## IMF Strategy for Fragile and Conflict-Affected States (ppea2022004) ## Source details **Canonical URL:** [IMF Strategy for Fragile and Conflict-Affected States (ppea2022004)](https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2022/english/ppea2022004.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2022/english/ppea2022004.pdf.json) --- ### Executive summary — objectives and overarching approach - Purpose: strengthen IMF support to FCS to help achieve macroeconomic stability, strengthen resilience, and promote inclusive growth to exit from fragility. - Approach: long-term engagement, working with partners, tailoring IMF engagement/instruments/policy advice to specific manifestations of fragility and conflict, and factoring in drivers of fragility and political economy dynamics. - Key principles: - Greater tailoring to fragility and conflict contexts. - Focus on distributional aspects of macroeconomic adjustments. - Calibrate pace and timing of structural reforms to political economy dynamics and institutional capacities. - Tools emphasized: Country Engagement Strategies (CES), expanded field presence and Capacity Development (CD), full flexibility of existing lending toolkit, enhanced partnerships with World Bank, UN, MDBs, humanitarian and peace/security actors. ### Interaction with global trends and human impacts - Findings: - 155 million people are acutely food insecure and in need of urgent assistance; two-thirds live in FCS. - Per capita incomes in FCS are estimated to recover to 2019 levels only after 2024. - Per capita real GDP growth for 2020 in FCS was 9.4 percentage points lower than the estimated pre-pandemic projection (from 1.9 percent growth to a 7.5 percent contraction). - The share of the population living in extreme poverty in FCS is likely to increase from 30 to 38 percent by 2024. - Public debt in FCS rose by 17 percentage points to 78 percent of GDP in 2021 compared to pre-COVID-19 projections. - Consumer prices surged 9 percentage points above their pre-pandemic projections. - 73 percent of the world’s 26 million refugees are hosted in neighboring states. ### Definition, scope, and heterogeneity of FCS - IMF internal FCS list: 42 economies (about 20 percent of IMF membership). - Inclusion criteria (either/or): - CPIA score of below 3.2 (average over the past three years for which published data are available); CPIA maximum is 6. - Presence of a UN or regional peacekeeping or peacebuilding mission during the preceding three years. - World Bank FY22 FCS list: 39 countries; World Bank CPIA threshold: below 3.0. - Note: FCS are heterogeneous (LICs and MICs); spillovers to neighbors are common. ### Macroeconomic consequences and constraints on policy space - Evidence and estimates: - FCS display lower growth, lower per capita GDP, higher inflation, and higher incidence of extreme poverty than non-FCS. - About 21 countries have been consistently classified as FCS for more than 14 years. - If fragility leads to conflict, economic costs can range from 10 to 25 percent of GDP. - Common constraints: - Difficulties providing public goods and services; low governance and high corruption indicators. - Rising inequality, entrenched interests, risk of violence, short policymaker horizons, low administrative capacity, inefficient spending. - Sectoral macroeconomic challenges (selected): - Fiscal: low tax capacity; heavy reliance on commodity revenues and import duties; weak PFM; public expenditures skewed toward wages/security. - Monetary & financial: weak central banks; fiscal dominance; shallow financial markets; low domestic savings. - External: volatile external positions; heavy dependence on remittances and ODA; lower FDI; multiple currencies and parallel exchange rates in active/post-conflict contexts. ### Data and capacity constraints - Over 70 percent of countries rated with serious shortcomings in statistics are FCS. - Weakest World Bank Statistical Capacity Indicators areas: import/export price indices, national accounts, CPI, government finance statistics. - Causes: staff capacity limits, under-staffing, funding constraints, source data problems, poor IT infrastructure. ### IMF activities, reach, and recent support to FCS - Surveillance: Article IV consultations generally every 12 months; some FCS on 24-month cycle. - Capacity development (CD): - FCS accounted for nearly 30 percent of Fund CD spending over the last six years. - CD focus: revenue administration, tax policy, core PFM, cash management, banking regulation, central bank strengthening, AML/CFT, statistical capacity. - Lending (Jan 2010–Dec 2021): - Supported 28 FCS with 88 programs totaling US$20 billion. - About 30 percent of approved financing requests for UCT-quality programs from LICs and >50 percent of emergency financing requests from LICs have come from FCS. - 18 disbursements under RCF/RFI; 23 SMPs used to build track records. - COVID-19 response: - Emergency financial support to 28 FCS members worth US$7.5 billion. - US$625 million in debt service relief from CCRT. - 24 eligible FCS requested participation in the G20 DSSI. - FCS benefited from US$16.2 billion from the general SDR allocation. - Over 1,000 remote CD engagements since the pandemic onset. ### Strategy instruments and operational measures - Country Engagement Strategies (CES): - Diagnose fragility/conflict drivers; integrate surveillance, CD, and lending; inform program design/conditionality; guide partner dialogue. - Outputs: full CES (confidential staff assessment) or CES summary (2–3 page summary included in Article IV or program documents and published except in exceptional cases). - CES coverage across six pillars: political economy; social; economic; governance/corruption; climate; security (HRLs include Country Engagement Plans). - Roll-out targets: CES for about half of FCS (~20 countries) completed within 18 months of issuance of Staff Guidance Note; updates at least once every three years thereafter. - Strengthening surveillance and analytics: - Article IVs to analyze macro-critical fragility/conflict drivers (poverty, inequality, gender, displacement, elite capture, security spending, governance/corruption). - Increased coverage of climate adaptation/resilience under the Climate Change Strategy; climate likely macro-critical in over half the FCS. - Multilateral products (WEO, Fiscal Monitor, GFSR) to include FCS topics more regularly. - Capacity Development (CD) scale-up: - Objective: CD readily available, tailored to absorptive capacity, integrated with surveillance and lending. - Mode of delivery enhancements: increase field presence; add 30 additional experts (at least 20 as long-term experts in RCDCs); double in-country resident advisors from 11 to 21. - Donor-supported expansion could allow a 40 percent increase in delivery capacity in relevant RCDCs. - Tailoring approach: (i) focus on basic functions in weakest contexts; (ii) country-specific granularity using field presence; (iii) flexible adjustment to evolving conditions. - Core CD areas: domestic revenue mobilization, PFM, anticorruption/rule of law, debt management, central bank operations, bank supervision, AML/CFT, macro statistics, macro frameworks. - Lending toolkit and program design: - Maintain ECF (3–5 year) as standard for PRGT-eligible FCS able to implement UCT-quality programs; use full flexibility of existing instruments. - Normal cumulative PRGT access limits increased from 225 percent of quota (pre-2018/19) to 435 percent of quota currently. - Alternative modalities: SMPs, emergency assistance (RCF/RFI), repeated emergency financing where policies met, RST for longer-term structural challenges. - Program design principles: parsimony, realism in macro frameworks, incorporation of PPFGs with safeguards in DSA/CtR, use of Floating Tranches, streamlined/tailored conditionality. - Concurrent use of SMPs and emergency financing to build track records while addressing urgent BOP needs; operational guidance to be developed. - Partnerships: - Adopt World Bank FCS methodology/thresholds to enhance consistency; IMF retains autonomy and will publish FCS list annually. - Strengthen IMF–World Bank information sharing (RRAs, PERs, PEFA, SCDs, thematic diagnostics). - Systematize partnerships with humanitarian, peace/security actors, CSOs, private sector, and subnational authorities. ### Resources, staffing, and institutional support - Phasing: Strategy phased from FY22 with acceleration between FY23-FY25. - Resource/HR proposals and targets: - Steady-state notional FTEs: "212" (up from "189"). - Field-based positions: increase from "70 to 140 positions" — including "40" local economists. - Hire 40 additional local economists to strengthen country offices. - Open four additional Resident Representative posts (from "22 to 26"). - CD scale-up: long-term experts and resident advisors increase from "42 to 72"; up to "30 CD experts" as long-term experts in RCDCs/resident advisors. - HQ additions: "10 FTEs" for Area Departments; "2 new positions" for non-CD Functional Departments; "One additional economist position in ICD". - Steady-state envelope to RCDC administrative expenses: "US$3.0 million per annum". - With expected donor contributions, Fund’s ability to provide CD regionally and in-country will increase by 70 percent. - HR measures: - New promotions policy: fungible macroeconomists require two years of FCS or LIC experience for promotion to A15 (effective July 2023); metrics to assess results two years after implementation. - FCS learning curriculum due in FY23; FCS Community of Practice activated in FY23. - Recognition scheme and enhanced visibility for FCS work; publish aggregated metrics on staff ratings and promotions for FCS vs non-FCS starting FY24. - Security and field support: - Country Engagement Plans (CEPs) required for Medium to High-Risk Locations. - Recruit Local Security Coordinators in every FCS duty station; increased mandatory security training (minimum four courses for internationally recruited FCS personnel). - Options to place staff in neighboring countries where security risks exceed IMF tolerance. ### Monitoring, timelines, and key indicators - Staff Guidance Note on Implementation of the FCS Strategy to be prepared—by October 2022. - CES roll-out target: half of FCS (~20 countries) to complete CES within 18 months of Staff Guidance Note—by April 2024; about 16 new CES to be rolled out including pilots. - Selected measurable indicators and baselines: - Present baseline CD delivery: US$48.2 million (year-to-year aggregate increase aimed over FY23-FY25). - Present baseline RCDC effectiveness rating: 2.5 (moderate) — targeted improvement from FY23-onwards. - Increase long-term experts/resident advisors to equivalent of 2 per FCS from present baseline of 1.5. - Hiring 40 additional local economists—FY22-FY25. - Deploying 4 additional Resident Representatives to FCS to increase Fund coverage to 64 percent—FY23. - Tailored program design and conditionality guidance to be included in updated Staff Guidance Note—October 2022. - Implementation of A15 promotions framework—July 2023-FY25. ### Risks and trade-offs - Engagement in FCS is high-risk: political instability, uncertainty, and external shocks can undermine reform track records. - Financial risks: higher exposure requires safeguards via tailored program design, robust DSA/CtR analysis, and PPPG recognition. - Operational risks: difficulty attracting qualified staff; mitigated through HR reforms, incentives, training, and recognition. - Real estate/security risks: need for enhanced training, security staffing, and safe field offices; residual risks to be accepted to support vulnerable members. ### Conclusions and expected impact - Fragility and conflict affect about a fifth of IMF members and pose macroeconomic challenges constraining policy space and creating BOP needs. - Strategy aims to: - Enhance understanding of FCS conditions (CES rollout). - Strengthen tailoring of surveillance, scale up CD delivery, and adapt the lending toolkit. - Deploy more and better-skilled staff in FCS to improve dialogue, adapt support to absorptive capacity, and strengthen partnerships. - Implementation timeline: starting FY22, accelerating FY23-FY25, supported by resource augmentations in the FY23-FY25 Medium-Term Budget. *Source: IMF — IMF Strategy for Fragile and Conflict-Affected States (ppea2022004, excerpts).