## fcdo-ar-june2021 ## Source details **Canonical URL:** [fcdo-ar-june2021](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/annual-reports/fcdo-ar-june2021.pdf) ## Other formats - [Markdown version](/-/media/files/topics/lics/macro-research-for-development/annual-reports/fcdo-ar-june2021.pdf.md) - [Structured JSON version](/-/media/files/topics/lics/macro-research-for-development/annual-reports/fcdo-ar-june2021.pdf.json) --- ### Output 1 — High-quality, policy-relevant research (Indicators 1.1–1.4) - Achievement against targets (MRLIC cumulative totals reported by March 2021): - Indicator 1.1: Working papers — H (150), M (145), L (140) - 150 cumulative (21 in 2020/21) - Outcome: Met high target - Indicator 1.2: Research papers accepted for publication — H (83), M (79), L (75) - 83 cumulative (13 in 2020/21) - Outcome: Met high target - Indicator 1.3: Number of published books (freely available) - By March 2021: 2 books; 2 cumulative (0 3 in 2020/21) — one book published this year was not freely available and therefore not counted - Outcome: Met - Indicator 1.4: Meetings of programme advisory group (cumulative) - By March 2021: target 1 meeting; 0 meetings held - Outcome: Not met, in progress - Output score and narrative: - Output scored A+. MRLIC met two indicators at the high target and one at the medium target; advisory-committee target not met but programme judged research quantity, quality and breadth sufficient to achieve the output’s purpose. - Selected activity highlights and substantive findings from working papers and peer-reviewed publications: - Regional trade integration in Africa promotes economic growth but fosters income divergence; support for AfCFTA should be combined with policies to reduce non-tariff barriers and improve infrastructure. - Monetary policy frameworks matter: analysis across 79 LICs shows significant differences in propagation of shocks between LICs targeting monetary aggregates or inflation versus those with rigid nominal exchange rates; the January 1994 CFA devaluation had highly significant effects on GDP growth in 10 CFA countries relative to 18 non-CFA comparators. - DIGNAR/DIG model applications and calibrations used for country analysis and COVID-19 policy assessment; DIGNAR-19 incorporated for COVID-19 scenarios. - Ex-ante resilience investment for disaster-vulnerable small states (Antigua and Barbuda, Dominica, Fiji, Haiti, St. Lucia, St. Vincent and the Grenadines) can save recovery costs. - Imported food price shocks increase socio-political instability; remittances dampen adverse effects; fiscal policy mitigates only in countries with low private credit. - Peer-reviewed publications during the year include topics on energy policy, labour markets, predictors of banking crises in LICs, and gender equality relevance for macro outcomes. ### Indicator 1.3 — Books and related recommendations - Book publication: - Macroeconomic Policy in Fragile States (Oxford University Press) published this year; not freely available and therefore not counted as a freely-available book. - The book comprises 20 chapters, supported IMF training modules, and informed policymaking during the COVID-19 pandemic. - Recommendation: - Remove the books indicator going forward; count freely-available book chapters as working papers (1.1) or peer-reviewed papers (1.2) as appropriate. ### Indicator 1.4 — Advisory committee status - IMF MRLIC prepared a comprehensive advisory committee proposal (panel composition and terms of reference) and circulated it with FCDO. - Delay in confirming members and convening initial meeting mainly due to waiting on FCDO confirmation of availability. - Recommendation: MRLIC to proceed with forming the advisory committee. --- ### Value for Money and cost metrics (reported by MRLIC) - Total Staff/Contractual/VS Costs: $15,448,193 - Research Paper Costs: $11,586,145 - Country Applications Costs: $3,862,048 - Working papers: - Produced 150 - Commissioned 26 - Working Papers total: 176 - Cost Per Working Paper: $65,830 - Note: "The cost per working paper is also approximately $66,000, down from $69,000 in the previous year." - Published papers: - Produced 83 - Commissioned 7 - Published Papers total: 90 - Cost per Published Paper: $128,735 - The average cost per published paper is approximately $129,000 (£93,000), lower than the FCDO benchmark of $215,000 (£156,000) per paper and down from $139,000 reported 2020. - Currency conversion is based on the exchange rate as of 1st July 2021. - Assessment: - MRLIC judged to be efficiently publishing outputs at low cost with high research quality evidenced by publications in highly ranked journals and presentations at top conferences (ASSA, NBER Summer Institute). --- ### Changes, lessons learned, and program recommendations (Output 1) - Proposed change: remove indicator on books (1.3); treat freely-available book chapters as working papers or peer-reviewed papers. - Progress on prior recommendations: - Tracking quality of published outputs — In progress; overall quality good with publications in highly ranked journals. - Converting internal COVID-19 work into publishable papers — Partial progress; some policy-influential work and at least one journal publication. - Publish and publicise synthesis products — Done. - Examine making books freely available — Indicator to be removed; freely-available book content to be counted under existing indicators. --- ### Output 2 — Public Debt, Investment, and Growth: DIG and DIGNAR models (DIGx) - VfM compared to Business Case: - No VfM metrics in Business Case specific to this output; the output provides mechanism for VfM via use of research by IMF country teams and authorities to improve macro advice and policymaking. - Changes and country engagement: - Targets for country engagement reduced due to COVID-19 delays in Article IV reviews and surveillance processes. - Programme stepped up country engagement despite pandemic; recommendation to better document outcomes and impacts from country uptake. - Training usefulness: - Assessment of usefulness of in-country training is "In progress". - IMFx online courses can show attendance, completion and knowledge statistics; further work suggested on usefulness evaluation. - Confidentiality: - Some notes on sensitive material remain unpublished externally; selected notes published in IMF COVID-19 special notes series or as working papers. --- ### Output 3 — Engagement by senior IMF policymakers on LIC issues strengthened (Indicators 3.1–3.2) - Output number: 3 - Output Score: A - Impact weighting: 25% - Indicator progress by March 2021: - Indicator 3.1 (high-level policy conferences drawing on project outputs): targets H (45), M (43), L (41) - Prior cumulative: 40; Progress this review: 42 (2 in 2020/21) - Outcome: Met low target - Indicator 3.2 (research results reflected in IMF policy papers/management memos): targets H (48), M (45), L (42) - Prior cumulative: 41; Progress this review: 49 (8 in 2020/21) - Outcome: Exceeded high target - Sub-indicator 3.2.a (reflection in IMF Board discussions): targets H (25), M (23), L (21) - Progress this review: 22 (2 in 2020/21) - Outcome: Met low target - Findings and narrative: - MRLIC research influential at highest policy levels during the pandemic; prioritised research shaped Board discussion on debt and pandemic financing. - Two IMF Board discussions informed by MRLIC research: - December 2020: Joint IMF-WB Multipronged Approach to Address Debt Vulnerabilities. - March 2021: Macroeconomic Developments and Prospects in Low-Income Developing Countries — estimated LIDCs need $200 billion up to 2025 for the pandemic response and to rebuild buffers, and additional $250 billion to help grow and converge toward advanced economies. - High-level conferences where MRLIC research was presented (examples): - COVID-19 Pandemic in Developing Countries (panels including IMF Chief Economist and Managing Director, FCDO Chief Economist, ministers and central bank governors). - Monetary Policy and Inequality: COVID-19 and Beyond (joint PIIE and IMF). - Recommendations: - Leverage strong brand to raise funding within IMF and develop indicator to track IMF resources committed to LIC issues. - Track how senior-level engagement translates into IMF resource allocation and changes in policy vision. - Maintain pipeline of work for high-level IMF discussion; progress noted with two influential Board papers presented. --- ### Output 4 — Strengthening research capacity by expanding the network of researchers and policymakers (Indicators 4.1–4.3) - Output number: 4 - Output Score: A - Impact weighting: 15% - Indicator progress by March 2021: - Indicator 4.1 (commissioned research papers): targets H (33), M (31), L (30) - Prior cumulative: 30; Progress this review: 32 (2) - Outcome: Met medium target - Indicator 4.2 (data toolkit as accessible dataset): targets H (12), M (11), L (10) - Prior cumulative: 9; Progress this review: 11 (2) - Outcome: Met medium target - Indicator 4.3 (attendance of external researchers and policymakers at high-level conferences): targets H (138), M (134), L (130) - Prior cumulative: 124; Progress this review: 139 (15) - Outcome: Exceeded high target - Dissemination updates (Indicator 4.3): targets H (34), M (32), L (31) - Prior cumulative: 30; Progress this review: 34 (4) - Outcome: Met high target - Findings and narrative: - Virtual events supported strong external attendance and dissemination; difficulty remains in expanding participation of external and LIC-based researchers. - Commissioning policy revised: requirement that external researchers be "new" to LIC issues was dropped as not cost-effective. - Commissioned external works included contributions from established academics (three pieces commissioned this year). - Data and toolkits: - DIGNAR-19 toolkit adapted for COVID-19 was developed to support quantitative macro assessments. - Structural Reform Database launched: covers structural policy indicators over 1973-2014 for 90 countries and includes an IMF data web toolkit with interactive charts and a "Dividends Toolkit" to compute potential growth gains. - Recommendation: move toolkit indicator into Output 1 as toolkit development is part of research and knowledge production. - Recommendations: - Revise logframe indicators to better capture efforts to expand the field of researchers and inclusion of LIC-based and early-career researchers. - Continue virtual dissemination, conferences, advisory committee convening, and selective commissioning to expand external engagement. --- ### Selected empirical findings and working-paper summaries (Annex and Appendix highlights) - Do Monetary Policy Frameworks Matter in Low Income Countries? (Carare, de Resende, Levin, Zhang) - Dataset: panel of 79 LICs over 1990-2015; event study for 28 sub-Saharan African LICs. - Finding: significant differences in shock propagation by monetary policy framework; January 1994 CFA devaluation had highly significant GDP effects for 10 CFA countries versus 18 non-CFA comparators. - Public Investment over the Fiscal Cycle (Kass-Hanna, Kpodar, Tessema) - Finding: increasing public investment share from 10 to 20 percent raises medium-term growth by 0.5 percentage points; protecting investment during consolidations boosts medium- to long-term growth. - Fuel Price Pass-Through (Kpodar, Imam) - Dataset: 109 developing countries (2000–2014). - Findings: pass-through higher when international price changes are moderate/less volatile; flexible pricing increases pass-through; inflation associated with lower pass-through; high public debt associated with larger pass-through. - Imported Food Price Shocks and Socio-Political Instability (Meyimdjui) - Dataset: 101 low- and middle-income countries (1980–2012). - Findings: import food price shocks strongly increase socio-political instability likelihood; remittances dampen effects; fiscal policy mitigates only where private credit is low. - Building Back Better: Green Spending Multipliers (Batini et al.) - Estimated multipliers: - Renewable energy and carbon-sink spending multipliers: 1.1-1.5 - Fossil fuel energy spending multipliers: 0.5-0.6 - Renewable estimates larger than fossil fuel estimates with over 90 percent probability. - Delays in Public Investment Projects (Espinoza, Presbitero) - Finding: almost 60 percent of investment projects delayed by at least one year; weaker institutions and scaling-up phases associated with longer delays; sound preparation reduces delays. - Firms, Failures, and Fluctuations: Supply-chain disruptions (Acemoglu, Tahbaz-Salehi) - Finding: firm failures propagate through supplier–customer networks and can amplify negative shocks via relationship-specific surplus and bargaining dynamics. - Re-opening after lockdown: long-run tradeoffs (Atolia, Papageorgiou, Turnovsky) - Findings: faster re-opening reduces short-run output losses but can increase long-run output losses; faster re-opening mitigates long-run wealth and income inequality — producing a tradeoff between long-run aggregate output and distributional outcomes. --- ### Programme management, finances, and risk overview - Project budget and spend: - Approved budget: US$30.5 million. - As of April 2021: $22.6 million drawn down from the subaccount. - Project expenditures Years 1–9 total: $22,572,037. - Expenditure breakdown Years 1–9 (values reported in Table 2 and detailed budgets): - HQ led missions including entire mission team: 30% (dollar figures provided in Appendix) - Research HQ based/Visiting Scholars: 36% - Project Backstopping: 14% - Seminars & Study Tours: 7% - Project Management: 1% - Trust Fund Fee: 7% - Financial reports and cash balances (as of Apr 30, 2021): - Cumulative Contributions (FY2016–FY2021) and related cash flow figures reported in Appendix 2. - Grand Total: 28,879,394; Expenses: 22,572,037; Remaining balances and detailed project-level execution percentages provided. - Value-for-money and procurement: - Direct project management costs ~1% of total budget; including Trust Fund fee ~8%. - Project judged highly cost effective with rigorous procurement governance and competitive hiring. - Risk overview: - Overall risk rating: Minor. - COVID-19 a minor operational risk; larger risk from budget reductions affecting travel and uptake. - Identified risks: external context (limited in-country exposure), delivery, operational, fiduciary, reputational, innovation, safeguarding. - Mitigations: online training/visits, securing additional funding, updated risk register recommended. --- ### Workplan, monitoring and future priorities - Work plan priorities (selected): - Continue COVID-19 policy work and DIGNAR-19/DIG toolkit publication and training; DIGNAR-19 to be published on IMF.org and online training planned. - Continue developing monetary policy framework indices and FPAS/QPM documentation for country central banks (Ghana, Rwanda, Malawi, Bangladesh). - Expand analysis on remittances, diversification, structural change, automation/AI impacts, climate resilience, and inclusion (gender, education losses). - Continue capacity building via courses to IMF staff and country authorities; planned online DIG/DIGNAR courses and additional FPAS TA missions. - Monitoring and evaluation: - IMF reports annually to FCDO on log-frame outputs; quarterly updates and e-newsletters reach over 1500 academics, policymakers, central bank staff and government representatives. - No budget allocated for an external evaluation in project budget. *Prepared by the Staff of the Research and Strategy, Policy and Review Departments; IMF MRLIC annual reporting to March 2021 (fcdo-ar-june2021).