## Overview and context

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---

ppea2022024

### Overview and context
- The Management Implementation Plan (MIP) responds to the Independent Evaluation Office (IEO)’s report on growth and adjustment in IMF-supported programs.
- IEO findings summarized:
  - Lack of evidence on a consistent bias toward excessive austerity.
  - Programs have yielded growth benefits relative to a counterfactual of no Fund engagement.
- The IEO assessment is broadly consistent and complementary with the IMF’s 2018 Review of Program Design and Conditionality (RoC) and the 2018 Review of the Fund’s Capacity Development Strategy.
- Date: March 23, 2022.

### Objectives of the MIP
- Increase the realism of growth projections and foster systematic analysis of contingency plans and social and distributional implications in Fund-supported programs.
- Encourage deeper and more growth-oriented structural reforms aligned with program objectives, leveraging more effective collaboration with external partners and considering growth effects.
- Further develop and deploy analytical tools to support greater attention to sustainable and inclusive growth in program work.

### Board and Directors’ reactions (summary)
- Directors welcomed the IEO findings and agreed IMF-supported programs need greater attention to growth implications while reaffirming the Fund’s core objective of helping members resolve balance of payments (BoP) problems.
- Directors recommended:
  - More thorough, systematic, realistic, and socially and distributionally sensitive attention to growth implications in programs.
  - Careful discussion of fiscal multiplier assumptions, applied flexibly given country-specific circumstances.
  - Stronger monitoring of key social and distributional aspects where data allow.
  - Greater attention to deep, growth-oriented structural reforms with effective capacity development (CD) support and collaboration with partners.
  - Continued investment in a toolkit of models and monitors to analyze the adjustment-growth relationship and to track post-program reform sustainability.

### Key findings and policy recommendations
- Recommendation #1 — Attention to growth implications:
  - Board papers supporting GRA and PRGT programs should clearly explain program growth implications during the program and over the medium term.
  - Program macroeconomic frameworks should give particular attention to fiscal multiplier assumptions.
  - Program design should more consistently incorporate contingencies for growth shortfalls through scenario analysis.
  - Strengthened monitoring of key social and distributional metrics, subject to data availability.
  - Consider revisions to the 2002 Guidelines on Conditionality (GoC) and the 2014 Operational Guidance Note on Conditionality (OGN) in the next RoC to give further guidance on fostering favorable growth outcomes.
- Recommendation #2 — Structural reforms, CD, and collaboration:
  - Structural conditionality should be parsimonious and focused on removing structural impediments critical to sustained and inclusive growth.
  - Strengthen collaboration with the World Bank and other partners in design and implementation of structural reforms in shared and non-core areas.
  - Revisit integration of CD support with program design and implementation to promote deeper and more successful reform efforts.
- Recommendation #3 — Toolkit of models and monitors:
  - Functional departments should continue to lead development of models for analyzing the adjustment-growth relationship.
  - Country teams should be encouraged to apply available models to achieve greater realism in program projections, explore trade-offs, and explain associated risks to authorities.
  - Increase efforts to track whether structural reforms were sustained after program conclusion.
  - Pay further attention to country desks’ capacity to track developments in key distributional indicators, collaborating closely with the World Bank and other agencies.

### Ongoing work and specific initiatives relevant to Recommendation 1
- Realism tools:
  - The Sovereign Risk and Debt Sustainability Framework (SRDSF) was approved by the Board in January 2021 and introduces a new suite of tools to assess realism of baseline macroeconomic scenarios.
  - The SRDSF is expected to be operationalized by end-FY22 with the launch of the Staff Guidance Note and template.
- Data initiatives:
  - Planned update of the 2008 edition of the System of National Accounts (SNA) will include a new chapter focusing on compilation of distributional accounts.
  - The Financial Access Survey has been adapted to provide up-to-date financial inclusion indicators, including two which specifically monitor Target 8.10 of the UN Sustainable Development Goals.
- Social spending:
  - Implementation of the Strategy for IMF Engagement on Social Spending (approved May 2019) is under way.
  - First background paper completed in December 2021 focusing on pensions issues; additional background papers on social safety nets, education, and health will be completed in FY23 as inputs into the Guidance Note on Social Spending.
  - Government Finance Division in STA is enhancing collection and dissemination of government expenditure data based on the Classification of the Functions of Government (COFOG).
  - Expenditure Policy Division (EPD) in FAD is hiring five headquarters-based consultants in FY22 to help analyze social spending as part of crisis response and CD efforts and plans to transform the EPD CD model to include medium-term programmatic engagements (pilot with Sierra Leone has started).
- Fiscal revenue:
  - FAD has prepared technical notes providing guidance on tax policy reforms after recovery from the COVID-19 crisis and on the possible scope and design of temporary “COVID-19 recovery contributions” on high incomes or wealth.
  - FAD will continue to contribute to work on distributional implications of tax reforms via CD and development of related tools.

### Implementation timing, resources, and constraints
- Most MIP actions will be implemented by the end of FY23; a few will take longer reflecting existing commitments.
- Near-term implementation will need to be mostly managed within existing budgetary envelopes; some trade-offs may be unavoidable if additional resources are not available.
- Medium-term resource needs for actions beyond FY23 have not yet been identified, though many actions are part of previous commitments.
- The MIP actions are likely to increase pressure on current word limits in program documents.

### Expected outcomes and accountability
- Full implementation of the MIP package aims to ensure IMF-supported programs deliver necessary BoP adjustment while paying greater attention to growth effects.
- More realistic projections are expected to help limit excessive ex-post adjustment subject to the available program financing envelope.
- Discussion of medium-term growth implications of Fund-supported programs, including fiscal adjustment, is envisaged to become a regular practice with more rigorous and systematic analysis in Article IV consultations.
- Greater emphasis on social spending analysis and mitigation measures for vulnerable groups should improve design and formulation of conditionality.
- The proposals intend to improve IMF country teams’ accountability when setting conditionality, enhance ownership by country authorities, and establish processes to ensure resources are directed to areas of highest impact.