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Introduction and rationale - Supporting fragile and conflict-affected states (FCS) is an important priority on the international policy agenda. - FCS are home to nearly 1 billion people facing protracted challenges including reduced institutional capacity, limited public service delivery, forced displacement, and war. - Fragility and conflict are exacerbated by climate change, food insecurity, and gender disparities. - The economic impact of the COVID-19 pandemic has been most severe in FCS: per capita incomes are estimated to recover to 2019 levels only after 2024. - Debt and inflationary pressures have mounted, placing FCS at significant risk of falling behind in post-pandemic recovery and in achieving the Sustainable Development Goals. - About a fifth of IMF members are classified as FCS; fragility and/or conflict destabilize balance of payments (BOP) positions, disrupt trade and financial flows, and hinder development of productive resources. - Exit from fragility can take decades as policy space for reforms is constrained and trade-offs between short- and long-run objectives are difficult to make; progress is prone to high risks and recurrent setbacks. - Social, economic, political, and security crises in FCS can threaten macroeconomic stability and growth prospects in neighboring countries and regions; the implications are macro-critical and directly relevant to the IMF’s mandate. ### The Strategy: objectives and overarching approach - Purpose: strengthen IMF support to FCS in accordance with the Fund’s mandate and comparative advantage, to help FCS achieve macroeconomic stability, strengthen resilience, and promote inclusive growth to exit from fragility. - Approach: long-term engagement and working with partners; tailor IMF engagement, instruments, and policy advice to specific manifestations of fragility and conflict; factor in drivers of fragility, political economy dynamics, and country-specific constraints. - The Strategy responds to Board-endorsed recommendations of the 2018 Independent Evaluation Office (IEO) Report on The IMF and Fragile States, addressing challenges in program design, conditionality, realism and country specificity of policy advice, capacity development amid limited absorptive capacity, flexibility of the lending toolkit, partnerships, and staff support. ### Key principles and measures proposed - Adopt principles of engagement to ensure the IMF’s mandate and comparative advantage are effectively leveraged: - Greater tailoring to fragility and conflict contexts. - Focus on distributional aspects of macroeconomic adjustments. - Calibrate pace and timing of structural reforms to political economy dynamics and institutional capacities. - Roll out Country Engagement Strategies (CES) across FCS: - CES will identify key drivers of fragility and conflict to better tailor Fund engagement. - CES will support integration of surveillance, capacity development, and lending programs, inform program design and conditionality, and guide dialogue with authorities and partners. - Calibrate IMF modalities of engagement: - Surveillance and analytics will more systematically address macro-critical implications of fragility and conflict drivers such as governance and corruption, food insecurity, climate change, and regional spillovers from conflict. - Expand IMF field presence so capacity development (CD) intensifies institution-building support, is better tailored to local absorptive capacity, and better coordinated with other development partners. - Use full flexibility of existing lending toolkit to improve program design and streamline conditionality, tailored to each FCS and informed by CES analysis. - For FCS with urgent BOP needs where UCT-quality programs are not feasible, emergency financing instruments can be used provided all requirements are met; combining Staff Monitored Programs (SMPs) with emergency financing can help build a track-record ahead of a medium-term program. - Enhance partnerships to amplify comparative advantage: - Work with development, humanitarian, peace and security actors based on respective mandates. - Strengthen collaboration with the World Bank, adopting the Bank’s FCS list methodology, thresholds, and criteria to achieve greater consistency. - Share diagnostics more systematically, including fragility and conflict assessments, and deepen cooperation on macro-structural reforms. ### Resources, staffing, and institutional support - Strategy implementation will benefit from additional resources reflected in the FY23-25 Medium-Term Budget as per the budget augmentation framework discussed by the Board in December 2021. - Planned resource allocations and impacts: - Recruit an additional 40 local economists to strengthen country offices. - Grow coverage of FCS by Resident Representatives to enable closer support and follow-up with authorities and local partners. - With expected donor contributions, the Fund’s ability to provide CD regionally and in-country will increase by 70 percent to enhance assistance to FCS governments undertaking policy reforms. - Resources will allow stabilization of the financial position of Regional Capacity Development Centers (RCDCs). - Measures to better support staff working on FCS: - Implement a career development framework with stronger incentives for experienced staff to work on FCS. - Launch a new learning curriculum to expand staff skillsets. - Consider a Fund-wide recognition scheme for institutional priorities, including for FCS work, to acknowledge exceptional staff contributions. - Activate a dedicated community of practice focusing on FCS. ### Phasing, monitoring, and risk management - Given inherent risks in FCS engagement, the Strategy will be phased in starting in FY22, with implementation gradually accelerating between FY23-FY25 to allow course corrections and effective risk management. - Progress will be monitored through a set of indicators, starting with a new Staff Guidance Note on the Implementation of the FCS Strategy that will address operational implications of the proposed measures. ### Implementation governance and authorship - Approved by Ceyla Pazarbasioglu. - Prepared by a team led by Franck Bousquet (ICD) with a multi-departmental team from IMF departments including AFR, APD, COM, FAD, FIN, HRD, ICD, LEG, MCD, MCM, OBP, ORM, RES, SPR, STA, WHD. - Strategy draws on extensive consultations with members, the World Bank and MDBs, the UN system, think tanks, academia, and civil society organizations (Annex I). *Source: IMF STRATEGY FOR FRAGILE AND CONFLICT-AFFECTED STATES — EXECUTIVE SUMMARY (February 14, 2022)* ### 4. Fragility and conflict interact with—and are often exacerbated by—the compound ### ppea2022004 - 4. Fragility and conflict interact with—and are often exacerbated by—the compound ### Interaction with other trends and human impacts - 155 million people are acutely food insecure and in need of urgent assistance; two-thirds live in FCS. - A considerable fraction of youth in FCS is not in employment, education, or training, more than half of which is women. - Gender inequality is particularly acute in FCS: women are more vulnerable to gender-based violence and often face much greater economic hardships than men. - Countries with higher levels of gender equality tend to be more stable and grow faster. - 73 percent of the world’s 26 million refugees are hosted in neighboring states, with significant impacts on income distribution, productivity, labor supply, tax base, and consumption patterns. - Many FCS face a youth bulge; inability to generate jobs risks growing unemployment or underemployment and increases the risk of social unrest. - With limited fiscal space and weak social protection systems, pressures on social spending are heightened in FCS. ### Definition, scope, and heterogeneity of FCS - For practical purposes, the Fund presently maintains an internal FCS list comprising 42 economies, or about 20 percent of IMF membership. - An economy is included if it meets either one or both criteria: - A Country Policy and Institutional Assessment (CPIA) score of below 3.2 (out of maximum of 6), calculated as the average over the past three years for which published data are available. The CPIA rates the quality of countries’ institutions and policies against four clusters: (i) economic management; (ii) structural policies; (iii) policies for social inclusion and equity; and (iv) public sector management and institutions. - Presence of a United Nations (UN) or a regional peacekeeping or peacebuilding mission during the preceding three years. - FCS are a heterogeneous group of LICs and MICs; some non-FCS countries may share elements of fragility and can slip into conflict when stresses are not effectively managed. - Spillovers are common: protracted spillovers emanating from FCS affect neighbors through security, political, social, and economic linkages. ### COVID-19 impact and projections for FCS - Per capita real GDP growth for 2020 in FCS was 9.4 percentage points lower than the estimated pre-pandemic projection, dropping from 1.9 percent growth to a 7.5 percent contraction. - Current projections suggest that per capita incomes in FCS will not recover to their 2019 level by 2024. - The share of the population living in extreme poverty in FCS is likely to increase from 30 to 38 percent by 2024. - Compared to pre-COVID-19 projections: - Public debt in FCS rose by 17 percentage points to 78 percent of GDP in 2021. - Consumer prices surged 9 percentage points above their pre-pandemic projections. - Greater income divergence and spiking food insecurity are likely to heighten social tensions and further destabilize FCS, potentially erasing peace gains. ### Macroeconomic consequences and policy space in FCS - Fragility and conflict undermine growth prospects, exacerbate fiscal vulnerabilities, destabilize BOP positions, and disrupt financial flows. - Evidence and estimates: - FCS display lower growth rates and per capita GDP levels, higher inflation, and a greater incidence of extreme poverty than non-FCS. - About 21 countries have been consistently classified as FCS for more than 14 years. - If fragility paves the way to conflict, economic costs can range from 10 to 25 percent of GDP. - Common features constraining reforms in FCS: - Difficulties in providing public goods (security, rule of law, social protection, infrastructure, public services). - Rising inequality among groups and deep grievances against the state; low performance in Worldwide Governance Indicators and in Transparency International’s Corruption Perception Index. - Increased risks of violence; reforms can temporarily elevate instability due to resistance from entrenched interests. - These features increase trade-offs between rising spending needs, difficulties in raising revenue, and elevated debt levels while shortening policymakers’ time-horizons. Low administrative capacity and lack of human capital result