IEO
Independent Evaluation Office
of the International Monetary Fund
THE IMF AND FRAGILE STATES
EVALUATION REPORT 2018
Established in 2001, the Independent Evaluation Office (IEO) provides objective and independent evaluation on issues related to the IMF. The IEO operates independently of IMF management and at arm’s length from the IMF’s Executive Board. Its goals are to enhance the learning culture within the IMF, strengthen the IMF’s external credibility, and support the Executive Board’s institutional governance and oversight responsibilities. For further information on the IEO and its work program, please see the website (www.ieo-imf.org) or contact the IEO at +1.202.623.7312 or at ieo@imf.org.
IEO
Independent Evaluation Office
of the International Monetary Fund
THE IMF AND FRAGILE STATES
EVALUATION REPORT 2018
©2018 International Monetary Fund
CATALOGING-IN-PUBLICATION DATA JOINT BANK-FUND LIBRARY
Names: Takagi, Shinji., 1953– | International Monetary Fund. | International Monetary Fund. Independent Evaluation Office.
Title: The IMF and fragile states : 2018 evaluation report.
Other titles: International Monetary Fund and fragile states | Evaluation report (International Monetary Fund. Independent Evaluation Office); 2018.
Description: Washington, DC : International Monetary Fund, 2018. | This report was prepared by an IEO team led by Shinji Takagi. | Evaluation report / International Monetary Fund. Independent Evaluation Office; |v 2018 | Includes bibliographical references.
Identifiers: ISBN 9781484347324 (paper)
Subjects: LCSH: Political stability—Evaluation. | Financial risk—Evaluation.
Classification: LCC JC330.2.I534 2018
Publication orders may be placed online, by fax, or through the mail:
International Monetary Fund, Publication Services
P.O. Box 92780, Washington, DC 20090, U.S.A.
Tel: (202)623–7430 | Fax: (202)623–7201
E-mail: publications@imf.org
Content
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FOREWORD
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CONTRIBUTORS
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ABBREVIATIONS
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EXECUTIVE SUMMARY
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1. INTRODUCTION
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2. EVALUATION QUESTIONS AND METHODOLOGY
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3. OVERVIEW OF THE IMF’S WORK ON FRAGILE STATES
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Key Features of Fragile States
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The Scale of IMF Engagement with Fragile States
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IMF Institutional Guidance on FCS Work
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4. ASSESSING THE EFFECTIVENESS OF IMF ENGAGEMENT
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How Much Impact Has the IMF Had in Fragile States?
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Have the IMF’s Existing Instruments Been Adequate to Meet the Needs of Fragile States?
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How Effective Has IMF Capacity Development Work Been in Fragile States?
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Has the IMF’s Engagement Been Sufficiently Tailored to Country-Specific Circumstances?
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5. ASSESSING THE FRAMEWORKS AND PROCEDURES OF IMF ENGAGEMENT
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How Well Has the IMF Collaborated with Development Partners?
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How Has the IMF Managed Its Human Resources for Fragile State Work?
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How Has the IMF Handled Security Issues in High-Risk Locations?
