Strengthening Capacity Building to Optimize Soft Environment for Financial Connectivity along the Belt and Road
people bank of china

Strengthening Capacity Building to Optimize Soft Environment for Financial Connectivity along the Belt and Road

November 5, 2019

(Keynote essays themed on promotion of financial connectivity under the Belt and Road Initiative: No. 2)

At the opening ceremony of the first Belt and Road Forum for International Cooperation (BRF) held in May 2017, President Xi Jinping announced to establish the China-IMF Capacity Development Center (CICDC) jointly with the International Monetary Fund (IMF). Since then, the People’s Bank of China (PBC) has been working closely with the IMF, and the CICDC was formally inaugurated in April 2018. Over the last year, 20 sessions of courses/workshops have been held in the CICDC, which well assisted countries along the Belt and Road in improving macroeconomic policy frameworks, strengthening capacity building, and optimizing the soft environment for financial connectivity.

I. The CICDC came at a right moment

For some countries along the Belt and Road, due to internal or external constraints, weak macroeconomic development and financial capacity building is a bottleneck issue. Therefore, they are in urgent need of improving macroeconomic and financial policy frameworks. Against this backdrop, President Xi Jinping declared in May 2017 that China would launch the CICDC jointly with IMF. Aiming to provide China and countries along the Belt and Road with training in macroeconomic and financial policy frameworks, the mechanism is now recognized as one of the most important outcomes of the first BRF.

To implement the arrangement, the PBC took proactive measures to coordinate with IMF in the preparatory work for the establishment of CICDC. After a year of hard work, the two parties officially inaugurated the CICDC on April 12, 2018. With its office located in Beijing, the CICDC offers services through the Dalian and Shenzhen training centers of the PBC, helping countries along the Belt and Road to strengthen capacity building and optimize the soft environment for financial connectivity.

On the occasion of its inauguration, the PBC-IMF high level conference on Macroeconomic and Financial Frameworks for Successful Implementation of the Belt and Road Initiative was held as the debut activity of the CICDC. More than 150 representatives, including state leaders, finance ministers, central bank governors, as well as political, business, and academic personnel from 15 countries along the Belt and Road attended the conference. They discussed about new opportunities of the Belt and Road Initiative (BRI), and proposed many constructive policy recommendations on issues such as how to strengthen macroeconomic and financial policy frameworks, construct a powerful fiscal framework, and involve the private sector in BRI construction.

II. Courses were well-organized and highly recognized

The CICDC attaches great importance to combining IMF’s expertise with the practical needs of countries along the Belt and Road, and makes meticulous arrangements for four categories of courses, namely macroeconomic management, debt sustainability analysis, financial reform and development, and overseas workshops. As of now, the CICDC has held 17 sessions of courses in China, and three workshops in Mauritius, Georgia, and Austria with overseas partners, training over 600 participants from China and nearly 40 countries along the Belt and Road in Southeast Asia, Central Asia, West Asia, Central and East Europe, sub-Saharan Africa, and Latin America.

(1) Macroeconomic analysis and management

With IMF’s abundant resources in macroeconomic analysis and management, the CICDC organized a series of training events on “Macroeconometric Forecasting & Analysis (MFA)”, “Monetary and Fiscal Policy Analysis with DSGE Models (DSGE)”, “Inclusive Growth (IG)”, and “Fiscal Policy Analysis (FPA)”, touching on issues such as the prediction of major macroeconomic variables, the analysis of potential output and the calculation of output gap, the identification of increased spending composition, as well as the measurement of inflation and the evaluation of factors influencing inflation. In addition, the CICDC conducted predictions and analysis of the macroeconomic development trend of different countries in specific case studies.

(2) Debt sustainability analysis framework

At the course of “Debt Sustainability Framework in Low Income Countries and IMF Policies” held in February 2019, the CICDC introduced IMF’s Debt Sustainability Framework for Low-Income Countries (LIC DSF), analyzed the relationship between macroeconomic development and debt changes, explained the methods for measuring debt sustainability, and illustrated the approaches to debt restructuring, so as to help enhance the debt management capacity of relevant countries.

