## ppea2024014 — EXECUTIVE SUMMARY / CD STRATEGY REVIEW—OVERVIEW PAPER

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### Overview and context
- Publication date noted in the document: March 4, 2024.
- Global changes since 2018 relevant to CD:
  - macro-financial uncertainties and debt vulnerabilities;
  - more frequent and intense climate-related shocks;
  - higher food and energy insecurity;
  - geopolitical tensions; and
  - the digital revolution.
- Role of Fund CD (TA and training):
  - boost members’ resilience, institutional capacity and economic sustainability;
  - reduce the Fund’s overall enterprise risks; and
  - contribute to economic integration and multilateralism.

### Vision, principles, and comparative advantages
- Vision and guiding principles:
  - CD allows the Fund to work with members to build institutions and skills to formulate and implement sound macroeconomic and financial policies; CD is voluntary for both the member and the Fund.
  - CD must be consistent with the Fund’s purposes as set out by the Articles of Agreement (IMF, 2020, Article V, Section 2b).
  - Key principles (IMF Policies and Practices on Capacity Development, 2019b): Fund provides CD in core areas of competence; CD targets high-impact activities; CD is demand-driven; CD integrates with policy dialogue during surveillance or programs; Fund seeks to avoid duplication and enhance complementarity with other providers.
- Comparative advantages:
  - Integrated product (CD closely integrated with surveillance and lending);
  - Convening power and access to senior policy makers;
  - Demand-driven provision;
  - Diagnostic and assessment tools highly valued by partners;
  - Policy-oriented training strength.

### Evolution since 2018 and recent performance
- Structural changes and scale:
  - overall spending on CD grew to about a third of the Fund’s total budget over the last two decades;
  - field presence expanded considerably (field-based delivery rose from around 35 percent in 2003 to around 60 percent of total delivery);
  - spending on public finance CD overtook monetary and financial CD;
  - share of CD going to Africa increased markedly;
  - number of RCDCs increased from 3 to 17 since 2000.
- COVID-19 and modality shifts:
  - Fund moved to fully virtual CD delivery during the pandemic;
  - By end FY2023, in-person delivery accounted for about 70 percent of all CD activities, virtual delivery declined to 17 percent, hybrid accounted for 14 percent.
- External financing:
  - external financing has been the key facilitator of CD growth, enabling expansion despite a flat real budget constraint.
- Field staffing:
  - currently around 400 CD-related employees in the field;
  - around 135 locally engaged employees in RCDCs (time not included in Fund reporting systems).

### Independent evaluation and evidence of effectiveness
- IEO 2022 evaluation reconfirmed Fund CD is relevant, effective, and valued by members.
- IEO and other evaluations concluded Fund CD is:
  - responsive and tailored to members’ needs;
  - of highest technical quality;
  - flexibly delivered through multiple modalities;
  - well prioritized and adaptive.

### Main objectives and six priority areas for improvement
- Main objectives of the CDSR: maximize impact by strengthening prioritization, enhancing the funding model, and upgrading delivery; CDSR provides Executive Board guidance for next five years.
- Six headline areas for improvement:
  - prioritization;
  - integration;
  - financing;
  - impact and evaluation;
  - field presence; and
  - human resources.

### Prioritization and integration with surveillance and lending
- Key findings:
  - Prioritization and integration are central to CD effectiveness.
  - Substantial progress since 2018 in internal processes and CD coverage in Board documents, but further progress needed.
  - Evidence on demand: limited signs of broad-based persistent excess demand; pockets of higher regional/thematic demand; in-person training consistently oversubscribed.
- Proposals:
  - Ensure prioritization and resource allocation respond to changing member needs and focus CD on macrocritical areas where Fund has comparative advantage.
  - Increase visibility of CD integration: improve coverage of CD in staff reports for heavy CD users; streamline documentation; strengthen internal incentives for integration.
  - Prepare shorter RSNs and full RSNs only every three years with annual updates; retire CSNs as mandatory standalone documents in favor of staff report coverage for heavy CD users; require CD strategy annexes for heavy CD users.

### Funding model, external financing, and risks
- Key statistics and current financing structure:
  - Direct CD spending was around $285 million in FY2023 (two-thirds externally financed).
  - The Fund spent $281 million on CD projects in FY2023 (excludes indirect costs) (source passages include both $281 million and $285 million figures as presented).
  - Overall spending including attributed spending in FY2023 was around $475 million, with Fund financing around 59 percent of the total.
  - Around two-thirds of direct spending on CD is financed by partners and RCDC member countries; almost half of external funding comes from region-tied vehicles; thematic funds account for around a quarter of external financing; around a third of external funding comes from bilateral agreements.
- Trade-offs and risks:
  - administrative and governance complexity and additional costs;
  - risks to continuity of delivery and prioritization due to limited fungibility and donor cycles (e.g., seven centers rely on one partner for over a quarter of funding);
  - charging for CD has generated negligible revenue (annual revenue from charges around one million USD on average in the last five years, with 60 percent of total revenue coming from three CD donor countries) and high administrative costs.
- Proposals to enhance funding model:
  - Continue broadening external funding vehicles and diversify financing sources, emphasizing multi-partner regional and thematic vehicles.
  - Explore capturing full cost of direct CD delivery that is externally financed (revenue impact likely small).
  - Establish a CD stabilization mechanism:
    - administrative subaccount governed by the Board;
    - potential steady-state target around $50 million to insure against residual funding risks;
    - possible uses: insure against fundraising shortfalls, scale up CD to support Fund arrangements, provide seed money for new priorities.
  - Modify charging policy for high-income economies: update the $250,000 exemption threshold; retain requirement for self-financing by high-income economies for substantial projects with exceptions where they are CD contributors.

### Modernizing delivery, results management, and evaluations
- Drivers of CD effectiveness:
  - more frequent and intensive engagement, sustained field presence, integration with surveillance and lending, stronger ownership, and better tailoring increase results.
  - Sustained CD over several years is more impactful: staff analysis finds intensive TA in tax policy/RA and statistics correlated with larger increases in tax-to-GDP ratio and statistical capacity indicators.
- Results management and evaluation gaps:
  - Common Evaluation Framework updated in 2022; work program of around 12 evaluations a year tied to external funding phases.
  - On average since 2018 staff completed less than one internal evaluation per year.
  - Monitoring and evaluation (RBM) not used systematically in strategy setting or resource allocation; log frames are hard to apply to one-off/shorter-term CD.
- Proposals to strengthen impact and M&E:
  - Require explicit agreement with authorities on targeted results and resource commitments for programmatic CD projects; seek authorities’ endorsement of RBM log frames at inception.
  - Develop consistent strategic result frameworks that aggregate results across projects, workstreams, and country groups.
  - Increase internal evaluations focused on programmatic CD and embed evaluation findings into strategy development and reporting to the CCB and Board.
  - Strengthen dissemination and communication of CD outputs and High-Level Summaries; use AI where feasible to scale cross-country summaries.

### Modalities, technology, and AI implications
- Modalities evolution and blended delivery:
  - Pandemic accelerated virtual delivery; post-pandemic "new normal" blends synchronous in-person, synchronous virtual, and asynchronous self-paced content.
  - Blended approaches can make TA and training mutually reinforcing; example: Singapore Training Institute MPAF blended course results:
    - three online segments averaging 10 hours over 10 days;
    - 16-country participant cohort;
    - 85 percent of participants engaged with relevant Fund TA;
    - satisfaction score 4.9 (scale 0–5);
    - learning gains of 23 percentage points;
    - share scoring at least 60 percent increased from 12 percent pre-course to 52 percent post-test.
- AI potential and risks (Box 11):
  - AI could raise productivity and scale: TA report summaries, course materials, cross-country synthesis, coordination support, detection of duplication, desk economist support, enhanced CD/surveillance integration, knowledge management, interactive asynchronous learning, and learner feedback monitoring.
  - Transformational impacts could change HR composition and roles; mitigate risks of data misuse, ownership, storage, and hallucinations through expert backstopping and responsible use guidelines.
  - Steps already taken: internal AI policy, mandatory staff training, interdepartmental AI working group, sandbox AI tool "AIDA" being tested, full-scale rollout set to commence in 2024 with staff prompt-writing training.

### Field presence, RCDCs, and HQ-field relationships
- Role and status:
  - Field presence integral to Fund CD model; RCDCs now integral parts of Fund architecture.
  - RCDCs grew opportunistically; number doubled since 2010.
- Operational facts and issues:
  - RCDCs largely externally financed and organized around five-year phases, creating funding peaks and uncertainty.
  - Coverage gaps and overlaps exist; a key outstanding gap in Latin America for training.
  - Administrative costs of current RTAC and ATI infrastructure around $10 million per year (external funding of administrative/infrastructure expenses).
- Proposals for RCDCs and field presence:
  - Recognize RCDCs as structural elements and manage them within mainstream systems to safeguard field presence.
  - Break linkage with single funding vehicle cycles; complement regional funding with thematic funds to improve flexibility.
  - Clarify governance: RTACs led by ADs with directors coordinating experts; RTCs under ICD leadership focused on multi-country training; enhance steering committees including IMF, recipient countries, funding partners, and regional deliverers.
  - Continue targeted increases in field presence mindful of budget constraints; pilot locating up to 5 HQ positions in the field beginning FY2025 within existing budget/staffing envelopes.
  - Periodically (every five years) reflect on RCDC coverage, size, and locations; explore options for a new training center covering WHD region.

### HR model, staffing facts, and proposed recalibration
- Staffing and composition:
  - Staffing time reported on CD increased by around 70 percent in FTE terms over the last decade (FY2013–FY2023).
  - Specialist economists (SEs) comprise 20 percent of economist staff, mainly at senior levels.
  - Many CD-related positions are contractual; locally engaged employees growing (around 135 in RCDCs).
- HR challenges:
  - Career path narrower for SEs than for fungible macroeconomists (A15–B4 managerial positions: SEs 21 percent vs FMs 31 percent).
  - Decentralized contracting and management of LTXs creates governance challenges and potential operational risks.
- Short-to-medium term measures proposed:
  - Bolster career paths and mobility for SEs to reduce need for a separate expert track: open competitive vacancies more broadly; allow temporary mobility assignments; open some managerial/resident posts to both specialists and fungible economists.
  - Harmonize and modernize recruitment and management of long-term contractual experts (LTX); provide consistent HR support for performance and contract decisions.
  - Establish inter-departmental talent management mechanisms for specialized career stream staff; mandate certain managerial positions be open to SCS staff.
- Medium-term strategic review:
  - Initiate a business-led strategic review of CD personnel structures within the five-year CDSR period (2024–2029) covering HQ–field role division, staff mix, recruitment modernization, and alignment with member needs and funding model.
  - Coordinate with ongoing field-based employment Phase 1 work: projected finalization in early FY25; policy implementations later in FY25.

### Risk assessment and sequencing of reforms
- Document Risk Self-Assessment highlights implementation risks and mitigation needs across:
  - Prioritization (risk of inflexibility);
  - Funding Model (risk to continuity if internal financing not increased; complexity of stabilization mechanism governance);
  - Modalities (administrative burden; third-party risks with vendors);
  - Field Presence (financial and governance implications of reconfiguring RCDCs; safety and wellbeing exposure);
  - HR Model (recruitment and retention risks if mainstreaming reduces agility).
- Reforms are interrelated; well-sequenced implementation and risk management strategies required.
- Time horizons in risk table: Emerging (1–3 years) and Medium-term (3–5 years).

### Resource implications (estimates and constraints)
- Overall characterization: resources required are moderate but subject to high uncertainty; most proposals evolutionary and can be absorbed through reprioritization; some items require structural savings or targeted reallocations.
- Key numeric estimates and resource notes:
  - Covering fully administrative costs of existing RCDC network would require an additional contribution of up to $10 million USD annually.
  - Recent augmentation allocated 25 percent of resources to CD, funding HQ-based staff, LTX, RCDC administrative spending, and topical CD areas.
  - Example recent augmentations: IMF-financed CD budget augmentation US$17 million and increasing externally financed envelope US$19 million (used to embed FCS, climate, gender, digitalization).
  - Stabilization mechanism steady-state target proposed: around $50 million.
  - Additional staff time for RCDC governance redesign estimated around 1–2 FTEs (absorbed through reprioritization, highest impact in ICD).
  - Strategic review of CD personnel structures will require around 1–2 FTEs of staff resources (absorbed into existing work programs).
  - Cost of proposed HR reforms cannot be estimated at this time.
  - Some evaluations already underway; internal evaluation capacity to be increased within current resource envelope where possible.

