## INTRODUCTION ## Source details **Canonical URL:** [INTRODUCTION](https://www.imf.org/-/media/files/publications/pp/2018/pp1002182018reviewfunds-cdstrategyextadvisory.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2018/pp1002182018reviewfunds-cdstrategyextadvisory.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2018/pp1002182018reviewfunds-cdstrategyextadvisory.pdf.json) --- ### Overview and EAG judgment - The External Advisory Group (EAG) considers the 2018 Capacity Development (CD) Strategy Review to be an "excellent report." - The Review critically assesses progress since the 2013 CD Strategy, integrating internal and external stakeholder assessments to identify weaknesses in strategy and implementation. - The EAG broadly endorses the Review’s findings and proposed recommendations, highlighting five specific recommendation areas: - (i) clearer roles and responsibilities; - (ii) strengthening of both prioritization and monitoring; - (iii) more integration of CD with surveillance recommendations; - (iv) greater internal consultation and sharing of CD information; - (v) greater external coordination and cooperation. - Quoted EAG member view: “it is more important to measure the right thing roughly than the wrong thing precisely.” ### EAG’s six highlighted issues - Implementation-focused: - (a) Integration of CD issues into bilateral surveillance, particularly Article IV consultations. - (b) Moving towards learning from technical assistance (TA) through more disclosure of TA reports. - (c) Using behavioral insights to change social norms within the Fund to enable better integration of the Fund’s three activities in country contexts. - Broader strategy effectiveness: - (d) Tactically bringing the “organization” (and sub-units) directly into training and TA products in a country-specific strategic approach. - (e) Distinguishing analytical types of organizational capability and tailoring CD approaches accordingly. - (f) Applying behavioral insights to make CD effective in creating capable partner-country organizations. ### EAG process notes - The EAG served as an independent check on staff analysis and recommendations set out in the 2018 Review of the Fund’s Capacity Development Strategy—Overview Paper. - The group met three times: May 30, 2017; May 3, 2018; and July 26, 2018. --- ### INTERNAL ISSUES AFFECTING THE IMPLEMENTATION OF THE REVIEW RECOMMENDATIONS ### A. Integrating CD into Surveillance - Central considerations when integrating capacity diagnosis into Article IV consultations: - (a) Surveillance without consideration of capacity is inadequate for certain topics and countries where implementation capacity is integral to the surveillance exercise. - Example 1: Tax mobilization — tax administration capability affects tax effort/buoyancy; discussing tax solely as a policy/analytic issue is inadequate. - Example 2: Financial sector regulation — Article IV surveillance of banking sector risks should assess central bank and relevant agencies’ capability to assess and regulate systemic risks. - Integration of Financial Sector Assessment Programs (FSAP) into surveillance recognized capacity issues as core (though FSAPs are not done everywhere). - The Fund’s mandate covers both highly capable states and fragile states; doing surveillance in fragile and low capability countries without explicit consideration of capability is risky. - (b) A top-down directive to include capacity risks "ticking boxes" and reluctant compliance, perceived as an unfunded central mandate, generating lip service and resistance. - Recommendation principle: - Devise a “Goldilocks” policy to balance a blanket mandate (too hot) and leaving integration entirely to discretion (too cold), aiming to manage risks of both over- and under-integration of capacity into surveillance. ### B. Transparency and TA Reports - Current disclosure problem: - Less than 5 percent of TA reports are published, despite a long-standing Fund policy encouraging publication. - Offsetting considerations: - Benefits of greater disclosure: - TA lessons are potential “global public goods.” - Greater dissemination would contribute to feedback, learning, and broader development practice improvement. - Public disclosure can generate inputs from nongovernmental stakeholders, similar to experience with program documents. - Costs/constraints of disclosure: - Effective TA depends on trust; TA providers must sometimes access confidential information that cannot be disclosed. - TA providers may have fiduciary responsibilities and participate in internal deliberations; compelled disclosure could undermine relationships and candid engagement. - Country clearance for TA report publication respects confidentiality needs. - Proposed “Goldilocks” approaches (illustrative, not prescriptive): - When a country declines disclosure, produce an anonymized short two-to-three page precis of “lessons learned from the engagement” in addition to the TA report subject to country clearance. - Weight clearance processes in favor of Fund control for anonymized precis (e.g., client veto only if anonymity is violated). - Aim to raise publication rates of material useful for feedback and