ANNEX - BUILD BACK BETTER? IMF'S POLICY ADVICE HAMPERS GREEN COVID19 RECOVERY
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
BUILD BACK BETTER?
IMF’S POLICY ADVICE HAMPERS
GREEN COVID19 RECOVERY
ANNEX
1IMF Article IV Review: Annex mated to have ruined around 800 thousand reflecting scarce readily available cost-effec-
Table 1. IMF Article IV Identified Risks - Macroeconomic Vulnerabilities hectares of crops, including for local con- tive suppliers; tariffs are not yet cost-reflec-
South sumption and exports [see also coal mine tive; technical deficiencies continue to force
Vulnerability India Indonesia Philippines Mozambique Total
Africa flooding in note 4 below]. Tropical Cyclone heavy reliance on expensive generation tur-
Climate Change / Extreme Kenneth struck on April 25 the northern prov- bines; and disruptive power outages contin-
Yes [1] Yes [2] 2 ince of Cabo Delgado [location of mega LNG ue.”
Weather
projects].
Current Account Deficit
- higher imports / lower Yes Yes Yes Yes Yes 5 [6] Delay in implementation of megaprojects
exports [3] “In particular, the Indian economy de- [Note: this largely refers to the mega LNG
pends heavily on imported oil. The net oil im- projects and possibly to some coal projects,
imports imports,
imports 3 port bill amounted to about US$94 billion in i.e., transport/export corridors, Nacala and
Oil Price Volatility [3] exports
FY2018/19, equivalent to about 3½ percent Beira corridors]
Gas Price Volatility 0 of GDP or a fifth of merchandise imports. An
exports exports [4]
domestic
3
increase in international oil prices, therefore, [7] Rising fiscal risks from contingent liabilities
Coal Price Volatility vs. intl [5] directly affects the economic outlook, with a linked to state-owned enterprises (SOEs) and
Infrastructure: Lacking or widening current account deficit raising con- public-private partnerships (PPPs). [Note: sig-
Yes Yes Yes [6] 3
Project Delays cerns over external financing and rising in- nificant link to coal power plants]
Fiscal Deficit Yes Yes Yes Yes 4 flation affecting real disposable income and
private consumption, and ultimately growth.” [8] For India, Indonesia and South Africa, the
- Public Debt Distress -
Liabilities, SOEs & PPPs1
Yes Yes [7] Yes Yes 4 IMF indicated that “clarity on land reform”
[4] The current account deficit worsened in was essential. India: “Bottlenecks include
- Tax Revenue Shortfalls Yes Yes Yes 3 2018 for Mozambique. Lower exports, mainly delays in land acquisition, environment and
Financial Sector Weakness- due to mine flooding in coal production, and forest clearances, stressed balance sheet of
es, Lack of Credit, Global Yes Yes Yes Yes 4 higher megaproject imports of services led to private companies involved in infrastructure
finance a deterioration in the current account deficit investment…” “land reform remains essential
Governance – Business
Yes Yes Yes Yes Yes 5
to 30½ percent of GDP in 2018, from 20 per- to raise agriculture sector productivity and
Climate cent of GDP in 2017. While megaproject im- achieve the authorities’ ambitious infrastruc-
- Transparency, corrup- ports contributed to the large deficit, it was fi- ture development targets.” “Land acquisition
Yes Yes Yes 3
tion, contracts nanced to a large extent by FDI. [It should be should be eased by reforming the land ac-
- Environmental Regula- noted that the megaprojects are largely the quisition law.” Indonesia: Improving business
Yes 1 gas/LNG projects and also coal export-linked environment, IMF notes that the land acqui-
tion Uncertainty
- Land Acquisition Yes [8] Yes [8] Yes [8] 2
infrastructure] sition process was simplified [compliments of
the World Bank];
- Security Yes [9] 1 [5] For South Africa, IMF lists domestic coal
Notes: The rate of inflation, which often is a concern of the IMF, is not reflected here. It is often prices as being higher than international pric- [9] A deterioration in security in the North;
related to energy and food price volatility. es - not as a contributor to the Current Ac- “Bouts of violence in the North continue
count deficit. “Rising input, employment and unabated, but these attacks have so far not
1
SOEs = state-owned enterprises and PPPs = public-private partnerships. interest costs. Eskom has been purchasing disrupted the pace of implementation of the
Risk to agriculture production, damage to coal and other inputs at significantly above LNG megaprojects in the region”.
