The IMF and Aid to Sub-Saharan Africa

Front Matter

Front Matter

Author(s):
International Monetary Fund. Independent Evaluation Office
Published Date:
April 2007
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    © 2007 International Monetary Fund

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    Typesetting: Choon Lee

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    The IMF and aid to Sub-Saharan Africa / [prepared by a team led by Joanne Salop, and including Martin Kaufman . . . [et al.] — [Washington, D.C.] : International Monetary Fund, Independent Evaluation Office, 2007.

    • p. cm. — (Evaluation report)

    • Includes bibliographical references.

    • ISBN 9781589066359

    1. International Monetary Fund — Africa, Sub-Saharan — Evaluation.

    2. Economic assistance — Africa, Sub-Saharan — Evaluation. 3. Poverty — Africa, Sub-Saharan. I. Salop, Joanne. II. Kaufman, Martin Daniel, 1965–

    III. International Monetary Fund. Independent Evaluation Office. IV. Evaluation report (International Monetary Fund. Independent Evaluation Office)

    HG3881.5.I58 I5847 2007

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    Contents

    The following conventions are used in this publication:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (. . .) indicate “not avail-able,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • An en dash (–) between years or months (for example, 2005–06 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

    Some of the documents cited and referenced in this report were not available to the public at the time of publication of this report. Under the current policy on public access to the IMF’s archives, some of these documents will become available five years after their issuance. They may be referenced as EBS/YY/NN and SM/YY/NN, where EBS and SM indicate the series and YY indicates the year of issue. Certain other documents are to become available 10 to 20 years after their issuance, depending on the series.

    Foreword

    In the context of continuing debate about the role of the IMF in aid to low-income countries, the Independent Evaluation Office evaluated what, and how well, the IMF has done on aid to Sub-Saharan Africa. It focused on IMF policy and practice in operations supported by the Poverty Reduction and Growth Facility (PRGF), the IMF’s main instrument for operational work in low-income countries during the 1999–2005 review period.

    The report finds ambiguity and confusion about IMF policy and practice on aid and poverty reduction. Affected areas include the IMF’s role in the mobilization of aid, the analysis of alternative aid scenarios, poverty and social impact assessments of macroeconomic policies, and pro-poor and pro-growth budget frameworks. The report also finds a disconnect between the IMF’s external communications on aid and poverty reduction, and its practice in low-income countries.

    More fundamentally, the report finds differences of views among members of the Executive Board about the IMF’s role and policies in low-income countries. Management—along with the Board—should have done more to resolve these differences. Lacking clarity on what they should do on the mobilization of aid, alternative scenarios, and the application of poverty and social impact analysis, IMF staff tended to focus narrowly on macroeconomic stability, in line with the institution’s core mandate and their deeply ingrained professional culture.

    How these differences are to be narrowed going forward—whether by managing commitments and communications down or by ramping implementation up—remains a central policy challenge for the IMF. The overarching message of the evaluation is that the Fund should be clearer and more candid about what it has undertaken to do, more assiduous, transparent, and accountable in implementing its undertakings, and more proactive in working with partners, such as the World Bank, with complementary mandates.

    This message is especially important for the IMF’s work in low-income countries of Sub-Saharan Africa, given the major challenges those countries face in meeting the Millennium Development Goals and other objectives.

    Thomas A. Bernes

    Director

    Independent Evaluation Office

    The IMF and Aid to Sub-Saharan Africa

    This evaluation report was prepared by a team led by Joanne Salop and including Martin Kaufman, Markus Berndt, Steve Kayizzi-Mugerwa, Scott Standley, and Tim de Vaan. Contributions also were provided by Thomas Reichmann, Luis Alvaro Sanchez Baracaldo, and Misa Takebe. David Bevan, Kwesi Botchwey, and David Peretz provided useful comments. Administrative support was provided by Annette Canizares, Arun Bhatnagar, and Jeanette Abellera, and editorial assistance by Esha Ray. The report was approved by Thomas A. Bernes, Director of the Independent Evaluation Office (IEO). The IEO is responsible for all judgments—and any errors—contained in the report.

    Abbreviations

    AfDB

    African Development Bank

    AFR

    African Department (IMF)

    AFRITAC

    African Regional Technical Assistance Center

    AFRODAD

    African Forum and Network for Debt and Development

    CG

    Consultative group

    CGD

    Center for Global Development

    CPI

    Consumer price index

    CSO

    Civil society organization

    DFID

    Department for International Development (U.K.)

