## FCDO–IMF MRLIC Annual Report (fcdo-ar-june2024) — Key findings, outputs, and recommendations

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### Research production and peer‑reviewed outputs
- Research production targets (By March 2024):
  - H (196 papers)
  - M (192 papers)
  - L (188 papers)
- Actual working papers: 191 (13 in the past year) — exceeded low target.
- Peer‑reviewed acceptances (By March 2024):
  - H (112 papers)
  - M (110 papers)
  - L (108 papers)
- Actual peer‑reviewed acceptances: 113 (8 in the past year) — exceeded high target.
- Key findings from published papers:
  - Substantial welfare costs of increasing tax revenues in low‑income countries, with a disproportionate burden on rural populations.
  - Potential for an additional $32 billion in remittances if transaction costs are reduced to the SDG target of 3%.
  - Liberalizing reforms tend to benefit the richest 10% of national income distributions, increasing within‑country income inequalities.
  - Without improved policy measures, gender disparities in labor force participation may persist indefinitely in a large share of countries.
  - Insecure households are more vulnerable to climate shocks; GDP losses estimated at 2.3% annually in Nepal.
  - Fuel price increases are positively associated with social unrest, particularly in countries with high income inequality and low institutional quality.
- Recommendation:
  - MRLIC should more specifically demonstrate how research outputs have changed IMF policy positions, programming decisions, and policymakers' thinking in LICs; consider more structured measurement of policy impact over the programme lifespan.

### Output 2 — IMF research products used by country teams and authorities
- Scope and score:
  - Output number: 2
  - Output Score: A+
  - Impact weighting (%): 33%
- Indicator 2.1 — Applications by IMF country teams and country authorities:
  - By March 2023 milestone targets:
    - H (225)
    - M (222)
    - L (219)
  - Progress: 223 cumulative (10 in past year) — Met medium target.
  - DIGNAD applications: Benin, Kenya, Rwanda, Moldova, Mauritania, Cameroon, Federated States of Micronesia; used in Resilience and Sustainability Facility lending contexts.
  - Country policy impacts cited:
    - Rwanda: informed sustainable financing strategies for climate investment, showing combinations of domestic revenue mobilisation and improved public investment efficiency can mitigate macroeconomic effects of large‑scale climate investments.
    - Tanzania: tailored analysis illustrated vulnerability to climate shocks and benefits of ex‑ante adaptation investment; informed Tanzania’s request to access the IMF's Resilience and Sustainability Facility.
    - Chad: IMF representatives emphasised redirecting fiscal space from reduced oil subsidies towards infrastructure, education, and climate adaptation during an Article IV mission.
  - Other applications: Guinea Simandou mining project study; enhanced MIMMI App for inequality analyses; Pacific region use of satellite data for high‑frequency surveillance (e.g., shipping activity applied to Solomon Islands).
- Indicator 2.2 — Courses for IMF staff and/or country authorities:
  - By March 2023 milestone targets:
    - H (49)
    - M (47)
    - L (45)
  - Progress: 52 cumulative (9 in past year) — Exceeded high target.
  - Training highlights:
    - ATI/AFS workshop in Pretoria: 33 participants from 11 countries, including 3 fragile states.
    - CMF course in IMF’s Regional Technical Assistance Centre for Southern Africa in Mauritius: 35 participants from 20 countries.
    - Nigeria workshop: 48 attendees from 6 countries.
    - New Climate in Macroeconomic Frameworks (CMF) course introduced; workshops on gender inclusion used the MIMMI App.
- Lessons and recommendation:
  - Progress in explaining government use of MRLIC research; consider more structured measurement of policy impact to better observe progress over the programme lifespan.

### Output 3 — Senior IMF policymaker engagement and policy influence
- Scope and score:
  - Output number: 3
  - Output Score: A
  - Impact weighting (%): 33%
- Indicators 3.1 and 3.2: both met medium target.
- Indicator 3.1 — High level conferences:
  - By March 2023 milestone targets:
    - H (57)
    - M (56)
    - L (55)
  - Progress: 56 cumulative (3 in past year) — Met medium target.
  - Events: poverty conference with Esther Duflo keynote; Climate Action in South Asian Economies seminar series; ASSA 2024 presentations on potential fragmentation of international markets.
- Indicator 3.2 — Research reflected in IMF Board discussion and policy papers:
  - By March 2023 milestone targets:
    - H (64)
    - M (62)
    - L (60)
  - Progress: 62 cumulative (3 in past year) — Met medium target.
  - Contributions:
    - MRLIC research contributed to a Staff Discussion Note on market reforms and public debt dynamics.
    - MRLIC contributions featured in Chapters 1 and 2 of the October World Economic Outlook, including analysis of declining medium‑term global growth expectations and the link between public debt and inflation expectations via the IAPOC index.

### Chapter 2 — Public debt, inflation expectations, and monetary policy frameworks
- Core findings:
  - MRLIC introduced the IAPOC index to measure monetary policy frameworks.
  - Higher public debt, especially foreign currency debt, is associated with higher inflation expectations in emerging market and developing economies.
  - Strong monetary policy frameworks mitigate difficulties of managing inflation expectations under higher public debt.
- Recommendation:
  - Revise indicators to focus on exposure and engagement of senior IMF officials to MRLIC research and capture how much the research influences IMF policy, building on FCDO’s Research & Evidence Directorate monitoring of policy influence.
- Progress: recommendation not clearly addressed during the review year.

### Value for money, costs, and efficiency
- Economy and procurement:
  - MRLIC uses IMF processes and infrastructure; adheres to IMF guidelines for hiring, travel, and conferences; outputs meet Fund publication requirements.
- Efficiency — cost figures (exact):
  - Total Staff/Contractual/VS Costs: $18,538,652
  - Research Paper Costs: $13,903,989
  - Country Applications Costs: $4,634,663
  - Working Papers: 192
  - Cost Per Working Paper: $72,417
  - Published Papers: 113
  - Cost per Published Paper: $123,044
  - Comparison: average cost per published paper ($123,044) is lower than previous estimates in the range of $188,430 (£150,000) per paper.
  - Notes: per paper cost estimates likely overestimate research time costs; include commissioned papers.
- Effectiveness:
  - IMF influence via lending, surveillance, and capacity building; publishing through IMF Working Paper series increases reach.
  - Recommendation: future reports should include data on how outputs are translating into policy reform.
- Equity:
  - MRLIC workstreams on gender inequality, income inequality and distributional analysis have enhanced IMF capacity to assess differential impacts.
  - Tools: MIMMI App used to simulate long-run macro and distributional impacts; analytical underpinning provided to the IMF Gender Mainstreaming Strategy.

### Risk overview and funding outlook
- Overall risk level: minor.
- Risk register last updated: April 2024.
- Main program risk: uncertainty of future budget, negatively affecting recruitment and retention, timely delivery of key outputs, and short- to medium-term planning.
- Funding proposal: one-year funding extension proposed for FY2026 (April 2025 to March 2026) to complete Phase IV projects and explore Phase V ideas; does not address medium-term FCDO funding uncertainty.
- FCDO annual funding decline:
  - Funding dropped from £1.7m annually to £0.8m following UK ODA reductions in 2020 and 2021.
- Operational implications:
  - Instability impedes strategic direction, complicates long-term research initiatives, and makes it difficult to attract and retain contract researchers.
  - Recommendation: consider multi-donor arrangements when planning next phase.

### Programme management, monitoring, and evaluation
- Coordination: regular progress meetings between FCDO and IMF; quarterly output summaries.
- Reporting:
  - Date of last narrative financial report: January 2024
  - Date of last audited annual statement: April 2023
- Monitoring processes:
  - Annual MRLIC IMF reporting of log‑frame outputs to FCDO; quarterly updates and quarterly e-newsletters to more than 1,500 stakeholders.
- Evaluation arrangements:
  - FCDO conducts a yearly evaluation; no budget for external evaluation included.

### Selected working paper highlights and exact numeric findings
- Coping with Climate Shocks: Food Security in a Spatial Framework (calibrated to 51 districts in Nepal):
  - Estimated annual GDP losses from floods, landslides, droughts and storms combined: 2.3 percent.
  - Estimated annual welfare losses for the average household: 3.3 percent.
  - Increased rate of undernourishment: 2.8 percent.
  - Undernourished households experience roughly 50 percent larger welfare losses.
  - Households in remote locations suffer welfare losses roughly two times larger than in less remote locations (5.9 vs 2.9 percent).
  - Counterfactuals: better access to migration and trade builds resilience to climate shocks.
- Monetary Policy Design with Recurrent Climate Shocks (Vimal V Thakoor and Engin Kara):
  - Climate disasters modeled as left‑tail productivity shocks produce a skewed distribution of macro outcomes.
  - Trade‑off for central banks between increased inflation risks and reduced output.
  - Policy recommendation: modify the Taylor rule to give equal weight to responses to both inflation and output growth; adopt a gradual policy response to climate‑exacerbated fluctuations.
- DIGNAD country applications — Rwanda (Selected Issues Paper; RSF context):
  - Full NDC implementation entails sizeable fiscal costs.
  - With appropriate policy and financing mix (Domestic Revenue Mobilization and spending rationalization, improved public investment efficiency), NDC implementation could improve macroeconomic stability and safeguard debt sustainability.
  - RSF reforms increase public investment efficiency and can catalyze additional climate financing, addressing crowding out of other development spending.
- Mauritania — DIGNAD application:
  - Improved public investment efficiency and climate‑adaptive infrastructure increase resilience to climate shocks and reduce output losses.
  - Policy recommendation: prioritise climate‑adapted public investment and strengthen public investment management (PIM).
- Social Unrests and Fuel Prices:
  - Sample: 101 developing countries during 2001-2020.
  - Method: IV fixed‑effect estimator.
  - Finding: changes in fuel prices are positively associated with the number of social unrests (mainly anti‑government demonstrations).
  - Amplifying factors: economic downturns; high exchange rate instability; low government spending on health and education; high income inequality; low institutional quality; high corruption.
  - Policy implication: streamline fuel subsidies and divert parts of reform savings to health and education to appease social tensions.