### Box 2 — Ongoing Fund Work on Recommendation 1 (concluded) — Key proposals and outcomes
- Context and scope:
  - Recommendation 1 will be taken up primarily in the context of revisions to the OGN on program design and conditionality and the Surveillance Guidance Note (SGN), both expected to be completed by FY23-H1.
- Proposal #1 — Revisions to the OGN on program design and conditionality:
  - (1a) Requirement for Policy Notes (PNs) and Staff Reports (SRs):
    - PNs and SRs associated with Fund arrangement requests and program reviews with a significant growth deviation relative to previous projections will be required to discuss prominently the realism of baseline growth projections by, at a minimum, leveraging the realism tools embedded in debt sustainability frameworks (DSFs).
    - Realism tools include:
      - (1) consistency between planned fiscal adjustment and growth assumptions under plausible fiscal multipliers;
      - (2) realism of real GDP growth and output gaps using the SRDSF;
      - (3) consistency between public investment and growth for countries using the Low-Income Country DSF (LIC DSF).
  - (1b) Contingency plans:
    - PNs will include contingency plans where appropriate and subject to confidentiality.
    - Contingency plans should outline an adverse scenario, impacts on key program variables (including growth shortfalls), and possible policy responses.
    - Recommended for applicable UCT-quality Fund-supported programs, subject to capacity constraints.
  - (1c) Guidance on conditionality regarding social spending:
    - OGN will provide updated guidance drawing on work to operationalize the 2019 Strategy for IMF Engagement on Social Spending.
    - PRGT-supported programs are expected to explicitly incorporate measures to protect the vulnerable; GRA-supported programs would do so where critical for program goals or monitoring implementation.
- Notes on DSF realism tools (as described):
  - Fiscal adjustment and growth tool: compares impact of planned fiscal adjustment on growth under a range of plausible fiscal multipliers.
  - Real GDP growth tool: compares real GDP growth projections with potential growth, output gap, and historical average growth.
  - Output gap tool: calculates output gap revisions from historical data.
  - Public investment and growth tool: assesses consistency between growth and public investment assumptions using growth accounting.

- Proposal #2 — Revisions to the SGN:
  - Revised SGN will clarify Article IV SRs of members with ongoing Fund-supported programs are expected to address implications of key policy measures on growth and stability over the medium term, where appropriate under the Fund’s legal framework for surveillance.
- Proposal #3 — Next RoC:
  - The next RoC will review the role of Fund-supported programs in fostering growth and discuss the appropriateness of the 2002 GoC.
- Proposal #4 — Training for authorities on the SRDSF:
  - A joint training program with Institute for Capacity Development (ICD) will be developed by mid-FY24 to increase authorities’ ownership and facilitate discussions on projections during missions.
- Expected outcomes:
  - Enhance realism of baseline projections and systemic analysis of growth and distributional implications.
  - Realism tools to be integral to iterative program baseline macro-framework production, giving prominence to fiscal multipliers, alternative scenarios, and policy tradeoffs.
  - Scenario analysis and contingency plans to be implemented more consistently and systematically, subject to confidentiality.
  - Greater emphasis on social spending analysis to inform conditionality design consistent with solving the member’s BoP problem.

### Recommendation 2 — Structural reforms, CD integration, and collaboration (overview and proposals)
- Objective: pay greater attention to supporting deep, more growth-oriented structural reforms, with more effective CD support and collaboration with partners such as the World Bank.
- Ongoing and proposed actions:
  - Publication of staff guidelines on CD country notes in January 2020.
  - Publication of the 2021 Operational Guidelines for Integrating CD with Surveillance and Lending.
  - Joint Bank-Fund Staff Guidance Note finalized in January 2022 summarizing best practices on information and document sharing.
- Key proposals:
  - Proposal #1a (OGN revisions on structural conditions, SCs):
    - PNs at request for new arrangement and at each review should indicate the depth of each SC and rationale; depth classified into low-, medium- and high-depth.
    - Depth may vary across countries; ultimate judgement of SC depth lies with country teams.
    - SCs in non-core areas should reflect World Bank and/or other development partner expertise where possible.
  - Proposal #1b (Annex mapping SCs with CD):
    - Revised OGN will recommend an annex table mapping SCs with CD findings and planned CD, indicating timing and links to structural benchmarks.
  - Proposal #2 (implement 2021 Operational Guidelines for Integrating CD with Surveillance and Lending):
    - Establish consultative processes among area and CD departments; reflect priorities in CD country strategy notes (CD-CSN); involve CD experts in area department missions as needed.
    - Staff to report on progress in the 2023 CD Strategy Review and engage Executive Board on main areas of focus in Q2 of FY23.
  - Proposal #3 (Resilience and Sustainability Fund, RST):
    - Implement broad principles for coordination with the World Bank under the RST beginning in FY23, subject to Executive Board approval.
  - Proposal #4 (review Bank-Fund collaboration experience):
    - Stock-taking as part of Board Paper on effectiveness of BFC, planned by end-FY25.
  - Proposal #5 (Operational Guidance Gateway):
    - Create an Operational Guidance Gateway by end-FY25 as part of the Integrated Digital Workplace (iDW) program.

- Final operational expectations:
  - Encourage programs to focus on depth and growth orientation of SCs while keeping SCs parsimonious and prioritized in line with program objectives.
  - Emphasize country ownership and account for resource and absorption capacity constraints.
  - Maximize synergy between Fund-supported programs and CD and leverage expertise of other development partners.

### Recommendation 3 — Analytical toolkit, diagnostics, and monitoring (MIP actions and tools)
- MIP focus: invest in tools and revamp digital infrastructure to monitor and assess growth, social, and distributional developments; implement iDW program to improve collaboration, knowledge management, and IT platforms.
- Proposal #1 — New analytical tools (selected items and timelines):
  - (1a) Financial Programming Environment (FPE):
    - Developed by ICD in collaboration with ITD to manage macroeconomic frameworks and prepare projections.
    - Final version expected to be made available to staff by end-FY24.
  - (1b) Beta version of the panel nowcast toolkit:
    - Toolkit will be made available to staff by end-FY23 and is expected to cover 200 economies from 2004Q1 to the latest previous quarter.
  - (1c) User-friendly Excel-based interface for DIGNAD:
    - RES and FAD collaborating; tool will be made available to staff by end-FY23.
  - (1d) Growth-at-risk (GaR) model version “2.0”:
    - Updated tool will be made available to staff by end-FY23.
  - (1e) Country data annex (CoDA) tool:
    - Once operationalized by end-FY24, CoDA will allow consistency checks and highlight large deviations early.
- Proposal #2 — Diagnostics Gateway:
  - Create a Diagnostics Gateway under iDW expected to be completed by end-FY25; initial pilot focused on Fund-supported programs co-led by AFR and SPR.

