## 1. Country-Led Strategies

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---

### A. Institutions Matter
- Policies matter but institutions probably matter more; institutions are critical determinants of whether countries are rich or poor, stable or instable, good at improving the welfare of their citizens or not.
- Strong institutions can sustain good policies over the long term; weak institutions can adopt good policies but may not sustain them.
- Building strong institutions lacks a simple recipe; historical evolution and long time horizons are often important, though reforms such as meritocratic hiring, investments in training, clear targets and accountability, adequate budgets, and well-defined processes can shape better institutions.
- IMF CD has historically emphasized training and policy advice, with less attention to whether institutions have adequate resources or decision-making processes.

### B. What is Going Well?
- CD has grown to be about one-third of the IMF’s work and is unlikely to grow further as a share of total activity.
- The quality of IMF CD work is described as excellent and valued by countries.
- The Fund has built a global network:
  - 16 regional CD centers that reach every member country.
  - Training delivered in five languages.
- Integration and diversification progress:
  - Attempts since the 2013 strategy to integrate TA and training further.
  - Improvements in prioritization and introduction of results-based management (RBM).
- Prioritization observations:
  - Governments keen to reform are more likely to use advice and training effectively.
  - Countries with an IMF program tend to use CD well due to political windows of opportunity.
  - Area departments play a key role in prioritization within countries.
- CD and surveillance:
  - Surveillance often identifies capacity shortfalls but could better contextualize them within institutional realities.
  - Caution against making CD priorities mandatory in Article IV consultations to avoid a “tick box” exercise.
  - Recommendation to use joint country CD strategies where CD is likely to matter most (fragile states, low-income countries, countries undergoing major structural transformations).

### C. Progress Areas Needing More Work
- TA and training integration:
  - Policy advice without skilled implementers is ineffective; training without functional institutions is frustrating.
  - Progress in integrated regional CD centers and more “hands on” support to implementation is welcome.
  - Lessons from Libya and Tunisia: extensive institutional diagnostics followed by comprehensive reform programs were costly and difficult amid political upheaval.
  - Suggestion: invest in better country CD strategies, starting with more stable countries before fragile cases.
- Digital opportunities:
  - IMF was an early adopter of online learning; first international organization to offer MOOCs through the EdX platform.
  - Blended learning has doubled IMF training reach from about 8,000 individuals in 2013 to 16,000 in 2017.
  - Opportunities: expand access to training, create communities of practice, provide “real time” TA, partner with other providers to share IMF content and case studies.
- Donor partnerships:
  - Strategic partnerships with large donors and collaborations with smaller donors improved resource efficiency and stability of CD funding.
  - Donors should focus less on extensive reporting and more on evidence of implementation and impact, and encourage publication of CD findings as a public good.
- Results-Based Management:
  - Fund is investing in RBM; should continue while being realistic about what can be measured.
  - RBM can aid prioritization and donor accountability and help assess whether CD investments deliver better institutions.
  - Warning against mechanistic approaches because the most important outcomes are hard to measure.

### D. Potential Changes Going Forward
- Staffing and decision-making processes:
  - Quality of decision making depends on staff caliber and processes: data collection, analytical capacity, accountability mechanisms, challenge mechanisms, and adaptability.
  - Fund currently pays less attention to these operational issues relative to their importance.
  - Recommendation: build cross-country data on qualifications and numbers of staff in economic ministries, tax administrations, statistical authorities; mechanisms for evaluating policy effectiveness; procedures for review and challenge. Donors encouraged to support this work.
- Fragile states:
  - Fragile and conflict-affected states require a fundamentally different CD approach focused on rebuilding institutional capacity and legitimacy.
  - Recommendation: emphasize in-country or regional blended training and TA focused on basic processes (public financial management, adequate resourcing, decision-making processes); adopt realistic time frames; focus less on writing reports and donor accountability and more on achieving institutional milestones and results.
- Transparency:
  - IMF training materials have been made more public via MOOCs, but fewer than 5 percent of TA reports are published because few recipient governments authorize publication.
  - Options to increase publication:
    - Move to an “opt out” system where reports are published unless authorities request otherwise.
    - Publish reports after a set time delay, for example 3–5 years, when findings may be less sensitive.

*Prepared by Minouche Shafik; October 2, 2018 — External commentary from 2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES*

---

### Changing Demand and Topical Priorities

### Shifts in demand
- Fiscal policy advice, especially around taxation, continues to be the largest share of TA.
- Growing demand for advice on monetary policy and the financial sector, notably financial stability issues following the financial crisis.
- Fund has innovated in new areas with focus on macro-criticality: energy subsidies, inequality, gender, and climate.
- Emerging or returning topics that may gain importance:
  - Trade and debt management.
  - Application of machine learning and artificial intelligence to tax policy.
  - Big data and statistics.
  - Regulation of digitally driven parts of the economy.
- Short-term approach: draw on outside expertise until internal capacity is developed (example: STA developing partnerships to help countries use innovative data tools).

### Peer learning and norms
- Opportunities for peer learning can be expanded, especially for middle and junior level officials.
- RTACs provide some peer learning, but a more explicit offer is needed with greater engagement from headquarters for a global perspective.
- Fund’s unique role: establish norms and standards of good practice (examples: statistics, anti-money laundering).
- Potential market for forums among finance ministry officials to compare notes on issues like taxation in the digital economy or managing capital flows.
- Appetite for peer reviews of entire institutions (example model: OECD DAC peer reviews).

---

### Summary of Review: Numbered Findings and Recommendations

- 1: Building institutions and strengthening capacity are among the most difficult long-term development challenges; progress has occurred but much remains to be done.
- 2: Committed and effective leadership within target organizations is perhaps the most important ingredient for strengthening institutions and capacity.
- 3: Country ownership is closely related to leadership; CD efforts must be owned, embraced, understood, and guided by organizational leadership.
- 4: The Fund should encourage leaders to develop concise, targeted, country-owned CD strategies with a small number of priorities; the Fund should support and be willing to compromise, but not follow strategies that do not make sense.
- 5: The Fund can strengthen CD by organizing training and TA as integrated series of modules that reinforce each other and foster ongoing engagement; improved internal coordination is required, with area departments playing a central role.
- 6: The Fund should explore offering (or supporting) training in leadership, management, and strategy development, or work with external groups or donors to provide these skills.
- 7: The Fund should intentionally create and strengthen norms at deeper organizational levels by bringing together the same groups over time and emphasize peer-to-peer CD efforts.
- 8: Broad endorsement exists for a more structured approach to RBM, but CD poses challenges for RBM: difficulty of definition and measurement, long time horizons, non-linear progress, and risk of RBM being seen as “stealth conditionality.” Recommendations:
  - Ensure RBM is flexible to allow experimentation, iteration, and adaptation.
  - Regularly assess targets to ensure alignment with long-term outcomes.
  - Involve local authorities in establishing metrics and goals.
  - Work with donors to allow for longer-term horizons and avoid focusing narrowly on easily achievable targets; invest in new data to improve metrics.
- 9: CD in fragile states faces greater instability, more reversals, greater vulnerability to shocks, lower initial capacity, and weaker governance. Recommendations for fragile states:
  - Focus resources where there is weak capacity but committed leadership.
  - Invest less where committed leadership is absent.
  - Initial focus on basic building blocks requiring less implementation: exchange rate management, payments systems, budget frameworks, collecting customs duties.
  - Engage with interlocking modules of CD activities, reinforce over time, and consider stronger presence on the ground (resident advisers, additional training and TA).
- 10: In countries with particularly weak individual capacity, consider time-limited “capacity supplementation” (hiring experts to carry out key functions, not just advise), combined with training and rapid placement of national experts to transition responsibilities.
- 11: In fragile states without local leaders committed to reform, scale back efforts, focus on building relationships and the case for reform, play a patient long game, and devote much less time and resources until conditions change.

*Prepared by Steven Radelet, Georgetown University; excerpted from the 2018 CD Strategy Review—External Commentary and Background Studies*

---

### Country-Led CD Strategies: Purpose, Design, and Fund Role

### Design principles for effective CD strategies
- Leadership should oversee development of a concise strategy that:
  - articulates highest priority medium-term functional goals and objectives;
  - appraises current capacity to achieve these goals;
  - outlines a basic course of action to build capacity to better carry out core functions.
- Effective strategies should be:
  - short and succinct;
  - avoid trying to do too much and overburdening the organization;
  - set a small number of clear top-line priorities (adage: “if you have more than three priorities, you don’t have any”).
- Strategies can target a ministry or central bank or a narrower focus (division, department, or office).
- Box 1 guidance (process steps):
  - First step: leadership articulates objectives over a three- to five-year time horizon (or longer), identifies highest priorities, and appraises current capacity.
  - Second step: develop a strategy including obtaining legal authorities, top-line policies and processes, attracting and developing staff with right skills, and utilizing appropriate TA.
  - Strategy should include medium-term objectives, intermediate goals (1–2 years), an implementation strategy, and agreement on roles.
  - Adopt Problem-Driven Iterative Adaption (PDIA): solve locally defined problems, encourage experimentation, incorporate feedback loops, engage broad actors.

### The Fund’s role and principles for engagement
- The Fund should encourage and participate but not lead the process; support under local leadership and be willing to compromise on objectives.
- Practical Fund roles:
  - IMF resident representative should be involved from the outset where present.
  - Provide support where countries cannot fully develop strategies: undertake assessments and diagnostics, assist drafting parts of the strategy, help develop time-bound action plans, provide guidance or workshops.
  - Organize its own internal plan to support a country’s capacity building—distinct from the country’s CD strategy and complementary to Fund’s country and regional strategy notes.
- Balance required:
  - Be proactive and supportive without taking over the process.
  - Recognize developing country-led strategies will often take longer than staff drafting them directly.
- Dealing with limited local ownership:
  - If strategy is nonsensical or a wish list, the Fund and partners can decide not to support it.
  - If authorities show no interest, lower expectations and reduce Fund effort; focus on building relationships, creating trust, and encouraging reform conditions to improve over time.
  - Devote larger share of time, effort, and funding to countries showing interest and commitment.