### Dissemination, uptake, and impact metrics (exact)
- Citations in the financial year: 5,203 citations (a 28 percent increase from the year earlier).
- Share of MRLIC publications cited: 71 percent.
- Average citation count per article: 20.5.
- IMF Working Papers citations total: 1,582 citations.
- Share of citations from organizations with no IMF or FCDO affiliation: 89 percent.
- Geographic reach: cited by over 165 organizations across 52 countries.
- Downloads of MRLIC-related IMF WPs: 176,000 (up 13 percent from 155,000 last year).
- Average downloads per paper: 918.
- Social media circulation: over 1,737 social media posts from 76 different countries (a 15.8 percent increase from 1,500 posts last year).

### Work plan highlights (selected future projects)
- Modelling policy choices:
  - DIGNAR customization for Mozambique (LNG revenue windfalls).
  - Policy reforms for public investment, growth, and debt sustainability in Senegal.
  - Calibrate and extend DIGNAD/DIGNAR for the Freely Associated States (Palau, Federated States of Micronesia, Republic of Marshall Islands).
  - Expand DIGNAD to incorporate energy transition modules; calibrate to Bangladesh and a disaster‑vulnerable representative country.
  - Develop an open economy HANK model relevant to LICs.
- Understanding macro‑financial linkages:
  - Document trends in financial flows to LICs post‑COVID-19; analyze interactions between financial and trade flows.
- Building resilience:
  - Use DIGNAD to support RST/RSF applications (Tanzania, Maldives); calibrate for Kiribati, Senegal, Sao Tome and Principe, South Sudan.
  - Develop macroeconomic framework of climate adaptation and an ETI index (green technology embodied in imports).
  - Papers on climate shocks and domestic debt costs; GVAR with stochastic volatility; remittance costs around natural disasters.
- Promoting structural change and inclusion:
  - Papers on trade barriers in small open economies; allocation of talent across countries; mobile usage and productivity in Benin; MIMMI‑G App for gender analyses; projects on Botswana social transfers and regional food price effects.

### Key programmatic conclusions and recommendations
- The programme reached or exceeded middle targets across seven output indicators in FY2024, with three meeting or exceeding high targets.
- MRLIC provides high‑quality, policy‑relevant research, toolkits (DIGNAD, MIMMI), and capacity development that inform IMF country operations and policy dialogues.
- Primary constraints: funding uncertainty (FCDO disbursements and long‑term financial viability), recruitment and retention challenges, and trade‑offs between commissioned short‑term papers and longer‑term modelling work.
- Recommended actions:
  - Secure multi‑donor financing arrangements for Phase V planning to reduce dependence on single donor uncertainty.
  - Implement more structured measurement of policy influence and senior‑official engagement to document shifts in IMF policy and country programming attributable to MRLIC outputs.
  - Include data on how outputs are translating into policy reform in future reports.

*Source: FCDO Annual Report (June 2024), IMF MRLIC outputs and progress as reported by the programme.*

### 1.1  Number  of  priority  research

### 1.1 Number of priority research

### Research production and targets
- By March 2024:
  - H (196 papers)
  - M (192 papers)
  - L (188 papers)
- Actual: 191 (13 in the past year) — exceeded low target.

### Peer‑reviewed acceptances (Output 1.2)
- By March 2024:
  - H (112 papers)
  - M (110 papers)
  - L (108 papers)
- Actual: 113 (8 in the past year) — exceeded high target.
- Narrative: MRLIC had eight papers accepted for publication in peer‑reviewed journals during the year, bringing cumulative acceptances to exceed the high target.

### Key findings from published papers
- Substantial welfare costs of increasing tax revenues in low‑income countries, with a disproportionate burden on rural populations.
- Potential for an additional $32 billion in remittances if transaction costs are reduced to the SDG target of 3%.
- Liberalizing reforms tend to benefit the richest 10% of national income distributions, leading to increased within‑country income inequalities.
- Without improved policy measures, gender disparities in labor force participation may persist indefinitely in a large share of countries.
- Insecure households are more vulnerable to climate shocks; GDP losses estimated at 2.3% annually in Nepal.
- Fuel price increases are positively associated with social unrest, particularly in countries with high income inequality and low institutional quality.

### Progress, lessons learned, and recommendations (research output)
- Progress:
  - MRLIC continued to produce high‑quality, relevant research on issues affecting LICs and is expected to continue doing so under the workplan.
  - FCDO and IMF are working on an extension to the programme to allow time for substantive outputs on lessons learned and future macroeconomic research avenues.
- Recommendation:
  - While academic impact is demonstrated via citations and social media circulation, MRLIC could more specifically demonstrate how research outputs have changed IMF policy positions, programming decisions, and policymakers' thinking in LICs. Consider more structured measurement of policy impact over the programme lifespan.

---

### Output 2 — IMF research products used by country teams and authorities

### Scope and score
- Output number: 2
- Output Score: A+
- Impact weighting (%): 33%
- Weighting revised since last AR? No

### Activities and evidence of use
- Indicator 2.1: Applications by IMF country teams and country authorities
  - By March 2023 milestone:
    - H (225)
    - M (222)
    - L (219)
  - Progress: 223 cumulative (10 in past year) — Met medium target.
  - Applications of the DIGNAD model include Benin, Kenya, Rwanda, Moldova, Mauritania, Cameroon, and the Federated States of Micronesia, primarily in the context of Resilience and Sustainability Facility lending programmes.
  - Policy impacts cited:
    - Rwanda: model informed sustainable financing strategies for climate investment, showing combinations of domestic revenue mobilisation and improved public investment efficiency can mitigate macroeconomic effects of large‑scale climate investments.
    - Tanzania: tailored analysis illustrated vulnerability to climate shocks and benefits of ex‑ante adaptation investment; informed Tanzania’s request to access the IMF's Resilience and Sustainability Facility.
    - Chad: IMF representatives emphasised redirecting fiscal space from reduced oil subsidies towards infrastructure, education, and climate adaptation during an Article IV mission.
  - Other applications: Guinea Simandou mining project study; enhanced MIMMI App for inequality analyses; Pacific region use of satellite data for high‑frequency economic surveillance (e.g., shipping activity applied to Solomon Islands).

- Indicator 2.2: Courses for IMF staff and/or country authorities
  - By March 2023 milestone:
    - H (49)
    - M (47)
    - L (45)
  - Progress: 52 cumulative (9 in past year) — Exceeded high target.
  - Training and workshops:
    - ATI/AFS workshop in Pretoria: 33 participants from 11 countries, including 3 fragile states.
    - CMF course in IMF’s Regional Technical Assistance Centre for Southern Africa in Mauritius: 35 participants from 20 countries.
    - Nigeria workshop: 48 attendees from 6 countries.
    - Courses targeted officials from central banks, ministries of finance and environment, and government think tanks.
    - New Climate in Macroeconomic Frameworks (CMF) course introduced; workshops on gender inclusion used the MIMMI App.

### Lessons and recommendation (Output 2)
- Progress made in explaining how MRLIC research is used by government officials to inform policy choices.
- Recommendation: Consider more structured measurement of policy impact to better observe progress over the life span of the programme.

---

### Output 3 — Senior IMF policymaker engagement

### Scope and score
- Output number: 3
- Output Score: A
- Impact weighting (%): 33%
- Weighting revised since last AR? No

### Activities and evidence of high‑level engagement
- Both indicators 3.1 and 3.2 met the medium target.

- Indicator 3.1: High level conferences
  - By March 2023 milestone:
    - H (57)
    - M (56)
    - L (55)
  - Progress: 56 cumulative (3 in past year) — Met medium target.
  - Events:
    - Conference "Addressing the Hidden Dimensions of Poverty in Knowledge and Policies" organised jointly by IMF Research Department, International Movement ATD Fourth World, and World Bank Poverty Global Practice; featured a multi‑year project and a keynote by MIT Professor Esther Duflo.
    - Series of high‑level seminars, policy dialogues, and peer learning events on Climate Action in South Asian Economies.
    - Participation at ASSA 2024 meetings presenting research on potential fragmentation of international markets and implications for low‑income countries and foreign direct investment patterns.