### Expected benefits and limitations of toolkit expansion
- Benefits:
  - Expand toolkit, improve forecast performance, facilitate scenario analysis, bridge data gaps, introduce consistency checks, and scrutinize baseline assumptions while accommodating country-specific circumstances.
- Limitations:
  - Models may not fully capture complex country-specific circumstances (e.g., dollarized economies); modular approach emphasized.
  - FPE uptake expected to be gradual and supported by ITD technical support and ICD training via Internal Economics Training (IET).

### Resource implications and estimates
- Near-term implementation largely to be managed within existing budgetary envelopes; trade-offs may be unavoidable.
- Many deliverables already in Board’s Work Program and departmental work plans.
- Back-of-the-envelope estimate assuming 60 Fund-supported programs indicates additional resource needs could reach up to three full-time equivalent (FTE) staff during the first year of MIP implementation, with area departments bearing two-thirds of that cost.
- Notes and context:
  - Reskilling will be an important fixed cost.
  - The average number of ongoing Fund-supported programs excluding precautionary arrangements in 2020–21 was 60.
  - Proposals to create an Operational Guidance Gateway and a Diagnostics Gateway are expected to be costed and funded under the iDW program.
  - Integration of CD into IMF lending would require additional medium-term resources in public financial management, revenue administration and expenditure policy.
  - MIP measures could especially affect FCS work given current staffing constraints; FCS resources are substantially being increased separately as part of the FCS workstream.

### Inventory of analytical tools (availability and descriptions — selected)
- Financial Programming Environment (FPE)
  - Department: ICD, ITD
  - Availability: Under development and being piloted; final version expected by end-FY24.
- Nowcasting Toolkit
  - Department: RES, AFR
  - Availability: Country-specific frameworks/results for some 20 SSA countries available; panel nowcast expected by end-FY23.
- DIG family (DIG, DIGNAR, DIGNAR-19, DIGNAD)
  - Department: RES, SPR, FAD
  - Availability: DIG, DIGNAR and DIGNAR-19 available; excel-based interface for DIGNAD expected by end-FY23.
- Growth at Risk (GaR)
  - Department: MCM
  - Availability: Publicly available since 2019; GaR 2.0 expected by end-FY23.
- Country Data Annex Tool (CoDA)
  - Department: SPR, RES
  - Availability: SPR expects to make it available to all desks by end-FY24.
- Fiscal Multiplier Toolkit
  - Department: FAD
  - Availability: Available to staff.
- Structural Reforms and other toolkits (SRDT, COVID Impact Toolkit, Distributive Incidence Analysis Tool, Social Protection and Labor Assessment Tool)
  - Departments and availability: RES; FAD; IMF Inequality working group, SPR, RES; available to staff as noted.

### Monitoring social and distributional developments
- Tools available to staff:
  - Social Protection and Labor Assessment Tool (FAD)
  - Distributive Incidence Analysis Tool (FAD)
  - Toolkit for Evaluating the Welfare Effects of Fiscal Consolidations in LICs (IMF Inequality working group, SPR, RES)

*Source: MIP in response to IEO evaluation—Growth and Adjustment in IMF-Supported Programs, EXECUTIVE SUMMARY, March 23, 2022.*

## EXECUTIVE SUMMARY

## EXECUTIVE SUMMARY

### Overview and context
- The Management Implementation Plan (MIP) responds to the Independent Evaluation Office (IEO)’s report on growth and adjustment in IMF-supported programs.
- The IEO report found: lack of evidence on a consistent bias toward excessive austerity; programs have yielded growth benefits relative to a counterfactual of no Fund engagement.
- The IEO assessment is broadly consistent and complementary with the IMF’s 2018 Review of Program Design and Conditionality (RoC) and the 2018 Review of the Fund’s Capacity Development Strategy.
- Date: March 23, 2022.

### Objectives of the MIP
- Increase the realism of growth projections and foster systematic analysis of contingency plans and social and distributional implications in Fund-supported programs.
- Encourage deeper and more growth-oriented structural reforms aligned with program objectives, leveraging more effective collaboration with external partners and considering growth effects.
- Further develop and deploy analytical tools to support greater attention to sustainable and inclusive growth in program work.

### Board and Directors’ reactions (summary)
- Directors welcomed the IEO findings and agreed that IMF-supported programs need greater attention to growth implications while reaffirming the Fund’s core objective of helping members resolve balance of payments (BoP) problems.
- Directors recommended:
  - More thorough, systematic, realistic, and socially and distributionally sensitive attention to growth implications in programs.
  - Careful discussion of fiscal multiplier assumptions, applied flexibly given country-specific circumstances.
  - Stronger monitoring of key social and distributional aspects where data allow.
  - Greater attention to deep, growth-oriented structural reforms with effective capacity development (CD) support and collaboration with partners.
  - Continued investment in a toolkit of models and monitors to analyze the adjustment-growth relationship and to track post-program reform sustainability.

