## taar2021

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---

### Overview
- Capacity Development (CD) is one of the Fund’s core activities alongside surveillance and lending, demand driven, and accounts for about a third of the IMF’s activities.
- Half of IMF CD goes to low-income developing countries and a quarter to fragile and conflict-affected states (FCS).
- More than half of IMF CD is externally funded by partners through bilateral and multilateral arrangements.
- IMF delivers CD through bilateral projects and a range of regional and thematic multi-partner vehicles.

### CD during the COVID-19 pandemic
- IMF provided CD support and policy advice to most member countries since the start of the pandemic; virtual CD and webinars continued for longer-term objectives.
- Remote delivery strengths:
  - Agility and responsiveness using technology (webinars, online training).
  - More continuous engagement with country authorities.
  - Resident advisors (LTX) were key in maintaining strong engagement and trusted-advisor relationships.
- Pandemic-related delivery challenges:
  - Uncertainties about COVID-19 evolution, funding constraints, effectiveness of remote modality, availability of financial and human resources, and authorities’ capacity to devote attention to reforms.

### Priorities, strategy, and guidance
- MCM CD guided by Fund CD policies and the 2018 Review of the Fund’s Capacity Development Strategy (objectives: enhance impact and efficiency).
- MCM CD Strategy adopted in 2011 and updated every three years; most recent strategy covered 2017–20.
- MCM contributes to the Managing Director’s Global Policy Agenda (GPA) and follows IEO recommendations and external evaluations.

### Current and emerging priorities
- Current priorities include:
  - Support for FCS
  - Financial market deepening for low-income countries
  - Improved financial supervision/regulation and monetary policy frameworks in emerging and some lower-income countries
  - Strengthening CD to countries of Caucasus and Central Asia and Mongolia region
- Core areas:
  - Financial sector supervision and regulation
  - Central bank operations and payment systems
  - Debt management and capital market development
  - Monetary, foreign exchange, macroprudential policies, and capital flow management
  - Crisis preparedness and management
  - Financial stability/systemic risks
- New growing CD areas: fintech, cybersecurity, digital currencies, payments, and climate change.

### Expertise, staffing, and long-term experts (LTX)  
- MCM relies on experts from central banks, academia, supervisory agencies, and within the IMF: HQ staff, resident advisors/long-term experts (LTX), and short-term experts (STX).
- LTX counts ranged from 45 in post-global financial crisis years to 30 during the pandemic.
- In FY21, 90 percent of CD delivery was conducted by external experts (LTXs and STXs); IMF staff time accounted for 10 percent of CD work.
- MCM partners with more than 100 Official Sector Agencies globally.

### Financial supervision and regulation (findings and delivery)
- Financial sector supervision and regulation delivers the highest share of MCM CD.
- Core TA themes: Basel II/III implementation, risk-based supervision, Basel Core Principles implementation, financial conglomerate regulation, IFRS-9 and Expected Credit Loss approaches, Islamic banking.
- Training channel: Supervisory and Regulatory Online Course for Banking Supervisors (SROC) delivered for the last three years to over 1,000 participants from 100 countries.
- COVID-19 related guidance: MCM produced guidance notes and a joint position note with the World Bank on regulatory and supervisory implications of COVID-19.
- Top TA topic by FTEs in FY21: Financial Sector Supervision and Regulation — 42 percent of total delivery.

### Cybersecurity (three-pillar CD approach)
- Staff Discussion Note: “Cyber Risk and Financial Stability” identifies gaps and highlights Fund CD efforts for LICs and vulnerable countries.
- Three-pillar approach:
  - Annual cybersecurity workshop (funded by FSSF) focused on emerging and developing economies.
  - Periodic regional workshops via RCDCs.
  - Bilateral CD projects for tailored deep-dive analysis and recommendations.
- Planned tools: online cyber course and cyber supervision toolkit targeting LICs and low-capacity financial systems.

### Climate risks
- Climate-related financial risks increasingly seen as material for financial stability and price stability.
- Next steps: develop supervisory guidelines, methodologies, risk indicators, regulations, and address data gaps.
- Delivery to date: expertise building, regional webinars with RCDCs, participation in high-level forums, and work starting on central bank operations to reflect climate and transition risks.

### Central bank operations (analytical advances and tools)
- Core mandate areas: monetary operations frameworks, foreign exchange operations, central bank governance, banknote management, balance sheet and financial reporting.
- Forecasting and modeling:
  - FY21 introduced modern forecasting techniques for liquidity management; new models tested in Botswana, Djibouti, Jordan, Namibia, and the United Arab Emirates.
  - Innovations include forecasting conditional distributions and Value-at-Risk–based foreign exchange intervention triggers (model published in WP 2021/32).
  - MCM and IMF IT produced free and open-source software and delivered hands-on training.
- Managing systemic liquidity and transition frameworks: conceptual framework presented at CEF Kuwait; tailored advice for transitions to inflation targeting and flexible exchange rates.
- Diagnostic tools: comprehensive market survey and data infrastructure applied in Botswana, Costa Rica, Malaysia, and the United Arab Emirates.
- Collateral and ELA: COVID-19 “notes” and seminars on broadening collateral; refined ELA advice and an ELA template for fully dollarized economies.
- Digital central banking: advising on currency digitalization implications and placement of LTXs in RCDCs to engage on digital currency issues.

### Capital flow management
- MCM leads CD on capital flow management linked to monetary policy and FX operations, based on the institutional view on liberalization and management of capital flows.
- AREAER database provides yearly descriptions of FX arrangements and capital controls mandated by IMF Articles of Agreement.

### Gender-balanced financial sector policies
- Activities initiated to promote gender-balanced policies; coordination with IMF Senior Advisor on Gender and partnerships (e.g., Women’s World Banking).
- Staff work (SDN 15/17 and 18/05) underscores benefits of greater inclusion of women for stability and growth.
- Delivered workshops with SARTTAC and METAC; participants noted a strong business case for gender-balanced leadership.

### Integration with surveillance and IMF programs
- About 80 MCM economists and FSEs are members of AD country teams in countries with significant financial sector challenges.
- FSAPs (surveillance tool) and FSSRs (CD tool) are key for CD-surveillance integration.
- Dedicated country managers and regional advisors contribute to CD strategies and serve as points of contact for ADs, authorities, and MCM.

### Flexibility of delivery and remote modality experience
- Full range of modalities: virtual engagements, in-person missions, TA and trainings, toolkits, regional workshops, large-scale courses, peripatetic advisors, long-term advisors, and targeted advisory sessions.
- Shift to remote delivery during the pandemic:
  - Remote modalities enabled more regular contacts and targeted non-stop advice but are in many cases less effective than in-person work and will complement in-person engagements when travel resumes.
  - Remote delivery contributed to about a 4 percent drop in utilization of external funding relative to FY20.
- Training: online courses with ICD had very high attendance; volume of online training expected to grow.

### Results-based management (RBM) and CD governance
- RBM rollout in 2017 formalized standardized results-oriented planning, managing, and reporting for CD.
- As of April 2021, MCM TA and training portfolio: 205 internally and externally funded CD projects, which included 1,160 objectives, 2,186 outcomes, and 6,217 milestones.
- CD evaluations: MCM started evaluations in 2006; a total of seventeen CD evaluations conducted so far; evaluations follow the six OECD DAC criteria (relevance, coherence, effectiveness, efficiency, impact, sustainability).
- All donor-funded projects subject to periodic assessments; internally funded projects also assessed from FY19.

### FSSR (Financial Sector Stability Review) and FSSF support
- FSSR is MCM’s flagship programmatic CD product; country-tailored, coordinated, resulting in a CD roadmap and a project implementation plan (usually covering three years).
- From FSSF inception to August 2021, FSSR diagnostics in 16 LLMICs completed (plus four precursor FSSRs).
- FY21 FSSR diagnostics completed remotely: Lesotho, Moldova, Sierra Leone, and Uzbekistan (to July 2021).
- FSSF-supported learning:
  - BIS-IMF SROC online: 70-hour course over 5 months; over 1,000 supervisors and 100 countries over 3 years; second SROC (Sep 2020–Feb 2021) had over 400 supervisors from 90 countries.
  - Fourth Annual Cybersecurity Workshop (Dec 7–9, 2020): 153 participants from 62 countries.
  - Cybersecurity supervision online course development planned for IMF edX platform, expected to run in 2022.
- FSSF Financial Sector Statistics Module (FSSM) by STA supports compilation of Financial Soundness Indicators (FSI) and Balance Sheet Analysis (BSA).

### Trends in CD delivery and COVID-19 response (FY21)
- Total CD delivery in USD dropped in FY21 relative to FY20.
- CD to FCS accounted for about 27 percent of total TA delivery in FY21.
- CD field delivery averaged around 13.2 FTEs per quarter throughout FY21.
- In FY21, MCM delivered about 690 CD missions remotely.
- Regional CD field delivery by share of FTEs in FY21:
  - Africa: 40%
  - Asia and Pacific: 23%
  - Western Hemisphere: 16%
  - Middle East and Central Asia: 12%
  - Europe: 9%
- Top 10 beneficiary countries received about 27 percent of total CD, equivalent to 14.4 FTEs; three new top-10 countries in FY21: Haiti, Sri Lanka, and Uzbekistan.
- Top regional recipients included Haiti, Mozambique, Myanmar, Ukraine, and Uzbekistan.
- Top TA topics by FTEs in FY21:
  - Financial Sector Supervision and Regulation: 42 percent
  - Central Bank Operations: 31 percent

### Funding and donors
- Over 80 percent of MCM CD field work (including RCDCs’ activities and bilateral/multilateral country projects) is financed by external donors.
- In FY21, 82 percent of MCM CD was funded by external donors.
- Major external donors in FY21:
  - Japan contributed 14 percent to MCM CD activities.
  - FSSF contributed 11 percent.
  - Other contributors and mechanisms included FIRST, Switzerland, and the Debt Management Facility (DMF).
- External donors financed 77 percent of MCM training in FY21.
- External donors accounted for 46 percent of total funding for RCDC activities in FY21.

### Webinars and remote engagement (reach and messages)
- More than 60 webinars held on COVID-19 issues, reaching authorities from 130 countries with 30–70 participants per event, delivered in Arabic, English, French, Portuguese, and Spanish.
- Initial supervisory messages during pandemic:
  - Use flexibility in regulation while upholding minimum standards; limit moral hazard; provide guidance on asset classification and provisioning; preserve banks’ capital resources; promote transparency and coordination.
- Messages one year into pandemic on unwinding interventions:
  - Reverse measures not compatible with international standards; start using stress tests; maintain flexibility to restore capital levels; strengthen bank and NPL resolution arrangements; rebuild buffers once recovery is firm.
- Cybersecurity guidance: risks from weak infrastructure, cloud use, video conferencing, phishing; strengthen off-site supervision and redesign on-site supervision to be “contactless” and risk focused.
- Central bank webinars: market support program design, triggers, program types, operational considerations (collateral, eligible counterparties).
- Debt management webinars: emergency facilities and communication coordination with monetary, fiscal, regulatory authorities.