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6. KEY FINDINGS AND RECOMMENDATIONS
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Key Findings
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Recommendations
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A Note on Country Coverage
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BOXES
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1. Focus Countries for the Evaluation
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2. Myanmar and South Sudan: Contrasting Experience with IMF TA
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3. External Evaluations of Donor-Financed TA Activities
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4. Yemen: Fuel Subsidy Reform
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FIGURES
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1. Geographical Distribution of Fragile States, 2010–17
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2. Persistence of State Fragility, 2000–17
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3. Share of Membership with IMF Arrangements, 2006–17: Fragile vs. Non-Fragile States
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4. Distribution of Fragile State Arrangements or Instruments by Type, 2006–17
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5. IMF TA to Fragile vs. Non-Fragile States, FY 2009–17
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6. IMF TA to Fragile States, by Provider, FY 2009–17
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7. Official Financial Flows to Fragile States, 2000–15: IMF Disbursements vs. Total DAC ODA
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8. The IMF’s Catalytic Role in Fragile vs. Non-Fragile LICs, 2000–12
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9. Real GDP Growth in Fragile vs. Non-Fragile LICs, 2000–12
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10. Capacity Development Expenditures on FCS: OECD DAC Total vs. IMF, FY 2011–15
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11. IMF TA to Fragile States, by Country, FY 2011–17
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12. IMF TA to Fragile States, by Funding Source, FY 2009–17
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13. Short-Tenured Teams, End-FY 2016
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14. Size of Country Teams by Type of Country, End-FY 2016
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15. Current-Year and Past-Year Average Performance Ratings of A13-Level FCS and Non-FCS Staff, End-FY 2016
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TABLES
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1. Standards of Living in Fragile vs. Non-Fragile States, 2014
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2. Key Economic Characteristics of Fragile vs. Non-Fragile States, 2000–16
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3. IMF Commitments and Disbursements to Fragile vs. Non-Fragile States, 2010–17
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4. IMF Lending Arrangements Completion, 2010–17: Fragile vs. Non-Fragile States
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5. Conditionality in Fragile vs. Non-Fragile State Arrangements, 2006–17
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6. Promotions of Economists Working on Fragile vs. Non-Fragile States, FY 2011–17
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7. High-Risk Countries, October 2017
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8. Recommendations
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APPENDICES
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1. IMF Relations with Fragile States
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2. The IMF’s Institutional Learning on FCS Work
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3. Summaries of Country Case Studies
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REFERENCES
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STATEMENT BY THE MANAGING DIRECTOR
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THE CHAIRMAN’S SUMMING UP
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COMPLETED AND ONGOING IEO WORK PROGRAM
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BACKGROUND PAPERS
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The following Background Papers are available on the IEO website at www.ieo-imf.org.
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BP/18–01/01. The IMF and Fragile States: Eight African Country Cases
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BP/18–01/02. The IMF and Fragile States: Eight Selected Country Cases
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BP/18–01/03. The IMF and Fragile States: Human Resources Issues
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BP/18–01/04. The IMF and Fragile States: Capacity Development Issues
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BP/18–01/05. The IMF and Fragile States: Assessing Macroeconomic Outcomes
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BP/18–01/06. The IMF and Fragile States: IEO Survey of IMF Staff The following conventions are used in this publication:
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An en dash (–) between years or months (for example, 2016–17 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, 2016/17) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY 2017).
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“Billion” means a thousand million; “trillion” means a thousand billion.
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 three or 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 types of documents may become available 20 years after their issuance. For further information, see www.imf.org/external/np/arc/eng/archive.htm.
As used in this evaluation report, the terms “country” and “state” do not in all cases refer to a territorial entity that is a state as understood by international law and practice.
Foreword
Helping countries in fragile and conflict-affected situations (FCS) is one of the great challenges facing the international community today. Not only do these countries have enormous needs, but persistent domestic instability has dangerous implications for regional and global stability. With its crisis response and prevention mandate, the IMF has a key role to play in supporting macroeconomic stabilization and building core institutions in these countries, and has been very active over the past two decades through policy advice, financing, and support for capacity development. Notwithstanding these efforts, however, growth in these countries has lagged and progress has often been vulnerable to political and security setbacks, as these countries continue to face deep-seated problems of limited capacity, weak governance and political stresses. The continuing strains in many FCS raise the question of whether the Fund, as well as its international partners, can and should do more to help these countries.
This evaluation finds that the IMF has provided essential services to FCS, playing an important role in which no other institution can take its place, particularly in the period after a country first emerges from conflict. Even though it has provided relatively little direct financing, it has catalyzed donor funding through its support for the sustainable policies and the core institutions needed for macroeconomic stability.
Despite this overall positive assessment, the evaluation concludes that the IMF’s overall approach to its FCS work seems conflicted and its impact has fallen short of what could be achieved. Past efforts have often 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.
