Interview: Scott Roger
How can the IMF help developing economies in Asia Pacific mitigate the challenges of the pandemic?
SCOTT ROGER: Since the outbreak of Covid-19 the IMF has offered policy advice, financial assistance and other support – including virtual initiatives for government officials to improve skills and develop capacity – to all its member countries. The IMF has provided emergency support to seven countries across the Asia-Pacific region, with others expressing interest in our emergency financing instruments. Given the large and looming uncertainties at the moment, countries with sound fundamentals may also consider using the IMF’s precautionary credit lines, such as the flexible credit line and the short-term liquidity line, to insure against an abrupt tightening in external liquidity over the coming months. Indeed, credit ratings agencies S&P Global and Fitch Ratings have both published notes stating that facilities like the IMF’s precautionary credit lines could support ratings by cushioning economies.
Which policy tools could PNG use to effectively respond to the economic impact of Covid-19?
ROGER: As a general rule we believe that export- and commodity-dependent countries like PNG should use a combination of fiscal and monetary policy measures to mitigate the impact of large adverse commodity price shocks. If the country has the fiscal space – either in terms of buffers or borrowing capacity – to support spending, they should use it. Monetary policies can also help by easing the stance of policy and by allowing the currency to adjust to help rebalance the supply and demand for foreign exchange. These actions help to stimulate both domestic and foreign demand.
In what ways could the recently approved Staff-Monitored Programme (SMP) help PNG to overcome short-term macro imbalances?
ROGER: The SMP provides a medium-term anchor for macroeconomic policies. In the short term PNG’s authorities face the challenge of filling substantial fiscal and balance of payments financing gaps. PNG’s commitment to implementing the SMP will help strengthen the confidence of domestic and foreign lenders, making it easier to fill financing gaps. The reforms to improve spending control, enhance revenue collection, boost liquidity and strengthen exchange rate policies will also help the country to emerge from the crisis faster and stronger than if these reforms had not been initiated.
What are key priorities of the SMP, and where are the greatest challenges to building trust when entering programme engagements?
ROGER: The immediate priorities under the SMP are to ensure that expenditure is under control and that revenue reforms continue. These matter both in the short term and over the longer term to ensure debt sustainability. Monetary and exchange rate policy reforms also need to proceed to promote a post-Covid-19 recovery – especially for the non-resource sector. Building trust requires transparency to clearly demonstrate when progress is being made, as well as to show where stronger efforts are needed. This helps to establish a track record of performance.
To what extent would currency devaluation enhance the country’s competitiveness and strengthen foreign currency reserves?
ROGER: Within the current exchange rate framework an over-valued kina reduces the competitiveness of exports, particularly in the non-resource sector. Import restrictions, meanwhile, compress imports and/or require the Bank of PNG (BPNG) to supply scarce foreign exchange. Research from the IMF and BPNG suggests that a gradual adjustment of the exchange rate would help to increase the supply of foreign exchange by stimulating exports. It would also dampen import demand without the need for restrictions, and thereby reduce pressure on BPNG to provide foreign exchange.
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