This report covers IEO activities through end-July 2021. Since the 2020 Annual Report, the IEO has completed an evaluation of growth and adjustment in IMF-supported programs, to be discussed at the Executive Board at end-August. Moreover, the evaluation of IMF collaboration with the World Bank on macro-structural issues was finally discussed by the Executive Board, while the evaluation of IMF advice on capital flows was also completed and discussed by the Board. In addition, the IEO has continued working on two full-scale evaluations, one assessing the Fund’s engagement with small developing states (SDS) and the other examining IMF Capacity Development (CD). While covering a longer timeframe, these evaluations in progress will provide some assessment of how the Fund adapted to the challenges posed by the COVID-19 pandemic during its initial phase. The IEO has also launched a new evaluation, which looks back at the IMF’s emergency response to the COVID-19 pandemic more broadly, the first stage in an intended two-stage comprehensive assessment of the IMF’s pandemic response.
Growth and Adjustment in tIMF-Supported Programs
The IEO submitted to the IMF Executive Board its report on Growth and Adjustment in IMF-Supported Programs on July 8, 2021 for discussion on August 30. Focusing on IMF financing arrangements over the period 2008–19, this evaluation assessed how well IMF-supported programs have helped to sustain economic growth while delivering adjustment needed for external viability.
While IMF-supported programs give primary place to restoring external viability, attention to supporting activity during a program and fostering medium-term growth has increased over time and seems to have delivered positive results. The evaluation does not find evidence of a consistent bias towards excessive austerity in programs. Programs were in most cases able to sustain output broadly in line with historical norms and have yielded growth benefits relative to a counterfactual of no Fund engagement. Stabilization and reforms implemented in the program context helped to boost post-program growth performance. Longer-term historical data also suggest a positive role of IMF-supported programs at initiating sustained growth surges.
The evaluation also finds that efforts were made to pay greater attention to growth in the design and implementation of adjustment policies. Fiscal policies typically incorporated growth-friendly measures including improved tax mobilization and fostering a growth-promoting tax structure. Implementation of structural conditions (SCs) was positively associated with independently measured progress in structural reforms and helped to boost growth with a stronger impact for SCs with higher depth and growth orientation. Pre-program exchange rate overvaluation, where significant, was corrected through substantial real effective depreciation during the program supporting external adjustment and growth. In a number of cases, market debt operations, particularly those with principal haircuts and upfront fiscal adjustment, were useful to restore debt sustainability and provide the basis for renewed market access, supporting a return to growth.
“IMF-supported programs were in most cases able to sustain output broadly in line with historical norms while still delivering needed adjustment.”
Jun Il Kim, Project Leader for the IEO evaluation of Growth and Adjustment in IMF-Supported Programs.
Notwithstanding these positive findings, the evaluation raises several concerns on program design and implementation.
▸ Program growth outcomes consistently fell short of program projections, with potential negative consequences on the public sector balance sheet, program ownership and public support for adjustment and reforms in the program context.
▸ Efforts to protect low-income and vulnerable groups ofen fell short of their goals and social (health and education) spending did not increase significantly in either PRGT or GRA programs.
▸ In a number of cases, growth benefits of public investment were limited by poor project selection and wasteful implementation.
▸ The potential growth benefits of structural reforms were not fully realized as the bulk of SCs was oriented to stabilization rather than growth promotion and of relatively low depth and growth-orientation. Capacity development (CD) assistance, while appreciated, seems to have not been consistently effective in strengthening SC implementation. SC implementation was significantly weaker in areas outside of Fund expertise and where collaboration with partners was sought.
▸ Use of the exchange rate as a policy tool to support growth and external adjustment during programs was limited. Exchange rate regime transition was infrequent and more often toward greater fixity. There was a tendency towards a loss of competitiveness in PRGT programs relying on the exchange rate as a nominal anchor.
▸ Debt operations were sometimes too little and too late, and thus had only mixed success in strengthening debt sustainability and improving the balance of payments position.
“Attention to growth implications of IMF-supported programs should become more thorough, systematic, realistic and sensitive to social and distributional consequences.”
The evaluation draws some more general lessons. First, there is no simple recipe for delivering better growth outcomes in IMF-supported programs given the variety in country circumstances and preferences, the underlying causes and contexts of the balance of payments problems, and the potential scope for policy action. Second, the groundwork for a successful policy response to cushion the output consequences of an exogenous shock should ideally be laid well in advance supported by surveillance and CD work as meaningful structural reforms take several years to put in place and become effective. Third, growth and reform strategies envisaged in program design should pay adequate attention to social and distributional consequences.
Notwithstanding the generally positive role played by IMF-supported programs in promoting growth, the evaluation recommended that the IMF consider a number of actions to further enhance program countries’ capacity to sustain activity while undertaking needed adjustment during the program period and to enhance growth prospects beyond the program. These actions are grouped into three umbrella recommendations.
Main Recommendations
▸ Attention to growth implications of IMF-supported programs should become more thorough, systematic, realistic and sensitive to social and distributional consequences.
▸ IMF-supported programs should pay greater attention to supporting deep, more growth-oriented structural reforms with more effective capacity development support and more effective collaboration with partners in areas outside the Fund’s core mandate and expertise.
▸ The Fund should continue to invest in building a toolkit of models and monitors that can be applied as a basis for analysis of the adjustment-growth relationship and assessing growth-related developments in the program context.
The full report, the statement by the Managing Director, the Chairman’s Summing Up of the Executive Board meeting, along with supporting documents, will be available on the IEO website at IEO.IMF.org in September.