* ### 1.1 Number of priority research papers produced, on the ### 1.1 Number of priority research papers produced, on the following research topics ### Summary of achievement against targets - By March 2021 (MRLIC programme cumulative totals reported): - Indicator 1.1: Working papers — H (150 papers), M (145 papers), L (140 papers) - 150 cumulative (21 in 2020/21) - Outcome: Met high target - Indicator 1.2: Research papers accepted for publication in high-quality peer-reviewed journals — H (83 papers), M (79 papers), L (75 paper) - 83 cumulative (13 in 2020/21) - Outcome: Met high target - Indicator 1.3: Number of published books (freely available) - By March 2021: 2 books; 2 cumulative (0 3 in 2020/21) — (note: one book published this year was not freely available and therefore not counted) - Outcome: Met - Indicator 1.4: Number of meetings of programme advisory group (cumulative) - By March 2021: 1 meeting target; 0 meetings held - Outcome: Not met, in progress ### Narrative on output score and activities - The output scored A+. The MRLIC programme met two indicators at the high target and one at the medium target (with no additional output expected or produced that year). A new target to launch an advisory committee (Indicator 1.4) was not met. The programme concluded that, despite the missed advisory-committee indicator, the quantity, quality and breadth of core research production achieved the fundamental purpose of the output. ### Indicator 1.1 — Working papers: activity highlights - MRLIC produced 21 WPs in the past year, bringing the total to 150 over the programme to date. - Examples of research findings and themes produced: - Regional trade integration in Africa promotes economic growth but fosters income divergence, indicating support for AfCFTA should be combined with policies to reduce non-tariff barriers and improve infrastructure. - Analysis of monetary policy frameworks in propagation of shocks across 79 LICs finds highly significant differences between LICs targeting monetary aggregates or inflation versus those with rigid nominal exchange rates; analysis includes effects of the January 1994 CFA devaluation on GDP growth in 10 CFA countries relative to non-CFA countries. - Model calibrated for six small disaster-vulnerable countries (Antigua and Barbuda, Dominica, Fiji, Haiti, St. Lucia, St. Vincent and the Grenadines) shows ex-ante resilience investment can save recovery costs. - Analysis of food price shocks on socio-political instability: remittances dampen adverse effects of import food price shocks in almost all countries; fiscal policy’s mitigating role is significant only in countries with low levels of private credit. ### Indicator 1.2 — Peer-reviewed published papers: activity highlights - MRLIC had 13 papers accepted for publication in peer-reviewed journals during the year, bringing cumulative total to 83. - Published topics span energy policy, labour markets, predictors of banking crises in LICs, and gender equality relevance for macroeconomic outcomes. - Selected published examples: - "To pass (or not to pass) through international fuel price changes to domestic fuel prices in developing countries: What are the drivers?" — Energy Policy - "Designing Labor Market Institutions in Emerging Market and Developing Economies: A Review of Evidence and IMF Policy Advice" — Comparative Economic Studies - "Gender equality and macroeconomic outcomes: evidence and policy implications" — Oxford Review of Economic Policy - A synthesis (Ahir et al.) summarized MRLIC progress over eight years across debt management, monetary policy, gender, income inequality and diversification, highlighting: - Debt policy: development and use of the Debt-Investment-Growth (DIG) model and extensions for assessing large public investments and debt sustainability. - Monetary policy: MRLIC research influenced IMF engagement in LICs, noting progress toward forward-looking frameworks and evidence that monetary transmission may be stronger than previously thought. - Gender: progress on barriers to women’s economic potential and pioneering gender-budgeting in the IMF; emphasizes political and legal prerequisites. ### Indicator 1.3 — Book publications - One book published this year: Macroeconomic Policy in Fragile States (Oxford University Press). The book is not freely available and therefore does not count toward the freely-available-books indicator. - The book comprises 20 chapters aimed at practitioners and helped develop IMF training modules, especially for policymaking in fragile states during the Covid-19 pandemic. - Recommendation from review: remove the books indicator going forward; chapters made freely available as working papers should be counted under 1.1 or 1.2 as appropriate. ### Indicator 1.4 — Programme advisory group meetings - The IMF MRLIC team prepared a comprehensive proposal for an advisory committee (panel of senior academics and policymakers plus terms of reference) and circulated it with FCDO. - Delay in confirming committee members and convening the initial meeting largely due to waiting for confirmation of availability on FCDO side. - Recommendation: MRLIC to move forward with forming the advisory committee. ### Value for Money (VfM) and cost metrics (Table 1 figures reported by MRLIC) - Total Staff/Contractual/VS Costs: $15,448,193 - Research Paper Costs: $11,586,145 - Country Applications Costs: $3,862,048 - Working Papers: - Produced 150 - Commissioned 26 - Working Papers 176 (total) - Cost Per Working Paper: $65,830 - Note in text: "The cost per working paper is also approximately $66,000, down from $69,000 in the previous year." - Published Papers: - Produced 83 - Commissioned 7 - Published Papers 90 (total) - Cost per Published Paper: $128,735 - The average cost per published paper is approximately $129,000 (£93,000), lower than the FCDO benchmark of $215,000 (£156,000) per paper and down from $139,000 reported 2020. - The currency conversion is based on the exchange rate as of 1st July 2021. - Assessment: MRLIC is efficiently publishing research outputs at a low cost, with high research quality demonstrated by publications in highly ranked journals and presentations at top academic conferences (ASSA, NBER Summer Institute). ### Changes, lessons learned, and recommendations - Change proposed: Remove indicator on books (1.3); count freely-available book chapters as working papers (1.1) or peer-reviewed papers (1.2) as appropriate. - Progress on previous recommendations: - Tracking quality of published outputs (e.g., proxied by journal quality) — In progress; quality overall has been good with publications in highly ranked journals. - Turn internal COVID-19 work into publishable high-quality papers where possible — Partial progress: some COVID-19 work influenced policy and one paper was published in an academic journal. - Publish and publicise synthesis products delayed by COVID-19 — Done (see Box p.6 referenced by MRLIC). - Examine making books freely available — Indicator on books to be removed; freely-available book content to be counted under existing indicators. *Source: IMF MRLIC report content from fcdo-ar-june2021 (MRLIC annual reporting to March 2021).* ### 1. Public Debt, Investment, and Growth. The DIG and DIGNAR Models (DIGx) ### 1. Public Debt, Investment, and Growth. The DIG and DIGNAR Models (DIGx) ### VfM assessment compared to Business Case proposition - There are no VfM metrics specifically relating to this output in the Business Case. - The output contains an important mechanism for ensuring value for money (VfM) within the programme through use of research products by IMF country teams and partner authorities. - Use of research products by IMF country teams and partner authorities is described as critical to improving macro advice to LICs (by IMF staff) and macro policymaking (by country governments). ### Changes to the output during the past year and planned changes - Targets for engagement in country were reduced to reflect the impact of Covid-19, as the pandemic led to country teams delaying macroeconomic surveillance processes such as Article IV reviews, which are the typical process through which MRLIC research is taken up at country level. - The programme stepped up country engagement despite the pandemic; going forward, the programme should aim to better draw out outcomes and impacts of its research and country uptake activities on policy decisions and outcomes. ### Progress on assessing training usefulness - Work to assess the usefulness of training delivered in-country is reported as "In progress." - Courses offered on the IMFx online course platform can show detailed statistics on attendance, completion and knowledge. - The programme should continue to work on understanding the usefulness of courses available to country authorities. ### Confidentiality note on sensitive material - Due to the sensitivity of the topic, only some of the notes have been published on the external site: https://www.imf.org/en/Publications/SPROLLs/covid19-special-notes and in some cases the note could make it into a working paper. *Source: IMF MRLIC annual report (fcdo-ar-june2021).* ### Output 3 — Engagement by senior IMF policymakers on issues affecting LICs strengthened - Output number: 3 - Output Score: A - Impact weighting: 25% Key indicators and milestones (by March 2021) and progress - Indicator 3.1: High level policy conferences attended by senior IMF staff reflect findings of research papers funded under this project. - Milestone targets: H (45), M (43), L (41) - Cumulative prior: 40 (4 in 2019/20) - Progress this review: 42 (2 in 2020/21) - Outcome: Met low target (cumulative total 42 above low target 41) - Indicator 3.2: Results of research papers produced reflected in IMF policy papers such as Staff Discussion Notes, policy memos to management etc. - Milestone targets: H (48), M (45), L (42) - Sub-indicator 3.2.a: Results of the research papers produced reflected in IMF Board discussions. - Sub-indicator milestone targets: H (25), M (23), L (21) - Progress this review: 22 (2 in 2020/21) - Outcome: Met low target - Overall Indicator 3.2 progress: - Prior cumulative: 41 (5 in 2019/20) - Progress this review: 49 (8 in 2020/21) - Outcome: Exceeded high target Findings and narrative - The output scores A: Indicator 3.1 meets the low target; Indicator 3.2 exceeds the high target while sub-indicator 3.2.a meets the low target. - IMF MRLIC research has been influential at the highest levels in setting policy direction for LICs during the pandemic. - The pandemic prompted an unprecedented number of requests for IMF programmes needing Board consideration; teams prioritized highest-impact research for Board discussion, including critical issues on debt and financing the pandemic response. - There is a need to track how much senior-level interest translates into additional IMF resources devoted to LIC issues. High-level conferences where MRLIC research was presented (examples) - Covid-19 Pandemic in Developing Countries: conference on Covid-19 impacts in developing countries with high-level panels including IMF Chief Economist, IMF Managing Director, FCDO Chief Economist, Minister of Economy of Senegal, Governor of Central Bank of Kenya, Governor of State Bank of Pakistan, academics and civil society representatives. - Monetary Policy and Inequality: COVID-19 and Beyond (jointly organised by Peterson Institute for International Economics and the IMF), panels on links between financial and monetary policy and inequality in the context of Covid-19. MRLIC research reflected in IMF Board discussion and flagship publications - MRLIC research reflected in eight high-profile policy papers, exceeding the cumulative high target. - Two IMF Board papers discussed and approved: - December 2020 Board discussion: Joint IMF-WB Multipronged Approach to Address Debt Vulnerabilities — implementation in low-income developing countries and emerging markets in the context of Covid-19. - March 2021 Board discussion: Macroeconomic Developments and Prospects in Low-Income Developing Countries (LIDCs) — estimated LIDCs need $200 billion up to 2025 for the pandemic response and to rebuild buffers, and an additional $250 billion to help them grow and converge towards advanced economies (to avoid a "Great Divergence"). - MRLIC research was presented at Board sessions including: 1. The COVID-19 Crisis and Low-Income Developing Countries: Impact, Policy Response and Policy Tradeoffs 2. Board presentation for Africa’s Constituency: Departmental Paper - "Macroeconomic Research in Low-Income Countries: Advances Made In Five Key Areas Through A DFID-IMF Collaboration" 3. Briefing on the Outlook for Latin America and the Caribbean - MRLIC research informed IMF flagship external publications: - WEO Box: Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19 - WEO Box: Box 2.2. Education Losses during the Pandemic and the Role of Infrastructure - REO Chapter: Adapting to Climate Change in Sub-Saharan Africa - MRLIC produces briefing materials and speaking notes for IMF senior staff; these materials are another channel of influence though hard to measure. Recommendations - Leverage the programme’s strong brand to raise funding for MRLIC from within the IMF and develop an indicator to track the level of IMF resources committed to LIC issues. - Clarify the outcome and impact of engagement activities by tracking how activities lead to changes in IMF vision, policymaking, or understanding of macroeconomic challenges facing LICs. - Ensure MRLIC work maintains a strong pipeline of opportunities to be discussed at the highest levels in the IMF (Board, etc.). Progress: Done — the programme presented two influential papers on Covid-19 and Debt at the Board this year. *Source: IMF MRLIC annual report (fcdo-ar-june2021).