---

### Strengthening and Integrating Capacity Development (CD)

### Integration and delivery modalities
- CD activities remain too fragmented; recommended approach:
  - Organize training and TA as integrated series of modules and interlocking pieces that reinforce each other and foster ongoing, regular engagement over time.
  - Ensure sequencing and mutual reinforcement: online training, regional workshops, face-to-face training, TA in country, phone/video follow-up, customized trainings.
  - Prefer continued, purposeful, coordinated engagement over stand-alone TA reports or trainings without follow-up.
- Resource implications:
  - Some shifts achievable by reorganizing existing activities; others will require devoting more time, effort, and resources to particular projects.
  - May require prioritizing among projects and allocating more sustained resources over time to a more limited number of projects.
- Internal coordination:
  - Enhanced internal coordination within the Fund is required so CD-delivering departments work more closely together.
  - Area departments should play a central role given their close engagement with countries.

### Leadership and management training
- Fund should explore introducing training focused on leadership, management, strategy development, and related skills.
- If the Fund cannot provide these roles directly, it should work with business/public policy schools or other donors.

### Creating global norms and communities of practice
- Fund has helped create global norms among central bank governors, ministers of finance, and senior finance officials.
- Recommendation:
  - IMF should more intentionally aim to create and strengthen norms, networks, and communities of practice at deeper organizational levels, complementing TA and training.

---

### Emphasizing Peer-to-Peer CD, RBM, and Capacity Building in Fragile States

### Peer-to-peer capacity development
- Authorities value learning from closest peers; peer-to-peer approaches used in many CD activities, but scope exists to expand.
- Ways to leverage peer-to-peer power:
  - Bring together people from similar countries and small groups from one country with groups from peer countries.
  - Utilize experts from peer countries for CD, including long-term resident TA.
  - Expand attachments/immersion opportunities (examples cited: Ethiopian→Tanzania, Nepal→India, Suriname→The Bahamas).
  - Financing: Fund assists in arranging and pays travel costs; countries continue to pay salaries.

### Results-Based Management (RBM)
- Broad endorsement for RBM but three design concerns:
  - CD is difficult to define and measure, takes a long time, and progress is non-linear; risk of measuring the wrong things well.
  - Overly rigid systems can undermine experimentation, iteration, and adaptation.
  - If local authorities are not involved in metric-setting, RBM can be perceived as “stealth conditionality.”
- Steps to minimize risks:
  - Establish metrics with care; focus on value creation and long-term functionality.
  - Involve local authorities deeply in selecting and implementing RBM targets.
  - Set targets mindful of initial capacity and regularly reassess metrics.
  - Work with donors to allow longer-term horizons and invest in better data where needed.

### Capacity building in fragile states
- CD in fragile states: progress takes longer, obstacles are larger, costs higher, path forward less clear.
- Resource allocation guidance:
  - Devote greater resources to fragile states with weak capacity but committed leadership; invest less where committed leadership is absent.
- Recommended approach where committed leadership exists:
  - Identify champions, develop concise focused strategies with realistic objectives.
  - Initial focus on easier tasks that yield quick wins (exchange rate management, payments systems, cash management, budget frameworks, customs duties and excise taxes).
  - Engage interlocking modules of CD activities; require stronger on-the-ground presence (resident advisers, training, TA); coordinate with donors.
  - AFR pilot: “Capacity Building Frameworks” for five fragile states as a potential model.
- Capacity supplementation:
  - Time-limited hiring of experts to carry out key functions, combined with rapid training and placement of national successors (example: two-year external expert with hand-over in year two).
  - Applicable to very small countries or island states; often financed by bilateral and multilateral donors.

---

### Prioritization, RAP, Ownership, and Departmental Dialogue

### Core areas covered by IMF TA (as context)
- Fiscal Policy and Management (tax policy; tax and customs administration; expenditure policy; public financial management; fiscal policy and institutional framework; fiscal federalism).
- Monetary Policy and Financial Systems (central bank operations; monetary policy; foreign exchange operations; financial supervision and regulation; macroprudential policies; systemic risk analysis; financial crisis prevention and management; capital market development; debt management).
- Macroeconomic & Financial Statistics (multisector statistical issues; balance of payments and other external sector statistics; government finance statistics; monetary and financial statistics; financial soundness indicators; national accounts and price statistics; data dissemination standards).
- Legislative Frameworks (laws and regulations on central banking, financial institutions, tax and public financial management, foreign exchange, insolvency, creditor rights; anti-money laundering/combating the financing of terrorism).

### Demand versus supply in TA allocation
- Allocation involves both demand-side (country needs, requests, ownership) and supply-side (IMF priorities, expertise availability, funding, donor priorities) criteria.
- CCB reviews institutional medium-term priorities for CD annually; FY2019–2021 priorities are:
  - Financing for development:
    - Fragile states;
    - Revenue mobilization and sound public financial management; and
    - Financial market deepening for low-income countries.
  - Aligning CD, surveillance, and lending:
    - Addressing needs of highly vulnerable and IMF program countries;
    - Financial supervision and regulation, including developments in fintech, particularly supervisory approaches to managing cyber risks, and monetary policy frameworks;
    - Closing data gaps, improving data quality, and broadening data dissemination; and
    - Financial integrity (anti-money laundering and combatting the financing of terrorism).
- Evidence: TA accounts for "82 percent in terms of spending" of the IMF’s CD work; RAP reforms in September 2017 introduced three-year CD delivery plans, country strategy notes (CSNs) for heavy users, and stronger area-department review of mission briefing papers/TORs.

### RAP, diagnostics, and ownership
- RAP three steps:
  - Area departments prioritize demands by country and topic, building on country dialogue.
  - CD departments state supply given constraints.
  - Agreement on CD projects follows further dialogue.
- Diagnostics and design tools encourage ownership (example tools listed for MCM, FAD, STA, LEG; FSSR, FSAP, RA-FIT, RA-GAP, TADAT, FTEs, PIMA, P-FRAM, FARI, PEFA).
- Recommendation: systematic diagnostic work with strong engagement of country authorities and attention to absorption capacity; add systematic assessment of country ownership in diagnostics.

### Departmental dialogue and external funding
- Dialogue between area and CD departments essential; mutual participation in missions recommended.
- External funding covered half of total direct spending on CD in FY2017 ($134 million out of a total of $267 million).
- Risks from donor preferences: donors finance four-fifths of field delivery costs (FY2017 TIMS data) and can influence topics and expert nationality; mitigants include IMF vetting of experts, multi-donor trust funds, and IMF insistence that donor funding align with institutional priorities.
- Steps to emphasize country demand and ownership (summarized recommendations a–j):
  - a) Strengthen RAP to better integrate TA and area department country work; area departments should prioritize using surveillance/program work and assess ownership.
  - b) Improve exchange of information between departments; consider corporate systems for CD information management.
  - c) Ensure RAP involves robust dialogue with countries; RAP should not be just internal prioritization.
  - d) Foster budget reallocations to meet shifts in country demand; greater CCB role to address inertia.
  - e) Focus more on assessments of country ownership in RSNs/CSNs and BTOs.
  - f) Use diagnostic work to assess and promote country ownership; avoid overly comprehensive diagnostics unless agreed.
  - g) Make country engagement integral to RBM; involve authorities in designing log frames and milestones.
  - h) Mitigate TA prioritization risks related to external funding: negotiate fewer earmarks, prefer flexible funding vehicles.
  - i) Leverage on-the-ground presence (resident reps, RTACs) to enrich engagement and tailor delivery.
  - j) Pair TA and training strategically to enhance ownership; training should be provided by all CD departments and RTACs, not only ICD.

### Country responsibilities
- Country authorities must have their own set of priorities, better internal coordination, and a strategy to request TA for their most important needs; this helps defend against supply-driven TA.

---

*International Monetary Fund — 2018 CD STRATEGY REVIEW: EXTERNAL COMMENTARY AND BACKGROUND STUDIES (excerpt pp16–21, pp31–73)*

### 1. Country-Led Strategies _________________________________________________________________ 16

### 1. Country-Led Strategies

### A. Institutions Matter
- Policies matter but institutions probably matter more; institutions are critical determinants of whether countries are rich or poor, stable or instable, good at improving the welfare of their citizens or not.
- Strong institutions can sustain good policies over the long term; weak institutions can adopt good policies but may not sustain them.
- Building strong institutions lacks a simple recipe; historical evolution and long time horizons are often important, though reforms such as meritocratic hiring, investments in training, clear targets and accountability, adequate budgets, and well-defined processes can shape better institutions.
- IMF CD has historically emphasized training and policy advice, with less attention to whether institutions have adequate resources or decision-making processes.

### B. What is Going Well?
- CD has grown to be about one-third of the IMF’s work and is unlikely to grow further as a share of total activity.
- The quality of IMF CD work is described as excellent and valued by countries.
- The Fund has built a global network:
  - 16 regional CD centers that reach every member country.
  - Training delivered in five languages.
- Integration and diversification progress:
  - Attempts since the 2013 strategy to integrate TA and training further.
  - Improvements in prioritization and introduction of results-based management (RBM).
- Prioritization:
  - Governments keen to reform are more likely to use advice and training effectively.
  - Countries with an IMF program tend to use CD well due to political windows of opportunity.
  - Area departments play a key role in prioritization within countries.
- CD and surveillance:
  - Surveillance often identifies capacity shortfalls but could better contextualize them within institutional realities.
  - Caution against making CD priorities mandatory in Article IV consultations to avoid a “tick box” exercise.
  - Recommendation to use joint country CD strategies where CD is likely to matter most (fragile states, low-income countries, countries undergoing major structural transformations).

### C. Areas Where There is Progress, But More is Needed
- TA and Training integration:
  - Policy advice without skilled implementers is ineffective; training without functional institutions is frustrating.
  - Progress in integrated regional CD centers and more “hands on” support to implementation is welcome.
  - Lessons from Libya and Tunisia: extensive institutional diagnostics followed by comprehensive reform programs were costly, perhaps too comprehensive, and difficult amid political upheaval.
  - Suggestion to invest in better country CD strategies, starting with more stable countries to learn lessons before tackling fragile cases.
- Digital opportunities:
  - IMF early adopter of online learning; first international organization to offer MOOCs through the EdX platform.
  - Blended learning has doubled IMF training reach from about 8,000 individuals in 2013 to 16,000 in 2017.
  - Opportunities to expand access to training, create communities of practice, provide “real time” TA, and partner with other providers to share IMF content and case studies.
- Donor partnerships:
  - Strategic partnerships with large donors and collaborations with smaller donors have improved resource efficiency and stability of CD funding.
  - Donors should focus less on extensive reporting and more on evidence of implementation and impact, and encourage publication of CD findings as a public good.
- Results-Based Management:
  - Fund is investing in RBM; should continue while being realistic about what can be measured.
  - RBM can aid prioritization and donor accountability and help assess whether CD investments deliver better institutions.
  - Warning against mechanistic approaches because the most important outcomes are hard to measure.

