Key Findings
The overall impact of the IMF in fragile states
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.
Notwithstanding this positive assessment, the IMF’s overall approach to its FCS work seems conflicted. Even though the Fund has declared publicly that FCS would receive priority, it has not consistently made the hard choices necessary to achieve full impact from its engagement in countries where success requires patient and dedicated attention over the long haul. Past efforts to adapt IMF policies and practices to FCS needs 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, leaving questions about the Fund’s commitment in this area.
To be sure, the variable progress made by FCS to exit fragility reflects many factors, domestic and external, that lie outside the IMF’s control or mandate. This reality requires the Fund to be prepared to take a holistic approach in working with development partners to track broad governance-related issues, while being realistic about capacity and security constraints.
The adequacy of existing instruments for fragile states
Although there is a mismatch between the long-term patience required for IMF engagement and the short-term results-focused character of UCT arrangements, the IMF staff has generally been able to use its existing range of lending and non-lending instruments to respond to the needs of FCS. Indeed, at times the IMF has been nimble in meeting immediate financing needs, especially where donor support was strong. However, the application of conditionality has generally differed little from that in other countries, even though the completion rate of IMF-supported programs has been much lower. IEO interviews and survey results suggest that there is a tension within the institution over how much existing instruments can or should be tailored to the needs of fragile states, given concerns that setting fewer or sofer conditions could undermine the Fund’s leverage over domestic policy decisions and weaken the signaling role of UCT conditionality. There also seems to be a gap between instruments designed for rapid support, with limited conditions, and those for more sustained support, with much higher policy standards.
Capacity development in fragile states
Capacity development is probably the area where the IMF can play its greatest role in FCS, especially after initial macroeconomic stabilization is accomplished. IMF technical assistance faces large obstacles to its effectiveness in FCS, including these countries’ limited capacity, weak governance, and political instability. Even so, the delivery of TA has improved considerably, including through the greater deployment of regional experts and greater integration of TA with surveillance and program work, with area departments taking steps to involve functional departments and national authorities in designing country strategies.
IMF TA to fragile states has seen a substantial increase but has plateaued in more recent years despite large unmet needs. This seems to reflect concerns about the limited lasting impact of TA work in countries with low absorptive capacity, set against competing priorities for TA resources. There is still room to improve the impact of TA by better aligning the modality of its delivery with individual countries’ unique circumstances and needs (e.g., by making greater use of long-term resident advisors in some cases), by better tailoring capacity development work to local political and institutional conditions, and by integrating it further with surveillance and program work. The Fund’s increasing focus on TA accountability, including through results-based management, is in general a welcome step, but should be exercised realistically with FCS whose weak capacity militates against reliably producing quick results. Greater involvement of concerned Executive Directors could help facilitate coordination with donor countries in the provision of TA.
The country specificity of IMF advice and conditionality in fragile states
Work on FCS must be approached with humility and patience. Even where what should be done can be identified, how it should be done requires careful political economy analysis lest a wrong prioritization or wrong sequence of actions undermine the delicate balance of power in the country or overwhelm a government’s weak capacity. The 2012 Staff Guidance Note provides sensible guidance on the need for flexibility and realism, but the Fund’s interdepartmental review process still seems to have pushed for too much uniformity across countries, while the culture of the institution that prizes international best practice can pose obstacles to adopting realistic and politically feasible solutions. Many IMF policy notes and staff reports have been too “business as usual,” treating fragile states almost like any other country; they did not discuss sufficiently how policy advice or program design had been tailored to the political and social context of a particular country, as stipulated in the 2012 Staff Guidance Note.
Collaboration with development partners in fragile states
There is a wide acceptance of the need to collaborate intensively with development partners in order to increase the effective-ness of IMF engagement, but such collaboration has not been consistently achieved. In countries where a resident representative is assigned, there exists a formal or informal mechanism of consultation, with or without host government involvement. Even so, partner agencies often consider the dialogue to have been insufficiently interactive and the IMF staff to have been less than willing to engage in open dialogue on strategy. Collaboration sometimes has not gone much beyond information sharing. Particular concerns are that a fair amount of duplication has taken place in the delivery of TA and that not enough joint effort has been made to identify sources of political resistance to reform, search for realistic solutions, or forge a unified strategy for advancing politically challenging reforms. Effective collaboration has understandably been difficult, given the differing institutional mandates, priorities, and budget cycles of partners. Global forums exist to discuss these high-level issues, but the IMF has all but ceased to participate in them actively.
Management of human resources
While mission chiefs and resident representatives working on FCS are generally appreciated as effective and dedicated to making a difference, the IMF has experienced long-standing difficulties in attracting experienced staff to FCS work more broadly, and this has diminished the quality of support it provides to FCS members. Given the priority the institution places on advanced and globally systemic countries, and given the background of most IMF economists, high performers have gravitated toward working on large or advanced economies. This tendency has been perpetuated by the perception (substantiated by promotion records) that FCS work is undervalued by the institution and is not career-enhancing. Moreover, despite its labor-intensive nature, such work has not received additional staff resources, further diminishing its attractiveness as a potential country assignment. For their part, country officials complain about the high turnover and inexperience of team members. While the need to incentivize the staff to work on FCS has long been recognized and some concrete measures have been introduced, especially in relevant area departments, these difficulties persist. The IMF’s new HR strategy currently under development provides an important opportunity to effect a fundamental change in staff incentives through deeper changes in institution-wide HR policy and practice.
Handling of security issues in high-risk locations
The IMF’s security policy, with higher thresholds of safety than applied by many development partners, has raised frustration among the officials of countries affected by the Fund’s de facto travel bans and tension among partners who continue to operate in countries where the IMF is now physically absent. IMF decisions on whether to deploy staff in a highest-risk (HRL3) country (at present six countries) involve weighing the security risk (as determined by Security Services) against “the criticality of the planned activity” and “the importance of conducting the activity in the field (as opposed to elsewhere).” In practice, management has approved no surveillance, program, or TA mission to such countries. Seeing that many partners operate there and that IMF engagement is widely acknowledged to be critical, a decision not to deploy staff on the ground seems to reflect, at least in part, a low estimation of the importance of field presence relative to the security risk. The authorities of HRL3 countries are consistent in their complaints about the ineffectiveness and disruptiveness of engaging with the IMF in third countries. The IMF should recognize the real limitation on effective engagement stemming from a lack of field presence and find pragmatic ways to achieve valuable presence on the ground to meet critical needs while taking necessary steps—even at high resource cost—to minimize the risk exposure of its staff.
Recommendations
Although the IMF has rightly received positive marks overall for its contribution to addressing the complex issues facing fragile states, this evaluation concludes that, given the importance and persistent nature of the problem, the Fund should be prepared to make meaningful adjustments in how it engages with these countries on a bolder and more sustained basis than in the past. The IMF has at various times indicated the priority it attaches to FCS work, but it has not fully lived up to its public statements. The discrepancy between talk and action has left questions about the credibility of the IMF’s commitments in this area. To restore credibility with development partners as well as with the public, the IMF needs to send a clear signal of its commitment to FCS work.
To this end, the evaluation proposes six broad recommendations (Table 8). In making these proposals, the evaluation team acknowledges that much of the foregoing diagnosis of the IMF’s fragile state work is hardly new. Issues similar to those identified here have been raised repeatedly within the IMF at least since the 2008 staff review. Accordingly, the recommendations here focus on trying to build a more robust institutional commitment to FCS work. The shortcomings have persisted precisely because the institution has not developed a full consensus—among shareholders, management, and staf—that it has a continuing critical role to play in countries in fragile and conflict-affected situations even after basic macroeconomic stabilization has been achieved. Nor has it developed institutional mechanisms to ensure that good intentions to treat FCS with special attention are translated consistently into sustained action.