Based on these findings, the report proposes six recommendations focused on building a more robust institutional commitment to FCS work than in the past. These recommendations all received full or qualified support from the Executive Board when it met to discuss the report in March 2018. In supporting the recommendations, the Managing Director and the Executive Board reafrmed their commitment to the IMF’s fragile state members.
I am encouraged by the positive response of the Managing Director and the Executive Board to this report, which indicates their commitment to learn from experience and to align the priorities of the institution to urgent and evolving global circumstances.
Charles Collyns
Director, Independent Evaluation Office
Contributors
This report was prepared by an IEO team led by Shinji Takagi, Assistant Director, IEO.
The other members of the team were:
Alisa Abrams (Senior Research Officer, IEO)
Miguel de Las Casas (Senior Economist, IEO)
Donal Donovan (former Deputy Director, IMF)
Steve Kayizzi-Mugerwa (former Vice President, African Development Bank)
Jung Yeon Kim (Senior Economist, IEO)
Kevin Kuruc (Graduate Student, University of Texas, Austin)
Bessma Momani (Professor of Political Science, University of Waterloo, Ontario)
Lorenzo Perez (former Deputy Director, IMF)
Roxana Pedraglio (Senior Research Officer, IEO)
Michael Pisa III (Policy Fellow, Center for Global Development)
The evaluation benefited from discussions with participants at workshops that took place in Washington, D.C., Amman, and London, as well as comments by IMF staff. However, the final judgments are the responsibility of the IEO alone. Arun Bhatnagar, Annette Canizares, and Divina Marquez provided administrative assistance and Rachel Weaving and Esha Ray provided editorial assistance.
The report was approved by Charles Collyns, Director of the IEO.
Abbreviations
| ADB |
Asian Development Bank |
| AE |
advanced economy |
| AfDB |
African Development Bank |
| AfDF |
African Development Fund |
| AFR |
African Department (IMF) |
| AFRITAC |
Africa Regional Technical Assistance Center (IMF) |
| APD |
Asia and Pacific Department (IMF) |
| APR |
annual performance review (IMF) |
| AU |
African Union |
| CBF |
Capacity Building Framework (IMF) |
| CCB |
Committee for Capacity Building (IMF) |
| CCR |
Catastrophe Containment and Relief Trust (IMF) |
| CD |
capacity development |
| CLIC |
Canadian Leaders in International Consulting |
| CPIA |
Country Policy and Institutional Assessment (World Bank, ADB, AfDB) |
| DAC |
Development Assistance Committee (OECD) |
| DRC |
Democratic Republic of the Congo |
| ECF |
Extended Credit Facility (IMF) |
| EFF |
Extended Fund Facility (IMF) |
| EMDCs |
emerging market and developing countries |
| EME |
emerging market economy |
| ENDA |
Emergency Natural Disaster Assistance (IMF) |
| EPCA |
Emergency Post-Conflict Assistance (IMF) |
| ESF |
Exogenous Shocks Facility (IMF) |
| ESF-HAC |
Exogenous Shocks Facility-High Access Component (IMF) |
| ESF-RAC |
Exogenous Shocks Facility-Rapid Access Component (IMF) |
| FAD |
Fiscal Affairs Department (IMF) |
| FCS |
countries in fragile and conflict-affected situations |
| FTE |
full-time equivalent (or person-year) |
| G20 |
Group of Twenty |
| GDP |
gross domestic product |
| GRA |
General Resources Account (IMF) |
| HAC |
high-access component |
| HIPC |
heavily indebted poor country |
| HQ |
headquarters |
| HR |
human resources |
| HRD |
Human Resources Department (IMF) |
| HRL |
high-risk location |
| ICD |
Institute for Capacity Development (IMF) |
| IDA |
International Development Association (World Bank) |
| IEG |
Independent Evaluation Group (World Bank) |
| IEO |
Independent Evaluation Office (IMF) |
| IFI |
international financial institution |
| IMF |
International Monetary Fund |
| IMFC |
International Monetary and Financial Committee |
| INCF |
International Network on Conflict and Fragility |
| LEG |
Legal Department (IMF) |
| LIC |
low-income country |
| LICUS |
low-income countries under stress (World Bank) |