- Indicator 3.2: Research reflected in IMF Board discussion and policy papers
  - By March 2023 milestone:
    - H (64)
    - M (62)
    - L (60)
  - Progress: 62 cumulative (3 in past year) — Met medium target.
  - Contributions:
    - MRLIC research contributed to a Staff Discussion Note on market reforms in EMDEs showing structural reforms can reduce debt‑to‑GDP ratios via higher fiscal revenues and lower borrowing costs.
    - MRLIC research contributed to Chapters 1 and 2 of the October World Economic Outlook, highlighting a declining trend in medium‑term global growth expectations since the 2008 financial crisis, attributed mainly to lower total factor productivity growth, reduced labour force participation, and decreased capital deepening, with significant implications for income convergence between advanced and developing economies.

---

*Source: FCDO Annual Report (June 2024), IMF MRLIC outputs and progress as reported by the programme.*

### Chapter 2 MRLIC’s contribution examines the relationship between public debt and inflation

### Chapter 2 MRLIC’s contribution examines the relationship between public debt and inflation expectations

### MRLIC findings on public debt, inflation expectations, and monetary policy frameworks
- The MRLIC contribution examines the relationship between public debt and inflation expectations, introducing the IAPOC index to measure monetary policy frameworks.
- The research indicates that higher public debt, especially foreign currency debt, is associated with higher inflation expectations in emerging market and developing economies.
- The findings emphasize the importance of strong monetary policy frameworks in managing inflation expectations.
- MRLIC involvement resulted in an increased focus on LICs which would have otherwise been overlooked in reports prior to the programme.

### Progress on previous recommendations and forward-looking recommendation
- Recommendation: Revise indicators to focus on exposure and engagement of senior IMF officials to MRLIC research and capture how much the research influences IMF policy, building on FCDO’s Research & Evidence Directorate monitoring of policy influence.
- Progress reported: This recommendation has not been clearly addressed during the review year. While the output has performed well, more work can be done to demonstrate and systematically capture shifts in IMF positions or policies based on MRLIC output.

### Value for money: economy, efficiency, effectiveness, and equity
- Economy
  - The MRLIC programme uses IMF processes and infrastructure to ensure high-quality research outputs at reasonable cost and efficient routes for research uptake.
  - MRLIC follows IMF guidelines for hiring, travel, and conferences; contractual employees undergo competitive processes; outputs must meet Fund publication requirements; papers are further evaluated when submitted to peer-reviewed publications.
- Efficiency (cost figures)
  - Total Staff/Contractual/VS Costs: $18,538,652
  - Research Paper Costs: $13,903,989
  - Country Applications Costs: $4,634,663
  - Working Papers: 192
  - Cost Per Working Paper: $72,417
  - Published Papers: 113
  - Cost per Published Paper: $123,044
  - Note: 1) Estimated as the sum of the first two lines of Table 3; the first line of Table 3 includes both IMF staff salary and travel expenses. Thus, the per paper cost estimates likely overestimate the true cost of research time. 2) These include commissioned papers.
  - Comparison: The average cost per published paper ($123,044) is lower than previous estimates of average paper costs from somewhat similar research programmes which give figures in the range of $188,430 (£150,000) per paper.
- Effectiveness
  - The IMF influences macroeconomic policymaking in Low-Income Countries through lending programmes, surveillance and capacity building; MRLIC's effectiveness rests on its ability to influence IMF policy and practice (through Board papers, policy papers, etc.).
  - Publishing through the IMF Working Paper series helps increase research reach and contributes to the global public good.
  - Recommendation for future reports: include data on how outputs are translating into policy reform.
- Equity
  - MRLIC workstreams on gender inequality, income inequality and distributional analysis have had particular traction and enhanced the IMF's ability to assess differential impacts of policy recommendations.
  - Examples: MRLIC provided analytical underpinning of the IMF Gender Mainstreaming Strategy, and the Multi-sector Incomplete Markets Macro Inequality (MIMMI) App to simulate long-run macro and distributional impacts of policies and shocks.

### Risk overview and funding outlook
- Overall risk level: minor.
- The risk register is regularly updated and was last updated in April 2024.
- Main program risk: uncertainty of future budget, negatively affecting recruitment and retention, timely delivery of key outputs, and short- to medium-term planning.
- Risk dimensions noted:
  - External context: Most research carried out at IMF headquarters using secondary datasets, limited exposure to LIC contexts.
  - Delivery: Established delivery systems with high delivery over an extended period; demand remains high.
  - Operational: Experienced management at FCDO and IMF.
  - Fiduciary: All funds spent directly by the IMF under extensive IMF financial management controls.
  - Reputational: Little or no reputational risk.
  - Innovation: Limited innovation risks.
  - Safeguarding: Activities rarely involve contact with vulnerable persons; external researchers managed per IMF procedures.
- Due diligence: A Central Assurance Assessment (CAA) of the IMF conducted by FCDO in December 2021 confirmed IMF as a low-risk partner; a light touch due diligence was conducted in July 2023 mostly drawn from the CAA.
- Funding proposal: A one-year funding extension is proposed for FY2026 (April 2025 to March 2026) to complete Phase IV projects and explore ideas for a potential Phase V; this extension does not address substantial medium-term FCDO funding uncertainty or MRLIC financial viability.

### Programme management, financial performance, and operational constraints
- FCDO annual funding decline:
  - Funding dropped from £1.7m annually to £0.8m following UK ODA reductions in 2020 and 2021.
  - This reduction posed risks to programme impact, threatening core operational costs, especially personnel and knowledge dissemination.
- Operational effects of funding uncertainty:
  - Instability impedes strategic direction, complicates long-term research initiatives requiring stable resources, and makes it difficult to attract and retain contract researchers.
  - Institutional constraints at the IMF regarding external funding management may complicate restoring FCDO contributions to previous levels, potentially limiting LIC-focused research capacity.
  - As plans for the next phase are developed, careful consideration of multi-donor arrangements is recommended.
- Coordination and controls:
  - Coordination between FCDO and IMF remains strong with regular progress meetings and quarterly output summaries.
  - Rigorous procurement and quality control processes adhere to IMF standards; outputs undergo thorough vetting including peer review.
  - Majority of funds directed to research activities by IMF staff and external experts.
- Evaluation and reporting:
  - The evaluation was conducted by the FCDO program team, the Economic Advisor (PRO) and Deputy Programme Manager, under guidance of senior leadership in the Economic Growth Research Team.
  - At year-end MRLIC IMF reports outputs in the log-frame to FCDO; quarterly updates and quarterly e-newsletters reach an audience of more than 1,500 academics, policymakers, central bank staff, and government representatives.
  - No budget for an external evaluation was included in the project budget.
  - Date of last narrative financial report: January 2024
  - Date of last audited annual statement: April 2023

### Selected working paper summaries (Output 1.1)
- Topic 1. Modelling and understanding policy choices
  - Panel Nowcasting for Countries Whose Quarterly GDPs are Unavailable (Omer Faruk Akbal, Seung M Choi, Futoshi Narita, and Jiaxiong Yao)
    - Summary: Proposes a panel approach using statistical relationships from countries with quarterly GDP data to estimate quarterly GDP for more than 60 developing economies lacking such statistics, including about 20 countries in sub-Saharan Africa and more than two-thirds of fragile and conflict-affected states; leverages readily available indicators to provide real-time insights.
  - Strengthening Monetary Policy Frameworks in the Caucasus and Central Asia (Tigran Poghosyan et al.)
    - Summary: Reviews CCA monetary policy landscape amid post-COVID inflation and spillovers from Russia’s war in Ukraine; notes inflation peaked in early 2023 but still exceeds central bank targets; core inflation remains stubbornly high; CCA countries have strengthened legal frameworks and de-jure independence, with Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, and Uzbekistan transitioning to inflation targeting regimes, and Azerbaijan, Tajikistan, and Turkmenistan relying on exchange rate operational targets; highlights limitations of current frameworks and areas for strengthening.
  - Monetary Policy Frameworks and Communication in the Caucasus and Central Asia (Omer Faruk Akbal et al.)
    - Summary: Documents progress using the IAPOC index developed by Unsal and others (2022) covering Independence and Accountability, Policy and Operational Strategy, and Communications; analyzes central bank press releases to evaluate features, content, and tone; finds need for further improvements in Independence and Accountability and in Communications despite recent advancements.
- Topic 2. Understanding macro-financial linkages
  - Financial Stress and Economic Activity: Evidence from a New Worldwide Index (Hites Ahir et al.)
    - Summary: Constructs a continuous financial stress index (FSI) for 110 countries over each quarter during 1967-2018 using text analysis with human expert oversight; indicator has larger country/time coverage and higher frequency than similar measures; main findings: i) economically significant and persistent relationship between financial stress and output; ii) effect larger in emerging markets and developing economies; iii) effect larger for higher financial stress levels; iv) OLS tends to overestimate magnitude relative to a novel instrument—financial stress originating from other countries; v) exogenous effects confirmed via difference-in-differences with larger effects for financially constrained and less profitable firms.
  - Mobile Internet, Collateral, and Banking (Angelo D’Andrea et al.)
    - Summary: Using administrative credit data, internet penetration, and a land reform in Rwanda, shows complementarity between technology and law can overcome financial frictions; quasi-experimental variation in 3G availability from lightning strikes and incidental coverage shows mobile connectivity moves borrowers from microfinance to commercial banks and improves loan terms; collateral availability mediates 35% of the overall effect of mobile internet on credit and 80% for collateralized loans.
- Topic 3. Building resilience
  - Coping with Climate Shocks: Food Security in a Spatial Framework (Diogo Baptista, John A Spray, and Filiz D Unsal)
    - Summary: Develops a quantitative spatial general equilibrium model with heterogeneous households and multiple locations to study vulnerability to food insecurity from climate shocks; households cope via asset drawdowns, food imports, and temporary migration; remote households and food insecure households are more vulnerable. Calibrated to 51 districts in Nepal:
      - Estimated annual GDP losses from floods, landslides, droughts and storms combined: 2.3 percent.
      - Estimated annual welfare losses for the average household: 3.3 percent.
      - Increased rate of undernourishment: 2.8 percent.
      - Undernourished households experience roughly 50 percent larger welfare losses.
      - Households in remote locations suffer welfare losses roughly two times larger than in less remote locations (5.9 vs 2.9 percent).
      - Counterfactual simulations show better access to migration and trade builds resilience to climate shocks.