Recommendations
Recommendations
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Message of high-level commitment. Management and the Executive Board should reinforce that work on fragile states is a top priority for the IMF by issuing a statement of its importance, for IMFC endorsement, to guide the Fund’s fragile state work going forward. |
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Creation of an institutional mechanism. Management should give the IMF’s work on fragile states greater continuity and prominence by establishing an effective institutional mechanism with the mandate and authority to coordinate and champion such work. |
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Comprehensive country strategies. For work on individual fragile states, the IMF should build on ongoing area department initiatives to develop forward-looking, holistic country strategies that integrate the roles of policy advice, financial support, and capacity building as part of the Article IV surveillance process. These strategies would provide a platform for more actively involving concerned Executive Directors and a more robust framework for collaborating with development partners. |
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Financial support. The IMF should adapt its lending toolkit in ways that could deliver more sustained financial support to fragile states, including for those challenged to meet the requirements of upper-credit-tranche conditionality, and should proactively engage with stakeholders to mobilize broad creditor support for FCS with outstanding external arrears to official creditors, including the IMF. |
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Capacity development. The IMF should take practical steps to increase the impact of its capacity development support to fragile states, including increasing the use of on-the-ground experts, employing realistic impact assessment tools, and making efforts to ensure that adequate financial resources are available for capacity development work in these countries. |
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Human resources issues. The IMF should take steps to incentivize high-quality and experienced staff to work on individual fragile states, ensure that adequate resources are allocated to support their work, and find pragmatic ways of increasing field presence in high-risk locations while taking necessary security arrangements even at high cost. |
Recommendations
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Message of high-level commitment. Management and the Executive Board should reinforce that work on fragile states is a top priority for the IMF by issuing a statement of its importance, for IMFC endorsement, to guide the Fund’s fragile state work going forward. |
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Creation of an institutional mechanism. Management should give the IMF’s work on fragile states greater continuity and prominence by establishing an effective institutional mechanism with the mandate and authority to coordinate and champion such work. |
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Comprehensive country strategies. For work on individual fragile states, the IMF should build on ongoing area department initiatives to develop forward-looking, holistic country strategies that integrate the roles of policy advice, financial support, and capacity building as part of the Article IV surveillance process. These strategies would provide a platform for more actively involving concerned Executive Directors and a more robust framework for collaborating with development partners. |
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Financial support. The IMF should adapt its lending toolkit in ways that could deliver more sustained financial support to fragile states, including for those challenged to meet the requirements of upper-credit-tranche conditionality, and should proactively engage with stakeholders to mobilize broad creditor support for FCS with outstanding external arrears to official creditors, including the IMF. |
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Capacity development. The IMF should take practical steps to increase the impact of its capacity development support to fragile states, including increasing the use of on-the-ground experts, employing realistic impact assessment tools, and making efforts to ensure that adequate financial resources are available for capacity development work in these countries. |
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Human resources issues. The IMF should take steps to incentivize high-quality and experienced staff to work on individual fragile states, ensure that adequate resources are allocated to support their work, and find pragmatic ways of increasing field presence in high-risk locations while taking necessary security arrangements even at high cost. |
Not all the measures recommended would require additional resources but some would. With a budget fixed in real terms, giving greater priority to fragile state work would inevitably mean allocating fewer resources to competing activities. A clear commitment by management and the Board attesting to the importance of FCS work could guide the allocation of scarce resources when hard choices need to be made among competing ends.
Recommendation 1: Management and the Executive Board should reinforce that work on fragile states is a top priority for the IMF by issuing a statement of its importance, for IMFC endorsement, to guide the Fund’s fragile state work going forward.
It bears repeating that the issue of conflict and state fragility has become one of the most urgent global issues of the day and will likely remain so for some time. The idea that fragile states require greater focused attention is widely supported in the international community. As a member of the international community, the IMF needs to work with partners within a common commitment, playing its critical roles that are widely accepted and valued. A statement issued by management and the Executive Board, and endorsed by the International Monetary and Financial Committee (IMFC), would signal the IMF’s commitment to play its full part. Such a statement should embody the idea that achieving macroeconomic stability and building core institutions falls squarely within the IMF’s mandate; that crises in many fragile states are not only humanitarian but also economic, with serious regional and potentially global implications; and that fragile states, given the complexity and enormity of their challenges, deserve and demand the best the IMF can offer, requiring patient and sustained commitment.
Recommendation 2: Management should give the IMF’s work on fragile states greater continuity and prominence by establishing an effective institutional mechanism with the mandate and authority to coordinate and champion such work.
Past efforts to strengthen the IMF’s work on FCS have not been sustained because of a lack of a clear consensus within the institution, so that implementation has relied too much on individuals. The work takes of when those placed in charge develop interest and expertise, and wanes when they are replaced by those less so inclined. Prospects for reliably delivering on a strong commitment to FCS work would be bolstered by establishing an effective institutional mechanism to give continuity and prominence to the work. Such a mechanism could take different forms, but one possible model would be an interdepartmental group of the type exemplifed by the Fund’s Committee for Capacity Building, consisting of senior (B5 or B4) representatives of area and key functional departments, chaired by a deputy managing director. Regardless of the exact modality, such an institutional mechanism must have the mandate and authority to coordinate and champion operational work on FCS, share knowledge and experience on FCS, and serve as development partners’ first point of contact at the IMF on strategic and broad policy-related FCS issues.
Among the immediate tasks could be to:
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▶ Devise a long-term strategy to raise the profile of FCS work in the IMF, including how best to organize interdepartmental collaboration and how to ensure adequate commitment of budgetary resources for FCS among competing priorities. It could consider if the Fund would benefit from having an autonomous unit (not unlike the Risk Unit) dedicated to FCS issues. The experience of peer institutions, including most development banks,62 argues in favor of creating such a unit. On the other hand, creating a separate unit away from the center of operational activity could increase silos and potentially diminish its effectiveness.
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▶ Assess whether lending policies are appropriately tailored to FCS needs, taking account of the nature of their fragility. In this context, an important issue is whether the interdepartmental review process is pushing for too much uniformity across countries and, if so, how the process could be strengthened to give more recognition to circumstances unique to each fragile state.
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▶ Review the 2012 Staff Guidance Note, including how well it has been implemented in practice. More than five years have passed since the issuance of this note, and much experience has been gained in applying the guidelines to real-life situations. Some staff members have characterized it as too general to be of practical use, while others have said that some of its suggestions (e.g., calls for “quick wins”) are unrealistic. The role of the staff in donor coordination, and how the staff should approach the issue of corruption in fragile states, should be clearly spelled out if the note is revised.
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▶ Assume a central role in interagency coordination. Although collaboration must largely take place at the country level, it is also needed at the institutional level on strategic matters. For this it is important to reenergize the IMF’s participation in global forums on FCS issues, such as the International Dialogue on Peacebuilding and Statebuilding (and the constituent International Network on Conflict and Fragility), including by subscribing to the New Deal Principles for Engagement in Fragile States. The payof from such strategic engagement may not always be immediate, as it rarely has operational implications and such forums often turn into mere talking shops. Even so, the IMF must be an active participant in the global debate on FCS issues and contribute to improving the effectiveness of the international community’s engagement with FCS by sharing its experience and analytical work.