in inefficient spending. ### Examples of macroeconomic policy challenges in FCS (by sector) - Fiscal Sector: - Low tax capacity, heavy reliance on commodity revenues and import duties. - Ineffective tax policy, legislation, and compliance. - Weak tax and customs administration, low compliance. - Lack of budget control over expenditures, weak PFM. - Public expenditures more skewed towards wages and security, away from social benefits and infrastructure. - Pro-deficit bias and reliance on external grants and concessional financing. - High debt levels with limited transparency. - Monetary & Financial Sector: - Weak central banks, regulation, and supervision. - Fiscal dominance, and recourse to monetary financing. - Shallow and underdeveloped financial markets, lacking financial infrastructures, and low financial intermediation; heavy reliance on informal institutions. - Low levels of domestic savings. - Limited savings beyond the banking sector due to lack of non-bank financial institutions. - External Sector: - Weaker and more volatile external positions and heightened vulnerability to external shocks. - Heavy dependence on remittances. - Official Development Assistance (ODA) dependence. - Lower foreign direct investment (FDI) than in non-FCS. - Uneven distribution of remittances, FDI, and ODA across FCS. - Especially in active or post-conflict FCS: multiple currencies in circulation, foreign exchange restrictions and parallel exchange rates. ### Data and capacity constraints - Data quality challenges are most acute in FCS. World Bank Statistical Capacity Indicators show FCS scores are weakest in import and export price indices, national accounts, the consumer price index (CPI), and government finance statistics. - Over 70 percent of countries rated with serious shortcomings in statistics are FCS. - Frequent causes: staff capacity limitations, under-staffing, funding-related constraints for national statistical systems, source data problems, and poor information technology infrastructure. ### Rationale and modalities for enhanced IMF engagement - The Fund’s mandate includes helping members address threats to macroeconomic stability—including those stemming from fragility and conflict. - Macroeconomic and structural policies can help create conditions to enter or exit fragility but can also have unintended consequences if not accompanied by targeted support to vulnerable people (e.g., reducing rents or increasing prices may trigger social discontent). - Strong and accountable institutions implementing macro-fiscal and monetary policies can help prevent fragility and support sustainable post-crisis recovery. - IMF engagement is influenced by political, military, and security factors—often actors outside the Fund’s control—and progress is non-linear and prone to setbacks. - Addressing FCS challenges requires technical expertise and granular knowledge of local political economy dynamics. ### IMF activities, reach, and recent support to FCS - Surveillance: - Article IV consultations provide analysis and policy advice; most Article IV reports are published. - Article IV consultations are normally held every 12 months; a number of FCS are on a 24-month cycle. - Capacity development (CD): - Support for FCS accounted for nearly 30 percent of Fund CD spending over the last six years. - CD focuses on revenue administration, tax policy, core public financial management (PFM) systems, cash management, banking regulation, central bank strengthening, AML/CFT frameworks, and statistical capacity. - Africa, Asia Pacific, and the Western Hemisphere are the largest recipients of IMF CD support. - Lending: - Between January 2010 and December 2021, the IMF supported 28 FCS with 88 programs and financing totaling US$20 billion. - About 30 percent of approved financing requests for upper-credit tranche (UCT)-quality programs and more than 50 percent of emergency financing requests from LICs have come from FCS. - Most FCS engagements are supported by the Extended Credit Facility (ECF); repeated use is common. - FCS benefited from 18 disbursements under the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI). - There have been 23 Staff Monitored Programs (SMPs) for FCS seeking to build a track record toward a UCT-quality program. - Frequent use of emergency financing and SMPs reflects capacity constraints, weak policy implementation track records, and vulnerability to shocks. - IMF financing plays a catalytic role in helping FCS mobilize resources from other creditors and donors. ### IMF role in COVID-19 response and recent financial support - The IMF provided emergency financial support to 28 FCS members worth US$7.5 billion. - US$625 million in debt service relief assistance was provided from the Catastrophe Containment and Relief Trust (CCRT). - 24 eligible FCS requested to participate in the G20 Debt Service Suspension Initiative (DSSI). - A request for an IMF-supported program (or a pre-existing IMF-supported program) is a requirement to benefit from a debt treatment under the G20 Common Framework beyond the DSSI. - FCS benefited from US$16.2 billion from the recent general SDR allocation; this allocation initially boosts foreign exchange reserves and supports external stability and confidence. - Fund staff have conducted over 1,000 remote CD engagements with FCS since the onset of the COVID-19 pandemic. *IMF Strategy for Fragile and Conflict-Affected States (chapter content).* ### 17. Despite progress to date, more can be done to further strengthen the Fund’s FCS ### 17. Despite progress to date, more can be done to further strengthen the Fund’s FCS ### Persistent challenges in IMF engagement with FCS - Independent Evaluation Office (IEO) and prior analyses identified ongoing challenges in engaging with FCS, including: - Need for greater country specificity and realism in IMF policy advice, with due consideration to FCS conditions and greater tailoring of conditionality to political, governance, and social contexts. - Responding to growing capacity building needs of FCS and tailoring CD delivery to absorption capacity, including providing sustained in-country follow-up to build institutions and human capital. - Enhancing adequacy of existing financing instruments and fine-tuning them to FCS characteristics. - Improving strategic partnerships, especially with organizations having a more extensive local footprint in FCS. - Strengthening support to staff and attracting talent to work on FCS. - Finding pragmatic ways to increase field presence, with due consideration for security risk management. - Observed shortcoming: long-term, patient modalities of engagement did not fit well with the IMF’s standard operations. ### Actions taken to date - Piloted Country Engagement Strategies (CES) in six FCS: Afghanistan, Haiti, Djibouti, Central African Republic, Democratic Republic of Congo and Madagascar, to better anchor Fund engagement in political, social, governance, and institutional conditions. - Modifications since the 2018-2019 facilities review for LICs: - Nearly doubled access limits under the Poverty Reduction and Growth Trust (PRGT) since 2018. - Endorsed use of flexibility under the Extended Credit Facility (ECF) to enable FCS to focus on near-term objectives. - 2018 review of the IMF’s Capacity Development Strategy included an FCS focus. - Human resources reform initiated in 2020 to attract more staff to work on FCS. - 2021: membership backed efforts to create a new Resilience and Sustainability Trust (RST) to support countries dealing with long-term structural challenges such as climate change; intended to benefit vulnerable low and middle-income FCS with an on track UCT-quality program, including small states. ### Need for further efforts and tailoring - The constrained policy space in FCS requires better tailored approaches across policy design, reporting requirements, and internal processes. - IMF Executive Board noted scope for better tailoring and streamlining program objectives and structural conditions for FCS given economic circumstances and capacity constraints. - Key cross-cutting policy objectives typically important across many FCS where institutional capacity for macroeconomic policy functions is lacking: - Fiscal policy: - (i) Defining an appropriate fiscal framework; - (ii) Securing tax and customs revenues that can be administered easily; - (iii) Strengthening core PFM systems to meet basic spending needs efficiently; - (iv) Reinforcing transparency and accountability. - Efforts to tackle corruption simultaneously with revenue and expenditure reforms are essential; strategies need to balance wage and security-related expenditures with social and growth-enhancing spending. - Exchange rate and monetary policies: - (i) Advising on the mix of policies to achieve stability under their exchange rate regime; - (ii) Policies to help achieve price stability given the close link between inflation and poverty. - Financial sector policy: - Developing capacity for supervising and regulating banking and relevant nonbank financial intermediaries (including for AML/CFT reasons) and providing basic banking and payments services. - Sustainable financial deepening and financial inclusion—facilitated by digital money and fintech—can lower costs, spur innovation, competition, and market integration. ### Distributional considerations and pace of reforms - Attention to distributional aspects of macroeconomic adjustments is especially important in FCS: - Program design and conditionality can protect social outcomes through minimum floors for social spending and measures to protect vulnerable groups. - Quantitative objectives should incorporate costs of essential cohesion-building initiatives addressing inequalities, including targets for poverty-reducing spending on health, education, and social protection. - Pace and timing of adjustment and structural reforms should be flexible and calibrated to political and social context: - Rapid reforms that upset delicate social and political equilibria may increase fragility. - In pivotal moments, short-term feasible objectives can show early success and build public support for reforms that advance peacebuilding, inclusion, governance, fiscal space creation, public service delivery, and employment generation. - When external support, technical assistance, and government ownership align, the Fund can encourage comprehensive structural reform agendas. ### Engagement modalities across the fragility and conflict spectrum - Fund engagement should account for different levels of country ownership, transparency, and accountability; assisting authorities with communication and outreach can strengthen ownership. - Depending on the stage of fragility/conflict: - When fragility and conflict risks are high: cooperation with partners strengthens forecasting of economic impacts and contributes to prevention; multilateral coordination on early warning analytics can be integrated into IMF core activities. - During active conflict: focus on maintaining core operational capacity of macroeconomic policy institutions; surveillance where feasible; CD if authorities can absorb advice; lending subject to adequate safeguards and policy requirements. - Recognition that Fund engagement will remain limited in some FCS, particularly where lending is precluded because of unsustainable debt or lack of international recognition/uncertainty regarding dealing or recognition. - Fragility and conflict can have macroeconomic spillovers to other members (e.g., forced displacement, regional security crises, climate risks); Fund can use convening power to build consensus to manage regional shocks and boost resilience. ### Principles