### Country group priorities and examples
- Fragile and conflict-affected states (FCS):
  - MCM delivered CD to all FCS over last 10 years; FCS among top ten CD beneficiaries.
  - Over past ten years, MCM’s CD to FCS accounted for about 25 percent of IMF’s total CD in these countries.
  - More than half of MCM’s total FCS CD spending was in Africa, with substantial amounts in Asia Pacific and Middle East and Central Asia.
  - FSSR coverage: 7 out of 22 FSSRs conducted in FCS (Djibouti, The Gambia, Guinea, Kosovo, Sierra Leone, West Bank and Gaza, Zimbabwe); engagements with Democratic Republic of Congo and Tajikistan started.
  - In FY21, a third of TA missions were in FCS.
  - LTXs critical: MCM had 30 resident advisors at end-April 2021, of which 21 were in RCDCs with FCS or directly in these countries.
- CCAMTAC (Caucasus, Central Asia, Mongolia):
  - CCAMTAC approved early 2019, hosted in Almaty; formally opened remotely in January 2021.
  - Center director, seven advisors, and local staff covering multiple areas; handled central bank operations and financial supervision regionally.
  - Largest FY21 regional recipients: Georgia and Uzbekistan (nine remote TA missions each).
  - Launch of CBDC TA projects in Georgia and the Kyrgyz Republic; diagnostic missions to Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, Turkmenistan.
- Examples of country-specific outcomes and case studies:
  - Cameroon: MTDS update and roadmap; Eurobond refinancing executed in June 2021 following IMF TA and roadmap.
  - Albania: TA on implementing the Fintoken Act; recommendations on licensing, supervision, enforcement for crypto assets; taxonomy of token types provided.
  - Eswatini: NBFI reform engagement from Feb 2018; at project end 85 percent of milestones completed.
  - Haiti: FIRST-funded TA from 2017; resident advisor mission converted 2019; achievements include seven new regulations enacted and deployment of integrated supervision software despite severe instability.
  - Mongolia, Kuwait, Ecuador, El Salvador: domestic bond market, MTDS, LMO support with specific outcomes (e.g., Ecuador published MTDS in Q1 2021; Mongolia LMO received awards).
  - Somalia: coordinated CD to build central bank capacity and support currency reform; Somalia began receiving HIPC debt relief in March 2020.

### Training, workshops, and LTX engagement
- Seventh Annual MCM LTX Workshop: held virtually March 1–5, 2021 with 30 LTXs; topics included COVID-19 policy interventions, climate risk, government securities, digital financial services and cybersecurity.
- LTX specializations (selected counts): Banking Supervision and Regulation (14), Monetary and Foreign Exchange Operations (8), Debt Management (4), plus single counts across other specializations.
- AFRITAC South case study: dedicated LTX for FMIs and fintech appointed Sep 2020; bilateral TA to 6 of 13 countries and 2 regional workshops.
- CARTAC regional workshop on Inclusive Insurance (late 2020): 33 insurance supervisors from 14 member countries; spurred microinsurance and parametric insurance initiatives in several jurisdictions.

### Debt management and public debt transparency
- Niger mission: prepared terms of reference and formats for a public debt website; authorities published FY20 annual debt management report and MTDS report 2021–23.
- MEFMI regional pilot: two-week virtual workshop for 30 officials from 10 MEFMI countries funded by DMF, focusing on debt transparency and institutional arrangements.
- PFTAC inaugural Public Debt Management Program (March 2021) to run into Phase VI (Nov 2022–Apr 2028) priorities: debt recording/reporting, institutional arrangements, MTDS, domestic market development.

### Remote supervision and examinations (Zimbabwe example)
- Guidance to Reserve Bank of Zimbabwe for remote examinations:
  - Establish reliable communications, adjust scope, allow more time, emphasize written communications, be investigative about internal control assessments, and communicate limitations in reports.
- Testimonial from RBZ Governor Dr. John P. Mangudya expressing gratitude for AFRITAC South assistance.

### Institutional networks, placements, and contact points
- RCDCs listed by location and member countries (examples: AFRITAC Central — Libreville, Gabon; AFRITAC South — Ebene, Mauritius; PFTAC — Suva, Fiji; METAC — Beirut, Lebanon; CCAMTAC — Almaty, Kazakhstan; CARTAC — Bridgetown, Barbados).
- Selected MCM LTX placements and donors preserved in roster (examples: Bank of Mozambique — Central Bank Modernization — Norway; Bank of Uganda — Banking Supervision and Regulation — FSSF; Central Bank of Sri Lanka — Macroprudential Policy and Stress Testing — FSSF; National Bank of Cambodia — Banking Supervision and Regulation — Japan).
- MCM TA main contact points (names, phones, and emails preserved exactly):
  - Director Tobias Adrian — T. +(1) 202.623.5372 — tadrian@IMF.org
  - Deputy Director Aditya Narain — T. +(1) 202.623.9616 — anarain@IMF.org
  - Technical Assistance Strategy Division Chief Jennifer Elliott — T. +(1) 202.623.8804 — jelliott@IMF.org
  - Deputy Division Chief Veronica Bacalu — T. +(1) 202.623.4816 — vbacalu@IMF.org
  - Deputy Division Chief Sipho Makamba — T. +(1) 202.623.4729 — smakamba@IMF.org
  - Deputy Division Chief Maria A. Oliva — T. +(1) 202.623.8149 — molivaarmengol@IMF.org
  - Regional Advisor—Africa, Middle East, and Central Asia Simon Gray — T. +(1) 202.623.6432 — sgray@IMF.org
  - Regional Advisor—Europe and Asia and Pacific Udaibir Das — T. +(1) 202.623.6330 — udas@IMF.org
  - Regional Advisor—Western Hemisphere John Nelmes — T. +(1) 202.361.1835 — jnelmes@IMF.org
  - Mailing Address: Monetary and Capital Markets Department, International Monetary Fund, 700 19th Street, NW, Washington, DC 20431

*Capacity Development Annual Report 2021 | Monetary and Capital Markets*

### PREFACE

### PREFACE

### Overview
- Capacity Development (CD) is one of the Fund’s core activities, alongside surveillance and lending, that helps member countries build strong economic institutions.
- CD is aligned with the IMF’s mandate for global economic stability and prosperity, the Sustainable Development Goals (SDGs), and other global initiatives that aim to strengthen the capacity of government institutions to conduct more effective economic policies.
- CD is demand driven and accounts for about a third of the IMF’s activities.
- Half of IMF CD goes to low-income developing countries and a quarter to fragile and conflict-affected states (FCS).
- More than half of IMF CD is externally funded by our partners through bilateral and multilateral arrangements.
- The IMF delivers CD through bilateral projects and a range of regional and thematic multi-partner vehicles.

### CD during the COVID-19 pandemic
- Since the start of the global pandemic (COVID-19), the IMF has provided CD support and policy advice to most Fund member countries to address immediate challenges encountered during the lockdown.
- Virtual CD support for longer-term objectives also continued.
- The economic fallout caused by the pandemic could be with us for many years to come, and the IMF is committed to supporting its member countries to strengthen economic institutions which are critical to the formulation and implementation of effective policies.
- The FY 2021 Annual Report highlights MCM’s continued engagement in responding to member countries’ critical needs in support of financial and monetary stability despite the difficult circumstances of COVID-19.
- The silver lining to the crisis has been our ability to be agile and responsive using technology—adapting to the virtual environment, adding to our toolkit with webinars and online training, and using our technology to engage more continuously with our country authorities.
- MCM long-term resident advisors have been key to our continued strong engagement with country authorities as they have mastered their CD planning and delivery by leveraging on their relationships and the trusted advisor role that became even more important in the mostly remote work environment.

### Priorities, strategy, and guidance
- MCM’s CD is guided by the Fund’s CD policies; the most recent 2018 Review of the Fund’s Capacity Development Strategy set two mutually reinforcing objectives of enhancing the impact and efficiency of CD.
- The CD delivering process is informed and guided by broader Fund policy, including The Managing Director’s Global Policy Agenda (GPA) that defines the strategic direction of CD taking into consideration the evolving challenges facing the global economy.
- MCM contributes to all the areas defined in the GPA and the IMF’s Interdepartmental Committee on Capacity Building regularly reviews the Fund’s CD considering member countries’ demand and overall Fund’s priorities.
- MCM CD benefits from following the recommendations of the Fund’s Independent Evaluation Office (IEO) and from external evaluations funded by donor partners.
- MCM’s CD activities are guided by the MCM TA Strategy. The MCM’s CD Strategy was adopted in 2011 and is updated every three years with the most recent one having covered 2017–20.
- MCM’s 2017–20 CD strategy emphasized strengthening the value-added of MCM’s CD work in each stage of CD life cycle, agile responses to new CD needs, innovations in knowledge creation, management, and dissemination, and maintaining appropriate governance and accountability frameworks.

### Current and emerging priorities
- Current priorities include:
  - Support for FCS
  - Financial market deepening for low-income countries
  - Improved financial supervision/regulation and monetary policy frameworks in emerging and some lower-income countries
  - Strengthening CD to countries of Caucasus and Central Asia and Mongolia region
- MCM’s core areas include:
  - Financial sector supervision and regulation
  - Central bank operations and payment systems
  - Debt management and capital market development
  - Monetary, foreign exchange, macroprudential policies, and capital flow management
  - Crisis preparedness and management
  - Financial stability/systemic risks
- The report highlights new growing CD areas such as financial technology (fintech), cybersecurity, digital currencies, payments, and climate change.

### Delivery modalities and implementation challenges
- Tailoring CD to country needs compels the use of a range of CD formats: consultative short-term advice, regional workshops for peer learning, longer projects with in-the-field advisors, peripatetic missions by short-term experts, and combinations thereof.
- The Financial Sector Stability Review (FSSR) is MCM’s flagship programmatic CD product; it is country-tailored, closely coordinated with authorities and CD partners, and results in a CD roadmap and a project implementation plan that usually covers three years.
- Main challenges to CD delivery during the pandemic included uncertainties about the evolution of COVID-19, funding constraints, effectiveness of remote modality, availability of financial and human resources (especially if demand rises), and the ability of country authorities to devote sufficient resources and attention to engagement on reforms.
- Country ownership, absorptive capacity, high staff turnover, and the need to customize toolkits to less complex environments are key factors affecting CD success, particularly pronounced in FCS and low-income settings.

### Organizational notes and acknowledgements
- The FY 2021 Annual Report and related text reflect MCM’s continued prioritization of CD activities on low-income, fragile, conflict-affected, and small states while harnessing emerging areas of CD demand in climate change, gender, and fintech.
- The report was prepared by staff from MCM’s Technical Assistance Strategy Division led by Veronica Bacalu and Sipho Makamba under the guidance and supervision of Jennifer Elliott and Aditya Narain.
- Messages and reflections are provided by Antoinette Sayeh, Deputy Managing Director, International Monetary Fund, and Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department.

*Capacity Development Annual Report 2021 | Monetary and Capital Markets*

### SECTION II  |  5Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### SECTION II  |  5Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### Expertise in Core Topic Areas and Evolving Needs
- MCM relies on a strong pool of qualified experts recruited from central banks, academia, supervisory agencies and within the IMF, including HQ staff, resident advisors/long-term experts (LTX), and short-term experts (STX).
- LTX hiring follows the same rules as staff; the number of LTXs has ranged from 45 LTXs in post-global financial crisis (GFC) years to 30 LTXs during the pandemic.
- STXs are drawn from a deep pool including current and former officials of central banks, ministries of finance, debt management and supervisory agencies; experts are interviewed and due diligence is undertaken.
- MCM partners with more than 100 Official Sector Agencies globally to meet TA and training needs.
- Demand has remained steadily high for MCM’s core areas: supervision and regulation, central bank operations, debt management, monetary, foreign exchange, and macroprudential policies, systemic risk analysis, and financial crisis management.
- Emerging and growth areas with rising demand include fintech-related supervisory and payments issues, cyber risks, digital currencies, climate-related risks, financial inclusion, and gender-related issues in finance.

