International Monetary Fund Press Briefing
January 12, 2017
MR. RICE: Well, good morning, everyone, and welcome to this briefing on behalf of the International Monetary Fund. I'm Gerry Rice of the Communications Department.
And as usual this morning our briefing will embargoed until 10:30 a.m., that’s Washington time.
I want to depart a little bit from normal practice today. We are launching this morning a report that we have on the low-income developing countries - that’s a very important group of countries of course as we head into 2017.
So, given we are launching that report, I'm going to ask my colleague, Mr. Sean Nolan of our Strategy, Policy and Review Department, to say a few words about that report; take a question or two if you have them; and then I'll come back, and we'll carry on with the briefing as usual - questions in the room and questions online. Okay. So, I'm going to invite, again, Sean Nolan to come and just give us a little bit of context on this report that we are launching today on the low-income developing countries. Sean, thank you.
MR. NOLAN: Good morning, everybody. As Gerry indicated, the IMF produces a paper every year on development, macroeconomic developments in low-income countries. It looks at the 60 poorest countries in the world, which account for 1.5 billion-- about a fifth of the world's population. It's part of our work in support of the 2030 Development Agenda and the Sustainable Development Goals. We are just issuing today our end 2016 report.
I want to touch on three messages. There's a lot in the report, but I want to touch on three points in it, actually. One is on the macro story, the macroeconomic picture. The second is on financial sectors, which are often overlooked in developing countries. And thirdly, the particular challenges of improving public infrastructure.
Firstly, the macro picture. Until a couple of years ago, the basic growth story in low-income countries is a good story. Growth was basically averaging around 6 percent a year, wasn’t much affected during the global financial crisis; income per capita was growing across the board, except in countries hit by conflict and fragility.
Since 2014 things have taken a different track driven by the evolution of world commodity prices. In a nutshell, countries that are heavily dependent on commodity exports, particularly oil exporters, have been hit very badly, you know. Under severe stress, revenues, budget revenues down, exports down, investment under pressure, outputs stagnating.
Countries not exporting oil, not so bad but still hit, growth falling from maybe6, 5, down to 3, 4 percent. And, again, weaker budgets -- weaker exchanges rates and budgetary challenges ahead.
There's another story, though, which is the economies of countries that don’t depend heavily on commodity exports, countries like Bangladesh, like Kenya, like Vietnam. And these economies continue to grow at over 6 percent per annum. So in a sense, within the low-income world, there's a division between those who were heavily dependent on commodities - were having a really tough time - and those who were not, who were dependent on government, for Bangladesh, or whatever, and who were doing very well, continue to do well. So, it's a mixed story, both good news and bad news.
If you look ahead, the general consensus is that commodity prices are not going to recover any time soon, so countries who are commodity exporters are stuck with an unpleasant adjustment challenge. The need to probably boost revenues, expand tax bases, cut non-priority spending - it's not a pleasant message to hear; it's not a pleasant message to deliver, but it's sort of inevitable arithmetic from the big fall in commodity prices.
So, that’s the macroeconomic story. On financial sectors, financial sectors in lower-income countries are typically very simply, typically dominated by banks, and there's nothing exotic going on. So these banking systems were really largely unaffected during the global financial crisis, insulated from the action in advanced countries. But in countries that are now under stress, the banking systems are under stress.
Why? A lot of lending is concentrated in the export sectors, who are getting squeezed. Financially-struck governments are not paying their suppliers who, in turn, are not servicing their debts to the banks. Debtors who've -- on hedged foreign currency positions are being hit by falling exchange rates.
So, we are seeing, maybe, a fifth of countries having financial sectors that are beginning to experience stress, and looking 12, 18 months out, we see the number of countries under financial stress increasing, meaning that the banks will be under some pressure, profits will be falling, nonperforming loans will be rising.
What to do about it? The Fund has a large technical assistance program to help low-income countries develop sort of supervision and regulatory capacity. Our experience has shown that among the key issues are: providing banks who provide us with adequate powers and independence, political independence with a political system, for example. Building institutional capacity, inevitably, and strengthening active enforcement, particularly with state banks.
This not an easy agenda; it's a work in progress, but it's one where we put a lot of resources into technical assistance, and we'll continue to do so.
The last issue I want to touch on is infrastructure investment. Infrastructure investment is generally seen as a key barrier to development in low-income countries. If you’ve been in one, you get the point. Tackling these infrastructure deficiencies is not easy. Simply put, the price tags are really big, and state implementation capacity is often weak. In some cases, you have a private sector route, Telecom NOW (phonetic), today, is the classic example of how you can have public infrastructure services delivered entirely by the private sector.
There's a joke going that in Africa you can -- anywhere in Africa, you can get three things; a cell phone signal, a Coke, and you can watch the English Premier League. And the cell phone point is actually entirely driven by the private sector. But in most other activities - urban roads, water, energy - the whole issue of private sector participation is more complicated. In energy, it's more complicated because you’ve got to put in big bucks into long-live projects that are subject to pretty high risk if you don’t think you're going to get your money back.
The paper looks at what's been happening, which is that public investment has been rising slowly but steadily, except it's now taking a hit, and that commodity exports are under pressure, not surprisingly. Public-private partnerships are expanding, but there remains significant risks for both parties in these transactions, both for the investor who wants to ensure that the government is going to deliver over 25 years, and for the government, which takes on a lot of hidden risks that they are not necessarily fully aware of.
What's going to kick-start private sector flow is into infrastructure? Two things, I think. One is support from the multilateral and bilateral development banks, co-investing with the private sector, delivering -- using risk mitigation instruments, supporting project preparation. The second part is the countries themselves need to deliver on sort of reasonably transparent regulatory systems, pricing policies that allow full-cost recovery, enhanced rule of law.
