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International Monetary Fund

, with the amount of liquidity absorbed or injected driven by banks rather than monetary authorities. Central banks bills or other instruments have also been used, but issuance has not systematically been based on market principles. In addition, these operations have been constrained by limited liquidity forecasting capability and the shallow nature of interbank and domestic debt markets. With more volatile liquidity conditions over the past few years, central banks have been strengthening their liquidity management . With lower oil prices and deteriorating external

International Monetary Fund
Effective liquidity management is important to promote macro-financial stability in the GCC countries. Fixed exchange rate regimes provide credible nominal anchors in the GCC countries, but combined with open capital accounts, they also entail limited monetary policy independence. At the same time, high dependence on hydrocarbon revenue has made the region vulnerable to oil price-driven liquidity swings. And the latter can affect monetary policy implementation, including by exacerbating credit and asset price cycles. This highlights the importance of frameworks aimed at forecasting liquidity and ensuring appropriate liquidity levels through the timely absorption or injection of liquidity by central banks. Over the past decade, liquidity management in the GCC countries has been based mainly on passive instruments. Abundant liquidity during times of high oil prices have placed liquidity absorption at the center of the central bank operations. Reserve requirements have helped absorb liquidity but have not been used very actively. Standing facilities, another key instrument, are more passive in nature, with the amount of liquidity absorbed or injected driven by banks rather than monetary authorities. Central banks bills or other instruments have also been used, but issuance has not systematically been based on market principles. In addition, these operations have been constrained by limited liquidity forecasting capability and the shallow nature of interbank and domestic debt markets.
International Monetary Fund

exchange rate policies 13. The BRB will take advantage of the recent progress made in strengthening liquidity management to continue tightening of its monetary policy, to supporting inflation objectives. To this end, steps taken in enhancing liquidity forecasting capability and introducing liquidity auctions will be consolidated, to contain reserve money growth and absorb excess liquidity in the economy. To support a more active monetary policy, the authorities will also undertake reform of the treasury bills and bonds securities to make them tradable. The BRB is

International Monetary Fund. Asia and Pacific Dept

initial settings. This includes consideration of financial market development and strength of monetary operation and liquidity forecasting capability of the SBV. The current monetary policy framework already aims at controlling inflation as a primary objective, which in turn, contributes to maintaining macroeconomic stability and sustainable growth. The SBV continues to review and assess potential enhancements to its monetary policy framework and will take staff’s recommendation into consideration with a view to enhance monetary policy efficiency and will seek Fund

International Monetary Fund

) For the period ahead, the NBE, with support from the Treasury, will make use of the existing auctions of Treasury bills (held every two weeks) as the tool to control liquidity , setting sales volumes on the basis of the amounts needed to meet reserve money targets. The setting of auction volumes will require the development of a basic liquidity forecasting capability, in turn requiring close collaboration and information-sharing between the NBE and MoFED. Effective use of the mechanism will also require a willingness to allow interest rates adjust to the levels

International Monetary Fund
The staff report for the Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility highlights economic developments and fiscal policy. The political transition process has advanced significantly in 2005, and further progress has been made in securing peace. Burundi’s external debt is unsustainable even after the full use of traditional debt relief mechanisms. Burundi will thus require substantial debt relief under the enhanced HIPC Initiative as described in the decision point document. Possible setbacks in the political and security situation could complicate the implementation of the program.
International Monetary Fund
Facing declining reserves and high inflation, Ethiopian authorities have implemented an effective macroeconomic adjustment package supported by the IMF under the rapid-access component of the Exogenous Shocks Facility. The global recession is putting renewed pressure on the external position, via weaker export receipts and remittances and slowing inward direct investment. Supporting structural measures focus on tax reform, the control of public enterprise borrowing, and the control of liquidity through indirect instruments.
International Monetary Fund

should also contribute to a more effective monetary policy toolkit. Moreover, efforts to strengthen the CBN’s ability to conduct monetary policy through establishing a Monetary Policy Department to improve liquidity forecasting and a Monetary Policy Implementation Committee to ensure implementation on a timely basis are welcome developments. Nonetheless, further efforts in strengthening data reliability and liquidity forecasting capability are still needed. 38. Post-consolidation bank restructuring issues will need to be carefully managed . It is especially

International Monetary Fund

liquidity forecasting capability with the cooperation of the Ministry of Finance, and introduced weekly liquidity auctions and a new rediscount facility in April 2005. The BRB and the Ministry of Finance will also work to reform the treasury bills and bonds securities to make them tradable by end-2005. This will enable better liquidity management in the banking system and support a more active monetary policy. Following the completion of its first external audit, the BRB has developed an action plan to respond to the auditors’ recommendations. In particular, it intends to