### Financial Supervision and Regulation
- Financial sector supervision and regulation delivers the highest share of MCM CD.
- Core TA themes in the banking sector include Basel II/III implementation, risk-based supervision, and implementation of the Basel Core Principles for Effective Banking Supervision.
- MCM supports financial conglomerate regulation and supervision, implementation of IFRS-9 and Expected Credit Loss approaches, and Islamic banking.
- The GFC-era reforms (increased capital and liquidity requirements, built-in flexibility) have helped maintain banking sector resilience and facilitate credit flow during COVID-19; supporting implementation of these reforms remains a key CD program component.
- Training is a major delivery channel: the Supervisory and Regulatory Online Course for Banking Supervisors (SROC), in partnership with the Financial Stability Institute, has been delivered for the last three years to over 1,000 participants from 100 countries.
- MCM produced guidance notes on regulatory and supervisory responses and supervisory actions/priorities during COVID-19, and a joint position note with the World Bank on financial regulatory and supervisory implications of COVID-19.
- Virtual roundtables and webinars in RCDCs, with LTX participation, presented IMF recommendations and diverse country practices and facilitated Q&A and crisis policy discussions.
- Testimonial: Koba Gvenetadze, Governor, National Bank of Georgia, highlighted multidimensional MCM CD support on financial stability framework, macroprudential strategy, stress testing, Foreign Exchange Policy Framework and Communications, and CBDC TA.

### Cybersecurity
- Building supervisory capacity to manage cyber risks is a CD priority; MCM has increased expertise and CD delivery through diverse products and activities.
- MCM’s Staff Discussion Note (SDN) “Cyber Risk and Financial Stability” identifies gaps to reduce cyber risk and safeguard global financial stability and highlights Fund CD efforts for low-income and vulnerable countries.
- MCM’s three-pillar CD approach for cybersecurity:
  - Annual workshop on cybersecurity risk (funded by the Financial Sector Stability Fund (FSSF)) focusing on emerging and developing economies to share experiences and equip supervisors with practical tools.
  - Periodic regional workshops targeted at regions covered by RCDCs.
  - Bilateral CD projects providing tailored deep-dive analysis and recommendations.
- Strategy focuses on low-income countries (LICs) and low-capacity financial systems as weakest nodes; envisaged tools include an online cyber course and a cyber supervision toolkit to increase CD efficiency and reach.

### Climate Risks
- Tackling climate financial risks has emerged as a high priority for MCM; central banks and supervisors increasingly view climate-related financial risks as material for financial stability and price stability.
- Necessary next steps: develop comprehensive supervisory guidelines, methodologies, risk indicators, and regulations; address data gaps to identify, assess, and manage climate-related risks.
- MCM is adding a climate-risk angle to financial sector supervision programs and firming partnerships to increase supervisory capacity.
- Delivery to date: building expertise, organizing regional webinars jointly with RCDCs, and participating in high-level forums (example: webinar convened by the Toronto Centre exploring climate change impacts on financial stability in the context of COVID-19).
- Work is starting on central bank operations to build capacity for strategic roadmaps reflecting climate and transition risks in policies and balance sheets.

### Central Bank Operations
- Central bank operations have been a core MCM mandate, covering monetary operations frameworks, foreign exchange operations, central bank governance, banknote management, balance sheet and financial reporting.
- Shifts in CD priorities reflect evolving central bank mandates and more complex policy operations, including unconventional tools and challenges from climate change; demand for technically advanced CD has increased.
- MCM tailors CD modalities and relies on placement of LTXs in single countries and in most RCDCs.

Key analytically driven central banking CD areas and activities:
- Forecasting and modeling for central banking:
  - FY21 introduced modern forecasting techniques for liquidity management and calibration of monetary operations.
  - New models were tested in Botswana, Djibouti, Jordan, Namibia, and the United Arab Emirates.
  - Innovations include forecasting the conditional distribution of variables to factor risk into decisions, applied to liquidity forecasts and reserve requirements.
  - Work on assessing “at-risk” impacts on central bank balance sheets (inflation, gross domestic product (GDP), and others).
  - An advanced modeling framework based on Value-at-Risk estimate used to identify optimal foreign exchange intervention triggers; model published in WP  2021/32.
  - MCM and the IMF Information Technology Department produced free and open-source software and delivered hands-on training.
- Managing systemic liquidity in fixed arrangements or transitioning to a floating exchange rate:
  - Conceptual framework developed for liquidity management supportive of exchange rate and monetary arrangements, market development, and practical recommendations on policy rate determination, interest rate corridor, liquidity forecasting, instrument calibration, collateral framework design, and emergency liquidity assistance (ELA).
  - Framework first presented in a training course at the Center for Economics and Finance in Kuwait (CEF); tailored advice provided to countries transitioning from fixed to flexible exchange rate arrangements and implementing inflation targeting.
- Diagnostic tools for market development:
  - New comprehensive and systematic market survey and data infrastructure developed for financial and non-financial institutions; surveys used in Botswana, Costa Rica, Malaysia, and the United Arab Emirates to collect and systematically process feedback and inform CD advice.
- Revamping collateral and ELA frameworks:
  - COVID-19 increased liquidity demand; MCM provided “COVID-19 notes” and seminars on broadening collateral frameworks, with attention to credit claims and less liquid assets.
  - Refined advice on ELA focusing on conditionality, monitoring frameworks, funding plans, and public communication.
  - MCM developed an ELA template for fully dollarized economies emphasizing good governance and strict conditionality.
- Digital central banking:
  - MCM is advising on implications of currency digitalization for central bank operations and risk management, including collateral provision.
  - LTXs in each RCDC engage counterparties on digital currency implications as part of mainstreaming the digital issue.

*Source: SECTION II  |  5Capacity Development Annual Report 2021  |  Monetary and Capital Markets*

### BOX 1. CENTRAL BANK’S GUIDE TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)—

### BOX 1. CENTRAL BANK’S GUIDE TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)— CREATING VALUE THROUGH SOUND GOVERNANCE

### Overview
- The Central Bank’s Guide to International Financial Reporting Standards (IFRS) provides central banks with a comprehensive model for enhancing consistency and transparency in reporting their financial position.
- The initiative was a Financial Sector Reform and Strengthening Initiative (FIRST) funded project that kicked off in late 2019 with the English version being published by mid-2021.
- The goal was to develop a tool usable by central bank staff and stakeholders as well as by IMF experts in delivering TA programs.

### Project participants and methodology
- The guide was a collaborative project involving:
  - 3 technical experts.
  - 13 participants from central banks of varying size and complexity with representation from each region globally.
- Participants were chosen from central banks currently compliant with IFRS as well as those who have embarked on the journey to full compliance.
- The guide is based on a critical review of some 30 published IFRS-compliant central bank financial statements and the collaborative efforts of the central bank experts.

### Outputs and content
- The guide offers:
  - A model set of IFRS financial statements.
  - Accompanying accounting policies.
  - Full note disclosures.
- The guide’s structure is described as easy to follow and provides a complete view of good practices in financial reporting for central banks.

### Intended audience and uses
- Of interest to central bank board members, audit committees, operational and accounting staff, external stakeholders, and academics—whether they apply IFRS or not.
- For central banks seeking assistance in adopting IFRS, the guide provides a complete view of good practices financial reporting.
- The guide aligns critical central bank financial disclosures—providing a more complete and meaningful description of:
  - accounting policies,
  - financial risks,
  - the financial impact on the operations of the central bank.

### Collaboration and public-good value
- The project involved participants from 13 central banks with global coverage.
- The project represents a collaborative example among the IMF and central banks to produce a know-how product as a public good.

*Capacity Development Annual Report 2021  |  Monetary and Capital Markets*

### SECTION II  |  15Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### SECTION II  |  15Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### CAPITAL FLOW MANAGEMENT
- MCM leads CD on capital flow management, closely linked with monetary policy and foreign exchange operations.
- Work covers foreign exchange arrangements, exchange and trade systems, and capital controls of IMF member countries.
- Approach based on the institutional view on the liberalization and management of capital flows, including conditions for using capital flow management measures.
- Objectives:
  - Guide advice to countries and clarify trade-offs between policy options.
  - Maximize benefits and address risks, taking into account cross-border impacts on financial stability.
- CD activities often cover:
  - Restrictions on current international payments and transfers.
  - Issues related to multiple currency practices.
  - Operation of foreign exchange markets, controls on international trade and capital transactions, and financial sector measures, including prudential ones.
- AREAER:
  - The Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) database provides a yearly description of foreign exchange arrangements, exchange and trade systems, and capital controls of all IMF member countries and is mandated by the IMF Articles of Agreement.
- CD in this area is frequently combined with CD in central bank operations and monetary and macroprudential policies.

### GENDER-BALANCED FINANCIAL SECTOR POLICIES
- MCM has initiated activities to promote gender-balanced policies in the financial sector, to be supported by analytical underpinnings and operational guidance.
- Coordination:
  - Working closely with the IMF’s Senior Advisor on Advancing the Fund’s Gender Work and partnering with organizations that promote gender equality in finance.
- Focus to date:
  - Financial inclusion aspects of gender and building awareness of the need for gender diversity in financial sector leadership.
  - IMF staff work (S D N   15 /17 and 18/05) underscores benefits of greater inclusion of women as users, providers, and regulators of financial services, including fostering greater stability in the banking system and enhancing economic growth.
- Activities and partnerships:
  - Partnered with Women’s World Banking for a planned series of CD activities.
  - Fund-wide panel under IMF Deputy Managing Director Antoinette Sayeh highlighted the case for gender-balanced leadership within financial sector institutions and explored actionable steps.
  - Two workshops with SARTTAC and METAC to engage regional authorities on gender issues in finance; participants noted a strong business case for gender balance to strengthen governance and suggested CD resources to promote gender-balanced managerial successions.
- Note: Women’s World Banking described as a nonprofit organization that designs and invests in financial solutions, institutions, and policy environments to create greater economic stability and prosperity for women, their families, and their communities.

### INTEGRATION OF CD WITH SURVEILLANCE AND IMF PROGRAMS
- Institutional priority to integrate MCM CD with area department (AD) surveillance and use of Fund resources; efforts strengthened during the pandemic and directed toward priority groups including FCS and the Caucasus, Central Asia, and Mongolia.
- Staffing and tools:
  - About 80 MCM economists and financial sector experts (FSEs) are members of AD country teams in countries with significant financial sector challenges.
  - FSAPs and FSSRs are key tools for CD-surveillance integration:
    - FSAPs: surveillance tool with strong links to CD; countries often seek MCM technical advice to address FSAP recommendations.
    - FSSR: a CD tool that identifies capacity gaps, develops a medium-term CD delivery plan aligned with an agreed reform agenda for implementation with MCM support.
- Organizational mechanisms:
  - Dedicated country managers and regional advisors contribute to CD strategies and serve as day-to-day points of contact for ADs, authorities, and MCM.
  - CD-surveillance nexus discussed at monthly meetings of MCM TA Strategy Division with each functional division; functional division staff maintain regular contact with AD teams to follow up on surveillance or program mission issues and CD implementation challenges.

### FLEXIBILITY OF DELIVERY
- MCM employs a full range of CD modalities: virtual engagements and in-person missions, TA and trainings, knowledge management products, toolkits and ‘how-to’ guides, regional workshops and TA, large scale courses, peripatetic advisors, long-term advisors combined with HQ staff, and small targeted advisory sessions.
- Shift to remote delivery during the pandemic:
  - Authorities and MCM adapted quickly to remote options (e.g., virtual teleconference, webinar, desk review, work from home).
  - Technology constraints by authorities lengthened TA activities; alternative sources including resident representatives’ offices were used.
  - Some CD priorities revised to address immediate demands such as cybersecurity regulation and how to continue effective supervision under operational restrictions.
  - Advance preparation, coordination, and adaptation to different needs were key to overcoming remote interaction difficulties.
  - Remote modalities enabled more regular contacts and targeted non-stop advice.
  - Experience indicates remote modalities are in many cases less effective than in-person work but will complement in-person engagements when travel resumes.
- Training:
  - Combination of technical advice and training via missions and remote tools productive for capacity building.
  - MCM’s online courses created with ICD had very high attendance and excellent feedback.
  - Volume of online training is expected to continue to grow.
- New approaches:
  - Exploring prolonged engagements under projects that consider absorptive capacity and pace of implementation of recommendations over a longer period.