| LSE |
London School of Economics and Political Science |
| MCD |
Middle East and Central Asia Department (IMF) |
| MCM |
Monetary and Capital Markets Department (IMF) |
| MDB |
multilateral development bank |
| METAC |
Middle East Regional Technical Assistance Center (IMF) |
| MIC |
middle-income country |
| MONA |
Monitoring of Fund Arrangements database (IMF) |
| NATO |
North Atlantic Treaty Organization |
| NOB |
number of observations |
| ODA |
official development assistance |
| OECD |
Organisation for Economic Co-operation and Develoment |
| OPEV |
Operations Evaluation Department (AfDB) |
| PFM |
public financial management |
| PFTAC |
Pacific Financial Technical Assistance Center (IMF) |
| PPP |
purchasing power parity |
| PRGF |
Poverty Reduction and Growth Facility (IMF) |
| PRGT |
Poverty Reduction and Growth Trust (IMF) |
| PSI |
Policy Support Instrument (IMF) |
| RBM |
results-based management (IMF) |
| RCF |
Rapid Credit Facility (IMF) |
| RDB |
regional development bank |
| RFI |
Rapid Financing Instrument (IMF) |
| RMU |
Risk Management Unit (IMF) |
| RSN |
regional strategy note (IMF) |
| RTAC |
Regional Technical Assistance Center (IMF) |
| SBA |
Stand-By Arrangement (IMF) |
| SCF |
Standby Credit Facility (IMF) |
| SDGs |
Sustainable Development Goals (UN) |
| SDR |
Special Drawing Right (IMF) |
| SGN |
Staff Guidance Note (IMF) |
| SMP |
staff-monitored program (IMF) |
| SPC |
Structural Performance Criterion (IMF) |
| SPR |
Strategy, Policy, and Review Department (IMF) |
| STA |
Statistics Department (IMF) |
| TA |
technical assistance |
| TTF |
topical trust fund (IMF) |
| UCT |
upper credit tranche (IMF) |
| UFR |
use of Fund resources (IMF) |
| UN |
United Nations |
Executive Summary
This evaluation assesses the IMF’s engagement with countries in fragile and conflict-affected situations (FCS). Helping these countries has been deemed an international priority because of their own great needs and the dangerous implications of persistent fragility for regional and global stability. With its crisis response and prevention mandate, the IMF has a key role to play in these international efforts. In practice, its contribution has been subject to considerable debate, and critics have called on the Fund to increase its engagement.
Key Findings
The evaluation recognizes the important contributions that the IMF has made in fragile states, including helping to restore macroeconomic stability, build core macroeconomic policy institutions, and catalyze donor support. In these areas, the IMF has provided unique and essential services, playing a critical role in which no other institution can take its place. Tough the progress made by many FCS to escape fragility has been disappointingly slow and subject to reversal, it must be recognized that work on fragile states is inherently challenging, given their generally limited capacity, weak governance, and often unstable political and security environment. Moreover, the outcome of any IMF intervention is critically influenced by political, military, and security decisions including by international actors outside the Fund’s control. Against these challenges, the IMF on balance has performed its various roles quite effectively, particularly in years soon after countries first emerged from periods of violence and isolation.
Despite this overall positive assessment, the IMF’s approach to fragile member states seems conflicted and its impact falls short of what could be achieved. Even though the IMF has declared in several pronouncements that work on FCS would receive priority, it has not consistently made the hard choices necessary to achieve full impact from its engagement. FCS typically require long-term, patient modes of engagement that do not ft well with the IMF’s standard business model. Efforts have been made in the past to adapt IMF policies and practices to FCS needs, but initiatives have not been sufficiently bold or adequately sustained, leaving questions about the credibility of the Fund’s commitment in this area.