And lastly, since the public sector is going to be providing a lot of the infrastructure anyway, does mean public sector investment managerial capacity remain key. It's a big work agenda. It involves a lot of players. We focus on our work on areas where our specialists, expertise, which is public investment management capacity, tradeoffs between investment and debt sustainability, looking PPP project risks.
Let me stop there and take any questions you may have. And if you don't, I have couple of other points to make. One question that is being asked quite a bit is: Are we going to see another debt crisis? A repeat of the kind of debt/HIPC (phonetic), the sort of lend and forgive cycle?
I think the first statement here, is there's not a broad-based drift toward debt (phonetic) distress the low-income world, but there are a number of high-profile examples where things have gone wrong. Examples are: Mozambique is a good example, where there's a lot of undisclosed loans that suddenly materialize out of nowhere. They’ve been undertaken by state enterprises.
Countries like Yemen, destroyed by civil war; Zambia, where you have sustained large deficits that have been complicated by political business cycle. So there's a number of maybe eight, ten countries where there are specific problems emerging, and debt levels are rising, but there isn't a big, across the board, debt crisis just over the horizon.
And a last question I'm going to answer, even though you haven't asked it: Is the IMF is seeing a lot of big increase in the number of countries seeking assistance from us? And the answer is, not really. Or maybe the answer is, not yet. The countries we have been providing a lot of support, are in countries like Kenya, Ghana, Malawi. These are not countries suddenly entering into stress. In fact, Kenya has a big precautionary arrangement with us to help them access the bond markets.
We've launched in Haiti, Madagascar, countries like this. But looking at 2017, and we expect a number of the countries that have been hardest hit by the falling prices to come to the Fund for more hands-on advice, for more engagement on our part, probably more programs. So, thank you.
MR. RICE: Sean, thank you. Question, from the Greek Daily Kathimerini.
QUESTIONER: I was wondering whether you're seeing in the rising protectionist within the developed countries, or at least the rhetoric for more protectionists, more affecting developing countries in particular, and if there is as specific extra kind of danger risk for them regarding rising protectionist pressures?
MR. NOLAN: I think it's hard to make a call on how the rising protectionist pressures will actually play out, but I think it's fair to say for all of the poorer countries, they're not really competing with the sort of workers, the less skilled workers in the advanced countries directly. And so they're not likely to be the targets of protectionist measures. You don't say, ah, we're losing lots of jobs to people in Kenya or to workers in -- we are -- some countries like Viet Nam are becoming very competitive, but as a general rule they're not the countries that are directly competing with workers in the advanced economies. So we don't see that as a big risk.
Thank you very much.
MR. RICE: Thank you very much. As Sean mentioned, this report covers about 60 countries, so we thought it was important, again, as we head into the New Year to make sure that these low income developing countries, you know, the focus is maintained on them. So thanks again, Sean.
Let me turn to normal business if I can, and I'll make a few announcements, and then I'll take some questions in the room. And I see we have quite a few questions coming up on line, which is great; lots of people looking at this on line.
Okay. In terms of main events and travel for the IMF, next week the Managing Director Christine Lagarde and our First Deputy Managing Director David Lipton will be in Davos at the World Economic Forum. Christine Lagarde will be doing a number of public events as well as many bilateral meetings with members there. The public events are focused on the whole issue of middle class anxiety, the benefits and, you know, the lack of access in some cases to the benefits of globalization. She'll be speaking on the role of women in the economy and of course the overall global economic outlook. And David Lipton will also be undertaking a number of public events, including one session on Africa. So again back to that low income issue.
Following Davos Christine Lagarde will indeed be going to Africa, The Central African Republic, Uganda, Mauritius, several countries, to meet with authorities and participate in a number of public events, which will be made available to you. You will have access to those, and we will be giving you some detail on that.
Let me also mention then another very important event. I know many of you are looking to this, and that's next Monday. It's going to be the release of our update on the global economy, the World Economic Outlook Update. And that will be Maury Obstfeld, our Economic Counselor, will be presenting this on Monday. And again, I know a lot of interest in that, and of course this comes just before the meeting in Davos of a number of global economic leaders. So a good deal of interest in that. Monday, January 16.
The following day out mission chief for Saudi Arabia will hold a press conference at our headquarters here on key economic developments in Saudi Arabia. That will be Tim Callen who will be hosting that press conference for you.
And then let me finally just mention that on Monday, January the 23rd, so that's a week after the WEO Update, the Director of our Western Hemisphere Department, Alejandro Werner, will present the Fund's Regional Economic Outlook Update on Latin America and the Caribbean. That's on Monday, January the 23rd, and we'll have a press conference for you here around that.
Okay. With that let me take some questions in the room. And I'll take the building line of questions here. Yes, good morning.
QUESTIONER: Good morning. Can you please give us an update for the latest on the Greek talks for the condition of the Second Review? Why it hasn't been completed so far and when the mission back?
MR. RICE: Yes. Maybe just a bit of an update then, as you requested. We're fully engaged, of course, with Greek and European institutions. And following the winter break that we've just had, we expect the discussions to resume, however, I do not have dates for the next mission as yet. I had mentioned here before just in terms of a broader update that we expect to publish the Article IV on Greece, and that will include a debt sustainability analysis and an ex post evaluation report on the previous Greek program. And we do indeed expect publication in the next several weeks. I don't have the precise date, but that's going to be soon. So we remain fully engaged in the discussed, but I don't have a specific date for you.
QUESTIONER: Okay. So the Greek government seems to propose the extension of the contingency mechanism beyond 2018. Is this something that you would agree with?
MR. RICE: I don't have a comment on that,. Just to say I'm sure it will be something that will be discussed as we, you know, as we come back now after the winter break and engage.
Yes?