### PARTNERSHIPS FOR IMPACTFUL CD
- Coordination with external stakeholders (donors and other CD providers) and internal Fund cooperation (ADs, other capacity-delivering departments, ICD) is crucial for CD efficiency, complementarity, and integration with surveillance and lending.
- Governance and coordination arrangements vary by scope and intensity; five main types identified:
  - (i) regular stakeholder meetings for large-volume CD recipients;
  - (ii) regular high-level forums with donors and CD providers;
  - (iii) donor coordination in some country cases with multiple donors;
  - (iv) reliance on AD country teams for smaller CD recipients;
  - (v) post-FSSR coordination meetings for countries undertaking the FSSR.
- World Bank is the main partner for coordination to ensure efficient resource use and synergies; close cooperation areas include debt management and financial stability issues identified during FSSRs.
- Examples of coordination practices:
  - In countries with limited CD volume, AD country teams (including IMF resident representatives) typically coordinate CD and have a systematic view of TA by other providers.
  - MCM organizes and participates in high-level CD forums (e.g., bi-Annual IMF-BIS Symposium on financial supervision capacity) to promote shared goals and create training (under BIS-IMF initiative a new online course for bank supervisors was created and funded by the FSSF).
  - Primary vehicle for CD coordination in large recipient countries are annual stakeholder meetings to update and agree on a TA matrix outlining division of labor; recipient authorities’ buy-in is essential.
  - Country examples:
    - Ukraine: International Affairs Department of the National Bank of Ukraine leads CD coordination; MCM regularly participates in an annual donor conference involving about 30 representatives; MCM placed a resident CD project manager to coordinate a large CD portfolio.
    - Myanmar: COFTAM annual donor coordination forum was predominantly organized by the Fund to coordinate MCM CD with other partners prior to February 2021.
  - FSSR missions include coordination with World Bank and other CD providers when developing multi-year CD roadmaps.
- Partnerships with other CD providers:
  - MCM supports Toronto Centre for Financial Sector Supervision activities, co-hosting panels on fintech, inclusion, gender, and green economy.
  - Collaboration with Women’s World Banking on high-level forum and regional workshops in RCDCs on gender leadership issues.
- Internal Fund cooperation avenues:
  - Contribution to CCB and Fund-wide FCS Strategy working group.
  - Participation in CDMAP implementation and Community of Practice discussions.
  - Joint missions with Fiscal Affairs Department on debt management (treasury cash management and local securities market development).
  - Joint work with Legal Department on legal frameworks in supervision and regulation, crisis management and resolution, and central bank governance.
  - Joint work with Statistics Department (STA) on FSSR diagnostics to strengthen authorities’ capacity to produce financial sector data.

### BOX 4. EXTERNAL DONORS OF MCM CD
- External donors finance over 80 percent of MCM CD field work including RCDCs’ activities and bilateral or multilateral country projects.
- Donor types:
  - Bilateral donors: single-country agencies financing priority MCM CD projects.
  - Multi-donor trust funds: support either single CD recipients on broad topics or thematic CD across countries.
- Largest Bilateral Contributors to MCM CD, FY2021:
  - Japan
  - Canada
  - Switzerland
  - Norway
  - The Netherlands
  - United Kingdom
- Top MCM CD Trust Funds and their Contributors, FY2021:
  - DMF: African Development Bank, Austria, European Commission, France, Germany, Japan, The Netherlands, Norway, Switzerland, United Kingdom, United States
  - FIRST: Germany, Luxembourg, The Netherlands, Switzerland, United Kingdom
  - FSSF: China, European Investment Bank, Germany, Italy, Luxembourg, Saudi Arabia, Sweden, Switzerland, United Kingdom
  - MNRW: Australia, European Commission, The Netherlands, Norway, Switzerland, United Kingdom
- Note: FIRST Phase III partners that ended December 2020 included a set of partners; FIRST Phase IV partners include Germany and Switzerland only.

*Italic: IMF Capacity Development Annual Report 2021 — Monetary and Capital Markets (SECTION II).*

### SECTION II

### SECTION II

### COMMUNICATION AND DISSEMINATION OF CD
- MCM disseminates CD information Fund-wide through the Knowledge Exchange Countries platform and the Institutional Repository.
- MCM encourages country authorities to publish non-confidential TA reports to spread best practices and provide cross-country lessons.
- Increased dissemination of educational materials: short videos, podcasts, and online products via social media and other outlets.
- Regular briefings to the IMF Executive Board on MCM CD activities, challenges, trends, and priorities:
  - Presentations and discussions are used to take stock of CD work, share lessons, and obtain candid feedback to strengthen strategic approaches and align CD with member countries’ needs.
  - Engagements with the IMF Executive Board help strengthen CD demand management and involve member country representatives.
  - Example: recent presentation on Building Capacity in Monetary and Financial Policies in FCS, which provided constructive discussion and strong endorsement of MCM’s activities in FCS ahead of the forthcoming new Fund strategy of engagement with FCS.

### STRONG EMPHASIS ON CD GOVERNANCE
- MCM maintains a strong review and oversight process to ensure CD is held to high standards and aligned with overall MCM work.
- MCM builds on its RBM framework, project assessments, and evaluations to gauge absorption and impact of CD and to adjust priorities, modalities, and design.
- All donor-funded CD projects are subject to periodic assessments prepared by the MCM CD project manager summarizing progress and accomplishments during implementation and at completion.
- From FY19, MCM expanded periodic assessments to internally funded projects; the first interim internally funded TA assessment was for a project on implementation of inflation targeting in the Kyrgyz Republic.
- MCM participates in the CD evaluation program based on OECD Development Assistance Committee criteria; MCM started CD evaluations in 2006 and embedded them with the adoption of the MCM CD Strategy in 2011, with a total of seventeen CD evaluations conducted so far.

### BOX 5 — EMBRACING RBM IN MCM
- RBM rollout in 2017 formalized standardized results-oriented planning, managing, and reporting for CD.
- RBM implementation benefits listed:
  - (i) clear roadmap of CD activity;
  - (ii) strengthened CD prioritization and engagement with ADs and other capacity development departments using CDMAP as the universal vehicle;
  - (iii) deeper authorities’ involvement, commitment, and buy-in at all stages of CD;
  - (iv) enhanced coordination and communication between MCM TA Country Managers and Functional Divisions on designing CD.
- With phased CDMAP implementation, RBM extended across the Fund; going forward MCM will increasingly focus on CD quality and effectiveness by leveraging RBM throughout the CD life cycle.
- RBM implementation characterized as three-dimensional:
  1. Quantitative monitoring:
     - Enables tracking of CD activity milestones and outcomes and linkage to progress by CD recipients.
     - Updated catalog of standardized results and verifiable result indicators enhanced quantification and operationalization of RBM; resulting RBM logframes feed into TA recommendations.
     - As of April 2021, MCM TA and training portfolio comprised 205 internally and externally funded CD projects, which included 1,160 objectives, 2,186 outcomes, and 6,217 milestones.
  2. Embedding RBM in TA outputs (BRFP, BTO reports, TA reports) to strengthen CD recipient buy-in.
  3. Accomplishments centered on CD mandate:
     - Planned pilot studies to strengthen RBM effectiveness with goals to (i) enable better assessment of progress; (ii) analyze what worked and what didn’t; (iii) extract lessons and adapt CD delivery.

### BOX 6 — ASSESSMENT OR EVALUATION?
- Distinction:
  - Project assessments: monitor progress and guide adjustments to a given project; feed into project evaluations.
  - Ex-post project evaluations: independent assessment to extract lessons and improve future TA provision.
- MCM CD evaluations are conducted by MCM staff and external experts not involved in the evaluated project to ensure independence and objectivity.
- Evaluations are based on the six OECD Development Assistance Committee criteria:
  - (i) relevance;
  - (ii) coherence;
  - (iii) effectiveness;
  - (iv) efficiency;
  - (v) impact;
  - (vi) sustainability.
- Conclusions and lessons from evaluations inform future CD project design, monitoring, and execution.
- MCM follows up with authorities to monitor progress and make adjustments as needed; mission materials (TA report, BRFP, BTO) are used to update and agree Results Framework (RF) elements and timelines with authorities.

### COUNTRY GROUP PRIORITIES — FRAGILE AND CONFLICT-AFFECTED STATES (FCS)
- Building capacity in FCS is a high priority; MCM delivered CD to all FCS over the last 10 years.
- FCS are among MCM’s top ten CD beneficiaries. Highest FCS recipients: Myanmar, Sierra Leone, South Sudan, Nepal, The Democratic Republic of Congo.
- Over the past ten years:
  - MCM’s CD to FCS accounted for about 25 percent of the IMF’s total CD in these countries.
  - More than half of MCM’s total FCS CD spending was in the Africa region with substantial amounts in Asia Pacific and the Middle East and Central Asia.
- Financial sector stability reviews (FSSRs): seven FSSRs out of 22 were conducted in FCS countries (Djibouti, The Gambia, Guinea, Kosovo, Sierra Leone, West Bank and Gaza, Zimbabwe); FSSR engagements with Democratic Republic of Congo and Tajikistan have just started.
- COVID-19 pandemic impacts and adaptations:
  - Recent CD remained strong despite pandemic challenges; a third of TA missions were in FCS in FY21.
  - Webinars and short virtual engagements evolved into longer virtual work, opening opportunities for remote delivery where travel and security constrained in-person missions.
  - Example: resident advisor in METAC enabled more regular contact and TA to Yemen, Libya, and Iraq on supervision and regulation.
  - Pacific Islands made notable progress with support from the resident advisor in PFTAC.
- Core MCM workstreams in FCS:
  - High demand: financial sector regulation and supervision, central bank operations, debt management.
  - Growing demand in new areas: tackling cyber risks; developing mobile payments and payment strategies; exploring e-money solutions; developing fintech regulatory frameworks; understanding climate change implications and transition to a low-carbon economy for the financial sector.
- CD modality and sequencing considerations:
  - Engagements are long term, gradual, and well-sequenced; institutional building is slow and often interrupted by acute short-term needs.
  - Tailored, flexible advice is required; first-best advice may not be feasible.
  - Results-based frameworks in FCS are designed with authorities to include realistic milestones, outcomes, and timelines; milestones often extended over longer horizons in FCS.
  - Blended CD delivery modalities recommended: traditional missions combined with hands-on training, peer-to-peer learning, professional attachments, dedicated online courses, thematic workshops, short virtual meetings, and desk reviews.
  - Example: CD on building resilience to cyber risks in LICs and FCS uses mission-based delivery, regional workshops, and an annual cybersecurity event funded by the FSSF.
- Resident advisors (“LTXs”) role:
  - Critical for FCS work during the pandemic.
  - MCM had 30 resident advisors in total at end-April 2021, of which 21 in RCDCs with FCS or directly in these countries.
  - LTXs adjusted to remote modalities, maintaining permanent contacts with authorities and delivering efficient TA.

### COUNTRY GROUP PRIORITIES — CCAMTAC COUNTRIES
- Despite COVID-19 challenges, MCM maintained robust CD activities in the Caucasus, Central Asia, and Mongolia (CCAM) region in FY21.
- Largest CD recipients in the region: Georgia and Uzbekistan (nine remote TA missions each) on topics including bank supervision, stress testing, monetary operations, capital account liberalization, debt management, and capital market development.
- Uzbekistan undertook an FSSR; an associated FSSR follow-up TA project was approved in May 2021.
- TA delivered:
  - Bank regulation and supervision: Kazakhstan, the Kyrgyz Republic, Mongolia.
  - Central bank operations: Armenia, the Kyrgyz Republic.
  - Debt management: Mongolia.
- Launch of TA projects on CBDC in Georgia and the Kyrgyz Republic.
- Diagnostic mission to five countries (Azerbaijan, Kazakhstan, the Kyrgyz Republic, Mongolia, Turkmenistan) to identify gaps in monetary and foreign exchange operational frameworks, to be addressed by CCAMTAC.
- Division of labor:
  - CCAMTAC handles central bank operations and financial sector regulation and supervision regionally.
  - IMF headquarters provides CD on strategic/emerging issues (fintech, climate change, debt management) and conducts FSSR work and follow-up implementation support from the center (Tajikistan scheduled for an FSSR in FY22).