### Key operational facts and statistics (preserve exact values)
- Direct CD spending: around $285 million in FY2023 (two-thirds externally financed).
- Alternative presentation in source: The Fund spent $281 million on CD projects in FY2023 (excludes indirect costs).
- Overall spending including attributed spending in FY2023: around $475 million, with Fund financing around 59 percent.
- In FY2023, 168 of 190 member countries received some form of single-country CD from the Fund and all received training.
- Low-income developing countries, FCS, and small states—around 54 percent of the recipient list—accounted for 69 percent of single-country CD delivery spending.
- 85 classroom courses in 7 languages and 87 MOOCs in 6 languages listed in 2023 training catalog.
- 285 microlearning videos available on YouTube.
- Fund offers CD in 36 workstreams managed across five CDDs.
- Tax revenue time-series (Tax Revenue, In percent of GDP; years 2003–2023; values preserved):
  - 2003 6.7
  - 2004 7.7
  - 2005 7.6
  - 2006 7.9
  - 2007 9.5
  - 2008 10.7
  - 2009 9.6
  - 2010 10.1
  - 2011 10.2
  - 2012 11.3
  - 2013 12.9
  - 2014 15.5
  - 2015 15.6
  - 2016 15.8
  - 2017 16.9
  - 2018 18.6
  - 2019 21.7
  - 2020 19.7
  - 2021 18
  - 2022 11.7
  - 2023 12.2

### Proposals summarized (policy recommendations and action items)
- Size and prioritization:
  - Broadly maintain relative size of Fund CD to other Fund outputs (stay in vicinity of pre-pandemic baseline of around 30 percent of Fund’s main activities) while allowing absolute-year flexibility to respond to shocks and changing demand.
  - Strengthen scope for compositional shifts in resource allocation and actively monitor and report on different types of CD.
- Integration and governance:
  - Increase visibility of CD integration in staff reports for heavy CD users; streamline RSN/CSN production and reporting; strengthen internal incentives for integration and AD leadership of RTACs.
- Financing:
  - Broaden external funding vehicles (multi-partner regional/thematic vehicles), diversify sources, consider CD stabilization mechanism (target steady-state around $50 million), and modify charging policy for high-income economies (update $250,000 exemption threshold).
- Impact, RBM, and evaluations:
  - Require explicit authority endorsement of RBM for programmatic CD; develop strategic results frameworks; increase internal evaluations focused on impact; create formal mechanisms to feed M&E into strategy.
- Modalities and technology:
  - Implement country-tailored blended delivery connecting TA and training; modernize external training curriculum (greater online foundational courses, in-person for specialized training, consider semi-structured curriculum/certification); harness AI with safeguards.
- Field presence and RCDCs:
  - Recognize RCDCs as integral Fund structures; evolve financing and governance to reduce single-vehicle dependency, clarify RTAC/RTC roles, enhance steering committees, pilot HQ functions located in the field (up to 5 positions in initial pilot), and periodically review RCDC coverage/size/location.
- Human resources:
  - Bolster SE career paths and mobility; modernize/harmonize expert recruitment and LTX management; create inter-departmental talent mechanisms for specialized career stream staff; initiate medium-term strategic review of CD personnel structures within 2024–2029.

### Issues for Board discussion (questions preserved)
- Do Directors agree with proposed vision for a flexible, tailored, and integrated CD building on Fund comparative advantages?
- Do Directors concur with introducing scope for flexibility in absolute CD spending while broadly maintaining its relative size to other country operations (¶s 32–34)?
- Do Directors support strengthening responsiveness of prioritization and resource allocation to steer compositional shifts (¶s 42–44)?
- Do Directors favor standardization of reporting on CD in AIV Staff Reports for heavy CD users? (¶s 52–54)
- Do Directors support proposed enhancements to the CD funding model (¶s 65–70)?
- Do Directors concur with proposed enhancements of results management and increase of internal evaluations (¶s 78–82)?
- Do Directors agree with proposed focus on increasing and strengthening field presence, including treating RCDCs as structural elements (¶s 94–98)?
- Do Directors support initiating a holistic HR review to formulate a coherent CD HR framework (¶s 103–106)?

*Source: ppea2024014 — CD STRATEGY REVIEW—OVERVIEW PAPER (excerpts) and ppea2024014 — EXECUTIVE SUMMARY.*

### EXECUTIVE SUMMARY

### ppea2024014 - EXECUTIVE SUMMARY

### Overview and context
- The global landscape has changed significantly since the 2018 Capacity Development (CD) Strategy Review, with member countries facing:
  - macro-financial uncertainties and debt vulnerabilities;
  - more frequent and intense climate-related shocks;
  - higher food and energy insecurity;
  - geopolitical tensions; and
  - the digital revolution.
- Fund CD, through technical assistance (TA) and training, can:
  - boost members’ resilience, institutional capacity and economic sustainability;
  - reduce the Fund’s overall enterprise risks; and
  - contribute to economic integration and multilateralism.
- Publication date noted in the document: March 4, 2024.

### Evolution since the 2018 review
- Fund priorities and working practices have evolved, reflecting:
  - shifts in the surveillance landscape (as recognized in the 2021 Comprehensive Surveillance Review (CSR));
  - new institutional strategies on climate change, fragile and conflict-affected states (FCS), gender, and digital money;
  - lessons from the pandemic on modality innovations and their limits; and
  - rapid technological progress creating potential to accelerate innovation.
- Over the last two decades:
  - overall spending on CD grew to about a third of the Fund’s total budget;
  - external funding greatly increased;
  - field presence considerably expanded; and
  - management and delivery of CD were transformed.

### Independent evaluation and evidence of effectiveness
- The Independent Evaluation Office (IEO) reaffirmed in 2022 that Fund CD is relevant, effective, and valued by members.
- IEO findings and related evaluations concluded that Fund CD is:
  - responsive and tailored to members’ needs;
  - of highest technical quality;
  - flexibly delivered through a range of delivery modalities and vehicles;
  - well prioritized; and
  - adaptive to changing circumstances and needs.

### Main objectives of the CDSR
- Focus on maximizing impact by:
  - strengthening prioritization;
  - enhancing the funding model; and
  - upgrading delivery.
- The CDSR is the main vehicle for the Executive Board to provide strategic direction and oversight to the Fund’s CD for the next five-year period.

### Six areas for further improvement (headline)
- The review highlights six areas for further improvements in CD:
  - prioritization;
  - integration;
  - financing;
  - impact and evaluation;
  - field presence; and
  - human resources.

### Prioritization, integration, and governance
- Prioritization and integration with surveillance and lending are central to CD’s success.
- Substantial progress made since the 2018 review in internal processes and coverage of CD issues in Board documents and discussions, but room for further progress remains.
- Proposed actions include:
  - measures to ensure prioritization of CD projects and resource allocation respond to members’ changing needs;
  - focusing TA and training on macrocritical areas and areas reflecting the Fund’s comparative advantage;
  - new avenues for the Board to gain insight into prioritization; and
  - enhancing coverage of CD issues in staff reports and continuing to strengthen internal incentives for effective integration.

### Funding model, external financing, and risks
- Design of the funding model influences flexibility and impact.
- Greater usage of external financing has enabled the Fund to meet growing CD demand in a flat real budget environment.
- Trade-offs and risks of external financing:
  - additional costs of administering multiple funding sources; and
  - risks for continuity of delivery and prioritization.
- These risks have been managed well to date, but the fundraising environment is getting more difficult.
- The review identifies options to:
  - enhance the funding model; and
  - enhance the flexibility and agility of external financing.

### Modernizing delivery, results management, and evaluations
- Modernizing delivery and enhancing monitoring and evaluation could further increase CD impact.
- Staff analysis supports the IEO’s conclusion that Fund CD has been broadly effective and impactful.
- Proposed actions include:
  - enhancing the results management framework (Result-Based Management, RBM);
  - intensifying evaluation; and
  - ensuring these systems are used in project design and strategy development with greater involvement of recipient members in the results management process.
- Modernizing delivery modalities by:
  - leveraging communications and technology;
  - implementing blended delivery; and
  - adapting modalities informed by pandemic experience and rapid technological progress.

### Field presence and Regional Capacity Development Centers (RCDCs)
- Field presence has become fundamental to the Fund’s model, enabling more intensive and tailored CD.
- Field presence has grown organically over two decades, raising longstanding strategic and governance issues.
- RCDCs are now an integral part of the Fund.
- Proposed actions include:
  - evolving financing structures and governance to reflect RCDCs’ role;
  - clarifying relationships between RCDCs and HQ activities; and
  - continued increases in field presence, taking into account the evolution of all Fund operations and budgetary constraints.

### Human resources and CD staffing
- Growth in CD size and field presence has changed the composition of CD staffing.
- The IEO evaluation identified issues with the HR model for CD employees.
- Addressing HR issues is crucial to safeguard quality and agility of CD delivery.
- Proposed measures:
  - enhance the environment for staff working in CD; and
  - conduct a strategic review of CD personnel structures.
- This HR review will be linked to other ongoing work, including work on field-based employment.

### Risk management and implementation sequencing
- Reform proposals are interrelated and involve risks that need to be managed.
- Staff proposals to enhance flexibility, integration, and tailoring will require:
  - well-sequenced reforms; and
  - management of concomitant risks.
- The review assesses these risks and associated risk management strategies to inform effective implementation of CDSR proposals.

### Inputs, authorship, and contributors
- Prepared by the Institute for Capacity Development (ICD) in collaboration with other departments and coordinated by Faisal Ahmed and Matt Davies under the overall guidance of Michaela Erbenova (all ICD).
- The review drew on:
  - internal consultation and outreach;
  - surveys of recipient authorities and CD partners;
  - guidance from the Executive Board;
  - consultations with external experts (External Advisory Group); and
  - numerous interdepartmental background workstreams (Delivery Modalities; CD Evaluation and Impact; Field Presence; HR Policies; Mapping the Fund’s Position vis-à-vis other CD Providers).

*Source: ppea2024014 - EXECUTIVE SUMMARY (IMF Capacity Development Strategy Review overview paper).*

### 6.     The paper is organized as follows: Section I highlights the long-term vision that guides the

### CD STRATEGY REVIEW—OVERVIEW PAPER

### The Vision
- CD allows the Fund to work with members to build the institutions and skills needed to formulate and implement sound macroeconomic and financial policies; CD is voluntary for both the member and the Fund.
- CD must be consistent with the Fund’s purposes as set out by the Articles of Agreement (IMF, 2020, Article V, Section 2b).
- Key guiding principles for CD (IMF Policies and Practices on Capacity Development, 2019b):
  - The Fund provides CD in its core areas of competence.
  - All CD should target high-impact activities.
  - CD activities are driven by demand from member countries.
  - CD activities are integrated with the policy dialogue between member countries and the Fund that takes place during surveillance or Fund-supported programs.
  - The Fund seeks to avoid duplication and to enhance complementarity with other CD providers.
- CD is critical for economic sustainability, helping build institutions and capacities that support growth, stability, and resilience; literature cites institutions and capacity as drivers of state capacity, growth, resilience, and sustainability (e.g., North, 1990; Imam, 2023; Acemoglu and others, 2003).
- CD supports program implementation and builds policy buffers, improving traction with authorities and informing program design and implementation, especially where capacity and policy buffers are limited.
- Effective CD must be flexible, tailored, and integrated to address challenges such as climate change, digital transition, frequent shocks, high debt levels, limited policy space, and geopolitical tensions; flexibility is needed in design, staffing, and financing, and tailoring may require greater selectivity.