*Source: MRLIC programme evaluation and working paper summaries as presented in Chapter 2 of the MRLIC annual report.*

### 6.   Monetary Policy Design with Recurrent Climate Shocks

### Monetary Policy Design with Recurrent Climate Shocks

### Summary and framing
- Authors: Vimal V Thakoor and Engin Kara.
- Context: Climate change intensifies frequency and severity of climate-induced disasters; these are modeled as left-tail productivity shocks with a quantified likelihood, producing a skewed distribution of outcomes.
- Model: A New Keynesian Dynamic Stochastic General Equilibrium model that conceptualizes climate disasters as left-tail productivity shocks.

### Key findings
- Recurrent climate-induced disasters generate a skewed distribution of macroeconomic outcomes, creating a trade-off for central banks between:
  - increased inflation risks, and
  - reduced output.
- The skewed risk profile makes policy responses to climate shocks distinct from symmetric shocks typically assumed in standard models.
- Model results indicate a preference for a gradual policy response to fluctuations exacerbated by climate shocks.

### Policy recommendations
- Modify the Taylor rule to give equal weight to responses to both inflation and output growth.
- Adopt a gradual approach to responding to climate-exacerbated economic fluctuations rather than aggressive accommodation or abrupt tightening.

### Implications for monetary frameworks
- Central banks face a material trade-off under recurrent climate shocks that requires rethinking policy rule parameters to balance inflation stabilization and output stabilization on equal footing.
- Incorporating the quantified likelihood and left-tail nature of climate shocks into policy design improves alignment between monetary policy and the asymmetric risks posed by climate change.

*From "Monetary Policy Design with Recurrent Climate Shocks" by Vimal V Thakoor and Engin Kara, IMF.*

### 3.   Rwanda –   DIGNAD country application in the context of the RST facility (Selected Issues

### 3. Rwanda – DIGNAD country application in the context of the RST facility (Selected Issues Paper)

### Summary
- The authors illustrate macroeconomic impacts of planned climate focused projects and reforms and discuss sustainable financing strategies.
- Simulations using the IMF’s Debt-Investment-Growth-Natural-Disasters (DIGNAD) model suggest that full NDC implementation has sizeable fiscal costs but could improve Rwanda’s macroeconomic stability if accompanied by proper policy and financing mix.
- Domestic Revenue Mobilization (DRM) and spending rationalization are key to increasing fiscal space and safeguarding debt sustainability.
- Advancing reforms under the Resilience and Sustainability Facility (RSF) would increase public investment efficiency and help catalyze additional climate financing, thereby addressing the risk of crowding out other development spending.

### Macroeconomic impacts and model findings
- DIGNAD simulations indicate:
  - Full NDC implementation entails sizeable fiscal costs.
  - With an appropriate policy and financing mix, NDC implementation could improve macroeconomic stability.
- Emphasis on the role of the DIGNAD model in illustrating trade-offs between climate adaptation/investment and macro-fiscal outcomes.

### Fiscal strategy and recommendations
- Key policy measures identified:
  - Strengthen Domestic Revenue Mobilization (DRM).
  - Implement spending rationalization to increase fiscal space.
  - Safeguard debt sustainability through a balanced financing mix for climate investments.

### Role of RSF reforms and investment efficiency
- RSF reforms would:
  - Increase public investment efficiency.
  - Help catalyze additional climate financing.
  - Address the risk of crowding out other development spending by improving the efficiency and targeting of public investment.

### Key policy implications
- Full NDC implementation requires careful coordination of policy and financing choices to avoid adverse fiscal and debt outcomes.
- DRM and spending rationalization are central to creating the fiscal space needed for climate investments while maintaining debt sustainability.
- Prioritizing public investment management reforms under RSF can both enhance resilience and attract external finance, reducing pressure on domestic fiscal resources.

*Source: IMF — fcdo-ar-june2024, "Rwanda – DIGNAD country application in the context of the RST facility (Selected Issues Paper)".*

### 2.   Climate                Action                in                South                Asian                Economies

### 2.   Climate Action in South Asian Economies

### Event overview and objectives
- The Research Department and the Strategy and Policy Review Department funded a series of high-level seminars, policy dialogues, and peer learning events on Climate Action in South Asian Economies.
- Events were organized collaboratively by three IMF departments: Asia and Pacific, Research, and Institute for Capacity Development.
- The seminar series was hosted by IMF SARTTAC and the Center for Social and Economic Progress in New Delhi on July 20.
- The peer learning event aimed at strengthening the policy dialogue on how to mainstream climate action in macroeconomic management, while considering the challenges faced by countries in the region, including low-income countries Maldives and Nepal.
- The event discussed how the IMF has been incorporating climate throughout all branches of its work: country surveillance, capacity development, and research, and how countries in the region are developing their climate strategies.

### Key participants and speakers
- Keynote addresses were given by:
  - Bo Li (Deputy Managing Director, IMF)
  - Krishna Srinivasan (Director, Asia and Pacific Department, IMF)
  - Vitor Gaspar (Director, Fiscal Affairs Department, IMF)
  - Antonio Spilimbergo (Deputy Director, Research Department, IMF)
  - Anantha Nageswaran (Chief Economic Advisor, Government of India)
  - Rajeshwa Rao (Deputy Governor, Reserve Bank of India)
  - Abdur Rouf Talukder (Governor, Bangladesh Bank)
  - Professor Lord Nicholas Stern (Chair of the Centre for Climate Change Economics and Policy and IG Patel Professor of Economics and Government at the London School of Economics)
  - among others.

### Technical sessions and analytical tools
- Two technical sessions provided hands-on experience with IMF-developed tools:
  - (i) DIGNAD — used to assess how ex ante adaptation infrastructure helps manage natural disaster risk and better ensure debt sustainability.
  - (ii) Natural Disasters for the Debt Dynamic Tool — used to develop baseline and alternative scenarios on debt sustainability in the face of natural disasters.

### Themes and policy relevance
- Mainstreaming climate action in macroeconomic management:
  - Integrating climate considerations into country surveillance, capacity development, and research.
  - Designing climate strategies tailored to regional challenges, including those specific to low-income countries in South Asia.
- Managing natural disaster risk and public debt dynamics:
  - Using scenario analysis tools (DIGNAD; Natural Disasters for the Debt Dynamic Tool) to evaluate how adaptation infrastructure and disaster shocks alter debt sustainability trajectories.

---

### 3.   Session ASSA 2024: The End of Globalization? Exploring the Drivers and Effects of Geopolitical Fragmentation

### Session summary and themes
- Organized by the IMF Research Department’s Development Macroeconomics and Multilateral Surveillance Divisions, together with researchers from the IMF Africa Department.
- Chaired by Linda Goldberg (Federal Reserve Bank of New York).
- The well-attended session (approximately 60 audience members) presented evidence of increased fragmentation of international markets for goods and financial assets.
- Papers by the IMF discussed potential implications of fragmentation for low-income countries and for the patterns of FDI.
- Contributions from the European Central Bank and academia (Princeton, Stanford) highlighted:
  - Potential global fallout from trade fragmentation.
  - New models for assessing policy to enhance supply-chain resilience.
- The session included formal discussants (policy practitioners and academics) and a lively audience Q&A.

---

### Output 3.2 — Results reflected in IMF policy papers (examples listed)
- Fiscal Monitor/WEO/REO/SDN outputs highlighted in the source include:
  1. Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies
     - Empirical analysis based on 62 EMDEs over 1973-2014 shows reforms are associated with sizeable and long-lasting reductions in the debt-to-GDP ratio mainly through higher fiscal revenues and lower borrowing costs.
     - Effects are larger in countries with greater tax efficiency, lower informality, and higher initial debt.
     - Model-based analysis shows fiscal gains can be enhanced when revenue windfalls associated with reforms are saved or channeled through higher public investment.
  2. World Economic Outlook—October 2023: Chapter 1: Global Prospects and Policies
     - Box 1.1 analyzes declining growth expectations for the global economy over the medium term, a trend observed since the 2008 global financial crisis and exacerbated by the economic shocks of 2020-22 (COVID-19 pandemic and the Russian invasion of Ukraine).
     - Decline in per capita output growth is mainly due to lower total factor productivity growth, followed by declines in labor force participation and capital deepening.
  3. World Economic Outlook—October 2023: Chapter 2: Managing Expectations: Inflation and Monetary Policy
     - Box 2.2 shows that higher public debt is associated with expectations of higher inflation, given a specific level of monetary policy framework, captured by the IAPOC index developed by Unsal, Papageorgiou, and Garbers (2022).
     - Impact is more evident for public debt in foreign currency and when fiscal deficits are persistent; strong monetary policy frameworks can ease difficulties posed by higher public debt for managing inflation expectations in EMDEs.