### BOX 7 — CCAMTAC: REVAMPING CD TO THE CCAM REGION
- Rationale:
  - IMF regional capacity development centers (RCDCs) coordinate TA, training, and peer-learning close to member countries.
  - The CCAM region was an important gap in RCDC coverage.
- CCAMTAC timeline:
  - Approved early 2019; Almaty, Kazakhstan selected to host in October 2019.
  - Center formally opened remotely in January 2021 after COVID-19 delays.
- CCAMTAC objectives:
  - Strengthen monetary and financial sector policies to support robust central banks and regulatory agencies.
  - Tailor work to diverse country needs across lower-middle income, fragile, emerging market, and commodity-exporting economies.
- CCAMTAC staffing and activities:
  - Center director, seven advisors, and local staff.
  - Advisors cover macroeconomic frameworks and analysis, public finance management, revenue administration, central bank operations, financial supervision, government finance statistics, and real sector statistics.
  - Advisors to engage short-term experts as needed and hold workshops and peer-to-peer events to reinforce training by JVI and other IMF training centers.

### STRONG DELIVERY AMID THE PANDEMIC
- Despite the ongoing global pandemic, MCM CD delivery remained strong in FY21.
- In FY21, MCM delivered about 690 CD missions remotely to assist member countries in response to crisis-related demands.
- Bilateral remote missions were complemented by regional engagements and webinars (including COVID Notes webinars), creating additional CD complementarities.
- Global intensity of MCM TA delivery in FY21 extended support across all regions, balancing CD demand and delivery.
- Examples of countries with higher CD demand and execution in FY21 (more than one FTE): Cambodia, Mozambique, Myanmar, Ukraine.

*Source: SECTION II, Capacity Development Annual Report 2021 — Monetary and Capital Markets.*

### SECTION IV

### SECTION IV

### Trends in MCM Capacity Development (CD) Delivery and COVID-19 Response
- Total CD delivery in USD dropped in FY21 relative to FY20.
- CD to fragile and conflict-affected situations (FCSs) accounted for about 27 percent of total TA delivery in FY21.
- MCM CD operations (TA and training) remained fully remote during FY21 due to continued travel suspension and pandemic-related uncertainties.
- CD field delivery averaged around 13.2 FTEs per quarter throughout FY21.
- During FY21, 90 percent of CD delivery was conducted by external experts (LTXs and STXs); IMF staff time accounted for 10 percent of CD work.

### Webinars and Remote Engagement
- More than 60 webinars were held with authorities across the globe on COVID-19 issues, based on MCM topical notes.
- Webinars reached authorities from 130 countries, attended by 30–70 participants per event, and were delivered in five languages (Arabic, English, French, Portuguese, and Spanish).
- Webinars were time- and cost-efficient, highly interactive, and expanded reach with virtually no limits on participants.
- Main messages to financial supervisors at the outset of the pandemic included:
  - Use flexibility embedded in regulation while upholding minimum standards.
  - Limit moral hazard by keeping measures well targeted and making clear these are temporary.
  - Provide guidance on asset classification and provisioning.
  - Preserve banks’ capital resources by temporarily limiting the distribution of capital.
  - Promote transparency and coordinate globally, regionally, and locally to maintain financial stability.
- One year into the pandemic, main messages on unwinding interventions included:
  - Reverse measures not compatible with international standards (if any).
  - Start using stress tests, complemented by sensitivity analysis and reverse stress tests.
  - Maintain flexibility to restore capital levels in case of breach.
  - Strengthen arrangements for bank and NPL resolution.
  - Rebuild buffers once the recovery is firmly under way.
- Cybersecurity guidance highlighted risks from weak infrastructure, extensive cloud usage, video conferencing platforms, and phishing; recommended strengthening off-site supervision where resources and data permit, and redesigning on-site supervision to be “contactless” and more risk focused.
- Webinars on central bank support to markets covered design of market support programs, triggers for intervention, program types (price- or volume-based), and operational considerations (collateral framework, eligible counterparties).
- Debt management webinars described emergency facilities (Rapid Credit Facility, Rapid Financing Instrument, Catastrophe Containment and Relief Trust), the G20 Debt Service Suspension Initiative, and stressed communication with monetary, fiscal, regulatory authorities and market participants.

### CD Resources, Regional Distribution, and Top Recipients
- Regional CD field delivery in FY21 (by share of FTES):
  - Africa: 40%
  - Asia and Pacific: 23%
  - Western Hemisphere: 16%
  - Middle East and Central Asia: 12%
  - Europe: 9%
- Europe’s share dropped to 9 percent in FY21, partly due to demand hesitations in some smaller countries.
- The top 10 beneficiary countries globally received about 27 percent of total CD, equivalent to 14.4 FTEs; three new countries joined the top-10 list in FY21: Haiti, Sri Lanka, and Uzbekistan.
- Top regional recipients included Haiti, Mozambique, Myanmar, Ukraine, and Uzbekistan, supported by comprehensive and programmatic multi-year TA and placement of long-term resident advisors.
- Top TA topics by FTEs in FY21:
  - Financial Sector Supervision and Regulation: 42 percent of total delivery.
  - Central Bank Operations: 31 percent of total delivery (including fintech, cybersecurity, and digital currency regulation).
  - Debt Management and Capital Market Development; Monetary, Foreign Exchange, and Macroprudential Policy; Financial Stability/Systemic Risk; Crisis Preparedness and Management (other active areas).

### Funding, Donor Support, and Training
- A major proportion of MCM CD in FY21 (82 percent) was funded by external donors.
- Virtual TA delivery in FY21 contributed to about a 4 percent drop in utilization of external funding relative to FY20.
- Among major external donors in FY21:
  - Japan contributed 14 percent to MCM CD activities.
  - FSSF contributed 11 percent.
  - Other contributors and mechanisms included FIRST, Switzerland, and the Debt Management Facility (DMF).
- External donors remained the main funding vehicle for CD activities undertaken by RCDCs, accounting for 46 percent of total in FY21.
- MCM training field delivery in FY21 amounted to about 4 FTEs.
- Training funding: 77 percent of MCM training in FY21 was donor-financed.
- Regional distribution of MCM training in FY21 (by share of FTEs):
  - Africa: 56%
  - Asia and Pacific: 18%
  - Western Hemisphere: 11%
  - Middle East and Central Asia: 9%
  - Europe: 6%

### Financial Sector Stability Review (FSSR) and FSSF Support
- The FSSR is a diagnostic instrument followed by hands-on CD delivery and a medium-term CD plan aligned with a financial sector reform agenda.
- From FSSF inception to August 2021, FSSR diagnostics in 16 LLMICs have been completed (in addition to four precursor FSSRs completed in the pilot phase).
- Despite COVID-19, four FSSR diagnostics (Lesotho, Moldova, Sierra Leone, and Uzbekistan) were completed remotely from the onset of the pandemic to July 2021.
- FSSR scoping missions were completed in Cabo Verde and Vietnam with main missions scheduled to follow in mid-2021.
- Remote modality for FSSR diagnostics is expected to remain at least for the first half of FY22.
- FSSF-supported learning and training initiatives:
  - BIS-IMF SROC online training: a 70-hour course over 5 months, delivered to over 1,000 supervisors and 100 countries over 3 years; the second SROC ran from September 2020 to February 2021 with over 400 banking supervisors from 90 countries participating.
  - The SROC includes FSI Connect tutorials, IMF case-study modules, and 12 live webinars.
  - Fourth Annual Cybersecurity Workshop (December 7–9, 2020) was held virtually, attended by 153 participants from 62 countries.
  - MCM launched work to develop a cybersecurity supervision online course for financial supervisors without formal IT/cybersecurity backgrounds, planned to be hosted on the IMF edX platform and expected to run in 2022.
- The FSSF Financial Sector Statistics Module (FSSM) by STA supports compilation of Financial Soundness Indicators (FSI) and Balance Sheet Analysis (BSA) to enable integrated sectoral financial balance sheets and monitor cross-sectoral exposures and spillovers.

*Source: taar2021 - SECTION IV.*

### SECTION V  |  43Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### SECTION V  |  43Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### Financial sector surveillance, diagnostics, and coordination
- STA carried out 34 missions under the FSSM:
  - 14 on FSI
  - 20 on BSA
- STA participated in 5 FSSR diagnostic missions led by MCM.
- Coordination with the World Bank:
  - Fund and World Bank regularly exchange information at the managerial level on evolving pipelines and strategies.
  - Mission chiefs are encouraged to coordinate from the onset of mission planning where both diagnostics are scheduled.
  - Virtual modality in FY21 enabled World Bank staff to observe some FSSR diagnostic mission meetings in Lesotho, Moldova, and Uzbekistan (with permission of the respective authorities).

### FSSR coverage of fragile and low-income countries (Box 10)
- Eligibility and coverage:
  - 81 countries are categorized as LLMICs, of which 35 (43 percent) are FCS according to the Fund’s current list.
  - In May 2020, the FSSF Steering Committee agreed to extend FSSF eligibility to all FCS, adding seven countries: Iraq, Kosovo, Lebanon, Libya, Maldives, Marshall Islands, and Tuvalu.
  - With this extension, the share of FCS in the pool of FSSF-eligible countries grew to 48 percent.
- FSSR diagnostics and follow-up TA:
  - Seven out of the 16 completed FSSF-funded diagnostics (44 percent) have been to FCS.
  - In follow-up TA implementation, 6 out of the 11 currently running FSSR follow-up TA projects (55 percent) were launched in fragile countries.
- Policy implication:
  - Assistance to FCS will continue to be an important factor in selection and prioritization of FSSR requests; the Fund will continue to ensure proper representation of FCS in FSSF-funded TA delivery.

### Seventh Annual MCM Long-Term Experts (LTX) Workshop (Box 11)
- Workshop details:
  - Held virtually for the first time on March 1–5, 2021.
  - Strong participation and collaborative spirit from 30 globally placed LTXs.
- Topics featured:
  - COVID-19-related policy interventions in supervision and central bank operations
  - Climate risk
  - Government securities
  - Impact of digital financial services and cybersecurity on the financial sector
- Outcomes and emphases:
  - Exchanges on policy and operational issues relevant to CD and virtual delivery effectiveness.
  - Importance of flexibility, coordination, and leveraging existing relationships highlighted by LTXs.
  - IMF-wide exchange on the impact of CD programs and the FSSR product, including two country cases: Sierra Leone and Uganda.
  - Novel “Ask a B4, Deputy Director” session for LTX engagement with MCM senior management.
- LTX global presence by specialization (selected categories and counts):
  - Banking Supervision and Regulation (14)
  - Monetary and Foreign Exchange Operations (8)
  - Debt Management (4)
  - State-Owned Banks Governance (1)
  - Payment Systems/FMI/Fintech (1)
  - Central Bank Modernization (1)
  - Financial Stability (1)
  - Macroprudential Policy/Stress Testing (1)
  - NPL Resolution (1)
  - FPAS (1)
  - Accounting and Internal Audit (1)
  - Government Securities Market Development and Monetary Policy Design and Implementation (1)

### AFRITAC South: Financial Market Infrastructures (FMIs) and fintech (Case study A)
- Staffing and scope:
  - Dedicated LTX appointed in September 2020 to provide TA on FMIs and fintech for AFRITAC South (AFS); role expanded from FMIs only to include fintech.
- Strategic objective:
  - Develop and implement reforms in national payment systems to enhance safety and efficiency; build capacity for compliance with the Principles for Financial Market Infrastructures (PFMIs); provide guidance for oversight and supervision of national payment systems; support digital transformation and regulation/supervision of fintech in payments.
- Delivery in FY21:
  - Bilateral TA missions to 6 of the 13 AFS countries.
  - Organized and hosted 2 regional workshops on a multilateral basis.
  - Bilateral engagements included:
    - Guidance on national payment system oversight policy for Botswana.
    - Review of completed FMI assessments for Eswatini and Namibia to improve PFMI compliance and assessment proficiency.
    - Payment system oversight training to Madagascar and Seychelles.
    - Participation in a legal TA mission for Botswana to review the National Payment System Act, including guidance on enabling a regulatory sandbox for payment system innovations.
  - Multilateral engagements: regional webinars on digitizing payment, regulatory and policy perspectives, and cybersecurity and resilience for FMIs.
- Priorities and demand:
  - Short-term priority: training and capacity building for FMI assessment proficiency and strengthening oversight/supervisory expertise.
  - Fintech TA delivery limited in the first period; demand for fintech CD remains high and expected to increase in medium- to longer-term as fintech topics mature.