### D. What Could be Different in Future?
- Focus on staffing and decision-making processes:
  - Quality of decision making depends on staff caliber and processes: data collection, analytical capacity, accountability mechanisms, challenge mechanisms, and adaptability.
  - Fund currently pays less attention to these nuts-and-bolts issues relative to their importance.
  - Practical cross-country syntheses on how institutions operate (e.g., agenda setting, paper preparation, briefing external members, implementation) would be valuable.
  - Recommendation to build cross-country data on: qualifications of staff in economic ministries; numbers of staff in tax administrations or statistical authorities; mechanisms for evaluating policy effectiveness; procedures for review and challenge.
  - Donors should be encouraged to support this work.
- Fragile states:
  - Fragile and conflict-affected states require a fundamentally different CD approach focused on rebuilding institutional capacity and legitimacy, even if policies are not ideal.
  - Recommendation to emphasize in-country or regional blended training and TA focused on basic processes that support policymaking and implementation (public financial management, adequate resourcing, decision-making processes).
  - Time frames should be realistic; less focus on writing reports and donor accountability, more on achieving institutional milestones and results.
- Transparency:
  - IMF training materials have been made more public via MOOCs, but fewer than 5 percent of TA reports are published because few recipient governments authorize publication.
  - Publishing more TA reports and synthesizing cross-country lessons would expand impact and make advisory lessons a public good.
  - Need to preserve trust of authorities; options to increase publication include:
    - Move to an “opt out” system where reports are published unless authorities request otherwise.
    - Publish reports after a set time delay, for example 3–5 years, when findings may be less sensitive.

*Prepared by Minouche Shafik; October 2, 2018 — External commentary from 2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES*

### 22.      Countries’ demands for IMF capacity building are also changing in terms of the topics

### pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies - 22.      Countries’ demands for IMF capacity building are also changing in terms of the topics

### Changing demand and topical priorities
- Fiscal policy advice, especially around taxation, continues to be the largest share of TA.
- Growing demand for advice on monetary policy and the financial sector, notably financial stability issues following the financial crisis.
- Fund has innovated in new areas with a focus on macro-criticality: energy subsidies, inequality, gender, and climate.
- The Fund should continue to respond in a demand-driven way, as responding to country priorities increases the likelihood that advice will be used effectively.
- Emerging or returning topics that may gain importance:
  - Trade and debt management (given rising protectionism and debt levels).
  - Application of machine learning and artificial intelligence to tax policy.
  - Big data and statistics.
  - Regulation of digitally driven parts of the economy.
- Short-term approach: draw on outside expertise until internal capacity is developed (example: Statistics Department (STA) developing partnerships to help countries use innovative data tools).

### Peer learning and norms
- Opportunities for peer learning can be expanded, especially for middle and junior level officials (areas like banking supervision or tax administration).
- Regional Technical Assistance Centers (RTACs) provide some peer learning, but a more explicit offer is needed with greater engagement from headquarters for a global perspective.
- Fund’s unique role: establish norms and standards of good practice (examples: statistics, anti-money laundering).
- Peer learning can help build international consensus on emerging policy areas (example comparator: Bank for International Settlements creating peer learning among central bankers).
- Potential market for forums among finance ministry officials to compare notes on issues like taxation in the digital economy or managing capital flows.
- Appetite for peer reviews of entire institutions (example model: OECD DAC peer reviews of development agencies) to promote learning and support international policy objectives.

### Summary of the review (numbered findings and recommendations)
- 1: Building institutions and strengthening capacity are among the most difficult long-term development challenges; progress has occurred but much remains to be done.
- 2: Committed and effective leadership within target organizations is perhaps the most important ingredient for strengthening institutions and capacity.
- 3: Country ownership is closely related to leadership; CD efforts must be owned, embraced, understood, and guided by organizational leadership.
- 4: The Fund should encourage leaders to develop concise, targeted, country-owned CD strategies with a small number of priorities; the Fund should support and be willing to compromise, but not follow strategies that do not make sense.
- 5: The Fund can strengthen CD by organizing training and TA as integrated series of modules that reinforce each other and foster ongoing engagement; improved internal coordination is required, with area departments playing a central role.
- 6: The Fund should explore offering (or supporting) training in leadership, management, and strategy development, or work with external groups (e.g., business or public policy schools) or donors to provide these skills.
- 7: The Fund should intentionally create and strengthen norms at deeper organizational levels by bringing together the same groups over time (workshops, online forums) and emphasize peer-to-peer CD efforts.
- 8: Broad endorsement exists for a more structured approach to RBM, but CD poses challenges for RBM: difficulty of definition and measurement, long time horizons, non-linear progress, and risk of RBM being seen as “stealth conditionality.” Recommendations:
  - Ensure RBM is flexible to allow experimentation, iteration, and adaptation.
  - Regularly assess targets to ensure alignment with long-term outcomes.
  - Involve local authorities in establishing metrics and goals.
  - Work with donors to allow for longer-term horizons and avoid focusing narrowly on easily achievable targets; invest in new data to improve metrics.
- 9: CD in fragile states faces greater political and institutional instability, more reversals, greater vulnerability to shocks, lower initial capacity, and weaker governance. Recommendations for fragile states:
  - Focus resources where there is weak capacity but committed leadership.
  - Invest less where committed leadership is absent.
  - Initial focus on basic building blocks requiring less implementation: exchange rate management, payments systems, budget frameworks, and collecting customs duties.
  - Engage with interlocking modules of CD activities, reinforce over time, and consider a stronger presence on the ground (resident advisers, additional training and TA).
- 10: In countries with particularly weak individual capacity, consider time-limited “capacity supplementation” (hiring experts to carry out key functions, not just advise), combined with training and rapid placement of national experts to transition responsibilities.
- 11: In fragile states without local leaders committed to reform, scale back efforts, focus on building relationships and the case for reform, play a patient long game, and devote much less time and resources until conditions change.

### Key contextual points and implementation considerations
- Institution building is context-specific, requires creativity, experimentation, risk-taking, flexibility, and long time horizons (processes take many years or decades).
- Measuring progress is difficult because key aspects of “capacity” are hard to conceptualize, define, observe, and quantify.
- Evidence of progress: many developing countries, especially central banks, have improved individual and organizational capability (manage exchange rates, control inflation, monitor banks, ensure macroeconomic stability).
- The Fund has contributed through advice, TA, training, funding, and by helping build norms (e.g., central bank independence, control of inflation, personal probity among financial leaders).
- Continued improvement in CD delivery requires:
  - Greater country ownership and local leadership involvement.
  - Better integration and coordination of CD activities across Fund departments.
  - Longer time horizons and willingness to adapt approaches.
  - Continued emphasis on sustained engagement and follow-up rather than one-off reports.

*Prepared by Steven Radelet, Georgetown University; excerpted from the 2018 CD Strategy Review—External Commentary and Background Studies*

### 17.      Building more effective institutions and organizations requires an understanding of

### 17.      Building more effective institutions and organizations requires an understanding of

### Country-led CD strategies: purpose and design
- Leadership should oversee development of a concise strategy that:
  - articulates highest priority medium-term functional goals and objectives;
  - appraises current capacity to achieve these goals;
  - outlines a basic course of action to build capacity to better carry out core functions.
- Effective CD strategies should be:
  - short and succinct;
  - avoid trying to do too much and overburdening the organization;
  - set a small number of clear top-line priorities.
- Strategies can target a ministry or central bank or have a narrower focus (division, department, or office).
- Key characteristics that distinguish effective CD strategies: country-led, concise, prioritized, and narrowly focused.
- Box 1 guidance:
  - First step: leadership articulates most important objectives and goals over a three- to five-year time horizon (or longer if possible), identifies highest priorities, and appraises current capacity.
  - Second step: develop a strategy including obtaining legal authorities, top-line policies and processes, attracting and developing staff with right skills, and utilizing appropriate TA.
  - Process should be led by head of target organization and involve core leadership team and key supporting organizations as appropriate.
  - Strategy should include medium-term objectives, a set of intermediate goals (1–2 years), an outline of implementation strategy, and agreement on roles.
  - Effective strategies include a small number of clear top-line goals; heed the adage that “if you have more than three priorities, you don’t have any.”
  - Emphasize implementation and realistic assessment of what can be achieved given financial and personnel resources.
  - Avoid overly comprehensive assessments that obscure priorities; meet regularly to review progress and allow iteration and revision.
  - Adopt Problem-Driven Iterative Adaption (PDIA): solve locally defined problems, encourage experimentation, incorporate feedback loops, engage broad actors.

### The Fund’s role and principles for engagement
- The Fund should encourage and participate but not lead the process; it should support under local leadership and be willing to compromise on objectives.
- Practical roles for the Fund:
  - IMF resident representative should be involved from the outset where present.
  - Provide support where countries cannot fully develop strategies themselves: undertake assessments and diagnostics, assist drafting parts of the strategy, help develop time-bound action plans, provide guidance or workshops.
  - Play supportive roles under clear local leadership; avoid asserting Fund priorities and follow course set by reasonably capable leaders.
  - Organize its own internal plan to support a country’s capacity building and bring together diagnostic tools, TA, training, financing, and other support—distinct from the country’s CD strategy and complementary to Fund’s country and regional strategy notes.
- Balance required:
  - The Fund should be proactive and supportive without taking over the process.
  - Recognize that developing country-led strategies will often take longer than staff drafting them directly.
- Dealing with limited local ownership:
  - If strategy is nonsensical or just a wish list, the Fund and partners can decide not to support it.
  - If authorities show no interest in developing/implementing a basic CD strategy, lower expectations and reduce Fund effort; focus on building relationships, creating trust, and encouraging reform conditions to improve over time.
  - Devote larger share of time, effort, and funding to countries showing interest and commitment to capacity reform.

