## PROGRESS REPORT TO THE IMFC ON THE ACTIVITIES OF THE INDEPENDENT EVALUATION OFFICE OF THE IMF

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October 9, 2020

### Overview
- The IEO is advancing its work program while adapting to the challenges from the COVID-19 pandemic.
- Evaluation is not part of the frontline response that has dominated IMF activity over the past six months, but independent evaluation remains a key function for learning from experience and drawing lessons for the Fund as it focuses on meeting members’ urgent and evolving needs.
- Since April, IEO engagement with the Executive Board has resumed, including:
  - formal discussion of the recently completed evaluation of IMF Advice on Capital Flows; and
  - an informal seminar on Bank-Fund collaboration on climate issues.
- Ongoing work includes evaluations of adjustment and growth in IMF-supported programs and IMF engagement with small states, and a new evaluation launched on IMF capacity development.

### Capital flows evaluation—Key findings
- The evaluation was discussed by the Executive Board in September.
- Scope and context:
  - Looked at IMF advice on handling volatile capital flows and capital account liberalization.
  - Complements staff work on developing an Integrated Policy Framework (IPF) for handling exogenous shocks.
  - Relevance highlighted by volatile capital flows after the COVID-19 crisis and uncertain future prospects.
- Positive assessment:
  - The evaluation credited the Fund for upgrading its framework for advice on capital flow issues by approving the Institutional View (IV) in 2012.
  - Found that the IV has generally been applied carefully and consistently across countries.
- Concerns and limitations:
  - Recent country experience and research—including from the IPF work stream—have raised concerns about the value added and influence of the Fund’s advice in this area.
  - The blanket guidance that capital flow measures (CFMs) not be used pre-emptively or in a lasting manner seems too restrictive, since country experience and research suggest that in certain circumstances well-targeted measures can be helpful for:
    - financial stability purposes;
    - increasing macroeconomic policy space; or
    - addressing social concerns like housing affordability.
  - Disagreements on the labelling of measures often crowded out time for serious policy discussion.
  - Suggested greater attention be placed on broader implications of capital account liberalization, including distributional issues.
  - Raised concerns about the limited impact of the IMF’s engagement on source country policies affecting capital flow volatility.
  - Pointed to potential tensions with other multilateral frameworks relevant to capital flows.

### Capital flows evaluation—Recommendations and follow-up
- Main recommendation:
  - The IMF should refresh its approach to dealing with capital account issues to reflect country experience and recent research.
  - This revisit need not involve a wholesale overhaul of the IV, whose broad principles remain valid, but should consider some well-defined extensions of the circumstances in which CFMs could provide a helpful part of the policy toolbox, particularly when their preemptive and longer-lasting use could be justified.
- Complementary recommendations:
  - Sustain a strong, adequately resourced, medium-term work program on capital account issues.
  - Strengthen cooperation with multilateral partners on issues related to capital flows, including the OECD, the BIS, and the FSB.
- Board and management reaction:
  - Executive Directors expressed appreciation for the IEO’s contribution and broadly supported its recommendations while expressing a range of views on the extent of revisions required on specific elements of the IV.
  - The Managing Director welcomed the report, noting that it would inform the upcoming review of the IV scheduled for next year.
- Follow-up action:
  - IMF management will work with staff to propose a follow-up implementation plan by March 2021.

### Bank-Fund collaboration
- The IEO completed its evaluation of IMF Collaboration with the World Bank on Macro-Structural Issues (reported in April).
- The evaluation assessed how effective the IMF has been in collaborating with the World Bank, focusing on IMF pilot initiatives to enhance coverage of inequality, gender, energy/climate, and macro-structural reform in Article IV surveillance.
- Timeline and engagement:
  - Board discussion of this evaluation, scheduled for March, was delayed as the Fund focused on the emergency response to the COVID-19 crisis.
  - In June, the IEO presented an informal seminar to the Board on material from the evaluation relevant to climate change, reflecting increasing attention in the IMF to this issue and ahead of staff engagement with the Board on the integration of climate change in surveillance.
  - Board discussion of the full evaluation, intended to feed into the Comprehensive Surveillance Review, is scheduled for later this year.

### Reformulation of off-track actions
- Preparation of Management Implementation Plans (MIPs) to reformulate off-track actions identified in the 2019 report on Categorization of Open Actions has been delayed due to staff reprioritization from the COVID-19 crisis.
- While recognizing continuing pressures on staff’s work agenda, advancing this work to bring new MIPs for Board approval in due course is important.

### IEO work program
- Adjustments to reflect new challenges:
  - Evaluation of adjustment and growth in IMF-supported programs:
    - Will assess how well IMF-supported programs have helped to sustain economic growth while delivering necessary adjustment for external viability.
    - Has taken on added relevance given large adjustment needs and growth challenges during recovery from the pandemic.
  - Evaluation of IMF engagement with small states:
    - Will examine how the Fund has supported countries particularly hard hit by the collapse of global tourism and that have limited institutional capacity to respond to climate and health shocks.
  - Newly launched evaluation of the IMF’s capacity development activities:
    - Will take a broad look at this growing component of IMF activities ahead of the next strategic review scheduled for 2023.
- COVID-19 relevance:
  - The small states and capacity development evaluations will take stock of the IMF’s early response to the COVID-19 crisis as relevant to these topics.
- Forward planning:
  - The IEO is considering a range of possible future topics and will consult broadly with stakeholders to provide input into the selection process.

*PROGRESS REPORT TO THE IMFC ON THE ACTIVITIES OF THE INDEPENDENT EVALUATION OFFICE OF THE IMF — October 9, 2020.*

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_Source: https://www.imf.org/-/media/files/publications/pp/2020/english/ppea2020048.pdf_