The Vienna Initiative works on specific financial sector problems, including bad loans, the impact of regulatory reform, and capital market development. In March 2018, it set its sights on a model for the region that drives innovation and boosts productivity. The aim is to give fresh impetus to economic growth and promote convergence with high-income European Union countries. L O W - I N C O M E A N D D E V E L O P I N G C O U N T R I E S Debt Sustainability In September 2017, the Executive Board reviewed the “IMF-World Bank Debt Sustainability Framework for Low- Income Countries.” Since 2005, this framework has been the cornerstone of the international community’s assessment of risks to debt sustainability in low-income countries. The review proposes reforms to adapt and update the framework and instrument design, robust institutions and contracts, and official sector initiative/coordination could help overcome some of these complications. Overall, Executive Directors saw a greater potential for these instruments to be used by developing economies vulnerable to natural disasters and commodity price shocks, than by mature economies with established debt markets. They suggested that the IMF pursue a gradual, targeted, and demand - driven approach consistent with this mandate. E M E R G I N G M A R K E T S Emerging Markets: Developments and Prospects In informal sessions in September 2017 and April 2018, staff briefed Executive Directors on developments and prospects in emerging markets. In both instances, staff noted that the global economic environment for emerging markets was supportive, but that balance-sheet vulnerabilities were elevated in many emerging markets, as were the risks from a sudden or excessive tightening of financial market. These vulnerabilities should be addressed while global conditions remain favorable. The September 2017 briefing emphasized the need to advance structural reforms to raise medium-term growth, build resilience, and reduce vulnerabilities. The April 2018 briefing placed greater emphasis on the dynamics of inflation as well as the need to mitigate the impact of demographic pressures to help raise overall income levels. Emerging Europe: Bank Lending Improves Bank lending in Central, Eastern and South Eastern Europe (CESEE) is improving now that deleveraging following the global financial crisis has come to an end. The better picture is supported by progressive reductions in bad loans that had soured lending prospects, even as their negative impact persists in some countries. That was the conclusion of reports in 2017 from the Vienna Initiative, launched with IMF support at the height of the crisis to help the region’s banking sectors keep credit flowing. External positions for the first half of 2017 improved among CESEE banks reporting to the Bank for International Settlements. Foreign bank funding increased overall, despite reductions for some countries. Lending accelerated outside the Commonwealth of Independent States, with consumer 36 International Monetary Fund
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