QUESTIONER: Thank you, Gerry. If I may follow up on that. Can you tell us what is holding the discussion back? Because we knew that this was supposed to discussed sometime in December. Now it's January already, and we still don't have a date. Are you still in negotiations, or are you now in consultations, should I say, with the Greek government regarding what will be included in that report to be presented at the Board? And if you could please tell us, is the DSA analysis being updated with the latest shorter measures agreed by the Europeans to be granted to Greece, you know, for the debt-easing measures?
Thank you.
MR. RICE: I think, you know, the DSA will be comprehensive. So I think it will, you know, take into account all the relevant factors. On the report, as I mentioned, it's really a package of reports, so it's the Article IV, it's the DSA as part of that, and there's also this ex post evaluation we will be publishing as well. So it's actually quite a large package of material. So that's just in the process of being finalized, including consultations with the Greek government. So it's just part of the process and, you know, it's not unusual for there to be delays around these things, so we think it will be, you know, happening soon.
QUESTIONER: And if I may follow up on one of her questions, which is about the contingency measures. There was a report that two of the things that you will be asking for, and you have very publicly been asking for, which is further tax reform and pension reform in order for you to participate in the Greek program, will be taken by the Greek government but as a contingency measure. Is this something that you could live with, you know, within the Greek -- and under the Greek program, under sets a condition?
MR. RICE: You know, I think the best thing for you, and for everybody for that matter, is really just to go back to the statement, to the blog that Poul Thomsen and Maury Obstfeld published just before the break, which I think clearly sets out the IMF position. I think it's pretty clear. But just on your question, and again the blog speaks to this, what we have said is that we think a primary surplus of around 1.5 percent of GDP would be realistic, would be the preferable approach. And we have further said that under that scenario we do not see the need for further measures at this point. We do not, and we're not asking for further austerity or for further measures under that scenario. If, however, you know, there's a different approach and it's taken to have a larger current account surplus of -- you know, around 3.5 is what has been discussed, then in that case further measures would be needed to achieve that. But under the 1.5 percent scenario, which is the IMF's suggested approach, no further measures are being requested.
QUESTIONER: To conclude my questions, just one more. The Second Review is taking more time than originally considered that it was needed, and I'm wondering when do you see the financing needs of Greece reaching the point where we might end up with another Greek crisis? When do you think the Second Review needs to be completed so that we avoid a 2015, summer 2015 incident?
MR. RICE: I don't have a deadline date in mind for, you know, when that might be the case. But what I could say is that, you know, right now and into the medium-term future, Greece is not facing an urgent financing need. So I don't think that's a driving issue right now.
Are we on Greece? I'll take one last one on Greece, okay, and then we'll move on from Greece. Thank you.
QUESTIONER: I was wondering given all the delays and the disagreements between all parties on a range of issues, do you still believe that it's possible for you to participate financially in the Greek program?
MR. RICE: Yes, still possible. We're actively engaged. The Greek government has requested our participation in the program, so we're trying to move as fast as we can and working with our partners in Greece and in Europe. So, yes, it's still a possibility.
Moving on. Good morning and welcome.
QUESTIONER: What are the chances of the IMF changing their recommendations because of the beginning of the Trump administration? I mean, if that administration becomes more protectionist, should the IMF respond to that? How is the relationship going to be between the institution and the new administration here in America?
MR. RICE: Thanks. You know, we've discussed that quite a bit here before. I think it's -- just broadly, it's just too early to make any kind of speculation or scenario planning because we don't know yet the specific details of what the policies might be of the incoming U.S. administration or how they will be implemented. So I think in terms of a response, it’s probably not -- it isn’t helpful to, you know, speculate around those things, so I think we have to just wait and see what the policies will be and the policy announcements are, and then we’ll be able to respond in a more, I think, meaningful way.
QUESTIONER: Can I just do a follow up?
MR. RICE: Yes.
QUESTIONER: Did any person of the Trump staff contact the IMF for any reason? Do you have any relation with the new administration?
MR. RICE: Yes, as is normally the case. You know, the Managing Director, in fact, herself, has written to the President-elect to congratulate him on the election and express the hope for a continued fruitful cooperation between the Fund and the new U.S. administration. That’s perfectly normal. That’s a normal procedure.
I’ve said here before that we look forward to working with the new U.S. administration to help them meet the challenges facing the U.S. economy and the global economy, for that matter.
You had something?
Questioner: Yes. Two questions for you. Can you give us any scene of, you know, kind of the flavor of the WEO update? I mean, kind of the Fund’s outlook for the global economy, and I mean, tied to that how would you characterize, you know, the message that the managing director will bring to Davos? Is there going to be a lot of discussion there about the global economy, and how would you characterize what her position will be?
MR. RICE: You know, I won’t preempt her scope. The WEO update, as you might expect. But, you know, if you look at -- Christine Lagarde wrote an op-ed recently and it’s been published, I think, in many parts of the world. There she sort of signaled some of the developments that we see in the global economy, and I think just broadly we’re seeing some positive signs.
So I think that the WEO update will go into much more detail around the granularity of that. But, again, I think we’re seeing some positive signs and, of course, other countries and regions facing major challenges. But, again, let me leave it to the WEO to update, which is just a few days away now, to go into the details of that.
In terms of Madame Lagarde and the Fund at Davos, again, I think that op-ed gives a bit of the flavor. The headline of that op-ed was the Fund’s focus on inclusive growth, on growth that is stronger, is more sustainable, and can be shared more broadly. If you look at, as I announced at the beginning of this meeting, if you look at some of the things that Madame Lagarde is doing in Davos they are clustered around issues of inequality and how to have a global economy that really works for everybody, works better for everybody.
I think that’s going to be a big focus of hers and the IMF’s at Davos. I mention it’s been one of her signature things is that a greater role for women in the global economy would be a significant positive. She’s going to be talking about that. She will be building off the WEO update and the detail that’s in that, including the forecasts, specific forecasts for countries. She’ll be building on that to describe how she sees the global economy shaping up in 2017.