### Lessons from the Capability Assessment Program (CAP) and targeting
- Differences from CAP:
  - CAP was driven by the IMF; reviewers concluded there needed to be more country ownership and authorities should draft their own road map.
  - CAP assessments were too detailed and comprehensive; reports could have better prioritized key reform areas.
  - CAP assessed whole institutions (central banks, ministries) whereas assessments can often be more beneficial if targeted at sub-groups (e.g., debt management office, bank supervision).
  - CAP pilot countries were in major transitions, presenting greater risks and uncertainty; countries in transition differ from more stable governments where CD efforts are likelier to progress.

### Strengthening and integrating Capacity Development (CD) efforts
- Current state and need:
  - Fund has made progress integrating TA and training, but CD activities remain too fragmented and miss opportunities for mutual reinforcement and sustained effort.
- Recommended approach:
  - Organize training and TA as an integrated series of modules and interlocking pieces that reinforce each other and foster ongoing, regular engagement over time.
  - Ensure efforts are well integrated and sequenced to help achieve same goals and reinforce each other.
  - Prefer continued, purposeful, coordinated engagement over stand-alone TA reports or trainings without follow-up.
  - Delivery modalities: online training, regional workshops, face-to-face training, TA in country, phone/video follow-up calls, customized trainings (one-on-one, small group, in-country workshops) focused on the same key people.
- Resource implications:
  - Some shifts achievable by reorganizing existing activities; others will require devoting more time, effort, and resources to particular projects.
  - May require prioritizing among projects and allocating more sustained resources over time to a more limited number of projects.
- Internal coordination:
  - Enhanced internal coordination within the Fund is required so CD-delivering departments work more closely together.
  - Area departments should play a central role given their close engagement with countries.
  - Improved coordination around flexible delivery of CD activities is essential and challenging but will increase effectiveness.
- Leadership and management training:
  - Fund should explore introducing training focused on building leadership, management, strategy development, and related skills.
  - Leadership and management are teachable skills; supporting these through workshops, mentoring, and integrated CD would improve effectiveness of the Fund’s core technical work.
  - If the Fund cannot provide these roles directly, it should work with business/public policy schools or other donors that can support these efforts.

### Creating global professional norms and communities of practice
- The Fund has helped create global norms of professional practice among central bank governors, ministers of finance, and senior finance officials through regular meetings and contacts.
- Benefits of building professional norms and communities of practice (Box 2):
  - Creates opportunities for communication of ideas and peer-to-peer learning on policies and implementation strategies.
  - Builds norms of professional standards of best practice on policies and behaviors (e.g., central bank independence, exchange rate management, budget policy, debt management) and norms for personal and institutional behavior (e.g., fighting corruption, enhancing transparency).
  - Creates healthy competition across countries and stronger incentives toward improved institutional performance by revealing relative standing and encouraging catch-up.
- Recommendation:
  - IMF should more intentionally aim to create and strengthen these norms, networks, and communities of practice at deeper levels within organizations, treating this as a core CD activity complementary to TA and training.

*International Monetary Fund — 2018 CD STRATEGY REVIEW: EXTERNAL COMMENTARY AND BACKGROUND STUDIES (excerpt pp16–21)*

### 31.      The IMF has been most successful at creating these norms and communities of practice

### 31.      The IMF has been most successful at creating these norms and communities of practice

### Creating norms and communities of practice
- IMF most successful at creating norms and communities of practice at the highest levels of central banks and ministries of finance, and with major policies at that level (e.g., monetary policy, exchange rate policy, and aggregate budget management).
- Less successful at deeper organizational levels with mid-level officials responsible for harder-to-implement policies and processes such as property tax reform, banking supervision, or detailed budget execution.
- Reasons for slower progress at deeper levels:
  - Work processes at deeper levels are inherently more difficult, involve more people with weaker backgrounds, and require implementing complex tasks.
  - Fund tends to focus on TA and training at this level and gives comparatively less attention to intentionally creating international norms and communities of practice.
- Existing promising examples:
  - Regional centers supporting groups like regional tax associations or the East African Community.
  - Efforts to bring together groups on macro frameworks, fiscal policy, customs reform, and support for statistical agencies.
- Recommended approach to strengthen deeper-level communities of practice:
  - Purposefully integrate efforts to build communities of practice with TA and training as part of structured ongoing engagement.
  - Structure regional workshops and trainings to involve a group of (say) 4–5 people from each participating country, with expectation that the same group returns for a series of workshops and meetings over several years.
  - Complement workshops with online discussion forums or other mechanisms involving the same people to facilitate experience sharing.
  - Be strategic in selecting participants for regional or Washington-based training to ensure they are critical to the organization’s strategy and that their regular participation will help build norms and standards of practice.
  - Complement workshops with country-level TA working with the same people so each reinforces the other; regular meetings foster experience-sharing, experimentation, and competition across countries.
  - Support or facilitate professional associations and regional groupings (e.g., regional tax associations, intergovernmental organizations), and use them as vehicles to strengthen institutional norms and build capacity—without necessarily becoming the primary builder of those organizations.
- Objective: build communities of practice to exchange ideas, build international professional norms, and reinforce TA and training aimed at building individual capacity and institutional capability.

*2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES (excerpts)*

### Emphasizing peer-to-peer capacity development
- Peer-to-peer CD is a recurring, strongly emphasized theme from background interviews; technocrats particularly value learning from closest peers.
- Current Fund use: peer-to-peer approaches used in many CD activities, especially at the regional level, but scope for expansion.
- Ways to leverage peer-to-peer power:
  - Continue increasing emphasis on examples and lessons from closest peers; authorities pay closer attention to examples from countries perceived as similar and slightly more advanced.
  - Purposefully select training participants to bring together people from similar countries and small groups from one country with groups from peer countries.
  - Utilize experts from peer countries more extensively to deliver CD, including long-term resident TA, as they better understand institutional, financial, and political constraints.
  - Expand efforts to send local staff from one country to be “attached” to a peer organization in another country to learn by immersion; Regional Training Centers (RTCs) already support attachments with examples including:
    - Ethiopian officials to Tanzania for internal audit experience.
    - Officials from Nepal to India for decentralization and intergovernmental fiscal relations architecture.
    - Staff from Suriname to The Bahamas to learn from VAT introduction experience.
  - Typical financing arrangement for attachments: Fund assists in arranging and pays travel costs, while the two countries continue to pay salaries and facilitate time for the assignment.

### Results-Based Management and capacity building (RBM)
- Broad endorsement for Fund’s introduction of a more structured RBM approach; agreement on specifying clearer goals, targets, and monitoring progress over time.
- Importance of intermediate milestones for capacity-building strategies and assessing progress.
- Three concerns when designing RBM for capacity building:
  - CD is difficult to define and measure, takes a long time, and rarely unfolds linearly; risk of using easily measurable but ultimately irrelevant metrics leading to “hitting the targets but missing the point” or “measuring the wrong things well.”
  - Overly rigid systems can undermine experimentation, iteration, and adaptation; implementers may set easy targets and avoid risk to preserve funding.
  - If local authorities are not deeply involved in establishing metrics and goals, RBM may be perceived as “stealth conditionality” imposed by the Fund, risking resentment and failure.
- Steps to minimize risks and achieve long-term progress:
  - Fund staff must be aware of risks and establish metrics with care and caution; good metrics should focus on value creation and long-term organizational functionality.
  - Local authorities must be deeply involved and invested in selecting and implementing RBM targets so they view targets as their own.
  - Establish targets mindful of the country’s and organization’s initial capacity; lower-capacity countries will progress on a slower timeline.
  - Fund staff must regularly assess and re-assess input and output metrics to ensure movement toward desired long-term outcomes; metrics should be reviewed periodically and the system kept flexible to allow experimentation, iteration, and changing course as necessary.
  - The Fund should work with donors to allow longer-term time horizons and avoid overemphasis on immediate, easily achievable targets.
  - Where metrics and data are inadequate, Fund, donors, and local authorities may invest in developing better data.
- All steps require broader and ongoing discussions with authorities and donors to design a framework that adds value and focuses on the right long-term functional objectives while demonstrating short-term results.

*2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES (excerpts)*

### Capacity building in fragile states
- CD in fragile states faces particular challenges: progress takes longer, obstacles are larger, costs are higher, and the path forward is less clear due to political and institutional instability, reversals, vulnerability to shocks, lower initial capacity, and weaker governance.
- Resource allocation guidance:
  - Devote greater resources to CD in fragile states with weak capacity but committed leadership.
  - Invest less in countries without committed leadership.
  - Key question: presence of local leaders committed to building capacity over time.
- Recommended approach where committed leadership exists:
  - Identify champions for reform and work closely with them to develop concise, focused strategies with realistic objectives, roles, and initial steps.
  - Focus initially on tasks that are easier to accomplish and yield quick wins to build confidence (examples: exchange rate management, payments systems, cash management, budget frameworks, collecting customs duties and excise taxes).
  - Engage with interlocking modules of CD activities, even if smaller scale, to reinforce regular engagement over time.
  - Require a stronger on-the-ground presence with additional resident advisers, training, and TA; coordination with donors is especially crucial.
  - AFR pilot: “Capacity Building Frameworks” for five fragile states as a potential model.
- Capacity supplementation (time-limited) where leadership is committed but individual capacity is extremely weak:
  - Work with donors to hire experts to work in target organizations to carry out key functions (not only as advisors).
  - Approach is time-limited and combined with identifying, training, and placing a national expert quickly to work with the external expert during a transition.
  - Example design: outside expert hired for a two-year period with host-country commitment to identify a successor so the expert and successor work side-by-side during the second year for hand-over.
  - Applicable also to very small countries or island states with limited skilled worker pools.
  - Bilateral and multilateral donors regularly finance capacity supplementation.
  - Can be used alongside traditional long-term TA advisors, or placing TA advisors at RTACs so they can visit regularly, transfer knowledge, and reduce dependence.

