and inflation is expected to ease to under 3 percent from about 5.1 in 2017.
Reflecting ongoing reforms, the fiscal position has improved since December 2017. The federal government of Somalia (FGS) recorded a small fiscal surplus in 2017 as a result of higher-than-programmed domestic revenue mobilization and budgetary grant disbursements. The strong fiscal performance continued through March 2018 due, in part, to
lower-than-projected expenditure and slightly higher domestic revenue.
Program implementation under SMP II has been satisfactory. For December 2017, all indicative targets (ITs) and all but one structural benchmark (SB) were met. Also, the two SBs and all ITs set for March 2018 were met. Considering the satisfactory performance under SMP II and the authorities’ strong commitment to accelerate and broaden the reform agenda, staff supports the completion of the second and final review under SMP II and the authorities’ request for SMP III.
Staff also supports the authorities’ ongoing efforts to launch a new national currency. After nearly two years of the IMF’s technical assistance support, the pre-conditions for the launch of the new Somali Shilling have been nearly completed. In March 2018, IMF staff prepared an assessment letter supporting the CBS’s initiative to issue a new national currency. Staff encourages the authorities to continue to reach out to donors to raise the needed funds for this operation, finalize the establishment of the accountability framework, and to fully staff the team that will manage the process.
SMP III will build on achievements under the previous two SMPs and will continue to lay the foundation so that Somalia will eventually have a SMP that meets the IMF Upper Credit Tranche (UCT) conditionality which is one of the key requirements for Somalia to reach the Decision Point under the Heavily Indebted Poor Countries (HIPC) initiative. SMP III will focus on broadening and deepening reform implementation to maintain macroeconomic stability and to continue rebuilding institutions and capacity to improve macroeconomic management and governance.
Risks to the program are elevated. Nonetheless, continued commitment to the reform measures under the SMP; and with sustained donors support, particularly on technical assistance, peace and state building, resilience and humanitarian aid, will help mitigate these risks.
Here is Christine Lagarde, Managing Director of the International Monetary Fund with a fairly straightforward essay on how to fight off weak governance and corruption.in the world. It goes without saying that the IMF in its role of facilitator of anything to do with the world economy and its good performance, finds it necessary to purvey free of charge that Bright Light into the Dark Corners of Weak Governance and Corruption. The MENA region does not escape such drawbacks and the IMF in its efforts to promoting good performance amongst other things, produces these periodical reports on country by country basis. These are definitely appreciated in as well as helpful in shedding some light with a view to help show the way to better economic performance.
The picture above is of “Anti-corruption strategies require broader regulatory and institutional reforms (Kritchanut/iStock)”
The IMF Executive Board has just endorsed a new framework for stepping up engagement on governance and corruption in our member countries. Let me talk about why this is important and what it means for our work.
Costs of corruption
We all know that entrenched corruption is economically pernicious, undermining the ability of countries to deliver inclusive and sustainable economic growth.
The paper we have just issued presents empirical results showing that high corruption is associated with significantly lower growth, investment, FDI, and tax revenues. Sliding down from the 50th to 25th percentile in an index of corruption or governance is associated with a fall in the annual rate of growth of GDP per capita by half a percentage point or more, and a decline in the investment-to-GDP ratio by 1½–2 percentage points. Our results also show that corruption and poor governance are associated with higher inequality and lower inclusive growth.
It is not hard to understand these findings. We know that corruption weakens government’s ability to tax, and distorts spending away from valuable investments in areas like health, education, and renewable energy, and toward wasteful projects with short-term payoffs. We know that it acts as a tax on investment—or worse, because of the uncertainty about demands for future bribes. We also know that corruption causes young people to underinvest in skills and education—because getting ahead depends on who you know not what you know. We know that corruption hurts the poor, hinders economic opportunity and social mobility, undermines trust in institutions, and causes social cohesion to unravel. Corruption is a major obstacle to attaining the Sustainable Development Goals.
Given all of this, the IMF’s stepped-up engagement against corruption is justified and timely. Importantly, this work on corruption will be embedded in our general work that promotes good governance in key areas such as public financial management, financial sector oversight, and anti-money laundering.
This broader focus is necessary. Governance weaknesses are harmful in their own right, but they also open the door to widespread corruption. To be truly effective, anti-corruption strategies must go beyond merely throwing people in jail. They require broader regulatory and institutional reforms. At the end of the day, the most durable “cure” for corruption is strong, transparent, and accountable institutions. In the famous words of Louis Brandeis, “sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
An added benefit of this broader approach: because corruption tends to be strongly correlated with more general lapses in governance and is often hard to measure, we can use governance weaknesses to help corroborate corruption assessments.