Recommendation 3: For work on individual fragile states, the IMF should build on ongoing area department initiatives to develop forward-looking, holistic country strategies that integrate the roles of policy advice, financial support, and capacity building as part of the Article IV surveillance process. These strategies would provide a platform for more actively involving concerned Executive Directors and a more robust framework for collaborating with development partners.
To be effective, the IMF’s work on individual fragile states should be framed within a forward-looking strategy and positioned as part of the international community’s concerted efforts. Such strategies would identify challenges, constraints, and risks, and lay out an integrated approach of policy advice, financial support, and capacity building. Area departments are increasingly moving in this direction by preparing country engagement notes and including them in Article IV and UFR staff reports. These efforts should become an integral part of the IMF’s mode of operation in all fragile states. One benefit would be to allow concerned Executive Directors to become more directly supportive of the IMF’s work on FCS, especially in the capacity development area, facilitating the IMF’s collaboration with the governments they represent and for mobilizing donor support where necessary.
Recommendation 4: The IMF should adapt its lending toolkit in ways that could deliver more sustained financial support to fragile states, including for those challenged to meet the requirements of upper-credit-tranche conditionality, and should proactively engage with stakeholders to mobilize broad creditor support for FCS with outstanding external arrears to official creditors, including the IMF.
Establishing a special facility tailored to the needs of FCS for more flexible and longer-term or grant-like financing would send a strong signal of the IMF’s commitment to FCS, but it is not clear that adequate resources for this purpose could be mobilized from the membership. If a dedicated instrument proves impracticable to establish, a more pragmatic approach may be to find ways to modify existing instruments to better meet FCS needs, although this may still require the IMF to raise additional PRGT trust fund resources. The IMF’s current review of low-income country facilities provides an opportunity to consider alternative approaches.
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▶ The greatest need would seem to be to reduce the gap between the rapid financing facilities (that is, the RCF/ RFI) and upper-credit-tranche conditionality programs under the ECF or EFF. Options could include: (i) raising the annual limit on access under the RCF in the face of an urgent balance of payments need (which could be obtained through a repeat purchase, provided that the country establishes a track record of adequate macroeconomic policies for a period of six months, for example, through a Staf-Monitored Program); and (ii) allowing access to a shorter (say, one-year) UCT arrangement as a bridge to a possible ECF arrangement, without requiring a full set of policies for the member to achieve a stable and sustainable macroeconomic position in two years or less, as stipulated under current guidelines for access to the SCF.
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▶ There could also be value in looking for ways to help reduce short-term adjustment needs and make more room for growth-friendly spending, including by extending the repayment period under the PRGT.
For countries that have external arrears to official creditors, including the IMF, the Fund should respond proactively to windows of opportunity provided by political change to mobilize broad creditor support, including helping to secure agreement on the amount of arrears and the arrangement of bridge financing, as necessary for the restoration of access to Fund resources.
Short of providing grants—which the IMF is not equipped to do—giving FCS significantly greater access to IMF financing would place greater demands on the PRGT and increase risks by raising the country’s indebtedness and the Fund’s credit exposure. These costs and risks need to be balanced against the broader benefits to the global community of more sustained and patient IMF support for fragile states.
Recommendation 5: The IMF should take practical steps to increase the impact of its capacity development support to fragile states, including increasing the use of on-the-ground experts, employing realistic impact assessment tools, and making efforts to ensure that adequate financial resources are available for capacity development work in these countries.
Tough the IMF’s TA delivery in fragile states has improved considerably in recent years, additional efforts are warranted to continue to raise the impact of the TA provided to these countries. Extensive on-the-ground implementation support, including the use of long-term resident advisors, is expensive and requires long-term commitment, but seems to be the mode of delivery that works best in an environment of weak capacity. Increasing the use of impact assessment tools is welcome, but must take account of the characteristics of FCS, where returns can take longer to realize. The IMF should find ways to make more flexible use of TA funds contributed by donors, who may express their preference for recipients or prescribe how the funds are to be used. Additional resources will be needed, but could be found through various channels if the commitment is there. In particular, one way to mobilize additional resources would be to solicit funds to establish a multi-donor trust fund dedicated to capacity building for FCS use. Alternatively, additional TA resources for FCS could be opened up by inviting middle- and high-income countries to pay voluntarily for some types of IMF technical assistance and training. Such payments could be channeled to a TA trust fund dedicated to FCS use.
Further, there is scope for improving the IMF’s role in donor coordination in the delivery of TA. While a resident representative plays a useful role in donor coordination on the ground, there is a limit to what he or she can do when partners differ in their mandates, priorities, and budget cycles. More formalized and binding cooperation between organizations at headquarters level would be helpful to ensure more consistent coordination. A promising model might be the recently launched “Platform for Collaboration on Tax,” under which providers coordinate their technical assistance for building tax administration in developing and emerging market countries (IMF and others, 2016a; 2016b).63 Executive Directors from donor countries could also play a more active role in promoting collaboration between the IMF and the aid agencies of the governments they represent. Staff could use Article IV staff reports for this purpose, by spelling out more clearly the capacity development strategies and the challenges faced, as noted above (see Recommendation 3).
Recommendation 6: The IMF should take steps to incentivize high-quality and experienced staff to work on individual fragile states, ensure that adequate resources are allocated to support their work, and find pragmatic ways of increasing field presence in high-risk locations while taking necessary security arrangements even at high cost.
Tough the difficulty of recruiting experienced staff to work on FCS has long been recognized, what has already been done to address the issue has not fundamentally changed the IMF’s mindset, culture, or practices. Area departments have tried to adapt as they can but a fundamental change is needed at the institutional level. Such a change must start with a strong signal of the institutional importance of the work from the Managing Director and the Executive Board (see Recommendation 1). To follow through, FCS work must be much better recognized in performance assessments and promotion decisions as being complex and taxing, and requiring a high degree of maturity as well as managerial, diplomatic, interpersonal, and communication skills. As such, work on FCS should be designated as a key component of a fungible macroeconomist’s career path, and high-quality work performed on FCS should be fully valued in promotion decisions by the Review and Senior Review Committees.
The IMF HR strategy currently being developed provides an important opportunity to achieve these objectives. Elements of such a strategy that could be relevant include giving greater weight to institutional priorities in country assignments, enhancing financial incentives to take on high-intensity and hardship assignments, and directly linking the effective completion of an FCS assignment to future career advancements. It could also be helpful to give greater weight in recruitment to experience and expertise in low-income and fragile states, while enhancing the career path for mid-career entrants.
Work on FCS can be particularly demanding in terms of labor intensity, frequent travel, and security risk. To make such assignments more attractive, along with providing the career and financial incentives noted above, the IMF needs to take steps to ensure that adequate staff resources are provided to country work in individual fragile states. Realistic benchmarks should be established for the size of mission teams and for the experience level and turnover of staff on FCS assignments. Ideally, UFR missions to fragile states where public finances are central should include an experienced FAD economist. While FCS experience could be valuable at an early stage of their careers, those in the Economist Program should participate in UFR missions to FCS only when the mission is otherwise fully staffed. An acknowledgment of local capacity limitations, and the potential regional repercussions of a state’s fragility, should help shape the IMF-wide criteria for determining the size of staff resources allocated to a country.