### Summary of Main Proposals (Table 1)
- Size and Prioritization
  - Broadly maintain the relative size of Fund CD to other Fund outputs while ensuring scope for flexibility in absolute size of annual CD spending.
  - Strengthen the scope for compositional shifts in the current resource allocation process.
  - Actively monitor and report on different types of CD.
- Integration
  - Increase visibility of CD integration, including by improving coverage of CD in staff reports for heavy CD users and streamline other documentation requirements.
  - Continue to strengthen internal incentives and capacity for integration.
- Financing
  - Continue broadening external funding vehicles, increasing their flexibility, and diversifying sources.
  - Establish a CD stabilization mechanism.
  - Modify charging policy for high income economies.
- Impact
  - Require explicit agreement with authorities on targeted results and resource commitments for programmatic CD.
  - Develop strategic result frameworks for articulating and tracking results at a higher-than-project level.
  - Increase internal evaluations focused on the impact of Fund CD.
  - Create formal mechanisms for feeding monitoring and evaluation results into strategy development.
  - Continue to enhance CD dissemination and communication.
- Modalities
  - Implement country-tailored delivery approaches to further integrate TA and training utilizing a blend of in-person and virtual approaches.
  - Review the external training curriculum.
- Field presence
  - Recognize RCDCs as integral parts of the Fund’s structure, clarify their governance and make required adjustments to their financing and administrative framework.
  - Continue to increase CD field presence, including through experimenting with broadening its scope.
  - Regularly review RCDCs’ coverage, size, and locations.
- HR
  - Bolster career paths for specialized economists (SEs) in lieu of a separate expert track.
  - Modernize and harmonize expert recruitment and management.
  - Adjust policies and practices for specialized career streams to promote mobility and career development.
  - Over the medium term, initiate a strategic review of CD personnel structures.

### Comparative Advantages of Fund CD (Box 1)
- Integrated product: close integration of CD with surveillance and lending, important in crisis situations where rapid mobilization of high-quality technical advice reinforces financial support.
- Convening power: access to senior policy makers and ability to link domestic policy agendas with global trends; ranked as the most influential partner in prioritizing national economic policy agendas (Listening to Leaders, Custer and others, 2021).
- Demand-driven: CD is provided in response to member demand and is not conditional on lending.
- Diagnostic and assessment tools: highly valued technical diagnostic tools often form the basis for follow-up CD from other providers; the Fund’s programmatic TA is less well known to some development partners who suggested more attention to implementation prerequisites.
- Policy-oriented training: strong comparative advantage in macroeconomic policy-oriented training of government officials.

### The Journey So Far — Key Developments and Performance
- Size and footprint transformation over the last two decades:
  - CD now accounts for almost a third of country operations.
  - Field-based delivery increased from around 35 percent in 2003 to around 60 percent of total delivery.
  - Spending on public finance CD overtook monetary and financial CD.
  - The share of CD going to Africa increased markedly.
  - Training modalities shifted: participants trained at regional centers now account for over 95 percent of training; online course offerings continue to grow rapidly.
- External financing has been the key facilitator of CD growth, enabling expansion despite a flat real budget constraint and supporting an effective field presence and improved coordination with development partners.
- Field presence:
  - Currently around 400 CD-related employees in the field.
  - Number of RCDCs doubled since 2010; increased from 3 to 17 since 2000.
  - Growth in RCDCs has been largely opportunistic, but they now form an integral part of the Fund’s CD architecture.
- COVID-19 delivery modality shifts:
  - The Fund moved to fully virtual CD delivery following the pandemic onset.
  - By FY2023, in-person delivery accounted for about 70 percent of all CD activities at the end of FY2023.
  - Virtual delivery declined to 17 percent at the end of FY2023.
  - Hybrid activities accounted for 14 percent of all activities by end FY2023.
  - The new normal is expected to blend synchronous in-person CD, synchronous virtual CD, and asynchronous (self-paced) online content toward continuous engagement.
- Heterogeneity and specialization:
  - CD is more heterogeneous than surveillance and lending, delivered across a wider range of modalities and 36 workstreams managed across five CD departments (CDDs).
  - Reliance on specialized expertise increases use of contractual experts and decentralization has led to innovation and variability in delivery.
- Past reviews and reforms:
  - 2013 CD Strategy Review: recommended strengthening governance, prioritization, funding model, monitoring and evaluation, integration of TA and training, delivery, and leveraging CD as outreach.
  - 2018 CD Strategy Review: emphasized increasing impact through integration with surveillance and lending and increasing efficiency through improved processes, prioritization systems, and the Capacity Development Management and Administration Program (CDMAP).

### Key Statistics and Operational Facts (Box 2 and other passages)
- The Fund spent $281 million on CD projects in FY2023 (excludes indirect costs).
- CD delivery accounts for around one-third of direct country operations.
- In FY2023, 168 of 190 member countries received some form of single-country CD from the Fund and all received training.
- Low-income developing countries, FCS, and small states—around 54 percent of the recipient list—accounted for 69 percent of single-country CD delivery spending.
- The Fund’s 2023 training catalog lists 85 courses offered in a classroom setting in 7 languages, and 87 massive open online courses offered in 6 languages.
- 285 microlearning videos are available on YouTube.
- The Fund offers CD in 36 workstreams and manages technical expertise and delivery across five CDDs.

### Taxonomy and Modalities (Box 3)
- CD can be categorized by the type of capacity built and duration:
  - Strengthens individual capacity (training) and institutions (TA).
  - Engagements range from short-term/one-off to programmatic medium- to long-term activities.
  - “Diagnostic” CD provides initial assessment to design programs.
  - TA can be short-term crisis-focused (“firefighting”) or medium/long-term “curative,” “preventative,” or “developmental.”
  - Training ranges from limited-duration skill-building courses to broader capacity development when coordinated with TA.
- Synergies between TA and training can improve flexibility, tailoring, and impact; training elements exist within many TA missions and can increase TA absorption.

### Performance, Evaluation, and Next Steps
- The 2022 IEO evaluation highlights CD impact and external analysis corroborates strengths, but areas for improvement remain (Annex I and Management Implementation Plan, IMF, 2023a).
- Governance and management enhancements over the past decade include:
  - Strengthened strategic planning and stepped up Executive Board engagement.
  - Introduction of country and regional strategies reinforcing area departments’ lead role in setting CD priorities.
  - New CD information dissemination policy (IMF, 2022e).
  - Introduction of the CDMAP system for budgeting, project management, and harmonized processes.
  - A unified Results-Based Management (RBM) Framework and a Common Evaluation Framework (IMF, 2020b).
  - Advances in the funding model through new multi-partner vehicles and broadening the donor base.

*Source: ppea2024014 - CD STRATEGY REVIEW—OVERVIEW PAPER (excerpts).*

### 19.     Board engagement on CD has significantly increased. In addition to engagement on the

### ppea2024014 - 19.     Board engagement on CD has significantly increased. In addition to engagement on the

### The road ahead — context and challenges
- Global landscape has changed significantly since the last review:
  - Members face multiple challenges: inflation, tighter financing conditions, capital flow disruptions, and high debt.
  - Long standing gaps in institutional capacity require sustained attention.
  - Increased demand for support in building policy frameworks to address these challenges.
- New and expanded Fund priorities include climate change, FCS, gender, and digital money, amid tightened financing conditions for some donors.
- Post-pandemic shifts:
  - Surveillance landscape includes new priorities, increasing pressures on prioritization.
  - Pandemic experience offers lessons on modality innovations and limits.
  - Rapid technological progress, including artificial intelligence (AI), can accelerate CD productivity.
  - Managing climate transitions and progress on SDGs requires significant investment in EMDEs and bolstered domestic resource mobilization.
- Implication: CD must become more flexible, tailored, and integrated; coordination with development partners and focused communication/outreach are essential.

### High-level analysis and sequencing
- Reforms are inter-related and require time and coordination; many proposals have a medium- to longer-term implementation horizon.
- The review draws on IEO recommendations, staff analyses, five background papers, and input from an External Advisory Group.
  - External Advisory Group emphasized: enhanced collaboration between area and CD departments; mainstreaming new topics; strengthening monitoring and evaluation; reinvigorating role in promoting good governance.
- Where Board decisions are required, the Board will be approached formally as part of implementation.

### Strengthening prioritization and integration — CD sizing and alignment
- Issues and institutional context:
  - Decisions on the size of CD spending are taken annually in the medium-term budget process, which sets an overall envelope and an explicit budget for externally financed spending (almost entirely devoted to CD).
  - The 2022 IEO evaluation called for clearer guidance for a more intentional and transparent prioritization and allocation of CD resources, considering synergies and trade-offs between CD, surveillance, and program work.
- Current balance and mandate alignment:
  - Surveillance accounts for around 40 percent of the Fund’s country operations; CD and lending represent the rest and are broadly similar in size.
  - Changes in CD’s overall size should not fundamentally alter the balance between surveillance, CD, and program work.
- Evidence on demand and capacity:
  - Signs of broad-based and persistent excess demand are limited, though there are pockets of higher regional/thematic demand.
  - Low share of pipeline projects not incorporated in CD departments’ medium-term workplans (MTW) indicates the Fund rarely abstains from providing CD when requested.
  - In-person training has been consistently oversubscribed; acceptance rates have edged slightly down in recent years.
  - Survey evidence indicates partners and recipients want more Fund CD and increased Fund involvement in most workstreams; Fund CD is perceived as highly influential and helpful in a 60-country AidData survey of CD recipients.
  - Recipients expressed a strong preference for Fund CD in core areas where the Fund has comparative advantage and emphasized aligning CD with country priorities.

### Flexibility in CD size and budgetary approach
- The size of CD needs to be able to change (up and down) according to member needs, shocks, and global developments.
  - Pandemic conditions reduced the share of CD as departments utilized budget flexibility to meet other priorities; as priorities shift back to structural reforms, CD size supporting reforms is expected to rise back, as seen in FY2023.
  - Flexibility is important to respond to unforeseen shocks (e.g., sudden macroeconomic crises or conflicts) or to scale back when demand shifts.
- Recent budget adjustments as a model:
  - CD budgets were augmented and reprioritized to embed FCS, climate, gender, and digitalization strategies into core delivery areas.
  - This was facilitated by augmentation of the Fund-financed CD budget (US$17 million) and increasing the externally financed envelope (US$19 million).
  - The increase kept the share of CD in the overall Fund budget and the funding mix broadly stable.

### Coordination with development partners
- Coordination and communication can mainstream new priorities more effectively and efficiently.
  - Existing mechanisms include joint missions (e.g., with the World Bank and European Commission), country-level coordination with HQ and field participation, steering committees of RCDCs and Global Thematic Funds, and global initiatives such as the Platform for Collaboration on Tax.
  - Coordination on climate and digital money is critically important given cross-cutting nature and comparative advantages of partners.
  - Forthcoming joint Domestic Resource Mobilization initiative with the World Bank will focus on supporting countries to mobilize domestic resources for climate and SDG-related investment needs.
- There remains scope to further strengthen coordination effectiveness within existing resource constraints.

### Proposals and policy recommendations
- Maintain the size of CD spending relative to the Fund’s other main activities while emphasizing flexibility:
  - Remain in the vicinity of the pre-pandemic baseline of around 30 percent of the Fund’s main activities, allowing year-to-year variations according to global conditions and member demand and responding to persistent gaps in Fund focus areas.
- Use normal resource planning for flexibility:
  - Existing budget process allows reprioritization within the Fund-financed budget or adjustment of the externally financed envelope, subject to Board approval.
  - Given tight budgets, reallocations in any given year are likely to be small but can accumulate into meaningful shifts over time.
- Addressing new priorities and specific gaps:
  - New priorities need not always require additional resources, but one-off increases may be required for limited thematic or regional CD gaps.
  - Proposed adjustments would be carefully justified before Board budget proposals, with the Committee on Capacity Building (CCB) advising; distinctions made between permanent and temporary adjustments; full account taken of reprioritization scope within current envelopes.
  - Close communication and coordination with development partners and within the Fund (area, CD, and functional departments) is required.

