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The global financial safety net (GFSN) has expanded since the global financial crisis, including through a large increase in the IMF’s lending capacity, but Member States in the Addis Agenda recognised the need to further strengthen the system.
A recent IMF paper argued that, while the safety net had grown significantly since the global financial crisis, important gaps remained in the architecture. As noted in the IMF paper, the safety net is now more fragmented, has uneven coverage and remains too costly, unreliable and conducive to moral hazard. The IMF is currently working on a deeper assessment as the basis for considering whether broader reforms to the Fund’s toolkit would be helpful in addressing the gaps. Work is ongoing in three key areas:
The significant growth in the GFSN since the global financial crisis has brought to light coordination challenges between its various layers. Strong IMF and RFA collaboration is one key aspect of the effectiveness of the safety net. Effective coordination can help increase the firepower available to tackle large-scale crises while at the same time combining the deeper regional knowledge and expertise of the RFAs with the broader cross-country experience and global perspectives of the IMF.
As part of the ongoing effort to enhance collaboration, the first joint CMIM-IMF test run is being conducted. By simulating a crisis scenario, the test run hopes to identify the procedural issues on how the IMF and CMIM would work together to provide co-financing during a crisis—thus better preparing both organizations. The hypothetical test run took place in September and work is underway to identify aspects of the policies and procedures which may need to be adjusted in order for co-financing to operate smoothly.
The IMF plans to continue to reach out to RFAs in an effort to enhance coordination and cooperation and is planning to issue a paper on IMF-RFA cooperation in the coming year.