Correcting exchange rate overvaluation should eventually lead to an increase in output and employment in the export sector. However, the reallocation of resources induced by changes in the prices of goods and services that are internationally traded relative to those that are not takes time and is often accompanied by employment and welfare losses in sectors that the government had previously protected. Sound macroeconomic policies and a stable macroeconomic framework alone will not create the conditions necessary for economic growth. Some reforms that are designed to achieve macroeconomic stability and remove impediments to long-term sustainable growth may hurt some of the poor in the short term. These reforms can cause a decline in the real incomes of the poor and losses in employment.
Safety nets can enhance the political support for reforms.
In helping governments design safety nets, the IMF considers their cost-effectiveness and financial viability. When possible, existing social security arrangements, such as unemployment insurance and pensions, are modified to protect vulnerable groups from the adverse effects of economic reform. In reorienting budgetary expenditures toward capital outlays, IMF-supported programs are intended to reflect realistic expectations of a country's ability to implement capital projects and the availability, on appropriate terms, of external financing during the program period. The objective is to ensure that capital projects add to the productive capacity of the economy and that adequate resources are allocated to operations and maintenance. Given that capital spending can also be affected by revenue shortfalls, IMF-supported programs recognize the importance of protecting critical public investment programs from budget cuts.