    EPA

    Ex post assessment

    ESAF

    Enhanced Structural Adjustment Facility

    EXR

    External Relations Department (IMF)

    FAD

    Fiscal Affairs Department (IMF)

    GDP

    Gross domestic product

    HIPC

    Heavily Indebted Poor Country

    IEO

    Independent Evaluation Office (IMF)

    IFI

    International financial institution

    IMF

    International Monetary Fund

    IMFC

    International Monetary and Financial Committee

    IT

    Indicative targets

    MDG

    Millennium Development Goal

    MDRI

    Multilateral Debt Relief Initiative

    MONA

    Monitoring of Fund Arrangements

    MTS

    Medium-Term Strategy

    NGO

    Nongovernmental organization

    NIR

    Net international reserves

    ODA

    Official development assistance

    OECD

    Organization for Economic Cooperation and Development

    PA

    Prior action

    PAF

    Poverty Action Fund

    PC

    Performance criterion

    PDR

    Policy Development and Review Department (IMF)

    PEFA

    Public expenditure management and financial accountability

    PFP

    Policy Framework Paper

    PRE

    Poverty-reducing expenditure

    PRGF

    Poverty Reduction and Growth Facility

    PRS

    Poverty Reduction Strategy

    PRSP

    Poverty Reduction Strategy Paper

    PSIA

    Poverty and social impact analysis

    SSA

    Sub-Saharan Africa

    SWAp

    Sector-wide approach

    TA

    Technical assistance

    UNAIDS

    Joint United Nations Program on HIV/AIDS

    UNDP

    United Nations Development Programme

    UNECA

    United Nations Economic Commission for Africa

    UNICEF

    United Nations Children’s Fund

    VAT

    Value-added tax

    WHO

    World Health Organization

    Executive Summary

    This report sets out the main findings and recommendations of an independent evaluation of the IMF’s role and performance in the determination and use of aid to low-income countries in Sub-Saharan Africa (SSA). The evaluation focused on 1999–2005. This was a time of improving macroeconomic performance in much of SSA, with increasing growth and falling inflation. It was a time when aid to SSA recovered from earlier declines, debt relief gained momentum, and donors began to move to multidonor budget support. It was a time when the Poverty Reduction Strategy Paper (PRSP) was introduced—in late 1999—and the IMF transformed its Enhanced Structural Adjustment Facility (ESAF) into the Poverty Reduction and Growth Facility (PRGF).

    As the above changes unfolded during the period, variations on long-standing criticisms of the IMF’s work in SSA emerged, with three providing a point of reference for the evaluation. The first is that IMF-supported programs have blocked the use of available aid to SSA through overly conservative macroeconomic programs. The second is that such programs have lacked ambition in projecting, analyzing, and identifying opportunities for the use of aid inflows to SSA countries, which may in turn have tempered donors’ actual provision of aid. The third is that IMF-supported programs have done little to address poverty reduction and income distributional issues despite institutional rhetoric to the contrary.

    Policies approved by the IMF Executive Board underpinned the assessment framework used by the evaluation team in examining staff performance. Also relevant is management’s translation of Board decisions into operational guidance to staff. IMF communications, through management and senior staff speeches, press releases, articles, and correspondence with newspapers are germane as well. These communications constitute an important channel for articulating Fund positions and informing external audiences about what the IMF has undertaken to do; they create expectations against which Fund performance is judged externally.

    A recurring theme of the evaluation concerned the disconnect in external perceptions between the IMF’s rhetoric on aid and poverty reduction and what it actually did at the country level. In a number of instances, the Fund’s partnership with the World Bank in support of the Poverty Reduction Strategy (PRS) process, Global Monitoring, and other initiatives—and related communications—has blurred perceptions of Fund accountabilities on aid and poverty reduction at the country level. To distinguish the Fund’s work from that of the World Bank and other partners—and the authorities whom their efforts support—the evaluation team focused narrowly on evidence from programs supported by the PRGF, for which the IMF is a principal and on which 29 SSA countries drew during the 1999–2005 evaluation period.

    Findings

    Underlying the theme of disconnect is a larger issue of attempted—but ultimately unsuccessful—institutional change. When the PRGF was introduced, it was meant to be more than a name change. It set out a new way of working, grounded in the PRS process, with programs based on specific country-owned measures geared to poverty reduction and growth, and an ambitious vision of the IMF’s role on the analysis and mobilization of aid, working in close partnership with the Bank. But in the face of a weakening consensus in the Board and a staff professional culture strongly focused on macroeconomic stability—and, most important, changes in senior management and a resulting lack of focused institutional leadership and follow-through—the IMF gravitated back to business as usual.

    The good news is that country performance has improved in a number of SSA countries over the period—thanks in part to the advice and actions of the IMF, including through the Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI), and in larger part to the actions of the country authorities—and that donor performance has improved as well. In such cases, PRGF-supported macroeconomic program design has eased and become more accommodative of aid. The combination of improved country and donor performance and the associated adaptation of PRGF program design have materially improved SSA’s prospects for growth and poverty reduction.

