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International Monetary Fund. Independent Evaluation Office

Abstract

This evaluation assesses the IMF’s engagement with countries in fragile and conflict-affected situations (hereafter referred to as fragile states or FCS). The role of the IMF in fragile states has been the subject of considerable debate. It is generally recognized that, with its crisis response and prevention mandate, the IMF has a key role to play in international efforts to help these countries, but critics say that it does not sufficiently appreciate the deep-rooted nature of the difficulties such states face or provide financial and technical resources commensurate with their challenges. While many of the issues that demand attention in these countries are outside the IMF’s core competence, and the Fund often has to operate in an environment where key decisions including by the international community are made at the political level, there have been recurrent calls for the IMF to increase and enhance its engagement. The evaluation explores these and other relevant issues by reviewing the IMF’s overall approaches and how the institution has engaged with a sample of current and former fragile states.1

International Monetary Fund. Independent Evaluation Office

Abstract

To assess the IMF’s work on FCS, the evaluation poses the following questions:

International Monetary Fund. Independent Evaluation Office

Abstract

The IMF maintains no formal list of fragile states, and it has relied broadly on the approach taken by the World Bank in identifying such countries for internal purposes. First, a low-income country, eligible for International Development Association (IDA) assistance,10 is considered fragile if the three-year moving average of its Country Policy and Institutional Assessment (CPIA) scores, prepared by the World Bank, is 3.2 or lower.11 Second, and in addition, any country is considered fragile if there has been a United Nations or regional peace-keeping/building operation there during the previous three years or if the CPIA has not been computed because of conflict. The IMF’s definition differs from the World Bank’s in that it uses the three-year CPIA average rather than the annual score.12

International Monetary Fund. Independent Evaluation Office

Abstract

The IMF’s role in fragile states, compared to other member countries, has been particularly important in: (i) providing support in early stages of macroeconomic stabilization after a period of conflict or a natural disaster; (ii) providing a macroeconomic framework valuable for coordinating policies within a country as well as for facilitating engagement by international partners; and (iii) helping to build basic policymaking and institutional capacity in the core areas of IMF expertise. In the view of most stakeholders, the IMF has played its role quite effectively in these areas, though concerns remain that its impact may not have reached full potential.

International Monetary Fund. Independent Evaluation Office

Abstract

The need for collaboration and coordination among development partners in FCS work is well recognized throughout the international donor community; it was highlighted by both the 2007 OECD Principles and the 2011 New Deal Principles. Given the limited capacity of many fragile states, all bilateral donors and multilateral agencies need to collaborate and coordinate, but the need is particularly relevant for the IMF, which is a relatively minor player both as a source of financing and as a provider of technical assistance. Moreover, cooperation to form a unified position can in some instances be the most effective way of engaging with FCS over the highly politically charged issues of corruption and governance-related institutional reform. Among the interviewees for this evaluation, virtually every mission chief or resident representative assigned to a fragile state was keenly aware of the need to collaborate with development partners in order to increase the effectiveness of IMF engagement.

International Monetary Fund. Independent Evaluation Office

Abstract

The IMF has provided unique and essential services to FCS to restore macroeconomic stability and rebuild core macroeconomic institutions as prerequisites for state building, playing a role in which no other institution can take its place. In this critical role, the IMF is broadly acknowledged to have had a high impact. While the IMF has provided relatively little direct financing, it has catalyzed donor support through its assessment of a country’s economic policies and prospects.

International Monetary Fund. Independent Evaluation Office

Abstract

This evaluation assesses the IMF’s work on countries in fragile and conflict-affected situations (FCS), addressing both (i) its engagement through surveillance, lending, and capacity development and (ii) the frameworks and procedures for its engagement. It finds that the IMF has provided unique and essential services to FCS to restore macroeconomic stability and rebuild core macroeconomic institutions as prerequisites for state building, playing a role in which no other institution can take its place. In this critical role, it is broadly acknowledged to have had a high impact. While the IMF has provided relatively little direct financing, it has catalyzed donor support through its assessment of a country’s economic policies and prospects. Notwithstanding this positive assessment, the IMF’s overall approach to its FCS work seems to have been conflicted. Not only has it failed consistently to make hard choices necessary to achieve full impact from its engagement in countries where success requires patient and dedicated attention over the long haul, but past efforts have not been sufficiently bold or adequately sustained, and the staff has tended to revert to treating fragile states using IMF-wide norms, rather than as countries needing special attention. The report proposes six recommendations to improve the effectiveness of the IMF’s FCS work: (i) to issue a statement of high-level commitment to FCS work for IMFC endorsement; (ii) to create an effective institutional mechanism with the mandate and authority to coordinate and champion such work; (iii) to develop comprehensive strategies for individual FCS; (iv) to adapt its lending toolkit to deliver more sustained financial support to FCS; (v) to take practical steps to increase the impact of its capacity development support to FCS; and (vi) to take steps to incentivize high-quality and experienced staff to work on individual FCS and find pragmatic ways of increasing field presence in high risk locations.

International Monetary Fund

The Role of the Fund in Governance Issues - Review of the Guidance Note - Preliminary Considerations - Background Notes