So I think that’s the crutch of issues. I would say the main focus is going to be around inclusive growth and how we make the global economy in 2017 work better for everyone. It’s a good opportunity for that message. I think my last reading was about 50 heads of state are going to be in Davos. You know, of course, many think-tanks, civil society, business leaders, so it’s a good opportunity to go and set out those messages and have those discussions.
Questioner: Okay. Now, from Davos to Mozambique. There’s some concern that, I guess, Mozambique may default on a $60 million Euro bond payment due next week. Is that something the Fund is concerned about, and in terms of the country’s relationship with the Fund would there be any consequences to that?
MR. RICE: Yes, I don’t have a comment specifically on that. But, you know, we have been fully engaged with Mozambique. We’ve talked about it many times here. We continue to engage with them to help them overcome the number of challenges that they face. Sean, at the beginning of this meeting, had talked about the issue of the undisclosed loans. That’s something that, you know, we’ve talked about here quite a bit.
That process to address that issue and remedy that issue is well underway. So fully engaged with them and hoping to help them overcome the issues that they face.
I’ll take a few online, and then I’ll come back, if there’s anything else in the room, but there’s quite a bit online, and I want to do that.
There’s a question on Egypt. It’s a factual thing from Al-Ahram from Nevine Kamel, and she is asking when will the staff report from Egypt be published? There, I can say, the Egyptian Authorities, of course, have agreed to publish the report. We expect that to be published next week. Okay?
There is a question from MEGA TV. He is saying, question on Cyprus. Asking, according to the Cypriot spokesman, the IMF and the World Bank are participating in a series of meetings in Geneva concerning Cyprus. Can you give me a readout?
Yes, I can say that at the request of the Greek and Turkish Cypriot communities, and under the auspices of the United Nations, the Fund has been providing, since January 2016, technical assistance in support of a settlement that could lead to reunification. So our focus is on that technical assistance, on the fiscal side, the macroeconomic side, statistics, and overall financial health.
As I said, the key aspect of our work is trying to build effective institutions and certain policies will be critical to realize the full economic potential of a united Cyprus, and which would benefit both communities. This will require some streamlining of institutions and aligning procedures and policies with go practice while also avoiding wasteful duplication. I can tell you that our resident representative is present at the Geneva talks, at the request of the principals, to offer this technical advice on these topics, upon request.
There’s a question from Jeune Afrique, and he is asking there have been reports that a possible devaluation of the French CFA was discussed - African French Franc - was discussed at the recent Central African Countries summit.That’s the CMAT summit that was held just before Christmas, and he was asking what was the position of the managing director on this issue, and what are the conditions under which the IMF would support a floating foreign exchange rate. I’m actually very pleased that he has asked this question, because it gives me an opportunity to clarify something that has actually has been reported by Jeune Afrique in fact, and Jeune Afrique was actually wrong in its most recent edition, and its reporting on the IMF’s position on the summit that was held in in late December, which Madame Lagarde indeed attended at the invitation of President Biya of Cameroon. The IMF’s message was that the common currency arrangement has served the region well, and that preserving the peg at its current level requires prompt joint and decisive action. So there had been a report that in Jeune Afrique that somehow the IMF had been pushing for a devaluation, and that is not accurate. So again, I’m glad to have the opportunity to clarify that.
A bit of the background here is that the sharp decline in oil prices, which we’re all familiar with, and the security challenges facing the CMAT countries have placed those countries under tremendous strain. While measures have been taken in response, they have proved insufficient, and it was to reinvigorate the regions reform effort that the CMAT summit was organized in December. They at summit affirmed their determination to jointly address the economic problems the region is facing. Economic reforms in all cases involve difficult choices and tradeoffs, but again, everyone agreed that preserving the stability of the common currency, the French CFA, would provide an anchor for these efforts. So the CMAT members are now in the process of charting the details of policies needed to reduce macroeconomic imbalances and replenish reserves, and the IMF stands ready to support their endeavor. I think it was worth just clarifying that.
There is a question on Ukraine. Let me take this, and then I’ll come back in the room because it is asking for a date for the Board meeting on Ukraine. I don’t, but we expect it to be soon and in the coming weeks, and then I’ll say why. We see good progress having been made on the policies needed to complete the third review under the IMF arrangement, which is an extended Fund facility of around $17.5 billion. We think adoption of the 2017 budget in Ukraine is consistent with program targets, the filing of asset declarations by high level officials and decisive actions to safeguard financial stability have been important recent milestones. So IMF staff have been in close contact with our partners in Ukraine.
On remaining policy initiatives needed for the completion of the third review including those remaining measures, including to lock in the gains made in the energy sector reforms and to finalize the memorandum of understanding on policies regarding the timing of upcoming measures. So assuming all remaining issues are resolved soon, again, we expect to propose the completion of the review to our executive board in the coming weeks. Last question.
Questioner: Maybe one question for the next report. Last December we are told that WEO is going to be focusing labor force and in the advances of technology. Is that what we are expecting for the next report?
MR. RICE: Yeah I think if you can plug into the WEO press conference on Monday you can ask Maury Obstfeld directly what he has in mind for the next WEO. I think you’re talking about which would be in April. What we’re publishing on Monday is the WEO update, so it is a shorter version. It doesn’t have the analytical chapters, which I think is what you are interested in. I’m glad you’re interested, and they’re really good chapters. But Maury could be able to give you, I think, a sense of what those topics are going to be for the April WEO, and he’ll answer anything else you have on the outlook for 2017 on Monday. So I encourage you all to plug into that.
With that, let me thank you for coming. Let me wish you a very good 2017. It is the first time I’m seeing you this year, and I look forward to working with you in the year ahead. Thanks.