Helping FCS has been deemed an international priority, and the IMF has a key role to play in these international efforts. The business case for IMF field presence is strong in high-risk locations where development partners operate. The IMF must find pragmatic ways of increasing field presence in such locations, which could include taking intermediate steps such as short visits by senior staff to engage at high levels at critical junctures. Ensuring strong security protection in high-risk locations will incur high costs, but is essential so that more staff members feel safe and willing to travel to, and work in, these countries, and so that management feels more comfortable in authorizing travel where justified by the need.
A Note on Country Coverage
In proposing these recommendations, the IEO is aware of the difficulty that may arise in judging which member countries should be considered fragile for policy purposes. The IEO agrees that the IMF does not need to devise its own unique definition of fragile states. For internal purposes, the current approach based primarily on the work of the World Bank appears to have served the IMF well. In applying any policy developed for FCS in a specific instance, the fragility characteristics of each country should be carefully examined to determine if the policy should apply to that country, irrespective of whether it appears on the IMF’s internal list.
IMF Relations with Fragile States1
Thirty-nine fragile states, as identified by the 2015 SPR list.
FAD=Fiscal Affairs Department; LEG=Legal Department; MCM=Monetary and Capital Markets Department; STA=Statistics Department.
The IMF Regional Representative offce is based in Fiji and covers 12 IMF member countries, including Kiribati, Marshall Islands, Micronesia, Solomon Islands, and Tuvalu.
Office locally staffed.
A territory that is not an independent member of the Fund.
Covered by the Resident Representative based in New Delhi, India.
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| Africa | Angola | SBA (2012) | B2 | Y | 12 months (23-Jan-17) | FAD, MCM, STA | Not applicable | ||
| Burundi | ECF (2016) | A15 | Y | HRL1 (Lusaka, Zambia) | Program (25-Aug-14) | FAD, LEG, MCM, STA | (August 2005/ January 2009) | ||
| Central African Republic | RCFs (2014/2015) ECF** | A15 | Y | HRL2 (Bangui, Central African Republic) | 12 months (20-Jul-16) | FAD, MCM, STA | (September 2007/ June 2009) | ||
| Chad | SMP (2014) ECF** | A15 | Y | Program (22-Jul-16) | FAD, MCM, STA | (May 2001/ April 2015) | |||
| Comoros* | RCF (2015) SMP (2017) | A15 | Y | 12 months (7-Dec-16) | FAD, LEG, MCM, STA | (June 2010/ December 2012) | |||
| Congo, Dem. Rep. of | SMP (2008) ECF (2012) | B2 | Y | HRL1 (mission suspended) | 12 months (2-Sep-15) | FAD, LEG, MCM, STA | (July 2003/ July 2010) | ||
| Congo, Republic of | SMP (2008) ECF (2011) | A15 | Y | 12 months (17-Jul-15) | FAD, MCM, STA | (March 2006/ January 2010) | |||
| Côte d’Ivoire | RCF (2011) ECF, EFF** | B2 | Y | Program (25-May-16) | FAD, LEG, MCM, STA | (March 2009/ June 2012) | |||
| Eritrea | Never a program | A15 | N | 12 months (7-Dec-09) | FAD, LEG, MCM, STA | Not applicable | |||
| Guinea | SMP (2011) RCF (2014) ECF (2016) ECF** | A15 | Y | 12 months (22-Jul-16) | FAD, LEG, MCM, STA | (December 2000/ September 2012) | |||
| Guinea-Bissau | SMP (2006) RCF (2014) ECF** | A15 | Y | Program (11-Dec-17) | FAD, LEG, MCM, STA | (December 2000/ December 2010) | |||
| Liberia | SMP (2008) RCF (2015) ECF (2017) | A15 | Y | Program (8-Jul-16) | FAD, LEG, MCM, STA | (March 2008/ June 2010) | |||
| Madagascar | RCFs (2014/2015) SMP (2016) ECF** | A15 | Y | Program (28-Jun-17) | FAD, LEG, MCM, STA | (December 2000/ October 2004) | |||
| Malawi | ECF (2017) | A15 | Y | Program (11-Dec-15) | FAD, LEG, MCM, STA | (December 2000/ August 2006) | |||
| Mali | RCFs (2013) ECF** | A15 | Y | HRL1 | Program (2-Dec-15) | FAD, LEG, MCM, STA | (September 2000/ March 2003) | ||
| Sao Tome & Principe* | ECF** | A15 | N | Program (10-Jun-16) | FAD, LEG, MCM, STA | (December 2000/ March 2007) | |||
| Sierra Leone | ECF** | B2 | Y | Program (1-Jul-16) | FAD, LEG, MCM, STA | (March 2002/ December 2006) | |||
| South Sudan | Never a program | B2 | Y | HRL2 (Nairobi, Kenya) | 12 months (15-Mar-17) | FAD, LEG, MCM, STA | Not applicable | ||
| Togo | SMP (2007) ECF** | A15 | Y | Program (5-May-17) | FAD, LEG, MCM, STA | (November 2008/ December 2010) | |||
| Zimbabwe | SBA (2000) SMP (2014) | B2 | Y | 12 months (5-Jul-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Asia and Pacific | Kiribati* | Never a program | A14 | Y3 | 12 months (8-Dec-17) | FAD, LEG, MCM, STA | Not applicable | ||
| Marshall Islands* | Never a program | A14 | Y3 | 24 months (25-Jul-16) | FAD, LEG, MCM, STA | Not applicable | |||
| Micronesia* | Never a program | A15 | Y3 | 24 months (1-Sep-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Myanmar | SMP (2013) | A15 | Y | 12 months (25-Jan-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Nepal | PRGF (2007) RCFs (2010/2015) | A15 | Y6 | 12 months (27-Mar-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Solomon Islands* | ECF (2016) | B1 | Y3 | 12 months (21-Mar-16) | FAD, LEG, MCM, STA | Not applicable | |||
| Timor-Leste* | Never a program | A14 | N | 12 months (4-Dec-17) | FAD, MCM, STA | Not applicable | |||
| Tuvalu* | Never a program | A14 | Y3 | 24 months (12-Sep-16) | FAD, MCM, STA | Not applicable | |||
| Europe | Bosnia & Herzegovina | SBA (2012/2015) EFF | A15 | Y | Program (23-Oct-15) | FAD, LEG, MCM, STA | Not applicable | ||
| Kosovo | SMP (2011) SBA (2012/2013/2017) | A15 | Y | Program (20-May-15) | FAD, LEG, MCM, STA | Not applicable | |||
| Middle East and Central Asia | Afghanistan | SMP (2015) ECF* | A15 | N4 | HRL3 (Dubai, UAE) | Program (8-Dec-17) | FAD, LEG, MCM, STA | (July 2007/ January 2010) | |
| Iraq | SMP (2016) SBA** | A15 | Y | HRL3 (Amman, Jordan) | Program (1-Aug-17) | FAD, MCM, STA | Not applicable | ||
| Libya | Never a program | A15 | N | HRL3 (Amman, Jordan) | 12 months (17-May-13) | FAD, LEG, MCM, STA | Not applicable | ||
| Somalia | SMP** | B2 | Y | HRL3 (Nairobi, Kenya) | 12 months (7-Sep-16) | FAD, LEG, MCM, STA | Not applicable | ||
| Sudan | SMP (2014) | A15 | Y | 12 months (29-Nov-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Syria | SBA (1964) | B2 | N | HRL3 (mission suspended) | 12 months (26-Feb-10) | FAD, LEG, MCM, STA | Not applicable | ||
| West Bank and Gaza5 | Not applicable | A15 | Y | HRL1 | Not applicable | FAD, MCM, STA | Not applicable | ||
| Yemen, Republic of | RCFs (2012/2015) ECF | B2 | Y | HRL3 (Riyadh, Saudi Arabia) | Program (2-Sep-14) | FAD, MCM, STA | Not applicable | ||
| Western Hemisphere | Haiti | RCF (2016) ECF | A15 | Y | HRL1 | 24 months (18-May-15) | FAD, LEG, MCM, STA | (November 2006/ June 2009) | |
| Total number | 39 |
Thirty-nine fragile states, as identified by the 2015 SPR list.