Table 1 Notes: properties, and higher flood inflation, with es- world prices.” “coal costs remain elevated
These notes generally represent the IMF’s pecially larger impacts on low-income house-
statements of the risk in the Article IV re- holds in rural areas.
ports with author-added bolded text and au-
thor-added information indicated in brackets [2] Mozambique is one of the most vulnera-
[ ]. ble countries to natural disasters and climate
[1] Risks from natural disasters and climate change. Tropical Cyclone Idai inundated
change are significant in the Philippines, entire neighborhoods and destroyed most
which is categorized as one of the world’s homes, hospitals and schools in Beira [Port
most vulnerable countries to climate change. Beira – large coal terminal]. Floods are esti-
2 3Table 2. IMF Policy Reform Agenda: Tax Policy IMF on India TAX REFORM: “Increases in rev- raise revenue by around 5 percent of GDP
New Tax Breaks/Reductions
enue collections, through two complementa- over five years to finance priority spending on
ry reforms: On GST (Goods and Services Tax), infrastructure, education, health, and social
General Renew-
Eliminate Reduce staff recommends increasing compliance by safety nets.” … “As the MTRS covers both tax
Infra- able
Carbon Fossil Fuel Fuel streamlining filing and refund mechanisms, policy and tax administration reforms com-
Country structure Energy / Coal Oil & Gas
Tax VAT Ex- Subsi- broadening the base (e.g., including electric- prehensively, implementation challenges call
Investment Electric
emptions dies
Incentives Cars ity and petroleum products), and simplifying for careful prioritization and sequencing (Box
India Yes [1] ? [3] Yes Yes [4] Yes [4] Yes [4] Yes [4] the rate structure—adopting fewer rates—in 2). The government should avoid measures
line with past Fund advice and analysis (2018 that would weaken revenues, including addi-
Indonesia ? [3] Yes Yes [5] Yes Yes
Staff Report and Selected Issues Paper).” tional tax incentives.” [Note: the IMF advised
Philippines Yes [6] the authorities against mandates to repatriate
Mozambique ? [3] Yes Yes 2014 2014 [5] “Implementing a medium-term revenue proceeds from natural resource exports and
strategy (MTRS) will be critical to finance instead encouraged tax incentives to keep
South Africa Yes [2]
priority spending and avoid measures that proceeds in the country, which contradicts
Total 2 3 3 4 1 3 3 erode the tax base. The MTRS should aim to avoiding additional tax incentives.]
Table 2 Notes: emptions”; Mozambique: To create fiscal Table 3. IMF Policy Reform Agenda: Prioritized Infrastructure Investments
These notes represent the IMF’s statements buffers, including to deal with future natural
Increase Oil & Gas Renewable
in the Article IV reports with author-added disasters, IMF staff recommended revenue Climate Change Coal Infra-
Country Infrastructure Infrastruc- Energy Infra-
bolded text and author-added information enhancing measures, i.e., eliminating VAT ex- Resiliency structure
Budget ture structure
indicated in brackets [ ]. emptions except for “basic goods”.
India Yes [1] Yes [5] Yes [5]
[1] Additional measures to offset the estimat- [4] “Implementation of reforms initiated earli- Indonesia Yes Yes [6] Yes [6]
ed revenue loss from the recent CIT [Corpo- er, such as the Goods and Services Tax (GST) Philippines Yes [2] Yes [3]
rate Income Tax] rate reduction would also rate reductions… IMF “technical assistance
Mozambique Yes Yes [4] Yes [7] Yes [8]
be needed to achieve the current FRBM debt (TA) and training have supported the author-
target by FY2024/25. As examples, consider- ities’ efforts to enhance the formulation and South Africa Yes [9]
ation could be given to expanding property implementation of…the Goods and Services Total 4 2 3 2 2
taxation, increasing the coal cess, and enact- Tax (GST).” [It is unclear what specific advice
ing equal tax treatment of agricultural income was given in the “formulation” of the GST. Table 3 Notes: over 6 percent of GDP by 2022, from 5.1 per-
with that from other sources. [The cess on However, over the last few years, the GST These notes represent the IMF’s statements cent in 2018. Consistent with this objective,
coal production, called the GST Compensa- tax policy reforms have centered on rate re- in the Article IV reports with author-added they have recently revised the list of priority
tion Cess, is at the rate of INR 400 per tonne ductions (GST rates are pegged at 5%, 12%, bolded text and author-added information flagship infrastructure projects, reflecting the
(~USD 4).1] 18% or 28%). Recent GST rate reductions indicated in brackets [ ]. results of feasibility studies and cost-benefit
include: June 2017, coal reduced from 12% considerations.” [It is unclear what projects
[2] On the tax policy front, it would be import- to 5% (beneficial for the power sector and [1] “In line with government plans, further em- are the priority infrastructure projects.]
