IMF Board backs stronger, clearer fiscal policy advice after independent evaluation review

The International Monetary Fund’s (IMF) Executive Board has broadly endorsed recommendations to strengthen the clarity, consistency and analytical depth of the Fund’s fiscal policy advice, following an independent evaluation covering the tumultuous 2008–2023 period marked by the global financial crisis and the Covid-19 pandemic.

In a chair’s summing up issued after a board meeting held earlier this month, executive directors welcomed the Independent Evaluation Office (IEO) report, which assessed IMF fiscal advice delivered through surveillance during a period of unprecedented shocks and rising public debt levels.

Directors noted that the past decade and a half saw a decisive shift toward greater fiscal activism, with governments relying more heavily on public spending and tax policy both to stabilise economies in the short term and to address longer-term challenges such as inequality, climate change and development needs.

This evolution, they said, has increased the need for the Fund to more clearly articulate trade-offs between competing policy objectives.

Against that backdrop, the Board welcomed the IEO’s generally positive assessment of recent IMF fiscal advice, while signalling strong support for the implementation of its key recommendations.

Directors broadly endorsed Recommendation 1, which calls for IMF bilateral surveillance to more typically include clear, specific and well-communicated advice on the appropriate fiscal stance, the expected macroeconomic impact of recommended policies, the overall policy mix and potential cross-border spillovers.

They stressed the importance of ensuring consistency and even-handedness in fiscal advice across countries, while tailoring recommendations to national circumstances, particularly in emerging markets and low-income countries facing data gaps, financing constraints and elevated debt burdens.

Several Directors highlighted the value of incorporating political economy considerations and capacity constraints to improve the traction of IMF advice, including by presenting authorities with a menu of sound policy options, especially in areas such as domestic revenue mobilisation.

With public debt levels high in many member countries, a number of Directors underscored the need for greater emphasis on fiscal sustainability. Some also called for better integration of fiscal policy advice with guidance on external balances and exchange rate policies, to ensure a more coherent macroeconomic framework.

The Board also supported Recommendation 2, which urges the Fund to make greater use of existing analytical tools and to pursue further research on debt data, liquidity risks, medium-term fiscal anchors and distributional effects.

While Directors agreed that staff uptake of tools such as realism checks, calibrated fiscal multipliers and scenario analysis should increase, they cautioned that such tools should inform, not replace, professional judgement.

Improving data availability was seen as a continuing priority, supported by technical assistance, while research priorities should remain guided by cost-benefit considerations and budget constraints. Directors noted that meaningful progress has already been made in analysing liquidity risks in recent years.

Recommendation 3, which focuses on enhancing proactive and specific advice on debt and fiscal risks, debt management and institutional frameworks such as fiscal rules, also received broad support, albeit with some qualifications.

Directors stressed the importance of more closely linking debt sustainability analysis to baseline policy advice, identifying fiscal risks and promoting pre-emptive measures and contingency planning.

At the same time, they noted resource implications, including the need to deepen staff expertise on debt financing, and reiterated that decisions on institutional arrangements ultimately rest with member states.

Directors further backed Recommendation 4, which calls for clearer articulation of trade-offs between long-term spending needs and fiscal sustainability, highlighting implications for growth, debt dynamics and income distribution.

While welcoming progress already made in covering long-term spending pressures, they looked to the upcoming Comprehensive Surveillance Review to further refine guidance, guided by principles of macro-criticality and selectivity.

The Board emphasised the importance of continued collaboration with other international financial institutions in areas where the IMF has limited expertise, including detailed costing and financing of long-term development spending needs.

IMF management and staff will now prepare a Management Implementation Plan to respond to the Board-endorsed recommendations, prioritising and sequencing actions while leveraging existing workstreams such as the Comprehensive Surveillance Review, the Review of Conditionality and the low-income country debt sustainability framework review.

Directors also highlighted the critical role of technical assistance in ensuring consistent implementation across the membership.

BUSINESS REPORT