*2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES (excerpts)*

### 47.      The most difficult situations are fragile states in which there are no local leaders that

### pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies - 47.      The most difficult situations are fragile states in which there are no local leaders that

### Summary of Main Conclusions and Recommendations

- The Fund should focus CD efforts on countries and organizations with effective leaders committed to building capacity and strengthening institutions. CD efforts can be successful and sustained only where those efforts "ae fully owned, internalized, understood, and led by the right local reformers."
- Fund staff should encourage and support leaders of government agencies (or sub-units of agencies) to develop a concise and focused CD strategy that:
  - articulates the organization’s most important CD objectives,
  - appraises its current capacity,
  - formulates a plan to achieve those objectives.
  - This strategy development process should be led by the head of the organization, with coordinated support by the IMF and other donors as appropriate. The Fund’s role is to encourage, provide ideas and input, and offer assistance in design and implementation, under the authority’s leadership. The IMF resident representative, where in place, should be involved throughout.
- Organize CD activities as integrated series of modules and interlocking pieces to foster ongoing and regular engagement over time with local authorities. Successfully doing so requires enhanced internal coordination within the Fund, with area departments playing a key role so that CD-delivering departments work more closely together to meet target organizations’ needs.
- Explore introducing training, mentoring, and advising focused on leadership, management, strategy development, and related skills. If the Fund cannot take these roles directly, it can work with other groups with management and leadership expertise (e.g., business or public policy schools) or with other donors. Do not ignore purposefully building leadership and management skills.
- Intentionally aim to create and strengthen professional norms and communities of practice across countries at deeper levels within organizations. Regional centers can help build norms of behavior and support communities of practice among mid-level officials through regional workshops, training, conferences, and other repeated activities.
- Continue to emphasize and develop peer-to-peer CD efforts by:
  - bringing together participants in training sessions from peer countries,
  - using more examples and cases from peer countries,
  - utilizing experts from peer countries in CD activities,
  - increasing support for “attaching” staff from an organization in one country to the peer organization in another country to learn from their approaches and experiences.
- With respect to RBM (results-based management):
  - Ensure local authorities are deeply involved and invested in selecting and implementing targets and benchmarks. Local authorities must own and understand these targets.
  - RBM targets should take into account the organization’s initial capacity; lower-capacity countries and organizations can be expected to make progress on a slower timeline than those with stronger capacity.
  - Fund staff must regularly assess and re-assess RBM targets to gauge whether intermediate milestones are helping the organization improve its long-term core functional purposes.
  - The system must be flexible to allow experimentation, iteration, adaptation, and changing course as necessary.
  - Work with donors funding the system to allow for longer-term time horizons and avoid focusing too narrowly on the most immediate and easily achievable targets.
  - Where available metrics are inadequate, the Fund, donors, and local authorities may want to invest in developing the data needed for better metrics.
- In fragile states:
  - Try to identify leaders who can be champions for reform and assist them in developing a basic CD strategy.
  - Focus efforts in fragile states with at least some committed leaders and champions for reform; progress is achievable in such cases, but much less can be expected in countries without that leadership.
  - Initial focus should be on basic building blocks that are relatively simple and do not require as much implementation capacity as more complex tasks; avoid trying to address too many challenges at one time.
  - Work hard at building strong relationships of trust; engage fragile states with interlocking modules of activities over time (even of smaller scale), reinforce CD activities with regular engagement, and have a strong presence on the ground.
- In countries where individual capacity is particularly weak, consider a time-limited “capacity supplementation” approach in which the Fund could work with other donors to hire experts to work in target organizations to carry out key functions (i.e., not just as advisors). This approach should be time-limited and combined with efforts to identify, train, and place a national expert in the position as quickly as possible.
- In countries where the authorities show no inclination for, or interest in, a basic CD strategy:
  - Expectations for progress must be lowered considerably, and the Fund’s level of effort should be reduced.
  - The Fund can remain engaged and focus on building relationships, creating trust, and encouraging the case for reform to begin to create a partial foundation for when conditions for progress improve.
  - Some limited CD activities may still be appropriate, but the Fund should devote a larger share of time, effort, and funding to countries with more engaged leaders (including fragile states with committed leaders) that show interest and commitment to building capacity and strengthening institutions.

### Is IMF Work on Capacity Development Sufficiently Demand-Driven? — Summary

- Background:
  - Demand from country authorities should be the key driver of the IMF’s CD work because it strengthens likelihood that IMF advice will be absorbed and implemented.
  - Because demand for CD exceeds supply, the framework to allocate CD takes into account both country demand and the IMF’s strategic objectives.
  - Checks and balances in the system to prioritize CD delivery have improved reconciliation of institutional priorities with country priorities, but poorly justified supply-driven CD can still exist.
- Focus of the paper:
  - The dichotomy between demand-driven versus supply-driven CD is exaggerated.
  - Main questions: As the IMF seeks equilibrium between demand-side and supply-side criteria in prioritizing and allocating CD, is there sufficient attention on demand considerations? Is there sufficient attention to country views, ownership, and absorption capacity in allocation and design of CD to ensure traction?
  - The paper examines interplay between prioritization of CD and country ownership, focusing on IMF staff engagement with country authorities in deciding CD priorities and modalities.
- Steps recommended to put greater emphasis on country ownership in CD decisions:
  - Further strengthen the regional allocation plan (RAP) process to:
    - better integrate CD and area department country work;
    - promote better information exchange between departments and utilization of this information;
    - ensure that the RAP process is not just an internal prioritization process with limited country engagement.
  - Increase the role of the Committee on Capacity Building (CCB) to foster budget reallocations that might be needed to meet shifts in country demand.
  - Focus more on assessments of country ownership in regional and country strategy notes.
  - Use diagnostic work conducted by CD departments to assess and promote country ownership.
  - Make country engagement more integral to the RBM process.
  - Further mitigate risks to CD prioritization related to external funding.
  - Leverage on-the-ground presence (resident representatives, regional centers, long-term experts based in the field) to enrich country engagement.
  - Put greater emphasis on pairing technical assistance and training to enhance country ownership.
- Country responsibilities:
  - Country authorities must have their own set of priorities and a strategy to help target CD at their most important needs.

### Conceptual points on demand versus supply-driven TA

- The allocation of CD inevitably involves both demand-side and supply-side criteria:
  - Demand-side elements: country needs, requests, and ownership.
  - Supply-side factors: IMF institutional priorities, availability of expertise, availability of internal and external financing, and priorities of donors as TA providers and financiers.
- The CCB reviews institutional medium-term priorities for CD work annually. These priorities are drawn from the Managing Director’s Global Policy Agenda, the Regional Strategy Notes (RSNs) prepared by area departments, and commitments made by the IMF to the international community.
- The FY2019–2021 priorities are:
  - Financing for development:
    - Fragile states;
    - Revenue mobilization and sound public financial management; and
    - Financial market deepening for low-income countries.
  - Aligning CD, surveillance, and lending:
    - Addressing needs of highly vulnerable and IMF program countries;
    - Financial supervision and regulation, including developments in fintech, particularly supervisory approaches to managing cyber risks, and monetary policy frameworks;
    - Closing data gaps, improving data quality, and broadening data dissemination; and
    - Financial integrity (anti-money laundering and combatting the financing of terrorism).

### Evidence and scope

- The paper draws on interviews and findings of the survey of CD stakeholders, including representatives of IMF area and CD departments, the Office of Budget and Planning, and some IMF Executive Directors representing CD-receiving countries and external funders.
- The paper focuses primarily on the TA component of CD activities because TA accounts for "82 percent in terms of spending" of the IMF’s CD work, while treating training in the context of promoting TA with stronger country ownership and traction.

*Source: Excerpts from the IMF document pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies (pages provided).*

### 16.      In applying these priorities, IMF CD covers areas that are critical to build strong

### 16.      In applying these priorities, IMF CD covers areas that are critical to build strong institutions and boost skills to implement policies that promote macroeconomic and financial stability.

### Core Areas of IMF Technical Assistance (TA)
- Fiscal Policy and Management
  - Tax policy
  - Tax and customs administration
  - Expenditure policy
  - Public financial management
  - Fiscal policy and institutional framework
  - Fiscal federalism
- Monetary Policy and Financial Systems
  - Central bank operations
  - Monetary policy
  - Foreign exchange operations
  - Financial supervision and regulation
  - Macroprudential policies
  - Systemic risk analysis
  - Financial crisis prevention and management
  - Capital market development
  - Debt management
- Macroeconomic & Financial Statistics
  - Multisector statistical issues
  - Balance of payments and other external sector statistics (for example, external debt, foreign direct investment, international investment position)
  - Government finance statistics
  - Monetary and financial statistics
  - Financial soundness indicators
  - National accounts and price statistics
  - Data dissemination standards
- Legislative Frameworks
  - Laws and regulations, mainly on central banking, financial institutions, tax and public financial management, foreign exchange, insolvency, and creditor rights
  - Anti-money laundering/combatting the financing of terrorism

### Advocacy, Country Ownership, and the Supply–Demand Balance in TA
- IMF advocacy is natural and appropriate in matching TA supply to country demand, but vigilance is required to avoid imposing TA where country ownership is poor. (Paragraphs 17–21)
- Area departments and CD departments have distinct advocacy roles:
  - Area departments: surveillance and lending may point to TA needs not initially requested; mission chiefs can identify potential CD needs during surveillance and program missions. (Paragraphs 18, 34–35)
  - CD departments: diagnostic and assessment tools and direct engagement can inform countries of available TA and training, generating demand if authorities are convinced. (Paragraph 19)
- Cases where supply-driven weighting may be appropriate:
  - In highly vulnerable countries under a program or intense surveillance, a greater weight of supply-driven factors may be acceptable because of surveillance and lending mandates and limiting negative external spillovers. (Paragraph 20)
- Essential principle:
  - Country ownership and commitment are crucial; without them TA is unlikely to deliver results and resources will be wasted. (Paragraph 21)