---

### Annex: Other outputs and dissemination activities (selected)
- Newsletters: June 2023; September 2023; December 2023; March 2024.
- Blogs/articles: IMF Blog entries including “Market Reforms Can Stabilize Debt and Foster Growth in Developing Countries” and “Countries That Close Gender Gaps See Substantial Growth Returns.”
- External presentations (selected):
  - “A Monetary Policy Framework for Low Income Countries” presented at the Annual Conference of the Banco Central do Brasil on May 18, 2023.
  - “Macroeconomic Framework of Climate Adaptation” presented at the 2023 Annual Meeting of the Society for Economic Dynamics in June 2023 and at the International Economic Association 2024 World Congress in December 2023.
  - “Divided We Fall: Differential Exposure to Geoeconomic Fragmentation in Trade” presented at the ASSA Meetings in January 2024.
  - “Natural Disasters and the Cost of Public Debt: An Empirical Assessment” presented at multiple venues in June–July 2023 and at the 29th Ulvön Conference on Environmental Economics.

*Prepared by the Staff of the Research and Strategy, Policy and Review Departments (excerpted content).*

### 2.  OVERVIEW OF THE YEAR

### 2. OVERVIEW OF THE YEAR

### Progress and achievements
- Financial year 2024 (April 2023 to March 2024) marked the 12th year of MRLIC operations.
- The FCDO-IMF partnership continued delivering high-quality and policy-relevant research, models, and toolkits to inform macroeconomic policymaking in low-income countries (LICs) facing low growth prospects, high debt levels, tight global financial conditions, climate change, and inequality.
- The program reached or exceeded middle targets in all seven output indicators, with three meeting or exceeding the high targets.
- Contribution to IMF high-level policy documents:
  - MRLIC staff contributed to a Staff Discussion Note (SDN), “Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economics”.
  - Two MRLIC-prepared boxes featured in the October 2023 World Economic Outlook: one on strong monetary policy easing public debt levels; one on declining growth expectations for the global economy over the medium term and implications for poorer countries’ catch-up.
- Support to IMF country operations and Article IV consultations:
  - Six country applications of the Debt, Investment, Growth, and Natural Disasters (DIGNAD) model in the context of the Resilience and Sustainability Facility (RSF).
  - Two Selected Issues Papers for the Federated States of Micronesia and the Solomon Islands on (i) investment and growth resilience and (ii) big-data and high-frequency surveillance methods.
  - Applications of the MIMMI App in Article IV consultations for Guinea and Chad to assess macro-inequality impacts of feasible development policies under climate change; MIMMI used to analyze Simandou mega-mining project impacts in Guinea.
- Capacity development:
  - MRLIC staff organized nine training events for officials and IMF staff and developed a user’s guide to the DIGNAD model.
  - Training topics included climate change and macro-financial policies, courses on climate in macroeconomic frameworks, and a regional workshop on gender and inequality.
- Policy conferences:
  - A poverty conference (organized with International Movement ATD Fourth World and the World Bank) with keynote by Esther Duflo and participation by Ceyla Pazarbasioglu and Olivier de Schutter.
  - A conference on Climate Action for South Asian Economies with keynote addresses by Bo Li, Krishna Srinivasan, Vitor Gaspar, and Antonio Spilimbergo; included technical sessions on DIGNAD and the Natural Disasters for the Debt Dynamic Tool.
  - A MRLIC session at ASSA 2024, ‘The End of Globalization? Exploring the Drivers and Effects of Geopolitical Fragmentation’, with two IMF presenters and one IMF discussant.
- Publications and presentations:
  - 14 papers published in the IMF Working Paper series.
  - 8 papers published in peer-reviewed academic journals.
  - Two IMF blogs, including one co-authored with Antoinette Monsio Sayeh and Rishi Goyal on macroeconomic benefits of closing gender gaps.
  - 15 external presentations at the IMF-World Bank Annual Meetings and other major academic and policy institutions.
- Endorsements:
  - Catherine Pattillo, Deputy Director, IMF African Department, highlighted MRLIC’s analytic support to African countries across fiscal/monetary policy, debt-investment-growth nexus, climate change, and inequality.
  - Guillaume Chabert, Deputy Director, IMF Strategy, Policy, and Review Department, noted MRLIC’s contributions to IMF policies for LICs and the usefulness of MRLIC-developed models and toolkits for country-specific policy advice.

### Highlights of five broad research topics
- (i) Modeling and understanding policy choices
  - Three papers: panel nowcasting for countries without quarterly GDP series; strengthening monetary policy frameworks in the Caucasus and Central Asia; welfare costs and inequality implications of fiscal policy (published in The Economic Journal).
- (ii) Understanding macro-financial linkages
  - Three papers: significant persistent relationship between financial stress and output (larger effects in EMDEs); positive effects of mitigating financial barriers via technology and legal reforms in Rwanda; elasticity of remittances to transaction costs showing reducing costs could generate an additional US$32 billion in remittances (published in World Development).
- (iii) Building resilience
  - Three papers: food insecurity from climate shocks and roles of migration/trade for households near subsistence; trade-offs faced by central banks responding to escalating climate-induced disasters; inflation targeting as optimal framework for central banks facing natural disaster shocks (latter published in International Economic Review).
- (iv) Promoting structural change and institutional development
  - Five papers: fuel price increases and social unrest (suggest redirection of fuel subsidies to health and education); capital flow regulations’ effects on technological intensity of imports, investment, and real GDP per capita; impact of trade fragmentation with larger effects in resource-scarce countries; resource misallocation/policy distortions on income per capita and total factor productivity disparities; two databases for electoral impacts of structural reforms (last two published in European Economic Review and Journal of the European Economic Association).
- (v) Enhancing inclusion
  - Six papers: cross-country heterogeneity in remote work during COVID-19 and ties to education; higher digital usage in Sub-Saharan Africa and support for gender equality in political leadership; benefits of higher taxes on Guinea's extractive sector showing investments in human capital, infrastructure, and social transfers can foster growth, formalize labor, reduce poverty, and address inequality; macroeconomic convergence tools for global distribution of gender gaps calling for enhanced policy efforts; rising within-country inequality due to globalization; forthcoming paper on 40 years of convergence empirics supporting multiple convergence clubs rather than absolute convergence (published outlets include The Journal of Economic Inequality, Economics Letters, and Oxford Handbook of Income Distribution and Economic Growth).

### Challenges and opportunities
- Budget and staffing constraints:
  - Phase IV is ending; tight budget and funding uncertainties have made recruiting full-time contractual staff difficult.
  - Increasing use of commissioned papers from external academics has engaged diverse expertise but favored short-term one-off projects over complex modeling, toolkits, and long-term workstreams.
- Strategic planning:
  - Discussions on a one-year bridging extension and the Phase V proposal present opportunities to rethink MRLIC focus; a workshop of academics and policymakers will be organized during the one-year extension to review thematic coverage.
  - Ongoing IMF–FCDO discussions aim to align views on MRLIC’s future given LICs’ macroeconomic and structural challenges: low growth prospects, heightened geopolitical tensions, trade fragmentation, high-debt levels, climate change, and social tensions.

### Log-frame outputs and measurable results
- Project four-pronged goals:
  1. Produce high quality, policy-relevant research on macroeconomic issues affecting LICs.
  2. Promote and increase usage of IMF research products by IMF country teams and partner authorities.
  3. Strengthen engagement by senior IMF policymakers on issues affecting LICs.
  4. Strengthen capacity-building by expanding the network of LIC researchers.
- FY2024 performance:
  - Reached or exceeded middle targets in all seven output indicators; three met or exceeded high targets.
  - Output 1: 14 working papers and 8 papers published in peer-reviewed journals.
    - Output 1.1 Working Papers listed across five topical areas (titles enumerated in the research output list).
    - Output 1.2 Published Papers: 8 items across the five topical areas with outlets specified (The Economic Journal; World Development; International Economic Review; European Economic Review; Journal of the European Economic Association; The Journal of Economic Inequality; Economic Letters; Oxford Handbook of Income Distribution and Economic Growth, forthcoming).
  - Output 2: IMF research products used by authorities and IMF country teams
    - 10 instances of uptake by country authorities and IMF country teams of project outputs.
    - 9 courses offered to country authorities and IMF staff.
    - Output 2.1 Country applications included DIGNAD applications for Benin; Kenya; Rwanda; Republic of Moldova; Mauritania; Cameroon; and applications for Federated States of Micronesia, Guinea (Simandou project), Solomon Islands (big-data and high-frequency surveillance), and a development policies presentation for Chad.
    - Output 2.2 Courses and training events (9 listed, including user’s guide to DIGNAD; regional and thematic workshops; Course on Climate in Macroeconomic Frameworks at ATI and IMF; Community of Practice virtual workshop; Regional Workshop on Gender and Inclusion).
  - Output 3: Strengthen engagement by senior IMF policymakers
    - Organized and contributed to 3 high-level policy conferences involving IMF senior staff.
    - Contributed to 3 outputs discussed at the IMF Executive Board.

