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Conditionality

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Public Information Notice (PIN) No. 02/117
October 9, 2002
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Reviews Progress on Strengthening IMF-World Bank Collaboration on Country Programs and Conditionality

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On September 11, 2002, the Executive Board of the International Monetary Fund (IMF) discussed a Progress Report on Strengthening IMF-World Bank Collaboration on Country Programs and Conditionality. The report was prepared jointly by the staff of the IMF and World Bank.

Background

In the context of a major review of the IMF's conditionality (that is, the conditions attached to the Fund's financing) the Executive Board emphasized the need to focus conditionality on those policies that are critical to achieving the macroeconomic objectives of the programs supported by the Fund and to establish a clear division of labor with other international institutions, especially the World Bank.1 In July 2001, the Executive Board discussed the strengthening of IMF-World Bank collaboration on country programs and conditionality (Public Information Notice 01/92), and adopted a strengthened collaboration framework between the two institutions. The framework, which was also endorsed by the Executive Board of the World Bank, is based on three key principles: clarity about responsibilities, early and effective consultation, and the accountability of each institution for its own financing. To implement the strengthened framework, in the spring of 2002 the managements of both institutions issued a guidance note on Operationalizing Bank-Fund Collaboration in Country Programs and Conditionality to their staffs.

The progress report examined the experience with collaboration in relation to the guidance note, while noting the short time elapsed since its issuance. The centerpiece of the report was a survey of staff in the two institutions—World Bank Country directors and IMF mission chiefs—examining their experience of collaboration. The survey found that, while collaboration was seen as satisfactory with no major problems indicated in most cases, a number of institutional factors were identified as impediments to fully effective collaboration—notably the different structures of the two institutions and the different time frames over which objectives are expected to be achieved. These results were viewed as confirming the need for continued efforts to strengthen collaboration.

Executive Board Assessment

Executive Directors welcomed the opportunity to review progress on IMF-World Bank collaboration on country programs and conditionality, in relation to the guiding principles agreed by the Executive Boards of the two institutions in August 2001 and the operational Guidance Note issued in April 2002. Directors reaffirmed that close collaboration is indispensable for providing effective support to member countries, and forms an integral part of efforts to streamline and focus conditionality to enhance national ownership of reform programs. The move to strengthen collaboration in country programs is taking place against the background of progress achieved in a number of other areas, including the Poverty Reduction and Growth Facility/Heavily Indebted Poor Countries framework and systematic joint analytic work such as in the Financial Sector Assessment Program and the Report on the Observance of Standards and Codes exercises.

Directors noted that the central principles of collaboration on country program design and conditionality are the clear designation of one of the two institutions as a lead agency in particular policy areas and systematic information-sharing between the two institutions. At the same time, they considered it essential that each institution retain ultimate responsibility for its own lending decisions.

Directors considered that the Guidance Note on Operationalizing Bank-Fund Collaboration in Country Programs and Conditionality—issued by Bank and Fund management to the staff of both institutions in Spring 2002—is beginning to play a positive role in strengthening collaboration, while they noted the limited basis for assessment at this stage. Directors endorsed the approach that places primary responsibility for collaboration on the country teams in each institution, specifically the Fund mission chief and the World Bank country director. They stressed the importance of early engagement between the staffs of the two institutions to arrive at a common view on reform priorities and program design issues, and to harmonize work programs and missions. They also underscored the need for transparent reporting to the two Executive Boards.

Against this background, Directors discussed the current state of collaboration in country programs and conditionality, as documented in the paper prepared by the staff. They agreed that a shared perspective and clarity of roles and responsibilities are prerequisites for effective collaboration, and welcomed indications that these conditions are receiving heightened attention. While progress has been made, Directors called for a stronger, continuing effort to improve coordination, communication, and information-sharing between country teams of the two institutions.

Directors reviewed a number of key areas in which collaboration needs to be strengthened, noting in particular that it has been impeded by institutional factors such as differences in internal requirements, working structures, timetables, and lending arrangements and instruments. While Directors believed that these impediments can usually be overcome through effective consultation, they urged staff to establish a clearer definition of the lead agency role and also a sharper division of labor, on a case-by-case basis-especially in areas where responsibilities are shared. Public expenditure management was cited as an area in which better collaboration is needed; a few Directors also stressed the importance of operationalizing Poverty and Social Impact Assessments (PSIAs). Several Directors suggested exploring the scope for more formal structures to implement collaboration, by analogy with the arrangement for Financial Sector Assessment Programs (FSAPs) and Poverty Reduction Strategy Papers (PRSPs), but recognized the need to avoid undue bureaucracy.

Directors emphasized that effective collaboration with the Bank is critical for the success of efforts to streamline and appropriately focus Fund conditionality. They stressed that strengthened collaboration is needed to ensure that important measures are adequately covered as the Fund applies conditionality more sparingly outside its core areas. At the same time, Directors generally considered that structural measures that do not fall in the core areas of the Fund, but are critical for macroeconomic stability, should remain part of the Fund's conditionality. Some Directors noted that overlapping conditionality might thus be unavoidable for policy measures that are critical to the success of both programs. A number of Directors stressed that reforms that are crucial to achieve stability and growth should not fall into a "no institution's land". Other Directors emphasized the need to reduce the overall burden of conditionality on member countries and ensure that collaboration should not become a vehicle for implicit Fund conditionality.

Directors noted that for the low-income countries, the PRSP process provides a natural framework for ensuring collaboration between the staffs of the two institutions in support of a country-led strategy for addressing poverty and fostering sustainable growth. For middle-income countries, collaboration has been more varied and based on a less formal approach, depending in part on the circumstances of the country, and stronger efforts are needed to ensure an effective approach in these cases also.

Directors generally welcomed the inclusion in program documents of annexes that provide an overview of the reform priorities supported by the two institutions and the accompanying conditionality. In this regard, they noted the importance of clear documentation in staff reports of the division of labor and of lead roles between the two institutions; the goals, structure, relevance and timing of their conditionality; and the progress achieved in key economic reforms. Several Directors stressed the desirability of having Fund staff reports include a comprehensive matrix of structural reforms being undertaken in a country, and the lead agencies involved-with a view to strengthening the lead agency framework and promoting donor support. At the same time, a few Directors encouraged selectivity in reporting on Bank-supported programs-based on relevance to the Fund-supported program. Directors also welcomed more systematic participation by the staff of each institution in the Board meetings, as well as the missions, of the other institution.

Directors encouraged the staff of both institutions to move ahead on the basis of the Guidance Note and the approach set out in the progress report, subject to another review no later than the end of 2003, when sufficient experience has been gained—including through a process of continuous assessment of collaboration. Since the ultimate purpose of collaboration is to ensure the best possible quality of Fund- and Bank-supported programs, Directors emphasized that internal and external studies of experience under those programs will afford further opportunities to assess how collaboration has been working in practice. For the same reason, they stressed that the views of the country authorities must be taken into account in evaluating the effectiveness of collaboration, and they also suggested seeking input from donors, as well as a wider sample of Fund and Bank staff. They looked forward to the inclusion of such feedback in the next review.


1 See discussion by the Executive Board of a series of papers on this topic, starting in March 2001; Public Information Notice 01/28.



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