of engagement under the proposed FCS Strategy - Three guiding principles: - (i) Building on the Fund’s comparative advantage: - Promoting macroeconomic stability and laying foundations for inclusive growth. - Building institutional capacity via CD in core IMF areas: tax policy and revenue administration, public financial management (PFM), monetary policy and central banking, financial supervision and regulation, financial stability and payment systems, anticorruption and preventing illicit financial flows, basic macroeconomic statistics and frameworks. - Providing financial assistance, when appropriate, to help meet BOP needs including fiscal financing gaps. - Catalyzing donor support; example noted: IMF response to the COVID crisis where multilateral and bilateral debt relief played an important role in ensuring liquidity provision for FCS. - (ii) Tailoring Fund engagement and instruments to macro-critical manifestations of fragility and conflict: - Members in similar circumstances should be treated similarly, but not all members treated identically; policy advice, CD delivery, and conditionality should reflect sound, objective analysis tailored to country circumstances. - FCS display a range of macro-critical fragilities from political, social, economic, and environmental factors; small FCS face specific challenges linked to remoteness, size, and heightened vulnerability to climate change and natural disasters. - (iii) Leveraging partners: - Development actors’ long-term engagement and sector expertise (health, education, social protection, mining, agriculture) are beneficial for tailored and sequenced Fund support. - Humanitarian actors (including civil society organizations) provide continuous field presence and local knowledge; Fund should assess FCS budget dependence on humanitarian aid in protracted-conflict contexts. - Peace and security actors are vital counterparts to identify pivotal moments, assess political economy dynamics, and analyze fiscal impact of security crises. ### Identification and classification of FCS - IMF internal FCS list comprises 42 economies. - IMF criteria for FCS classification: a CPIA score of less than 3.2 or the presence of a UN peacekeeping mission in the past three years. - World Bank’s public FCS list contains 39 countries in FY22 and uses a differentiated approach including: - CPIA score below 3.0 (out of a maximum of 6) or presence of a peacekeeping mission; - Indicators accounting for conflict-related deaths and flight of refugees across international borders. - Distinguishes two categories: - LICs and MICs suffering high levels of institutional and social fragility due to poor quality of economic management, structural policies, public sector institutions, and social inclusion policies (e.g., Lebanon or Sudan), or refugee flight across borders (e.g., Venezuela); challenges sometimes compounded by external shocks such as climate change and natural disasters (e.g., Solomon Islands, Timor-Leste). - Countries caught in conflict measured by number of conflict-related deaths per year: high-intensity (e.g., Yemen, Syria, Somalia) or medium-intensity (e.g., Burkina Faso, Mozambique). ### Key statistics and figures (as presented) - IMF internal FCS list: 42 economies. - World Bank FCS list: 39 countries in FY22. - IMF FCS classification CPIA threshold: less than 3.2. - World Bank CPIA threshold: below 3.0 out of a maximum of 6. - PRGT/IMF lending-related pie breakdown shown in source: FCS 28%, Non-FCS PRGT 31%, Other 41%. *Source: IMF — IMF Strategy for Fragile and Conflict-Affected States (excerpt).* ### 34. Moving forward, the Fund will adopt the methodology, thresholds, and criteria of the ### Moving forward, the Fund will adopt the methodology, thresholds, and criteria of the World Bank’s FCS list ### Adoption of World Bank methodology and FCS list purpose - The Fund will adopt the methodology, thresholds, and criteria of the World Bank’s FCS list as described in paragraph 33. - Rationale: - An updated, well-grounded FCS list will help tailor Fund engagement to the unique conditions in FCS by better capturing the nuances between fragility and conflict-related challenges. - Adopting the same methodology as the World Bank will facilitate a more effective international response and reduce the risk of inconsistencies between institutions with the same shareholders and complementary mandates. - The Fund will: - Maintain autonomy and ownership in application and publish its FCS list annually. - Retain autonomy to decide whether future methodological changes by the World Bank should be replicated by the IMF. - Limitations: - The list is not meant to be exhaustive; any methodology will have inescapable limitations. - Continued use of the CPIA to measure institutional and social fragility is consistent with core Fund objectives, since CPIA ranks the quality of economic management, structural policies, and public sector institutions. ### Uses and operational role of the FCS list - The list will function as a tool to guide IMF engagement in difficult and complex environments. - Specific uses: - Guide the tailoring of policy advice and CD to FCS, in line with the Strategy and its measures (such as rolling out Country Engagement Strategies), and consistent with the Fund’s surveillance policy. - Guide the prioritization of CD activities in FCS, with an explicit aim to increase their share in overall IMF provision of CD, subject to demand and absorption capacity. - Monitor the implementation of the new HR policy requiring two years of FCS or LIC experience for fungible economists seeking promotion, which becomes effective in July 2023. FCS classification will continue to be interpreted to avoid undue and disruptive staffing shifts in response to FCS status changes. - Monitor and report to the Board on the implementation progress of the Strategy. - Details on uses and operational implications will be elaborated in the forthcoming Staff Guidance Note on the Implementation of the FCS Strategy, including arrangements for transitions on and off the FCS list to minimize impact on Fund work and human resource allocations. - Note: The list of FCS will not determine qualification for Fund financing under Fund lending instruments; financing qualification is subject to specific criteria under Fund policies. ### Rolling out Country Engagement Strategies (CES): purpose and expected outputs - Purpose: - CES will provide an assessment of fragility and conflict drivers and serve as a high-level longer-term strategic anchor for Fund engagement with FCS. - CES will ensure decisions on program design and conditionality are informed by country-specific fragility and conflict contexts, institutional constraints, and political economy considerations. - CES will identify main risks to Fund engagement and guide prioritization and sequencing of structural reforms and CD activities. - Value from pilots: - Pilot CES have been valuable in tailoring modalities of engagement, strengthening integration of surveillance, CD, and lending, and improving program design and conditionality. - CES preparation requires time and effort, including engagement with country authorities, Functional Departments, and partners. - Outputs from CES preparation: - A full-fledged stand-alone CES: a confidential staff-level assessment covering the six key pillars; flexible in format and length; informed by Functional Departments and staff analytical work. - A CES summary: incorporated in the relevant Policy Note and Staff Report (Article IV or program document); requirement will be a 2-3 page-summary (though could be longer if the country team deems it necessary), referenced in the main text of the staff report. The Summary of the CES will be included in the relevant Article IV or program document. - Publication: The Summary of the CES will be published in the relevant Article IV or program document, except where Fund engagement has been limited and Article IV consultations are excessively delayed (e.g., active conflict), where there would be no expectation of publication. ### CES coverage: six key pillars (to varying degrees) - A candid assessment of fragility and conflict drivers covering political economy, social, economic, governance and corruption, climate, and security issues; discussion of how these factors shape macroeconomic outcomes; drawing on existing diagnostics and partner expertise (including World Bank RRAs). - An overview of possible constraints to reform implementation, including lessons from past IMF engagement; explicit discussion of governance vulnerabilities, corruption risks, and money laundering/terrorism financing risks. - An overview of policies and reforms, including prioritization and sequencing needed to improve resilience and promote inclusive economic growth; articulation of how policies factor in causes of fragility, institutional and capacity weaknesses, and governance concerns. - An outline of sequenced CD priorities needed to support surveillance and CD, given local absorption capacity and complementarities with development and other partners, and demand from authorities. - The scope for partnerships to (i) promote information sharing on issues that may affect macro-critical reforms and complementarities on CD; and (ii) advance understanding of fragility and conflict risks to tailor engagement and maximize Fund impact. - Identification of the main risks to Fund engagement (including for CD delivery and program success) stemming from fragility and conflict-related constraints in the near term (1–3 years) and the medium/long-term (3–5 years). - For High-Risk Locations (HRLs), CES will also draw on Country Engagement Plans (CEPs) which provide a security forecast for staff footprint planning purposes. ### CES preparation process and stakeholders - Development led by Area Department country teams through a broad consultative process. - Key consultations: - Sustained engagement with country authorities to build a shared understanding of medium-term reform priorities and how the Fund can add value. - Internal consultations with Functional Departments and Regional Capacity Development Centers (RCDCs) to promote shared understanding of engagement strategy, policy design, sequencing of CD, and partnerships with CD providers. - External consultations with partners (multilateral development banks, bilateral donors, humanitarian, peace, and security actors) and engagement with CSOs, private sector, members of parliament, and other civil society actors. - The World Bank’s Risk and Resilience Assessments (RRAs) are noted as highly useful inputs. ### Timing, roll-out targets, and monitoring indicators - Timing: - CES for about half of FCS will be completed within 18 months of issuance of the Staff Guidance Note on the Implementation of the FCS Strategy. Thereafter, CES will be updated at least once every three years, with more frequent updates as warranted. - Within that timeframe, country teams can time CES developments to add value (e.g., before Article IV consultation, initiation of new program discussions, conclusion of an existing program, or a political/structural “pivotal moment”). - Monitoring indicators and milestones: - The Staff Guidance Note on the Implementation of the FCS Strategy will be prepared—by October 2022. - The number of countries that have implemented a CES: It is expected that a half of FCS (about 20 countries in total) will have completed a CES within 18 months of issuance of the updated Staff Guidance Note—by April 2024. - A survey of FCS Mission Chiefs to take stock of initial lessons learned on CES—by October 2024. - Including the CES undertaken at the pilot phase, the Fund would roll out about 