One evaluation was completed in FY2007: “The IMF and Aid to Sub-Saharan Africa.” A report for a second evaluation—“IMF Exchange Rate Policy Advice”—was circulated to the Board but not yet discussed by the end of FY2007. A description of the former’s main findings and recommendations is provided below. For the latter, a brief account is made of the main findings.1

One evaluation was completed in FY2007: “The IMF and Aid to Sub-Saharan Africa.” A report for a second evaluation—“IMF Exchange Rate Policy Advice”—was circulated to the Board but not yet discussed by the end of FY2007. A description of the former’s main findings and recommendations is provided below. For the latter, a brief account is made of the main findings.1

The IMF and Aid to Sub-Saharan Africa

The IEO evaluated the IMF’s role and performance in the determination and use of aid to low-income countries in Sub-Saharan Africa (SSA). Using evidence from 29 SSA countries’ experience with the IMF’s Poverty Reduction and Growth Facility (PRGF) between 1999 and 2005, the evaluation found ambiguity and confusion about IMF policy and practice on aid and poverty reduction, both outside and inside the institution. Underlying these ambiguities were differences of view among members of the Executive Board about what role the IMF should play in low-income countries. Management—along with the Board—should have done more to resolve these differences. How the differences are to be narrowed remains a central policy challenge for the institution. The overarching message of the evaluation is that the IMF should be clearer and more candid about what it has committed to do, and more assiduous, transparent, and accountable in implementing its commitments in low-income Africa.

Three longstanding criticisms of the IMF’s work in SSA provided a point of departure for the evaluation. The first is that IMF-supported programs have blocked the use of available aid to SSA through overly conservative macroeconomic programs. The second is that such programs have lacked ambition in projecting, analyzing, and identifying opportunities for the use of aid inflows to SSA countries, which may in turn have tempered donors’ actual provision of aid. The third is that IMF-supported programs have done little to address poverty reduction and income distribution issues despite institutional rhetoric to the contrary.

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

Key findings

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

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

The evaluation’s specific findings follow:

  • PRGF-supported macroeconomic policies have generally accommodated the use of incremental aid in countries whose recent policies have led to high stocks of reserves and low inflation; in other countries additional aid was programmed to be saved to increase reserves or to retire domestic debt. Reserves in the two to three months of imports range were found to be the threshold for determining whether the increased aid should be used to expand the current account deficit or to increase reserves. The estimated inflation threshold for determining whether the country got to spend or save additional aid lies within the 5 to 7 percent range. These findings are consistent with Board-approved policy on the accommodation of aid and management guidance to staff. However, they are not well communicated to the donor community or to civil society. They help to explain why outside observers perceive the IMF as “blocking” the use of aid: PRGFs in countries with inflation above the threshold are likely to program the saving of at least part of additional aid.

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

  • Of the key features distinguishing the PRGF from the Enhanced Structural Adjustment Facility, fiscal governance has been the most systematically treated. The strong PRGF efforts on fiscal governance reflect clear, consistent, and continuing support from the Board; the issue’s centrality to the IMF’s core macro objectives through its links to budget execution; and effective Fund-Bank collaboration, grounded in professional capacity in both institutions. The consistent HIPC-related pressure from both Boards was a factor in PRGFs’ support for pro-poor budgets. Executive Directors’ support for Poverty and Social Impact Analysis (PSIA), though strong, has been more measured; the tailoring of PSIA to PRGF needs was initially stymied by unrealistic expectations of how FundBank collaboration might work on the issue, with more recent efforts focused on in-house analysis. Weak Fund-Bank collaboration has also been a factor in the IMF’s failure to pay more attention to infrastructure-related growth and competitiveness linkages and their possible macroeconomic implications for the programmed spending and absorption of additional aid.

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

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


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

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

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

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

Executive Board discussion

The IMF Executive Board broadly supported the evaluation’s recommendations at its March meeting on the report. Executive Directors asked IMF staff to come back with specific and costed proposals on how to implement them.

IMF Exchange Rate Policy Advice, 1999–2005

The report of the evaluation of “IMF Exchange Rate Policy Advice” was sent to the Executive Board on April 18, 2007, but was not discussed until May 9—beyond the FY2007 covered by this report.2 The description that follows focuses on the evaluation’s main findings; next year’s Annual Report will present the report’s recommendations and the reactions of the Executive Board.

The IMF was charged by its Articles of Agreement and a landmark 1977 Executive Board Decision to exercise surveillance over the international monetary system and members’ exchange rate policies. The overriding question addressed by the IEO’s evaluation of IMF exchange rate policy advice is whether, over the 1999–2005 period, the IMF fulfilled this core responsibility. The main finding is that the IMF was simply not as effective as it needs to be in its analysis and advice, and in its dialogue with member countries. The IEO thus diagnosed an “effectiveness gap” in the IMF’s main line of business.