IMF Communications Department
January 12, 2017
MR. RICE: Well, good morning, everyone, and welcome to this briefing on behalf of the International Monetary Fund. I'm Gerry Rice of the Communications Department.
And as usual this morning our briefing will embargoed until 10:30 a.m., that’s Washington time.
I want to depart a little bit from normal practice today. We are launching this morning a report that we have on the low-income developing countries - that’s a very important group of countries of course as we head into 2017.
So, given we are launching that report, I'm going to ask my colleague, Mr. Sean Nolan of our Strategy, Policy and Review Department, to say a few words about that report; take a question or two if you have them; and then I'll come back, and we'll carry on with the briefing as usual - questions in the room and questions online. Okay. So, I'm going to invite, again, Sean Nolan to come and just give us a little bit of context on this report that we are launching today on the low-income developing countries. Sean, thank you.
MR. NOLAN: Good morning, everybody. As Gerry indicated, the IMF produces a paper every year on development, macroeconomic developments in low-income countries. It looks at the 60 poorest countries in the world, which account for 1.5 billion-- about a fifth of the world's population. It's part of our work in support of the 2030 Development Agenda and the Sustainable Development Goals. We are just issuing today our end 2016 report.
I want to touch on three messages. There's a lot in the report, but I want to touch on three points in it, actually. One is on the macro story, the macroeconomic picture. The second is on financial sectors, which are often overlooked in developing countries. And thirdly, the particular challenges of improving public infrastructure.
Firstly, the macro picture. Until a couple of years ago, the basic growth story in low-income countries is a good story. Growth was basically averaging around 6 percent a year, wasn’t much affected during the global financial crisis; income per capita was growing across the board, except in countries hit by conflict and fragility.
Since 2014 things have taken a different track driven by the evolution of world commodity prices. In a nutshell, countries that are heavily dependent on commodity exports, particularly oil exporters, have been hit very badly, you know. Under severe stress, revenues, budget revenues down, exports down, investment under pressure, outputs stagnating.
Countries not exporting oil, not so bad but still hit, growth falling from maybe6, 5, down to 3, 4 percent. And, again, weaker budgets -- weaker exchanges rates and budgetary challenges ahead.
There's another story, though, which is the economies of countries that don’t depend heavily on commodity exports, countries like Bangladesh, like Kenya, like Vietnam. And these economies continue to grow at over 6 percent per annum. So in a sense, within the low-income world, there's a division between those who were heavily dependent on commodities - were having a really tough time - and those who were not, who were dependent on government, for Bangladesh, or whatever, and who were doing very well, continue to do well. So, it's a mixed story, both good news and bad news.
If you look ahead, the general consensus is that commodity prices are not going to recover any time soon, so countries who are commodity exporters are stuck with an unpleasant adjustment challenge. The need to probably boost revenues, expand tax bases, cut non-priority spending - it's not a pleasant message to hear; it's not a pleasant message to deliver, but it's sort of inevitable arithmetic from the big fall in commodity prices.
So, that’s the macroeconomic story. On financial sectors, financial sectors in lower-income countries are typically very simply, typically dominated by banks, and there's nothing exotic going on. So these banking systems were really largely unaffected during the global financial crisis, insulated from the action in advanced countries. But in countries that are now under stress, the banking systems are under stress.
Why? A lot of lending is concentrated in the export sectors, who are getting squeezed. Financially-struck governments are not paying their suppliers who, in turn, are not servicing their debts to the banks. Debtors who've -- on hedged foreign currency positions are being hit by falling exchange rates.
So, we are seeing, maybe, a fifth of countries having financial sectors that are beginning to experience stress, and looking 12, 18 months out, we see the number of countries under financial stress increasing, meaning that the banks will be under some pressure, profits will be falling, nonperforming loans will be rising.
What to do about it? The Fund has a large technical assistance program to help low-income countries develop sort of supervision and regulatory capacity. Our experience has shown that among the key issues are: providing banks who provide us with adequate powers and independence, political independence with a political system, for example. Building institutional capacity, inevitably, and strengthening active enforcement, particularly with state banks.
This not an easy agenda; it's a work in progress, but it's one where we put a lot of resources into technical assistance, and we'll continue to do so.
The last issue I want to touch on is infrastructure investment. Infrastructure investment is generally seen as a key barrier to development in low-income countries. If you’ve been in one, you get the point. Tackling these infrastructure deficiencies is not easy. Simply put, the price tags are really big, and state implementation capacity is often weak. In some cases, you have a private sector route, Telecom NOW (phonetic), today, is the classic example of how you can have public infrastructure services delivered entirely by the private sector.
There's a joke going that in Africa you can -- anywhere in Africa, you can get three things; a cell phone signal, a Coke, and you can watch the English Premier League. And the cell phone point is actually entirely driven by the private sector. But in most other activities - urban roads, water, energy - the whole issue of private sector participation is more complicated. In energy, it's more complicated because you’ve got to put in big bucks into long-live projects that are subject to pretty high risk if you don’t think you're going to get your money back.
The paper looks at what's been happening, which is that public investment has been rising slowly but steadily, except it's now taking a hit, and that commodity exports are under pressure, not surprisingly. Public-private partnerships are expanding, but there remains significant risks for both parties in these transactions, both for the investor who wants to ensure that the government is going to deliver over 25 years, and for the government, which takes on a lot of hidden risks that they are not necessarily fully aware of.
What's going to kick-start private sector flow is into infrastructure? Two things, I think. One is support from the multilateral and bilateral development banks, co-investing with the private sector, delivering -- using risk mitigation instruments, supporting project preparation. The second part is the countries themselves need to deliver on sort of reasonably transparent regulatory systems, pricing policies that allow full-cost recovery, enhanced rule of law.