### Mainstreaming emerging priorities — gender (Box 5 summary)
- Rationale: Closing gender gaps enhances economic growth, stability, inclusion, and yields positive externalities; gender inequality is macrocritical.
- Progress:
  - The 2022 IMF Strategy Toward Mainstreaming Gender calls for gradual, systematic integration of gender into surveillance, lending, and CD.
  - During FY2023, 22 staff reports across countries included gender analysis, above the strategy target of 11 countries.
- Areas of CD for gender-related reforms:
  - Data: Strengthen collection and analysis to assess gender-related economic disparities.
  - Gender-responsive budgeting and public financial management (PFM): Integrate gender into budgets and fiscal policy; enhance PFM systems for gender-responsive execution.
  - Taxation: Advise on gender-responsive tax policy design (labor, capital, wealth, personal income, consumption taxes).
  - Revenue administration: Apply gender lens in administration to reduce barriers to women’s employment, entrepreneurship, and trade; develop gender-balanced and inclusive workforces.
  - Legal barriers: Address legal issues when designing fiscal/tax measures and implement reforms to promote women’s economic empowerment.
- Impact conditions:
  - CD is particularly impactful when it assists countries to implement reforms recommended in surveillance or to help implement conditionality under IMF-supported programs.
- External collaboration:
  - Continuous deepening of collaboration with partners (World Bank Group, UN Women) supports knowledge sharing, peer learning, and maximizing on-the-ground impact.
  - A dedicated unit in SPR serves as initial contact between country teams and external partners; two external advisory groups (academics; CSOs and think tanks) support engagement; resident representatives coordinate with authorities and local partners.

*Italic: Source: ppea2024014 — CD STRATEGY REVIEW—OVERVIEW PAPER (excerpts).*

### Box 6. Mainstreaming Emerging Priorities—Climate Change

### Box 6. Mainstreaming Emerging Priorities—Climate Change

### Context and macroeconomic significance
- "Climate change is one of the most critical macroeconomic and financial stability challenges facing IMF members."
- Going forward, "climate change will affect macroeconomic and financial stability at national and global levels and risks widening economic disparities."

### Fund strategy and modalities
- Guided by "its 2021 Climate Strategy (IMF, 2021c)," the Fund is addressing growing demand for climate-informed CD by:
  - "bolstering TA on fiscal, financial, statistical, legal, and macroeconomic issues;"
  - "designing new training and micro-learning;"
  - "developing and scaling-up analytical tools and modeling."
- "The work encompasses all areas of Fund expertise," including fiscal, financial, statistical, legal, and macroeconomic areas.

### Fiscal management CD
- Fund CD provides support on:
  - "mitigation,"
  - "green PFM,"
  - "identification of fiscal risks related to climate change,"
  - "climate-responsive PFM assessments,"
  - "the climate module of the Public Investment Management Assessment (C-PIMA), and other related analytical tools."

### Financial sector CD
- "The Fund has integrated climate issues into its financial sector toolkits and provides tools and capacity building for country analysis of financial sector climate risk, including in prudential frameworks in the financial sector, and for strengthening the climate information architecture."

### Data and statistics CD
- A Fund "multi-country pilot project provides CD to develop policy-relevant climate statistics."
- Supported by "ongoing work on methodological and data reporting frameworks, including under the G-20 Data Gaps Initiative 3, to gauge the impact of climate reform measures."
- "The Fund also uses its climate change indicators dashboard and innovative data collections to better assess climate shocks."

### Legal frameworks, integrity, and anti-corruption
- "The Fund provides guidance on legal frameworks, financial integrity, and anti-corruption related to climate change."

### Macroeconomic framework and modeling
- "The Fund’s CD helps countries build macro scenarios that reflect climate change shocks, mitigation, and adaptation policies including through the streamlined Climate Macroeconomic Assessment Program and Climate Policy Diagnostics."
- "These resources help integrate adaptation to climate change in macro-fiscal planning and frameworks."
- "This work is closely informed by member needs and surveillance priorities, while supporting program work design (e.g., RSF) and implementation where relevant."

### Partnerships, coordination, and staffing
- "Partnerships and coordination are critical to meeting member demand and scaling up CD."
- The Fund "works closely with bilateral and multilateral partners such as the World Bank, the OECD, WTO, UN agencies, the European Commission, regional developments banks and international fora (e.g., FSB)."
- Staff also "partner with researchers, academic institutions, civil society, and climate experts, among others, to shape policies and share expertise."
- "The recent augmentation of Fund budget allowed a modest increase in specialized staff to bolster this effort as increasing demand stem from the reform commitments of the countries under the RSF arrangements."

*International Monetary Fund — Box 6 text as provided in the source content.*

### 47.     Regional Strategy Notes (RSNs) have been valuable in establishing AD leadership. All

### 47.     Regional Strategy Notes (RSNs) have been valuable in establishing AD leadership. All

### Integration of CD strategies and role of RSNs and CSNs
- RSNs are prepared annually by all ADs, shared with management, and useful for driving analysis of delivery and demand at a regional level and providing a forum to articulate key departmental priorities.
- Impact of RSNs on prioritization has varied due to heterogeneity of priorities and countries within most regions.
- RSNs can be resource intensive to produce; there is scope for streamlining production given greater availability of granular regional information from CDMAP implementation.
- CD CSNs have helped drive integration; staff guidelines on scope and coverage issued in 2020 increased coverage of strategies in staff reports.
- CSN implementation was slowed by the pandemic but has since picked up (Figure 11).
- CSNs extended beyond heavy CD users’ requirements in some departments (e.g., in WHD).
- The IEO evaluation notes CSNs varied in quality and in the extent to which they were reflected in surveillance documentation and discussions.
- Developments affecting CSNs:
  - Establishment of Country Engagement Strategies (CES) for FCS countries that embed the CD strategy within a broader country strategy and include light CESs in staff reports for small developing states.
  - Availability of country-level CD activity, plans and results frameworks in CDMAP reduces need to document such elements in CD CSNs.

### Visibility, consistency, and Board engagement
- Consistency of CSNs remains an issue; improvements have not been visible to external stakeholders.
- The Board has limited visibility of CD strategies as CSNs are internal documents and have inconsistent coverage in staff reports.
- Coverage of regional CD strategy in AD Board briefings has increased but remains very limited; the Board does not see RSNs.
- Given varying coverage of CD in staff reports, the Board does not get sufficient coverage of the relation between CD provision and issues covered in surveillance.

### Participation, coordination, and operational practices
- Greater participation of CD personnel in surveillance and program design has contributed to greater integration.
- During the pandemic, CD specialists’ participation facilitated technical dialogue and had strong positive impact on CD-surveillance-lending integration and traction.
- Such interactions should be explicitly included in planning framework for blended CD modalities (see Section D).
- Coordination with development partners improves CD integration and impact:
  - Effective coordination helps integration, avoids duplication, ensures CD overlaps are managed, and increases synergies by allowing partners to focus on comparative advantages.
  - Coordination reduces risks of stretching scarce absorptive capacity in many CD recipients, particularly FCS.

### Proposals on RSNs, CSNs, and staff reports
- Enhance visibility of AD-led prioritization and streamline documentation:
  - Prepare shorter RSNs and produce full RSNs only every three years, with brief annual updates focusing on significant changes.
  - Periodically share summaries of RSNs with the Board in the context of the annual briefing on CD priorities.
  - Retire CSNs as mandatory standalone documents in favor of more substantive coverage in staff reports.
  - For FCS and small developing states, embed CD strategies in CES; country teams may still produce detailed strategies internally.
- Improve coverage of CD in staff reports for heavy CD users:
  - Increase usage of CD strategy annexes; these will be required for all heavy CD users and could incorporate automatically produced information drawn from CDMAP.
  - Develop expected format and required coverage of these annexes as part of future CD and surveillance guidance; consider adjusting the number of heavy users.
  - EAG proposes amending the review process to create specific responsibility for monitoring this in ICD (see Annex II), but resource costs are likely prohibitive.
  - Strengthen intra and interdepartmental reviews and develop new tools/processes to address CD coverage.
- Continue to strengthen internal incentives and capacity for integration:
  - Clarify AD leadership of Regional Technical Assistance Centers (RTACs).
  - HR reforms to enhance mobility of specialized economists.
  - Purposeful acknowledgment of the importance of shorter-term CD for surveillance and lending traction.
  - Implement 2021 staff guidelines on integration through inclusion in forthcoming CD guidance note and knowledge/change management initiatives.
  - Resident representatives to be included in initiatives given their critical role in integration.
  - EAG suggestion: Internal Economics Training (IET) program should include greater focus on public policy and political economy topics.

### Enhancing the funding model — Issue
- External financing has enabled significant expansion in the Fund’s ability to meet members’ CD needs but increased risks to continuity of delivery and to prioritization.
- Fund CD relies on the Fund’s administrative budget and a growing array of externally funded vehicles with many financing partners.
- Board discussions note positive impact of external financing but highlight risks to continuity; some chairs note lack of access to external funding for certain groups of countries.
- IEO evaluation proposed revisiting funding model, including increasing share of internal funding and charging for CD.

### Enhancing the funding model — Considerations and key figures
- CD spending components:
  - Direct spending on CD: cost of personnel, travel, and other costs of direct delivery, analytics, administration and CD management captured in CDMAP.
    - Direct CD spending was around $285 million in FY2023, and around two-thirds of it was externally financed.
  - Overall spending on CD: includes additional Fund spending attributed to CD (management/administrative spending in delivering departments; CD’s share in corporate functions).
    - Spending including all attributed spending in FY2023 was around $475 million, with Fund financing around 59 percent of the total.
- Within direct spending, the Fund’s own budget covers a large share of analytical work and a majority of CD management and administration spending.
- Internal funding is more flexible across regions and subject areas; used for urgent needs and to fill gaps where external financing is not available (e.g., many emerging market countries).
- Fund-financed CD budgets have remained broadly constant in real terms over the past decade, with a pandemic-related dip in spending.
- Recent augmentation allocated 25 percent of resources to CD, funding HQ-based staff, long-term experts (LTX) and RCDC administrative spending, and specific topical CD areas.
- Around two-thirds of direct spending on CD is financed by partners and RCDC member countries.
  - Almost half of this external funding comes from vehicles tied to specific regions (mainly RCDCs).
  - Thematic funds account for around a quarter of external financing.
  - Around a third of external funding comes from bilateral agreements.
- External financing growth and partners:
  - External financing allowed scaling up delivery, significant field presence, and enhanced coordination with delivery partners.
  - Figure trends and charts referenced: Figures 12–16 illustrate funding structures, shares by vehicle, and partner composition.
- Risks associated with external financing:
  - Administrative and governance complexity and additional costs.
  - Personnel structure implications in the CD area.
  - Limited fungibility across topics/regions can lead to financing shortfalls in specific areas.
  - RCDCs exposure: seven centers rely on one partner for over a quarter of their funding (Figure 15).
  - Budget utilization of internal budgets for CD has generally been higher than for externally financed CD.
- Short- to medium-term funding environment:
  - Funding risks low in short term due to pre-financing model with buffer of more than two years’ worth of external CD funding.
  - Progress in increasing flexibility of funding vehicles and number of partners, including greater share of contributions from emerging economies.
  - Given small share of Fund-financing of direct delivery and tight Fund budget, shifts or declines in donor funding for particular regions or topics could impact delivery levels.
- Charging for CD:
  - Fund CD is generally provided free of charge, with policy for high-income members to self-finance CD when not crisis-related, external finance unavailable, and costs exceed US$250,000.
  - Charging has incurred significant administrative costs, generated negligible revenue, and caused reputation difficulties.
  - Annual revenue from charges has been around one million USD on average in the last five years, with 60 percent of total revenue coming from three CD donor countries.

### Enhancing the funding model — Proposals and constraints
- Increasing Fund-financing for CD would reduce prioritization and fundraising risks and increase flexibility/agility of resourcing and delivery.
- Significant additional resources would be required to materially change the share of direct spending covered by the Fund; not feasible in current flat real budget environment.
- Example: increasing IMF01 coverage of RTACs administrative costs would require around US$10 million annually.
- Options considered (e.g., notional reserve for CD on Fund’s balance sheet) were not pursued as they would require temporary departure from flat real constraint for net administrative budget and received limited Board support at mid-point discussion.