FAD=Fiscal Affairs Department; LEG=Legal Department; MCM=Monetary and Capital Markets Department; STA=Statistics Department.
The IMF Regional Representative offce is based in Fiji and covers 12 IMF member countries, including Kiribati, Marshall Islands, Micronesia, Solomon Islands, and Tuvalu.
Office locally staffed.
A territory that is not an independent member of the Fund.
Covered by the Resident Representative based in New Delhi, India.
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| Africa | Angola | SBA (2012) | B2 | Y | 12 months (23-Jan-17) | FAD, MCM, STA | Not applicable | ||
| Burundi | ECF (2016) | A15 | Y | HRL1 (Lusaka, Zambia) | Program (25-Aug-14) | FAD, LEG, MCM, STA | (August 2005/ January 2009) | ||
| Central African Republic | RCFs (2014/2015) ECF** | A15 | Y | HRL2 (Bangui, Central African Republic) | 12 months (20-Jul-16) | FAD, MCM, STA | (September 2007/ June 2009) | ||
| Chad | SMP (2014) ECF** | A15 | Y | Program (22-Jul-16) | FAD, MCM, STA | (May 2001/ April 2015) | |||
| Comoros* | RCF (2015) SMP (2017) | A15 | Y | 12 months (7-Dec-16) | FAD, LEG, MCM, STA | (June 2010/ December 2012) | |||
| Congo, Dem. Rep. of | SMP (2008) ECF (2012) | B2 | Y | HRL1 (mission suspended) | 12 months (2-Sep-15) | FAD, LEG, MCM, STA | (July 2003/ July 2010) | ||
| Congo, Republic of | SMP (2008) ECF (2011) | A15 | Y | 12 months (17-Jul-15) | FAD, MCM, STA | (March 2006/ January 2010) | |||
| Côte d’Ivoire | RCF (2011) ECF, EFF** | B2 | Y | Program (25-May-16) | FAD, LEG, MCM, STA | (March 2009/ June 2012) | |||
| Eritrea | Never a program | A15 | N | 12 months (7-Dec-09) | FAD, LEG, MCM, STA | Not applicable | |||
| Guinea | SMP (2011) RCF (2014) ECF (2016) ECF** | A15 | Y | 12 months (22-Jul-16) | FAD, LEG, MCM, STA | (December 2000/ September 2012) | |||
| Guinea-Bissau | SMP (2006) RCF (2014) ECF** | A15 | Y | Program (11-Dec-17) | FAD, LEG, MCM, STA | (December 2000/ December 2010) | |||
| Liberia | SMP (2008) RCF (2015) ECF (2017) | A15 | Y | Program (8-Jul-16) | FAD, LEG, MCM, STA | (March 2008/ June 2010) | |||
| Madagascar | RCFs (2014/2015) SMP (2016) ECF** | A15 | Y | Program (28-Jun-17) | FAD, LEG, MCM, STA | (December 2000/ October 2004) | |||
| Malawi | ECF (2017) | A15 | Y | Program (11-Dec-15) | FAD, LEG, MCM, STA | (December 2000/ August 2006) | |||
| Mali | RCFs (2013) ECF** | A15 | Y | HRL1 | Program (2-Dec-15) | FAD, LEG, MCM, STA | (September 2000/ March 2003) | ||
| Sao Tome & Principe* | ECF** | A15 | N | Program (10-Jun-16) | FAD, LEG, MCM, STA | (December 2000/ March 2007) | |||
| Sierra Leone | ECF** | B2 | Y | Program (1-Jul-16) | FAD, LEG, MCM, STA | (March 2002/ December 2006) | |||
| South Sudan | Never a program | B2 | Y | HRL2 (Nairobi, Kenya) | 12 months (15-Mar-17) | FAD, LEG, MCM, STA | Not applicable | ||
| Togo | SMP (2007) ECF** | A15 | Y | Program (5-May-17) | FAD, LEG, MCM, STA | (November 2008/ December 2010) | |||
| Zimbabwe | SBA (2000) SMP (2014) | B2 | Y | 12 months (5-Jul-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Asia and Pacific | Kiribati* | Never a program | A14 | Y3 | 12 months (8-Dec-17) | FAD, LEG, MCM, STA | Not applicable | ||
| Marshall Islands* | Never a program | A14 | Y3 | 24 months (25-Jul-16) | FAD, LEG, MCM, STA | Not applicable | |||
| Micronesia* | Never a program | A15 | Y3 | 24 months (1-Sep-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Myanmar | SMP (2013) | A15 | Y | 12 months (25-Jan-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Nepal | PRGF (2007) RCFs (2010/2015) | A15 | Y6 | 12 months (27-Mar-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Solomon Islands* | ECF (2016) | B1 | Y3 | 12 months (21-Mar-16) | FAD, LEG, MCM, STA | Not applicable | |||
| Timor-Leste* | Never a program | A14 | N | 12 months (4-Dec-17) | FAD, MCM, STA | Not applicable | |||
| Tuvalu* | Never a program | A14 | Y3 | 24 months (12-Sep-16) | FAD, MCM, STA | Not applicable | |||
| Europe | Bosnia & Herzegovina | SBA (2012/2015) EFF | A15 | Y | Program (23-Oct-15) | FAD, LEG, MCM, STA | Not applicable | ||
| Kosovo | SMP (2011) SBA (2012/2013/2017) | A15 | Y | Program (20-May-15) | FAD, LEG, MCM, STA | Not applicable | |||
| Middle East and Central Asia | Afghanistan | SMP (2015) ECF* | A15 | N4 | HRL3 (Dubai, UAE) | Program (8-Dec-17) | FAD, LEG, MCM, STA | (July 2007/ January 2010) | |
| Iraq | SMP (2016) SBA** | A15 | Y | HRL3 (Amman, Jordan) | Program (1-Aug-17) | FAD, MCM, STA | Not applicable | ||
| Libya | Never a program | A15 | N | HRL3 (Amman, Jordan) | 12 months (17-May-13) | FAD, LEG, MCM, STA | Not applicable | ||
| Somalia | SMP** | B2 | Y | HRL3 (Nairobi, Kenya) | 12 months (7-Sep-16) | FAD, LEG, MCM, STA | Not applicable | ||
| Sudan | SMP (2014) | A15 | Y | 12 months (29-Nov-17) | FAD, LEG, MCM, STA | Not applicable | |||
| Syria | SBA (1964) | B2 | N | HRL3 (mission suspended) | 12 months (26-Feb-10) | FAD, LEG, MCM, STA | Not applicable | ||
| West Bank and Gaza5 | Not applicable | A15 | Y | HRL1 | Not applicable | FAD, MCM, STA | Not applicable | ||
| Yemen, Republic of | RCFs (2012/2015) ECF | B2 | Y | HRL3 (Riyadh, Saudi Arabia) | Program (2-Sep-14) | FAD, MCM, STA | Not applicable | ||
| Western Hemisphere | Haiti | RCF (2016) ECF | A15 | Y | HRL1 | 24 months (18-May-15) | FAD, LEG, MCM, STA | (November 2006/ June 2009) | |
| Total number | 39 |
Thirty-nine fragile states, as identified by the 2015 SPR list.