The reasons for the IMF’s failing to fully meet its core responsibility are many and complex. Among these reasons are a lack of understanding of the role of the IMF in exchange rate surveillance, a failure by member countries to understand and commit to their obligations to exchange rate surveillance, a strong sense among some member countries of a lack of evenhandedness in surveillance, a failure by management and the Executive Board to provide adequate direction and incentives for high-quality analysis and advice on exchange rate issues, and the absence of an effective dialogue between the IMF and many—though certainly not all—of its member countries.

To assess the quality of the IMF’s analysis and advice and the effectiveness of its policy dialogue with the authorities, the evaluation reviewed documents for the last two Article IV consultations for the entire membership through 2005, undertook a review of internal and Executive Board documents for 30 selected economies over the full review period, surveyed IMF staff and country authorities, and held a series of interviews with government officials, market participants, academics, IMF Executive Directors or their Alternates, and IMF staff.

Main findings

The IMF’s role in exchange rate policy advice

The IMF’s role in exchange rate surveillance and related advice derives from formal obligations of both the IMF itself and member countries. In practice, however, there are different perceptions about the exact nature of the IMF’s role. Though its role is reasonably clear at a broad legal level, there are gaps in the more specific guidance provided by the Board and with regard to many operational aspects of staff’s work—a situation complicated by the lack of firm professional consensus on many of the issues concerned. Survey evidence suggests a lack of clarity—among the authorities and staff—about various aspects of the IMF’s work in exchange rate surveillance, reflecting different expectations of what the IMF is supposed to do, as well as different perceptions about what it is doing. Such differences make it difficult for the IMF to discharge its responsibilities effectively and for staff to secure the necessary Board support for some aspects of their responsibilities.

The quality of staff analysis and advice

The IEO’s review of a number of quality indicators found that progress had been made over the evaluation period, though not necessarily in the right areas of analysis or to the extent necessary to address the IMF’s “effectiveness gap.” The increasing number of Financial Sector Assessment Program exercises, for example, has aided staff knowledge of financial sector issues and the availability of data, improving the integration of such analyses into exchange rate surveillance. Analytical support for IMF advice on regime choice, however, has been weak, and country-specific implementation issues (including in the area of intervention policies) have too often been neglected by IMF staff.

Despite increased attention to global imbalances and capital flows in recent years, multilateral considerations and related spillovers did not figure prominently in most bilateral surveillance discussions. In the IEO desk reviews, analytical depth has often been found lacking, with references to multilateral or regional developments not fully integrated into the staff report or supported by formal analysis. With policy advice being formulated largely on the basis of cyclical, country-level considerations that would provide “first best” recommendations for the country in isolation, interdependencies between individual country policies and the responses of other countries were not sufficiently integrated into staff analysis. As a result, scope for active policy coordination was insufficiently exploited, and a large group of both the authorities and staff agreed that treatment of policy spillovers remained a key area for improvement in IMF analysis.

Policy dialogue and IMF impact

Policy dialogue between staff and the authorities is a key part of the IMF’s surveillance process, and evidence suggests that, although the dialogue is good in many cases, there are important questions about its effectiveness. Survey responses indicated that the large majority of the authorities generally perceived their discussions as two-way, with staff being seen as both respectful and willing to approach these discussions with candor. In interviews, while not all country officials were satisfied with the basis underlying staff advice, most nevertheless appreciated the opportunity to interact. However, the bigger issue appeared to be the tepid enthusiasm expressed privately in several countries, and resulting limits on the IMF’s ability to influence policy formulation. Overall, the IMF was too often considered by the authorities to have provided little value, particularly among the advanced economies and—increasingly—large emerging markets. By contrast, a majority of respondents from smaller emerging market and developing countries regarded IMF involvement as instrumental, particularly in the context of IMF programs.

Reasons for ineffective policy dialogue and limited impact are manifold. Specifically, they appear to have arisen from a lack of attention to country specifics and insufficient analytical underpinnings in key areas (such as regime choice and policy spillovers). The authorities, in turn, have limited the impact, to the extent that sensitive policy issues have been taken off the table. In addition, data provision appears to have been a pervasive problem. The evaluation encountered cases that should have materially affected Executive Board discussions on exchange rate issues, and the IEO survey of IMF staff suggests that problems with data availability or quality may have impaired staff’s ability to conduct exchange rate analysis in about one-third of the IMF membership.

The relative importance of other channels of IMF influence on policy formulation varies by country and context, but has remained limited overall. The influence of Executive Board discussions differed according to country grouping, with positive views particularly strong among program countries. No direct evidence was found of peer pressure from the Board or other authorities as a result of IMF advice and a large minority of staff respondents in the IEO survey felt that the expectation of publication or concerns about their relationships with authorities tended to dilute coverage in staff reports, limiting the influence that can reasonably be exercised by the Board. Use of public channels of IMF influence has also been constrained. While generally welcoming staff analysis of topical exchange rate issues, authorities have often been wary of sparking a public debate that might unsettle markets.


In its most recent communiqué, the IMFC welcomed both evaluations.


In its latest communiqué the IMFC stressed the importance of the Board’s discussion of this report in informing their work leading to the update of the 1977 Decision on Surveillance over Exchange Rate Policies.