*International Monetary Fund — CD STRATEGY REVIEW—OVERVIEW PAPER (excerpts from content unit provided)*

### 66.     In order to increase flexibility and decrease risks, the Fund will continue to broaden

### ppea2024014 - 66.     In order to increase flexibility and decrease risks, the Fund will continue to broaden

### Broadening external funding vehicles and diversification of financing sources
- Continue to broaden external funding vehicles and diversify financing sources without fundamentally altering the existing funding model, and subject to preferences by partners.
- Fundraising emphasis: multi-partner regional and thematic vehicles with flexible country coverage rather than bilateral donor or single country-designated vehicles—although bilateral/single-country vehicles can have useful roles in circumscribed cases (for instance financing scaled-up CD in Ukraine).
- Thematic vehicles: most flexibility in country coverage, can help lower administrative costs, and better support a holistic prioritization approach.
- Example: Global Public Finance Partnership (GPFP) Initiative cited as increasing flexibility and minimizing financing risks.
- For RCDCs, regional funding (from donors and member countries) will more systematically be complemented with thematic funds to improve RCDC funding structure and the Fund’s ability to match CD delivery with desired regional composition; this will require evolution in the RCDC governance model.
- Staff to explore capturing the full cost of direct CD delivery that is externally financed; revenue impact likely to be small.

### CD stabilization mechanism — rationale and possible uses
- Purpose: reduce residual risks associated with the current CD funding model by establishing a pool of highly flexible, untied financial resources providing insurance against external funding risks and improving ability to direct adequate CD to highest institutional priorities.
- Governance form: administrative subaccount established by the Board, similar to those used for external funding vehicles; Board document to set out purposes and reporting requirements.
- Options for uses could include:
  - Insuring against fundraising shortfalls: fill short- to medium-term gaps in external financing for specific regional centers/thematic funds.
  - Ensuring adequate CD to support Fund financial arrangements: provide ability to rapidly scale up CD in support of rising demand for programs (Figure 17 shows the direct relationship between program status and CD delivery).
  - Financing CD for emerging institutional priorities: provide “seed money” to scale up CD in new areas of demand before integration within existing envelope and financing structure.

### Direct CD spending by region and program status (Figure 17) — key statistics
- Average Direct CD Spending—Program vs. Non-Program Countries (In millions of USD, average per country, FY2023) — regional values as presented:
  - WHD: Non-Program 0; Program 0.4
  - EUR: Non-Program 0.8; Program 1.2
  - MCD: Non-Program 0.5; Program 0.8
  - AFR: Non-Program 0.9; Program 1.6
  - APD: Non-Program 0.7; Program 1.3
  - (Also listed sequence of numbers in figure: 0.5, 0.2, 0.5, 0.9, 0.8, 0.7, 0.8, 1.2, 1.3, 1.5)
- Regional abbreviations preserved: AFR: Sub‑Saharan Africa, APD: Asia & Pacific, EUR: Europe, MCD: Middle East and Central Asia, WHD: Western Hemisphere

### Management, budgeting, and reporting of the stabilization mechanism
- The mechanism to be managed within the existing Fund gross budget and CD resource allocation process.
- Board: overall control of the mechanism; operations delegated to management in line with existing CD governance.
- Expenditures financed by the mechanism: part of the gross administrative budget but not part of the net administrative budget (to avoid formal earmarking within the net administrative budget).
- Board decisions on the overall size of funding incorporated into the gross budget to align with considerations in the CD size section and take into account size and potential uses of the stabilization mechanism.
- Reporting to the Board on plans and execution to occur in the context of the annual budget process, including the decision on overall expenditures included in the annual budget.

### Financing sources, steady-state target, and donor incentives
- The mechanism would not be tied to a single funding source; potential financing sources could include contributions from donors and potentially internal Fund resources, provided contributions are structured consistent with the untied nature of the mechanism.
- The mechanism could further exploit synergies between the Fund’s fundraising activities.
- Design/implementation must guard against creating incentives for donors to reduce ongoing contributions to CD.
- Target steady-state level: around $50 million should provide adequate insurance against residual funding risks; would need to be replenished when utilized.

### Charging policy for high-income economies
- Current threshold: projects under $250,000 exempt from charging.
- Recommendation: modify the charging policy for high-income economies to ensure it creates appropriate incentives and does not hinder technical dialogue.
- Update the $250,000 exemption threshold to take account of cost increases.
- Move to reimbursable services for income generation is not compatible with CD governance and strategy.
- Retain requirement for high-income economies to self-finance substantial projects, but lift requirement where high-income economies are already contributors to the Fund’s CD.

### Enhancing impact — issues and considerations
- CD impact is difficult to assess objectively; influenced by CD design and ability to influence recipients’ policy priorities and implementation.
- Evidence (survey, evaluations, RBM) indicates Fund CD is highly valued for technical quality in the Fund’s core expertise; Fund CD has become better tailored to recipient needs and circumstances; overall, Fund CD was relevant, valued, and broadly effective in a wide range of country circumstances.
- Enhancing impact requires continued refinements in prioritization, deepening of ownership, and improvements in monitoring and evaluation (RBM and CDMAP progress noted; considerable room for improvement remains).

### Drivers of CD effectiveness (findings)
- CD results are boosted by more frequent and intensive engagement, including sustained field presence, integration with surveillance and lending, stronger ownership, and better tailoring (Bassanetti, 2021; staff analysis).
- Tailoring improves results when authorities are involved in CD design, field-based experts are part of the team, and engagement is more intensive. FCS strategy (IMF, 2022) and guidance note provide lessons applicable across membership.
- Sustained CD over several years is more impactful:
  - Staff analysis (Bassanetti, 2023, forthcoming): countries receiving intensive TA in tax policy/RA and statistics experienced, on average, a larger and statistically significant increase in the tax-to-GDP ratio and the statistical capacity indicator, respectively, compared to similar countries receiving less intensive or no CD.
  - External evaluations: training provided on an on-going basis or with TA is more effective than one-off courses or workshops.

### Case study — Cambodia (Box 10) — selected outcomes and observations
- Long-term, tailored CD engagement across surveillance, lending, and CD helped build fiscal and monetary institutions and capacities (tax and customs agencies; central bank laws).
- Ownership: CD planning, delivery, and implementation reflected close engagement of authorities; RMS (revenue mobilization strategy) adopted in 2014 with strong ownership.
- Implementation: IEO evaluation noted 90 percent of the RMS (2014–2018) recommendations were implemented.
- Impact on tax revenue: tax-to-GDP ratio increased by over 5 percentage points of GDP during the first phase of the RMS (2014–2018), far above Fund medium-term revenue projections during adoption of the RMS (Staff Reports 2013, 2015).
- Mechanisms: resident advisors, cohorts trained domestically and in RCDCs, and integration of TA, training, and surveillance were important contributors to results.

### Monitoring, evaluation, and training effectiveness
- Results frameworks developed for all projects within CDMAP — higher coverage than many similar organizations where RBM reserved for investment projects.
- Gaps: consistency of result frameworks across workstreams; strategic result frameworks at higher level (economic impact or portfolio performance) are ad hoc and mainly used for funding vehicle requirements.
- Recipient ownership of frameworks could be strengthened; formal agreement to results frameworks used in some areas but not widespread. Example: Revenue Mobilization Thematic Fund (RMTF) used formal Memoranda of Partnerships with endorsement of result framework at project inception; experience mixed and consideration being given to easing formal documentation in favor of organic ongoing engagement on results.
- Training evaluation: monitored using a combination of surveys and testing; Fund uses an appropriately modified industry methodology (confirmed by 2022 IEO evaluations).
  - Initial post-course surveys capture participant reaction/usefulness; pre- and post-course tests provide learning gains; follow-up surveys for ICD training assess application on the job.
  - Scope for harmonizing evaluation of training across departments and improving feedback loop between training evaluation and course curriculum.

### Tax revenue time-series statistics cited (preserving exact values)
- Time-series values presented in tax revenue chart (Tax Revenue, In percent of GDP; years 2003–2023; AIV projections included):
  - 2003 6.7
  - 2004 7.7
  - 2005 7.6
  - 2006 7.9
  - 2007 9.5
  - 2008 10.7
  - 2009 9.6
  - 2010 10.1
  - 2011 10.2
  - 2012 11.3
  - 2013 12.9
  - 2014 15.5
  - 2015 15.6
  - 2016 15.8
  - 2017 16.9
  - 2018 18.6
  - 2019 21.7
  - 2020 19.7
  - 2021 18
  - 2022 11.7
  - 2023 12.2
  - (Chart axis values also displayed: 5, 7, 9, 11, 13, 15, 17, 19, 21, 23)
  - AIV Projection (2015) and AIV Projection (2013) are shown in the figure context.

*International Monetary Fund — CD STRATEGY REVIEW—OVERVIEW PAPER (excerpts from provided content)*

### 76.     The Common Evaluation Framework updated in 2022 provides a sound basis for

### ppea2024014 - 76.     The Common Evaluation Framework updated in 2022 provides a sound basis for

### Evaluation framework and recent performance
- The Common Evaluation Framework updated in 2022 provides a basis for conducting evaluations, informed by the OECD Development Assistance Committee methodology.
- Guides a work program of around 12 evaluations a year, primarily tied to phases of external funding vehicles.
- Intention to reinvigorate internal evaluations has been less successful due in part to resource pressures of the pandemic.
- On average, since 2018 staff has completed less than one internal evaluation per year.
- Momentum is beginning to pick up with:
  - completion of an evaluation of external sector statistics TA in Africa; and
  - commencement of two fiscal sector TA evaluations.

### Use of monitoring and evaluation (M&E) in strategy and resource allocation
- Monitoring and evaluation information is not used systematically in strategy setting or resource allocation.
- Current RBM framework provides a feedback loop between delivery and impact but requires better customization to various forms of CD.
- The detailed log frame used for programmatic CD is not easy to apply to one-off/shorter-term CD focused on surveillance or crisis management, complicating interpretation of aggregate results information.
- Evaluation recommendations are often specific to funding vehicles, limiting their broader strategic use.
- No mechanism exists for broader recommendations to be fed into CD strategy discussions.
- Limited resources for internal evaluations and absence of top-down guidance on topics constrain strategic value.
- EAG highlighted importance of selecting an appropriate time horizon for assessing impacts, especially in low-capacity environments where RBM may not capture diffusion of impact.

### Proposals to strengthen programmatic CD and M&E
- Require explicit discussion and agreement with the authorities on targeted results before commencing a programmatic CD project (Proposal from paragraph 78).
  - CD teams will seek authorities’ explicit endorsement of the RBM log frame for programmatic CD projects.
  - Endorsement occurs as part of the design or initial implementation phase with regular review through the project lifecycle.
  - Country teams and resident representative offices to be involved to gauge and monitor absorption capacity and implementation progress.
  - Aims to enhance change management focus, ensure targeted reforms are achievable and fully owned by authorities.
  - Aligns with the Fund and World Bank’s Domestic Resource Mobilization initiative.

- Improve the strategic focus of the monitoring framework (Proposal from paragraph 79).
  - Staff will develop guidance on consistent and comparable strategic results frameworks that aggregate results across projects, workstreams, and groups of countries.
  - These frameworks will articulate higher-level outcomes and enable better monitoring of effectiveness and impact, reflected in macroeconomic variables aligned with surveillance objectives.
  - Intended to embed RBM in strategic decision making and better monitor short-term specialist technical engagements that reinforce surveillance.

- Increase internal evaluation of the impact of Fund CD (Proposal from paragraph 80).
  - Staff will seek to increase the number of internal evaluations within the current overall resource envelope.
  - Broaden scope to include more analytical approaches drawing on macroeconomic and project results data.
  - Focus evaluations on programmatic CD to understand longer-term impact, in line with EAG recommendations.
  - Work program to be developed in a more top-down strategic manner by the CCB.
  - Early priority: identify good practice in assessing institutional capacity and tailoring approaches accordingly.
  - Continue introducing strategic themes into externally financed evaluation program, including combining evaluations of multiple RCDCs to focus on common themes.