ant to review legislation to limit base erosion heavy industries); mining of petrol crude re- phasis should be put on addressing infrastruc-
and profit shifting opportunities, reduce tax duced from 18% to 12%; LPG for household ture bottlenecks. In recent years, the supply [3] “Increase public investment in weather-re-
expenditures including those related to spe- use - reduced from 18% to 5%; marine fuel side of the economy has been strengthened lated infrastructure…” “The Philippines has
cial economic zones, and gradually increase reduced from 18% to 5%; specified goods for through large investments in airports, roads, taken a number of climate change-related ini-
the carbon tax introduced this year. [Note: petroleum operation under HELP (Hydrocar- telecom, and power generation. The govern- tiatives, but further steps are needed. The
the carbon tax recommendation is somewhat bon Exploration Licensing Policy ) taxed at ment has announced ambitious plans in this Philippines has been one of the most proac-
lost in the text. It is not highlighted in the 5% (unclear what previous rate was but this regard. The new target is to invest Rs. 100 tive emerging market countries in strength-
summary as a main policy recommendation.] is the lowest GST rate). July 2019 - The GST trillion (about US$1.4 trillion) over the next six ening financial preparedness for natural
rate on all electric vehicles reduced from 12 years. This would involve more than a dou- disasters and green financing, and in intro-
[3] [To increase tax revenue in India, Indone- percent to 5 percent. The GST rate on char- bling of infrastructure investment from the ducing government budgeting for climate
sia and Mozambique, the IMF suggests elim- ger or charging stations for Electric vehicles pace of the last five years.” change. But more resources and incentives
inating VAT exemptions, but does not specify reduced from 18 percent to 5 percent. Hiring for climate change adaptation and mitigation
that is should apply to exemptions for fossil of electric buses by local authorities be ex- [2] “[The authorities] intend to raise the gen- are needed to induce investment and chang-
fuels.] Indonesia: “Remove certain VAT ex- empted from GST.2 eral government infrastructure spending to es in emission patterns (see Selected Issues
4 5on climate change). Greater climate change 21585 Gevra Open Cast Coal Mining Project; Table 4 Notes: hidden loans or are taking legal measures as
resilience would also contribute to further USD$1.56 billion; Chharhattisgarh; and Proj- These notes represent the IMF’s statements appropriate.” [It should be noted that debt
poverty reduction.” ect ID: 601599; Coal Block Exploration Proj- in the Article IV reports with author-added restructuring was necessary because of the
ect; USD$1.72 million; Chharhattisgarh. bolded text and author-added information hidden loans, which are partly linked to secu-
[4] Mozambique: “Increasing the econo- indicated in brackets [ ]. rity for offshore gas development.]
my’s resilience and preparedness to adverse [6] Indonesia’s national strategic projects –
weather events that are becoming more fre- priority infrastructure projects list contains 3 [1] “Directors also called for monitoring risks Mozambique Note: Increasing fiscal space in
quent and intense due to climate change… coal power plants, 2 oil refineries, and 1 gas and contingent liabilities arising from state- the near term to respond to the urgent needs
Directors commended ongoing efforts to in- field development. See: https://kppip.go.id/ owned enterprises and public-private part- in areas affected by the cyclones by, inter
crease the country’s resilience to natural di- en/national-strategic-projects/# nerships. Low fiscal revenues have also result- alia, reallocating lower priority spending in
sasters including through the National Resil- ed in reliance on SOEs and PPPs to channel the annual budget to emergency assistance
ience Strategy with support from the World [7] Mozambique: Nacala Corridor Coal recent increases in infrastructure spending, and reconstruction. [Note: Is security for gas
Bank and encouraged the authorities to in- Railway and Port; https://clubofmozam- increasing fiscal risks from contingent liabil- operations a low priority?] [Notably, did not
tegrate climate change resilience within their bique.com/news/mozambique-seeks-4-bil- ities.” “While outstanding explicit govern- specifically mention the big gas and coal de-
broader development agenda.” lion-for-infrastructure-development/ ment guarantees at the end of 2018 amount- velopments happening in the country….and
ed to only 1.2 percent of GDP, additional how the prices of these commodities impact
[5] [India: Ministry of finance to drew up a [8] Mozambique: Mega LNG Areas 1 and 4. fiscal risks could stem from implicit guaran- the government’s budget, etc.] Mozambique:
National Infrastructure Pipeline for each of tees of SOE debt and PPPs.” [For details on The IMF Executive Board approved in April
the years from FY2019/20 to FY2024/25 to [9] South Africa: “the financial and technical coal power plant liabilities, see IEEFA, 2020. US$118 million in emergency assistance un-
spend about $1.4 trillion (INR 100 trillion) capacity of the private sector in renewables IEEFA Indonesia: Playing with matches—Who should der the Rapid Credit Facility (RCF).
