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Topical Trust Funds Aim to Expand IMF's Capacity Building

Ore loader in Port Hedland, Australia— one of potential donors to IMF trust fund on managing natural resource wealth (photo: Tim Wimborne/Reuters)

IMF TECHNICAL ASSISTANCE

Topical Trust Funds Aim to Expand IMF's Capacity Building

IMF Survey online

February 1, 2011

  • Two new topical trust funds dedicated to specific capacity-building activities
  • Natural resource fund targets sound management of natural resource wealth
  • Tax policy, administration fund seeks higher revenues, lower aid dependence

As part of a drive to meet large demand from its members for practical, on-the-ground help—termed technical assistance—the IMF has set up two new donor-supported funds to boost capacity building.

The funds, known as topical trust funds, aim to total $55 million and are dedicated to specific capacity-building activities.

The new trust funds—Managing Natural Resource Wealth and Tax Policy and Administration--are currently budgeted at $25 million and $30 million respectively over the next five years and will begin operating in May 2011. The IMF’s first trust fund—Anti-Money Laundering/Combating the Financing of Terrorism--was launched in 2009.

The primary donors to the trust fund on managing natural resource wealth are Norway and Switzerland, supported by the Netherlands and Kuwait. Talks with other donors, including Australia and the European Union, are under way to reach the targeted amount of $25 million.

For the trust fund on tax policy and administration, Germany and Switzerland are the lead donors, supported by Belgium, Luxembourg, and the Netherlands. The European Commission and Norway have also expressed interest in contributing, and discussions are under way with several other donors to bring the fund to its $30 million target.

“Matching the priorities of donors and the IMF is key to forging a strong partnership,” said Anton Op de Beke, a senior economist in the IMF’s Strategy, Policy, and Review Department and main author of the natural resource fund’s program document.

Philip Daniel, a deputy division chief of the IMF’s Fiscal Affairs Department who helped develop the fiscal substance of the natural resources trust fund, noted that there is substantial and increasing demand for technical assistance in natural resource management.

The natural resources fund would “permit the expansion of technical assistance, taking a programmatic approach in which we develop medium-term cooperation with low- and lower-middle-income member countries. All of this technical assistance is based on solid research,” Daniel said (see box).

Information gap

“Accumulating financial assets, rather than spending the windfalls from natural resources, is politically challenging,” said Robert Sheehy, Deputy Director of the IMF’s Monetary and Capital Markets Department, which developed an asset and liability risk management module for the natural resources fund. “The asset and liability risk management module will help countries make the right investment decisions and develop the supporting institutional framework consistent with their long-term macroeconomic needs,” Sheehy added.

Manik Shrestha, Deputy Division Chief in the IMF’s Statistics Department, designed the statistics component of the natural resources fund. Shrestha noted that good information on the levels and values of stocks of natural resources, as well as understanding the production and income generation associated with the use of natural resources, is important for many developing and emerging market countries. "This statistical component of the trust fund will help to fill an important information gap in wealth accounting," he said.

How to manage natural resources

Examples of IMF research to support technical assistance include
The Taxation of Petroleum and Minerals: Principles, Problems and Practice (Routledge/IMF, 2010)
• Fiscal Analysis of Resource Industries modeling system
Guide on Resource Revenue Transparency (IMF, 2007)

Peter Barrand, a Senior Economist in the IMF’s Fiscal Affairs Department and the main author of the Tax Policy and Administration trust fund program document, observed that “assisting low- and lower-middle-income countries to raise domestic revenues is crucial for reducing their dependence on external aid.” Liz Cunningham, a Senior Officer in the IMF’s Office of Technical Assistance Management, helped launch the tax policy and administration trust fund. “Donors see a great need for helping developing countries to mobilize revenue,” she said.

David Kloeden, a Deputy Division Chief in the IMF’s Fiscal Affairs Department, noted that “a well administered tax system is essential for nation building, particularly in fragile states, and those countries need support in modernizing their tax systems and ensuring that they treat taxpayers equitably.”

Opportunity to expand

“These topical trust funds are an opportunity for the IMF not only to substantially expand its technical assistance in specific areas—doing twice or even three times as much—but also to enhance how we deliver technical assistance,” said Kristina Kostial, Assistant Director in the IMF’s Office of Technical Assistance Management. “Donors expect that our technical assistance produces concrete outcomes. These expectations will help us to improve the targeting of our technical assistance delivery,” Kostial added.

“Working with donors also facilitates coordination and minimizes overlaps in the spirit of the Paris Declaration on Aid Effectiveness to the benefit of recipient countries,” said Jose Rosales, Director of the IMF’s Office of Technical Assistance Management.

Marketing the trust funds

The global financial crisis complicated fundraising efforts by prompting cuts in aid budgets by several important donor countries. In response, the IMF intensified its outreach efforts to highlight the strengths of its technical assistance, including the efficiency and effectiveness of its technical assistance economic model and the technical expertise that underlies IMF advice.

“What also helped in marketing the topical trust funds is that many donor agencies already have valuable experience of supporting IMF technical assistance through bilateral arrangements and thus were willing to scale up their support,” said Carlo Cottarelli, Director of the IMF’s Fiscal Affairs Department. “Norway, for example, hosted the design meeting for the natural resources fund and emphasized that the trust funds will build on successful work under its bilateral program with the IMF.”

The creation of the trust funds is a part of the IMF’s drive, started in 2008, to expand the volume of IMF externally funded technical assistance. Besides the three trust funds, the IMF has since opened an additional regional technical assistance center in Central America and expanded bilateral partnerships with donors. Work is under way to open three additional technical assistance centers (two in Africa and one in Central Asia), increase the size of existing centers, and establish further topical trust funds.


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