- Create formal mechanisms to ensure M&E data feeds into strategy development (Proposal from paragraph 81).
  - Greater dissemination of RBM and evaluation information to enhance data quality and facilitate use in strategy setting.
  - Regular reporting to the CCB of recommendations from recent evaluations and staff’s proposed responses to foster an outcome-oriented culture in strategic resource allocation, AD prioritization, and project design.
  - Facilitate periodic high-level reporting to the Board on evaluation issues.
  - Use rich training evaluation data to evolve curriculum and adjust delivery modalities; extend formal evaluation approach used for ICD courses to all training.

- Continue to enhance CD dissemination and communication (Proposal from paragraph 82).
  - Revised CD dissemination guidance (IMF, 2022e) provides a modernized communications framework.
  - Increased publication of High-Level Summaries showcasing strategic CD recommendations to enhance awareness.
  - Staff will communicate more cross-country material, drawing where possible on artificial intelligence, and use Annual and Spring Meetings to demonstrate CD’s importance.

### Box 11 — Potential Implications of AI for Fund CD (summary)
- Generative AI advancements likely have significant implications for CD activities for both the Fund as provider and members as recipients.
- AI tools could increase productivity and scale of CD delivery and potentially transform how CD work is done and how recipients are empowered.
- First-order productivity effects: enable CD-related functions the Fund already does or would like to do but lacks resources for.
- Example applications mentioned:
  - Producing high level TA report summaries for publication;
  - Producing material for CD presentations and training courses;
  - Cross-country report synthesis;
  - Assistance with coordination of CD activities;
  - Identification of potential duplication of efforts;
  - Support to desk economists on CD topics requiring specialist expertise;
  - Improved CD/surveillance integration through analysis of Article IV reports vs CD recommendations;
  - Underpinning routine knowledge management tasks related to CD work;
  - Facilitating interactive learning, especially in asynchronous training such as self-paced MOOCs; and
  - Monitoring and evaluating qualitative learner feedback.
- Transformational impacts could change HR composition, create new roles, shift others, and remove some roles—potentially making the organization more agile after upfront costs.
- Risks to mitigate include misuse of data inputs, data ownership issues, data storage control, and AI “hallucination” when faced with insufficient data—mitigation via subject-matter expert backstopping and guidelines on responsible use.
- Steps already taken:
  - Internal policy on use of AI and required training for staff;
  - Interdepartmental working group on AI set up;
  - Sandbox model of in-house AI tool (nicknamed AIDA) being tested;
  - Full-scale rollout set to commence in 2024 with accompanying staff training on prompt-writing for AI;
  - A recent Fund-wide internal AI innovation challenge attracted multiple proposals; nearly one-quarter of submissions and the three winning proposals focused on CD (harnessing CD knowledge, upgrading training approach, and introducing an AI tutor for training outcomes).
- Contributor: Roman Didenko.

### Modernizing modalities — Issue and considerations
- Issue (paragraph 83):
  - Modernizing modalities, including leveraging technology, can increase efficiency, tailoring, and impact of CD.
  - Pandemic experience spurred evolution of CD modalities; IEO evaluation noted CD delivery adapted to COVID-19 about as well as possible, identified advantages of virtual delivery, and confirmed major remaining challenges.
  - Wider virtual CD use needs technology and translation services; funding disparities must be addressed to equip all sites for virtual training.

- Considerations (paragraphs 84–86):
  - Technology has helped shrink distances, blend time, and advance CD integration across TA, training, surveillance, and geographies.
  - AI rise expected to enhance CD productivity, cross-country analyses, customized training, and dissemination.
  - Post-pandemic opportunity to rebalance modalities to foster agility, deepen CD impact, and integrate with surveillance and lending.
  - Combining virtual and in-person engagements increased reach (online training offerings), allowed cost-effective participation of ADs in CD and CD experts in surveillance/program missions, and enabled more continuous engagement with authorities.
  - Greater virtual TA use expanded coverage of previously under-served countries with travel limitations.

### Training modality developments and evidence
- Training evolution (paragraph 86):
  - Increasing number of Massive Open Online Courses (MOOCs) complement in-person/virtual synchronous training delivered through RTC network or HQ.
  - Innovative modalities like “microlearning” via an IMF Institute Learning channel on YouTube with interactive short videos have been developed.
  - More specialized training includes stand-alone synchronous courses, analytical tools, and peer-to-peer workshops via RCDC network and headquarters.

- Blended delivery experience (paragraph 87 and Box 12):
  - Blended delivery pioneered by all CDDs; experiments include asynchronous foundational training prior to advanced synchronous training and TA.
  - Blended approaches can make TA and training mutually reinforcing (e.g., customized training improving absorption capacity for subsequent TA).
  - Singapore Training Institute MPAF blended course (Box 12) experience:
    - Three online segments averaged 10 hours spread over 10 days.
    - Course participants: technical staff from central banks and ministries of finance in 16 countries.
    - 85 percent of participants were directly engaged with Fund TA on FPAS or macro frameworks or had recently completed TA implementation in this area.
    - Course outcomes:
      - Highest overall satisfaction score of 4.9 (on a scale from 0 to 5);
      - Record learning gains of 23 percentage points observed;
      - Share of participants scoring at least 60 percent increased from 12 percent on the pre-course test to 52 percent on the post-test.
    - Subjective staff assessment: participants performed from Day 1 at a level normally achieved only by the middle of the course.
    - Asynchronous material designed to be usable in other RTCs or as training material prior to TA missions on FPAS.
    - Contributor: Aleš Bulíř.

### Proposals on modalities (paragraph 88 and concluding remarks)
- Embed choice of CD modalities (virtual and/or in-person) within a country-tailored approach that connects TA with training where appropriate.
- Programmatic CD best delivered through a well-sequenced, multi-year engagement aligned to surveillance and lending priorities, leveraging blended approaches.
- Use both virtual and in-person delivery, synchronous and asynchronous training modalities, tailored to recipients’ demand and absorption capacity.
- Virtual and blended capacity particularly useful when rapid scale-up is needed; special circumstances of FCS members need consideration as virtual delivery can be more challenging there.
- No universal model for single-country CD; modality choices driven by phase and purpose of engagement and available resources; staff have developed models to guide when specific modalities are most effective.

*Source: CD STRATEGY REVIEW—OVERVIEW PAPER, INTERNATIONAL MONETARY FUND.*

### 89.     Revisit and modernize the external training curriculum. The growth in online training

### 89.     Revisit and modernize the external training curriculum. The growth in online training

### Training curriculum modernization
- Justification:
  - Growth in online training products and wider range of delivery modalities warrant reassessment and redesign of the curriculum.
  - Redesign should be informed by available course evaluation data and require an institution-wide approach.
- Possible redesign features:
  - Emphasize online courses for foundational training.
  - Greater focus of in-person methods for specialized (including peer-to-peer) training.
  - Review all online courses to ensure they remain relevant and current.
  - More focused selection of participant cohorts—consultation with recipient authorities and ADs.
  - Consider implementing a semi-structured curriculum with eventual certification.
  - Prepare ground, where warranted, for country-specific customized TA engagements.

### Broaden and deepen access to CD information
- Progress reported:
  - Increased access via the on-line training and education program, increased publication of cross-country analysis, How-To notes, summaries of good practice, and publication of high-level summaries of TA reports.
- Forward-looking considerations:
  - Staff will investigate whether tools such as AI can enable production and publication of more summary information and cross-country analysis at relatively low cost.

### Field presence (RCDCs and other modalities)
- Issue summary:
  - Field presence, particularly through RCDCs, has become fundamental to the Fund’s CD model but raises strategic and governance issues: financing, governance, size, relationship with HQ activities, and HR issues.
- Considerations / evidence:
  - Growth of RCDC network enabled more intensive programmatic support and made training more accessible.
  - Field presence has been instrumental in helping authorities achieve better outcomes and in assisting Fund coordination with development partners (IEO, 2022; Bassanetti, 2021).
  - Issues arising with larger, heterogeneous RCDC network: coverage (geographic and topical), internal coordination, governance, and funding.
  - Specific points:
    - Coverage is extensive, with some gaps and overlaps; key outstanding gap in Latin America, particularly for training.
    - RCDCs are almost entirely dependent on external financing and organized around five-year phases, creating peaks in funding demand and funding uncertainty.
    - Variety of governance models; distinction between RTCs and RTACs remains key; some centers (SARTTAC, ATI, AFRITAC South) are more hybrid TA/training structures.
    - Governance and financing model has evolved rapidly; delivery increasingly supplemented by co-located experts financed by thematic funding vehicles, bilateral donors, and in some cases the Fund’s own budget.
- Other field modalities:
  - Bilateral LTXs continue to play a role, particularly for intensive support for major reform programs or institution building.
  - Regional LTXs placed in the field for more responsive strategic advice (e.g., public investment management, AML/CFT).
  - Resident representatives provide contact with authorities, link with CD missions and development partners, and prioritization inputs to AD teams and RCDCs.

- Proposals for RCDCs and field presence:
  - Recognize RCDCs as integral part of the Fund, not temporary funding vehicles:
    - Manage within mainstream systems to safeguard CD field presence, raise status, ensure internal coordination.
    - Break linkage with a single funding vehicle and its five-year cycle; support funding diversification and reduce risks from funding cycle transitions.
    - LTXs and other delivery funded through combination of regional and thematic external funds and, if necessary, Fund financing (for instance under the FCS strategy).
    - Greater coverage of RCDCs’ administrative expenses by internal resources may be required; this would require additional targeted reallocation in the context of the Fund’s budget process beyond the first step implemented as part of the recent budget augmentation.
    - The overall external funding of current RTAC and ATI administrative and infrastructure expenses is around $10 million per year.
  - Clarify governance structures while retaining RTAC/RTC distinction:
    - RTACs: continue to be led by ADs; director, in consultation with CDDs, responsible for ensuring work programs of all experts in the RTAC—irrespective of funding source—are well coordinated and in line with AD priorities; experts managed by functional departments; work planning integrated with MTW process.
    - RTCs: remain under ICD leadership, with close partnership with ADs and other CDDs; focus on multi-country training requiring longer-term planning and consistent curriculum/training approach across regions.
    - Enhance steering committees: focus on reporting results, discussing regional issues and synergies, consulting on future priorities, and ensuring Fund CD is coordinated with development partners; membership to include IMF, recipient countries, funding partners, and key deliverers in the region.
  - Continue to increase field presence in a targeted manner and in line with budget constraints:
    - No fundamental shift away from HQ-centered model warranted given integration benefits and higher financial cost of field staff.
    - Additional field presence could improve continuity of engagement and tailoring of CD advice; any additional financial costs require careful prioritization within a fixed resource envelope.
    - Improved coordination among all Fund field presence, especially resident representatives and RCDCs, would amplify impact.
  - Pilot locating some HQ functions in the field:
    - Improved communication tools allow scope to locate some HQ functions in the field while maintaining integration with HQ.
    - Examples: specialist economist positions in HQ focused on providing and backstopping CD in one region.
    - Implications for budget, HR model, governance (division of responsibilities between CD and AD staff), and RCDC structure/management—necessitating piloting.
    - Proposal for pilot to be developed by an interdepartmental group with implementation targeted to begin in FY2025.
    - Initial phase likely small (no more than 5 positions) and would take place within existing budget and staffing envelopes.
    - Further implementation contingent on broader HR policy developments.
  - Periodic reflection on RCDC coverage/size/location:
    - Reflect every five years as part of the CCB’s strategic guidance function to consider regional makeup and relative sizes of RCDCs based on evolving CD demand and shifting institutional priorities.
    - Options for locating a new training center covering the WHD region will be explored.