### Key findings and policy recommendations (from the IEO recommendations summarized)
- Recommendation #1 — Attention to growth implications:
  - Board papers supporting General Resource Account (GRA) and Poverty Reduction and Growth Trust (PRGT) programs should clearly explain program growth implications during the program and over the medium term.
  - Program macroeconomic frameworks should give particular attention to fiscal multiplier assumptions.
  - Program design should more consistently incorporate contingencies for growth shortfalls through scenario analysis.
  - Strengthened monitoring of key social and distributional metrics, subject to data availability.
  - Consider revisions to the 2002 Guidelines on Conditionality (GoC) and the 2014 Operational Guidance Note on Conditionality (OGN) in the next RoC to give further guidance on fostering favorable growth outcomes.
- Recommendation #2 — Structural reforms, CD, and collaboration:
  - Structural conditionality should be parsimonious and focused on removing structural impediments critical to sustained and inclusive growth.
  - Strengthen collaboration with the World Bank and other partners in design and implementation of structural reforms in shared and non-core areas.
  - Revisit integration of CD support with program design and implementation to promote deeper and more successful reform efforts.
- Recommendation #3 — Toolkit of models and monitors:
  - Functional departments should continue to lead development of models for analyzing the adjustment-growth relationship.
  - Country teams should be encouraged to apply available models to achieve greater realism in program projections, explore trade-offs, and explain associated risks to authorities.
  - Increase efforts to track whether structural reforms were sustained after program conclusion.
  - Pay further attention to country desks’ capacity to track developments in key distributional indicators, collaborating closely with the World Bank and other agencies.

### Ongoing work and specific initiatives relevant to Recommendation 1
- Realism tools:
  - The Sovereign Risk and Debt Sustainability Framework (SRDSF) was approved by the Board in January 2021 and introduces a new suite of tools to assess realism of baseline macroeconomic scenarios.
  - The SRDSF is expected to be operationalized by end-FY22 with the launch of the Staff Guidance Note and template.
- Data initiatives:
  - Planned update of the 2008 edition of the System of National Accounts (SNA) will include a new chapter focusing on compilation of distributional accounts.
  - The Financial Access Survey has been adapted to provide up-to-date financial inclusion indicators, including two which specifically monitor Target 8.10 of the UN Sustainable Development Goals.
- Social spending:
  - Implementation of the Strategy for IMF Engagement on Social Spending (approved May 2019) is under way.
  - First background paper completed in December 2021 focusing on pensions issues; additional background papers on social safety nets, education, and health will be completed in FY23 as inputs into the Guidance Note on Social Spending.
  - Government Finance Division in STA is enhancing collection and dissemination of government expenditure data based on the Classification of the Functions of Government (COFOG).
  - Expenditure Policy Division (EPD) in FAD is hiring five headquarters-based consultants in FY22 to help analyze social spending as part of crisis response and CD efforts and plans to transform the EPD CD model to include medium-term programmatic engagements (pilot with Sierra Leone has started).
- Fiscal revenue:
  - FAD has prepared technical notes providing guidance on tax policy reforms after recovery from the COVID-19 crisis and on the possible scope and design of temporary “COVID-19 recovery contributions” on high incomes or wealth.
  - FAD will continue to contribute to work on distributional implications of tax reforms via CD and development of related tools.

### Implementation timing, resources, and constraints
- Most MIP actions will be implemented by the end of FY23; a few will take longer reflecting existing commitments.
- Near-term implementation will need to be mostly managed within existing budgetary envelopes; some trade-offs may be unavoidable if additional resources are not available.
- Medium-term resource needs for actions beyond FY23 have not yet been identified, though many actions are part of previous commitments.
- The MIP actions are likely to increase pressure on current word limits in program documents.

### Expected outcomes and accountability
- Full implementation of the MIP package aims to ensure IMF-supported programs deliver necessary BoP adjustment while paying greater attention to growth effects.
- More realistic projections are expected to help limit excessive ex-post adjustment subject to the available program financing envelope.
- Discussion of medium-term growth implications of Fund-supported programs, including fiscal adjustment, is envisaged to become a regular practice with more rigorous and systematic analysis in Article IV consultations.
- Greater emphasis on social spending analysis and mitigation measures for vulnerable groups should improve design and formulation of conditionality.
- The proposals intend to improve IMF country teams’ accountability when setting conditionality, enhance ownership by country authorities, and establish processes to ensure resources are directed to areas of highest impact.

*Source: MIP in response to IEO evaluation—Growth and Adjustment in IMF-Supported Programs, EXECUTIVE SUMMARY, March 23, 2022.*

## Box 2. Ongoing Fund Work on Recommendation 1 (concluded)

## Box 2. Ongoing Fund Work on Recommendation 1 (concluded)

### Context and Scope
- Recommendation 1 will be taken up primarily in the context of the revisions to the OGN on program design and conditionality and the Surveillance Guidance Note (SGN), both expected to be completed by FY23-H1.
- Operational implementation will follow a differentiated approach, commensurate with the availability of enhanced tools.
- Proposed actions are summarized in Annex I (as referenced in the source).

### Proposal #1 — Revisions to the OGN on program design and conditionality
- Objective: have a thorough, systematic, and realistic discussion of program implications for growth, as appropriate and feasible in a given country context.
- The revised OGN will be informed by findings in both the 2018 RoC and the IEO report on growth and adjustment in Fund-supported programs.

Key sub-actions:
- (1a) Requirement for Policy Notes (PNs) and Staff Reports (SRs):
  - PNs and SRs associated with Fund arrangement requests and program reviews with a significant growth deviation relative to previous projections will be required to discuss prominently the realism of baseline growth projections by, at a minimum, leveraging the realism tools embedded in debt sustainability frameworks (DSFs).
  - These tools will allow staff to assess:
    - (1) the consistency between the planned fiscal adjustment and growth assumptions under plausible fiscal multipliers for all countries;
    - (2) the realism of real GDP growth and output gaps for countries using the SRDSF;
    - (3) the consistency between public investment and growth for countries using the Low-Income Country DSF (LIC DSF).
  - To complement this analysis, and depending on country circumstances and data availability, the use of additional tools will be strongly encouraged.
- (1b) Contingency plans:
  - PNs will include contingency plans where appropriate and subject to confidentiality.
  - Contingency plans are risk-management tools that identify pressure points and a set of possible responses; they are not intended to prescribe a precise response to a particular future scenario with defined triggers.
  - Contingency plans should ideally outline a relevant adverse scenario, elaborate how key program variables/targets/objectives would be impacted (including growth shortfalls), and discuss potential policy responses to restore stability.
  - In general, contingency plans would be recommended for applicable Upper Credit Tranche (UCT)-quality Fund-supported programs (based on country needs), subject to capacity constraints.
  - Discussions with the authorities on contingency plans will be relayed to Management and reviewers—with appropriate confidentiality—in back-to-office reports and/or the SR cover memo to management.
  - The OGN will clarify that staff should discuss internally during the PN review process and with the authorities during program negotiations the potential tradeoffs between alternative policy mixes in achieving the needed adjustment and growth.
- (1c) Guidance on conditionality regarding social spending:
  - The OGN will provide updated guidance drawing on ongoing work to operationalize the 2019 Strategy for IMF Engagement on Social Spending (see Box 2).
  - Programs should aim to mitigate the adverse effects of adjustment measures on the vulnerable, and conditionality should support social objectives where critical for achieving the goals of the member’s program or for monitoring its implementation.
  - PRGT-supported programs are expected to explicitly incorporate measures to protect the vulnerable and generate public support for adjustment; GRA-supported programs would do so where critical for achieving program goals or for monitoring implementation in addressing the underlying BoP problem and may require the introduction or expansion of social safety nets.
  - Engagement on social spending issues would aim to:
    - (1) identify those issues that are macro-critical;
    - (2) understand the member’s needs and priorities regarding the role of social spending;
    - (3) take stock of existing analysis;
    - (4) identify any analytical and data gaps; and
    - (5) formulate policy recommendations.