*Source: MRLIC annual report, Financial year 2024 (FCDO–IMF partnership).*

### 1.   ATD/IMF/WB Poverty conference -  Addressing the Hidden Dimensions of Poverty in

### ATD/IMF/WB Poverty conference -  Addressing the Hidden Dimensions of Poverty in Knowledge and Policies

### Research outputs and policy influence
- Outputs reflected in IMF policy papers, Board papers, SDNs, and policy memos to management:
  - Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies
  - World Economic Outlook—October 2023: Chapter 1: Global Prospects and Policies
  - World Economic Outlook—October 2023: Chapter 2: Managing Expectations: Inflation and Monetary Policy
- Thematic area made LIC-specific:
  - Nowcasting: Panel Nowcasting for Countries Whose Quarterly GDPs are Unavailable

### External presentations and dissemination
- Presentations and workshops where MRLIC work was presented:
  - “A Monetary Policy Framework for Low Income Countries” at the Annual Conference of the Banco Central do Brasil on May 18, 2023.
  - Analytical Corner “Distributional Impacts of External Food Price Shocks to Low-Income Countries” during the October 2023 Annual Meetings of the IMF and the World Bank.
  - Royal Economic Society Annual Conference special session on April 3, 2023.
  - Society of Economics Dynamics in June 2023.
  - 2023 Annual Meeting of the Society for Economic Dynamics in June 2023.
  - International Economic Association 2024 World Congress in December 2023.
  - ASSA Meetings in January 2024.
  - CCAMTAC Seminar Series in February 2024.
  - Workshop on IMF book at October 2023 Annual Meetings of the IMF and the World Bank.
  - Mini-conference on mining revenues on August 2, 2023.
  - 1st Women in Macroeconomics, Law, and Economics Workshop in June 2023.
  - 29th Ulvön Conference on Environmental Economics; Macro Development Workshop 2023 in July 2023.
  - Research Therapy Workshop organized by the African Department of the IMF in December 2023.
  - Presentation on IMF assistance to optimize extractive industry revenues on July 18, 2023.

### Uptake, engagement, and capacity development
- Citations, downloads, and mentions:
  - Total citations in the financial year: 5,203 citations (a 28 percent increase from the year earlier).
  - Share of MRLIC publications cited: 71 percent.
  - Average citation count per article: 20.5.
  - IMF Working Papers citations total: 1,582 citations.
  - Share of citations from organizations with no IMF or FCDO affiliation: 89 percent.
  - Geographic reach: cited by over 165 organizations across 52 countries.
  - Downloads of MRLIC-related IMF WPs increased by 13 percent (from 155,000 downloads last year to 176,000), with an average of 918 downloads per paper.
  - Social media circulation: over 1,737 social media posts from 76 different countries (a 15.8 percent increase from the 1,500 posts last year).
  - Example social media reach:
    - “Building Back Better: How Big are Green Spending Multipliers?” by Batini and others reached an audience of up to 60,146 followers through retweets and mentions.
    - “Loss-of-Learning and the Post-Covid Recovery in Low-Income Countries” by Buffie and others reached an audience of up to 230,254 followers through social media mentions.
- Participant feedback on capacity development:
  - High ratings on knowledge of instructors, willingness to encourage discussion, and effectiveness in leading workshops.
  - Peer-to-peer exchange format found useful for engagement and country experience sharing.
  - Demand for further training to deepen understanding and application of tools to country contexts.
  - Participants indicated relevance for current roles and intentions to incorporate climate and inequality considerations into country policies (in the context of DIGNAD and the MIMMI App training).
- Illustrative participant testimonials:
  - Mr. Ives Eric Kouassi (Ministry of the Environment, Sustainable Development and Ecological Transition of Cote d’Ivoire) emphasized knowledge sharing between state actors and central banks and learning about the IMF’s role in climate change, green management, and climate assessment tools.
  - Ms. Natalia Owoo (Bank of Ghana) noted the workshop provided a comprehensive lesson on macroeconomic and financial implications of climate change and on mitigation and adaptation policies needed to deliver on the Paris Agreement.
  - Mr. Carlos Bentub (Ministry of Finance and Business Development of Cabo Verde) indicated the course would help define policies and select projects to reduce CO2, create resilience, and achieve sustainable development as Cape Verde negotiates an RSF with the IMF.

### MRLIC toolkits applied to policymaking
- DIGNAD toolkit:
  - Purpose: study macroeconomic effects of natural disasters and related climate risks; assess how investments in adaptation infrastructure mitigate risks in low-income countries.
  - Use in policy: Pivotal in negotiating Resilience and Sustainability Trust (RST) facility funding needs and in evaluating impacts on output growth, debt, private investment, and household consumption under multiple scenarios.
  - Country applications and impact:
    - Rwanda: DIGNAD instrumental in identifying sustainable financing strategies and demonstrating that proper policy and financing mix (domestic revenue mobilization, spending rationalization, enhanced public investment efficiency) can mitigate adverse macroeconomic effects of large-scale climate investment (Ruben Atoyan).
    - Tanzania: Tanzania-tailored DIGNAD calibrated to illustrate vulnerability to climate shocks and benefits of ex-ante adaptation investment; results used to support request to access the Fund’s Resilience and Sustainability Facility (Charalambos Tsangarides).
- MIMMI toolkit:
  - Purpose: quantify distributional impacts of large-scale projects and inform macroeconomic policies in LICs.
  - Country application:
    - Guinea: MIMMI assessed macro-inequality impacts of the Simandou iron ore project during the 2024 Article IV Consultation and showed that spending potential tax revenues on education and infrastructure could yield higher growth and stronger poverty reduction (Pilar Garcia Martinez).

### Outcomes, impacts, and engagement with beneficiaries
- Evidence of strong research and policy impacts through citations, downloads, social media reach, and uptake by country authorities and IMF country teams.
- Capacity development outcomes: participants reported increased ability to contribute to climate change policy development, central bank policy engagement on climate issues, and project selection aligned with climate and development objectives.

### Costs, value for money, and project management
- Approved budget for the project: US$29.5 million.
- Funds drawn from the subaccount as of April 2024: $26.2 million.
- Note on reporting lag: figures reflect a lag of actual expenses of approximately two to three months for verification before charging to donor subaccounts.
- Indicative breakdown of spending Years 1-12, cumulative (Table 3):
  - HQ led missions including entire mission team: $6,823,847
  - Research HQ based / Visiting Scholars; Short-term Advisors; Development of CD tools; Development of general CD technical materials; Development of training courses or other learning materials: $11,714,805
  - Seminars & Study Tours; Interactive learning and workshops: $1,829,889
  - Project Backstopping: $3,173,599
  - Project Management: $429,135
  - Exceptional Expenses: $550,638
  - Language Services: $2,170
  - Trust Fund Fee: $1,716,686
  - Total: $26,240,769
- Value for Money statements and metrics:
  - The project remains highly cost effective through strict procurement and hiring processes, adherence to Fund guidelines, competitive recruitment, timely outputs, and external peer review for academic publications.
  - Average cost per paper is lower than the FCDO benchmark of $188,430 (£150,000).
  - Estimated allocation of staff, contractual employees, and visiting scholars’ time: 75 percent of time on research papers, 25 percent on country applications.
- Cost per working and published paper (Table 4):
  - Total Staff/Contractual/VS Costs: $18,538,652
  - Research Paper Costs: $13,903,989
  - Country Applications Costs: $4,634,663
  - Working Papers (count): 192
  - Cost Per Working Paper: $72,417
  - Published Papers (count): 113
  - Cost per Published Paper: $123,044
- Management cost shares:
  - Direct project management costs represent approximately one percent of the total budget.
  - Including Trust Fund management fees, program management costs rise to approximately eight percent.