* ### Output 4 — IMF strengthens research capacity by expanding network of researchers and policy makers - Output number: 4 - Output Score: A - Impact weighting: 15% Key indicators and milestones (by March 2021) and progress - Indicator 4.1: Number of commissioned research papers from researchers produced on thematic areas. - Milestone targets: H (33), M (31), L (30) - Prior cumulative: 30 (4 in 2019/20) - Progress this review: 32 (2) - Outcome: Met medium target - Indicator 4.2: A data toolkit is a new dataset put in a format accessible and applicable to work of IMF country teams and country authorities. - Milestone targets: H (12), M (11), L (10) - Prior cumulative: 9 (0 in 2019/20) - Progress this review: 11 (2 in 2020/21) - Outcome: Met medium target - Indicator 4.3: Attendance of external researchers and policy makers at high-level policy conferences. - Milestone targets: H (138), M (134), L (130) - Prior cumulative: 124 (16 in 2019/20) — Exceeded high target - Progress this review: 139 (15 in 2020/21) — Exceeded high target - Indicator 4.3 (dissemination): Project outputs disseminated in e-newsletter and updated public web-page and R4D (FCDO web portal). Number of updates. - Milestone targets: H (34), M (32), L (31) - Prior cumulative: 30 (4 in 2019/20) — Met high target - Progress this review: 34 (4) — Met high target Findings and narrative - Output scores A: two indicators met medium targets, one exceeded the high target, and another met the high target. - The programme continues to face challenges increasing participation of external academics; targets for 4.1 were reduced. - Virtual events enabled good coverage at external conferences, contributing to exceeding targets for external attendance. - MRLIC continues to grapple with how to bring external researchers into the field. Commissioning of external research - MRLIC research is produced internally or commissioned externally. The requirement that external researchers be "new" to LIC issues was dropped because it was not cost-effective. - This year three pieces were commissioned externally, including by top academics already working on development research. One commissioned piece is general macroeconomic research not squarely within MRLIC themes. - Commissioned examples listed: 1. Finance, Growth, and Inequality by Ross Levine 2. Is Regional Trade Integration a Growth and Convergence Engine in Africa? Vigninou Gammadigbe Recommendations - Continue efforts to expand and diversify external researcher participation while managing cost-effectiveness and monitoring requirements. - Continue dissemination and virtual engagement strategies that have enabled high external attendance at conferences. *Source: IMF MRLIC annual report (fcdo-ar-june2021).* ### 3. Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions. Daron ### Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions. Daron Acemoglu and Alireza Tahbaz-Salehi ### Data and toolkits (Indicator 4.2) - MRLIC developed an adaptation of the DIGNAR-19 toolkit adapted to the Covid-19 to help departments conduct quantitative macroeconomic assessments and policy scenario analysis. - MRLIC launched a Structural Reform Database and associated web toolkit: - Database covers indicators on structural policies over 40 years (1973-2014) for 90 countries. - IMF Data website tool includes interactive charts and tables and a “Dividends Toolkit” to compute potential growth gains from structural reforms to close the gap relative a benchmark level. - Recommendation from review: move this indicator to Output 1 because toolkit development is part of research and knowledge production. ### Attendance at conferences (Indicator 4.2) - MRLIC research was presented at 15 high-level policy and academic conferences this year. - Cumulative total presentations reached 139, above the high target. - The annual average for this output is 16 conferences; 15 is in line with that average. - Virtual events made it possible to meet expectations despite Covid-19. ### Project outputs disseminated (Indicator 4.3) - MRLIC research updates and events were disseminated via a quarterly newsletter, distributed to a network of over 1500 academics, policymakers, central bank staff, and government representatives including FCDO staff. - A forward look of upcoming outputs, events and presentations is provided to FCDO quarterly for targeted dissemination. - MRLIC research featured occasionally in IMF Blogs and wider press, including: - IMF Blog: “How COVID-19 Will Increase Inequality in Emerging Markets and Developing Economies”. - Quartz: “The pandemic has inequality rising in poor countries”. - CNN: “As Covid-19 rages on, countries need to support migrant workers”. - IMF Blog: “COVID-19: Without Help, Low-Income Developing Countries Risk a Lost Decade”. - World Economic Forum: “How COVID-19 will increase inequality in emerging markets and developing economies”. ### Changes to outputs and planned adjustments - Scope of output indicator 4.1 was expanded in the last logframe review and some targets were reduced due to anticipated impact of Covid-19. - The review recommends revising the output to: - Adjust targets to ensure they are sufficiently stretching. - Ensure indicators capture the wider footprint of MRLIC research, including expanding the field and dissemination. - Include indicators to drive inclusion of LIC-based researchers into the programme. ### Progress, lessons learned, and recommendations - It has been harder than expected to expand the field of researchers working on macroeconomic research focused on LICs. - Commissioning established academics proved not cost-effective; alternative engagement approaches are needed. - Beneficial to increase engagement with researchers based in LICs and early career researchers (e.g., PhD students). Recommendations: - Revise logframe indicators under this output to capture key aspects of expanding the field of researchers. - FCDO and IMF should continue exploring ways to bring in external expertise, including: - Convening an advisory committee. - Engaging externals through commissioned papers and conferences. - Scoping ways to increase engagement from LIC-based researchers in research production. Progress on a specific previous recommendation: - Continue to refine the process for engaging and commissioning external researchers to expand the field of economists working on macro in LICs. - Status: In progress. FCDO and IMF decided best engagement channels are conferences, the advisory committee, and some commissioning. Indicator 4.1 was adjusted to drop the requirement that commissioned researchers be “new”. The programme will continue to pursue other options including focus on LIC-based and early career researchers. ### Risk overview and management (Section D) - Overall risk rating: Minor. - Covid-19 is a minor risk to operations; reduction in funding for travel, events, and uptake is a more important risk. - Mitigations: use cheaper uptake tools (online training, online visits) and secure additional funding from other IMF departments or donors. - Risk areas and assessments: - External context: Limited exposure to LIC context because most research is carried out at IMF headquarters using secondary datasets. - Delivery: Established delivery systems with high delivery over extended periods; demand remains high. - Operational: Experienced management teams at FCDO and IMF. - Fiduciary: All funds spent directly by the IMF and subject to extensive IMF financial management controls. - Reputational: Little or no reputational risk from research topics. - Innovation: Not subject to substantial innovation risks. - Safeguarding: Activities rarely involve contact with vulnerable persons; external researchers are managed per IMF procedures. - Due diligence: - Central Assurance Assessment (CAA) of the IMF conducted by FCDO in March 2019 found IMF a low risk partner; light touch due diligence in November 2019 ahead of Phase 4 drew on the CAA. - Residual risks are reduced to minor; risk register updated for Covid-19 but needs further updates to reflect evolving operations and budget reductions impacting travel and uptake. ### Programme management: delivery, commercial & financial performance (Section E) - Project is highly cost effective due to rigorous procurement governance and high-quality team work. - Hiring, travel, and conferences follow Fund guidelines; contractual employees undergo competitive hiring; outputs meet Fund publication requirements and are subject to peer-review when submitted to journals. - Direct project management costs represent approximately 1% of the total budget. - Including the Trust Fund management fee, program management costs are around 8% of the total budget. - Most funds are spent on producing research by IMF staff and external researchers. - IMF has been accurate and reliable in cost estimates. - Programme coordination: - FCDO and IMF hold quarterly check-in meetings; IMF provides quarterly summaries of outputs and presentations. - Strong continuity in IMF management supports lesson learning; programme director has been involved since inception and remains main contact. - Annual review process conducted by the FCDO programme team, Economic Advisor (PRO), and Deputy Programme Manager; oversight by Senior Economist and Team Leader of the Growth Research Team. - Dates: - Date of last narrative financial report: May 2021 - Date of last audited annual statement: October 2019 Breakdown of project expenditure in Years 1-9 (Table 2): - HQ led missions including entire mission team: 30% - Short-term Advisors - CD delivery: 2% - Research HQ based/Visiting Scholars: 36% - Seminars & Study Tours: 7% - Project Backstopping: 14% - Project Management: 1% - Exceptional Expenses: 2% - Language Services: 0% - Trust Fund Fee: 7% ### Annex A – Selected working paper findings (Output Indicator 1.1) - Do Monetary Policy Frameworks Matter in Low Income Countries? (Carare, de Resende, Levin, Zhang) - Dataset: panel of 79 LICs over 1990-2015; event study for 28 sub-Saharan African LICs. - Findings: Significant differences in propagation of external shocks across LICs by monetary policy framework; large surprise devaluation of the Central African Franc in January 1994 had highly significant effects on GDP growth of 10 CFA countries relative to 18 similar non-CFA countries. - Policy implication: Monetary policy frameworks facilitate macroeconomic stability in LICs amid shocks like COVID-19. - Quarterly Projection Model for the National Bank of Rwanda (Vlcek et al.) - Documents a QPM core to the Forecasting and Policy Analysis System (FPAS) reflecting interest-rate-based policy with managed exchange rate, agricultural effects on prices, and role of fiscal policies and aid flows. - Public Investment over the Fiscal Cycle (Kass-Hanna, Kpodar, Tessema) - Using general equilibrium and empirical models: increasing public investment share from 10 to 20 percent raises medium-term growth by 0.5 percentage points. - Protecting investment during consolidations boosts medium- to long-term growth, with larger benefits when initial public investment ratio is low. - Fuel Price Pass-Through in Developing Countries (Kpodar, Imam) - Dataset: 109 developing countries from 2000 to 2014. - Findings: Pass-through is higher when international price changes are moderate and less volatile; flexible pricing mechanism increases pass-through; exchange rate depreciation and lower neighboring retail prices inhibit pass-through; inflation associated with lower pass-through; high public debt associated with larger pass-through; no short-term evidence political variables or environmental policies matter across gasoline, diesel and kerosene. - Imported Food Price Shocks and Socio-Political Instability (Meyimdjui) - Dataset: panel of 101 low- and middle-income countries covering 1980-2012. - Findings: Import food price shocks strongly increase likelihood of socio-political instability, especially in countries with lower private credit and income per capita; remittances dampen adverse effects; fiscal policy’s mitigating role significant only in countries with low private credit. - Food Price Shocks and Household Consumption (Meyimdjui, Combes) - Dataset: panel of 70 low and middle-income countries over 1980-2012. - Findings: Import price shocks negatively affect household consumption; discretionary government consumption (subsidies, transfers) mitigates the effect, particularly in African countries and those with less flexible exchange rate regimes. - Building Back Better: How Big Are Green Spending Multipliers? (Batini et al.) - Using a new international dataset, estimated multipliers: - Renewable energy and carbon-sink spending multipliers: 1.1-1.5. - Fossil fuel energy spending multipliers: 0.5-0.6. - Renewable estimates larger than fossil fuel estimates with over 90 percent probability. - Implication: Spending on key carbon-neutral or carbon-sink activities can generate more than a dollar’s worth of economic activity and support that stabilizing climate and reversing biodiversity loss can align with economic advancement. *Source: MRLIC programme annual review and associated working paper summaries produced by the IMF in partnership with FCDO.