over these years. (see https://indiainvest- must be actively pursued” “On energy, the take responsibility for PLN’s financial mess? Institute
mentgrid.gov.in/) The NIP includes: 11 ther- Eskom unbundling process under discussion for Energy Economics and Financial Analysis, [4] Eskom’s inability to pay debt. “Eskom be-
mal power projects worth USD $7 billion; 109 should leverage the use of cleaner energy April 30, 2020.] ing macro-critical (95 percent of domestic
solar projects worth USD $4.8 billion; 56 hy- and private sector participation.” “They have electricity production and 16 percent of GDP
dro power projects worth $4.6 billion; and 3 stepped up efforts to restructure the electrici- [2] IMF Staff: “With adequate management of in size), major adverse consequences for the
wind project worth $42 million. Specific coal ty sector, as outlined in the reformed Electric- fiscal risks, more private sector participation economy.”… “Eskom is by far the largest SOE
power projects include: Project ID: 4625, ity Supply Industry paper (Eskom Roadmap). could complement the public sector efforts in and its position is particularly critical, with an
Coal Based Power Project USD$1.32 billion, Once implemented, these measures would the infrastructure build-up. Such participation operational balance insufficient to service its
Andhra Pradesh; Project ID: 18635 Tenughat reduce the need for government to continue would require dedicated capacity and plan- high debt—around 10 percent of GDP. Amid
Coal Thermal Power Extension Project Stage to support Eskom. Furthermore, the Eskom ning, and an update of the legal framework to declining sales, elevated procurement costs,
II, USD$1.26 billion, Jharkhand 2 X 660 MW; Roadmap also sets out a plan for expanding include all possible forms of PPPs (for exam- and a rising wage bill, Eskom faced a liquidity
Project ID: 17930 Coal Based Power Project renewable energy output and cutting fuel ple, joint ventures).” Philippine Government: crisis in March 2019 that prompted a bridge
[Raigarh], USD$818 million, Chharhattisgarh; costs. In this regard, the authorities have pro- “The authorities also expressed reservation bank loan and urgent budget support.” “Af-
Project ID: 17736, 2 X 800 MW Coal Based mulgated the new Integrated Resources Plan about a greater reliance on PPPs for major in- ter years of poor performance by Eskom, the
Thermal Power Project, USD$1.41 billion, (IPP) which will guide the expansion and di- frastructure projects, citing the long delivery government agreed to support it with excep-
Assam; and coal mining projects: Project ID: versification of electricity supply over time.” times experienced in the past and the difficul- tional financing, committing so far to trans-
ties in designing balanced risk sharing agree- fers equivalent to 4¾ percent of GDP over 10
Table 4. IMF Policy Reform Agenda: Government Risks - Debt and Liabilities ment with the private sector.” years (2 1/3 percent over the next 3 years).”
Improve Public Establish a
Public Private Address [3] “Accounting for the authorities’ debt re- “Measures to stabilize Eskom finances in the
Investment/ Contracts Re- Sovereign
Country Partnerships SOE Weak-
Debt Manage- negotiation Wealth structuring strategy and considering that, to short run and overhaul the business model
(PPP) nesses
ment Fund a large extent, future borrowing and gov- over the medium term to create space for
ernment guarantees reflect state participa- greater private sector participation. Strict en-
India Yes
tion in the sizable LNG development, debt is forcement of structural conditionality for fiscal
Indonesia Yes [1] Yes [1] Yes deemed sustainable.” [Notably, there is no support.” “All further budget transfers should
Philippines Yes [2] Yes [2] discussion on how the oversupply of LNG/gas be subject to adopting measures to: (i) re-
Mozambique Yes [3] Yes Yes and lower global gas prices impact these as- duce primary energy costs through improved
sumptions.] “the authorities are in good-faith procurement of coal and cost-efficient elec-
South Africa Yes Yes [4] Yes [5]
discussions with private creditors to restruc- tricity generation; (ii) enhance service delivery
Total 5 2 3 1 1 ture Mozambique’s Eurobond and previously to help improve demand; (iii) collect arrears;
6 7and (iv) rationalize the wage bill.” kom Roadmap and Integrated Resource Plan [4] Indonesia “Concerning the rule of law, strengthening investor protection and the integrity
have put forward long-term plans on restruc- of contracts and property rights are important.” Streamline construction permits and strength-
[5] Eskom: “Eskom’s finances remain under turing of energy sector.” [Note: Although this en investor protections, property rights and contracts.