I should point out that this is not a new topic for us. We have had a governance policy in place since 1997, and it is a good policy—our review found that its principles are the right ones. This policy calls upon us to address governance and corruption issues when they have a significant macroeconomic impact. It calls upon us to work with partner institutions, especially the World Bank, in areas of their expertise and not to interfere in politics or in individual enforcement cases.
Yet while these principles are sensible, our review found that implementation was uneven. We did not always hold members to the same standard for similar actions. Our analysis too often lacked clarity.
This is going to change. We have now adopted a framework for enhanced engagement on governance and corruption that aims for a more systematic, evenhanded, effective, and candid engagement with member countries.
As a first step, we are developing a clear and transparent methodology for assessing the nature and severity of governance weaknesses. We will be looking at a broad array of indicators—the quality of the budgetary institutions that handle taxing and spending; the soundness of financial sector oversight; the integrity of central banks; the transparency and impartiality of market regulation; the predictability of those aspects of the rule of law that are vital for economic health, especially contract enforcement; and the adequacy of frameworks to fight money laundering and terrorism financing. We will also assess the severity of corruption directly, of course.
The next step will be to assess the economic impact of these identified governance and corruption fault lines and provide country-specific policy recommendations in response. Importantly, we will consider this over a longer time horizon, given that poor governance and corruption harm the economy not just through short-term disruption, but also through slow institutional decay. For our lending programs, we will be looking at whether problems hinder the ability of countries to implement their economic reforms.
Supply side of corruption
There is one additional element. It is a basic truism that—to adapt a phrase from Milton Friedman—corruption is always and everywhere a two-handed phenomenon. The flip side of every bribe taken is a bribe given. And funds received through corruption are often funds concealed outside the country—often in the financial sectors of major capitals. It is quite possible for countries to have “clean hands” at home but “dirty hands” abroad.
To truly fight corruption, therefore, we need to address the facilitation of corrupt practices by private actors. To do this, we will be encouraging our member countries to volunteer to have their legal and institutional frameworks assessed by the Fund—to see whether they criminalize and prosecute foreign bribery and have mechanisms to stop the laundering and concealment of dirty money. I am gratified that nine countries—the entire G7 plus Austria and the Czech Republic—have already volunteered for this assessment. This is a major vote of confidence in the new framework.
Now that we have the full support of our members, we must turn to implementation. In our surveillance and in our lending programs, expect to see more assessment and discussion of governance and corruption. We will also be stepping up our capacity development in these areas, to help countries strengthen their regulatory frameworks and institutions.
Our goal here is to be candid, rigorous, transparent, and evenhanded. In turn, that gives us more credibility and allows us to do our job even better.
To hark back to Brandeis, I am confident that this stepped-up engagement will do for governance and corruption what investment in solar technology does for the environment—harness the immense power of sunlight to put the global economy on a healthier and more sustainable path. If it works as planned, there should be progressively fewer dark corners left for corruption to hide. I look forward to working closely with our member countries to make this a reality.
The National of the UAE reported that Lebanon’s debt-to-GDP ratio could balloon to 180% by 2023 if the government does not undertake reforms to narrow its fiscal deficit, which may reach 10 per cent of GDP amid the current geopolitical tensions, the IMF said.
Lebanon needs to start implementing reforms that address its funding needs and tackle its debt, currently at 150 per cent of GDP, which is exacerbated by political uncertainty, internal disagreements and the burden of hosting about 1 million Syrian refugees, which represent about a quarter of the population. Prime Minister Saad Al Hariri’s sudden resignation in November, which he rescinded later, plunged the country into political uncertainty.
Out of the 26 points of the IMF’s Key messages, only 7 of them are reproduced below for their relevance, pertinence as well as their potential applicability to all countries of the MENA with however some country specific customisation.
First, fiscal policy needs to be immediately anchored in a consolidation plan that stabilizes debt as a share of GDP and then places it on a clear downward path. Any scaling up of public investment will need to be grounded in such an adjustment plan and must be preceded by strengthening the public investment management framework.
Second, financial stability risks should be contained, including by incentivizing banks to gradually strengthen their buffers and by taking further actions designed to strengthen credit quality.
Third, to promote sustainable growth and improve equity and competitiveness, the electricity sector needs to be reformed and the anti-corruption regulatory framework should be enhanced and made effective.