### HR model for CD personnel
- Issue summary:
  - IEO evaluation: Fund has adapted staffing and continues to deploy high-quality expertise for CD delivery, but further recalibration of HR policies would help maintain quality and continuity.
  - Tension between continuity and flexibility in CD delivery remains; turnover of CD expertise raises risks to continuity.
  - Reliance on contractual employees in the field and HQ due to longstanding budgetary constraints and financing issues.
  - Perception persists that staff working on CD are not as valued as those working on other core outputs; need attention to career paths for specialist economists (SEs).
- Considerations / staffing changes:
  - Measured by time reported directly on CD, staffing has increased by around 70 percent in the last decade in full-time equivalent (FTE) terms (Figure 21, FY2013–FY2023).
  - HQ-based staff remain backbone of CD delivery and management.
  - Field-based long- and short-term experts, backstopped by HQ personnel, now account for almost half of total CD activity.
  - Locally engaged employees (time not included in Fund’s reporting systems) are significant and growing—there are now around 135 in RCDCs.
  - Specialist economists now make up 20 percent of economist staff, mainly at the senior economist/senior financial sector expert level.
- HR-specific observations and issues:
  - Career path for SEs is somewhat narrower than for fungible macroeconomists (FMs):
    - SEs in managerial positions (A15–B4) account for about 21 percent of staff in the A11–B4 grades—compared to 31 percent for FMs (Figure 22).
    - SE specialization narrows career paths and interdepartmental mobility; promotion to managerial levels is competitive and job-specific.
    - A14 SEs have more opportunities for mission leadership than fungible counterparts.
    - Given specialization, mobility and other requirements (such as tenure in LIC/FCS assignments) are not required for SE promotions and SEs do not need to go through the Review Committee list review for promotions to B1.
    - Departments can hire SEs externally at the A14 level, unlike fungible economists where there is a hiring freeze at that level.
    - Most specialized field positions are contractual but a limited number of slots are available to be filled by staff.
  - HR policies for field CD personnel reflect decentralized ownership across ICD, CD functional departments, and ADs:
    - Policies for and management of contractual field-based experts largely delegated to various CDDs, with limited HRD role.
    - Decentralization brings flexibility but carries high administrative costs and potential risks.
  - Decentralized model for long-term experts creates governance challenges and potential operational risks:
    - Specialists in RCDCs and member institutions often have long employment periods on series of contracts.
    - Need to enhance governance framework to fully leverage LTX skills and address inefficiencies.
  - Specialized career stream employees in HQ provide support for budget/project management, fundraising, M&E, instructional design, and strategy development:
    - Positions categorized and graded differently across departments (grade ceilings vary), impeding inter-departmental mobility.
    - Many CD-related positions are contractual, leading to turnover that challenges continuity and efficiency.
- Policy changes implemented and ongoing:
  - Post-2014 Categories of Employment reform: Fund created additional SE positions to reduce reliance on contractual appointments.
  - In 2019 HRD eased movement to the field allowing a limited number of economists (specialized and fungible) to be posted to RCDCs as experts without change in employment status.
  - RCDC Director positions are now more consistently opened to SEs.
  - HRD has helped implement workforce tools and progressed on talent inventories.
  - Reforms to local employment framework are underway recognizing importance of harmonizing policies in a number of areas.
- Next steps / proposals (summary point in source: "Proposals" follows but not included in supplied excerpt)

*CD STRATEGY REVIEW—OVERVIEW PAPER; INTERNATIONAL MONETARY FUND*

### 103.     Further strengthening the Fund’s policies and addressing CD-related governance issues

### 103.     Further strengthening the Fund’s policies and addressing CD-related governance issues

### Short-to-medium term HR recalibration and governance enhancements
- Objective: safeguard the quality and agility of Fund CD through multi-year, Fund-wide recalibration of policies and practices, sequenced with other HR and budgetary priorities.
- Approach: fine-tuning selected HR policies and implementation practices without fundamental policy framework changes; build on current practices to increase flexibility and effectiveness for specialist economists (SEs), specialized career staff (SCS), and contractual experts (LTX).
- Specific measures proposed:
  - Further bolster career paths (including mobility) for SEs to obviate the need for a separate expert track:
    - Build on progress such as temporary assignments for staff in RCDCs and opening all RCDC director posts to SEs.
    - Potential actions: opening competitive vacancies for all qualified employees (not just fungible macroeconomists); temporary mobility assignments to area departments; opening a limited number of relevant jobs (including in some circumstances residential representative posts) to both specialists and fungible economists; enabling specialists to have same opportunities as fungible economists for upward mobility for positions they are qualified for, with demonstration of required competencies.
    - Pilot: relocating HQ positions to the field to assess budgetary costs, potential career benefits, and influence on CD impact.
  - Further modernize and harmonize field-based expert recruitment and management practices across functional departments:
    - Harmonize HR practices related to contracting and assessing performance of LTX; provide consistent HR support (e.g., underperformance, contract extension decisions).
    - Aim: address governance gaps, reduce inefficiencies, and better leverage LTX talent pool.
  - Create opportunities and tools to promote mobility and career development for specialized career stream personnel:
    - Establish inter-departmental mechanism for talent management and mobility for key SCS job families.
    - Mandate certain managerial positions requiring specialized skills (e.g., budget and resource management) be open to all staff, including SCS.
    - Review TA job officer family as part of broader review of job families for all SCS to ensure grade band harmonization.

### Medium-term strategic review of CD personnel structures
- Scope and timing:
  - Business-led strategic review of CD personnel structures in HQ and the field and implications for HR policies.
  - Staff intend to initiate this strategic review within the five-year period covered by this CDSR (2024–2029).
- Issues to be covered:
  - Division of functions, roles and deliverables between HQ and the field.
  - Appropriate mix of economist and specialized career stream staff.
  - Need for more systematic modernization of expert recruitment and procedures.
  - Whether current CD personnel structure aligns with member needs and whether recruitment strategy and HR policies need amendment to ensure flexibility and incentives across staff and contractual workforce (including locally recruited staff).
  - Proposals must consider prevailing CD funding model, budgetary implications, and other Fund-wide HR priorities.
- Coordination:
  - Review of strategic needs will be coordinated with broader work on IMF field presence.
  - Phase 1 of field-based employment work is considering compensation, leave, insurance, employment contracts, training, and performance management for all local employees; Phase 1 is projected to be finalized in early FY25, with updated policies and enhancements implemented later in FY25. A second phase could consider broader issues overlapping with the CD strategic review.

### Overall risk assessment (Document Risk Self-Assessment highlights)
- Purpose: identify risks under current CD systems and potential risks from implementing CDSR proposals; consistent with Fund’s Enterprise Risk Management framework.
- Risk areas and key points:
  - Prioritization:
    - Risk: inflexibility in prioritization process; need careful justification for adjustments to overall CD size to maintain prioritization incentives.
    - Fund taxonomy category: ‘Member Engagement: Adapting to Changing Needs of Members’.
  - Funding Model:
    - Risk: difficulty increasing internal financing of CD; designing governance for a stabilization mechanism complex; administrative cost management required.
    - Without additional internal funding or sufficient stabilization mechanism funding, continuity of CD provision at risk; partial mitigation by broadening external funding sources, but unexpected shocks to specific funding vehicles remain possible.
    - Fund taxonomy category: ‘Adequacy of CD Resources’.
  - Modalities:
    - Risk: broader range of modalities increases burden on project and budget managers; budgets need flexibility to shift between modalities.
    - Shift to cohort-driven attendance for specialized in-person training requires participant management evolution and embedding in updated IT system; may require evolution in ICD and RTCs staff skill sets.
    - Increased online delivery raises reliance on third-party platform vendors (third-party risk).
    - Fund taxonomy categories: ‘Member Engagement: Adapting to Changing Needs of Members’ and ‘External: Third Party Risks’.
  - Field Presence:
    - Risk: wide-ranging reforms need careful design to avoid unintended consequences; breaking link of each RCDC with a single funding source has financial and governance implications and should be gradual and tied to funding transitions.
    - Progress dependent on Fund budget availability, Board prioritization, and HR policy evolution; requires monitoring and course correction.
    - Evolving RCDC identities could impact authorities’ ownership; enhance steering committees and dissemination of CD outputs/results.
    - Expansion in field presence could increase exposure to security, safety, and employee wellbeing risks, requiring mitigation strategies in higher-risk locations.
    - Fund taxonomy categories: ‘Process: Financial Operations’ and ‘Process: Safety and Well-being’.
  - HR Model:
    - Risk: aligning HR processes for CD staff with mainstream Fund practices could decrease speed and agility of hiring; reforms must preserve ability to identify and field appropriate experts and account for specialist career progression challenges.
    - Fund taxonomy categories: ‘Human Capital: Recruitment’ and ‘Human Capital: Retention’.

- Document Risk Self-Assessment table (summary observations in text):
  - Identified risks without CDSR proposals include Analytical Accuracy; Member Engagement limitations due to inflexibility; Adequacy of CD Resources given fundraising challenges; Human Capital recruitment risks; Traction of Technical Advice due to weak ownership; Internal Governance weaknesses regarding RCDC governance.
  - Time frames cited in the table: Emerging (1–3 years), Medium-term (3–5 years).
  - Risk likelihood and impact descriptors used in the table include: Unlikely, Possible, Somewhat, Moderate.

### Resource implications
- Overall characterization: resources required are moderate but subject to high uncertainty; proposals mainly evolutionary and most costs can be absorbed by prioritization within current workstreams; structural savings would be required if Fund were to take on greater share of RCDC administrative costs; transitional resources may be needed for developing some proposals.
- Key resource impacts and estimates:
  - Integration:
    - Stronger integration will require increased area department resources devoted to CD, particularly teams for FCS and small developing economies.
    - Partially offset by removing requirement for CD CSNs and by less frequent RSNs.
    - CDMAP accessibility and possible automated data templates will help moderate staff report preparation costs.
  - Field Presence:
    - Covering fully administrative costs of existing RCDC network would require an additional contribution of up to $10 million USD annually.
    - Redesigning RCDC governance structures will require staff time across departments, likely aggregating to around 1-2 FTEs, absorbed through reprioritization, with highest impact in ICD.
  - HR Reforms:
    - Strategic review of CD personnel structures will require staff resources in total of 1–2 FTEs, absorbed into existing work programs with highest impact in CD departments.
    - Cost of any proposed reforms cannot be estimated at this time.
    - Strengthening HR support for expert recruitment and management would not be possible without some additional resources allocated to HRD.
    - Shorter-term reforms enhancing career prospects and talent retention of CD managers and SEs entail operational changes without additional costs.
    - A carefully designed pilot is needed to assess efficiency gains from moving a limited number of HQ roles to the field.
  - Evaluation:
    - Some evaluations already undertaken by CD departments will continue with strengthened strategic guidance from the CCB.
    - Additional evaluations will be undertaken in line with budget availability and will build on department work programs; summarizing evaluations is part of ICD’s work program.
  - Governance:
    - Drafting a new policy statement and a staff guidance note would involve ICD staff, departmental review, and Board time.
    - No additional costs envisaged as drafting is part of ongoing ICD work program and reprioritization.

### Issues for discussion (questions posed to the Board)
- Do Directors agree with the proposed vision for a flexible, tailored, and integrated CD building on the comparative advantages of the Fund identified in this review?
- Do Directors concur with introducing a scope for flexibility in absolute size of CD spending while aiming to broadly maintain its relative size to other types of country operations (¶s 32–34)?
- Do Directors support strengthening the responsiveness of prioritization and resource allocation to steer compositional shifts to meet evolving membership needs (¶s 42–44)?
- Do Directors favor proposed standardization of reporting on CD in AIV Staff Reports for heavy CD users? (¶s 52–54)
- Do Directors support proposed approaches to enhancing the CD funding model (¶s 65–70)?
- Do Directors concur with proposed enhancements of the result management framework and increase of internal evaluations (¶s 78–82)?
- Do Directors agree with the proposed focus on increasing and strengthening field presence, including through treating RCDCs as structural elements of the Fund (¶s 94–98)?
- Do Directors support initiating the holistic review to formulate a coherent HR framework for CD staff to complement existing HR initiatives (¶s 103–106)?