In particular, the evaluation identified concerns about the following:
The adequacy of existing financing instruments. The IMF’s financial toolkit, with its relatively short-term focus, is not inherently well suited to the circumstances of fragile states. FCS find high-quality policies required by Fund-supported programs hard to achieve and sustain, and even interest-free concessional IMF resources must be repaid within ten years. The IMF has been nimble in meeting some particular immediate financial needs, especially where donor support has been strong, but typically financing has had to rely on the standard set of instruments. And though the staff has some flexibility in using these instruments, the application of conditionality seems to have differed little for FCS from that applied to other countries, and the completion rate of IMF-supported programs has been much lower. There also seems to have been a gap between the instruments deployed for rapid support—with limited conditions—and those for more sustained support—with much higher policy standards.
Capacity development in fragile states. For most FCS, capacity development is the area where the IMF can make its largest contribution, especially after initial macroeconomic stabilization is accomplished. IMF technical assistance (TA) faces large obstacles to its effectiveness in fragile states, but its delivery has improved considerably, including through greater on-the-ground follow-up and steps towards integration with surveillance and program work. IMF TA to fragile states has seen a substantial increase but appears in more recent years to have plateaued despite large unmet needs, reflecting concerns about its limited lasting impact in countries with low absorptive capacity and competition from other IMF priorities. Also of concern is whether TA delivery has been followed by the sustained in-country follow-up that is needed to build effective institutions in very challenging circumstances.
The country-specificity of IMF advice and conditionality in fragile states. The 2012 Staff Guidance Note on the IMF’s engagement with FCS provides sensible guidance on the need for flexibility and realism when engaging in fragile states, but in practice the Fund’s interdepartmental review process seems to have pushed for too much uniformity across countries, fragile or otherwise, and policy notes and staff reports have often treated fragile states almost like any other country rather than as requiring distinctive treatment.
Collaboration with development partners in fragile states. The need to collaborate with development partners is widely recognized within the IMF and a formal or informal mechanism of information exchange exists in all countries where IMF resident representatives are assigned. Beyond information sharing, however, the experience with collaboration has been mixed, given the differing institutional mandates, priorities, and budget cycles of partners.
Management of human resources (HR). While IMF mission chiefs and resident representatives are generally appreciated as dedicated, resourceful, and effective, the IMF teams working on FCS have often been relatively inexperienced and subject to high turnover. The IMF has had difficulties in attracting experienced staff to FCS assignments, in part because of a widespread perception of a stigma attached to such work—a perception substantiated by slower promotion rates. Despite its labor-intensive nature, work on fragile states has not received additional staff resources, further diminishing its attractiveness as a country assignment. A fundamental change in staff incentives is needed to encourage work on FCS. The IMF’s new HR strategy, currently under development, provides an opportunity to introduce deeper changes in institution-wide HR policy and practice to achieve this goal.
Handling of security issues in high-risk locations. The IMF’s security policy, with higher thresholds of safety than applied by many development partners and effective travel bans for a number of countries, have raised frustration among the officials of affected countries and tension with partners who continue to operate in countries where the IMF is now physically absent. While the nature of IMF work makes on-the-ground presence somewhat less essential, the Fund’s impact is significantly impaired by travel restrictions. The IMF should recognize the limitation on effective engagement stemming from a lack of field presence and look for pragmatic ways to achieve valuable presence on the ground while taking necessary steps—even if highly costly—to minimize the risk exposure of its staff.
Recommendations
The evaluation concludes that for the IMF to increase its impact on FCS, it will need to be prepared to make meaningful adjustments to its approaches for how it engages with these countries on a bolder and more sustained basis than it has in the past. Six broad recommendations are offered. Some but not all of these recommendations would require an increased allocation of the IMF’s financial and human resources.
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▶ Recommendation 1: 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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▶ Recommendation 2: 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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▶ Recommendation 3: 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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▶ Recommendation 4: 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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▶ Recommendation 5: 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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▶ Recommendation 6: HR 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.