The underlying economic situation has not changed and remains challenging, with high public debt, current account deficit, and funding needs. Public debt is estimated above 150 percent of GDP at end-2017, and is expected to rise rapidly with a budget deficit above 10 percent over the forecast horizon. The current account deficit is expected to remain above 20 percent. The funding environment has been affected by the political crisis of November 2017. Without a significant reduction in the economy’s funding needs or an increase in deposit inflows (and given the global interest rate outlook), the Banque du Liban (BdL) will need to increase interest rates or use its sizable gross reserves to meet the funding needs of the economy. The budget of 2018 and preparation for the upcoming Paris conference could provide key platforms to initiate the much-needed economic reforms.
The Economic Backdrop
Growth remains low. We estimate growth to be at about 1–1.5 percent for 2017 and 2018. The traditional drivers of growth in Lebanon—tourism, real estate, and construction—remain slow and a strong rebound is unlikely soon. According to the BdL, real estate prices declined by over 10 percent over 2017, while the purchasing managers’ index indicates that private sector confidence continues to be weighed down by political uncertainty. Inflation in 2017 reached 5 percent, likely due to a rise in the costs of imports, notably oil, and a weaker U.S. dollar.
The fiscal situation remains very difficult and poses significant risks. In July 2017, the Lebanese parliament approved an across-the-board increase in the salary scale of public sector employees and pensions of retired civil servants. A range of tax and fee increases was approved during the second half of the year. While the net fiscal impact is expected to be broadly neutral in 2018, higher personnel and interest costs will be main contributors to further deteriorating fiscal position over the projection horizon. The overall budget deficit in 2017 is expected at 7.3 percent of GDP, with a primary balance of 2.4 percent—in part due to one-off revenues from taxing higher bank profits due to BdL financial operations. In addition, subsidies to Electricité du Liban (EdL) are increasing, in part due to rising oil prices.
External imbalances are large and persistent. The nominal effective exchange rate appreciated sharply in recent years, while the real effective exchange rate (REER) also strengthened in 2017 by 2.8 percent. The current account deficit is projected to have remained above 20 percent in 2017. Goods exports as a share of GDP continue to decline, while imports remain strong, in part due to cheap credit made available by several BdL subsidy schemes and higher oil prices. The persistently large current account deficit and other imbalances are evidence of a significant REER overvaluation.
In response, the BdL continues to expand its unconventional financial operations. The BdL has introduced several new financial operations since summer 2016 that offer large incentives to domestic commercial banks to invest in BdL’s dollar-denominated term deposits. Consequently, the increase in bank exposure to the BdL has accelerated since summer 2016. While these operations have boosted the gross reserves of the BdL and the capital of banks, they have come at a cost to the BdL’s balance sheet and net FX position, and have been regressive. In addition, the BdL introduced a new operation in December 2017 to incentivize banks to secure longer maturity local-currency deposits, by increasing the interest rate on existing BdL long‑term instruments held by banks by 2–3 percentage points.
Lebanon’s outlook remains uncertain. Under our baseline scenario, growth will gradually rise close to 3 percent as external demand picks up due to a global recovery. Inflation is expected to remain around its trend of 2.5 percent. Overall fiscal balances are expected to reach well above 10 percent of GDP and public debt close to 180 percent of GDP by 2023. The current account deficit will remain large. Under the baseline assumption of no reforms or increase in interest rates, Lebanon’s reserve adequacy position is projected to deteriorate over the medium term. But the projection is subject to both upside and downside risks. On the upside, Lebanon’s outlook is linked closely to developments in Syria. In the event of an early resolution, Lebanon would be well placed to benefit from the reconstruction effort, as well as from the reestablishment of trade and an improvement in regional investor confidence. This would have significant and positive implications for local incomes and growth, though not enough to restore debt sustainability without adjustment. On the downside, tensions in the region could lead to escalation of conflicts or trigger security incidents, higher oil prices could increase Lebanon’s funding needs, or deposit inflows could decelerate putting pressure on foreign exchange reserves.
Lebanon needs urgent action to preserve confidence in the system and take advantage of international support. Over the past several years, Lebanon has maintained a policy mix of loose fiscal policy, and high real rates on bank deposits combined with cheap private sector credit through various quasi-fiscal subsidy schemes. However, given rising vulnerabilities, the need to establish a policy framework that places the economy and public debt on a more sustainable path has only increased. The increased engagement by some donor countries also offers an opportunity to secure their support for a reform and investment plan. The reform agenda needs to focus on three areas.
This is a summary note relating to the last report of the Bank of Algeria on the economic and financial situation of the country at the end of 2017. It is a photograph of Algeria’s economic and financial situation as it stands today.