### Albania: Crypto assets regulatory implementation (Case study B)
- Context:
  - Albania enacted the Fintoken Act regulating crypto assets and related activities from conduct, prudential, and anti-money laundering perspectives.
  - AFSA requested MCM assistance to implement the Fintoken Act; MCM focused on conduct and prudential elements while LEG handled AML aspects in parallel.
- Observations and TA focus:
  - AFSA is drafting regulations under the Act but lacks licensing, supervisory, and enforcement expertise on crypto-related issues.
  - Crypto-related activities appear small, but the legislation may legitimize the market and could lead to growth in consumer demand and reputational risk.
  - MCM mission provided training and recommendations on internal processes, outreach, monitoring, engagement, licensing of firms, supervision, and enforcement.
- Recommended future assistance:
  - Focus on crypto monitoring and supervisory aspects to enhance AFSA’s capacity for risk detection.
  - Further build enforcement program capacity for crypto assets and for AFSA’s broader supervised activities.
- Taxonomy of token types and related definitions (as provided):
  - NON-FUNGIBLE TOKENS: Usually centrally issued; Right to ownership of specific product; Collectible and non-substitutable.
  - UTILITY TOKENS: Centrally issued; Right to a product/service; Accepted across multiple ecosystems; Transferable; Can be used as a means of exchange.
  - SECURITY TOKENS: Centrally issued; Meets the definition of a security in each respective jurisdiction; Within the regulatory perimeter.
  - PAYMENT TOKENS: Usually decentralized; Designed to be used as a means of exchange; Limited rights for the token holder; No single issuer to enforce rights against; Transferrable.
  - NON-ASSET-BACKED STABLECOINS: Designed to be value stable; Stability mechanism is usually an algorithm.
  - ASSET-BACKED STABLECOINS: Designed to be value stable; Stability mechanism can be backing or collateralization with a commodity, fiat currency or multiple currencies.
  - CENTRAL BANK DIGITAL CURRENCIES: Centrally issued by a state or central bank; Designed to be value stable; Stability mechanism is usually sovereign fiat currency.

### Cameroon: Debt management and Eurobond refinancing (Case study C)
- IMF TA context:
  - Through AFRITAC Central, IMF provided TA in debt management to strengthen capacity to assess, monitor, and manage public debt portfolio risks and to boost debt transparency.
  - August 2020: IMF assisted authorities on updating the Medium-Term Debt Management Strategy (MTDS), which identified the Eurobond refinancing (due in three installments from 2023 to 2025) as the main vulnerability.
  - January 2021: Follow-up TA mission explored costs and benefits of three financing strategies to refinance the Eurobond, reviewed the issuance process step-by-step, and provided a roadmap for operationalizing the recommended refinancing strategy.
- Outcome:
  - Authorities used the roadmap to develop an execution plan with external advisors; successful execution of the refinancing operation took place in June 2021.
  - The refinancing marked an important milestone to keep debt sustainable over the medium-term and to build resilience to financial and macroeconomic shocks.
- Authorities’ feedback:
  - Cameroonian authorities appreciated IMF support, particularly the approach to defining the refinancing strategy and sound advice; they seek continued IMF support on strengthening capacity and practices in public debt management.

### CARTAC: Inclusive insurance, climate risks, and financial inclusion (Case study D)
- Regional context:
  - Region identified as one of the most disaster-prone, with annual average cost of damage from natural disasters estimated at about 2.5 percent of GDP.
  - Low insurance penetration, especially among low-income households, is a challenge for post-hurricane recovery.
- Workshop (late 2020):
  - CARTAC, Toronto Centre, Access to Insurance Initiative (A2ii), and IAIS conducted a Regional Workshop on Inclusive Insurance—Advancing Financial Inclusion and Dealing with Climate Risks.
  - Thirty-three insurance supervisors from 14 CARTAC member countries participated.
- Key learning outcomes:
  - How to apply robust supervisory principles and effective monitoring tools to foster development of an inclusive insurance market.
  - How to adopt proportional approaches that enable financial innovation while balancing prudential, stability, integrity, and consumer protection objectives.
  - How to enhance supervisory risk assessments and response capabilities for climate-related and environmental risks to improve resilience.
  - How to enable innovation for new insurance products and distribution channels to facilitate inclusion of marginalized or underserved populations.
- Implementation impacts:
  - Workshop spurred initiatives to introduce regulations for microinsurance in Belize and Guyana; legislative provision for parametric insurance in St. Lucia and Belize.
  - Some central banks expressed interest in integrating climate-related and environmental risks into prudential supervision.
- Key recommendations to mitigate implementation risks:
  - Supervisors should collaborate with key stakeholders (industry, relevant government agencies) to create a supportive policy environment for inclusive and climate risk insurance.
  - Supervisors should play an active role in developing public education programs and outreach activities aimed at underserved and vulnerable populations on benefits of microinsurance products.

### Developing government securities markets and capacity-building examples
- Comoros (mission April 5–14, 2021):
  - Objectives: (i) assess gaps in meeting minimum requirements for introducing a government securities market; (ii) propose a sequenced roadmap of reforms.
  - Delivered a medium-term roadmap elaborated in four phases from 2021 to 2024, aiming to exploit synergies with concurrent TA initiatives including monetary policy framework reforms.
  - PDMO capacity development:
    - Strengthened capabilities to establish framework for integration of debt management and cash liquidity buffer investment.
    - Provided a broad monthly cash-flow assessment model incorporating borrowing requirements and debt portfolio structure.
    - Recommended adjusting Annual Funding Plan process to enable timely recalibration of the cash liquidity buffer.
    - Recommended further development of the treasury bill (T-bill) market to improve access for non-resident investors and provide a resilient cash management instrument to reduce the need for a large cash liquidity buffer.
  - Follow-up requests:
    - Authorities requested further support on T-bill market development, model calibrations, integration of active cash investments with debt management framework, and preparation of an investment framework.
- El Salvador:
  - At request of Central Bank of El Salvador and in coordination with the Ministry of Finance, a TA mission visited San Salvador to assist in developing the domestic government debt market, with focus on increasing foreign investor participation and strengthening market functioning.

*Source: Capacity Development Annual Report 2021 — Monetary and Capital Markets (SECTION V and SECTION VI excerpts)*

### SECTION VI

### SECTION VI

### Domestic bond market development and liability management
- Kuwait
  - Mission dates: April 19–May 2, 2021 (jointly with LEG).
  - Objectives: identify measures to promote development of the local bond market and gaps in legal and regulatory framework.
  - Findings and recommendations:
    - Preliminary assessment of Kuwait’s tax law framework and key legal instruments for public debt management, financial market infrastructure, dematerialized securities holding, and secondary market transactions.
    - Recommended publication of a MTDS followed by an ABP calendar designed with a strong focus on market development objectives.
    - Suggested specific measures to implement a market-based auction mechanism for government bonds.
- Mongolia
  - IMF MCM team delivered two virtual TA missions in 2020 and 2021 (coordination with the World Bank; funded by the Debt Management Facility).
  - Focus: analyze potential Liability Management Operations (LMOs) and formulate a strategy to restart domestic government bond issuance.
  - Outcomes:
    - Strengthened sovereign debt portfolio management strategy and foundation for government bond issuance policies.
    - TA on LMOs provided extensive training on international bond issuance and buyback strategies, assessment of cost-risk tradeoffs, and post-COVID debt management challenges.
    - Emphasized need for a solid annual borrowing plan and effective market communication.
    - Follow-up TA (January 2021) provided training on annual borrowing plans, issuance techniques and auction rules, investor relations, and arranged Philippines DMO to share retail bond issuance experience.
    - The LMO conducted following the MCM TA won Best Liability Management Asset Asian Awards 2020 and International Financial Law Review (IFLR) Asia Pacific Awards, 2021.
    - Resulted in realization of need for a realistic domestic market development plan to reduce medium-term reliance on external funding.
- Ecuador
  - Mission assisted authorities in preparing a MTDS document (a Structural Benchmark under the IMF program at the time).
  - Emphasis: MTDS should provide medium-term guidance for debt composition and improve communications with investors; discussed ideal MTDS structure and features from other countries.
  - Outcome: Ecuador published its MTDS document in the first quarter of 2021.
- El Salvador
  - Virtual TA and training on LMO in the context of MTDS to reduce refinancing risk of the external debt portfolio, particularly regarding the 2023 Eurobond.
  - Recommendations: stylized timeline and steps for LMO implementation; use transaction as opportunity to build institutional capacity in the Ministry of Finance.

### Local Currency Bond Market (LCBM) training events and feedback
- Two events on the LCBM framework were held and described as highly successful by participants.
- Selected participant feedback:
  - “The course is one of the best courses I have had in relation of the money & capital market development. It is really useful.”
  - “It was very enlightening, as it identified a lot of areas covered in the course and was useful in determining the stage of our LCBM. The authorities would benefit from incorporating it in their assessment of market development and to identify areas that require more attention.”
  - “The knowledge/skills learned during the course will be used in your job and your professional development.”
  - “The first but very interesting and useful course on LCBM developments.”
  - “Thank you much for your work. It was actually very interesting for me to participate in this course. I have learned a lot of useful things for myself.”

### Eswatini: strengthening Nonbank Financial Institutions (NBFIs)
- Engagement start: MCM has been providing assistance to the Financial Services Regulatory Authority (FSRA) of Eswatini since February 2018.
- Scope: strengthen regulation and supervision of NBFIs (securities intermediaries, insurance firms and pension funds, credit cooperatives).
- Four TA goals:
  - (i) develop, harmonize, and modernize the legal framework;
  - (ii) improve regulatory framework with new regulations/guidelines;
  - (iii) strengthen off-site supervisory framework (data collection/analysis, risk assessment, consistent intervention approach);
  - (iv) strengthen on-site supervision using off-site framework for risk targeting and enhance on-site assessment capacity.
- Delivery model and timeline:
  - Almost three years of engagement (initial timeline two years, extended due to legislative process and COVID-19).
  - Three experts visited regularly, supported by a locally hired legal drafter and project manager financed by FSRA.
- Results:
  - At project end, 85 percent of milestones had been completed.
  - Key achievements included drafting critical improvements to NBFI laws and regulations (including to meet IOSCO MMoU), development/upgrades to FSRA guidelines, implementation of a comprehensive FSRA Supervisory Manual, staff training on off-site and on-site supervision techniques, improved data collection and assessment, and improved FSRA intervention actions.
- Remaining issues and forward priorities:
  - Delay in passing most drafted legislation poses risks to project effectiveness by preventing FSRA from imposing/enforcing minimum regulatory standards.
  - CD priorities: continue strengthening supervisory practices toward a consistent risk-based approach and develop a more effective enforcement program.