Notes on DSF realism tools (as described):
- Fiscal adjustment and growth tool: assesses consistency between fiscal adjustment and growth assumptions by comparing the impact of the planned fiscal adjustment on growth under a range of plausible fiscal multipliers.
- Real GDP growth tool: compares real GDP growth projections with potential growth projections, output gap, and the historical average growth.
- Output gap tool: calculates output gap revisions from historical data.
- Public investment and growth tool: assesses consistency between growth and public investment assumptions using growth accounting and comparing current and previous projections for public and private investment.

### Proposal #2 — Revisions to the SGN
- The revised SGN will clarify that Article IV SRs of members with ongoing Fund-supported programs are expected to address the implications of key policy measures (for example, fiscal consolidation) on growth and stability over the medium term, where appropriate under the Fund’s legal framework for surveillance.
- Article IV consultations for countries with Fund-supported programs provide an opportunity to take a medium-term perspective, including growth implications of Fund-supported programs.
- Clarification: Article IV SRs produced concurrently with program reviews should deal with all surveillance-related issues, including those related to Fund-supported programs.

### Proposal #3 — Next RoC
- The next RoC will review the role of Fund-supported programs in fostering growth and discuss the appropriateness of the 2002 GoC in that regard.

### Proposal #4 — Training for authorities on the SRDSF
- Staff will set up a training program for country authorities on the SRDSF, including its realism tools.
- Training workshops and online courses aimed at strengthening macroeconomic analysis, including DSFs, are already offered to country authorities.
- SPR department has provided virtual workshops to authorities on the new SRDSF for a few pilot cases.
- A joint training program with Institute for Capacity Development (ICD) will be developed by mid-FY24 to increase authorities’ ownership and facilitate discussions on projections during missions.

### Expected Outcomes of Proposal #1–#4
- Implementation is expected to enhance the realism of baseline projections and foster a more systemic analysis of growth and distributional implications of policies under Fund-supported programs.
- Realism tools should be used as part of the iterative process of producing the program baseline macro-framework.
- Tools will lead to staff being more explicit about baseline assumptions in program documents, give more prominence to fiscal multipliers, alternative scenarios, and policy tradeoffs, and help identify potential optimism or pessimism in projections.
- More realistic projections would help limit excessive adjustment ex-post subject to the available program financing envelope.
- Scenario analysis and contingency plans are expected to be implemented more consistently and systematically, as appropriate and subject to confidentiality.
- Discussion of medium-term growth implications of Fund-supported programs, including fiscal adjustment, is envisaged to become a regular practice with more rigorous and systematic analysis in Article IV consultations where appropriate under the Fund’s legal framework for surveillance.
- Emphasis on social spending analysis and measures to mitigate adverse effects of adjustment on the vulnerable would help improve the design and formulation of conditionality in IMF-supported programs, where consistent with the primary goals of solving the member’s BoP problem and achieving medium-term external viability.

### Recommendation 2 — Overview (linked to Recommendation 1 outcomes)
- IMF-supported programs should pay greater attention to supporting deep, more growth-oriented structural reforms, with more effective capacity development (CD) support and more effective collaboration with partners—such as the World Bank—in areas outside the Fund’s core mandate and expertise.

Ongoing and proposed actions to implement Recommendation 2:
- CD has supported the design and implementation of conditionality in Fund-supported programs and continues to play a key role in building institutions and capacity.
- Following the 2018 Review of the Fund’s CD Strategy, work on better integrating CD with lending and surveillance has been ongoing, including:
  - Publication of staff guidelines on CD country notes in January 2020.
  - Publication of the 2021 Operational Guidelines for Integrating CD with Surveillance and Lending.
- The Fund collaborates closely with external partners, notably the World Bank, in areas outside its core mandate—for example, social protection, state-owned enterprise reform, and public expenditure review.
- The IMF and the World Bank are stepping up engagement and collaboration in high-priority areas such as climate change, FCS, and digitalization.
- The joint Bank-Fund Staff Guidance Note finalized in January 2022 summarizes best practices on information and document sharing processes and identifies areas for improvement.

