The report’s chapter two, released on Monday, found that while steady growth in advanced economies and accommodative global financial conditions played a role, it was “good policies”, not just “good luck”, that enabled many emerging markets to weather risk-off shocks with minimal economic disruption.
“Emerging markets with robust monetary, fiscal, and macroprudential frameworks experienced smaller output contractions and lower inflation during risk-off episodes,” the IMF said, noting that these countries benefited from better policy trade-offs and reduced reliance on costly foreign exchange interventions.
Key findings from the report include:
- Improved monetary policy credibility: Central banks in emerging markets have become more independent and less responsive to fiscal pressures, enabling more effective inflation targeting and reduced exchange rate pass-through.
- Stronger fiscal discipline: The adoption of fiscal rules and enhanced debt management practices has helped contain sovereign risk premiums and support countercyclical fiscal responses, though high-debt countries still face elevated borrowing costs.
- Reduced vulnerability to capital flow reversals: Countries with strong frameworks saw an 85% smaller output contraction following a 10 percent exchange rate depreciation compared to those with weaker frameworks. They also faced half the risk of sudden stops in capital inflows.
- Foreign exchange (FX) interventions are less necessary: In economies with well-anchored inflation expectations, FX interventions offer marginal benefits, reinforcing the importance of structural reforms over short-term fixes.
The IMF emphasized that while progress has been uneven across countries, continued efforts to strengthen policy frameworks, safeguard central bank independence, and rebuild fiscal space are essential as the global financial environment grows more uncertain.
The report also warns that emerging markets with weaker frameworks should avoid delaying monetary tightening in the face of persistent inflation, as doing so could lead to larger output losses and more aggressive rate hikes later.
As global risks evolve, the IMF calls for a renewed commitment to sound economic governance, noting that resilience is increasingly earned, not inherited.
Egypt is currently engaged in an Extended Fund Facility (EFF) loan programme with the IMF worth $8 billion in total funds that supports Egypt's second wave of economic and structural reforms. The fifth and sixth reviews of the programme are anticipated to be completed this fall.
These reforms prioritize macroeconomic stability and private-sector-led growth, with four central objectives guiding their implementation. At the heart of the strategy is a sustained transition to a flexible exchange rate regime, which will help the domestic economy absorb external shocks more effectively, enhance the global competitiveness of Egyptian exports, and attract greater investment.
To curb inflation and ensure debt sustainability, the government is tightening both monetary and fiscal policies. This includes efforts to rein in off-budget capital expenditures and manage large capital inflows more prudently, thereby limiting inflationary pressures and reducing external vulnerabilities.
The annual meetings of the World Bank Group/IMF are scheduled to kick off on 13 October and last for six days.
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