1.- According to the Governor of the Bank of Algeria in his business note dated February 12th, 2018, on economic and financial indicators, the growth rate was only 2.2% in 2017 (compared to 3.3% in 2016). This rate in our view barely covers the demographic growth rate. The Algerian population exceeded according to the Office of National Statistics to 41 million inhabitants in January 2017, the labour force being estimated at about 11 million and demand for employment in addition to the current overestimated unemployment stock including non-productive or very low productivity varies between 300,000 and 350,000 per year.
Employment is based on the rate of growth and the structures of productivity rates, with a significant change in the profile of the growth rate structure, that according to the IMF, could be extrapolated to an unemployment rate of 13.2% in 2018. Because employment is not created by decree or with overstaffing in the administration: public or private companies are not competitive in terms of cost/quality within the framework of international values.
2.- Out of a total of exports, the Bank of Algeria’s report notes an amount of US$32.9 billion in 2017 compared to $29.3 billion in 2016; non-hydrocarbon exports were only $1.3 billion (70% of hydrocarbon derivatives) against $1.4 billion in 2016. Exports of hydrocarbons declined in volume after an increase of 10.8% in 2016 while their value increased to $31.6 billion as at end of 2017 compared to $27.9 billion in 2016.
As for imports, legal transfers of capital and currency outflows of services not included, despite all restrictions they were $48.7 billion in 2017 compared to $49.7 billion in 2016, a decrease of $1 billion only compared to 2016. The prognosis is for an import of goods that could be $30 billion in 2018.
Could it be realistic when we know kthat the economic area is represented by 83% of small trade-services, and the industrial sector accounts for 6.3% of GDP; 97% of these enterprises are small SMEs and that most of public and private enterprises operate at more than 70/75% with imported raw materials?
3.- As a result, the trade balance deficit was $15 billion, and the overall balance of payments deficit closed at $23.3 billion in 2017 compared to $26.3 billion in 2016. This gives a hard currency outflow representing all services whose amount fluctuated in 2010 and 2016, between 9 to $11 billion, plus all legal capital transfer of foreign firms of $8.3 billion. On the budgetary level according to the central Bank, the actual budgetary revenues at the end of September 2017, were 4.74 trillion Dinars (DZD) versus DZD3606 billion in September 2016 and the budgetary expenditure remained quasi-stable at DZD5.535 trillion of dinars; or a deficit of DZD795 billion. It should be noted that for the IMF in its 2017 report, the public debt is estimated at 12% of GDP and the external debt would not exceed 3% of GDP.
4.- Foreign exchange reserves closed at $97.3 billion as at end of 2017 compared to $56 billion in 2005, $77.78 billion in 2006, $110 billion in 2007 to $138.35 in 2008, and $147.2 billion in 2009, to $157 billion in 2010, $188.8 billion million in 2011, $190, 66 in 2012, $194 billion in 2013, $179.9 billion in 2014, $144.1 billion in 2015, from $114.4 billion by end 2016, to $97.3 billion at end 2017. The Foreign Exchange Reserves amount by end of 2017 should have been lower since many foreign company invoices were not honoured, and this would affect year 2018.
Unconventional financing would also increase this dynamic with all new project financings accelerating the outflow of hard currencies by those companies strongly dependent for their operation on outside Algeria input. The country has a respite of three years to avoid a return to the IMF and thus to put in place a competitive productive economy and assume a real strategy off-hydrocarbon rente. These keep the Dinar rating at more than 70%. If the foreign exchange reserves tended towards $20 billion, the Bank of Algeria would be forced to rate the Dinar at about DZD200 an Euro, not to mention the on-going discrepancy with the informal sphere where the Dinar stood as at February 13th, 2018 between DZD206/208 an Euro.
5.- As for the official inflation rate, between 2016/2017, it approached the 6% with all subsidized goods whose amount increased under the Finance Act of 2018 by about 8% compared to 2017. This rate is biased for not considering that nowadays, the basket which must preside over the calculation of the index must be historically dated. In addition, there are approximately $17 billion for unconventional financing only for 2018: In cases where this amount or a significant fraction would go to unproductive or low-value-added expenditure, it will be expected to cause an inflationary surge, which will necessarily require an increase in the interest rates of primary banks, if they want to avoid bankruptcy, which will slow down productive investment and speed up speculative action.
6.- So, to avoid an uncontrolled inflationary process, arises the problem of subsidies. In the face of the previously reviewed budgetary tensions, the success of any targeted subsidy operation would involve three actions.