Key proposals to strengthen structural reforms, CD integration, and collaboration:
- Proposal #1a (OGN revisions on structural conditions, SCs):
  - PNs at request for a new arrangement and at each review should indicate the depth of each SC, presented along with the purpose/rationale for inclusion in the program.
  - The revised OGN will explain how depth is assessed and classified into low-, medium- and high-depth.
  - The OGN will clarify it is neither necessary nor feasible that all SCs, or in some cases (e.g., FCS) any SCs, be of high depth.
  - Depth may vary across countries due to country-specific circumstances (capacity, resources, political constraints).
  - Ultimate judgement of SC depth lies with country teams; OGN will highlight the importance of adequate sequencing of SCs.
  - To the extent possible, especially in non-core areas, SCs should reflect analysis and expertise of the World Bank and/or other development partners.
- Proposal #1b (Annex mapping SCs with CD):
  - The revised OGN will recommend inclusion of an annex table mapping SCs with CD findings and planned CD from the Fund and other multilateral organizations, indicating proposed timing and links to relevant structural benchmarks.
  - Program documents should identify key technical constraints that may affect the program and possible CD modalities to address them.
- Proposal #2 (implement 2021 Operational Guidelines for Integrating CD with Surveillance and Lending):
  - Recommendations aim at:
    - (i) establishing a consultative process among area and CD departments with country authorities to set CD strategy and priorities, reflected in CD country strategy notes (CD-CSN);
    - (ii) maintaining regular engagement between CD providers and country teams over the CD project lifecycle and the surveillance/lending process, including CD experts’ involvement in area department missions as needed;
    - (iii) discussing relevant aspects of CD strategy in program processes (for example, in country documents, pre-mission interdepartmental meetings, and with the authorities and other country-based stakeholders) if critical to policy implementation.
  - Staff will report on progress in the context of the 2023 CD Strategy Review and propose new measures to enhance CD impact.
  - Staff will engage with the Executive Board on the main areas of focus of the 2023 review in Q2 of FY23 and continue annual engagements on CD priorities in the context of the budget cycle.
- Proposal #3 (Resilience and Sustainability Fund, RST):
  - Staff will implement broad principles for coordination with the World Bank or other relevant IFIs under the RST beginning in FY23, subject to Executive Board approval of the RST and underlying design and reform objectives.
  - The RST focuses on supporting policy reforms to build resilience and sustainability by addressing long-term structural challenges such as climate and pandemic preparedness; this will entail close coordination with the World Bank and other relevant Multilateral Development Banks to ensure complementarity.
- Proposal #4 (review Bank-Fund collaboration experience):
  - Staff will review the experience with Bank-Fund collaboration in Fund-supported programs based on lessons from ongoing initiatives, including on growth-related issues.
  - The stock-taking will be done as part of the Board Paper on the effectiveness of BFC, planned by end-FY25.
- Proposal #5 (Operational Guidance Gateway):
  - Staff will create an Operational Guidance Gateway for staff to have access to the latest guidelines, including on collaboration with external partners such as the World Bank, by end-FY25.
  - This initiative is part of the Integrated Digital Workplace (iDW) program.

Final operational expectations:
- Actions aim to encourage Fund-supported programs to focus on depth and growth orientation of structural conditions while being realistic about achievable outcomes during program periods, keeping SCs parsimonious and prioritized in line with program objectives.
- Emphasis on country ownership, and accounting for resource and absorption capacity constraints.
- Maximize synergy between Fund-supported programs and CD, and leverage expertise of other development partners in shared and non-core areas.

*Source: ppea2022024 - Box 2. Ongoing Fund Work on Recommendation 1 (concluded).*

## 13. These proposals are intended to improve IMF country  teams’ accountability when

## 13. These proposals are intended to improve IMF country teams’ accountability when

### Purpose and overarching approach
- Improve IMF country teams’ accountability when setting conditionality, enhance ownership by country authorities, and establish processes to direct resources to areas of highest impact.
- Use an early assessment of structural challenges and capacity development (CD) complemented by the depth concept in structural conditions (SC) as an organizing device to:
  - consider which structural reforms are critical to meet program goals;
  - design and sequence reforms taking full account of capacity constraints;
  - strengthen monitoring.
- Leverage external partnerships to provide CD in areas outside the Fund’s expertise and map CD provided by other multilateral organizations as well as the Fund with program goals to prioritize CD demand and increase traction.
- Recommendation 3: The Fund should continue to invest in building a toolkit of models and monitors to analyze the adjustment-growth relationship and assess growth-related developments in the program context.

### MIP actions and development of analytical toolkit
- Significant resources committed to development of new tools and revamping the Fund’s digital infrastructure; initiatives focus on tools to monitor and assess growth, social, and distributional developments, and implementation of the iDW program to improve collaboration, knowledge management, work process efficiency, and modernize IT tools, applications, and platforms.
- MIP actions responding to Recommendation 3 aim to support development of user-friendly tools and enhance accessibility for staff (see Annex I in source).

Proposal#1 — New analytical tools to improve growth forecasts, assess adjustment-growth relationship, and facilitate risk scenario analysis:
- (1a) Financial Programming Environment (FPE)
  - Developed by ICD in collaboration with ITD to manage macroeconomic frameworks and prepare projections.
  - Features built-in capabilities to generate alternative risk and policy scenarios, link to a broad range of forecasting tools, integrate models from other sources, improve transparency of macroeconomic assumptions, and minimize human error.
  - Prototype refined with pilot countries in EUR, WHD, and MCD.
  - A final version of the FPE is expected to be made available to staff by end-FY24.
  - Staff take-up expected to be gradual; supported by ITD technical support and ICD training via Internal Economics Training (IET).
- (1b) Beta version of the panel nowcast toolkit
  - Departmental nowcasting initiatives address lack of timely GDP data and produce reliable growth forecasts.
  - EUR nowcasting pilot covered 5 countries (Austria, Hungary, Ireland, Malta, and Poland).
  - AFR used machine learning to build a country-by-country nowcasting toolkit covering about 20 countries in sub-Saharan Africa so far.
  - A panel nowcast framework under development with RES for countries without quarterly GDP series.
  - The toolkit will be made available to staff by end-FY23 and is expected to cover 200 economies from 2004Q1 to the latest previous quarter.
- (1c) User-friendly Excel-based interface for DIGNAD model
  - RES developing extensions of the DIG model: DIGNAR, DIGNAR-19, DIG-Labor, and DIGNAD (under development for natural disaster shock analysis).
  - DIG-type models have been applied to more than 70 country cases.
  - RES and FAD collaborating to develop an Excel-based interface for DIGNAD with Madagascar and Samoa as pilot countries.
  - The tool will be made available to staff by end-FY23.
- (1d) Growth-at-risk (GaR) model version “2.0”
  - MCM working with ITD to update GaR tool to quantify risks to future GDP growth from macro-financial factors, incorporate recommendations from external reviewers, upgrade the model and Excel interface, draft user guide, and develop training courses.
  - Updated tool will be made available to staff by end-FY23.
  - MCM Task Force on Growth at Risk expected to provide technical support to staff to facilitate take-up.
- (1e) Country data annex (CoDA) tool
  - SPR and RES developing an Excel-based tool to compare current macroeconomic framework projections of key variables to the latest published SR and WEO submissions to highlight differences in country forecasts.
  - Once operationalized by end-FY24, CoDA will allow staff to perform consistency checks, identify large deviations early, and make corrections as warranted.