16 new CES. ### Strengthening IMF core functions in FCS: Surveillance and analytics - Article IV consultations (bilateral surveillance): - Article IVs for FCS will be well-tailored to specific circumstances while observing minimum obligations and requirements of surveillance. - A key pillar: analysis of how fragility and conflict drivers—as reflected in the CES summary included in the Staff Report—affect macroeconomic stability and growth prospects, informing granular advice on reform implementation amid capacity constraints and integration of policy advice with CD. - Application of standard tools and frameworks should reflect limited data availability. - Social factors and institutional robustness should feature more prominently in analysis and policy advice. CES will contain the Fund’s assessment of relevant fragility and conflict drivers, factoring in analysis of poverty, inequality, gender issues, internal displacement, elite capture and rent-seeking behavior, security sector spending, and related issues where macro-critical. - Surveillance will strengthen focus on governance issues, with in-depth analysis on corruption and governance as needed, drawing on the Fund’s governance diagnostics. - Enhanced FCS engagement will leverage the Fund’s climate change workstream: - Under the Climate Change Strategy, the Fund plans to increase coverage of climate adaptation and resilience building, alongside transition management and mitigation in Article IV consultations. - Climate adaptation and resilience building are likely to be macro-critical in over half the FCS. - Synergies will be explored in FSAPs, FSSRs, and climate-related CD. ### Flagship reports and FCS coverage - Issues related to FCS have been featured occasionally in flagship analytical themes: - The WEO has provided references to FCS-specific concerns related to conflict, growth and migration, education losses and social unrest during COVID-19, or impacts from natural disasters. - The Fiscal Monitor includes discussion of safety nets in LICs, noting that solutions to the COVID-19 crisis had to be adapted to country realities given spending needs in healthcare, education and infrastructure. - The Fiscal Monitor argued that LICs needed to deliver more with less by reprioritizing spending and enhancing efficiency, while also needing further official financial support and debt relief. *IMF Strategy for Fragile and Conflict-Affected States — excerpt (pp. 22–27).* ### 51. Going forward, FCS issues will be covered more regularly in our multilateral ### ppea2022004 - 51. Going forward, FCS issues will be covered more regularly in our multilateral ### Analytics - FCS perspectives and relevant topics will be addressed in the Fund’s multilateral surveillance products, including the WEO and the Fiscal Monitor (FM) where possible, and included in the Global Financial Stability Report (GFSR), where relevant. - The Fund’s analytical products cover a range of FCS and topics relevant for FCS, despite limited data availability. - The Fund has provided many databases, toolkits, and model-based frameworks that include FCS or have been applied to FCS. - Analyses cover areas including: - economic diversification and trade; - food security; - nowcasting; - economic uncertainty; - debt-investment-growth nexus; - climate change and natural disasters; - structural reforms and monetary policy frameworks. - Under the FCS Strategy, FCS will be increasingly covered in ongoing analytical work and the Fund’s research agenda will grow on topics relevant to FCS, including impacts of the COVID-19 pandemic, effects of climate change and natural disasters, fragility, forced displacement, food insecurity, and regional security crises. - Data adequacy assessment depends on coverage, accuracy and reliability, periodicity, and timeliness; these factors are often undermined by social, political, or economic instability, low data collection capacities, and conflict disruptions. - The Fund will explore innovative methods to address data shortcomings in FCS, including remote sensing and other Big Data sources to produce nowcasts of quarterly real GDP growth and other high-frequency indicators for countries where such economic statistics are not published or provided to the Fund, including many FCS. - Efforts to increase implementation of the IMF’s Data Dissemination Initiatives in FCS will promote data transparency and accountability of government policies. ### Capacity Development (CD) — current situation and constraints - CD is a centerpiece of the Fund’s FCS engagement, with program design and policy advice closely linked to institutional capacity. - CD provision to FCS has increased markedly over the last decade, reflecting large needs and Fund CD priorities. - Constraints to CD delivery in FCS include: - varying levels of political ownership; - limited absorption capacity; - financing and personnel rigidities, including difficulties in attracting qualified staff to work on FCS; - higher security risks. - FCS express strong interest in Fund CD support, with core demand in tax policy, revenue administration, public financial management, central banking, banking regulation and supervision, AML/CFT, and statistics, and expanding demand into areas such as financial technologies, cybersecurity, central bank digital currencies, and mechanisms to prevent and sanction corruption. ### CD Scale-up under the FCS Strategy — objectives and elements - Objective: ensure Fund CD is readily available, responds to local circumstances and absorptive capacity, and can adjust swiftly to changes. - CD scale-up will build on lessons from the 2018 IEO Report on The IMF and Fragile States and the 2018 Capacity Development Strategy Review. - The CD scale-up comprises three interlinked elements: - (i) fostering close integration with surveillance and lending; - (ii) enhancing mode of delivery in FCS by increasing field presence; - (iii) ensuring CD assistance is better tailored to FCS conditions. ### Integrating CD with Surveillance and Lending - CD strategies will: - capture the CES diagnosis of macro-critical drivers of fragility; - embed it in overall macroeconomic policy priorities; - place it in the context of development partners’ activities; - adapt it to local capacity constraints. - Example: Haiti pilot CES identified gaps in tracking use of public expenditure, leading to more CD resources focused on that area. - Increased number of local economists and coverage by Resident Representatives will reinforce integration. - Example: In the Central African Republic, the Resident Representative and Fund CD staff hold monthly meetings with other CD providers to avoid duplication and maximize synergies. - Operational Guidelines for Integrating Capacity Development with Surveillance and Lending issued in April 2021 will complement these measures. ### Enhancing the Mode of Delivery of CD in FCS - The Fund will step up field presence with some HQ support. - A total increase of 30 additional experts—out of which at least 20 will be placed as long-term experts (LTX) in Regional Capacity Development Centers (RCDCs)—will help address growing CD needs in FCS. - RCDCs are critical to CD delivery in FCS and are home to LTX specialists; facilitating CD through RCDCs allows flexibility and rapid reprioritization. - Allocation of additional long-term experts to RCDCs will focus on those with low advisor to FCS ratio and strong demand in identified CD areas. - Securing donor support to add 20 long-term experts will allow for a 40 percent increase in delivery capacity in relevant RCDCs covering FCS. - An RCDC advisor typically makes 10-12 country visits each year and provides ongoing remote support, tailored training, and workshop events. - When RCDC support is insufficient, in-country resident advisors will be deployed conditional on strong country ownership and adequate absorption capacity. - In-country experts will broadly be doubled to 21 from the Fund’s current level of 11. - More HQ support (backstopping by Functional Department experts) will be built over time to ensure high-quality CD leveraging links to overall reform strategies. - CD delivery will be demand-driven and managed through the Fund-wide CD prioritization framework (CDMAP), guided by regional strategy notes; Area Departments place the highest weight on FCS (along with program countries) when prioritizing CD work planning. - CD delivery will be flexible to adjust to rapidly evolving conditions in FCS consistent with demand and absorptive capacity and support by other development partners. - Lessons from the pandemic will be used to provide CD flexibly, including through hybrid delivery modes or a mix of remote and field missions to account for connectivity challenges. ### Tailoring CD Support to FCS Conditions - The Fund’s CD tailored approach follows three integrated steps: - (i) aim for CD results commonly associated with the level of capacity in a FCS (e.g., focusing deliverables on basic needs in the most challenging stages); - (ii) add country-specific granularity by leveraging field presence, calibrate to FCS context including authorities' readiness to engage, reflect tailoring in realistic results-based management (RBM) milestones and indicators; - (iii) maintain flexibility to adjust CD work planning and delivery to rapidly evolving conditions. - The increase in CD capacity will help ensure FCS have access to responsive and tailored support in all core areas of Fund expertise, following a graduated approach from basic functions to more sophisticated reforms as absorptive capacity increases. - Core CD focus areas and objectives: - Domestic revenue mobilization: modernize tax systems, customs administrations, enhance revenue mobilization (revenue administration, taxpayer registration, reducing tax evasion, strengthening customs controls, tax policy and legislation); as capacity grows, include medium-term revenue strategies and broader diagnostic work. - Public Financial Management (PFM): establish core functions (annual budget, basic payment systems), then modernize institutions (oversight of state-owned enterprises, strengthened accountability and control frameworks); integrate tax policy–revenue–administration–PFM support for coherent implementation. - Anticorruption and Rule of Law: establish reform priorities, strengthen legal and organizational frameworks for anticorruption, enhance transparency (including asset declarations), foster collaboration between audit institutions and anticorruption bodies, and address governance constraints in enforcement of contracts and property rights. - Debt Management: focus on fundamentals (create principal debt management entity, strengthen role in decision making, enact legislation, develop capacity in debt sustainability analysis, improve basic policies and procedures including debt transparency); later develop domestic debt markets and medium-term debt management strategies. - Central Bank Operations: strengthen monetary policy and operations framework, establish foreign exchange markets, set up central bank governance; as capacity increases, develop tools towards price stability and financial stability (e.g., Emergency Liquidity Assistance framework, deepen liquidity management operations). - Bank Supervision: establish regulatory and supervisory frameworks proportionate to risks and complexity (basic prudential rules, reporting, formalize supervisory function); over the medium-term, align regulations with international standards or move from compliance to risk-based supervision. - AML/CFT and financial integrity: enhance legal and institutional frameworks and effectiveness of AML/CFT systems to focus on key proceeds