* ### 8. Delays in Public Investment Projects. Raphael Espinoza and Andrea Presbitero. The returns ### Delays in Public Investment Projects ### Study and data - The study by Raphael Espinoza and Andrea Presbitero exploits original information on investment projects obtained from World Bank project reports to document the extent and drivers of time delays in project implementation. ### Key findings on delays - Almost 60 percent of investment projects are delayed by at least one year. - Time overruns are common across sectors and countries. ### Drivers of delays - Project-level factors: - Sound planning and preparation matter for the timing of project execution. - Country-level factors: - Projects undertaken in countries with weaker institutions are completed with longer delays. - Projects implemented during periods of public investment scaling up are completed with longer delays. ### Implications - Lower-than-expected returns from public investment, especially during periods of scaling up, can reflect widespread time delays in project implementation. - Institutional strength and advance project preparation are important determinants of timely execution and therefore of investment returns. *Raphael Espinoza and Andrea Presbitero — "Delays in Public Investment Projects."* ### 2. Macroeconomic Developments and Prospects In Low-Income Countries—2021 ### 2. Macroeconomic Developments and Prospects In Low-Income Countries—2021 ### Summary and scope - The paper is the sixth in a series examining macroeconomic developments and prospects in low-income countries (LICs). - LICs are defined as the countries eligible to PRGT facilities (69 countries). - The paper has two main sections: - Recent macroeconomic developments and trends across LICs. - Estimates of LICs’ financing needs up to 2025 to resume and accelerate income convergence with advanced economies (AEs). - Financing needs analysis focuses on the additional financing that would: - Enable LICs to step up spending response to COVID, including vaccination needs. - Rebuild or keep external buffers to enhance resilience. - Allow LICs to accelerate convergence with AEs. - The paper discusses a mix of financing options: - Concessional financing from international financial institutions. - Grants and loans from bilateral donors. - Private financing and debt operations. - Domestic reforms within LICs to foster growth, enhance private investment, raise public revenues, and increase efficiency of spending. ### Financing needs and policy mix - Objectives of additional financing up to 2025: - Support stepped-up COVID response, including vaccination. - Rebuild or maintain external buffers to enhance resilience. - Accelerate income convergence with advanced economies. - Financing instruments and reforms considered: - Concessional financing from international financial institutions. - Grants and loans from bilateral donors. - Private financing and debt operations. - Domestic reforms to: - Foster growth. - Enhance private investment. - Raise public revenues. - Increase efficiency of spending. ### Key thematic findings reflected in IMF outputs (Output 3.2.a) - Fiscal Monitor/WEO/REO/SDN contributions summarized include: 1. REO Chapter: Adapting to Climate Change in Sub-Saharan Africa - Sub-Saharan Africa is especially vulnerable to climate change due to heavy reliance on rain-fed agriculture and limited resilience and coping mechanisms. - On average, climate change could reduce GDP growth by at least 1 percentage point in the month a climate shock occurs. - Most effective resilience-raising measures: improving access to finance and insurance, education, health, telecommunications, and physical infrastructure. - Ensuring food security and raising agricultural productivity amid intensifying weather shocks requires: - Targeted social assistance. - Crop diversification. - Improved irrigation. - While these measures involve large public spending, they should be prioritized as more cost-effective than frequent disaster relief. - Limited fiscal space poses a challenge and means development partners’ support will be critical. 2. WEO Box: Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19 - Research by Gabriela Cugat and Futoshi Narita documents pandemic implications for poverty reduction, life expectancy, and equality in emerging market and developing economies. - The number of people in extreme poverty is likely to rise substantially this year, for the first time in more than 20 years. - Income inequality, on average, across these economies could rise back to levels seen in 2008, reversing gains since the global financial crisis. - Life expectancy is less likely to be affected, though downside risks exist due to fragile health care systems and interruptions in treatment of other life-threatening illnesses. - This research was published as a box in the October 2020 World Economic Outlook, and featured in the IMF Blog, Quartz Magazine, and the World Economic Forum. 3. WEO Box: Box 2.2. Education Losses during the Pandemic and the Role of Infrastructure - School closures and pandemic-related disruptions pose a serious risk to human capital accumulation worldwide. - Early evidence shows education losses were larger in economies with preexisting gaps in infrastructure (such as access to electricity and internet), constraining effective remote learning. - Remedial measures are essential to prevent scarring of human capital stock and further economic divergence. - Urgent policy action and international support are called for, especially for low-income countries and many emerging market economies with limited infrastructure and inadequate educational funding. 4. Board presentation: The COVID-19 Crisis and Low-Income Developing Countries: Impact, Policy Response and Policy Tradeoffs - Presentation given on July 22 by IMF staff on COVID-19 policy response and tradeoffs in low-income developing countries (LIDCs). - LIDCs account for one-fifth of the world population but only about 4½ percent of global GDP. - LIDCs face unprecedented external shocks from COVID-19 and have limited resources and policy instruments. - Countries with limited policy space should front-load containment measures to flatten the infection curve and use time to build health sector capacity, then move to targeted measures when broad containment is unsustainable. - LIDCs have broadly followed this approach. - The presentation was appreciated by IMF Executive Directors, and some requested frequent briefs for wider interest. 5. Board presentation for Africa’s Constituency: Departmental Paper - "Macroeconomic Research in Low-Income Countries: Advances Made In Five Key Areas Through A DFID-IMF Collaboration" - Despite strong growth since 2000, many LICs still faced macroeconomic challenges prior to COVID-19. - LICs on average saw 4.5 percent of real GDP growth during 2000 to 2014, making progress in economic convergence toward higher-income countries. - The commodity price collapse in 2014–15 hit many commodity-exporting LICs and highlighted vulnerabilities from limited economic diversification. - LICs face a crisis like no other—COVID-19—requiring careful policymaking to save lives and livelihoods, informed by tailored research. - Other challenges include climate change, high levels of public debt burdens, and persistent structural issues. 6. Board presentation: "Briefing on the Outlook for Latin America and the Caribbean" - Briefing held on March 30 by the IMF Western Hemisphere Department in the context of the 2021 Spring Meetings. - Included uptake of FCDO-IMF research on estimated impacts of COVID-19 on income inequality, highlighting a large adverse impact to the region despite already high inequality. ### Program description and objectives of the FCDO/IMF research partnership - Program title: “Macroeconomic Research in Low-Income Countries.” - Strategic objectives: - Enhance generation of high-quality research on key macroeconomic issues in LICs. - Ensure uptake through research design and execution in close collaboration with policymakers within and outside the IMF. - Use the IMF’s pulling power to expand the network of macroeconomic researchers working on LICs. - Achieve objectives cost-effectively. - Program timeline: - The project began in March 2012, with the current phase (Phase 4) to conclude in March 2024. - Start and End Dates: - Phase I: March 2012 to March 2015 - Phase II: April 2015 to March 2017 - Phase III: April 2017 to March 2020 - Phase IV: April 2020 to March 2024 - Comparative advantage and focus: - IMF focuses on core macroeconomic challenges and deploys modern analytic tools proven useful in emerging markets and developed countries, such as the application of inflation targeting. - The IMF concentrates on core macroeconomic and development issues critical to sustained and inclusive growth. - Noted gaps addressed: very few macroeconomists work on LICs; very few development economists work on macroeconomics (outside structural/growth issues); central banks and macroeconomic institutions in LICs face capacity challenges. ### Five core research areas - (1) Modelling and understanding policy choices - For example: monetary, exchange rate, fiscal and structural policies. - (2) Understanding macro-financial linkages - For example: capital flows, financial deepening and inclusion, macro-prudential policies, and transmission of macro-financial shocks. - (3) Building resilience - For example: issues related to natural disaster, climate change, migration, and conflict. - (4) Promoting structural change and institutional development - For example: public investment, growth, and debt sustainability, macroeconomic management of natural resource wealth, growth through diversification, structural reforms. - (5) Enhancing inclusion - For example: income inequality, macroeconomic policy and income distribution, gender and macroeconomics. ### Research dissemination and policy engagement - IMF staff and project-funded researchers collaborate to produce high-quality research papers aimed at policymakers in LICs and IMF country teams. - Efforts to maximize policy impact include: - Sharing most papers freely with FCDO and external policymakers. - Designing frameworks to support IMF policy for LICs. - Presentations at high-level policy conferences. - Commissioned papers. - Quarterly e-newsletters to a broad network of LIC researchers and policymakers. - Project-financed conferences. _Prepared by the Staff of the Research and Strategy, Policy and Review Departments; June 30, 2021._ ### 2. OVERVIEW OF THE YEAR ### 2. OVERVIEW OF THE YEAR ### Progress and achievements - The FCDO-IMF partnership completed the first year of Phase IV with high performance across the project’s five main topics. - Output targets met: - Reached maximum targets or more on 12 of the 15 outputs considered under the project. - Of the remaining 3 targets: 1 scored the medium target and 2 scored above the low target. - Outreach and visibility: - Multiple IMF Executive Board discussions, high-level conferences attended by IMF senior staff and key policymakers from LICs, and extensive virtual outreach were reported. - More than twenty informative working papers were published across the five topics. - Papers published in peer-review academic journals include Economic Journal and Journal of International Economics. - Research impact metrics (IMF Library bibliometric analysis, citations compiled from Lens.org / Dimension.ai): - 193 intellectual entities with a total of more than 1,742 citations (up from 1,403 citations reported last year). - 77 percent of publications have been cited, with an average citation of 11 per article cited. - 83 percent of the citations are non-self with no IMF or FCDO affiliation. - Benchmark: The Quarterly Journal of Economics has a 5-year impact factor of 14. - Social media and downloads: - The article “Do Monetary Policy Frameworks Matter in Low Income Countries” attracted attention from 40 Twitter accounts with an upper bound of 184,443 followers within three months of its July 2020 publication, including one account with 48,500 followers. - Total downloads of IMF working papers produced by the programme have exceeded 128,000 (up from about 110,000)—roughly over 850 downloads per paper. - Internal and policy influence: - The synthesis document summarizing the first eight years of IMF-DFID collaboration was published and circulated to relevant IMF Executive Directors; authors were invited to present to an Executive Director. - Internal notes and models (including DIGNAR-19 and epidemiological multigroup SIR models) were produced to support country teams and inform IMF operational work and publications (World Economic Outlook, Article IV staff reports, Selected Issues papers). ### Institutional recognition and endorsements - Deputy Managing Director Antoinette Monsio Sayeh: - Praised the partnership’s role in narrowing research gaps for macroeconomic policy in LICs and cited the DIGNAR-19 model as an example that helped assess fiscal space under high uncertainty. - Director of the IMF Strategy, Policy, and Review Department Ceyla Pazarbasioglu: - Highlighted IMF-FCDO contributions to toolkits on gender and inequality (incorporating COVID-19) and instruments analyzing climate change impacts on vulnerable economies. ### Topic summaries and substantive findings - (i) Modelling and understanding policy choices - High-level virtual conferences organized in December 2020 and jointly with PIIE and CEP emphasized policy priorities to save lives and livelihoods and to mitigate widening inequality from COVID-19. - Key conference conclusion: support measures from central banks (in addition to fiscal responses and structural reforms) are needed to help the most vulnerable segments of the population. - A paper discussed at the IMF Executive Board highlighted financing options: concessional financing from international financial institutions, grants and loans from bilateral donors, private financing, and debt operations; it also stressed domestic reforms in LICs to foster growth, enhance private investment, raise public revenues, and increase spending efficiency. - DIG framework developments: - Amended DIG toolkit (DIGNAR-19) developed to incorporate COVID-19 and applied in Nigeria’s Article IV Selected Issues Policy paper, showing GDP contracting by 1.7 percent in 2021 and the public-debt-to-GDP ratio continuing to increase in the medium term. - An online course on DIG and DIGNAR-19 was developed and delivered to country authorities and IMF teams. - Public investment findings: - Return on public investment is generally lower than expected during scaling up. - 60 percent of investment projects are delayed by at least one year. - Research suggests robust evidence of a U-shaped relationship between public investment and project costs, with scaling-up having stronger effects on costs during investment booms. - Additional published analyses: - Pass-through of international energy prices to local markets and nexus between export growth and fuel prices—policy implication: smooth fuel price dynamics where export sectors are vulnerable. - Market failures in LICs and implications for labor market institution design (sample of 30 emerging and developing countries). - Commodity price movements affect banks' balance sheets and financial stability; commodity price volatility is a significant predictor of banking crises in a sample of 60 low-income countries. - A study casts doubt on the crises-reforms nexus: crises are associated with reversals of liberalization depending on institutional environment. - (ii) Understanding macro-financial linkages - Three virtual Forecasting and Policy Analyses System (FPAS) technical assistance missions delivered to Ghana to assist the Bank of Ghana in developing FPAS and forecasting capacity. - A forthcoming Journal of International Economics paper finds commodity price volatility can trigger financial instability by reducing government revenues and shortening sovereign debt maturity, weakening banks' balance sheets. - (iii) Building resilience - Climate shock impacts: - A chapter in the October 2020 Sub Saharan African Economic Outlook found that on average, climate change could reduce GDP growth by at least 1 percentage point in the month a climate shock occurs. - Policy implication: prioritize well-targeted mitigating policies as more cost-effective than frequent disaster relief. - Remittances: - IMF blog by project experts emphasized remittances’ vital role for recipient households and the need for host countries to consider migrant status in key sectors like the labor market. - High-level conferences for fragile states highlighted remittances in contexts of fragility, including a conference organized by the London School of Economics with Tim Besley (LSE) as a speaker. - Capacity building: - Four courses delivered to country officials at Africa Training Institute, Euro-Mediterranean Economists Association, Joint Vienna Institute, Singapore Training Institute on remittances and COVID-19 nexus, stabilization role of remittances, and macroeconomic policy of remittances. - Internal IMF-FCDO courses on Macroeconomics in Fragile States delivered to IMF staff. - (iv) Promoting structural change and institutional development - Development of a Structural Reform Database and web-based toolkit. - Paper assessing the impact of financial crises on structural reforms accepted for publication in Economic Journal. - Work assisting desk economists to compute potential growth gains from structural reforms and studies on tariffs, city comparisons, and crisis impacts. - (v) Enhancing inclusion - Outcomes featured in the October 2020 and April 2021 World Economic Outlook emphasized widening inequality between countries due to the crisis and education losses from lockdowns. - Publications in Review of Law & Economics, Oxford Review of Economic Policy, and Journal of Mathematical Economics on inclusive citizenship law, gender equality and macroeconomic outcomes, and long-term aggregate and distributional consequences of COVID-19—findings support that promoting inclusion is key for better social and macroeconomic outcomes. ### Internal products, tools, and policy support - COVID-19 related internal notes and tools produced to assist country teams: - DIGNAR-19 macro policy assessment model for COVID-19 in low-income countries (incorporates shocks/channels related to lockdowns and health containment measures). - Epidemiological multigroup SIR model for containment policies and exit strategies. - Notes on COVID-19 and government debt dynamics, central bank communication, food (in)security in Sub-Saharan Africa, severe epidemics in modern history, past health-related shocks using Google search surges, and poverty nowcast. - These internal works informed IMF operations and external publications. ### Challenges and operational constraints - COVID-19 disrupted review and publication processes; many outputs’ review and publication were frozen. - Increased requests related to COVID-19 from membership strained staff capacity to review all outputs. - Travel suspensions limited interactions with country authorities, delaying completion of some outputs such as Article IVs. - Ongoing crisis shifted staff focus toward crisis work and delayed progress on forming an advisory committee; a proposal for an advisory committee (panel of senior academics and policymakers with terms of reference) has been prepared and circulated with FCDO but not progressed further. ### Log-frame outputs and quantitative results - Working papers: - Completed 21 working papers in the year, bringing the nine-year total to 150 working papers. - Overall performance: - Table summary indicates that Year 9 outputs met or exceeded the “high” target for most outputs, with three exceptions (two above low, one at medium). - The project remains on track despite COVID-19 disruptions. *FCDO-IMF Macroeconomic Research in LICs project annual report (June 2021).* ### 1. Do Monetary Policy Frameworks Matter in Low Income Countries? ### 1. Do Monetary Policy Frameworks Matter in Low Income Countries? ### Overview and research program - The FCDO-IMF partnership project produced a broad research agenda covering: monetary policy frameworks; quarterly projection models for Rwanda and Malawi (forthcoming); public investment dynamics; fuel and food price pass-through; green spending multipliers; public investment delays; macro-financial linkages; resilience to natural disasters and climate change; structural change and institutional development; inclusion and COVID-19 impacts. - The project reported 13 papers published in peer-reviewed journals during the year under review. ### Major published topics and outlets - Peer-reviewed topics published this year include: - Fuel price pass-through in developing countries (Energy Policy). - Export growth–fuel price nexus (The Energy Journal, forthcoming). - Labor market institutions and IMF policy advice (Comparative Economic Studies). - Delays in public investment projects (International Economics, forthcoming). - Capacity to absorb public investment (World Development). - Commodity prices and banking crises (Journal of International Economics, forthcoming). - Tropical cyclones and post-disaster reconstruction (Economic Modelling). - Financial crises and structural reforms (Economic Journal, forthcoming). - Tariffs and growth (Journal of Policy Modeling). - City comparisons (Regional Science and Urban Economics). - Inclusive citizenship law and development (Review of Law & Economics). - Gender equality and macroeconomic outcomes (Oxford Review of Economic Policy). - Re-opening after lockdown: long-run consequences (Journal of Mathematical Economics). ### Country applications, capacity building, and uptake - Country applications and internal guidance: - The team completed 3 applications with IMF country teams and provided guidance via 8 internal notes. - Specific applications included DIGNAR-19 model applications to Nigeria (Article IV and Selected Issues) and macroeconomic frameworks to analyze COVID-19. - Other internal notes covered: a Multigroup SIR Model, DIGNAR-19 for LIDCs, COVID-19 and government debt dynamics, central bank communication through COVID-19, food (in)security in SSA under COVID-19, severe epidemics and growth/debt/civil unrest, Google search surges and health shocks, and poverty nowcasts for 2020 for the WEO team. - Training and courses: - The team delivered 8 courses to IMF staff (Modules 1–6 plus two thematic modules). - The team held five courses for country authorities. - An online DIG/DIGNAR course had 233 people active on the platform, with 179 passing the course, a success rate of 77 percent. Of 177 people taking pre- and post-tests, average scores rose by 25 percentage points. - Engagements and events: - The project held two high-level conferences: “COVID-19 Pandemic in Developing Countries” and “Monetary Policy and Inequality: COVID-19 and Beyond”. - The research influenced IMF Board discussions, reflected in two IMF Board papers/meetings: (1) Update on the Joint IMF-WB Multipronged Approach to Address Debt Vulnerabilities; (2) Macroeconomic Developments and Prospects in Low-Income Countries—2021. - Results informed multiple IMF policy papers and WEO/REO chapters and boxes. ### Outcomes, impacts, and qualitative feedback - The project reported that research outcomes were reflected in IMF Executive Board discussions, Article IV reports, the World Economic Outlook, Regional Economic Outlook, LIDC Report, and various policy papers. - Noted impacts and endorsements: - Gita Gopinath, IMF Chief Economist and Director of the Research Department, emphasized the partnership’s role in producing COVID-19 policy notes, convening high-level conferences, and contributing empirical boxes to the WEO. - Edward F. Buffie (Indiana University) highlighted DIG framework developments informing policy analyses related to debt sustainability, investment, real wages, and inequality. - Operational impacts: - Virtual TA missions to the Bank of Ghana strengthened forecasting teams for Monetary Policy Committee meetings. - Training and curricula on fragile states, monetary and exchange rate policy, fiscal institution building, and Fund policy were developed and delivered to enhance country authority capacity. ### Costs, value for money, and management - Project financials and budget: - The approved budget for the project is US$30.5 million. - As of April 2021, $22.6 million has been drawn down from the subaccount. - Project expenditures, Years 1–9 total: $22,572,037, with the following activity breakdown: - HQ led missions including entire mission: $6,823,847 - Short-term Advisors - CD delivery: $525,562 - Research HQ based/Visiting Scholars: $8,098,784 - Seminars & Study Tours: $1,673,499 - Project Backstopping: $3,173,599 - Project Management: $247,263 - Exceptional Expenses: $550,638 - Language Services: $2,170 - Trust Fund Fee: $1,476,675 - Cost-efficiency metrics: - Total Staff/Contractual/VS Costs: $15,448,193 - Research Paper Costs: $11,586,145 - Country Applications Costs: $3,862,048 - Working Papers: 176 (Produced 150; Commissioned 26) - Cost Per Working Paper: $65,830 - Published Papers: 90 (Produced 83; Commissioned 7) - Cost per Published Paper: $128,735 - Direct project management costs represent approximately one percent of the total budget; including Trust Fund management fee, program management costs are around eight percent. - Value-for-money assessment: - The project reports being highly cost effective, following Fund procurement and hiring guidelines and competitive contracting. - The average cost per paper is reported as lower than the FCDO benchmark of $190,000 (£135,000) per paper. - The project reports high-quality outputs with strong academic uptake: total publications reached 82 over nine years (including publications in Economic Journal, Journal of International Economics, Review of Law & Economics, Oxford Review of Economic Policy, Journal of Mathematical Economics). - Citation metrics reported: 77 percent of publications have been cited, with an average citation of 11 per article cited. *FCDO-IMF partnership project report (annual report, June 2021).