Proposal#2 — Diagnostics Gateway
- Create a Diagnostics Gateway to improve accessibility to analytical tools and facilitate country analysis, including on growth.
- Falls under the iDW program and is expected to be completed by end-FY25.
- Initial phased pilot focused on Fund-supported programs being co-led by AFR and SPR.

### Expected benefits and limitations
- MIP actions under Recommendation 3 expected to expand the toolkit, improve forecast performance, and facilitate scenario analysis.
- New tools can improve realism of projections, strengthen program discussions with authorities on adjustment-growth relationship, bridge data gaps, introduce consistency checks, and allow scenario analysis to scrutinize baseline assumptions while accommodating country-specific circumstances (including data constraints).
- Limitations acknowledged: existing models may not fully capture complex country-specific circumstances (e.g., dollarized economies); importance of a modular approach emphasized.
- FPE’s model integration functionalities seen as valuable for departments to disseminate new tools (e.g., GaR, nowcasting tools, DIG-type models) and ease their application by FPE users.

### Resource implications
- Near-term implementation largely to be managed within existing budgetary envelopes, but trade-offs may be unavoidable given competing work priorities.
- Many deliverables and new tools already in the Board’s Work Program and departmental work plans and budgets (e.g., OGN on program design and conditionality, SGN, development of the FPE and other analytical tools, and the RST), so additional near-term costs expected to be manageable.
- Operational implementation may require mobilizing additional resources for area and functional departments; quantification difficult at preliminary stage as costs depend on number of Fund-supported programs and associated risks as well as roll out of new workstreams.
- Back-of-the-envelope calculations of marginal MIP cost beyond already planned workstreams assuming 60 Fund-supported programs indicate additional resource needs could reach up to three full-time equivalent (FTE) staff during the first year of MIP implementation, with area departments bearing two-thirds of that cost.
- Estimates should be interpreted with caution and reassessed in next year’s budget discussion; in absence of additional resources, trade-offs and reprioritization within existing budgets are inevitable.
- Medium-term resource needs beyond FY23 not yet identified; many actions are part of previous commitments (e.g., next RoC, next CD Review, Board paper on effectiveness of BFC, deployment of FPE).
- Medium-term budget implications to be discussed in context of FY24–25 budget proposals as work progresses and additional staffing needs are identified.
- Resource implications for country teams to be addressed in regular budget discussions.
- Notes:
  - Reskilling will be an important fixed cost.
  - The average number of ongoing Fund-supported programs excluding precautionary arrangements in 2020–21 was 60.
  - Proposals to create an Operational Guidance Gateway and a Diagnostics Gateway are expected to be costed and funded under the iDW program.
  - Integration of CD into IMF lending would require additional medium-term resources in public financial management, revenue administration and expenditure policy, arising from (i) deeper contribution to design and monitoring of SCs and (ii) increased coordination costs related to linking CD activities and program design; majority of envisaged CD integration costs are not specific to this MIP.
  - MIP measures could especially affect FCS work given current staffing constraints; FCS resources are substantially being increased separately as part of the FCS workstream, so marginal MIP costs pertaining to FCS are likely to be much lower.
  - Implementation of MIP measures often depends on data availability (e.g., on social spending) or model adequacy for subsets of countries such as FCS.

### Annex I — Selected follow-up on IEO recommendations (high-level)
- Recommendation 1: Revise the operational guidance note (OGN) on program design and conditionality to ensure thorough, systematic, realistic discussion of program implications for growth in program documents (Timeline: By FY23-H1).
  - OGN to recommend program documents discuss realism of baseline growth projections leveraging realism tools embedded in debt sustainability frameworks, including tools to assess consistency between fiscal adjustment and growth under a range of plausible fiscal multipliers.
  - OGN to recommend Policy Notes include, where appropriate and subject to confidentiality, contingency plans if baseline growth falls significantly short, and to clarify that PN review and program discussions should cover policy tradeoffs in achieving adjustment and growth.
  - OGN to provide updated guidance regarding social spending drawing on work to operationalize the Strategy for IMF Engagement on Social Spending.
- Recommendation 2: Revised OGN to encourage Fund-supported programs to pay greater attention to supporting deep, more growth-oriented reforms while keeping structural conditionality parsimonious and prioritized in line with program objectives (Timeline: By FY23-H1).

*Source: ppea2022024 - 13. These proposals are intended to improve IMF country teams’ accountability when (IMF PDF chapter).*

## conclusions of the ongoing

## ppea2022024 - conclusions of the ongoing

### Coordination with World Bank and CD integration
- Directors looked forward to the Management Implementation Plan for IMF Collaboration with the World Bank on Macro-Structural Issues and encouraged staff and management to propose concrete steps and to review the experience with World Bank-Fund collaboration in Fund-supported programs.
- Recommendations for the revised OGN:
  - 1a. Explain in the revised OGN that country teams indicate in the Policy Notes the depth of each Structural Condition (SC) according to the criteria used in the past RoCs, a process which could guide staff in adequate sequencing of SCs for successful reforms.
  - 1b. Recommend in the revised OGN the inclusion of an annex table mapping (whenever possible) structural benchmarks with CD findings and planned CD from the Fund and other multilateral organizations or CD providers.
- Implementation and reporting:
  - #2. Implement the 2021 Operational Guidelines for Integrating CD with Surveillance and Lending and report on progress in the 2023 CD Strategy Review. (Timeline: By End-FY23)
  - #3. Implement the broad principles for coordination with the World Bank or other relevant International Financial Institutions under the Resilience and Sustainability Trust (RST), subject to the Executive Board approval of the RST and the underlying design and reform objectives. (Timeline: When the Trust is operational; expected mid-FY23)
  - #4. Review the experience with Bank-Fund Collaboration (BFC) in Fund-supported programs based on lessons from ongoing initiatives, including on growth-related issues, as part of the Board Paper on the effectiveness of BFC. (Timeline: By end-FY25)
  - #5. Create an Operational Guidance Gateway for staff to have access to the latest guidelines, including on collaboration with external partners such as the World Bank. (Timeline: By end-FY25)
- Accountability and lead units:
  - SPR, ICD in collaboration with other CD and Area Departments; SPR; KMU, SPR, ITD are identified among responsible units.