And lastly, since the public sector is going to be providing a lot of the infrastructure anyway, does mean public sector investment managerial capacity remain key. It's a big work agenda. It involves a lot of players. We focus on our work on areas where our specialists, expertise, which is public investment management capacity, tradeoffs between investment and debt sustainability, looking PPP project risks.
Let me stop there and take any questions you may have. And if you don't, I have couple of other points to make. One question that is being asked quite a bit is: Are we going to see another debt crisis? A repeat of the kind of debt/HIPC (phonetic), the sort of lend and forgive cycle?
I think the first statement here, is there's not a broad-based drift toward debt (phonetic) distress the low-income world, but there are a number of high-profile examples where things have gone wrong. Examples are: Mozambique is a good example, where there's a lot of undisclosed loans that suddenly materialize out of nowhere. They’ve been undertaken by state enterprises.
Countries like Yemen, destroyed by civil war; Zambia, where you have sustained large deficits that have been complicated by political business cycle. So there's a number of maybe eight, ten countries where there are specific problems emerging, and debt levels are rising, but there isn't a big, across the board, debt crisis just over the horizon.
And a last question I'm going to answer, even though you haven't asked it: Is the IMF is seeing a lot of big increase in the number of countries seeking assistance from us? And the answer is, not really. Or maybe the answer is, not yet. The countries we have been providing a lot of support, are in countries like Kenya, Ghana, Malawi. These are not countries suddenly entering into stress. In fact, Kenya has a big precautionary arrangement with us to help them access the bond markets.
We've launched in Haiti, Madagascar, countries like this. But looking at 2017, and we expect a number of the countries that have been hardest hit by the falling prices to come to the Fund for more hands-on advice, for more engagement on our part, probably more programs. So, thank you.
MR. RICE: Sean, thank you. Question, from the Greek Daily Kathimerini.
QUESTIONER: I was wondering whether you're seeing in the rising protectionist within the developed countries, or at least the rhetoric for more protectionists, more affecting developing countries in particular, and if there is as specific extra kind of danger risk for them regarding rising protectionist pressures?
MR. NOLAN: I think it's hard to make a call on how the rising protectionist pressures will actually play out, but I think it's fair to say for all of the poorer countries, they're not really competing with the sort of workers, the less skilled workers in the advanced countries directly. And so they're not likely to be the targets of protectionist measures. You don't say, ah, we're losing lots of jobs to people in Kenya or to workers in -- we are -- some countries like Viet Nam are becoming very competitive, but as a general rule they're not the countries that are directly competing with workers in the advanced economies. So we don't see that as a big risk.
Thank you very much.
MR. RICE: Thank you very much. As Sean mentioned, this report covers about 60 countries, so we thought it was important, again, as we head into the New Year to make sure that these low income developing countries, you know, the focus is maintained on them. So thanks again, Sean.
Let me turn to normal business if I can, and I'll make a few announcements, and then I'll take some questions in the room. And I see we have quite a few questions coming up on line, which is great; lots of people looking at this on line.
Okay. In terms of main events and travel for the IMF, next week the Managing Director Christine Lagarde and our First Deputy Managing Director David Lipton will be in Davos at the World Economic Forum. Christine Lagarde will be doing a number of public events as well as many bilateral meetings with members there. The public events are focused on the whole issue of middle class anxiety, the benefits and, you know, the lack of access in some cases to the benefits of globalization. She'll be speaking on the role of women in the economy and of course the overall global economic outlook. And David Lipton will also be undertaking a number of public events, including one session on Africa. So again back to that low income issue.
Following Davos Christine Lagarde will indeed be going to Africa, The Central African Republic, Uganda, Mauritius, several countries, to meet with authorities and participate in a number of public events, which will be made available to you. You will have access to those, and we will be giving you some detail on that.
Let me also mention then another very important event. I know many of you are looking to this, and that's next Monday. It's going to be the release of our update on the global economy, the World Economic Outlook Update. And that will be Maury Obstfeld, our Economic Counselor, will be presenting this on Monday. And again, I know a lot of interest in that, and of course this comes just before the meeting in Davos of a number of global economic leaders. So a good deal of interest in that. Monday, January 16.
The following day out mission chief for Saudi Arabia will hold a press conference at our headquarters here on key economic developments in Saudi Arabia. That will be Tim Callen who will be hosting that press conference for you.
And then let me finally just mention that on Monday, January the 23rd, so that's a week after the WEO Update, the Director of our Western Hemisphere Department, Alejandro Werner, will present the Fund's Regional Economic Outlook Update on Latin America and the Caribbean. That's on Monday, January the 23rd, and we'll have a press conference for you here around that.
Okay. With that let me take some questions in the room. And I'll take the building line of questions here. Yes, good morning.
QUESTIONER: Good morning. Can you please give us an update for the latest on the Greek talks for the condition of the Second Review? Why it hasn't been completed so far and when the mission back?
MR. RICE: Yes. Maybe just a bit of an update then, as you requested. We're fully engaged, of course, with Greek and European institutions. And following the winter break that we've just had, we expect the discussions to resume, however, I do not have dates for the next mission as yet. I had mentioned here before just in terms of a broader update that we expect to publish the Article IV on Greece, and that will include a debt sustainability analysis and an ex post evaluation report on the previous Greek program. And we do indeed expect publication in the next several weeks. I don't have the precise date, but that's going to be soon. So we remain fully engaged in the discussed, but I don't have a specific date for you.
QUESTIONER: Okay. So the Greek government seems to propose the extension of the contingency mechanism beyond 2018. Is this something that you would agree with?
MR. RICE: I don't have a comment on that,. Just to say I'm sure it will be something that will be discussed as we, you know, as we come back now after the winter break and engage.
Yes?