First, this operation is technically impossible without a reliable real-time information system, highlighting the distribution of national income by social strata and regional distribution and / or how to tell the rich from the poor.
Secondly, this operation is also impossible without quantifying the informal sphere which allows for the consolidation of income, existing different data or that one refers to the gross domestic product (between 40/50% according to the ONS), compared to employment (more than 33% of the labour force according to the Ministry of Labor) or the money supply. Per the governor of the Bank of Algeria dated February 12, 2018, who holds, I quote: “The money trust circulating in the economy until December 31, 2017 was DZD4.78 trillion and on these DZD4.78 trillion, about DZD2000 billion are hoarded amongst the private and / or economic operators, that is exactly 41.84%.
Therefore, to avoid confusion in the analysis of the money supply at the level of the informal sphere, the normal share held by personal-use households must be differentiated from the amount stored for speculative purposes.
Thirdly, there is need to define precisely an institution that would be responsible for all traceability and to establish a balance which must be positive, otherwise this operation would have no meaning, both in Dinars and in foreign currencies. In 2012, in an operational report which I forwarded to the Government following a dossier made under my leadership, which I personally presented to members of the National Assembly’s Economic Commission on Fuels in 2008, I had advocated a National Chamber for Compensation authority to be responsible for establishing all intra-socio-professional and inter- regional transfers. (1)
7.- In summary, faced with the current situation characterized by social tensions, economists and politicians, before developing a socio-economic policy must recognize their limits therefore needing to know the historical movements, the anthropological, political, economic and social forces, often influenced by external actors; thus, to know the functioning of the society always on the move.
Hence the strategic importance of the dialogue where the natural place would be the Economic and Social Council as enshrined by the new Constitution which should bring together the best competencies and all the components of the representative society, where a realistic policy of targeted subsidies would be discussed and developed. The 2018/2025/2030 strategic objective will be to overcome the current status-quo.
(1)-Audit under the direction of Professor Abderrahmane Mebtoul “For a new fuel policy in a competitive system” (Ministry of Energy 2007/2008) assisted by executives Leaders of SONATRACH, national experts and Ernst & Young (8 volumes 780 pages) where a volume was devoted to subsidies, and a new pricing policy, another volume on the development of new fuels from the Gas whose GPLc and the Bupro.
An IMF blog published on December 13, 2017 about Mauritania boosting its economy with help from the IMF. Mauritania is a country bordering the MENA western side of North Africa. It has just landed some cash from the IMF. It has an economy that is dominated by the mining and fishing industries. It has seriously not been question of diversification of its economy even if as it is well known that it is a net importer of 70% of its domestic food requirements. Like for any other mono exporting country of the region, it does need some financial back up from time to time. The IMF obligingly reached out with some cash but are there any conditions attached?
Mauritania has obtained a three-year loan from the IMF to support the government program aimed at strengthening its recovery. The North African country is a traditional fish and metal exporter of iron ore, gold, and copper. Mauritania had to adjust in the wake of a 2014–15 plunge in metal prices, but the necessary budget cuts, currency depreciation, and borrowing resulted in low growth, higher external debt, and higher risks to financial stability.
The government program supported by the Extended Credit Facility (ECF), worth $163.9 million, follows the recommendations of the recently completed economic health check to strengthen the economy’s stability while also supporting the recovery. Here are the main issues the government will strive to achieve in collaboration with the IMF and other donors.
·Improve living standards through more diversified and inclusive growth. With low and volatile metal prices, the country needs to develop industries beyond traditional mining, agriculture, and fishing. It should also move beyond the export of raw materials towards the selling of processed goods. As part of its program for inclusive and diversified growth, the government also intends to further develop the private sector and improve the business environment to foster private sector-led job creation. The government also plans to keep supporting the most vulnerable. In partnership with the World Bank, it is piloting a cash transfer program which is about to be extended to the whole country. Such an expansion of social policies is instrumental to reduce endemic poverty and the measure should be accompanied by better education and health care.
·Collect more taxes: although public revenues are relatively high as compared to peers, tax collection and tax administration needs improvement to cover a larger share of corporations.
·Reduce public debt, which rose to 72 percent of GDP due to sizable borrowing, and concentrate on concessional borrowing (zero interest rate).
·At the same time, devote resources for infrastructure investment such as the extension of the electricity grid or water projects. These projects help extend growth to larger groups of the population.
·Keep the financial system stable by strengthening bank supervision and lowering banks’ high stock of nonperforming loans, which can threaten the banking system if the banks are faced with a sudden need for liquidity.