IMF Advice on Capital Flows
The IEO discussed its new evaluation of IMF Advice on Capital Flows with the Board in September 2020 (IEO, 2020b). The evaluation looked at IMF advice on handling volatile capital flows and capital account liberalization; it complements the work by staff on developing an Integrated Policy Framework (IPF) for handling exogenous shocks. The relevance of this topic has been highlighted by the volatile capital flows during the COVID-19 pandemic and the uncertain future prospects.
The evaluation recommended that the IMF refresh its approach to dealing with capital account issues to reflect recent country experience and research. Such a revisit need not involve a wholesale overhaul of the Institutional View (IV), the broad principles of which remain valid, but should consider some well-defined extensions of the circumstances in which capital flow measures could provide a helpful part of the policy toolbox, particularly when their preemptive and longer-lasting use could be justified. To complement this refresh, the evaluation further recommended that the IMF sustain a strong, adequately resourced, medium-term work program on monitoring and research on capital account issues and strengthen cooperation with multilateral partners on issues related to capital flows, including the Organization for Economic Cooperation and Development (OECD), the BIS, and the FSB.
In discussing the evaluation, Executive Directors expressed appreciation for the quality and breadth of the evaluation, and broadly supported its recommendations. The Managing Director also welcomed the report, noting that it would inform the upcoming review of the IV scheduled for later 2021. The management implementation plan was approved in May 2021 (see Section 2).
IMF Collaboration with the World Bank on Macro-Structural Issues
In November 2020, the Executive Board discussed the IEO’s evaluation of IMF Collaboration with the World Bank on Macro-Structural Issues (IEO, 2020d). This evaluation focused on Bank-Fund collaboration in the context of recent IMF pilot initiatives to enhance coverage of inequality, gender, energy/climate, and macro-structural reform in Article IV surveillance.
The report made four broad recommendations to encourage a more strategic approach to ensure more effective collaboration work:
▸ Develop and agree with the World Bank on concrete frameworks for collaboration on those issues where Fund and Bank roles are complementary and where collaboration is judged to bring the greatest strategic returns.
▸ Seek to improve internal incentives for staff to collaborate with external partners.
▸ Improve access to and exchange of information and knowledge across the Fund and the Bank.
▸ The IMF Board’s strategic role in facilitating and supporting external collaboration could be strengthened by leveraging its oversight role, its scope to influence staff behavior, and its direct engagement with the Bank Board.
In discussing the evaluation, Directors welcomed the report’s recognition that collaboration between the Bank and Fund has been broad, in the context of their closely connected mandates and shared history and that existing umbrella agreements for collaboration are adequate. However, they took note of the finding that collaboration has been uneven, and emphasized the importance of developing a strategy to further ensure that collaboration is appropriately tailored to different macro-structural areas. They broadly supported the recommendation to develop concrete frameworks where collaboration would bring the greatest strategic returns, noting that activities in the climate work stream would be a strong candidate for such a tailored framework.
“The evaluation does not find evidence of a consistent bias towards excessive austerity in IMF-supported programs during the evaluation period.”
The Management Implementation Plan was presented to the Evaluation Committee in July 2021 and should be approved after the summer Board recess.
Outreach and Communication
Outreach is important for encouraging public awareness and discussion of the IEO’s work, and for receiving feedback and gathering information on evaluation issues of relevance from a broad range of stakeholders. Since the COVID-19 pandemic, the IEO has continued to adapt to the new environment by finding more effective ways to engage stakeholders at a time when physical travel has been curtailed and discovered new opportunities for outreach through virtual events and social media. In particular, a new virtual seminar series launched last summer has attracted widespread participation inside and outside the Fund and provided a venue for discussion on issues relevant to current and potential future evaluations, and to bring attention at the Fund to new ideas and analysis. Virtual events have also enabled the IEO to reach a wider audience for the findings and recommendations of its completed evaluations, as the IEO held a number of events involving outside speakers as well as IEO staff on the two recently completed evaluations of IMF Advice on Capital Flows and IMF Collaboration with the World Bank on Macro-Structural Issues.
The IEO actively uses its website (IEO.IMF.org), along with email communication with subscribers, to publicize its work and virtual events, and to solicit public comments on ongoing, future and completed evaluations. Details about all IEO work and past and future events can also be found on the IEO’s new Linked-In page, which has also helped to raise the IEO’s profile in social media.
Budget and Staffing
The IEO spent $6.21 million in FY2021 (ending at end-April 2021), about 7.5 percent below its approved budget and 14 percent below the total funding available, which included a one-time carry-over of 8 percent of the FY2020 budget (see page 17 for details about the IEO’s budget and expenditures). The larger than usual carryover was provided to manage the anticipated resumption of travel and completion of delayed work due to the COVID-19 pandemic later in FY2021. Unfortunately, the continued impact of the COVID-19 pandemic prevented any travel in FY2021 and there were some further delays in completing IEO evaluations related to reprioritization of the Board’s agenda in response to the COVID-19 emergency response. These delays meant that new evaluations were not launched as early as expected, implying a substantial shortfall in outlays to consultants below anticipated amounts in FY2021.
In early March 2021, the Executive Board approved the IEO’s FY2022 budget proposal of $6.85 million. This figure is consistent with zero real growth over the FY2021 budget. The IEO’s budget proposal for FY2022 included a request for a onetime carryover of 8 percent of the unspent funds from the authorized FY2021 budget, which also was approved, to manage the expected bunching of expenditures in FY2022 associated with the normalization of the IEO work program. This budget will allow the IEO to meet the needs of its FY2022 work program. The IEO also presented indicative budgets for FY2023 and FY2024, again based on zero real growth.
The IEO team consists of a diverse group of professionals, of whom more than half were hired from outside Fund staff. There continue to between full-time staff positions (including the Director). The IEO also employs research officers and assistants on a contractual basis, as well as benefitting from summer interns. The IEO continues to rely extensively on external consultants to bring expertise and fresh perspectives to its evaluation work.