* ### 8. WORK PLAN AND TIMETABLE ### 8. WORK PLAN AND TIMETABLE ### (1) COVID-19 - Continue prior work on COVID-19 and LICs while advancing main programme research; travel/mission interruptions likely to continue in the short term. - Modeling policy choices: Public debt vulnerabilities in LICs - IMF staff uptake of DIGNAR-19 model application to Guinea. - DIGNAR-19 toolkit will be published on IMF.org. - An online training seminar on the DIGNAR-19 toolkit is planned. - A paper where DIG-Labor-COVID-19 adds a tourism sector, public investment in health and education, and shocks to productivity to the DIG framework to track paths of growth, inequality, unemployment and public debt associated with the COVID-19 shock. - Modeling policy choices: Monetary policy frameworks in LICs - Study conceptual and empirical implications on monetary policy design of heterogeneity at the micro level, motivated by recent increases in inequality and poverty in low-income countries exacerbated by COVID-19. - Modeling policy choices: Public investment trade-offs - Contribute a box titled “Reaching the Pre-COVID Convergence Path Through the Lens of a Dynamic General Equilibrium Macroeconomic Model” in a board paper to explore effects of additional fiscal spending on LICs' convergence path. - Understanding macro-financial linkages: Cost of remittances - Paper “Defying the Odds: Remittances in the Time of COVID-19” analysing factors driving resilience of remittance flows to the COVID-19 pandemic. - Promoting structural change and institutional development: Diversification - Paper examining firms’ strategies to mitigate GVC disruption risk and impacts on trade linkages with developing countries using French firm-level customs data to measure extensive and intensive margins of firms' imports and exports. - Enhancing inclusion: Income inequality - Project employing GDP data from the WEO database to empirically assess cross-regional and cross-country divergence after COVID-19 versus past crises, examine diverging growth paths within income groups, and consider policy implications for reestablishing convergence paths. ### (2) Modelling policy choices (broader) - Public debt vulnerabilities—new debt composition, new challenges - A second course for IMF Staff and country authorities on The DIG and DIGNAR models. - A paper on fiscal consolidations in developing countries. - Monetary policy frameworks in LICs - Working paper with country application: "Central Bank Creditability, Monetary Frameworks, and Communication Tools in Caucasus and Central Asia (CCA)" addressing state of central bank institutional frameworks, transparency, communication, and effectiveness for anchoring inflation expectations and enhancing interest rate transmission. - High-level policy conference: "Monetary Policy Frameworks: An Index and New Evidence". - Development of the IAPOC Toolkit (assessment toolkit for monetary policy frameworks) to support empirical analysis with the IAPOC index. - Documentation of the Quarterly Projection Model for Ghana as part of the Ghana FPAS CD project. - Development of a Quarterly Projection Model for Bangladesh to aid surveillance and program work. - Continued work to build macroeconomic frameworks and modernize forecasting and policy analysis capacity at LIC central banks, including: (i) deliver two TA missions to Ghana under the existent FPAS CD project, and (ii) launch at least two new FPAS CD projects, including in Bangladesh and Solomon Islands. - Development of an additional forecasting module for the existing online course Monetary Policy Analysis and Forecasting (MPAFx). ### (3) Understanding macro-financial linkages - Cost of remittances - Paper: “What Drive Remittances Cost? An empirical assessment” testing a wide range of determinants of remittance cost and offering insights on reduction. - Financial dollarization and economic development - Book chapter on China-Africa linkages illustrating how shocks in China affect Africa in a general equilibrium setting (trade, relative price, demand, financial channels), updating empirical findings on China’s impact on commodity prices, and providing empirical estimates of financial spillovers from China to foreign exchange and equity markets in Africa. ### (4) Building resilience - Macro criticality of climate-change-related natural disaster shocks - Conference: “Climate-Related Natural Disasters: Macroeconomic Effects and Policy Responses”. - Paper on “Monetary policy in disaster-prone countries”. - Application of the DIGNAR model to Uganda. - Paper on investing in resilience building with experimental results on cross-sector inequality and economic performance under different fiscal consolidation scenarios in Dominica. - Paper on building ex-ante resilience against natural disaster providing simulation results from a toolkit on gains/losses in consumption and production under different financing schemes. ### (5) Promoting structural change and institutional development - Diversification and rethink of development policy - Creation of a new tariff dataset using the physical collection of the Bureau of International Customs tariff schedule to extend existing tariff databases up to 1960s for a broad range of countries. - Paper on network bottlenecks and market power: theory of market power in production networks introducing the notion of a bottleneck firm whose removal leads to a sufficiently large fall in output; bottleneck location can depend on whole network structure. - Paper on trade under uncertainty: model of sunk costs and firms’ investment decisions to examine post-COVID trade dynamics using US and Colombian monthly trade data to rank industries by sunk costs and examine recovery speed. - Paper using geospatial and satellite night-time luminosity data to map sub-national inequality and estimate cross-regional convergence rates within and across countries. - Paper investigating interaction between structural transformation and lifecycle inter-sectoral mobility: explore effects of population aging and differential mobility rates on speed of structural change since the 1970s using IPUMS-International data. - Automation and structural transformation in LICs - Paper investigating digitalization and perception of women leadership in Africa using microeconomic data from 33 African countries. - Paper “Mobile Internet And Bank Credit: Evidence From Rwanda” assessing how ICT (mobile and broadband internet) can boost access to credit. ### (6) Enhancing inclusion - Gender equality and sustainable growth - Paper on COVID-19 and girls’ school drop-off in developing countries showing pandemic effects on school drop-off larger for girls than for boys with important economic costs. - Income inequality: welfare effects of revenue mobilization in LICs - Paper providing new evidence on impact of fuel prices on inflation and distributional implications, building on the updated Global Monthly Fuel Price Dataset. - A Selected Issues Paper exploring implications of gender education inequality in Kenya. ### Risk - The overall risk for the project is assessed as low. ### Monitoring and Evaluation - Monitoring - IMF reports annually to FCDO regarding outputs included in the log-frame. - Quarterly updates provided to the project website and quarterly e-newsletters reaching more than 1500 academics, policymakers, central bank staff, and government representatives; e-newsletters are posted on the project website. - Publicly available working and published papers uploaded to the R4D portal on the FCDO website; “gold access” provided to journal publications produced through the grant. - Video conference calls conducted when deemed necessary by IMF and FCDO project members. - Evaluation - No budget for an external evaluation was included in the project budget. ### Appendix 1 — Log-frame (selected targets and achieved values) - Impact indicators - Proportion of people living in extreme poverty in MRLIC countries: Planned(2018) MRLIC countries: 28.5% (baseline). - Economic growth rates in LICs: Planned(2019) MRLIC countries: 4.0% (baseline). - Outcome and output targets (selected) - Output Indicator 1.1 (High quality, policy relevant research): Planned March 2020 (129). By March 2021: H (150 papers) M (145 papers) L (140 papers). Achieved 150. - Output Indicator 1.2 (Number of research papers accepted for publication): Planned March 2020 (70). By March 2021: H (83 paper) M (79 papers) L (75 papers). Achieved 83. - Output Indicator 1.3 (Number of published books): Planned March 2020 (2). By March 2021: 2 books. Achieved 2. - Output Indicator 1.4 (Number of meetings of programme advisory group): Planned March 2020 (new indicator). By March 2021: 1 meeting. Achieved 0. - Output Indicator 2.1 (Courses offered to IMF staff): Planned March 2020 (115). By March 2021, evidence of number of country teams applying policy tools and frameworks: H (129) M (125) L (121). Courses offered to IMF staff by March 2021: H (4) M (3) L (2). Achieved 134 and 8. - Output Indicator 2.2 (Courses offered to country authorities): Planned March 2020 (46). Courses offered to country authorities (20). By March 2021, evidence of number of country authorities applying policy tools: H (52) M (49) L (46). Courses offered to country authorities by March 2021: H (24) M (22) L (20). Achieved 54 and 25. - Output Indicator 3.1 (Policy conferences drawing on project outputs): Planned March 2020 (40). By March 2021: H (45) M (43) L (41). Achieved 42. - Output Indicator 3.2 (Policy papers and board discussions): Planned March 2020 policy papers (41) Board discussions (20). By March 2021, policy papers: H (48) M (45) L (42). Board discussions: H (25) M (23) L (21). Achieved 49 and 22. - Output Indicator 4.1 (Number of new or substantially revised toolkits): Planned March 2020 (30). By March 2021: H (33) M (31) L (30). Achieved 33. - Output Indicator 4.2 (Number of commissioned research papers from external researchers): Planned March 2020 (9). By March 2021: H (12) M (11) L (10). Achieved 11. - Output Indicator 4.3 (Attendance and dissemination outputs): Planned March 2020 (124). By March 2021: H (138) M (134) L (130). Achieved 139. - Output Indicator 4.4 (Number of updates of e-newsletter and/or web-page): Planned March 2017 (18). By March 2021 number of up-dates: H (34) M (32) L (31). Achieved 34. *Report: Work Plan and Timetable, IMF–FCDO project annual report content.* ### APPENDIX 2. FINANCIAL REPORTS ### APPENDIX 2. FINANCIAL REPORTS ### Bilateral - Cash Flow Statement (United Kingdom - Project on Macroeconomic Research in LICs; International Monetary Fund) - Cumulative Contributions (FY 2016–FY 2021; In U.S. Dollars): 12,717,569 4,537,586 2,368,482 1,968,935 2,088,790 -23,681,362 - Interest Earned (FY 2016–FY 2021; In U.S. Dollars): 10,333 19,702 35,135 56,743 41,005 236 163,154 - Total Cash Available (FY 2016–FY 2021; In U.S. Dollars): 12,727,902 4,557,288 2,403,617 2,025,678 2,129,795 236.4323,844,516 - Expenses Paid (note includes the 7% TFM) (FY 2016–FY 2021; In U.S. Dollars): 9,692,537 3,768,706 2,937,652 2,490,122 1,892,694 1,790,324 22,572,035 - Cash Balance (as of Apr 30, 2021; In U.S. Dollars): 3,035,365 3,823,947 3,289,912 2,825,468 3,062,569 1,272,481 1,272,481 Notes: - 1/ Contributions are net of transfers and return of funds. - 2/ Expenses paid include the 7% TFM. ### Bilateral - Detailed Progress Report (United Kingdom - Project on Macroeconomic Research in LICs; International Monetary Fund) Agreement summary (As of Apr 30, 2021; In U.S. Dollars): - Sub Total (projects): 26,990,088 21,095,362 5,249,770 - Trust Fund Management Fee: 1,889,306 1,476,675 367,484 - Grand Total: 28,879,394 22,572,037 5,617,254 Selected project-level budgets, expenses, and execution: - IMF_IMF_2012_01 DFID Macro Research 1&2 (Closed; Start Date 5/1/2012; End Date 3/31/2017) - Latest Approved/Proposed Budget: 12,451,409 - Expenses: 12,451,410 - Project components and expenses: - HQ led missions including entire mission team: 6,411,796 6,411,796 - Short-term Advisors - CD delivery: 477,102 477,102 - Research HQ based / Visiting Scholars: 2,235,765 2,235,765 - Seminars & Study Tours: 1,273,384 1,273,384 - Project Backstopping: 1,911,379 1,911,379 - Project Management: 141,984 141,984 - SPR_IMF_2017_04 DFID Macro Research 3 (Closed; Start Date 4/1/2017; End Date 3/31/2020) - Latest Approved/Proposed Budget: 7,636,631 - Expenses: 6,991,674 - Project components and expenses: - HQ led missions including entire mission team: 556,600 389,849 - Short-term Advisors - CD delivery: 90,000 48,460 - Research HQ based / Visiting Scholars: 4,716,522 4,677,110 - Seminars & Study Tours: 609,290 400,115 - Project Backstopping: 1,092,202 1,054,899 - Project Management: 122,494 84,611 - Exceptional Expenses: 446,523 335,282 - Language Services: 3,000 1,348 - SPR_IMF_2020_02 DFID-4 Macro Research (Approved; Start Date 4/1/2020; End Date 3/31/2023) - Latest Approved/Proposed Budget: 6,902,048 - Expenses: 1,652,278 - Remaining Balance: 5,249,770 - Execution (%): 24% - Project components, expenses, and execution: - HQ led missions including entire mission team: 273,283 22,202 251,081 8% - Short-term Advisors - CD delivery: 20,000 - 20,000 - - Research HQ based / Visiting Scholars: 4,953,001 1,185,909 3,767,092 24% - Seminars & Study Tours: 248,633 - 248,633 - - Project Backstopping: 1,004,639 207,321 797,318 21% - Project Management: 95,052 20,668 74,384 