of crimes (corruption, tax evasion, environmental crimes) and terrorism financing. - Macroeconomic Statistics: identify source data or surveys and re-establish basic data collection and reporting systems in cooperation with PFM and monetary authorities; as capacities evolve, enhance data quality, timelines, and reporting frameworks. - Macroeconomic Frameworks: assist authorities in building robust macroeconomic frameworks and strengthen forecasting and policy analysis; as capacity grows, adapt frameworks to integrate more sophisticated tools for deeper forecasting and policy analysis. ### Partnerships and measurement of progress - Partnerships will be leveraged to maximize the impact of increased field presence through closer upfront coordination of CD efforts across partners, securing donor support for Fund-provided CD, and expanding partnerships with leading experts. - Resident Representatives in FCS will play a stronger role in leveraging partnerships for effective CD provision and avoiding duplication and overburdening authorities. - Progress on the Fund’s CD scale-up in FCS will be measured through indicators that track: - (i) CD delivery, both aggregate and by core workstreams; - (ii) field presence, by modality; - (iii) progress towards targeted results; - (iv) advancements in CD, surveillance, and lending integration. - Proposed indicators: - Improved effectiveness and ratings of sustainability of Fund CD in FCS, as measured by relevant RCDC evaluations from a present baseline of 2.5 (moderate). - The year-to-year aggregate increase in CD delivery over the FCS Strategy implementation period (FY22-FY25) from the current baseline of US$48.2 million, in response to country demand. - The increase in the number of long-term experts in relevant RCDCs and in-country resident advisors to an equivalent of 2 per FCS from the present baseline of 1.5 (METAC, key AFRITACs, PFTAC). - RCDCs to highlight increased FCS coverage in work programs and annual reports. - The increase in the number of FCS with clearly articulated CD priorities in CES throughout the Strategy implementation period (presently, this is the situation in just 4 FCS). ### Lending toolkit, program design, and conditionality - The FCS Strategy proposes measures to make full use of existing flexibility in the Fund’s financing toolkit and better adapt Fund financial engagement to specific country circumstances. - The 2018 IEO report identified gaps in the Fund’s lending framework for FCS, noting a mismatch between emergency financing instruments (with limited conditions) and longer-term support (UCT-quality programs) with more stringent conditionality, and that conditionality appeared to differ little between FCS and other countries. - Since the 2018 IEO report, the Fund adopted reforms to LIC facilities benefiting PRGT-eligible FCS: - The 2018-19 Review of Facilities for Low Income Countries increased access limits under the PRGT, extended the initial maximum duration of Extended Credit Facility (ECF) arrangements, and approved proposals to make LIC facilities more responsive to FCS through targeted increases in access under emergency financing. - Directors supported the use of existing flexibility under the ECF. - In July 2021, the Executive Board approved policy reforms and a funding package to better support LICs responding to the COVID-19 pandemic. Reforms included: - (i) raising the normal annual/cumulative limits on concessional lending under the PRGT; - (ii) eliminating the hard limits on exceptional access to PRGT resources for the poorest LICs; - (iii) simplifying the framework for blending concessional and non-concessional resources; - (iv) strengthening safeguards to address risks to debt sustainability and capacity to repay the Fund. *IMF Strategy for Fragile and Conflict-Affected States — excerpt provided in content unit ppea2022004 - 51.* ### 75. As shown above, FCS are a heterogenous group. They require an agile lending toolkit and ### ppea2022004 - 75. As shown above, FCS are a heterogenous group. They require an agile lending toolkit and ### Overview - Fragile and conflict-affected states (FCS) are a heterogenous group requiring an agile lending toolkit and better tailored program design and conditionality to address the full spectrum of macro-critical fragilities. - Since most PRGT-eligible FCS face protracted BOP problems, the current 3-5 year ECF arrangement should remain the standard instrument for financial engagement for fragile LICs that have the capacity to implement UCT-quality programs. - Experience shows Fund-supported programs for FCS displayed lower success rates than for other members largely due to political shocks, underscoring both the risk of financial engagement and the need for appropriate tailoring of program design. - Normal cumulative access limits under the PRGT have been increased from 225 per cent of quota prior to the 2018/19 LIC Facilities Review to 435 per cent of quota at present. ### Lending toolkit and engagement modalities - Principal mode: medium-term UCT-quality programs for FCS that can implement them. - Alternative modalities for engagement over sustained periods, depending on circumstances and informed by the CES, include: - SMPs (Staff Monitored Programs) - Emergency assistance (e.g., RCF and RFI) - Repeated use of emergency financing where applicable policies are met - Longer-term structural support potential: Resilience and Sustainability Trust (RST). ### Program design and tailored conditionality - Staff will make full use of existing flexibility to improve program design for FCS able to implement UCT-quality programs, including through more realistic macroeconomic frameworks. - Conditionality principles: - Streamline and tailor conditionality to the unique circumstances of each member, including fragility and conflict context. - Ensure programs remain appropriately ambitious to preserve or restore macroeconomic stability and external viability. - Focus programs on addressing underlying structural challenges to help members exit fragility. - Key actions to strengthen program design: - Reinforce parsimony by focusing on a set of key priorities and targets that are macro-critical, fragility-sensitive, and within current implementation capacity. - Build on concrete examples and lessons learned to better adapt program focus and targets to evolving country circumstances. - Use Floating Tranches to give authorities greater flexibility in timing selected structural reforms where appropriate. ### Realistic macroeconomic frameworks and post-program financing gaps (PPFGs) - A realistic macroeconomic framework should: - Reflect the structure of the economy (e.g., lack of diversification). - Internalize implementation capacity constraints and the risk of reform reversal. - Avoid overly optimistic assumptions that BOP problems will be resolved within the program period where not feasible. - Present alternative policies for possible shocks and monitor unintended consequences. - PPFGs: - Explicit recognition of PPFGs could strengthen realism in Fund engagement, accompanied by safeguards. - Program documents should include detailed discussion on availability of financing sources other than the Fund. - Presence of PPFGs and uncertainty on how they would be filled should be taken into account in Capacity to Repay (CtR) and debt sustainability analyses (DSAs). - Important to identify risks to medium-term viability with PPFGs using sensitivity analysis, provide early warnings on risks to the Fund’s balance sheets, and assess robustness of CtR and debt sustainability. ### Conditionality guidance and implementation - The new Staff Guidance Note on the Implementation of the FCS Strategy will provide concrete operational advice to Staff to ensure better tailored program design and streamlined conditionality for Fund-supported programs for FCS. - Updated staff guidance will be grounded on core IMF program engagement principles and will be consistent with the 2002 Board-endorsed Guidelines on Conditionality, build on findings of the 2018 IEO Report and 2018 Review of Conditionality, and incorporate the 2018 Framework for Enhanced Engagement on Governance. ### Combined use of SMPs and emergency financing - SMPs are the main tool to build a track record toward a UCT-quality program, though past transition rates have been limited. - For FCS facing urgent BOP needs where a UCT-quality program is not feasible, the concurrent use of SMPs and emergency financing (RCF/RFI) could help address BOP needs while moving toward a UCT-quality program. - Staff will develop operational guidance on concurrent use of SMPs and RCF/RFI, including repeated disbursements/purchases if applicable policies are met, and may propose targeted adjustments to the RCF framework. ### Longer maturities and the Resilience and Sustainability Trust (RST) - FCS could benefit from more favorable financial terms, including longer maturities of lending. - Financial assistance under the envisaged RST could help “top-up” an on-track UCT-quality program to support eligible countries in coping with longer-term challenges to transform economies for resilience and sustainable, inclusive growth. - The RST would help address macro-critical structural challenges with significant macroeconomic risks to long-term resilience and sustainability, such as climate change and pandemic preparedness. - Most of the 35 countries considered vulnerable to climate change are FCS. - Eligible countries for RST would include all LICs, developing and vulnerable small states, and MICs which meet RST eligibility criteria. - Longer maturities of RST financing would temporarily alleviate repayment pressures on FCS and better align repayment schedules with longer-term financing needs associated with structural issues. ### Catalytic effect of IMF engagement - The IMF’s financial and non-financial engagement can catalyze more concessional funding for FCS by: - Supporting reforms and institutional change. - Promoting sustainable policies and building core institutions for macroeconomic stability. - Helping authorities build a track record of policy implementation. - Strengthened programs can generate positive spillovers and help countries attract higher levels of donor support, including grants and concessional loans. - Staff will update the guidance note on SMPs in 2022 to clarify the role of this instrument for FCS and other members seeking to build a track record. ### Enhancing partnerships - Enhanced cooperation with development, humanitarian, peace, and security actors is a key principle of the FCS Strategy. - The Fund will: - Systematize partnerships based on contributions to the IMF’s mission and partner expertise. - Expand its range of partners to include humanitarian organizations, CSOs, think tanks, the private sector, and subnational authorities. - Maintain flexible and dynamic collaboration modalities adapted to specific FCS circumstances, ensuring reciprocity and regular two-way information sharing. - Strengthen partnerships across IMF core activities (Article IV consultations, program design, CD, CES). - In constrained contexts (limited field presence, conflict intensity, uncertain government recognition), partners can help verify progress and share on-the-ground information (e.g., UN Resident Coordinators, UN Common Country Analysis, WFP, OCHA). - Thematically, the Fund will seek enhanced cooperation on: - Climate change: leverage cooperation with partners (e.g., World Bank, UN, OECD, International Energy Agency, bilateral agencies) and rely on development partner analysis to assess natural disaster impacts. - Food security: draw on partners such as WFP and FAO to leverage fiscal and macroeconomic adjustments in addressing food insecurity and recovering production capacity. - Peace and security: cooperate with World Bank and UN on security sector PERs and conflict-sensitive macroeconomic frameworks; engage with UN Peacebuilding Support Office during peace transitions. - Forced displacement: engage with UNHCR and World Bank to leverage analytics on macroeconomic impacts of refugee and IDP movements. - Gender and inclusion: align CES with strategic workstreams on gender and FCS and build on analyses from UN Women and World Bank. *IMF Strategy for Fragile and Conflict-Affected States (selected excerpts).