QUESTIONER: Thank you, Gerry. If I may follow up on that. Can you tell us what is holding the discussion back? Because we knew that this was supposed to discussed sometime in December. Now it's January already, and we still don't have a date. Are you still in negotiations, or are you now in consultations, should I say, with the Greek government regarding what will be included in that report to be presented at the Board? And if you could please tell us, is the DSA analysis being updated with the latest shorter measures agreed by the Europeans to be granted to Greece, you know, for the debt-easing measures?
Thank you.
MR. RICE: I think, you know, the DSA will be comprehensive. So I think it will, you know, take into account all the relevant factors. On the report, as I mentioned, it's really a package of reports, so it's the Article IV, it's the DSA as part of that, and there's also this ex post evaluation we will be publishing as well. So it's actually quite a large package of material. So that's just in the process of being finalized, including consultations with the Greek government. So it's just part of the process and, you know, it's not unusual for there to be delays around these things, so we think it will be, you know, happening soon.
QUESTIONER: And if I may follow up on one of her questions, which is about the contingency measures. There was a report that two of the things that you will be asking for, and you have very publicly been asking for, which is further tax reform and pension reform in order for you to participate in the Greek program, will be taken by the Greek government but as a contingency measure. Is this something that you could live with, you know, within the Greek -- and under the Greek program, under sets a condition?
MR. RICE: You know, I think the best thing for you, and for everybody for that matter, is really just to go back to the statement, to the blog that Poul Thomsen and Maury Obstfeld published just before the break, which I think clearly sets out the IMF position. I think it's pretty clear. But just on your question, and again the blog speaks to this, what we have said is that we think a primary surplus of around 1.5 percent of GDP would be realistic, would be the preferable approach. And we have further said that under that scenario we do not see the need for further measures at this point. We do not, and we're not asking for further austerity or for further measures under that scenario. If, however, you know, there's a different approach and it's taken to have a larger current account surplus of -- you know, around 3.5 is what has been discussed, then in that case further measures would be needed to achieve that. But under the 1.5 percent scenario, which is the IMF's suggested approach, no further measures are being requested.
QUESTIONER: To conclude my questions, just one more. The Second Review is taking more time than originally considered that it was needed, and I'm wondering when do you see the financing needs of Greece reaching the point where we might end up with another Greek crisis? When do you think the Second Review needs to be completed so that we avoid a 2015, summer 2015 incident?
MR. RICE: I don't have a deadline date in mind for, you know, when that might be the case. But what I could say is that, you know, right now and into the medium-term future, Greece is not facing an urgent financing need. So I don't think that's a driving issue right now.
Are we on Greece? I'll take one last one on Greece, okay, and then we'll move on from Greece. Thank you.
QUESTIONER: I was wondering given all the delays and the disagreements between all parties on a range of issues, do you still believe that it's possible for you to participate financially in the Greek program?
MR. RICE: Yes, still possible. We're actively engaged. The Greek government has requested our participation in the program, so we're trying to move as fast as we can and working with our partners in Greece and in Europe. So, yes, it's still a possibility.
Moving on. Good morning and welcome.
QUESTIONER: What are the chances of the IMF changing their recommendations because of the beginning of the Trump administration? I mean, if that administration becomes more protectionist, should the IMF respond to that? How is the relationship going to be between the institution and the new administration here in America?
MR. RICE: Thanks. You know, we've discussed that quite a bit here before. I think it's -- just broadly, it's just too early to make any kind of speculation or scenario planning because we don't know yet the specific details of what the policies might be of the incoming U.S. administration or how they will be implemented. So I think in terms of a response, it’s probably not -- it isn’t helpful to, you know, speculate around those things, so I think we have to just wait and see what the policies will be and the policy announcements are, and then we’ll be able to respond in a more, I think, meaningful way.
QUESTIONER: Can I just do a follow up?
MR. RICE: Yes.
QUESTIONER: Did any person of the Trump staff contact the IMF for any reason? Do you have any relation with the new administration?
MR. RICE: Yes, as is normally the case. You know, the Managing Director, in fact, herself, has written to the President-elect to congratulate him on the election and express the hope for a continued fruitful cooperation between the Fund and the new U.S. administration. That’s perfectly normal. That’s a normal procedure.
I’ve said here before that we look forward to working with the new U.S. administration to help them meet the challenges facing the U.S. economy and the global economy, for that matter.
You had something?
Questioner: Yes. Two questions for you. Can you give us any scene of, you know, kind of the flavor of the WEO update? I mean, kind of the Fund’s outlook for the global economy, and I mean, tied to that how would you characterize, you know, the message that the managing director will bring to Davos? Is there going to be a lot of discussion there about the global economy, and how would you characterize what her position will be?
MR. RICE: You know, I won’t preempt her scope. The WEO update, as you might expect. But, you know, if you look at -- Christine Lagarde wrote an op-ed recently and it’s been published, I think, in many parts of the world. There she sort of signaled some of the developments that we see in the global economy, and I think just broadly we’re seeing some positive signs.
So I think that the WEO update will go into much more detail around the granularity of that. But, again, I think we’re seeing some positive signs and, of course, other countries and regions facing major challenges. But, again, let me leave it to the WEO to update, which is just a few days away now, to go into the details of that.
In terms of Madame Lagarde and the Fund at Davos, again, I think that op-ed gives a bit of the flavor. The headline of that op-ed was the Fund’s focus on inclusive growth, on growth that is stronger, is more sustainable, and can be shared more broadly. If you look at, as I announced at the beginning of this meeting, if you look at some of the things that Madame Lagarde is doing in Davos they are clustered around issues of inequality and how to have a global economy that really works for everybody, works better for everybody.
I think that’s going to be a big focus of hers and the IMF’s at Davos. I mention it’s been one of her signature things is that a greater role for women in the global economy would be a significant positive. She’s going to be talking about that. She will be building off the WEO update and the detail that’s in that, including the forecasts, specific forecasts for countries. She’ll be building on that to describe how she sees the global economy shaping up in 2017.