FAD=Fiscal Affairs Department; LEG=Legal Department; MCM=Monetary and Capital Markets Department; STA=Statistics Department.
The IMF Regional Representative offce is based in Fiji and covers 12 IMF member countries, including Kiribati, Marshall Islands, Micronesia, Solomon Islands, and Tuvalu.
Office locally staffed.
A territory that is not an independent member of the Fund.
Covered by the Resident Representative based in New Delhi, India.
The IMF’S Institutional Learning on FCS Work
Since 2008, IMF staff has conducted three reviews of its work on fragile states. The first of these observed that although the IMF’s engagement with fragile states had been broadly favorable, there was room for strengthening program implementation in fragile states (IMF, 2008a). It noted that the structural reform agenda might have been overambitious in some cases, given the capacity constraints, while the attention paid to public financial management, governance, and generating the political consensus for reform might have been insufficient. It further noted that while the IMF had not adopted a differentiated policy on fragile states, the Medium-Term Strategy called for greater flexibility in program design and emphasized the need to coordinate with other institutions to complement the IMF’s expertise because many issues were developmental or political in nature. The review concluded by proposing a new instrument to engage with fragile states that involved a more graduated and longer-term approach than the existing range of instruments.
The 2011 review was a landmark document that signaled an intensification of the IMF’s efforts to improve its engagement with fragile states (IMF, 2011a). It concluded that greater flexibility was needed in program design along with fuller attention to the political context (“staff reports should explain how program design has been tailored to the political and social context, informed by an assessment of the political situation”). A gradual and realistic approach to reforms was to be maintained even after transition to an ECF-supported program. The 2011 review also called for closer coordination with donors, particularly in the field, to foster prioritization of key objectives, noting the need for the IMF to have “a more effective field presence,” including in the provision of technical assistance. To incentivize staff to work on fragile states, it called for “a clear signal that the institution values the work done on fragile states, including by favorably recognizing such work in promotion decisions,” while adding that “bringing about changes to the Fund’s work in fragile situations will require the institution to change its mindset.”
The 2011 review led to the 2012 issuance of a Staff Guidance Note on the Fund’s Engagement with Countries in Fragile Situations (IMF, 2012). Among the key points in the Guidance Note are:
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▶ Work in fragile states should be guided by (i) attention to the political economy; (ii) the content and pace of reforms that reflect security and social needs as well as capacity constraints; (iii) approaches conducive to sustained engagement; and (iv) close coordination with donors.
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▶ Effective engagement requires identification and regular updates of the country’s main fragilities and of the authorities’ capacity and commitment, including by drawing on analysis from donors, academics, and other relevant sources.
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▶ Strong outreach by mission teams and resident representatives with local civil society, parliamentarians, and academics can help build support for the reform program and increase understanding of the role of the IMF in the reform process.
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▶ Capacity building should be an integral part of the Fund’s engagement and is to be guided by: (i) close attention to absorptive capacity; (ii) well-tailored TA aligned with program objectives; (iii) involving authorities in preparing a medium-term plan; (iv) reliance on resident advisors (“boots on the ground”); and (v) donor coordination.
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▶ Policy notes should address the nature of fragility, political and social context, and aspects of donor coordination. Documentation for a request for a new arrangement should include a brief discussion of the overall strategy that would help the country transition out of fragility.
The 2015 review, the last of the three, was a “stocktaking” exercise to assess how the 2012 Guidance Note had been implemented in practice (IMF, 2015c). It observed, for example, that regional technical assistance centers had allowed greater responsiveness to member circumstances and that capacity development was increasingly aligned with program objectives, while noting that there was a large unmet demand for resident advisors. Authorities and mission chiefs saw inadequate access of FCS to IMF resources as the key shortcoming of the IMF’s available lending tools. In terms of HR issues, the 2015 review highlighted the difficulties experienced by mission chiefs in recruiting economists and resident representatives for FCS assignments, given the perceived adverse impact of such assignments on career prospects. To better integrate technical assistance with area department work, the 2015 review called for a targeted approach in which it would become a standard practice for a desk economist to participate in TA missions and for TA experts to participate in area department missions.
The IMF has been making efforts to strengthen internal capacity for its work on fragile states, building on the extensive knowledge of the macroeconomics of LICs (IMF, 2003). SPR has maintained an internal website (Low-Income Country Collaboration Site) “designed to encourage cross-pollination of ideas on analytical work and recent developments,” where analytical papers produced by staff on fragile states are posted; however, the knowledge exchange site dedicated to fragile states has not always been kept up to date. Following the 2015 staff review, AFR developed its own guidance note on “engagement with fragile states,” highlighting the key points that staff should be aware of. In addition, SPR, in collaboration with the Research Department, has hosted periodic seminars involving prominent outside experts to discuss development challenges facing fragile and other LICs, and the Institute for Capacity Development has been offering a limited number of internal economics training courses on LIC topics with relevance for fragile states.
Summaries of Country Case Studies1
Afghanistan
When the international community reengaged with Afghanistan in 2001, the country was in a perilous state after more than two decades of conflict. Early in the reconstruction process, the Afghan government took advantage of international support to make impressive strides in rebuilding institutions and implementing sound economic policies. The IMF played a crucial role by providing policy advice and technical assistance that promoted macroeconomic stability, laid the foundations for economic growth, and strengthened the government’s capacity. By 2004, the government had introduced a new currency, made ambitious tax reforms, and largely achieved macroeconomic stability. The IMF’s supportive role has been widely acknowledged.
Starting in the mid-2000s, however, the rate of progress slowed amid a worsening security situation. By 2012, when the Fund’s ECF-supported program fell of track, longstanding vulnerabilities became more evident. Given the large role played by the United States in setting the overarching strategy for Afghanistan, the IMF’s ability to influence the trajectory of economic policy has been constrained. Even so, in hindsight, the IMF could have done more to strengthen financial supervision and provided Afghan officials and donors with more candid and realistic assessments about the country’s economic prospects and vulnerabilities. The IMF’s chief medium-term goals in Afghanistan, including achieving fiscal sustainability, boosting economic growth, and maintaining financial stability, have been elusive.
Angola
Angola’s relationship with the IMF has varied significantly since the civil war ended in 2002. Initially, attempts were made to engage with the authorities through SMPs, but performance proved unsatisfactory. This was followed by a relatively successful SBA in 2009 and a constructive surveillance dialogue since 2012.
The lack of early success stemmed partly from the IMF’s overestimation of the authorities’ capacity to deliver the ambitious reforms that were urged by the Fund in the face of the political, social and institutional difficulties arising from the almost 30 years of civil war. Issues of ownership of reforms and the availability of alternative financing sources also played a role. The SBA helped Angola stabilize its economy in the wake of an oil price collapse, but it achieved less on the structural reform front. The country’s need for financial support diminished after oil prices recovered.
Officials considered IMF policy advice to have been generally sound, although issues of timing needed to be given greater weight. They valued IMF TA highly. In interviews with the evaluation team, some raised concerns regarding the IMF’s responsiveness to TA requests and the need for practical implementation support. Cooperation between the IMF and partners had been good. Staff outreach efforts were appreciated and could have been stronger.