learning while protecting client trust. - EAG position: - Continuation of existing policies will likely continue current outcomes; some new approach is needed to improve transparency without compromising confidentiality. ### C. Behavioral Insights: CD and Change Management Inside the Fund - EAG emphasis: - Appreciation of Box 3 (“Behavioral Insights and Organizational Change”) and its applicability to IMF internal change and IMF support for partner organizations. - Key insights: - Organizational change is difficult even when agreed to be desirable; strong organizations may exhibit status quo bias and inertia. - The Fund’s recommendations require staff and management to act differently; a concrete plan to overcome inertia is needed. - Social norms—beyond formal policies—play a central role in behavior; the Fund is a strongly normed organization with high valuation of global-quality technical analysis. - Cultural challenge: - The Fund must create a similarly high appreciation for skill sets needed to build organizational capability in partner countries (different from technical macro analysis). - Complementary valuation of capacity-building skill sets is necessary for successful implementation of Review recommendations, including greater transparency. - Box 3 guidance: - Provides direction on actions the Fund can take to inspire organizational change to implement Review recommendations. --- ### BROADER ISSUES WITH CREATING EFFECTIVE STRATEGIES FOR CD ### A. Bringing the Organization and its Capability Directly into CD Strategy - Distinction: - Organizational capability versus individual capacity (terms may be reversed depending on framing). - Strategic implications: - If organizational capability is limited by individual capacities, an individual-focused training strategy is appropriate. - Examples: monetary policy formulation (high individual analytical demands); national accounting construction — specialized training creates necessary individual capacity. - If organizational capability is limited by organizational features (processes, coordination, motivation, political authorization), then individual training alone will likely fail. - Example: A hospital limited by staff motivation may not improve outcomes through additional individual training. - TA modality implications: - When individual capacity is the key constraint, TA that embeds skilled individuals into organizations can raise capability immediately while integrating with CD to transfer skills. - When organizational capability is the binding constraint, CD strategies must focus on organization-level reforms (processes, incentives, political mandates) rather than only individualized training. - Diagnostic importance: - Misdiagnosing organizational capability problems as individual capacity gaps leads to training and TA that show outputs (people completing courses, TA assignments placed) but little long-term impact on organizational capability. - Typically both individual capacity and organizational capability interact; clarity on causal pathways of CD strategies and their effect on organization performance is essential. ### Diagnostic assessment of binding constraints - Use a diagnostic tool within the Fund’s CD prioritization and evaluation to determine whether individual capacity is the binding constraint to organizational capability. - If individual capacity is not the binding constraint, adopt an organization capability–oriented CD strategy that uses training and TA in support of that organizational strategy. - Recognize the risk that individual-centered training strategies create demand for IMF CD (especially at zero price to the organization or person) even where CD is unlikely to help. - Require clarity by the country organization that training and TA received are integral to a viable organizational capability strategy as part of prioritization when choosing local partners. - Acknowledge that “political will” may impede progress and that an organizational capability approach can bring necessary realism into country-tailored CD strategies. - Key implications: - Diagnostic clarity on whether constraints are individual or organizational should inform the choice between individual-focused and organization-focused CD interventions. - Integrating organizational capability diagnostics into CD prioritization can reduce misaligned demand and improve effectiveness. --- ### B. Clear Distinctions of the Types of Capability Needed by Organizations to Tailor Capability-Building Strategy - Findings on Fund success and its challenge: - The Fund has been remarkably successful at promoting its broad mission and at increasing individual capacity and organizational capability of central banks and other key ministries through decades-long CD. - Success creates a tendency to apply familiar CD approaches to a broader variety of challenges (e.g., moving from budget formulation to budget implementation, from constraining credit growth to encouraging effective allocation of credit). - The challenge is whether the set of individual capacities and organizational capabilities needed for success are the same and whether identical CD strategies are appropriate. - Distinction