22% - Exceptional Expenses: 280,764 215,356 65,408 77% - Language Services: 26,676 822 25,854 3% Additional notes: - 1/ The remaining balance for closed projects is zeroed out upon project completion for reallocation of resources or return to donor. - 2/ Execution (%) reported for active projects only. ### APPENDIX 3. RESEARCH OUTPUTS — Working Papers (Selected summaries) ### Topic 1. Modelling and understanding policy choices - Do Monetary Policy Frameworks Matter in Low Income Countries? - Authors: Alina Carare, Carlos de Resende, Andrew T. Levin, and Chelsea Zhang - Findings: - Analysis uses a panel of 79 LICs over 1990-2015 and event study for 28 sub-Saharan African LICs. - Highly significant differences in propagation of external shocks between LICs targeting monetary aggregates or inflation versus those with rigid nominal exchange rates. - The January 1994 large surprise devaluation of the Central African Franc (CFA) had highly significant effects on GDP growth of 10 CFA countries compared to 18 similar non-CFA countries. - Empirical analysis supports role of monetary policy frameworks in facilitating macroeconomic stability in LICs, relevant amid COVID-19-related shocks. - Quarterly Projection Model for the National Bank of Rwanda - Authors: Jan Vlcek, Mikhail Pranovich, Patrick Hitayezu, Bruno Mwenese, and Christian Nyalihama - Findings: - Documents the quarterly projection model (QPM) at the core of the Forecasting and Policy Analysis System (FPAS) implemented after BNR moved to price-based framework in January 2019. - Model extends Berg et al (2006) to reflect interest-rate-based policy with a managed exchange rate, agricultural sector and harvest effects on prices, and role of fiscal policies and aid flows. - Public Investment over the Fiscal Cycle - Authors: Tannous Kass-Hanna, Kangni Kpodar, Dawit Tessema - Findings: - Using general equilibrium and empirical models: protecting investment spending during consolidations is contractionary short-term but boosts medium- to long-term growth. - Increasing public investment share from 10 to 20 percent raises medium-term growth by 0.5 percentage points. - Growth benefits larger when initial public investment ratio is low; results hold in both "good times" and "bad times" consolidations. - To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries: What Are the Drivers? - Authors: Kangni R Kpodar and Patrick A. Imam - Findings: - Dataset covers 109 developing countries from 2000 to 2014. - Pass-through higher when international price changes are moderate and less volatile. - Flexible pricing mechanism allows higher pass-through; exchange rate depreciation and lower retail prices in neighboring countries inhibit pass-through. - Countries with inflation tend to experience lower pass-through; countries with high public debt exhibit larger pass-through. - No evidence that political variables or environmental policies matter for short-term fuel price dynamics; consistent across gasoline, diesel and kerosene. - Imported Food Price Shocks and Socio-Political Instability: Do Fiscal Policy and Remittances Matter? - Author: Carine Meyimdjui - Findings: - Panel of 101 low- and middle-income countries, 1980-2012. - Import food price shocks strongly increase likelihood of socio-political instability, especially in countries with lower private credit and income per capita. - Remittances dampen adverse effect; fiscal policy mitigating role significant only in countries with low levels of private credit. - Food Price Shocks and Household Consumption in Developing Countries: The Role of Fiscal Policy - Authors: Carine Meyimdjui and Jean-Louis Combes - Findings: - Panel of 70 low and middle-income countries, 1980-2012. - Import price shocks negatively and significantly affect household consumption. - Effect mitigated by discretionary government consumption, notably government subsidies and transfers. - Results robust for African countries and countries with less flexible exchange rate regimes. - Building Back Better: How Big Are Green Spending Multipliers? - Authors: Nicoletta Batini, Mario di Serio, Matteo Fragetta, Giovanni Melina, and Anthony Waldron - Findings: - New international dataset: every dollar spent on key carbon-neutral or carbon-sink activities can generate more than a dollar’s worth of economic activity. - Estimated multipliers: renewable energy investment 1.1-1.5; fossil fuel energy investment 0.5-0.6 (renewable > fossil with over 90 percent probability). - Findings robust across checks; support view that climate and biodiversity actions are compatible with economic advances. - Delays in Public Investment Projects - Authors: Raphael Espinoza and Andrea Presbitero - Findings: - Using World Bank project reports: almost 60 percent of investment projects delayed by at least one year. - Time overruns common across sectors and countries. - Sound planning and preparation reduce timing delays; weaker institutions and periods of investment scaling up associated with longer delays. - Monetary Policy Frameworks: An Index and New Evidence (Forthcoming IMF Working Paper) - Authors: Chris Papageorgiou, D. Filiz Unsal and Hendre Garbers - Findings: - Introduces IAPOC index with four pillars: Independence and Accountability, Policy Strategy, Operational Strategy, and Communications. - Index constructed for 35 developing and developed economies over 2007-2018 based on central bank laws and websites. - Captures diversity in MPFs, particularly among developing economies and those using mixed tools. - IMF Capacity Development on Monetary Policy Forecasting and Policy Analysis Systems (FPAS): Taking Stock (Forthcoming IMF Working Paper) - Authors: ICD-MCM Joint Departmental Paper - Findings: - Qualitative assessment of FPAS capacity development (CD) in LIC central banks. - Shares lessons learned from FPAS CD delivery and typical tools developed to inform future CD on building macroeconomic frameworks. - An Open Economy Quarterly Projection Model for Malawi (Forthcoming IMF Working Paper) - Authors: Yaroslav Hul, Grant P. Kabango, Kisukyabo Simwaka, Austin Chiumia, Wytone Jombo, Marietta Mpingasa, and Shalva Mkhatrishvili - Findings: - Documents QPM at the core of FPAS for the Reserve Bank of Malawi (RBM). - Model calibrated to Malawi-specific facts: agricultural sector importance for GDP and food prices, central bank credibility effects, and interest-rate-based monetary policy under fiscal pressures. ### Topic 2. Understanding macro-financial linkages - No publications under this output in the reporting year. ### Topic 3. Building resilience - Building Resilience to Natural Disaster in Vulnerable States: Savings from Ex Ante Interventions - Authors: Wei Guo and Saad Quayyum (Chapter 9 in Well Spent…, pp. 154-171) - Findings: - Dynamic, general equilibrium, and empirical calibration to six highly vulnerable small countries. - Investing ex-ante in resilience yields net present value savings relative to ex-post recovery costs. - Improving governance (increasing elasticity of output to infrastructure) leads to sizable output gains. - Enhancing Resilience to Climate Change in the Maldives - Authors: Giovanni Melina and Marika Santoro - Findings: - General equilibrium calibration shows significant dividend from investing in resilient infrastructure. - Under worsened climate conditions, cumulative output gain from resilient technologies increases up to a factor of two. - Given limited fiscal space (particularly after COVID-19), international cooperation and donor support prior to disasters is financially convenient compared to ex-post reconstruction. ### Topic 4. Promoting structural change and institutional development - Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions - Authors: Daron Acemoglu and Alireza Tahbaz-Salehi - Findings: - Non-competitive model with relationship-specific surplus and bargaining. - Firm failures propagate through supplier-customer networks and can amplify negative shocks. - Provides existence, uniqueness, and comparative statics results on equilibrium production network responses. - Will the AI Revolution Cause a Great Divergence? - Authors: Cristian Alonso, Andrew Berg, Siddharth Kothari, Chris Papageorgiou and Sidra Rehman - Findings: - Models AI as productivity increase of a capital type substituting closely with labor; advanced vs developing countries differ mainly by TFP levels. - Improvements in “robot” productivity drive divergence as advanced countries benefit from higher initial robot intensity and complementary capital. - International capital mobility can be pulled “uphill”, causing transitional GDP decline in developing countries. - If robots substitute only for unskilled labor, terms of trade and GDP may decline permanently for countries relatively well-endowed in unskilled labor. *International Monetary Fund — APPENDIX 2. FINANCIAL REPORTS and APPENDIX 3. RESEARCH OUTPUTS (as provided).* ### 16. Is Regional Trade Integration a Growth and Convergence Engine in Africa? ### Is Regional Trade Integration a Growth and Convergence Engine in Africa? ### Research question and methodology - Author: Vigninou Gammadigbe. - The paper examines the contribution of regional trade integration (RTI) to economic growth and income convergence in Africa and its major Regional Economic Communities (RECs). - Data: panel covering the period 1979 to 2018. - Estimation methods: instrumental variable and panel fixed-effects estimation. ### Key findings - RTI promotes economic growth in Africa. - RTI fosters income divergence across African countries, reflecting that gains from regional integration are distributed in favor of the more developed economies of the continent. - The distributional outcome indicates that regional integration has not produced convergence in incomes across African countries over 1979 to 2018. ### Policy implications and recommendations - Support the African Continental Free Trade Area (AfCFTA) project with complementary policies to broaden and equalize gains from integration. - Prioritize policies aimed at: - Reducing non-tariff barriers to trade. - Improving infrastructure. - These complementary measures are important to maximize the effects of RTI on growth in all participating countries. *Summary based on the paper by Vigninou Gammadigbe.* ### 13. Re-opening after the lockdown: Long-run aggregate and distributional consequences of ### Re-opening after the lockdown: Long-run aggregate and distributional consequences of COVID-19 ### Overview - Study: Article by Manoj Atolia, Chris Papageorgiou, and Stephen J. Turnovsky, Journal of Mathematical Economics. - Method: General equilibrium framework with heterogeneous agents used to identify tradeoffs in restoring the economy to its pre-COVID-19 state. - Core focus: Interaction between infection transmission, the feasible speed of re-opening, aggregate output dynamics, and distributional outcomes (wealth and income inequality). ### Key findings - The feasible speed of successful re-opening is constrained by the transmission of the infection. - Faster re-opening: - Reduces short-run aggregate output losses. - Causes larger long-run output losses; these long-run losses can be substantial if opening is overly rapid and the virus is not eradicated. - Faster re-opening mitigates increases in both long-run wealth inequality and income inequality. - There is a direct conflict between aggregate output outcomes and distributional consequences: policies that minimize short-run aggregate losses (faster opening) can worsen long-run aggregate outcomes while improving distributional outcomes. ### Tradeoffs identified - Time horizon tradeoff: - Short-run: More rapid opening reduces immediate aggregate output losses. - Long-run: More rapid opening increases long-run output losses. - Variable tradeoff: - Aggregate output versus distribution: Faster opening harms long-run aggregate output but reduces long-run wealth and income inequality. ### Implications emphasized by the study - Policy choices on the speed of re-opening cannot be considered solely through short-run aggregate metrics because infection dynamics create meaningful long-run output risks. - Distributional effects (long-run wealth and income inequality) move in the opposite direction to long-run aggregate output as opening speed increases, creating a policy tension that must be acknowledged in designing exit strategies. *Source: Article by Manoj Atolia, Chris Papageorgiou, and Stephen J. Turnovsky, Journal of Mathematical Economics.