    The evaluation’s specific findings follow:

    • PRGF-supported macroeconomic policies have generally accommodated the use of incremental aid in countries whose recent policies have led to high stocks of reserves and low inflation; in other countries additional aid was programmed to be saved to increase reserves or to retire domestic debt. Reserves in the two–three months-of-imports range were found to be the threshold for determining whether the increased aid should be used to expand the current account deficit or to increase reserves. The estimated inflation threshold for determining whether the country got to spend or save additional aid lies within the 5–7 percent range. These findings are consistent with Board-approved policy on the accommodation of aid, management guidance and feedback to staff, and staff views. However, they also help to explain why outside observers perceive the IMF as “blocking” the use of aid: PRGFs in countries with inflation above the threshold are likely to program the saving of at least part of additional aid.

    • PRGFs have neither set ambitious aid targets nor identified additional aid opportunities—where absorptive capacity exceeds projected aid inflows. They have indirectly catalyzed aid—through their macroeconomic assessment and support for country efforts to improve the underlying macroeconomic environment and fiscal governance. Their medium-term aid forecasts have shown signs of adapting to the increased persistence of aid to SSA—after having been overly conservative at the start. But IMF staff have done little to analyze additional policy and aid scenarios and to share the findings with the authorities and donors. They have not been proactive in mobilizing aid resources, a topic where the Board remains divided and IMF policy—and operational guidance to staff—are unclear.

    • Of the key features distinguishing the PRGF from the ESAF, fiscal governance has been far more systematically treated than other elements, such as the use of social impact analysis or the pro-poor and pro-growth budget provisions. The strong PRGF efforts on fiscal governance reflect clear, consistent, and continuing support from the Board; the issue’s centrality to the IMF’s core macroeconomic objectives through its links to budget execution; and effective Fund-Bank collaboration, grounded in professional capacity in both institutions. Executive Directors’ support for poverty and social impact analysis (PSIA), though strong, has been more measured; social analysis is less central to the IMF’s core mandate; and the tailoring of PSIA to PRGF needs was initially stymied by unrealistic expectations of how Fund-Bank collaboration might work on the issue, with more recent efforts focused on in-house analysis. Weak Fund-Bank collaboration has also been a factor in the IMF’s failure to pay more attention to infrastructure-related growth and competitiveness linkages and their possible macroeconomic implications for the programmed spending and absorption of additional aid.

    • IMF communications on aid and poverty reduction have contributed to the external impression that the IMF committed to do more on aid mobilization and poverty-reduction analysis. The resulting disconnect has reinforced cynicism about, and distrust of, IMF activities in SSA and other low-income countries. It was especially large in the early years of the evaluation period, when management communications stressed the two-way linkages between growth and poverty reduction. But it remains a concern even today, in the context of external communications on IMF support for alternative scenarios, strategies for attaining the Millennium Development Goals (MDGs), and the mobilization of aid that overstate what the IMF is doing in the context of PRGFs.

    • The IMF has missed opportunities for communicating with a broader audience in SSA. The IMF has a network of resident representatives in SSA. Demands on their time have increased in recent years with the changing aid environment and donors’ increased decentralization and use of budget support instruments. But staff resources and skills have constrained their ability to fully engage with local partners in this changing environment. Meanwhile, they remain a largely untapped source of information on what is happening on the ground among donors and civil society; their observations do not systematically inform institutional positions.

    Recommendations

    Going forward, the evaluation points to three recommendations for improving the coherence—actual and perceived—of the institution’s policies and actions relating to aid to SSA. They may also be relevant to several undertakings included in the Medium-Term Strategy (MTS).

    • The Executive Board should reaffirm and/or clarify IMF policies on the underlying performance thresholds for the spending and absorption of additional aid, the mobilization of aid, alternative scenarios, PSIA, and pro-poor and pro-growth budget frameworks. Based on these reaffirmations and/or clarifications, management should provide clear guidance to staff on what is required, encouraged, permitted, and/or prohibited—including in working with the World Bank and other partners—and ensure effective implementation and results. The External Relations Department (EXR) should ensure the consistency of institutional communications with Board-approved operational policies and IMF-supported operations.

    • Management should establish transparent mechanisms for monitoring and evaluating the implementation of the clarified policy guidance. The IMF’s ex post assessments should explicitly cover staff actions and contributions to the implementation of existing and clarified policies. But in view of widespread external concerns about IMF staff accountability in SSA, a more periodic and transparent stocktaking across country programs is needed, possibly in the context of Board reviews of the PRGF—or in future reviews of the MTS.

    • Management should clarify expectations—and resource availabilities—for resident representatives’ and missions chiefs’ interactions with local donor groups and civil society. It should monitor trends in the institution’s country-level operating environment, including for aid, periodically assessing the cross-country implications for IMF policies and strategies.

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