### Haiti: building supervisory capacity in a fragile and conflict-affected state
- Program funding and start: TA program set up with FIRST Initiative funding; started in 2017 as short-term missions, converted in 2019 to a full-time resident advisor mission, later delivered residentially then remotely due to COVID-19; currently continuing part-time remotely.
- Objectives:
  - Update regulatory framework according to international best practices proportionate to Haiti’s risk/complexity;
  - Provide clear licensing criteria for financial institutions;
  - Strengthen BRH supervisors’ approach and methodology proportionate to institutions’ nature/size/complexity;
  - Complete and implement timely and reliable supervisory reporting;
  - Enhance on-site and off-site supervisors’ capacity for risk-based supervision.
- Contextual constraints:
  - Political instability, social unrest, daily insecurity, earthquakes, climate change.
  - Progress slowed by worsening political situation, COVID-19 crisis, serious economic crisis, strong exchange rate instability (depreciated by more than 50 percent in four years), and another major earthquake.
  - These factors limited BRH availability and absorption capacity.
- Achievements despite constraints:
  - Seven new regulations enacted, six transmitted for final approval to the BRH Board, and two ready to send for comments to the profession and other stakeholders, together with the final version of a new banking chart of accounts.
  - Acquisition and near-complete deployment of an integrated banking supervision software to replace common office tools and paper processes.
  - Revision of on-site banking supervision methodology, inspection preparation process, and report formats; development of methodological guides and assessment grids for main risks (currently being finalized).
  - Development underway of a risk and rating matrix of supervised institutions using prepared risk assessment grids.
  - Revision of off-site supervision methodology and content of analysis reports with concrete positive results.
  - Continued capacity building of supervisors via remote support: telephone, email, videoconferences, and workshops.

### METAC: adapting capacity development during the COVID-19 pandemic
- Constraints in METAC countries:
  - Limited skilled human resources, technical absorption capacity, low retention rates, lack of advanced IT and communication equipment.
  - Initial pandemic restrictions required switch to virtual CD delivery, presenting challenges and learning opportunities.
- Virtual delivery experience and lessons:
  - Intensive use of video-conferencing; initial issues with technology, lack of broadband, inadequate equipment impacted TA length; some activities spread over weeks with authorities working from home.
  - Use of IMF Resident Representatives’ IT/communication facilities helped in some cases.
  - WebEx proved instrumental and user friendly; functioned satisfactorily in all METAC countries.
  - Two institutions postponed TA to wait for on-site delivery, citing less effectiveness of virtual TA for new skills.
- Importance of advance preparation and coordination:
  - Pre-mission stock-take surveys/questionnaires intensified to collect background information.
  - Increased coordination time between LTX and STX, missions and authorities, and interpreters.
  - WebEx sessions spread over weeks to match intensity and interaction of on-site activities.
  - Virtual training adapted with key success factors: (i) managing connectivity challenges, (ii) sound relationships with counterparts, (iii) agreed CD reform strategy and TA roadmap, (iv) existing project management structure, (v) TA spread over longer period, (vi) ongoing work and reactivity between sessions.
- Flexibility and responsiveness:
  - Pre-existing relationships and prior LTX work facilitated virtual engagements.
  - Flexible, demand-driven approach allowed realignment to immediate CD needs and emerging priorities.
  - MCM produced COVID-19 special series notes shared with METAC authorities, presented at regional webinars, and discussed during virtual TA.
  - Authorities found COVID-19 topical notes useful and sought MCM advice on:
    - Revision of business continuity plans for pandemic preparedness and minimizing operational impacts;
    - Appropriate regulatory and supervisory responses to balance financial stability, banking soundness, and economic activity;
    - Formulation of supervisory expectations, including portfolio reviews and regular risk assessments of banks to measure pandemic impact and response to distressed borrowers;
    - Enhanced prudential reporting with focus on forborne loans, clear criteria for acceptable loan restructuring, and ad-hoc reporting of stock and flows for affected loans;
    - Increased engagement between banks and supervisors;
    - Cybersecurity of remote work.
- Implications for TA to fragile and conflict-affected states (FCS):
  - TA requires focus on institutional capacity building and long-term objectives of financial stability.
  - CD engagement characteristics in FCS:
    - (i) long term in nature;
    - (ii) likely to be more intensive to achieve expected results;
    - (iii) should include significant regular training;
    - (iv) should address key prerequisites;
    - (v) should focus on building blocks of regulatory and supervisory frameworks;
    - (vi) needs to recognize and integrate existing constraints;
    - (vii) needs carefully tailored advice to country circumstances;
    - (viii) follow an appropriately paced approach;
    - (ix) coordinate with development partners to address CD gaps and avoid overlaps.
  - Involving authorities adequately and securing their commitment is important for TA success.

*Italic: Source — SECTION VI, Capacity Development Annual Report 2021 | Monetary and Capital Markets*

### SECTION VI  |  63Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### SECTION VI  |  63Capacity Development Annual Report 2021  |  Monetary and Capital Markets

### NIGER — Strengthening public debt reporting and publication
- Mission objectives:
  - Strengthen public debt reporting, including defining content and presentation of a website dedicated to publication of public debt information.
  - Offer training on best practices on debt reporting.
  - Present practical cases on debt reporting across countries in the region and other countries.
  - Propose recommendations to improve debt recording, reporting, and monitoring.
- Outputs and deliverables:
  - Prepared terms of reference related to the content and structure of a public debt website.
  - Proposed formats of documents and information to be published on the website.
  - Authorities have started preparation of the proposed debt website and have already published the annual debt management report FY20 and the MTDS report 2021–23.

### MEFMI debt reporting training — Regional pilot to improve debt transparency
- Event description:
  - A joint IMF-WB-MEFMI mission delivered a two-week virtual workshop for 30 debt management officials from 10 MEFMI member countries (Angola, Botswana, Kenya, Lesotho, Malawi, Mozambique, Tanzania, Uganda, Zambia, and Zimbabwe).
  - Funded from the third phase of the DMF as a pilot of a new training course.
- Focus and pedagogical approach:
  - Improve debt transparency in line with the joint IMF-WB multipronged approach on reducing debt vulnerabilities.
  - Highlight importance of good quality debt reporting and monitoring within government, including institutional arrangements.
  - Course components: presentations, daily quizzes, regular exercises, and peer-to-peer roundtable discussions to maintain active participation.
- MEFMI membership note:
  - MEFMI is a regionally owned institute currently with 14 member countries: Angola, Botswana, Burundi, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Eswatini, Tanzania, Uganda, Zambia, and Zimbabwe.

### CD on debt reporting — Niger, Eastern and Southern Africa region (MEFMI)
- Regional capacity development focused on:
  - Improving debt recording, reporting, and monitoring.
  - Sharing practical country cases and best practices to inform national debt websites and public disclosures.

### PFTAC — Prioritizing supervision CD in the Pacific for Phase VI
- Program cycle:
  - PFTAC is preparing to move into its Phase VI program cycle (expected to run from November 2022 to April 2028).
- Regional survey and prioritization:
  - A working group, with PIC representation and other TA providers supported by the FSS Advisor at PFTAC, conducted a comprehensive survey of PICs’ supervisory priorities.
  - Survey asked PICs to rank each of 40 potential CD activities grouped across 10 financial supervision topics as ‘High’, ‘Medium’ or ‘Low’ priority.
  - The survey received inputs from 11 countries.
  - With moderation, the working group produced an overall priority list for the region; top ten priorities were endorsed by the Steering Committee of PFTAC.
- Implementation approach:
  - The priority list identifies TA activities PFTAC should consider thematically across majority of PICs while respecting individual country priorities.
  - A project indicated as ‘High Priority’ by a country’s supervisory authority will be taken up first regardless of regional ranking.
  - Results will inform development of example standards/frameworks adaptable to local specificities and topics for early Phase VI workshops and conferences.

### PFTAC — Public Debt Management Program (inaugural; March 2021)
- Rationale:
  - Increasing debt stocks and more complex debt portfolios in the Pacific increase macro-critical concerns for PICs.
- Program objectives:
  - Build capacity in debt-related analyses and reporting.
  - Strengthen institutional arrangements for debt management.
  - Build capacity to implement debt and risk management strategies.
  - Improve functioning and depth of domestic debt markets.
- Identified capacity gaps in the region:
  - Limited recording and reporting.
  - Basic understanding of risk and debt analysis.
  - Lack of documented policies and procedures.
  - Inadequate legal frameworks and institutional arrangements.
  - For countries with domestic market access: illiquid and underdeveloped markets due to structural and institutional issues.
- FY22 focus and planned activities:
  - Develop capacity in debt management fundamentals including debt recording and reporting.
  - Strengthen institutional arrangements.
  - Develop knowledge in risk and debt analysis, including MTDS framework and accompanying AT.
  - Provide TA to support domestic market development for the small number of countries with market access.
  - Regional workshop focusing on Debt Reporting and Monitoring.
  - Training event in conjunction with the High-Level Dialogue of Pacific Policy in February 2022.
- Delivery constraints and mitigation:
  - Key constraints: absorptive capacity of member countries and need for virtual missions.
  - Mitigation approaches: split missions and training into smaller windows to reduce virtual fatigue; use online training courses and scheduled drop-in sessions.
  - Some countries not open to virtual TA due to technological constraints; in-country assistance will be delayed until resumption of travel.

### THE PHILIPPINES — Prioritizing CD during COVID-19
- Economic context:
  - COVID-19 severely hit the Philippine economy; Real GDP declined by 9.6 percent in 2020.
  - Moderate economic recovery started in the third quarter of 2020; recovery expected to continue in the second half of 2021 and throughout 2022 despite a second COVID-19 wave starting in March 2021.
- MCM CD priorities and activities in FY21:
  - Enhance supervisory capacity amid rapidly changing priorities.
  - Support MTDS in light of rising financing challenges.
  - Address complexities in communicating monetary policy decisions while balancing openness, clarity, and information efficiency.
  - Support central bank responses to rapid financial technological innovations and declining cash usage.
- Joint IMF–World Bank CD on supervisory priorities:
  - Two-block delivery: IMF-led “Lessons Learned for Supervision from the COVID-19 Pandemic Crisis” anchored in the “IMF Special Series on COVID-19—Note on Supervisory Actions and Priorities in Response to the COVID-19 Pandemic Crisis”; World Bank block on ‘Supervisory Rating System’.
  - About 50 BSP managers and staff attended workshops.
  - Advice helped BSP adjust supervisory practices and start planning exit strategies from extraordinary pandemic measures and implement 2020 FSAP recommendations.
- Training and advisory events:
  - Training on the AT for developing an MTDS in partnership with Japan: introduced AT for MTDS and evaluation of new financing sources; discussed new instruments, Libor transition, and bond market trading platforms; 19 participants from International Finance Group in the Department of Finance, the Bureau of Treasury, and BSP.
  - TA on effectiveness of monetary policy communication: resulted in formulation of a possible work plan for strengthening monetary policy communication for BSP and MCM review in second half of 2021.
  - Discussions with BSP on CBDC: since May 2020, MCM and APD shared knowledge with BSP Technical Working Group on CBDC to support an exploratory study and recommendations for BSP’s next steps.