*IMF MRLIC Annual Report (fcdo-ar-june2024)*

### 8. WORK PLAN AND TIMETABLE

### 8. WORK PLAN AND TIMETABLE

### (1) Modelling policy choices
- a. Selected Issues Paper on fiscal policy and monetary policy reactions under natural resource windfalls in Mozambique.
  - Customize the DIGNAR model to Mozambique to analyze monetary policy responses to fiscal decisions in the context of LNG (Liquified Natural Gas) revenue windfalls (examples: spending all revenues; allocating revenues between a sovereign wealth fund and financing public investment).
- b. Selected Issues Paper on Policy Reforms for Public Investment, Growth, and Debt Sustainability in Senegal.
  - Adopt a regional approach contrasting Senegal with comparators to define scope for more ambitious reforms and lay ground for a subsequent working paper.
  - Customize the DIGNAR model to Senegal to build alternative scenarios for the Selected Issues Paper and the working paper.
- c. Project analyzing macroeconomic implications of the new Compact of Free Association (COFA) Agreement on the three Freely Associated States (FAS): Republic of Palau, the Federated States of Micronesia and the Republic of Marshall Islands.
  - Calibrate and extend the DIGNAD/DIGNAR model to reflect FAS characteristics; integrate assessment of policies for resilience, development, climate change, fiscal and external sustainability as part of an upcoming Article IV consultation.
- d. Expand DIGNAD models to incorporate energy transition.
  - Include a new module with firms in the energy sector endogenously choosing between brown and green technologies based on relative green energy price, productivity of each technology, and fixed cost of adopting green technology.
  - Use model to analyze debt sustainability under different energy transition scenarios.
  - Calibrate the model to Bangladesh and simulate a fiscal reform to kickstart the energy transition.
  - Calibrate the model to a representative country highly vulnerable to natural disasters and analyze a build-back-better scenario.
- e. Working paper using credit registry loan data to examine transmission of monetary policy shocks to households in Uganda.
  - Exploit granular bank-borrower characteristics to disentangle credit supply from credit demand when assessing quantity (new loan amount) and price (loan interest rate) effects of policy rate changes.
  - Provide estimates of the speed, magnitude and persistence of monetary policy transmission, controlling for loan, banks, and borrowers characteristics and the macroeconomic environment.
- f. Two papers using factor vector autoregression models to build higher frequency nowcasting of GDP growth in Kenya and Angola, respectively, addressing scarcity of real-time activity data in many low-income and developing economies.
- g. Develop and calibrate an open economy HANK (Heterogeneous Agent New Keynesian) model with LIC-relevant features (e.g., hand-to-mouth consumers and consumers close to subsistence levels) for a typical LIC.
  - Use model to assess distributional consequences of monetary policy in LICs, including responses to external price shocks (such as for food); analysis to appear in a working paper.
- h. Paper exploring effect of commodity price fluctuations on debt and the role of governance in intermediating that relationship, noting boom-bust cycles in commodity prices often lead to persistent spending surges and subsequent debt accumulation as export revenues fall; highlights macroeconomic policy implications amid a looming debt crisis and new cycle for green minerals.
- i. Extend the Multi Sector Incomplete Markets Macro Inequality (MIMMI) App to model impact of intermediate goods use and tax adjustments in economies with incomplete crediting of sales taxes for firms, with country applications (e.g., Bolivia).

### (2) Understanding macro-financial linkages
- a. Paper documenting trends in financial flows to LICs, particularly after COVID-19 amid dramatic changes in global macroeconomic and financial conditions, rising geopolitical fragmentation, and growing urgency to address climate change.
  - Include comprehensive literature review on level and composition of financial inflows to LICs, potential drivers of trend changes, and policy implications.
- b. Paper analyzing how financial flows (FDI, portfolio investment, aid) interact with trade flows in low-income countries.
  - Examine role of policy and institutions (trade and investment treaties, financial development, expropriation risk) in attracting different types of financial flows and developing trade links.

### (3) Building resilience
- a. Use DIGNAD model to provide analytical support for IMF RST facility applications (namely Tanzania and the Maldives).
  - Illustrate vulnerabilities to climate change and benefits of ex-ante adaptation investment on macro variables: greater economic resilience against natural disaster shocks, lower post-disaster economic losses, recovery costs, and increases in public debt.
  - Show that reforms improving public investment efficiency and domestic resource mobilization amplify adaptation benefits and enhance long-term debt sustainability.
- b. Use DIGNAD model for climate coverage in Article IV Consultations for Kiribati, Senegal, Sao Tome and Principe, and South Sudan.
  - Calibrate DIGNAD for each economy to analyze impacts of natural disasters and ex-ante adaptation investments on output growth and public debt.
- c. Develop a new paper and toolkit implementing a macroeconomic framework of climate adaptation.
  - Analyze climate adaptation needs in developing economies through a small open economy model with slowly moving climate risks and frictions (financial, labor markets).
  - Model features endogenous entry and adaptation choice in land-intensive agriculture; manufacturing and services firms behave under neoclassical assumptions.
  - Examine how government policies can help achieve the first-best level of private adaptation.
- d. Create a new index measuring green technology embodied in imports (ETI), building on Cugat and Manera (2024).
  - Use ETI to examine effects of policies promoting technology diffusion and effects of diffusion on climate-related outcomes.
- e. Paper investigating climate change and domestic debt costs.
  - Focus on effect of climate shocks on the cost of domestic debt given increasing frequency of extreme weather events, constraints on foreign borrowing after disasters, and rising share of domestic debt in total public debt.
- f. Develop a Global Vector Autoregressive (GVAR) model incorporating climate uncertainty through stochastic volatility.
  - Incorporate temperature risk to analyze impact of temperature volatility on economic growth, inflation, exchange rates, and other macro variables.
  - Explore heterogeneity between LICs and other countries, channels of temperature volatility effects, key driving factors, and adaptive strategies.
- g. Paper on productive capacities, economic vulnerability and growth volatility in Sub-Saharan Africa.
  - Using macro data, (i) assess effect of economic vulnerability and productive capacity on growth volatility; (ii) analyze whether productive capacities reduce effect of economic vulnerability on growth volatility.
- h. Project exploring private sector investment responses to large natural disasters using country and firm level data to analyze effect of climate shocks on private investment and role of public investment.
- i. Paper investigating effects of global energy and food price shocks on LICs since the onset of the pandemic.
  - Note significant increase in real energy and fertilizer prices, and rise in food prices driven by global recovery and geopolitical events.
  - Use a spatial general equilibrium model to quantify impacts on local economies and households in LICs; assess trade and labor patterns, urban-rural migration, and fiscal policy mitigation options.
- j. Paper investigating role of governance in mediating relationship between natural disasters and economic activity.
  - Extend literature on disasters’ economic impacts amid climate-induced increases in disaster frequency; analyze preparedness, resource mobilization for reconstruction, insurance availability, and governance elements that mitigate disaster impacts.
- k. Paper on remittance costs around natural disasters.
  - Investigate how natural disasters influence pricing of remittances by remittance service providers (RSPs), considering alleged fee waivers during disasters and countercyclical remittance behavior.
  - Examine variation by disaster type, RSP type, transaction speed, and country income level using an empirical model augmented with natural disaster data.
- l. Paper on climate shocks and structural transformation.
  - Explore atypical structural change where climate shocks reduce agricultural productivity, prompting labor reallocation to industry and services; use structural transformation measures and disaggregated sector data.
- m. Paper on effect of temperature increase on tax revenue mobilization.
  - Build on literature documenting negative effect of temperature increase on economic activity via reduced productivity, assessing how temperature rise may exacerbate low tax revenue mobilization in developing countries.
- n. Update climate-focused application of the Multi-Sector Incomplete Markets Macro Inequality (MIMMI) App to enable migration across urban and rural areas, enhancing climate analysis capability.
- o. Project on role of macroeconomic policies on conflict prevention.
  - Assess rate of return of prevention policies in fragile states and estimate effect of fiscal policies on risk of violence and conflict.

### (4) Promoting structural change and institutional development
- a. Paper on Trade Barriers and Imbalances in Small Open Economies.
  - Provide framework analyzing impact of temporary and permanent trade barrier changes on external imbalances for a large set of small open economies (including emerging markets and low-income countries) and assess possible impacts of geoeconomic fragmentation over 1995-2019.
- b. Project on The Allocation of Talent across Space and Time.
  - Combine theoretical framework from Hsieh et al. (2019) with cross-country administrative micro data from the Luxembourg Income Study to assess: (i) differences in barriers to occupational access for women across advanced, emerging, and low-income countries; (ii) contribution of barrier declines to TFP growth; (iii) potential TFP growth from removing remaining barriers.
- c. Paper Can Mobile usage Enhance Productivity? A Structural Model and Evidence from Food Suppliers in Benin.
  - Analyze drivers of digital technology adoption and productivity effects for small-scale businesses in grains and legumes markets; collect data from two semi-rural markets where one-third of population has internet access.
  - Build structural model rationalizing mobile broadband adoption and usage patterns.
- d. Project on growth strategies and diversification for Pacific Islands countries.
  - Quantify contribution of tourism to growth via panel regressions and compute additional tourism needed to match comparator growth rates.
  - Identify diversification spurts using the synthetic control method and quantify benefits.
  - Outline framework for designing growth strategies focused on detecting binding constraints and working around limitations.
- e. Paper investigating the middle-income trap by analyzing transitions between income classes and computing mean passage times.
  - Utilize expanded data to examine intermediate traps in GDP per capita, per worker, TFP, capital-output ratio, human capital, and labor force participation rate; investigate institutional variables like state capacity if traps identified in TFP or capital-output ratio; assess mobility measures using Dobrushin coefficient and asymptotic half-life.
- f. Paper on persistence of low relative income in countries.
  - Develop method to generate counterfactual distribution for cross-country relative GDP per capita to isolate and assess effects of variables (e.g., civil conflict, natural resource endowments) contributing to low-income persistence for policymaker prioritization.
- g. Paper on growth accelerations/decelerations and structural reforms.
  - Address questions: (i) do growth accelerations (or decelerations) catalyze structural reforms or vice versa? (ii) importance of contagion (peer-pressure) effects from neighboring countries on reform momentum? (iii) nonlinear role of existing economic uncertainty, especially in low-income countries?