severe pressure, requiring large transfers is not an IMF policy recommendation, the
from the Treasury. Efforts are underway to cut IMF makes note of it as being a measure the [5] “Priority actions also include …easing restrictions to foreign direct investment,...”
procurement costs through improved gover- government is taking to help manage the fis-
nance and renegotiation of certain contracts. cal stress and notably the IMF does not warn [6] Philippines “Following the enactment of the Ease of Doing Business law in May 2018, the
The tariff-setting process remains uncertain against contract renegotiation.] Anti-Red Tape Authority has been established to oversee the streamlining of procedures for
due to different interpretations of the pricing government licenses and permits. The authorities also intend to further ease the restrictions
formula, which is being reviewed in court. Es- on foreign investment by amending relevant laws, especially for public utilities.”
Table 5. IMF Policy Reform Agenda: Financial Sector and Business Environment [7] Enhance security, particularly in the LNG development related region. [Note, the big oil
Financial Sector* Business Environment companies developing the mega LNG projects (Area 1 and 4) have requested the govern-
ment step up security.]
Foreign Direct Streamline
Non-Bank Improve Local
Stressed Investment - approval /
Country Financial Business Content
Assets lifting restric- expedite
Companies* Climate Policy
tions permitting
India Yes [1] Yes [2] Yes Yes Yes
Indonesia Yes [3] Yes [4] Yes [5] Yes
Philippines Yes Yes [6] Yes [6]
Mozambique Yes [6]
South Africa Yes Yes Yes Yes
Total 2 2 5 3 4 1
[1] Prudential Framework for Resolution of Power Finance Corporation, India Infrastruc-
Stressed Assets [details not provided] ture Finance Company, Indian Railway Fi-
nance Corporation, Indian Renewable Energy
[2] One of the key issues for the IMF in the Development Agency and Housing & Urban
financial sector was “stresses in the non-bank Development Corporation.”
financial sector” and “overdependence on
bank lending for financing of infrastructure.” India: “Priority Sector Lending: the RBI per-
“Regarding the latter, efforts are being made mitted bank credit to NBFCs (other than
to promote institutional investment into infra- MFIs) for on-lending to be classified as priori-
structure from pension, insurance, and sover- ty sector lending.”
eign wealth funds through various modalities,
including brownfield asset monetization us- India: “…complicated process of resolving in-
ing vehicles such as Toll Operate Transfer and solvencies—even with the IBC—and land ac-
Infrastructure Investment Trusts.” quisition.” “Measures to reduce administra-
tive and regulatory burdens, strengthen the
India: “Withdrawal of Exemptions Granted efficiency of judicial systems, improve gover-
to Government-Owned NBFCs: the RBI with- nance, shorten regulatory approval timelines, Endnotes
drew special dispensations granted earlier and implement single-window clearance
for NBFCs owned by the government. It has more widely would be beneficial.” 1 IISD, 2018. The Evolution of the Clean Energy Cess on Coal Production in India. Interna-
specified a roadmap, stretching till 2021/22, tional Institute for Sustainable Development. https://www.iisd.org/sites/default/files/publica-
for these lenders to meet the norms on cap- [3] Need for improving supervision of non- tions/stories-g20-india-en.pdf
ital adequacy, provisioning and corporate bank financial institutions and financial con- 2 See: https://cleartax.in/s/gst-rates and https://cleartax.in/s/fossil-fuels-coal-petroleum-
governance. Among the entities affected are glomerates. * gst-rate-hsn-code
IFCI [Industrial Finance Corporation of India],
8 9Sarphatistraat 30
1018GL Amsterdam
The Netherlands 10
www.re-course.org
10You can also read