### Situations Leading to Questionable or Unwanted TA
- Examples where country demand may be questionable or mismatched with IMF priorities/expertise:
  - Requests for advanced capital adequacy or stress-testing TA when such TA is unsuitable or low priority relative to basic needs.
  - Requests for micro-level social indicator statistics when the IMF views other statistical areas as higher immediate priority and the IMF does not consider such statistics a core area. (Paragraph 22)
- Situations where delivered TA is ineffective or not what the country wanted:
  - Recommendations not suitable for local conditions (too ambitious or inconsistent with implementation capacity).
  - Scope of engagement too narrow (focus on “what to do” without “how to do”).
  - Disagreement about recommendations. (Paragraph 23)
- Perception drivers of supply-driven TA:
  - Excess demand and rationing concentrated in some areas (e.g., tax policy or central bank operations) versus apparent ample availability in others (e.g., public financial management or debt management).
  - Persistent mismatches due to inertia in budget allocations or staffing rigidities necessitate enhanced flexibility in budget resource allocations and more nimble staffing processes. (Paragraph 24)
- Three typical sources of unjustified supply-driven TA despite a formal request:
  - IMF devotes resources even though country ownership is absent or insufficient.
  - IMF oversupplies TA relative to demand and absorption capacity.
  - Donor funding preferences that favor specific topics or countries, potentially tipping the decision-making scale and resulting in TA for countries or topics where results are poor or ownership is weak. (Paragraph 25)
- Goal: limit such occurrences to a negligible level. (Paragraph 25)

### Prioritization of Capacity Development (CD) and Country Ownership
- Multidimensional nature of CD prioritization:
  - Decision-making spans regions, countries, CD departments, and topics, balancing country demand and IMF priorities; IMF institutional priorities are helpful but not explicitly ranked and overlap. (Paragraph 26)
- RAP (Resource Allocation Process) for CD delivery—three fundamental steps: (Paragraph 27)
  - Area departments prioritize demands by country and topic, building on dialogue with country authorities and input from CD departments.
  - CD departments state what they can supply given resource constraints and existing commitments.
  - Agreement is reached on CD projects, both one-off and multi-year, following further dialogue between area and CD departments.

### RAP Reforms (effective September 2017) and Demand-Side Accountability
- Primary innovations in the RAP reform: (Paragraph 28)
  - Establishing a three-year CD delivery plan for projects at an aggregated level (as opposed to the previous focus on planned missions for the coming year).
  - Increasing transparency and efficiency by promoting better exchange of information between departments, enhancing dialogue between area and CD departments in negotiating CD delivery plans and reconciling demand and supply constraints.
  - Management’s approval of RAP aggregates showing the use of resources in both U.S. dollars and full-time equivalents.
  - Preparation of country strategy notes (CSNs) for heavy users of CD; sharing of RSNs and CSNs with management for information.
  - Requirement that area department mission chiefs review all briefing papers and terms of reference for planned CD missions and indicate their agreement on the timing and scope of missions—aimed at strengthening demand-side accountability and better integrating CD with surveillance and lending.
- Note: Additional experience is needed to judge the effectiveness of these recent reforms. (Paragraph 29)

### Engagement, Ownership, and the Need for Country Commitment
- Key question: Is there sufficient attention on demand considerations and country ownership in the equilibrium between demand-side and supply-side allocation of CD? The focus is on IMF staff engagement with country authorities to decide CD priorities and modalities; country authorities must also have their own priorities and strategy for targeting CD. (Paragraphs 29–31)
- Survey findings relevant to prioritization and ownership (summarized): (Paragraphs 32–33)
  - On allocation criteria when demand exceeds supply, most respondent groups’ first choice was: “TA should go to governments that are prepared to implement the advice.”
  - Respondents reported that the TA they observed was largely initiated or co-initiated by the recipient government.
  - For factors explaining why governments accepted TA, the top choice for country recipient respondents and IMF staff was: “the government agreed the TA was important.”
  - On the degree of engagement between recipient governments and the IMF to establish objectives prior to TA delivery, respondents generally reported a high degree of engagement but with variation:
    - Recipient governments had the most favorable view, with the majority reporting a high degree of engagement.
    - A minority in other respondent groups viewed the degree of engagement as high; a sizable proportion viewed it as moderate or low.
  - On areas most important for the IMF to improve the impact of TA on policy (multiple responses allowed), the most selected were:
    - “Ensure government buy-in before undertaking TA”
    - “Better integrate TA with priorities identified in IMF surveillance”
    - Followed by: improving analysis to identify the key problems or issues.
- Interpretation:
  - The survey does not provide a definitive conclusion that IMF TA is insufficiently demand-driven, nor does it indicate deep concerns about poor prioritization with unwarranted supply emphasis.
  - The findings confirm the importance of ensuring government buy-in before undertaking TA and indicate room for more effort to increase engagement between recipient governments and the IMF prior to TA delivery. (Paragraph 33)

### Surveillance and Program Needs as a Driver of TA
- Integration of TA with lending, surveillance, and policy advice is an institutional priority, but questions remain about whether resulting TA remains sufficiently demand-driven with strong country ownership. (Paragraph 34)
- Idiosyncratic patterns observed from interviews with IMF staff and some country authorities: (Paragraph 35 and following)
  - Program countries:
    - Area departments’ engagement on integrating TA with program implementation needs is typically good.
    - Persuading authorities on TA to implement policies needed for program goals is easier when program conditionality is involved; ownership links to overall program ownership.
  - Surveillance cases:
    - Area departments’ engagement on TA priorities tends to be spottier.
    - Some mission chiefs identify TA topics from surveillance and secure concrete TA requests; sometimes no request results and TA is not pursued because TA can only be provided upon request.
    - Some mission chiefs do not engage much on TA needs, seeing TA discussions as an extra burden given surveillance breadth—this is a lost opportunity to increase traction in surveillance.
    - Even with good engagement, it tends to be segmented (e.g., central bank versus ministry of finance), making cross-stream priority judgment difficult; segmentation often reflects recipient-country organizational issues and poor internal coordination.
    - Area departments may hesitate to propose TA during surveillance because they cannot ensure timely delivery due to CD department constraints or feel unable to lead TA discussions without CD department vetting and clearance—leading to a two-step engagement with initial cursory discussions followed by serious engagement after CSN or RAP approval.
  - CD departments:
    - Typically have dedicated engagement with country authorities, especially during Spring and Annual Meetings where country officials express specific TA needs.
    - Officials meeting CD departments (e.g., chief of tax administration) are often different from those meeting area departments; practices vary on whether area department country teams participate in CD-organized meetings.
    - CD departments’ ongoing relationships with specialized country officials help distill needs and create prioritized TA delivery plans, provided inertia in project selection is avoided.
    - CD departments typically carry out their own diagnostic assessments of needs and, with a more limited mandate than area departments, can facilitate deeper engagement with country authorities to gauge demand and ownership.
  - Prioritizing TA by country type (fragile states, low-income countries, systemic or vulnerable emerging markets) helps stimulate focused engagement and promote ownership; however, care is needed because complaints about supply-driven TA often come from fragile states and low-income countries that feel less able to push back. (Paragraphs 35–end)

*2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES*

### 36.      Overall, although the integration of TA with program and surveillance work has

### pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies - 36

### Emphasis on country ownership in regional and country strategy notes (RSNs/CSNs)
- Area departments prepare medium-term RSNs at the start of the annual CD prioritization and RAP cycle to provide strategic perspective on CD priorities for each region based on countries’ surveillance and program needs.
- The emphasis in RSNs on country ownership and country-specific engagement strategies to promote demand-driven CD varies among area departments.
- Snapshot of 2017 RSNs may not fully measure the importance departments place on country ownership.
- Since 2016, AFR has prepared detailed CSNs for most countries in the department; by end-2018, they plan to prepare one for each CD recipient in the department, with the exception of some difficult cases such as conflict-affected countries if available information is not sufficient.
- AFR CSNs cover:
  - context (relationship with surveillance or IMF program priorities);
  - an assessment of past CD support;
  - forward-looking CD priorities by topic;
  - an assessment of implementation and absorption capacity; and
  - risks and their mitigation.
- AFR CSNs are discussed with CD departments (and are prepared in consultation with them), RTACs, and countries, and include a section on “Authorities’ Views”; summaries of CSNs are shared with authorities.
- APD produces a “TA-Surveillance Integration Matrix” for each potential recipient country in lieu of individual CSNs:
  - matrix lists all possible areas of TA activity, and specifies macro criticality (high to low); traction with authorities; and whether TA is ongoing or a new area;
  - matrix helps prioritize TA needs for an individual country and across countries;
  - there is little engagement with country authorities in preparing these matrices; they serve primarily as an internal disciplining device for country teams and APD senior management.
- With recent RAP reforms, area departments are responsible for defining “heavy users of CD” and prepare an AFR-style CSN for these countries; a more mandatory approach requiring CSNs for objectively defined “heavy users,” with emphasis on the authorities’ views, would be preferable.
- Terms of reference/briefing papers prepared in advance of individual TA projects do not systematically assess country ownership or report on authorities’ views, but such TORs typically follow a request for TA from country authorities, suggesting some ownership.
- Back-to-office reports (BTOs) tend to report on issues related to country ownership, divergence of views with authorities, and potential risks.