So I think that’s the crutch of issues. I would say the main focus is going to be around inclusive growth and how we make the global economy in 2017 work better for everyone. It’s a good opportunity for that message. I think my last reading was about 50 heads of state are going to be in Davos. You know, of course, many think-tanks, civil society, business leaders, so it’s a good opportunity to go and set out those messages and have those discussions.
Questioner: Okay. Now, from Davos to Mozambique. There’s some concern that, I guess, Mozambique may default on a $60 million Euro bond payment due next week. Is that something the Fund is concerned about, and in terms of the country’s relationship with the Fund would there be any consequences to that?
MR. RICE: Yes, I don’t have a comment specifically on that. But, you know, we have been fully engaged with Mozambique. We’ve talked about it many times here. We continue to engage with them to help them overcome the number of challenges that they face. Sean, at the beginning of this meeting, had talked about the issue of the undisclosed loans. That’s something that, you know, we’ve talked about here quite a bit.
That process to address that issue and remedy that issue is well underway. So fully engaged with them and hoping to help them overcome the issues that they face.
I’ll take a few online, and then I’ll come back, if there’s anything else in the room, but there’s quite a bit online, and I want to do that.
There’s a question on Egypt. It’s a factual thing from Al-Ahram from Nevine Kamel, and she is asking when will the staff report from Egypt be published? There, I can say, the Egyptian Authorities, of course, have agreed to publish the report. We expect that to be published next week. Okay?
There is a question from MEGA TV. He is saying, question on Cyprus. Asking, according to the Cypriot spokesman, the IMF and the World Bank are participating in a series of meetings in Geneva concerning Cyprus. Can you give me a readout?
Yes, I can say that at the request of the Greek and Turkish Cypriot communities, and under the auspices of the United Nations, the Fund has been providing, since January 2016, technical assistance in support of a settlement that could lead to reunification. So our focus is on that technical assistance, on the fiscal side, the macroeconomic side, statistics, and overall financial health.
As I said, the key aspect of our work is trying to build effective institutions and certain policies will be critical to realize the full economic potential of a united Cyprus, and which would benefit both communities. This will require some streamlining of institutions and aligning procedures and policies with go practice while also avoiding wasteful duplication. I can tell you that our resident representative is present at the Geneva talks, at the request of the principals, to offer this technical advice on these topics, upon request.
There’s a question from Jeune Afrique, and he is asking there have been reports that a possible devaluation of the French CFA was discussed - African French Franc - was discussed at the recent Central African Countries summit.That’s the CMAT summit that was held just before Christmas, and he was asking what was the position of the managing director on this issue, and what are the conditions under which the IMF would support a floating foreign exchange rate. I’m actually very pleased that he has asked this question, because it gives me an opportunity to clarify something that has actually has been reported by Jeune Afrique in fact, and Jeune Afrique was actually wrong in its most recent edition, and its reporting on the IMF’s position on the summit that was held in in late December, which Madame Lagarde indeed attended at the invitation of President Biya of Cameroon. The IMF’s message was that the common currency arrangement has served the region well, and that preserving the peg at its current level requires prompt joint and decisive action. So there had been a report that in Jeune Afrique that somehow the IMF had been pushing for a devaluation, and that is not accurate. So again, I’m glad to have the opportunity to clarify that.
A bit of the background here is that the sharp decline in oil prices, which we’re all familiar with, and the security challenges facing the CMAT countries have placed those countries under tremendous strain. While measures have been taken in response, they have proved insufficient, and it was to reinvigorate the regions reform effort that the CMAT summit was organized in December. They at summit affirmed their determination to jointly address the economic problems the region is facing. Economic reforms in all cases involve difficult choices and tradeoffs, but again, everyone agreed that preserving the stability of the common currency, the French CFA, would provide an anchor for these efforts. So the CMAT members are now in the process of charting the details of policies needed to reduce macroeconomic imbalances and replenish reserves, and the IMF stands ready to support their endeavor. I think it was worth just clarifying that.
There is a question on Ukraine. Let me take this, and then I’ll come back in the room because it is asking for a date for the Board meeting on Ukraine. I don’t, but we expect it to be soon and in the coming weeks, and then I’ll say why. We see good progress having been made on the policies needed to complete the third review under the IMF arrangement, which is an extended Fund facility of around $17.5 billion. We think adoption of the 2017 budget in Ukraine is consistent with program targets, the filing of asset declarations by high level officials and decisive actions to safeguard financial stability have been important recent milestones. So IMF staff have been in close contact with our partners in Ukraine.
On remaining policy initiatives needed for the completion of the third review including those remaining measures, including to lock in the gains made in the energy sector reforms and to finalize the memorandum of understanding on policies regarding the timing of upcoming measures. So assuming all remaining issues are resolved soon, again, we expect to propose the completion of the review to our executive board in the coming weeks. Last question.
Questioner: Maybe one question for the next report. Last December we are told that WEO is going to be focusing labor force and in the advances of technology. Is that what we are expecting for the next report?
MR. RICE: Yeah I think if you can plug into the WEO press conference on Monday you can ask Maury Obstfeld directly what he has in mind for the next WEO. I think you’re talking about which would be in April. What we’re publishing on Monday is the WEO update, so it is a shorter version. It doesn’t have the analytical chapters, which I think is what you are interested in. I’m glad you’re interested, and they’re really good chapters. But Maury could be able to give you, I think, a sense of what those topics are going to be for the April WEO, and he’ll answer anything else you have on the outlook for 2017 on Monday. So I encourage you all to plug into that.
With that, let me thank you for coming. Let me wish you a very good 2017. It is the first time I’m seeing you this year, and I look forward to working with you in the year ahead. Thanks.
IMF Communications Department
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