* ### 6. Module 6. Operationalizing Fund Policy in FCS (Fragile and Conflict-Affected States) ### Module 6. Operationalizing Fund Policy in FCS (Fragile and Conflict-Affected States) ### Operational challenges and the Fund’s approach in FCS - The module focuses on "how" to operationalize Fund policy in fragile and conflict-affected states (FCS), complementing the first five modules that addressed "what". - Participation included four FCS Mission Chiefs (Carol Baker, Tokhir Mirzoev, Mika Saito, and Charalambos Tsangarides), the Deputy Director in charge of Fragile States (Franck Bousquet), the lead authors of Macroeconomic Policy in Fragile States (Ralph Chami and Raphael Espinoza), and Professor Robert Klitgaard. - Key points: - The IMF is giving a new priority to fragile and conflict-affected states (FCS, also called countries experiencing fragility, conflict, and violence, or FCV). - Fragile and conflict-affected situations pose different challenges for macroeconomic policy and for relationships with international institutions. - The "what" of macroeconomic diagnosis and policies in FCS will differ from other countries. - The "how" of the Fund’s interactions with FCS countries will also differ in many cases. ### Macroeconomic Policy in Fragile States (related book and themes) - The book Macroeconomic Policy in Fragile States provides fresh analyses and perspectives from leading economists, academics, and practitioners on fragile and conflict-affected states. - The book: - Explores the consequences of fragility for formulation and implementation of macroeconomic policy in fragile states. - Identifies causes and consequences of fragility. - Serves as a backbone to grasp multifaceted fragility and how to mitigate it via analytical frameworks and case studies. - Policy themes highlighted: - Stabilization policies anchored in fiscal policy, trust, governance, and private sector involvement. - The role of international partners, coordination, and solidarity to tackle fragility. - Political economy issues and corruption as central considerations for stabilization. --- ### Macroeconomic Consequences of Remittances in LMICs and FCS ### Role and scale of remittances - The seminar surveys the growing literature on macroeconomic impact of remittances and policy implications for LMICs and Fragile States, and for Fund policy advice, especially given COVID-19. - Key statistics and comparisons: - In 2019, remittance flows stood at over 500 billion US dollars per year, and amounted to 2 58 percent of GDP on average for all emerging market and developing economies. - Foreign direct investment (FDI) represented 3 percent. - Portfolio investment amounted to nearly 1 percent. - Official transfers (foreign aid) are just over ½ percent. - About 115 countries received remittances equivalent to at least 1 percent of their GDP. - 19 countries received over 15 percent or more. - As of 2018, remittance flows to fragile and vulnerable countries alone reached $350 billion, surpassing foreign direct investment, portfolio investment, and foreign aid as the single most important source of income from abroad. ### Economic properties and policy implications - Known effects of remittances: - Increase household welfare and reduce poverty. - Exhibit lower cyclical volatility compared with private capital or official aid flows; they suffered a much milder contraction following the 2008 global financial crisis. - Serve as a sizeable source of foreign income and a good source of revenue for governments in recipient countries. - Policy focus: - Analyze and forecast remittance flows and their effects on economic, fiscal, and social outcomes. - Consider remittances in crisis-response frameworks, particularly under COVID-19 where losses in remittance income exacerbate shocks in low-income and fragile states. --- ### Public Debt, Investment, and Growth: The DIG and DIGNAR Models (DIGx) ### Course purpose and model structure - The online course explains how to analyze the relation between public investment, growth, and public debt dynamics using: - The Debt, Investment, and Growth (DIG) model. - The Debt, Investment, Growth and Natural Resources (DIGNAR) model. - Course content: - Presents key pieces: the investment-growth nexus, the fiscal adjustment, and the private sector response. - Discusses interactions that help assess macroeconomic effects of public investment scaling-up plans, including effects on growth and debt dynamics. ### Important factors affecting outcomes (as elaborated) - Type of fiscal financing. - Rate of return of public capital. - Efficiency of public investment. - Capacity of governments to mobilize revenues. --- ### Output 2.2 – Uptake by Country Authorities and Courses Offered ### Technical assistance and capacity building in Ghana - Three virtual FPAS TA missions to Ghana (July 2020, September 2020, March 2021) supported: - Development of FPAS capacity at the Bank of Ghana (BoG). - Model-based assessment during MPC cycles amidst the COVID-19 crisis. - Extension of the in-house Quarterly Projection Model (QPM). ### Courses offered to country authorities (selected) - Public Debt, Investment, and Growth. The DIG and DIGNAR Models (DIGx) - As above, explains interactions among public investment, growth, and public debt dynamics. - Are the Remittance Flows Another Casualty of COVID-19? (Joint Vienna Institute and Singapore Training Institute) - Course focus: - Risks and implications of a drop in remittances on economic, fiscal, and social outcomes. - Target audience: officials involved in analyzing and forecasting remittance flows and their effects. - Statistic reiterated: As of 2018, remittance flows to fragile and vulnerable countries alone reached $350 billion. - Macroeconomic Policy in Fragile States (Africa Training Institute) - Presents analyses and perspectives on macroeconomic policy formulation and implementation in FCS. - Fragile States post COVID-19: What Stabilization Policies? (Euro-Mediterranean Economists Association webinar) - Discusses increased fragility in the Middle East and Africa in the context of COVID-19. - Addresses political economy, corruption, and avenues for stabilization anchored in fiscal policy, trust, governance, and private sector involvement. - Questions the role of international partners, coordination, and solidarity. --- ### Output 3.1–3.2 – High-level Policy Conferences and IMF Board Discussions ### High-level events attended by IMF senior staff - COVID-19 Pandemic in Developing Countries (virtual conference, December 2020) - Focus: worsened outlook in some emerging market and low-income economies where infections rose rapidly. - Finding: these economies, excluding China, are projected to incur a greater loss of output over 2020-21 relative to the pre-pandemic projected path when compared to advanced economies. - Policy emphasis: save lives and livelihoods; keep economies stable until widely available vaccine; peer-learning across membership. - Monetary Policy and Inequality: COVID-19 and Beyond (three virtual roundtables, December 2020) - Hosted with Peterson Institute for International Economics (PIIE) and Council on Economic Policies (CEP). - Consensus: COVID-19 profoundly increased inequality; central bank support measures (in addition to fiscal responses and structural reforms) are needed to help the most economically vulnerable. ### Papers discussed by the IMF Executive Board (selected) - Update on the Joint IMF-WB Multipronged Approach to Address Debt Vulnerabilities - Context: rising debt risks in low-income developing countries and emerging markets. - Note: amplification of debt risks owing to COVID-19 increases urgency to implement the multipronged approach (MPA). - Caveat: countries have limited capacities further stretched by COVID-19; MPA implementation alone may not suffice to address debt vulnerabilities from global shocks. - Macroeconomic Developments and Prospects In Low-Income Countries—2021 - Defines LICs as countries eligible to PRGT facilities (69 countries). - Sections: - Recent macroeconomic developments and trends across LICs. - Estimates LICs’ financing needs up to 2025 to resume and accelerate income convergence with advanced economies (AEs), including additional financing to step up spending response to COVID, vaccination needs, rebuilding or keeping external buffers, and financing to accelerate convergence. - Financing mix considered: concessional financing from international financial institutions, grants and loans from bilateral donors, private financing and debt operations, and domestic reforms to foster growth, enhance private investment, raise public revenues, and increase spending efficiency. ### Results reflected in IMF policy papers (selected) - REO Chapter: Adapting to Climate Change in Sub-Saharan Africa - Finding: climate change could reduce GDP growth by at least 1 percentage point in the month a climate shock occurs (on average). - Policy responses: improve access to finance and insurance, education, health, telecommunications, and physical infrastructure; targeted social assistance, crop diversification, and improved irrigation. - Note: measures involve large public spending; development partners’ support will be critical given limited fiscal space. - WEO Box: Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19 - Research by Gabriela Cugat and Futoshi Narita documents: - Number of people in extreme poverty likely to rise substantially in 2020 (first rise in more than 20 years). - Income inequality across these economies could rise back to levels seen in 2008. - Life expectancy less likely to be affected on average, though downside risks exist. - WEO Box 2.2: Education Losses during the Pandemic and the Role of Infrastructure - Finding: education losses were larger in economies with preexisting gaps in infrastructure (access to electricity and internet), constraining remote learning. - Policy implication: remedial measures and international support are essential to prevent scarring of human capital. ### Board presentations (selected) - The COVID-19 Crisis and Low-Income Developing Countries: Impact, Policy Response and Policy Tradeoffs (presentation on July 22) - LIDCs account for one-fifth of world population but only about 4½ percent of global GDP. - Recommendation: countries with limited policy space should front-load containment measures to flatten infection curve and build up health sector capacity, then move to targeted measures when broad containment cannot be sustained. - Departmental Paper for Africa’s Constituency: "Macroeconomic Research in Low-Income Countries: Advances Made In Five Key Areas Through A DFID-IMF Collaboration" - Historical growth: LICs on average saw 4.5 percent of real GDP growth during 2000 to 2014. - Challenges: commodity price collapse in 2014–15 exposed vulnerabilities; COVID-19 creates unprecedented external shock; other challenges include climate change, high public debt burdens, and persistent structural issues. - Briefing on the Outlook for Latin America and the Caribbean (March 30) - Uptake of analysis under the FCDO-IMF research partnership highlighting estimated impacts of the COVID-19 crisis on income inequality in the region. --- ### Output 4.1 – Commissioned Papers (selected) ### Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions - Authors: Daron Acemoglu and Alireza Tahbaz-Salehi. - Core contributions: - Studies how firm failures and resulting supply-chain disruptions can amplify negative shocks. - Develops a non-competitive model with customized supplier-customer relations that increase productivity. - Relationship-specific surplus is divided via bargaining; changes in productivity alter surplus distribution and determine firms at the margin of failure. - Firm failures can spread to suppliers, customers, and other parts of the production network, propagating recessionary shocks. - Provides existence, uniqueness, and comparative statics results showing how equilibrium production network responses propagate shocks. ### Finance, Growth, and Inequality - Author: Ross Levine (Forthcoming IMF Working Paper). - Summary of findings: - Reviews theoretical and empirical research on connections between financial system functioning, economic growth, and income distribution. - Preponderance of evidence suggests: - Financial development—development of banks and stock markets—spurs economic growth. - Better functioning financial systems foster growth primarily by improving resource allocation and technological change, not by increasing saving rates. - Financial development expands economic opportunities and tightens income distribution, primarily by boosting incomes of the poor. - Tentative finding: financial innovation may be necessary for sustaining growth by ameliorating information and transaction costs. *Source: IMF — fcdo-ar-june2021 (Module 6 and related sections of the FCDO-IMF annual report).* ### 3. Is Regional Trade Integration a Growth and Convergence Engine in Africa? ### Is Regional Trade Integration a Growth and Convergence Engine in Africa? ### Summary findings - The main objective of Regional Trade Agreements (RTAs) is to stimulate economic growth in participating countries through increased trade, economies of scale, knowledge and technology transfer. - Using a panel data over the period 1979 to 2018, the paper examines the contribution of regional trade integration (RTI) to economic growth and income convergence in Africa and its major Regional Economic Communities (RECs). - The results of the instrumental variable and panel fixed-effects estimation show that RTI promotes economic growth in Africa. - The results also show that RTI fosters income divergence, reflecting the distribution of the gains from regional integration in favor of the more developed economies of the continent. - The study emphasizes the importance of supporting the African Continental Free Trade Area (AfCFTA) project with policies aimed at reducing non-tariff barriers. ### Empirical approach - Data: panel data covering the period 1979 to 2018. - Econometric methods: - Instrumental variable estimation. - Panel fixed-effects estimation. - Scope: analysis focused on Africa and its major Regional Economic Communities (RECs). ### Key results and interpretation - RTI impact on growth: - Instrumental variable and panel fixed-effects estimates indicate that regional trade integration promotes economic growth in Africa. - RTI impact on convergence: - RTI is associated with income divergence across African countries. - The divergence reflects that gains from regional integration are distributed in favor of the more developed economies within Africa. - Policy implication drawn from results: - Support for the AfCFTA should be coupled with policies that reduce non-tariff barriers to ensure more inclusive distribution of integration gains. --- _Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/annual-reports/fcdo-ar-june2021.pdf_