### TA diagnostics and design to promote better engagement
- Strong TA diagnostics and design are essential to foster country ownership and respond to country needs; country involvement in diagnostics, TA design, and objective setting should be standard practice.
- Modality of TA, selection of experts, and deliverables influence how recipient countries view TA quality and traction.
- CD departments use a variety of diagnostic and assessment tools and standard missions to discuss design and objectives prior to TA delivery.
- MCM tools and practices:
  - tools: Financial Sector Assessment Program (FSAP); the Financial Sector Stability Review (FSSR); and multi-topic scoping missions.
  - FSSR is a new tool. To date, three have been completed (Honduras in 2016, Costa Rica and Paraguay in 2017) and two are underway (Uganda and Fiji).
  - FSSRs aim to help countries define a programmatic, medium-term, sequenced TA roadmap; scope is established in agreement with authorities; capacity constraints are noted and tailored technical recommendations provided.
  - Recommendations in FSAPs are integrated into Article IV staff reports; TA needs identified in FSSR are discussed with the area department (and World Bank when involved) and with country authorities.
  - If a country does not want TA identified in FSAP/FSSR, neither the area department nor MCM should impose the proposed TA.
- FAD diagnostic and assessment tools include:
  - (i) the Revenue Administration Fiscal Information Tool (RA-FIT);
  - (ii) Revenue Administration Gap Analysis Program (RA-GAP);
  - (iii) Tax Administration Diagnostic Tool (TADAT);
  - (iv) Fiscal Transparency Evaluations (FTEs);
  - (v) Public-Private Partnership Fiscal Risk Assessment Model (P-FRAM);
  - (vi) Fiscal Analysis of Resource Industries (FARI); and
  - (vii) Public Investment Management Assessment (PIMA).
- IMF is a partner in Public Expenditure and Financial Accountability (PEFA) assessments.
- These tools:
  - engage country authorities in advance of and during missions;
  - help IMF staff understand country needs and absorptive capacity and may lead to identification of specific TA needs;
  - facilitate peer-to-peer learning (for example, TADAT) or benchmarking (for example, FTE distinguishes between basic, good, and advanced practices);
  - facilitate IMF learning from countries (for example, P-FRAM) to enhance future TA delivery by FAD.
- FAD carries out systematic diagnostic work in advance of TA delivery, especially in surveillance cases, to ensure RAP appropriateness and to design TA to implement diagnostic recommendations or address capacity deficiencies.
- STA practices:
  - maintains a “score card” of outstanding statistical issues across countries, aiming to align with the information annex on statistical issues in Article IV staff reports;
  - compliance with data standards initiatives and reporting to STA/area departments can point to statistical gaps addressable by TA;
  - organizes regional workshops in multi-country contexts to demonstrate STA assistance, facilitate peer learning, and design subsequent work programs and delivery modes (including headquarters or RTAC delivery) and funding decisions;
  - fields diagnostic missions in single-country contexts in agreement with the area department to assess situations and determine modalities and experts.
- LEG practices:
  - diagnostic step typically starts at headquarters and may be followed by a diagnostic mission;
  - for financial integrity TA, diagnostic is followed by a full proposal for programmatic TA;
  - for financial and fiscal law TA, a shorter “remedial stage” TA addresses gaps through law reform missions; long-distance lawyer-to-lawyer communications also used.
- Recommendations:
  - systematic diagnostic work with strong engagement of country authorities and attention to absorption capacity is important to promote country ownership;
  - add systematic assessment of country ownership issues, institutional organizational capacity, and strategies to gain traction across policy levels.

### Results-based management (RBM) and promoting country ownership
- A formal RBM system for CD is embedded in a new comprehensive project management framework and supporting IT systems.
- RBM purpose: specify objectives of CD interventions and monitor outcomes IMF hopes the country will achieve; employs a standard logical framework (“log frame”) and establishes milestones for multi-year projects.
- System requires explicit evaluation of project implementation risks including political buy-in, institutional capacity, and idiosyncratic risks.
- Example from FAD:
  - log frames for externally financed projects are part of the project proposal document;
  - objectives, outputs, outcomes, and verifiable indicators are drawn from the RBM catalogue, which FAD notes relies on international best practice to define standards for capacity improvements;
  - priorities and areas of focus typically result from discussions with donors and authorities plus examination of diagnostic material.
- RBM potential and shortcomings:
  - RBM could help secure better agreement with country authorities on objectives, outcomes, and milestones;
  - current practice: country engagement is not sufficiently systematic in designing priorities, log frames, and milestones except perhaps in larger cases;
  - going forward, a process to make country engagement integral to RBM is important to ensure outcomes reflect member countries’ desires as well as IMF expectations.

### Do divergent departmental agendas affect TA prioritization?
- Interaction between area departments and CD departments is cordial and cooperative but divergent perspectives/agendas arise; divergences matter only if they lead to poor prioritization/allocation of TA with undue supply orientation and insufficient country ownership.
- Area departments’ observations and concerns:
  - CD departments manage the budget for TA and thus have significant power over TA allocation and tend to promote their own priorities, creating incentives to protect turf and budgets.
  - CD delivery is “free” for recipient countries and for area departments, which affects behavior; there is little push from area departments to transfer budget control to them.
  - RAP process is designed to mitigate budget-control problems; area departments must approve all TA and changes in programmed TA during the year to prevent improper budget use by CD departments.
  - Deficiencies in real-time information can hinder area departments’ oversight and cooperation, highlighting need for improved knowledge management and information sharing under various capital projects.
  - Area departments note CD departments may correctly identify needs but miss relative priorities; availability of resources/expertise in certain CD areas can drive more aggressive promotion of TA in those areas even if not highest priority.
  - Area departments believe they are better placed to help countries identify TA needs and priorities within and across countries.
- CD departments’ counterpoints:
  - It is flawed to assume area departments have superior knowledge; area departments may suffer from “unknown knowns” and think in generalities while TA requires deep specialized knowledge.
  - Expert-to-expert conversations are often needed; area departments are poorly equipped to contribute to such technical exchanges.
  - CD departments may take a more medium- to long-term view of TA needs; area departments focus on near-term needs.
  - Higher turnover among area department mission chiefs can create information transfer gaps about past TA requests; following recent RAP reforms, CD departments now provide this information to area departments to fill such gaps.
  - If a TA need identified by CD diagnostic tools is not wanted by the country or not supported by the area department, CD departments state they do not push to impose the TA.
- Operational constraints and inertia:
  - Area departments would prefer stronger ability to shift TA topics (for example, more tax administration from FAD rather than bank supervision from MCM), but budget rigidities hinder quick shifts.
  - Insufficient fungibility between topics covered by the same CD department; budget allocations and staffing (including short- and long-term experts) reflect country demand and institutional priorities and are slow to adjust due to employment contracts and recruitment delays.
  - Inertia contributes to delays in reallocating IMF funds across and within departments.
- Conclusion:
  - Despite different perspectives, overall cooperation is healthy and constructive between area and CD departments.
  - No compelling evidence that divergences lead to systemic flaws in TA selection/prioritization causing an undue supply-driven component; area departments must be on board and a concrete country request is needed for TA to proceed.

*pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies - 36*

### 62.      Further improving the dialogue between departments would benefit all concerned

### 62.      Further improving the dialogue between departments would benefit all concerned

### Dialogue between departments
- Each type of department brings its own comparative advantage to TA prioritization and these advantages can best be leveraged through dialogue and cooperation.  
- CD departments may have superior knowledge about country requirements and should convey this knowledge to the country team in a timely and accessible manner.  
- Area department mission chiefs may not know specific details of TA requirements; conversely, CD experts may not understand macroeconomic concerns of mission chiefs.  
- Participation of area department staff in TA missions and participation of TA staff in area department missions would improve coordination, dialogue, and development of a common understanding of country priorities.

### External funding and the prioritization of CD
- External funding covered half of total direct spending on CD activities by the IMF in FY2017 ($134 million out of a total of $267 million), with the other half financed by the IMF’s own resources.  
- Rising external funding has allowed the IMF to undertake additional TA activities in response to demand, facilitating an increase in CD activities in recent years.  
- Funding principles from the 2013 Review of CD Strategy require donor funding to be linked to IMF institutional priorities for CD.  
- Risks and mitigating factors:
  - Donors often have preferences on TA topics and recipient countries (usually on a regional basis); donors finance four-fifths of field delivery costs of TA (based on data from the Travel Information Management System for financial year 2017), giving donors significant influence on TA priorities and potentially creating relative abundance of funding for certain topics or countries to the detriment of other IMF and country priorities.  
  - Availability of donor financing can create incentives for IMF teams to push TA for which funding is plentiful, potentially resulting in TA being provided to countries where ownership is weak. Mitigants include: IMF staff pursuing funding only on topics that are institutional priorities and through the CCB/RAP process; greater use of multi-donor trust funds versus bilateral funds; and the IMF financing costs that cannot be attributed to a specific project (overhead, supervisory staff, governance) which gives the IMF an institutional stake in project success.  
  - Donors might have preferences on the choice (especially nationality) of TA experts, but IMF procedures for vetting and approving all TA experts before they are added to the roster of qualified experts alleviate potential pressure.  
  - In bilateral cases of narrowly earmarked donor funding, donors could be dismayed if the IMF withdraws TA for lack of traction; donors’ interest in value for money is a mitigating factor.  
  - The IMF sets institutional priorities independently, but weights given to specific priorities can be influenced at the margin by donor agendas.  
- Efforts to reduce distortion from external financing include negotiating fewer earmarks (e.g., accepting earmarks on topics but letting the IMF decide on highest-need countries) and sustained vigilance, willingness to push back on donor preferences, and emphasis on more flexible vehicles and funding arrangements.

### On-the-ground presence and country ownership
- The IMF’s global network of RTACs and RTCs, funded by member and host countries, external partners, and the IMF, together with resident representatives, provides on-the-ground presence that can promote demand-driven TA with stronger country ownership through frequent dialogue and better integration of TA and training.  
- RTACs typically ask country authorities to provide, at least annually, an assessment of their needs when preparing work plans for the next fiscal year; center coordinator country visits provide opportunities to update and refine demand assessments.  
- Local presence enhances the ability to respond quickly to emerging demands; RTACs foster regional integration and tailor knowledge sharing to regional needs.  
- RTAC-based TA is not inherently superior to headquarters-based TA; RTACs operate under headquarters’ guidance and rely heavily on Washington backstopping. Resident representatives and RTACs can enhance country engagement within the overall strategic priorities set by headquarters and, when delivering TA, RTAC experts’ familiarity with local conditions allows for more hands-on interaction and increased traction.  
- Communication and coordination quality between RTACs and headquarters (both area and CD departments) varies across departments; stronger coordination to exploit synergies would promote demand-driven TA and country ownership.  
- Resident long-term experts facilitate country ownership by providing direct advice to authorities, assessing demand, reporting needs to headquarters, and supporting implementation; some are associated with RTACs while others are not.

### Training and country ownership
- Greater emphasis on pairing TA delivery with training could enhance country ownership of TA. The IMF “helps train government officials so they improve their ability to analyze economic developments; develop diagnostic, forecasting, and modeling tools; and formulate and implement sound macroeconomic and financial policies” (IMF Annual Report 2017, page 67).  
- Training is an integral part of the IMF’s CD mandate and sharp distinctions between “TA” and “training” are not meaningful.  
- TA complemented with training could strengthen implementation of TA recommendations and enhance absorption capacity. All modes of traditional training delivery—face-to-face catalogue courses, online courses, and customized training—as well as peer-to-peer workshops, should be deployed more strategically to support TA and promote country ownership.  
- Customized training need not be difficult or more costly if there is more emphasis on TA experts and RTACs delivering such training as part of TA projects.  
- Training is often mistakenly seen as the job of the Institute for Capacity Development rather than of all CD departments; catalogue and online training can be tapped at little extra cost by deliberate selection of topics, participants, and timing to support TA and surveillance or program priorities.