* ### 96. Given their closely connected mandates, the IMF and the World Bank share natural ### ppea2022004 - 96. Given their closely connected mandates, the IMF and the World Bank share natural ### Complementarity Between IMF and World Bank in FCS - The Fund works to "foster global monetary cooperation, secure financial stability, facilitate international trade, build capacity, promote high employment and sustainable economic growth." - The Bank "provides financing, technical assistance, and analytics to support long-term economic development to end extreme poverty and build shared prosperity" and "works on fostering private sector investment and development." - The Fund’s proposed FCS Strategy and the Bank’s Strategy for Fragility, Conflict, and Violence 2020-2025 are expected to "further strengthen these complementarities." - Common principles shared by the Fund and Bank strategies include: - "(i) tailoring engagement to the specific manifestations of fragility and conflict; (ii) building institutions and systems that can deliver on inclusive growth; and (iii) strengthening dialogue with country authorities and partners." - "The remit of the Fund’s proposed FCS Strategy will focus solely on issues that are pertinent to its mandate and comparative advantage, complementing the World Bank’s efforts." ### Ways the Institutions Inform Each Other - The IMF’s engagement in FCS can benefit from Bank expertise to "inform the conditionality of Fund-supported programs." - World Bank expertise on structural reforms is highlighted as especially important for social safety nets, subsidies, labor markets, public procurement, and distributional analysis. - The Bank has developed expertise on macro-critical issues including "the impact of climate change; inclusion and gender; private sector development and jobs; forced displacement; PERs; and public sector governance." - The Bank can share Risk and Resilience Assessments (RRAs) and other analytics to inform IMF Country Economic Studies (CES). - The Fund provides "assessments of macroeconomic frameworks, debt issues, and financial stability" that can serve as inputs to Bank operations. ### Core Areas for Strengthened Collaboration in FCS - Relying on common methodology, thresholds, and criteria for FCS classification: - "Fund and Bank staff will exchange information regularly on the evolution of global fragility and conflict trends, including as part of the annual update of the FCS list." - "While the methodology, thresholds, and criteria for classifying FCS will be the same, each institution will apply the classification and its uses in line with their mandates and strategies." - Sharing information and analytics more systematically: - A Guidance Note on Information Sharing between IMF and World Bank Staff is being developed summarizing best practices in information and document sharing, including in the context of missions. - Expected Bank analytics to be shared include: Risk and Resilience Assessments (RRAs); Systematic Country Diagnostic (SCD); poverty and social impact analysis; PERs; Public Expenditure and Financial Accountability (PEFA) analyses; Country Economic Memorandums; Country Private Sector Diagnostics (CPSD); thematic diagnostics on climate change, inequality, forced displacement, governance and anti-corruption, statistical capacity, financial sector stability, AML/CFT, and other macro-critical issues. - Enhanced coordination at the country-level: - The Fund will "strengthen operational dialogue with the Bank in FCS," leveraging core diagnostics, collaborating on economic policy reforms, and consulting on CES consistent with the Guidance Note. - Coordination will build on lessons from joint support such as Somalia and Sudan through HIPC, and pandemic-related joint initiatives like the DSSI and Common Framework. - Collaboration on debt issues will continue, including use of the joint Bank-Fund LICs Debt Sustainability Framework (DSF) and the Multi-Pronged Approach to Address Debt Vulnerabilities. ### Organizational Implications — Overview of Resource and Staffing Proposals - The Strategy proposes increasing the cohort of IMF staff dedicated to FCS by "12 percent" to fund a notional steady-state level of "212 full-time equivalent (FTE) positions." - Proposes increasing field-based contractual employees and local economists from "70 to 140 positions." - "About four fifths of the additional dollar resources will be targeted towards an affordable increase of IMF presence in the field, and a significant push to scale-up CD provision." - The Strategy will be phased in starting in "FY22," with implementation gradually accelerating between "FY23-FY25." - Progress will be monitored through specific indicators, with Staff updating the Board annually. - A modest increase at HQ will complement field growth; the Fund will implement a new career development framework and establish a new FCS learning curriculum for staff. ### A. Engagement Model and Resources — Key Measures and Allocations - Enhanced support to country authorities aims to: "(i) sustain inclusive growth; (ii) progressively build strong and well-governed institutions; and (iii) sequence reforms in line with the capacity to implement change." - Resource build-up over "FY23-25" with "80 percent" of the resource build-up going towards strengthened field presence of Area Departments and for CD delivery; a modest resource increase will support HQ operations. - Decisions on deployment across regions and countries will be taken in departments’ annual budget discussions based on priorities. Key staffing and resource figures: - Steady-state notional FTEs: "212" (up from current "189"). - Cohort of field-based employees: increase from "70 to 140 positions" — "40" of which will be local economists. - Opening "four additional Resident Representative posts" increasing total from "22 to 26 (out of 42 current FCS)." - The existing cohort of local economists would more than double to an average of "almost 2 per country." - CD deployment: up to "30 CD experts" serving as long-term experts in RCDCs and resident advisors; one-third of these, together with "2 out of 6 backstopping resources at HQ," will be financed by the Fund’s own resources. - CD scale-up increases long-term experts (LTX) and resident advisors in FCS from "42 to 72." - HQ staffing additions: "10 FTEs" allocated to country teams in Area Departments; "2 new positions" to strengthen policy and analytical support; "One additional economist position in ICD" to support FCS training curriculum. - Steady-state envelope to RCDC administrative expenses: "US$3.0 million per annum." Implementation flexibility: - Recruitment for field-based positions and HQ-based country teams initiated in parallel through the Economist Program and the mid-career pipeline. - Phased implementation and option of alternative locations for staffing in the field to manage security risks. ### B. Human Resources and Support for Staff — Challenges and Reforms - FCS work poses staff challenges including: - "(i) work with countries that are more vulnerable to political, social, and economic instability; (ii) help members with limited capacity address a more complex range of macroeconomic challenges; (iii) develop policy advice despite limited data availability and quality; and (iv) support reforms within a constrained policy space that impedes rapid progress and requires more experience." - The 2018 IEO report found FCS teams "tended to lack experience and were subject to high turnover," with "performance ratings ... generally lower and promotion prospects were fewer than for staff assigned to non-FCS." - Despite improvements, FCS teams still rely more on new hires from the mid-career pipeline and Economist Program, resulting in "overall lower levels of IMF-specific country experience." - Strategy measures to address HR issues: - Adopted a new HR policy in 2020 requiring FCS or LIC work as a criterion for promotion to "A15 positions starting in 2023." Fungible macroeconomists must demonstrate "two years (or equivalent) of operational experience on FCS or LICs" to be eligible for promotion to A15; requirement effective in "July 2023." - Guidance developed to specify qualifying experiences; "Metrics will be established to assess results two years after implementation." - Candidates from the Mid-Career Pipeline and the Economist Program will backfill vacancies as experienced economists move to LIC and FCS roles. - The Mid-Career Program can be used to accelerate hiring; additional initiatives to accelerate mid-career hiring are being explored. - Development of a fully-fledged FCS learning curriculum in "FY23" targeting staff working in or on FCS, focusing on: - "(i) diagnosis of fragility and conflict drivers as part of the CES rollout; (ii) tailoring policy advice, lending facilities, and conditionality to the specific manifestations of fragility and conflict; (iii) integrating CD support into Fund surveillance and lending programs and adapting delivery to FCS conditions; and (iv) designing partnerships, especially scaling up collaboration with the World Bank." _Italic: Excerpt from IMF Strategy for Fragile and Conflict-Affected States (content unit provided)._ ### 111. Third, departments will strengthen accountability for adequately recognizing staff ### Third, departments will strengthen accountability for adequately recognizing staff ### Recognition, visibility, and incentives for FCS work - Departments will publish annually aggregated metrics related to staff ratings and promotions for FCS versus non-FCS—starting in FY24. - Metrics will be part of broader efforts to increase transparency around the annual performance management exercise and will be used to monitor implementation efforts and to help assess the promotions policy two years after it has been implemented. - Metrics will be designed and utilized for the FY23 performance cycle, to account for, inter alia, the policy effective date of July 2023. - A Fund-wide special recognition scheme will be explored to highlight contributions to key organizational priorities, including outstanding work on FCS, acknowledging the more difficult work environment for economists on FCS. - Recognition could target individuals and teams for exceptional contributions, collaborative behaviors, knowledge sharing, and innovative thinking that have helped achieve significant milestones for high impact initiatives or projects in FCS. - Recognition options to be explored include financial (e.g., one-time, non-pensionable payments) and/or non-financial awards (e.g., management recognition ceremonies). - Ongoing and new IMF-wide and departmental initiatives to increase visibility of staff working on FCS include: - Activating a new FCS Community of Practice as a platform for regular exchanges of best practices and lessons learned, seminars on links between fragility, conflict, and macro-structural reforms, just-in-time advice, and sharing institutional best practices that successfully incentivized FCS work. - Highlighting analytical work: Staff’s FCS