between policy formulation and policy implementation: - Policy formulation capacity often resides in relatively few individuals requiring very high, sophisticated technical analysis. - Some policies are more or less self-enforcing and need little additional organizational capability. - Policy implementation often requires ongoing, day-to-day action by many agents; failures here may reflect organizational capability deficits rather than lack of high-level individual capacity. - Fund-wide CD strategy analytical frame should: - Identify types of actions the Fund can support. - Explain how these actions causally impact organizational capability. - Recognize the very different types of organizations and activities the Fund works with. - Recommendation: - Increase diagnostic clarity on the type of capability constraint (formulation vs. implementation) to design more tailored and hence more effective CD strategies. - Avoid assuming one CD strategy can simultaneously build capacity for macro-economically sound policy formulation and for translating those policies into effective implementation. --- ### C. Behavioral Insights: CD and Change Management in Partner Country Organizations - Role of organizations as intermediaries: - “Organizations” act as a key intermediary between “country” and “individual”; organizational approaches are necessary to induce individual behavior change beyond increasing individual capacities. - Behavioral barriers and CD design: - Social norms can create persistent low-level equilibrium traps (e.g., corruption) where individuals perceive norm-deviating behavior as risky and ineffective regardless of their knowledge. - Organizational capability strategies need to utilize training that is sensitive to shifting social norms. - Other behavioral inhibitors include “status quo and inertia” and “commitment”; these should be explicitly acknowledged as common barriers to translating knowledge into action. - Practical design suggestions: - Incorporate organizational approaches that enable individual behavior change (e.g., use of commitment devices and follow-up mechanisms as part of CD). - Apply experimental approaches to determine which behavioral interventions are most effective in generating desired outcomes. *External Advisory Group report: 2018 CD STRATEGY REVIEW—EAG REPORT* ### INTRODUCTION __________________________________________________________________________ 2 ### INTRODUCTION ### Overview and EAG judgment - The External Advisory Group (EAG) considers the 2018 Capacity Development (CD) Strategy Review to be an "excellent report." - The Review critically assesses progress since the 2013 CD Strategy, integrating internal and external stakeholder assessments to identify weaknesses in strategy and implementation. - The EAG broadly endorses the Review’s findings and proposed recommendations, highlighting five specific recommendation areas: - (i) clearer roles and responsibilities; - (ii) strengthening of both prioritization and monitoring; - (iii) more integration of CD with surveillance recommendations; - (iv) greater internal consultation and sharing of CD information; - (v) greater external coordination and cooperation. - Quoted EAG member view: “it is more important to measure the right thing roughly than the wrong thing precisely.” ### EAG’s six highlighted issues - Three issues focused on the Fund’s implementation: - (a) Integration of CD issues into bilateral surveillance, particularly Article IV consultations. - (b) Moving towards learning from technical assistance (TA) through more disclosure of TA reports. - (c) Using behavioral insights to change social norms within the Fund to enable better integration of the Fund’s three activities in country contexts. - Three broader issues on effectiveness of CD strategy: - (d) Tactically bringing the “organization” (and sub-units) directly into training and TA products in a country-specific strategic approach. - (e) Distinguishing analytical types of organizational capability and tailoring CD approaches accordingly. - (f) Applying behavioral insights to make CD effective in creating capable partner-country organizations. ### EAG process notes - The EAG served as an independent check on staff analysis and recommendations set out in the 2018 Review of the Fund’s Capacity Development Strategy—Overview Paper. - The group met three times: May 30, 2017; May 3, 2018; and July 26, 2018. --- ### INTERNAL ISSUES AFFECTING THE IMPLEMENTATION OF THE REVIEW RECOMMENDATIONS ### A. Integrating CD into Surveillance - Two central considerations when integrating capacity diagnosis into Article IV consultations: - (a) Surveillance without consideration of capacity is inadequate for certain topics and countries where implementation capacity is integral to the surveillance exercise. - Example 1: Tax mobilization — tax administration capability affects tax effort/buoyancy; discussing tax solely as a policy/analytic issue is inadequate. - Example 2: Financial sector regulation — Article IV surveillance of banking sector risks should assess central bank and relevant agencies’ capability to assess and regulate systemic risks. - Integration of Financial Sector