Bosnia and Herzegovina
The end of a 44-month-long war in 1995 lef Bosnia and Herzegovina with a devastated economy, a highly-fragmented society, and a highly complex government structure (as agreed under the Dayton Accords), consisting of the state, two autonomous entities, and a local self-governing area. The IMF immediately provided timely technical assistance for the creation of a central bank and other policy institutions essential for a functioning economy, even though initial attempts to engage in a program relationship were repeatedly frustrated by a lack of cooperation between the two autonomous entities.
Over the subsequent 22 years, the Fund supported the country with policy advice, financing, and technical assistance. Under a succession of IMF-supported programs, Bosnia and Herzegovina achieved a degree of macroeco-nomic stability, recorded several years of strong growth, and weathered bouts of economic difficulty; above all, it has been able to establish a functioning market economy. Even so, given the fragmentation of national decision making, program implementation was often problematic and the pace of any reform was slow. The IMF staff persevered and remained engaged with the country despite the obstacles. Most observers agree that, under Bosnia and Herzegovina’s difficult circumstances, the IMF performed well as a lever for reform, as an anchor for policy making (for example, in counterbalancing populist tendencies), and even as coordinator and mediator between different government levels or entities in the face of centrifugal forces.
Cambodia
Cambodia emerged in the early 1990s from decades of political instability that included a genocide and successive civil conflicts. The IMF has been actively engaged in Cambodia since 1993, initially with financial arrangements. Since 2003, persistent external arrears to official creditors have prevented the country from accessing Fund resources (this situation will likely remain unless political differences with the creditors are resolved), but the Fund has continued to engage through surveillance and technical assistance.
The IMF has played an important role in Cambodia in helping the authorities with appropriate macroeconomic policies and in building key economic institutions. The country has enjoyed strong economic performance during the last 20 years while reducing poverty significantly. Tough poverty remains high and there are pervasive governance shortcomings, it has overcome the legacy of the conflict years and is now no longer considered a fragile state.
Chad
Chad presents a classic case of persistent state fragility. It is located at the center of a volatile region, with serious security challenges and large populations of refugees and internally displaced persons. It has had to build up military capacity to defend its borders effectively. The oil production that started in 2003 has not led to a structural transformation of the economy. Chad remains one of the world’s poorest countries, with a low level of social development and state capacity. Since the late 1980s, the IMF has provided Chad with financial and technical support. IMF-supported programs have been successful in helping to achieve debt relief under the HIPC Initiative and maintain broad macroeconomic stability. However, little progress has been made on the structural reform front, given institutional fragility and recurrent interruptions.
The experience of Chad illustrates that when authorities are committed and receive adequate support from the international community, meaningful reforms are possible even in a country facing politically and economically challenging circumstances. Chad often could not maintain the necessary focus on reform, for reasons that included the fiscal impact of oil revenues and the political destabilization emanating from regional insecurity. Even so, the Fund played a supportive role, in coordination with its development partners, in helping Chad embark on domestic resource mobilization and diversify its economy. Given the small size of the donor community, the IMF’s Resident Representative has often played a key coordinating role.
Côte D’Ivoire
Côte d’Ivoire emerged from a decade of civil war and political conflict in 2011 and has since made steady economic progress. Before the crisis years, the country was Francophone West Africa’s leading economy and main destination for foreign investment, with a high level of infrastructure development and administrative capacity. The crisis took a heavy toll on the society and economy, with collapsing economic activity and increasing poverty; the country still ranks towards the bottom of the Human Development Index.
The IMF remained engaged in Côte d’Ivoire throughout this period, including during the conflict years, when it participated in regional and global efforts to return stability to the country. In the post-conflict period, the Fund played an important role by tempering the authorities’ ambition with realism, given the enormous development needs. Using a variety of financing instruments, the IMF committed an increasing amount of resources to the country, partly in appreciation of its critical challenges and partly in response to its good record of performance. While Côte d’Ivoire’s institutional capacities remained largely intact despite the conflict, a range of structural challenges—including the need to enhance the efficiency of the civil service and state-owned enterprises—required technical assistance from the IMF and the international donor community. Structural reforms were often politically difficult, but the Ivorian experience demonstrates the need for the IMF to take every opportunity to insist on reforms critical for macroeconomic stability and sustainable growth.
Democratic Republic of the Congo
Since independence in 1960, the Democratic Republic of the Congo has undergone prolonged periods of political instability and economic mismanagement. Following the end of a major violent conflict (that also involved several neighboring states) in the early 2000s, the IMF reengaged with the country and sought to help restore macroeconomic stability, rebuild institutions severely damaged by the fighting, and address its major debt overhang. Progress was significant initially but became more uneven over time. The IMF provided financial assistance in support of two three-year programs ending in 2012 and the relationship subsequently took the form of surveillance and technical assistance, as agreement was not achieved on a program to address governance concerns. The Democratic Republic of the Congo continues to be viewed as a highly fragile state and faces major challenges of ensuring political stability, improving macroeconomic policy management, and addressing serious governance and transparency issues associated with the natural resources sector, the key engine of the economy.
Haiti
Haiti is the Western Hemisphere’s poorest country. Since its beginning as an independent nation in the early 19th century, a multitude of factors including historical and social elements, vulnerability to natural disasters, and political instability have made the country one of the world’s most fragile states. The prospects under reform-minded governments at last seemed more positive, but a massive earthquake in 2010 caused enormous loss of life and reduced much of the capital city and surrounding areas to rubble.
Helping to address Haiti’s persistent problems has proved a difficult challenge for the international community, including the IMF, which has played a prominent role in external assistance efforts. Apart from some brief interruptions, Haiti has been in a semi-continuous program or “near program” relationship with the IMF over the last six decades and has also received extensive technical assistance. Despite many reversals, the IMF’s involvement has been associated with some success overall in macroeconomic stabilization, but implementing sustained structural reforms has proved more elusive, and more on-the-ground support would be helpful. Most observers consider that without IMF support, Haiti’s situation would have turned out even more unfavorably. The record to date and the prospects suggest that Haiti will need to continue to rely heavily on the IMF for many years to come.
Iraq
Following the 2003 U.S. invasion, the IMF intensified its long-dormant relationship with Iraq. Although it has not provided Iraq with large amounts of financing, the Fund has since engaged with the country through a series of finan-cial arrangements to promote macroeconomic stability and growth-enhancing structural reforms, as well as through technical assistance to build capacity and key institutions. Over the years, the IMF has provided internal discipline to government agencies and facilitated coordination among donors, despite the country’s limited institutional capacity and human capital to digest its advice and analysis.
Iraqi officials who were interviewed for this evaluation expressed appreciation for the IMF’s engagement and expertise. Nevertheless, they expressed a desire for more policy-focused advice that was applicable to the situation on the ground and for greater understanding of Iraq’s political fragility. While valued by authorities, IMF technical assistance has recently been significantly hampered by the staf’s inability to travel to Iraq, which has diminished its ability to learn about local conditions and limited its influence and impact. Iraq is a unique case of a fragile state bestowed with large oil wealth.
The IMF is expected to continue its engagement with Iraq for the medium term in policy advice and capacity building.
Kosovo
Kosovo, once an autonomous province of the Socialist Republic of Serbia within Yugoslavia, became a victim of rising conflict between Serbian and Kosovar nationalism in the context of Yugoslavia’s disintegration. During the conflict that ensued from 1996 to 1999, thousands of its Albanian population were killed, and hundreds of thousands were displaced. At the con-fict’s end, Kosovo was lef in shambles, devoid of institutions or capital and plagued by corruption and social tensions.