### Steps to put greater emphasis on country demand and ownership in TA decisions
- Strong country ownership and commitment should be a critical factor when seeking the intersection of country demand and IMF institutional priorities; substantial country engagement prior to TA delivery is essential to limit unwarranted supply-driven TA. Recommendations (general; to be converted to actionable steps by practitioners):
  a) Further strengthen the RAP process to better integrate TA and area department country work.
    - RAP is central to promote TA with strong country commitment and to guard against unwarranted supply-driven TA. Area departments should prioritize demands by country and topic drawing on surveillance and program work to identify risks, vulnerabilities, and policy priorities, together with appraisal of country ownership.  
    - The RAP reforms effective in September 2017 strengthened area departments’ role as counterparts to CD departments in negotiating TA delivery plans; mission chiefs and country teams need full engagement in the TA dimension of their work and a culture shift with appropriate incentives is paramount. Changes in accountability for department heads and mission chiefs are needed.  
  b) Improve exchange of information between departments and utilize this information to increase efficiency and transparency of RAP.
    - Assess whether existing systems to exchange information are achieving desired results and whether information is being utilized to increase RAP effectiveness. If deficiencies exist, a corporate systems solution for CD information management—rather than compartmentalized department-level systems—will be required.  
    - More frequent embedding of staff from area and CD departments in each other’s missions could enhance dialogue and common understanding of country priorities.  
  c) Ensure RAP is not just an internal prioritization exercise with limited country engagement.
    - Robust RAP requires detailed and sustained dialogue with countries at leadership and technical levels by both area and CD departments to assess country ownership and commitment.  
  d) Foster budget reallocations to meet shifts in country demand.
    - The allocation of funds across CD departments needs greater flexibility to respond faster to shifting demands as CD resources move from a phase of rapid growth to a more stable phase.  
    - A greater role for the CCB on CD budget matters would help address inertia in incremental budgeting and identify required shifts in staffing and expertise. The CCB should (i) strengthen the link between CD priorities it establishes and the budget; and (ii) provide greater granularity in proposals and time horizons.  
    - The CCB could distinguish three types of resource shifts (in ascending order of rigidity) as input into the budget process:
      - Shifts in regional or country focus—achievable within IMF-financed CD envelopes without much difficulty.  
      - Intra-departmental shifts in topic—achievable within departmental CD budget envelopes but can take longer because of staffing rigidities.  
      - Inter-departmental shifts in topics—harder to achieve because of staffing and expertise rigidities and incremental-budgeting inertia; corporate agreement fostered by the CCB would be required.  
    - Annual breakdowns consistent with medium-term priorities, reflecting near-term and medium-term implications of CCB proposals, would provide important budget inputs.  
  e) Focus more on assessments of country ownership in key TA documents.
    - RSNs should be required to outline tangible departmental procedures and practices to promote country-specific engagement strategies and explicitly address the role of country ownership in TA prioritization.  
    - CSNs are required only for “heavy users of CD,” with the definition left to departments; a preferable approach would make CSNs obligatory for a priority list of objectively defined heavy users, emphasizing authorities’ views and forcing coordination among area departments, CD departments, RTACs, donors, and country authorities.  
    - BTOs following TA missions should be required to assess country ownership and potential risks, report on areas where authorities’ views differ, and feed assessments into subsequent RAP rounds with mid-course corrections as needed.  
  f) Use diagnostic work to assess and promote country ownership.
    - Diagnostic work with strong engagement of country authorities and attention to absorption capacity is important to promote ownership and ensure RAP entries are appropriate; CD departments’ emphasis on diagnostics is welcome.  
    - Systematic assessment of country ownership issues and how best to gain traction at all policy levels would be a useful addition to diagnostics. Caution: comprehensive diagnostics prior to TA can become supply-driven TA; ensure agreement with country authorities on type and depth of assessment.  
  g) Make country engagement more integral to the RBM process.
    - The RBM system can help secure agreement with country authorities on objectives and outcomes of TA, enhancing ownership. Authorities should be fully involved in designing priorities, log frames, and milestones.  
    - Monitoring and evaluation using RBM should answer during a project:  
      - Is TA being oversupplied relative to demand and absorption capacity?  
      - Should TA be withdrawn because of insufficient traction and country ownership?  
      - Is the right kind of TA being supplied or does the TA suffer from problems identified in paragraph 19?  
  h) Further mitigate risks to TA prioritization related to external funding.
    - Continued emphasis on more flexible funding vehicles and arrangements, and the willingness to push back on donor preferences, are needed to mitigate unwarranted supply-driven TA associated with external funding. Internally, guard against incentives to promote TA types primarily because external funding is plentiful.  
  i) Leverage on-the-ground presence to enrich country engagement.
    - Exploit opportunities to leverage resident representatives and RTACs to enhance engagement and identify TA opportunities with strong ownership; RTAC delivery can integrate TA and training and increase traction. Stronger protocols to promote coordination between headquarters and on-the-ground presence would benefit all parties. Work on a comprehensive project management framework and supporting technology systems should improve information sharing, complementing better underlying communication structures.  
  j) Put greater emphasis on pairing TA and training to enhance country ownership.
    - Complementing TA with training strengthens implementation and absorption; modalities should be tailored to needs and circumstances. Resource costs may rise but payoffs in meeting TA objectives justify them.  
    - Training should be provided by all CD departments and RTACs and become integral to their work; the notion that training is solely the job of the Institute for Capacity Development while specialized departments do TA is incorrect.

*2018 CD STRATEGY REVIEW—EXTERNAL COMMENTARY AND BACKGROUND STUDIES. INTERNATIONAL MONETARY FUND*

### 73.      The recommendations above have concentrated primarily on internal IMF matters, but

### pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies - 73.

### Country ownership and responsibility for TA prioritization
- "The recommendations above have concentrated primarily on internal IMF matters, but country authorities also bear some responsibility to improve the prioritization of TA."
- "To have ownership it is essential that country authorities have their own set of priorities, better internal coordination, and a strategy to request TA for their most important needs."
- Country authorities should express "their relative priorities across different CD departments (for example, whether there is a greater need for TA on tax administration versus monetary policy frameworks) to permit a more holistic view of TA allocation."
- Meeting this responsibility is "an important defense against supply-driven TA and to ensure that the IMF’s CD work is sufficiently demand-driven."

### Annex I — Treatment of Country Ownership and Engagement in 2017 Regional Strategy Notes (departmental highlights)
- African Department
  - "Country and regional strategies based on track record, ownership, and prospects are being used as a guide to allocate TA resources both across and within countries" (page 4).

- Asia and Pacific Department
  - "APD’s near-term focus is to (i) further integrate CD activities with policy advice in country work, (ii) emphasize country ownership and results ..." (page 1).
  - "CD delivery also needs to be nimble so that it can seize opportunities of strong ownership" (page 2).
  - "Key criteria for prioritizing TA and training needs to include capacity constraints within countries, macroeconomic vulnerabilities or criticality as informed by surveillance and program work, systemic importance, ownership of reforms, track record on previously delivered TA/training, demand from the authorities and complementarity with other TA providers" (page 2).
  - "While country ownership is instrumental, donor coordination and cooperation can play an important role particularly in countries where donors are numerous but capacity is limited" (page 5).
  - "CD activities with an outreach dimension could also help strengthen ownership and provide an impetus for implementing Fund CD and surveillance recommendations" (page 9).
  - "APD will continue collaboration with ICD to scale-up and enrich engagement with the authorities" (page 9).

- European Department
  - "Country authorities generally share European Department (EUR) views on CD priorities and strategy. In program and near-program countries, TA needs are defined through an iterative process between the respective EUR country team and the authorities, and generally consist of TA in areas that are jointly seen as critical for program implementation. In non-program settings, TA priorities are broadly reflective of needs identified in the Article IV surveillance consultation process, and are determined often with the authorities’ agreement with the identified need" (page 7).

- Middle East and Central Asia Department
  - "Mission chiefs will be key drivers of CD, guided by country-specific engagement strategies, and in close consultation with authorities, functional departments, regional centers, and external partners" (page 1).
  - "While the areas noted above are critical anchors to our program, the prioritization and allocation of TA and training will continue to be guided by country ownership and commitment, including by considering track records in implementing past TA recommendations and absorption capacity" (page 5).
  - "New modalities of CD planning and delivery, underpinned by reforms to better integrate CD into policy work, with mission chiefs as key drivers of CD, in some cases with country-specific engagement strategies to be discussed with authorities, particularly for some heavy CD users (e.g., Afghanistan) and systemically-important countries (Saudi Arabia), and greater analytical collaboration and coordination with CD providing departments and other regional institutions. Work has begun to assess options on how to strengthen the CD engagement with the CCA and other Middle East & Central Asia Department (MCD) countries, including through a regional CD center" (page 4).
  - "CD efforts across the two sub-regions have strengthened engagement and traction, with enhanced understanding of conditions, better analysis and design of policy responses, and improved implementation in some countries" (page 3).

- Western Hemisphere Department
  - "Ownership and Track Record—Priority will be given to those countries with strong ownership and a proven track record of leveraging TA/training for positive policy outcomes, or for a demonstrable improvement in institutional capacity, ideally supported by the RBM system. Positive changes to support reforms, impact of factors outside of the control of the authorities, and other developments that might give rise to expectations that the country will take greater ownership of future TA/training delivery shall be considered" (page 1).
  - "Topical Prioritization: With our strong emphasis on country ownership, Western Hemisphere Department (WHD) has, and will continue to follow primarily a demand-based approach to prioritizing topical areas of TA and training provision" (page 2).

*Source: https://www.imf.org/-/media/files/publications/pp/2018/pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies.pdf*

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_Source: https://www.imf.org/-/media/files/publications/pp/2018/pp100218-2018-review-of-fund-s-cd-strategy-extcomm-and-background-studies.pdf_