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International Monetary Fund
This paper proposes that the Executive Board approve the disbursement of a second 6-month tranche of CCRT debt service relief to 28 of the 29 members, covering the period October 14, 2020 through April 13, 2021, given staff’s assessment that sufficient financial resources are available.2 In this context, the paper also provides brief updates for each beneficiary country on its policy responses to the pandemic and staff’s assessment of these policies and the use of resources freed up by debt service relief. It also provides an update on the finances of the CCRT and the fundraising efforts to secure adequate resources for grant assistance in the future. Based on grant pledges to date, resources are not sufficient to extend CCRT relief beyond the proposed second sixth-month period.
Mr. Lars E. O. Svensson
Debt amortization requirements have been suggested as a way to reduce household indebtedness. However, a closer look reveals that amortization requirements may create incentives for both borrowers and lenders to borrow and lend more rather than less. Suppose that a household plans to finance a given housing purchase through a preferred future mortgage path. If that mortgage path violates a new amortization requirement, the household can still achieve its preferred mortgage path, net after savings, by initially borrowing more, investing the excess borrowing in a savings account, and fulfilling the amortization requirement by withdrawals from the savings account over time. This is obvious, if the savings interest rate equals the mortgage rate, because then the excess borrowing is costless. But even if the savings interest rate is less than the debt interest rate, so that the excess borrowing is costly, there remains a strong incentive to initially borrow more than without an amortization requirement. Furthermore, under these circumstances, it is profitable and quite riskless for banks to let borrowers borrow more and invest the excess borrowing in a savings account in the bank, giving lenders an incentive to lend more, not less, than without amortization requirements. Thus, amortization requirements as a way of reducing household indebtedness may be counterproductive.
Mr. Jiaqian Chen and Mr. Francesco Columba
We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households face a ceiling on their loan-to-value ratio and must amortize their mortgages. The government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that demand-side macroprudential measures are more effective in curbing household debt ratios than monetary policy, and they are less costly in terms of foregone consumption. A tighter macroprudential stance is also found to be welfare improving, by promoting lower consumption volatility in response to shocks, especially when using a combination of macroprudential instruments.
International Monetary Fund
This paper reviews the Fund’s income position for FY 2010 and FY 2011. The paper updates projections provided at the FY 2010 midyear review and sets out related proposed decisions for the current and next financial years. The paper is structured as follows: Section II reviews the FY 2010 income position and the main changes from the midyear projections; Section III makes proposals on the disposition of FY 2010 net income, which includes the General Resources Account (GRA) net operational income and profits from the limited gold sales; Section IV discusses the FY 2011 income outlook, the margin on the rate of charge, and projected burden sharing adjustments; and Section V reviews special charges.
Gösta Ljungman
This paper looks at the factors that have to be considered when designing an aggregate expenditure ceiling. It is argued that expenditure ceilings are effective in promoting fiscal discipline and sustainability, but that a number of trade-offs have to be made when setting up a fiscal framework that will survive in a politically charged environment. The paper illustrates the discussion with a case study of medium-term aggregate expenditure ceilings in three countries: Finland, the Netherlands and Sweden.
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.