The IMF was quick to engage in Kosovo long before it unilaterally declared independence in 2008 or had its independence recognized by the International Court of Justice in 2010. Barred from providing assistance to a non-sovereign nation, the Fund made its contributions to the international reconstruction efforts in the form of technical assistance to the United Nations Mission. IMF TA helped establish preconditions for a functioning market economy, including by building the foundation of a central bank and other core macroeconomic institutions. Once Kosovo became an IMF member in 2009, the IMF began to provide financial assistance as well.
The IMF’s early contributions to the building of core institutions in Kosovo are widely acknowledged to have been significant and effective. Faced with changing and complex circumstances, the IMF staff displayed a high degree of flexibility and adaptability in procedures and operations. Although Kosovo largely achieved macroeconomic stability, its program implementation was mixed in an environment of political impasse, capacity constraints, and governance problems. Kosovo’s experience suggests the need to avoid overly ambitious objectives when capacity is severely limited and to collaborate with development partners to achieve progress. Given Kosovo’s political uncertainty and acute lack of data, the IMF may have done too much micromanaging and been excessively conservative at times, thereby limiting the room for more growth-friendly policies.
Liberia
Even before the 1980 coup and the subsequent civil war, Liberia had exhibited many underlying features of fragility, including ethnic and social tensions, widespread poverty, and heavy dependence on world commodity prices. In 2005, following more than 20 years of internal conflict, a democratically elected president ushered in a period of political stability and socio-economic progress. The IMF was quick to engage with the new authorities who faced the unprecedented challenge of rebuilding basic economic and financial institutions entirely destroyed by the war. Over the following years, the IMF maintained close involvement though policy advice, capacity building support, and financial assistance.
The IMF’s efforts met with reasonable success in the immediate post-war years, especially as regards helping restore mac-roeconomic stability and addressing Liberia’s enormous debt problem. Subsequently, Liberia had three successive finan-cial arrangements with the IMF. Although macroeconomic policies under these programs were broadly satisfactory, progress with respect to structural reforms was more mixed. Clearly, Liberia will remain a fragile state for the foreseeable future and the IMF’s continued involvement is widely viewed as an essential element of the support provided by the international community.
Myanmar
Sixty years of dictatorship, conflict, mismanagement, and isolation lef Myanmar with a legacy of profound economic and social underdevelopment. Since the start of economic opening in the late 2000s, the IMF has supported Myanmar’s transition to a functioning market economy by providing not only policy advice but also technical assistance, which became the centerpiece of its work. Myanmar has since achieved mac-roeconomic stability, with robust growth and stable inflation, though enormous development challenges remain to raise the economic well-being of its population.
A one-year Staff-Monitored Program (SMP) agreed in 2013 provided a framework for reform and policy implementation. Even though progress under the SMP was strong—boosted among other things by solid national ownership and an improved relationship with the international community— the authorities afterwards refrained from engaging with the IMF in a program relationship, with or without financing. Even so, the IMF’s support to Myanmar remained intense. In fact, Myanmar for some time has become the largest recipient of IMF TA. The IMF has shown flexibility and realism in adapting its mode of engagement and tailoring its advice to Myanmar’s evolving circumstances.
Rwanda
Rwanda lived through an extremely difficult period following the 1994 genocide. The country needed to rehabilitate the economy, repatriate a large number of refugees and displaced persons, address military conflicts at borders, demobilize part of its army, and rebuild essential economic institutions. Today, with strong progress made in these areas, Rwanda is no longer considered a fragile state.
Throughout this period, the authorities sought policy advice and financial support from the IMF. Initially, program performance was uneven, given the enormity of the challenges. The authorities and IMF staff often did not see eye to eye on policy issues and this led to temporary suspensions of negotiations. Notwithstanding these difficulties, a close relationship was maintained, and Rwanda’s economic programs were largely successful in promoting growth, stabilizing the economy, managing debt distress risks, and reducing poverty.
The Rwandan experience illustrates the tension that can arise between conditionality and the need for the IMF to be flexible in a fragile state. The Fund adapted its modes of engagement as the country made progress in building capacity. Both the authorities and the staff showed persistence and commitment to implement the agreed programs. In helping Rwanda exit from fragility, IMF technical assistance, underpinned by the authorities’ proactive engagement in identifying needs, played a critical role.
Sierra Leone
Sierra Leone’s 10 year-long civil war, destructive of economic infrastructure and notorious for its atrocities, was officially declared to be over in early 2002. The IMF was quick to reestablish its engagement with the country even before the war’s formal end. It has since maintained an almost uninterrupted financial relationship with the country under successive arrangements and has provided extensive technical assistance in the areas of its core competence. Program performance was initially strong, reflecting the successful political transition and favorable external conditions. Over the subsequent years, program implementation faltered and the pace of structural reform slowed. Even so, the country enjoyed a decade of strong economic performance, with real GDP on average growing at 8 percent per year amid increasing price stability.
When the country was hit in 2014 by an Ebola epidemic and a fall in international iron ore prices, the IMF reacted quickly and flexibly by augmenting access under the existing Extended Credit Facility arrangement three times, coupled with waivers of program conditions, and by providing grantlike support, under the Catastrophe Containment and Relief Trust (CCRT), to countries in the region to help deal with the impact of the Ebola crisis.
The recent experience of Sierra Leone illustrates the trade-of that often exists between economic development and stabilization objectives; the tension such a trade-of can create for the relationship between the Fund and a member country; the need for political economy analysis to inform a decision on program conditionality; and, above all, why work on fragile states requires humility, patience, and flexibility.
Somalia
August 2012 saw the establishment of Somalia’s first permanent central government since the start of the decades-long civil war, paving the way for the IMF’s reengagement with the country the following year. Somalia has received strong international support and, in February 2017, it experienced a peaceful transfer of power for the second time following elections. Even so, political stability remains fragile amid continued fighting among competing clan-based factions. Poverty is rampant, and Somalia’s institutional capacity is ranked among the lowest in Africa.
The IMF has since 2013 helped strengthen Somalia’s key economic institutions and supported the authorities in formulating a reform strategy. Program implementation under two Staf-Monitored Programs has been satisfactory. Given the country’s outstanding arrears to external creditors, the Fund has not been able to provide financing, making technical assistance the main vehicle of IMF support. But the impact of IMF TA has been constrained by staf’s inability to travel to the country, and despite the pressing need for on-the-ground support, TA and training have been given in third countries.
Timor-Leste
Timor-Leste gained independence from Indonesia in 2002 following two-and-a-half years of United Nations transitional administration. As part of concerted international efforts, the IMF’s initial role was to help build state capacity from scratch, especially in treasury and central bank operations, even before the country became a member. Afer the key institutions of a functioning economy had been built, the IMF continued to provide technical assistance, which, for a time, made Timor-Leste one of the largest recipients of IMF TA.
The IMF has never had a lending arrangement with Timor-Leste. The initial availability of generous donor support was followed, starting from 2004, by a build-up of substantial oil and gas revenues. The country has not had a budgetary shortfall or a balance of payments problem that called for
IMF financial support. The 2009 withdrawal of the Fund’s resident representative further diminished the IMF’s interaction with the authorities. The government’s understandable desire to scale up public investment has been a continuous source of tension with the Fund’s equally understandable advice to slow down the pace of withdrawal from the petroleum fund, given capacity limits and the need to extend the benefits of offshore wealth to future generations.