Assessment Programs (FSAP) into surveillance recognized capacity issues as core (though FSAPs are not done everywhere). - The Fund’s mandate covers both highly capable states and fragile states; doing surveillance in fragile and low capability countries without explicit consideration of capability is risky. - (b) A top-down directive to include capacity risks "ticking boxes" and reluctant compliance, perceived as an unfunded central mandate, generating lip service and resistance. - Recommendation principle: - Devise a “Goldilocks” policy to balance a blanket mandate (too hot) and leaving integration entirely to discretion (too cold), aiming to manage risks of both over- and under-integration of capacity into surveillance. ### B. Transparency and TA Reports - Current disclosure problem: - Less than 5 percent of TA reports are published, despite a long-standing Fund policy encouraging publication. - Two offsetting considerations: - (a) Benefits of greater disclosure: - TA lessons are potential “global public goods.” - Greater dissemination would contribute to feedback, learning, and broader development practice improvement. - Public disclosure can generate inputs from nongovernmental stakeholders, similar to experience with program documents. - (b) Costs/constraints of disclosure: - Effective TA depends on trust; TA providers must sometimes access confidential information that cannot be disclosed. - TA providers may have fiduciary responsibilities and participate in internal deliberations; compelled disclosure could undermine relationships and candid engagement. - Country clearance for TA report publication respects confidentiality needs. - Proposed “Goldilocks” approaches (illustrative, not prescriptive): - When a country declines disclosure, produce an anonymized short two-to-three page precis of “lessons learned from the engagement” in addition to the TA report subject to country clearance. - Weight clearance processes in favor of Fund control for anonymized precis (e.g., client veto only if anonymity is violated). - Aim to raise publication rates of material useful for feedback and learning while protecting client trust. - EAG position: - Continuation of existing policies will likely continue current outcomes; some new approach is needed to improve transparency without compromising confidentiality. ### C. Behavioral Insights: CD and Change Management Inside the Fund - The EAG appreciates inclusion of Box 3 (“Behavioral Insights and Organizational Change”) and emphasizes applicability both to IMF internal change and to IMF work supporting partner organizations. - Key insights: - Organizational change is difficult even when agreed to be desirable; strong organizations may exhibit status quo bias and inertia. - The Fund’s recommendations require staff and management to act differently; a concrete plan to overcome inertia is needed. - Social norms—beyond formal policies—play a central role in behavior; the Fund is a strongly normed organization with high valuation of global-quality technical analysis. - Cultural challenge: - The Fund must create a similarly high appreciation for skill sets needed to build organizational capability in partner countries (different from technical macro analysis). - Complementary valuation of capacity-building skill sets is necessary for successful implementation of Review recommendations, including greater transparency. - Box 3 guidance: - Provides direction on actions the Fund can take to inspire organizational change to implement Review recommendations. --- ### BROADER ISSUES WITH CREATING EFFECTIVE STRATEGIES FOR CD ### A. Bringing the Organization and its Capability Directly into CD Strategy - Distinction emphasized: - Organizational capability versus individual capacity (terms may be reversed depending on framing). - Strategic implications: - If organizational capability is limited by individual capacities, an individual-focused training strategy is appropriate. - Examples: monetary policy formulation (high individual analytical demands); national accounting construction — specialized training creates necessary individual capacity. - If organizational capability is limited by organizational features (processes, coordination, motivation, political authorization), then individual training alone will likely fail. - Example: A hospital limited by staff motivation may not improve outcomes through additional individual training. - TA modality implications: - When individual capacity is the key constraint, TA that embeds skilled individuals into organizations can raise capability immediately while integrating with CD to transfer skills. - When organizational capability is the binding constraint, CD strategies must focus on organization-level reforms (processes, incentives, political mandates) rather than only individualized training. - Diagnostic importance: - Misdiagnosing organizational capability problems as individual capacity gaps leads to training and TA that show outputs (people completing courses, TA assignments placed) but little long-term impact on organizational capability. - Typically both individual capacity and organizational capability interact; clarity on causal