### Investing in analytical toolkits and monitors (adjustment-growth analysis)
- Directors agreed the Fund should continue to invest in building a toolkit of models and monitors for analysis of the adjustment-growth relationship and assessing growth-related developments in the program context, welcomed existing models, and encouraged adaptation to country-specific circumstances.
- Specific tool development and timelines:
  - #1. Develop and make available to staff new analytical tools for improving growth forecasts, assessing the adjustment-growth relationship, and conducting risk scenario analysis:
    - 1a. ICD’s Financial Programming Environment (FPE). (Timeline: By end-FY24)
    - 1b. A beta version of the panel nowcast toolkit. (Timeline: By end-FY23)
    - 1c. A user-friendly Excel-based interface for DIGNAD. (Timeline: By end-FY23)
    - 1d. The growth-at-risk model version “GaR 2.0”. (Timeline: By end-FY23)
    - 1e. The Country data annex (CoDA) tool. (Timeline: By end-FY24)
  - #2. Create a Diagnostics Gateway to improve accessibility to analytical tools and facilitate country analysis, including on growth. (Timeline: By end-FY25)
- Departments and teams noted as leads: ICD, ITD; RES, AFR; RES, FAD; MCM, ITD; SPR, RES; AFR, SPR, ITD.

### Inventory of analytical tools (availability and descriptions)
- Financial Programming Environment (FPE)
  - Description: Designed to manage macro-frameworks and prepare macro-framework projections, with built-in support for alternative risk/policy scenarios, a broad range of forecasting tools, and an “open structure” to incorporate additional tools.
  - Department: ICD, ITD
  - Availability: Under development and being piloted; final version expected to be made available to staff by end-FY24.
- Nowcasting Toolkit
  - Description: Produces quarterly real GDP growth nowcasts via (i) a panel nowcast for all countries and (ii) country-specific nowcast frameworks using R and Excel; panel will cover 200 economies from 2004Q1 to the latest previous quarter; country-specific nowcasts being developed for SSA countries.
  - Department: RES, AFR
  - Availability: Country specific frameworks/results for some 20 SSA countries already available; panel nowcast expected by end-FY23.
- Debt-Investment-Growth Models (DIG family)
  - Description: Frameworks for macro assessment and policy scenario analysis, including DIGNAR, DIGNAR-19, DIG-Labor, and DIGNAD (focus on natural disaster shocks and climate change).
  - Department: RES, SPR, FAD
  - Availability: DIG, DIGNAR and DIGNAR-19 available to staff; an excel-based interface for DIGNAD expected by end-FY23.
- Growth at Risk Model
  - Description: Assesses the medium term probability distribution of growth, capturing upside and downside risks including “fat tails” by combining historical macro data with forward-looking market information.
  - Department: MCM
  - Availability: Publicly available since 2019; GaR 2.0 under development and expected by end-FY23.
- Country Data Annex Tool (CoDA)
  - Description: Excel tool that automatically compares variables from a review document’s macro-framework with the latest published SR and WEO submission to highlight large deviations using pre-determined thresholds.
  - Department: SPR, RES
  - Availability: Under development; SPR expects to make it available to all desks by end-FY24.
- Country Forecast Performance Analysis
  - Description: Produces evaluation reports analyzing accuracy of past WEO forecasts on growth, inflation, and external balance.
  - Department: RES, SPR
  - Availability: Available to staff.
- Structural Reforms Analysis Tool
  - Description: Analyzes long-run effects of structural reforms and quantifies relative importance of channels.
  - Department: RES
  - Availability: Available to staff.
- Structural Reform Dividends Toolkit (SRDT)
  - Description: Computes average yearly additional real GDP growth from closing reform gaps for 68 EMDEs using 2014 reform-gap data across several policy areas.
  - Department: RES
  - Availability: Available to staff.
- COVID Impact Toolkit
  - Description: Three tools — Sectoral-based Pandemic Impact Framework (PIF), Potential Output Tool, and SEIRD model — to estimate pandemic impacts on GDP, potential output, and mobility-pandemic dynamics.
  - Department: RES
  - Availability: Available to staff.
- Structural and Financial Indicators Across Countries
  - Description: STATA toolkit generating scatterplots of structural indicators and GDP per capita; dataset covers 217 countries and territories from 1980 to 2020.
  - Department: RES
  - Availability: Available to staff.
- Fiscal Multiplier Toolkit
  - Description: Excel template helping country teams integrate fiscal shock impacts and persistence into growth projections.
  - Department: FAD
  - Availability: Available to staff.
- Structural Reforms and Shadow Sector Model
  - Description: Investigates short- and long-run impacts of labor and product market reforms, including sequencing and aggregate effects.
  - Department: APD, FAD
  - Availability: Available to staff.

### Monitoring social and distributional developments
- Social Protection and Labor Assessment Tool
  - Description: Excel template to examine Social Protection & Labor systems and comparators with data visualization and distributional aspects.
  - Department: FAD
  - Availability: Available to staff.
- Distributive Incidence Analysis Tool
  - Description: Excel template to estimate welfare impacts of fuel price increases and distribution across household income groups.
  - Department: FAD
  - Availability: Available to staff.
- Toolkit for Evaluating the Welfare Effects of Fiscal Consolidations in LICs
  - Description: Graphical interfaces to access a model examining welfare effects of fiscal reforms across VAT, CIT, and PIT.
  - Department: IMF Inequality working group, SPR, RES
  - Availability: Available to staff.

*Source: ppea2022024 - conclusions of the ongoing*

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_Source: https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022024.pdf_