## Statement by the Managing Director on the Independent Evaluation Office Report on the IMF and Fragile States

## Source details

**Canonical URL:** [Statement by the Managing Director on the Independent Evaluation Office Report on the IMF and Fragile States](https://www.imf.org/-/media/files/publications/pp/2018/032218mdstatement-ieoonfragilestates.pdf)

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### Context and overarching assessment
- Date of statement: March 9, 2018.  
- Executive Board Meeting: March 22, 2018.  
- The Managing Director welcomes the IEO report and broadly supports its recommendations to make the Fund’s engagement with countries in fragile and conflict situations more impactful.
- Acknowledged IMF contributions (as identified by the IEO report):
  - Restoring macroeconomic stability.
  - Building core macroeconomic policy institutions.
  - Catalyzing donor support.
- The IEO finds the IMF to have particularly high impact in years soon after countries emerged from periods of violence and isolation.
- The Managing Director notes that engagement with fragile and conflict situations is inherently challenging because of generally limited capacity, weak governance, and unstable political and security environments.

### Actions in train or under consideration
- Pilot initiatives and reviews referenced:
  - Piloting a multi-year capacity development (CD) framework for selected countries in fragile and conflict situations to better integrate CD with surveillance and improve coordination with other assistance providers.
  - The ongoing 2018 PRGT facilities review to assess gaps in the toolkit between emergency and medium-term support.
  - Development of a new HR strategy aimed at strengthening incentives for staff to work on fragile and conflict situations by linking career development to broad membership experience.
- Security policy consideration:
  - Recognition that lack of field presence in high-risk locations could limit effective engagement but must be weighed against ensuring staff safety as set out in the 2015 security policy for missions to high-risk locations.

### Response to IEO recommendations (by recommendation)
- Recommendation 1: Issue a statement of importance for IMFC endorsement to guide fragile state work.
  - Position: Support.
  - The Managing Director broadly supports this recommendation and ties it to responses to recommendations 2–6.

- Recommendation 2: Establish an effective institutional mechanism to coordinate and champion fragile state work.
  - Position: Support.
  - Proposed approach:
    - Consider an interdepartmental mechanism that is not duplicative or unduly resource-intensive.
    - Mechanism tasks could include reviewing implementation of the Staff Guidance Note on the Fund’s Engagements with Countries in Fragile Situations and preparing guidance on country strategies.
    - Provide a platform for revisiting engagement with key international players in fragile and conflict situations.

- Recommendation 3: Develop forward-looking, holistic country strategies integrated into the Article IV surveillance process.
  - Position: Support.
  - Key caveats:
    - Resource costs could be significant.
    - Useful lifespan of strategies may be limited by uncertainties in fragile contexts.
    - Requirements must be flexible, adaptive, and lean to avoid creating a “box-checking” exercise or overburdening the Article IV process.

- Recommendation 4: Adapt the IMF’s lending toolkit to deliver more sustained financial support, including for countries challenged by upper-credit-tranche conditionality; mobilize creditor support for FCS with external arrears.
  - Position: Support.
  - Important constraints and positions:
    - IMF funding model: the Fund borrows from some members to lend to others; IMF funding adds to countries’ debt burden in the medium term even with interest rate at zero percent.
    - Countries in fragile and conflict situations typically need grant aid from development partners rather than heavy reliance on external loans.
    - IMF financing is catalytic: it signals and catalyzes donor funding more than provides volume of finance.
  - Specific policy work:
    - IMF staff are examining toolkit modifications in the context of the 2018 Review of Facilities for Low-Income Countries.
    - The IEO suggestion of shorter (e.g., one-year) arrangements will be considered.
    - The case for raising access limits for the rapid financing facilities (RFI/RCF) will be examined.
    - No convincing case seen for extending the repayment period for PRGT loans (which currently extends out to 10 years).
  - Trust fund/special facility considerations:
    - A facility for grant funding and long-term loans for fragile states would require a large dedicated trust fund; concerns about viability, uniformity of treatment, and potential displacement of donor resources (e.g., IDA) are noted.
  - Arrears clearance:
    - The Fund should respond speedily to windows of opportunity for comprehensive clearance of arrears, but such settlements require consent of all external bilateral creditors.

- Recommendation 5: Increase impact of capacity development (CD) support (on-the-ground experts, realistic impact assessment tools, adequate financial resources).
  - Position: Support.
  - Key themes and existing/planned measures:
    - Absorption capacity can critically limit CD impact, particularly in small states.
    - Efforts to make CD donor funding more flexible are underway and will continue, though current inflexibility should not be overstated.
    - Pilot initiatives and examples:
      - Multi-year CD framework pilot (referenced above).
      - Additional technical advisors deployed during FY17-18 in several fragile and conflict situations.
      - Additional responsibilities for some regional technical assistance centers (RTACs) through long-term advisors hired specifically for fragile and conflict situations.
    - Support for results-based assessments to enhance CD impact.
    - Potential for a multi-donor trust fund dedicated to CD for fragile and conflict situations, contingent on making a business case and ensuring it would not undercut funding for RTACs.
    - On charging for CD: a 2015 change limits internal Fund resources for TA to high-income countries to critical needs; recent staff work finds cost-recovery charges would not raise much additional finance and could introduce administrative burdens and reduce traction of policy advice.
    - Formal coordination mechanisms with other providers have tended to be cumbersome and insufficiently flexible; the Platform for Collaboration on Tax is a labor-intensive example that may not be easily replicable.
    - Executive Directors’ support on coordination with their respective aid agencies is welcomed.

- Recommendation 6: Incentivize high-quality staff to work on fragile states, ensure adequate resources, and pragmatically increase field presence in High-Risk Locations with necessary security arrangements even at high cost.
  - Position: Qualified Support.
  - Key points:
    - Human resources challenges are recognized; the ongoing HR strategy should offer more robust incentives for staff.
    - Paramount objective for field presence is staff safety in line with the 2015 security policy for missions to high-risk locations.

### Table summary of positions on IEO recommendations
- (i) Reinforce fragile states as a top priority via a statement for IMFC endorsement: Support.
- (ii) Establish an institutional mechanism to coordinate and champion fragile state work: Support.
- (iii) Develop forward-looking, holistic country strategies integrated into Article IV: Support.
- (iv) Adapt IMF lending toolkit and mobilize creditor support for arrears situations: Support.
- (v) Increase impact of capacity development in fragile states: Support.
- (vi) Incentivize staff, ensure resources, and increase field presence with security arrangements: Qualified Support.

*Managing Director’s statement on the IEO report on the IMF and Fragile States (March 9, 2018).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2018/032218mdstatement-ieoonfragilestates.pdf_