(3) Financial Reform and Development

In order to fully draw upon the IMF’s expertise in currency and finance, the CICDC held a series of training events on financial reform and development, such as “Financial Sector Surveillance”, “Financial Development and Financial Inclusion”, “Financial Programming and Policies”, “Financial Markets and Instruments”, and “Banking Stress Testing”. The training events covered a variety of subjects, including specifying the role of financial sector in the economy, explaining economic reasons why various financial instruments and markets exist, using a whole set of indicators to measure a country’s financial development, learning from lessons of past financial crises to guard against systemic financial risks, elaborating on effective ways of banking stress testing, etc.

(4) Overseas Workshops

The CICDC held three workshops outside China by cooperating with the Africa Training Institute (ATI) of the IMF, the Ministry of Finance of Georgia, and the European Bank for Reconstruction and Development (EBRD), touching on such topics as financial development and financial inclusion and serving the BRI construction. With a cumulative attendance of nearly 100, the three workshops were organized for African countries, Central and West Asian countries, and the Middle Eastern countries along the Belt and Road respectively. During the workshops, the CICDC analyzed the significance of financial development and financial inclusion for the macro economy, clarified the concepts of “righteousness” and “interests” at the macroeconomic level, and evaluated policy indicators of financial development and financial inclusion.

III. The CICDC Vigorously Supported the BRI Construction

The CICDC attached great importance to the expertise of the IMF in macroeconomic and financial sectors, and integrates it with China’s rich experience in financial reform and development, especially those regarding how to promote inclusive growth with financial efforts, so as to contribute Chinese strength and wisdom to the macroeconomic and financial capacity improvement of countries along the Belt and Road.

The CICDC provided intellectual support for countries along the Belt and Road to improve their macroeconomic policy framework. According to trainees from BRI countries like Hungary, Thailand, Pakistan, and Kazakhstan, the training events on macroeconomic topics have greatly helped them to learn about and understand advanced macroeconomic analysis frameworks, and strengthened their capability in systematically analyzing how macroeconomic policies on the real economy, external affairs, money, and government finance impact each other, which was of great practical implications for their countries to optimize macroeconomic policy frameworks.

The CICDC helped countries along the Belt and Road to boost their debt management capability. In order to fully leverage opportunities brought by the BRI and benefit from outcomes of BRI construction, countries along the Belt and Road have been responding positively to CICDC courses on debt-related topics. Nine member countries which are using the IMF’s Debt Sustainability Framework for Low-Income Countries (including Bangladesh, Cambodia, Ghana, Ethiopia, Djibouti, Tajikistan, Uzbekistan, Myanmar, and Vanuatu) all sent candidates to the training events. Those who have attended the courses spoke highly of the arrangement, acclaiming it as practical and useful and believing that it could help them understand debt sustainability issues more accurately and thus guide their credit decision-making in the future.

The CICDC provided reference for countries along the Belt and Road to enhance financial system resilience. As trainees from Cambodia, Myanmar, Laos, Nepal, Ukraine, Mongolia, Moldova, Vietnam, and other BRI countries noted, through the financial courses of the CICDC, they learned about basic methodologies of financial programming, basic knowledge of financial risk management, the features and pricing of financial instruments, and the methods of analyzing asset portfolios, which was of great significance for the financial deepening and financial stability of developing countries. At a workshop organized jointly by the CICDC and the ATI for 12 sub-Saharan African countries, officials from the PBC gave a remote lecture on “China’s Fintech Development and Financial Inclusion” via a video link, elaborating on how China’s Fintech development served inclusive growth. The lecture was widely acknowledged among the trainees.

In the future, the CICDC will focus on offering institutionalized intellectual support for the BRI, continue to leverage the expertise of the IMF in macroeconomic and financial sectors, expand cooperation with multilateral organizations like the EBRD and monetary authorities of countries along the Belt and Road, consolidate the macroeconomic and financial capacity of China and countries along the Belt and Road, and improve the soft environment for financial connectivity, so as to ensure that the BRI stay on a steady course and deliver sustainable results.

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