### SIERRA LEONE AND UGANDA — Strengthening CD-surveillance integration: lessons and follow-up
- Purpose of CD-surveillance integration:
  - Identify capacity gaps constraining policy implementation.
  - Engage stakeholders to build consensus on reforms and CD needs.
  - Improve alignment and prioritization of CD initiatives with reform priorities and institutional capacity.
  - Deploy targeted TA and training to support policy advice.
  - Monitor and evaluate implementation of key recommendations and policy reforms.
- SIERRA LEONE
  - Context: Resuming ECF program focused on financial stability, monetary policy framework, and external vulnerabilities following emergency support and pandemic impacts.
  - FSSR mission: reviewed constraints to CD implementation via detailed stocktaking of past TA recommendations across monetary operations, debt management, financial sector legislation and regulation, central bank governance, financial stability, payments systems infrastructure, and stress testing.
  - Main constraints identified: insufficient staff resources and inadequate institutional arrangements.
  - Progress and reforms:
    - Passage of financial sector legislation.
    - Development of a risk-based supervisory framework for banking.
    - Implementation of a structured monetary policy regime.
    - Strengthening of central bank governance.
    - Establishment of a Financial Stability Department and appointment of a deputy governor responsible for financial stability.
  - Follow-up CD (commencing FY22) priorities:
    - Strengthening financial sector supervision with a resident advisor at the BSL.
    - Finalizing and issuing upgraded prudential guidelines.
    - Consolidating the stress-testing framework.
    - Operationalizing the Financial Policy Committee (FPC) for financial stability and macroprudential policy.
    - Developing systemic risk and financial stability indicators.
    - Enhancement of FMI oversight covered by the resident advisor on monetary policy operations/FMI at AFRITAC West.
- UGANDA
  - Context: Authorities requested an ECF arrangement to sustain post-COVID recovery and support National Development Plan III implementation with emphasis on macroeconomic and financial stability, governance, private sector development, and inclusive growth.
  - BOU reform progress (building on 2016 FSSR diagnostic):
    - Upgraded corporate governance framework for regulated financial institutions.
    - Finalized and rolled out a new analytical framework for off-site examinations.
    - Finalized a risk-based licensing policy and refined the supervisory risk assessment matrix.
    - Laid foundation for Internal Capital Adequacy Assessment Process (ICCAP).
  - Stress testing and systemic risk tools:
    - Increased staff resources on stress testing.
    - Conduct microprudential stress tests quarterly and macroprudential stress tests semi-annually.
    - Enhanced scenario analysis, developed a systemic risk dashboard and heatmap.
    - Conducted COVID-19 impact analysis and developed a cash-flow liquidity stress model.
    - Working with MCM to enhance FX systemic liquidity stress testing.
  - FMIs and payments:
    - Upgraded National Payments Act to encompass digital services.
    - Working with IMF headquarters and AFRITAC East to enhance FMI oversight.
    - Engaged with AFRITAC East to strengthen the Forecasting and Policy Analysis System (FPAS) to support monetary policy implementation.

### SOMALIA — Building a fully operational central bank through coordinated CD
- Background and strategy:
  - Following IMF’s re-engagement with Somalia in 2013, MCM worked with the Somalia Country Team to provide CD for building a well-functioning central bank.
  - MCM implemented a comprehensive CD program with three primary supported areas:
    - Central bank organization, transparency, governance, and accounting/internal audit/risk management functions.
    - Banking supervision and regulation.
    - Currency reform.
- Coordination and sequencing:
  - MCM worked with MCD and other TA providers to assess financial sector vulnerabilities and set priorities based on CBS’s Financial Sector Roadmap 2016–20 and past SMP foundations.
  - Emphasized ownership by Somali stakeholders to ensure realistic timetables and sustainable implementation.
  - CD delivery was coordinated, practical, prioritized, and sequential to gain traction amid challenging circumstances.
- Operational challenges and tailored delivery:
  - Flexibility in pace of delivery needed to address security risks, off-site locations, and slow absorption capacity due to knowledge and skills gaps, exacerbated during COVID-19.
  - TA delivery mode tailored to Somalia’s circumstances to maximize effectiveness and integration with surveillance and World Bank cooperation.

*Source: SECTION VI  |  63Capacity Development Annual Report 2021  |  Monetary and Capital Markets*

### SECTION VI

### SECTION VI

### Collaboration on Somalia and HIPC-related reforms
- MCM and MCD coordinated TA to address the specific needs of the Central Bank of Somalia (CBS) using hands-on training modules, field visits, desk reviews by MCM staff and experts, and periodic conference calls with the authorities.
- MCM and MCD coordinated with other TA providers to avoid overlap and ensure consistency; they led initial policy dialogue on currency reform providing practical advice on:
  - logistics, accountability framework, communication, anti-counterfeiting, and budget;
  - reviewing relevant CBS documents.
- When the World Bank took over the currency project in 2019, MCM and MCD continued collaboration to ensure consistency in financial sector reform and to help minimize project risk.
- Outcomes and medium-term priorities:
  - Somalia began receiving debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in March 2020 when the IMF Board approved a three-year financing program for Somalia.
  - CD activities and medium-term development strategies reflect priorities needed for Somalia to reach the HIPC Completion Point.
  - Monetary and financial priority areas include further work on financial systemic risk analysis and on monetary policy and operations to support currency reform.
  - Collaboration continues to facilitate execution of the CBS’ Financial Sector Roadmap for 2021–24.

### Flexible CD planning and delivery during the COVID-19 pandemic
- FY21 context and approach:
  - The COVID-19 pandemic required flexible and cooperative CD planning for AFS in FY21, with member countries’ priorities drastically changing early in the pandemic and then evolving.
  - AFS reaffirmed its approach to deliver tangible, durable CD by listening to member countries’ needs, coordinating with MCM, and delivering practical user-friendly assistance.
  - Significant resources were reallocated to COVID-19 pandemic response information and guidance (led by MCM), and to revised CD priority areas such as cybersecurity regulation and supervision under operational restrictions.
- CDC model performance:
  - The CDC model exemplified effective CD delivery during the pandemic by delivering specific and timely CD adapted to changing priorities.
  - AFS engaged directly with member countries and proactively adjusted CD delivery; MCM took lead on pandemic response support; both continued to implement medium-term supervision reform plans.
  - Continued priorities: long-standing reform on Basel framework and RBS implementation should continue.
  - Emerging priority areas for AFS guidance: cybersecurity, provisioning, problem asset management, and supervision of financial institutions through remote or disrupted operating conditions.

### Zimbabwe: Remote supervisory examinations—AFS support to the Reserve Bank of Zimbabwe (RBZ)
- Context:
  - RBZ amended its examination process for remote work and requested guidance from AFS on implementing a remote examination framework.
  - AFS arranged experienced bank supervisors to provide information on international practices and to review RBZ’s revised examination framework.
- Key messages delivered to RBZ supervisors for structuring and undertaking examinations remotely:
  - Supervisors should take time to establish reliable communication between counterparts to facilitate meeting conferencing, remote walkthroughs, large file sharing and possible remote system access.
  - Scope of examinations should be adjusted based on the ability to effectively access and assess required counterparts and information.
  - Allow significantly more time to undertake the examination remotely, as would be scheduled for in-person examinations.
  - Remote modality makes it harder to communicate effectively for all counterparts, which could lead to misunderstandings, misinterpretations, lack of information, and ineffective assessment; put extra emphasis on written communication, preparation of meetings and information sharing.
  - Where supervisors rely more heavily on internal control functions’ assessments, be especially investigative about conclusions and consider the internal controls functions’ ability to effectively assess operations if also working remotely.
  - Communicate the limitations of remote examination work clearly in the closing meetings and examination report.
- Impact:
  - Practical information and timely guidance from recent supervisory experience were key to successful CD delivered to RBZ.
  - Testimonial: “I wish to express my profound gratitude for the technical assistance extended by AFRITAC South to our Banking Supervision Department. … The experiential knowledge and capabilities gained from the engagement will reinforce our supervision and regulatory techniques and methodologies”. –Dr. John P. Mangudya, Governor, Reserve Bank of Zimbabwe

### Appendices: Institutional networks, long-term placements, and contact points
- IMF Regional Capacity Development Centers (RCDCs) listed with locations and member countries (selected entries):
  - AFRITAC Central — Libreville, Gabon — Burundi, Cameroon, Chad, Central African Republic, Congo, Democratic Republic of the Congo, Gabon, Equatorial Guinea, Sao Tome and Principe
  - AFRITAC South — Ebene Cybercity, Mauritius — Angola, Botswana, Comoros, Eswatini, Lesotho, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Zambia, Zimbabwe
  - AFRITAC West — Abidjan, Côte d’Ivoire — Benin, Burkina Faso, Cote d’Ivoire, Guinea, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, Togo
  - AFRITAC West II — Accra, Ghana — Cabo Verde, The Gambia, Ghana, Liberia, Nigeria, Sierra Leone
  - East AFRITAC — Dar es Salaam, Tanzania — Eritrea, Ethiopia, Kenya, Malawi, Rwanda, South Sudan, Tanzania, Uganda
  - PFTAC — Suva, Fiji — The Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Republic of the Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tokelau, Tonga, Tuvalu, Vanuatu
  - SARTTAC — New Delhi, India — Bangladesh, Bhutan, India, Maldives, Nepal, Sri Lanka
  - METAC — Beirut, Lebanon — Afghanistan, Algeria, Djibouti, Egypt, Iraq, Jordan, Lebanon, Libya, Morocco, Sudan, Syria, Tunisia, West Bank and Gaza, Yemen
  - CCAMTAC — Almaty, Kazakhstan — Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, Uzbekistan
  - CARTAC — Bridgetown, Barbados — Anguilla, Antigua and Barbuda, Aruba, The Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Curacao, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Sint Maarten, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands
  - CAPTAC-DR — Guatemala City, Guatemala — Costa Rica, The Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama
- MCM Long-Term Resident Expert placements (as of April 30, 2021) — selected entries preserving topics and donors:
  - AFRITAC Central, Gabon — Banking Supervision and Regulation — Multi-Donor/DMF
  - AFRITAC Central, Gabon — Debt Management — Multi-Donor/DMF
  - AFRITAC East, Tanzania — Banking Supervision and Regulation — Multi-Donor
  - AFRITAC East, Tanzania — Forecasting and Policy Analysis Systems — Multi-Donor
  - AFRITAC South, Mauritius — Banking Supervision and Regulation — Multi-Donor
  - AFRITAC South, Mauritius — Monetary and Foreign Exchange Operations — Multi-Donor
  - Bank of Mozambique, Mozambique — Central Bank Modernization — Norway
  - Bank of Uganda, Uganda — Banking Supervision and Regulation — FSSF
  - CAPTAC-DR, Guatemala — Banking Supervision and Regulation — Multi-Donor
  - Central Bank of Sri Lanka, Sri Lanka — Macroprudential Policy and Stress Testing — FSSF
  - National Bank of Cambodia, Cambodia — Banking Supervision and Regulation — Japan
  - SAR T TAC, India — Monetary and Foreign Exchange Operations — Multi-Donor
- MCM TA main contact points (names, phone numbers, and email addresses preserved exactly):
  - Director Tobias Adrian — T. +(1) 202.623.5372 — tadrian@IMF.org
  - Deputy Director Aditya Narain — T. +(1) 202.623.9616 — anarain@IMF.org
  - Technical Assistance Strategy Division Chief Jennifer Elliott — T. +(1) 202.623.8804 — jelliott@IMF.org
  - Deputy Division Chief Veronica Bacalu — T. +(1) 202.623.4816 — vbacalu@IMF.org
  - Deputy Division Chief Sipho Makamba — T. +(1) 202.623.4729 — smakamba@IMF.org
  - Deputy Division Chief Maria A. Oliva — T. +(1) 202.623.8149 — molivaarmengol@IMF.org
  - Regional Advisor—Africa, Middle East, and Central Asia Simon Gray — T. +(1) 202.623.6432 — sgray@IMF.org
  - Regional Advisor—Europe and Asia and Pacific Udaibir Das — T. +(1) 202.623.6330 — udas@IMF.org
  - Regional Advisor—Western Hemisphere John Nelmes — T. +(1) 202.361.1835 — jnelmes@IMF.org
  - Mailing Address: Monetary and Capital Markets Department, International Monetary Fund, 700 19th Street, NW, Washington, DC 20431

*Content derived from SECTION VI, Capacity Development Annual Report 2021 | Monetary and Capital Markets*

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_Source: https://www.imf.org/-/media/files/publications/technical-assistance-annual-report/taar2021.pdf_