*Source: ppea2024014 - 103.     Further strengthening the Fund’s policies and addressing CD-related governance issues*

### References

### References

### Key bibliographic entries
- Acemoglu, Daran., Simon Johnson, James Robinson, Yunyong Thaicharoen, 2003, “Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth,” Journal of Monetary Economics, Vol. 50, No. 1, p. 49–123. JME | Journal of Monetary Economics | Vol 50, Issue 1, Pages EX1-EX2, 1-308 (January 2003) | ScienceDirect.com by Elsevier
- Bassanetti, Antonio, 2021, “When Does Capacity Development Achieve Good Outcomes? Evidence from the IMF Results-Based Management Data,” IMF Working Paper 21/285 (Washington: International Monetary Fund). https://www.imf.org/-/media/Files/Publications/WP/2021/English/wpiea2021285-print-pdf.ashx
- Bassanetti, Antonio, 2023, “Did It Make a Difference? Assessing the Impact of the IMF Capacity Development,” IMF Working Paper (forthcoming) (Washington: International Monetary Fund).
- Custer, Samantha, Tanya Sethi, Rodney Knight, Amber Hutchinson, Vera Choo, and Mengfan Cheng, 2021, “Listening to Leaders, 2021: A Report Card for Development Partners in an Era of Contested Cooperation” (Williamsburg: AidData at the College of William & Mary).
- Imam, Patrick. and J. RW Temple, 2023, “State Capacity and Growth Regimes,” Draft IMF Working Paper (forthcoming; Washington: International Monetary Fund).
- North, Douglas C., 1990, Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge University Press).
- International Monetary Fund — multiple policy papers, working papers, reports, and evaluations cited across 2010–2023 (see full list in source content).

### IEO Recommendations on Capacity Development (Annex I) — Management responses and coverage in the CDSR (select proposals)
- Further enhance the strategic framework for IMF CD to provide clearer guidance for a more integrated and transparent approach to the prioritization and allocation of IMF CD.
  - Management Response: Qualified support
  - Coverage in the CDSR (Select Proposals): Strategic and Prioritization Framework (strengthening scope for compositional shifts; active CD monitoring and reporting)
- Further develop the Executive Board’s strategic and oversight role through increased engagement and provision of information.
  - Management Response: Support
  - Coverage: Strategic and Prioritization Framework (improving visibility and coverage of CD in staff reports)
- Reinforce measures to promote CD ownership, along with tighter integration with surveillance and lending, tailoring to country circumstances and closer collaboration, as key drivers of CD effectiveness.
  - Management Response: Support
  - Coverage: Strategic and Prioritization Framework; Size, Composition, and Funding of CD; Assessing Effectiveness and Impact (explicit RBM agreement with authorities)
- Leverage further the advantages of RCDCs and put them on a sustainable footing.
  - Management Response: Support
  - Coverage: Field Presence (Recognize RCDCs as integral part of Fund)
- Further enhance the M&E system and fully exploit it to drive improvement in CD prioritization, design, and delivery.
  - Management Response: Qualified support
  - Coverage: Strategic and Prioritization Framework; Assessing Effectiveness and Impact (Increase internal evaluation; strategic results framework)
- Consider further steps to enhance the stability and flexibility of CD funding in order to sustain support for the CD needs of member countries.
  - Management Response: Qualified support
  - Coverage: Size, Composition, and Funding of CD (Broaden funding vehicles; CD stabilization mechanism)
- Calibrate HR policies and incentives further to ensure that the IMF maintains and enhances the quality and continuity of CD expertise, and that CD receives appropriate priority as an integral aspect of country engagement.
  - Management Response: Support
  - Coverage: Modernizing CD Delivery (Increase mobility opportunities for specialist economists; a holistic CD HR review)
- The IMF Engagement with Small Developing States: Steps should be taken at the operational level to enhance the focus and traction of the IMF work on small developing states in the areas of surveillance and CD.
  - Management Response: Qualified support
  - Coverage: Strategic and Prioritization Framework; Modernizing CD Delivery; Assessing Effectiveness and Impact (Increasing field presence and country-tailored blended delivery)
- Growth and Adjustment in IMF-supported Programs: IMF-supported programs should pay greater attention to supporting deep, more growth-oriented structural reforms with more effective CD support and more effective collaboration with partners in areas outside the Fund’s core mandate and expertise.
  - Management Response: Support
  - Coverage: Strategic and Prioritization Framework; Size, Composition, and Funding of CD (Ensure scope for flexibility in CD size; Modernize delivery; deepen coordination and collaboration with CD providers)

### External Advisory Group — Conclusions and Recommendations (Annex II)
- Para 1: The External Advisory Group commends ICD management and staff for facilitating their work, finding the staff Concept Note comprehensive and candid regarding progress since the 2013 and 2018 Reviews.
- Para 2: The IEO corroborates staff assessment of considerable progress in the Fund’s CD program over the past decade; the Group proposes adding a theme on adjusting internal work processes and institutional culture to elevate CD to the level of surveillance and lending.
- Para 3: The Group focuses on increasing CD impact by achieving greater integration between CD, surveillance, and lending within a country-centered approach.
- Para 4: Changes since the 2018 Review appear to be working; area departments (ADs) leading CD strategies based on dialogue with member countries makes operational sense, but CD departments (CDDs), including ICD, should be more involved in shaping strategies rather than merely implementing them.
- Para 5: Coordination requires more active involvement by CDDs in review and clearance of AD mission briefs, with greater focus on institutional capacity issues and adjustments to CDD work processes; institutional memory should guide rather than duplicate procedures.
- Para 6: While CD demand is formally determined by member countries, Fund staff should sometimes take initiative to propose CD support; the Fund could pay greater attention in surveillance and lending to institutional capacity, revisiting the relevant principle in the 2019 IMF Policies and Practices on Capacity Development.
- Para 7: Gauge robustness of the Results-Based Management Framework and the Common Evaluation Framework to assess CD effectiveness and sustainability; greater focus on alignment of incentives and work processes in member countries is needed.
- Para 8: Strengthening monitoring and evaluation should be ongoing; address consequences of slippages, delays, and underperformance; enhance accountability and public coverage of CD issues in staff reports and press releases; CD missions should engage civil society and media; encourage member authorities to do the same; pursue rigorous long-term evaluation aided by internal and external research expertise.
- Para 9: Maintain internally funded evaluations due to constraints with external funding; expand utilization of external evaluation to cover long-term impact assessments in selected countries.
- Para 10: Donor support is commended; with donor support covering nearly two-thirds of overall CD delivery funding needs, donors should provide greater flexibility in utilization of contributions; otherwise the Fund would need to increase its own share.
- Para 11: Two landscape changes since the 2018 Review merit reflection: CD delivery experience during the pandemic, and mainstreaming of gender, climate change, and digitalization.
- Para 12: Pandemic-era delivery experience suggests potential cost-effective roles for periodic short-term staff visits supplemented by virtual delivery, possibly reducing the need for long-term advisors in some instances; decisions should consider local context and initial conditions.
- Para 13: Progress on mainstreaming gender, climate change, and digitalization is noteworthy; prioritization among these three for direct Fund CD involvement should be informed by the macro-criticality test.
- Para 14: Digitalization is especially germane to the Fund’s core responsibility; the Fund should strive to become a primary producer of knowledge and CD provider on digitization, particularly regulatory frameworks; direct Fund CD involvement in gender or climate issues should follow if research establishes macroeconomic imbalances rooted in those areas are of a different nature.
- Para 15: For countries already experiencing highly devastating climate-change consequences—several small developing states and in sub-Saharan Africa—the Fund should use convening power to ensure CD needs are addressed by multilateral development banks and other providers with requisite capacity; continue to have macroeconomic policy advice informed by best available climate-change analysis.

*CD STRATEGY REVIEW—OVERVIEW PAPER, INTERNATIONAL MONETARY FUND*

### 16.     There is a question as to whether enough has been done internally, since the 2018

### ppea2024014 - 16.     There is a question as to whether enough has been done internally, since the 2018

### The central issue: elevating Capacity Development (CD) to parity
- Finding: Since the 2018 Review, CD has not been clearly elevated internally to be at par with surveillance and lending.
- Argument: If institutional strength and resilience are essential to the Fund’s mandate for sustainable macroeconomic stability, the Fund’s CD function should be viewed as no less important than surveillance and lending.
- Recommendation (conceptual): Add a theme focused on elevating and operationalizing the importance of the Fund’s CD function.

### Voluntary nature of CD and case for full functional integration
- Fact: Unlike surveillance and lending, the Fund’s CD function is completely voluntary for both the recipient country and the Fund.
- Finding: Voluntariness does not imply ineffectiveness; surveillance and lending, though mandated, are not always uniformly effective.
- Policy implication: Mandatory features of surveillance and the absence of alternatives to Fund lending strengthen the case for a fully determined effort to integrate the three functions (surveillance, lending, CD).
- Strategic approach: A holistic approach to integration enhances overall effectiveness and efficiency; compartmentalized efforts are unlikely to be productive.

### Operational integration to date and the next level: governance framing
- Observation: Past integration focus has emphasized operational integration (work processes and procedures), which has been useful and should be sustained.
- Next-level need: Articulate CD needs in terms of their relevance to improving governance.
- Requirement: A top-down effort to reinvigorate the Fund’s role in promoting good governance is needed.

### Good governance as the organizing objective for CD
- Definition (from text): Good governance involves state institutions with the strength and competence to discharge responsibilities effectively, fairly, transparently, and with accountability.
- Relevance within Fund mandate: Institutions of interest are those formulating and implementing macroeconomic policies.
- Link to CD objective: The Concept Note defines the main objective of Fund CD “to help countries build strong institutions and boost skills to formulate and implement sound macroeconomic and financial policies,” which provides a roadmap for functional integration of the three pillar functions.

### Practical implications for surveillance and resource-use reporting
- Recommendation: Assess institutional strength and resilience and identify remedial measures in country reports on surveillance and use of Fund resources.
- Process change: Internal discussion and adequate coverage in ADs’ mission briefs with extensive CDD involvement is required.
- Additional benefit: This reinvigoration could further streamline internal CD work processes.

### Institutional option: elevating ICD as centralized CD strategist
- Proposal: Task ICD (with other CDDs involved in delivery) to specialize exclusively in CD support for strengthening institutions and alleviating implementation capacity constraints.
- Expected effect: Elevating CD importance would enhance ICD’s centrality and position it to assume lead roles in formulation of CD strategies and review of CD programs, improving effectiveness and delivery efficiency.
- Strategic choice: Fund faces choice—continue incremental building on past decade’s progress or explicitly target creating an institutional home for CD to attain parity and full functional integration.
- Question posed: Is the IMF Institute (now ICD) on a path to fulfill the aspiration of its name change some 10 years ago?

### Precedent and organizational design lesson
- Precedent: Creation of the Strategy, Policy, & Review (SPR) Department in 1978, which over time became the Fund’s effective policy authority for surveillance and lending.
- Comparative question: If institutional capacity in member countries is as important as policy content, why not have a single Fund department for CD analogous to SPR for policy content?
- Candidate: ICD is the obvious choice, provided it no longer is involved in CD delivery.

### Implementation challenges and leadership requirements
- Risk: Adopting the centralized-CD-department choice would require fundamental reorientation of internal work processes and institutional culture change.
- Leadership need: Top Fund management must drive change; department heads, especially the ICD Director, must shepherd and complete the process.

### Specific steps to promote ICD centrality and CD integration
- Consideration: Have ICD act as clearing house for all ICD comments on surveillance and use of Fund resources mission briefs and staff country reports.
- Participation: Increase ICD staff participation in area department missions to improve CD work-process efficiency and centrality.
- HR policy idea: Condition promotion of economist staff to Grade A15 on the staff member taking part in a CD mission (could be added to or integrated with existing FCS service requirement).

### Evidence base for future review
- For the next quinquennial review: Anchor it on case studies of CD program experience in several countries, including at least one FCS.
- Selection guidance: Use geographical and income diversity and variance in initial institutional capacity and governance.
- Implementation: Specialized think tanks and academic centers may be tasked with producing the case studies.

*Source: CD STRATEGY REVIEW—OVERVIEW PAPER (pp. 72–77).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024014.pdf_