analyses will be included in core IMF products (e.g., flagship reports, regional economic outlooks) showcased through increased internal and external communication; staff will be encouraged and supported to present regularly (e.g., in a joint IMF-WB seminar series). - Fund communications will emphasize the importance and benefits of FCS assignments for staff development, including acquisition of experience working on IMF-supported programs, knowledge of Fund procedures, program negotiation skills, exposure to the work of CD departments, coordination with the World Bank, and potential for large impact when programs are successful. ### Monitoring indicators and deadlines (selected) - A new promotions policy to attract experienced fungible macroeconomist staff to work on FCS and LICs—effective in July 2023. - An FCS learning curriculum to support the implementation of the Strategy—due in FY23. - Activation of an FCS Community of Practice—due in FY23. - Increased transparency on ratings and promotion decisions at an aggregate level for FCS vs non-FCS staff—due in FY24. Selected items from Table 4 (FCS Strategy Key Progress Indicators) - Staff Guidance Note on the Implementation of the FCS Strategy to update and supersede the 2012 Staff Guidance Note—October 2022. - Adopting World Bank FCS methodology, thresholds, and criteria while retaining IMF autonomy—October 2022; transitional arrangements—FY23-FY25. - One half of FCS will have completed a CES within 18 months of issuance of the new Staff Guidance Note on FCS—April 2024. - Article IV reports in FCS systematically address macro-critical fragility and conflict issues—FY22-FY25. - FCS topics featured in flagship reports and regional economic outlooks—FY22-FY25. - Improved effectiveness and ratings of sustainability of Fund CD in FCS measured by relevant RCDC evaluations from the present baseline of 2.5 (moderate)—FY23-onwards. - Year-to-year aggregate increase in CD delivery from the baseline of US$48.2 million—FY23-onwards. - Increase in number of long-term experts to equivalent of 2 per FCS from present baseline of 1.5 in relevant RTACs—FY22-FY25. - Tailored program design and conditionality incorporated into the revised Staff Guidance Note—October 2022. - Increased concurrent use SMPs and repeated RCF/RFI—FY23-onwards. - Enhanced collaboration with the World Bank on key topics—FY23-FY25. - Hiring 40 additional local economists to strengthen FCS country offices—FY22-FY25. - Deploying 4 additional Resident Representatives to FCS, thereby increasing Fund coverage to 64 percent—FY23. - Deploying 30 additional experts in RCDCs and in-country to enhance CD delivery in FCS—FY22-FY25. - Strengthening HQ support with 10 additional staff for Area Departments, 2 additional staff for non-CD providing Functional Departments, and 1 additional staff to develop the learning curriculum—FY23. - Implementation of A15 Promotions Framework and establishing assessment metrics—July 2023-FY25. - FCS Community of Practice activated—FY23. - FCS Learning Curriculum developed—FY23. ### Security and field support for staff - The Fund prioritizes safety, security, and well-being of personnel and will provide effective support within the existing risk mitigation structure. - Policy and guidance: The Security and Business Continuity Accountability Framework (SAF) guides decision-making on field presence and modalities for security support; for FCS that are Medium to High-Risk Locations (levels 2 and 3) a Country Engagement Plan (CEP) is required, informed by up-to-date country security assessments. - In-country support: - Local Security Coordinators will be recruited to be present in every FCS duty station. - Visiting missions can be supported by Mission Security Consultants as needed. - Emergency Action Plans and the Crisis Management Plan are supported by a HQ-based 24/7 Global Security Operations Center. - Funding for additional local security coordinators would be accommodated within the overhead allocation of the augmentation framework. - If security risks exceed IMF risk tolerance, the Fund will explore options to place staff in neighboring countries. - The forthcoming Staff Guidance Note on Implementation of the FCS Strategy will emphasize integrated and timely coordination across departments for planning and staff deployment. - Cooperation with partners in the field: - As a UN Security Management System member, the Fund can leverage UN security support (local emergency response, building security standards, inspections, logistical support including evacuation transportation, and medical assistance). - An informal agreement with the World Bank allows for mutual support subject to case-by-case assessment and resource availability. - The Fund will explore co-location opportunities with other institutions’ country offices where beneficial and appropriate. - Security training: - Required security training for HQ-based and internationally recruited FCS personnel will be increased from one course to a minimum standard of four courses before taking up their posts. - The four courses include: (i) the HRL online training course; (ii) the Safe and Secure Environments in the Field (SSAFE) course; (iii) the first aid certification course offered at HQ; and (iv) the already mandatory IMF BSAFE course. - Local staff will be required to complete security courses (i) and (iv), while options are being explored to enhance in-country training access through partner organizations. Availability of courses (ii) and (iii) are subject to potential resource constraints and COVID-19 restrictions. ### Risks related to enhanced FCS engagement - Engaging in FCS is high-risk: political instability, high uncertainty, and vulnerability to external shocks can undermine efforts to build credible reform track-records. - Strategic benefits: Greater tailoring to fragility and conflict contexts will enable the IMF to better assist over 20 percent of its membership classified as FCS, strengthen the Fund’s position as a reliable source of support for fragile states, and reduce reputational risks. - Financial risks: Enhanced engagement carries greater financial risks; adequate safeguards are critical—through tailored program design and conditionality, appropriate DSA and CTR assessment. - Operational risks: Difficulty attracting talent and qualified staff for FCS work is a risk to be managed by HR measures to enhance incentives, recognition, visibility, and by building adequate skillsets for FCS work. - Real estate and security risks: An enhanced footprint requires expanded and enhanced mandatory security training, increased security staffing, and appropriate and safe field offices in collaboration with local partners. - Residual risks: Even with measures proposed, operating in FCS will entail residual risks that must be accepted to support the most vulnerable members. ### Conclusions (selected) - Fragility and conflict affect about a fifth of IMF members and pose macroeconomic challenges that can create or exacerbate BOP needs and constrain policy space. - The Strategy aims to enhance the Fund’s effectiveness in FCS by: (i) enhancing understanding of FCS conditions (through CES rollout), (ii) strengthening tailoring of surveillance, scaled-up CD delivery, and the lending toolkit, and (iii) deploying more and better skilled staff in FCS to improve dialogue, adapt support to absorptive capacity, and strengthen partnerships. - The Strategy will be implemented starting in FY22 and continuing between FY23-FY25 and will be supported by increased resources outlined in the budget augmentation framework and reflected in the FY23-FY25 Medium Term Budget. *IMF Strategy for Fragile and Conflict‑Affected States — excerpt* ### References ### References ### Annex I. Summary of Consultations with Country Authorities and Partners - Consultation scope and participation - Extensive consultations on the FCS Strategy Concept Note were held between July 30- September 30, 2021. - The Fund received written inputs from 55 counterparts including members (FCS and non-FCS); UN agencies, funds, and programs; the World Bank and MDBs; CSOs, think tanks, and academia. - The IMF held 17 one-on-one virtual consultation meetings with stakeholders. - Main messages from FCS members - FCS members emphasized the critical role the Fund can play in helping countries to exit fragility. - Clear support was expressed for Strategy proposals, especially: - enhanced field presence, - scaling up capacity development provided in-country, - greater tailoring of IMF support to local conditions. - FCS members underscored the impact and volatility of cross-border effects of fragility on neighboring countries. - FCS country authorities emphasized that difficult tradeoffs, political realities, and constraints require a high degree of adaptation and that Fund activities should be country-specific; country leadership is essential to achieve progress. - FCS members emphasized the need to strengthen public outreach on their activities. - On the lending toolkit: - FCS members stressed the need for longer maturities better fit for complex challenges. - Some non-FCS member states expressed concerns on the volume of financing that may be increased in the context of countries’ debt vulnerabilities. - Main messages from partners - Partners voiced strong support for the FCS Strategy; the proposed approach was described as “strongly welcomed,” perceived as a priority of the Fund, and recognized as “tremendously important.” - Common position: the IMF needs a longer-term engagement in FCS based on better tailored approaches to effectively enhance its impact. - There was almost unanimous agreement that achieving this objective requires greater in-country presence. - CSOs and think tanks sought more IMF sensitivity to the risk of authorities perpetuating underlying fragilities and to potential implications of IMF engagement on social grievances in volatile political economy conditions. - Specific feedback from partners on key Strategy proposals - Country Engagement Strategy (CES): - Partners strongly welcomed the proposed rollout of CES and perceived it as a key instrument to tailor the Fund’s longer-term engagement in FCS. - Capacity Development (CD): - Several partners emphasized CD as a core element necessary for longer term institution building. - Effective CD delivery requires ensuring country ownership, appropriately considering limitations of absorptive capacities, and accounting for countries’ political economy. - Partnerships: - Consultations underscored the need for the Fund to strengthen cooperation with relevant actors in FCS, particularly the World Bank. - Many external partners (e.g., MDBs, UN agencies and CSOs) offered to leverage field presence and cooperate on analytics to support IMF’s FCS core activities. - Lending toolkit: - Several partners underscored that FCS require higher and more concessional and longer-term financing, and adjustment of conditionalities to country needs and context specificities. - Support to IMF Staff: - Partners emphasized staff incentives—including career development, local recruitment, and skills development—were essential to equip personnel for effective FCS work. - Areas requiring special focus in FCS: - Partners asked that the Strategy emphasize interlinkages between FCS and climate change, social inclusion, gender, governance, and security. - Some partners welcomed clear recognition of the importance of prevention, forced displacement, and conflict-sensitive program design. *IMF STRATEGY FOR FRAGILE AND CONFLICT-AFFECTED STATES — References and Annex I (excerpts).* --- _Source: https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022004.pdf_