pathways of CD strategies and their effect on organization performance is essential. --- *External Advisory Group report: 2018 CD STRATEGY REVIEW—EAG REPORT* ### 16. In countries with organizations that have received training and TA for decades but ### 16. In countries with organizations that have received training and TA for decades but where those organizations are still very weak, it is worth creating an ability of the Fund (within its prioritization and evaluation of CD) to use a diagnostic tool to assess whether individual capacity is actually the “binding constraint” to organizational capability or not. ### Diagnostic assessment of binding constraints - Use a diagnostic tool within the Fund’s CD prioritization and evaluation to determine whether individual capacity is the binding constraint to organizational capability. - If individual capacity is not the binding constraint, adopt an organization capability–oriented CD strategy that uses training and TA in support of that organizational strategy. - Recognize the risk that individual-centered training strategies create demand for IMF CD (especially at zero price to the organization or person) even where CD is unlikely to help. - Require clarity by the country organization that training and TA received are integral to a viable organizational capability strategy as part of prioritization when choosing local partners. - Acknowledge that “political will” may impede progress and that an organizational capability approach can bring necessary realism into country-tailored CD strategies. ### Key implications - Diagnostic clarity on whether constraints are individual or organizational should inform the choice between individual-focused and organization-focused CD interventions. - Integrating organizational capability diagnostics into CD prioritization can reduce misaligned demand and improve effectiveness. *2018 CD STRATEGY REVIEW—EAG REPORT* --- ### B. Clear Distinctions of the Types of Capability Needed by Organizations to Tailor Capability-Building Strategy ### Findings on Fund success and its challenge - The Fund has been remarkably successful at promoting its broad mission and at increasing individual capacity and organizational capability of central banks and other key ministries through decades-long CD. - Success creates a tendency to apply familiar CD approaches to a broader variety of challenges (e.g., moving from budget formulation to budget implementation, from constraining credit growth to encouraging effective allocation of credit). - The challenge is whether the set of individual capacities and organizational capabilities needed for success are the same and whether identical CD strategies are appropriate. ### Distinction between policy formulation and policy implementation - Policy formulation capacity often resides in relatively few individuals requiring very high, sophisticated technical analysis. - Some policies are more or less self-enforcing and need little additional organizational capability. - Policy implementation often requires ongoing, day-to-day action by many agents; failures here may reflect organizational capability deficits rather than lack of high-level individual capacity. - A Fund-wide CD strategy needs an analytical frame that: - Identifies types of actions the Fund can support. - Explains how these actions causally impact organizational capability. - Recognizes the very different types of organizations and activities the Fund works with. ### Recommendation - Increase diagnostic clarity on the type of capability constraint (formulation vs. implementation) to design more tailored and hence more effective CD strategies. - Avoid assuming one CD strategy can simultaneously build capacity for macro-economically sound policy formulation and for translating those policies into effective implementation. *2018 CD STRATEGY REVIEW—EAG REPORT* --- ### C. Behavioral Insights: CD and Change Management in Partner Country Organizations ### Role of organizations as intermediaries - “Organizations” act as a key intermediary between “country” and “individual”; organizational approaches are necessary to induce individual behavior change beyond increasing individual capacities. ### Behavioral barriers and CD design - Social norms can create persistent low-level equilibrium traps (e.g., corruption) where individuals perceive norm-deviating behavior as risky and ineffective regardless of their knowledge. - Organizational capability strategies need to utilize training that is sensitive to shifting social norms. - Other behavioral inhibitors include “status quo and inertia” and “commitment”; these should be explicitly acknowledged as common barriers to translating knowledge into action. ### Practical design suggestions - Incorporate organizational approaches that enable individual behavior change (e.g., use of commitment devices and follow-up mechanisms as part of CD). - Apply experimental approaches to determine which behavioral interventions are most effective in generating desired outcomes. *2018 CD STRATEGY REVIEW—EAG REPORT* --- _Source: https://www.imf.org/-/media/files/publications/pp/2018/pp1002182018reviewfunds-cdstrategyextadvisory.pdf_