### (5) Enhancing inclusion
- a. Revisit relationship between GDP growth and inequality.
  - Reexamine Kuznets-curve discussions using datasets on global income distributions from family surveys; analyze role of factors such as higher life expectancy in holistic welfare measures relative to GDP across advanced, emerging, and low-income economies.
- b. Develop the Multi Sector Incomplete Markets Macro Inequality (MIMMI) app focusing on gender (MIMMI-G App).
  - Extend MIMMI by incorporating gender differences, a new visual interface, and capabilities to simulate gender and macro-distributional outcomes in a general equilibrium, life-cycle framework with endogenous fertility, endogenous migration, and flexible labor supply.
  - Enable analysis of growth, distributional, and gender-inequality impacts of educational, labor market, and tax-transfer policies within a customizable setup.
- c. Paper on impact of internet access (mobile or cable) on local credit markets.
  - Using credit registry and firm-level data from Rwanda or Uganda, examine loan-level details, credit sources, geographic locations, and technology details to inform identification strategies and policy implications for credit, productivity, and technology investment preferences.
- d. Working paper examining past episodes of large public debt increases during crises followed by debt reductions to better understand debt dynamics and distributional implications; discuss how countries could tackle high debt after COVID-19 while addressing inequality and supporting growth.
- e. Working paper calculating macro-inequality impact of the Simandou mining project in Guinea.
  - Examine project effectiveness on growth, poverty alleviation, inequality reduction, and climate change; analyze implications of government policies in infrastructure and education on outcomes.
- f. Paper exploring Chad’s “one percent” development policy to assess effectiveness in leveraging limited fiscal space to mitigate climate change impacts.
- g. Project designing and calibrating a model for Botswana to optimize its social transfer system and simulate policy options to enhance social welfare and economic stability.
- h. Project analyzing long-term effects of rising international food prices on growth and inequality in Africa and proposing policy solutions to mitigate adverse impacts.

*Source: International Monetary Fund.*

### 9. RISK

### 9. RISK

### Key risk summary
- Budgetary uncertainties—cuts, disbursement delays, and overall funding unpredictability—threaten continuity of the MRLIC program and:
  - hinder the program’s ability to deliver key outputs in a timely manner;
  - impede the program’s capacity to competitively attract and retain high-caliber staff;
  - reduce the ability to engage in effective short to medium-term planning.
- Financial instabilities undermine the program's operational integrity and strategic direction, impeding its capacity to meet objectives and maintain a high level of performance.
- A one-year funding extension is proposed for FY2026 (April 2025 to March 2026) to allow time to potentially reshape the MRLIC program before a new Phase V is considered.
  - The short-term extension will:
    - ensure successful completion of projects started under Phase IV;
    - help explore new research ideas that could be pursued in a potential Phase V.
  - The short-term extension does not address substantial uncertainty around the medium-term FCDO funding and the financial viability of the MRLIC partnership.

### Operational implications
- Program delivery, staffing, planning, and strategic direction are all at risk under current funding unpredictability.
- Medium-term viability of the MRLIC partnership remains uncertain despite the proposed one-year extension.

---

### 10. MONITORING AND EVALUATION

### Monitoring processes
- At the end of each fiscal year, the MRLIC team IMF reports the outputs included in the log-frame to FCDO.
- Quarterly updates of MRLIC outputs and activities are routinely shared with the FCDO team.
- Quarterly e-newsletters reach an audience of more than 1,500 academics, policymakers, central bank staff, and government representatives.
- Video conference calls are routinely organized between IMF and FCDO project members as needed.

### Evaluation arrangements
- FCDO conducts a yearly evaluation of the program.
- No budget for an external evaluation was included in the project budget.

---

### 11. FURTHER INFORMATION

### Forward planning
- The team has started brainstorming on a Phase V proposal to improve analytical and policy tools to bolster the economic resilience of LICs amid increasingly frequent and large shocks.

---

### Appendix 1 — Log-frame highlights

### Impact indicators
- Impact Indicator 1 — Proportion of people living in extreme poverty in MRLIC countries:
  - Planned (2018) MRLIC countries: 28.5%
  - Source: World Bank, Poverty and Equality dataset, Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population), Simple average of MRLIC countries (Table 1 of Annual Report).
- Impact Indicator 2 — Economic growth rates in MRLIC countries:
  - Planned (2019) MRLIC countries: 4.0%
  - Source: IMF WEO data, Real GDP growth, Annual percent change, Simple average of MRLIC countries (Table 1 of Annual Report).

### Inputs (budget memorandum)
- Memorandum totals:
  - FCDO: £5.1 million
  - Govt: £1.0 million
  - Total: £6.1 million
  - FCDO SHARE (%): 84
- Memorandum notes:
  - "Other" is USD 1.2 million for FY2022 from the IMF's COVID-19 Crisis Capacity Development Initiative (CCCDI), which is an external funding vehicle (with U.K. £1 = USD 1.219950, as of May 13, 2022). "Other" does not include the cost-sharing from the IMF's internal budget.
  - The outputs of the CCCDI-funded project are counted towards the output targets for the MRLIC only when the outputs are assessed to be within the aims and scope of the MRLIC.
  - For Yr 11 - 13, the annual disbursement is rephased and the output target levels are adjusted accordingly.

---

### Outputs, targets, and achieved results (selected)

### OUTPUT 1 — High-quality, policy-relevant research (Indicator 1.1)
- Planned March 2020 (baseline): 130 papers
- Targets (March 2025):
  - High (H): 200 papers
  - Medium (M): 196 papers
  - Low (L): 190 papers
- Specific context: average output per year (Yr 1 - 8) is 16. Medium case is 8 per year for Yr 11-13. High case 3 additional, low case 3 fewer.
- Five research themes:
  1) Modelling and understanding policy choices
  2) Understanding macro-financial linkages
  3) Building resilience
  4) Promoting structural change and institutional development
  5) Enhancing inclusion
- Achieved (annual sequence reported): 151 162 178 192

### OUTPUT 1 — Research papers accepted in peer-reviewed journals (Indicator 1.2)
- Planned March 2020 (baseline): 77 papers
- Targets (March 2025):
  - H (117 papers)
  - M (115 papers)
  - L (113 papers)
- Specific context: average output per year (Yr 1 - 8) is 9. Medium case is 5 per year for Yr 11-13. High case 2 additional, low case 2 fewer.
- Achieved (annual sequence reported): 90 98 105 113

### OUTPUT 2 — IMF research products used by country teams and authorities (Indicator 2.1)
- Planned March 2020 (baseline): 161
- Targets (March 2025):
  - H (233)
  - M (230)
  - L (227)
- Specific context: average output per year (Yr 1 - 8) is 21, including courses now separated to output indicator 2.2. Medium case is 8 per year for Yr 11-13. High case is 3 additional, low case is 3 fewer.
- Achieved (annual sequence reported): 183 203 213 223

### OUTPUT 2 — Courses offered to country authorities and IMF staff (Indicator 2.2)
- Planned March 2020 (baseline): 20
- Targets (March 2025):
  - H (53)
  - M (51)
  - L (49)
- Specific context: Newly separated from output indicator 2.1. Medium case is 4 per year for Yr 11-13. High case 2 additional, low case 2 fewer.
- Achieved (annual sequence reported): 28 38 43 52

### OUTPUT 3 — Engagement by senior IMF policymakers (Indicator 3.1)
- Planned March 2020 (baseline): 40
- Targets (March 2025):
  - H (60)
  - M (59)
  - L (58)
- Specific context: average output per year (Yr 1 - 8) is 5. Medium case is 2 per year for Yr 11-13. High case is 1 additional, low case is 1 fewer.
- Achieved (annual sequence reported): 42 50 53 56

### OUTPUT 3 — Research reflected in IMF Board discussions and papers (Indicator 3.2)
- Planned March 2020 (baseline): 41
- Targets (March 2025):
  - H (67)
  - M (65)
  - L (63)
- Specific context: average output per year (Yr 1 - 8) is 5. Medium case is 3 per year for Yr 11-13. High case is 2 additional, low case is 2 fewer.
- Achieved (annual sequence reported): 49 54 59 62

---

### Appendix 3 — Selected research output findings (Working Papers, Topics 1–3)

### Topic 1 — Modelling and understanding policy choices (selected findings)
- Panel Nowcasting for Countries Whose Quarterly GDPs are Unavailable:
  - Proposes a panel approach to estimate quarterly GDP for countries without published quarterly GDP using indicators available for many countries; application shows potential especially for similar country groups.
- Strengthening Monetary Policy Frameworks in the Caucasus and Central Asia:
  - CCA inflation peaked in early 2023 but still exceeds central bank targets; core inflation remains stubbornly high.
  - CCA countries have modernized monetary frameworks since the 1990s; Armenia, Georgia, Kazakhstan, Kyrgyz Republic, and Uzbekistan are transitioning to inflation targeting; Azerbaijan, Tajikistan, and Turkmenistan rely on exchange rate operational targets.
  - Paper reviews policy design and implementation challenges and identifies areas for strengthening, using original surveys and novel empirical work.
- Monetary Policy Frameworks and Communication in the Caucasus and Central Asia:
  - Documents progress using the IAPOC index (Independence and Accountability, Policy and Operational Strategy, Communications) and finds room for further improvements, especially in Independence and Accountability and Communications.

### Topic 2 — Understanding macro-financial linkages (selected findings)
- Financial Stress and Economic Activity: Evidence from a New Worldwide Index:
  - Constructs a continuous financial stress index (FSI) for 110 countries, quarterly, 1967-2018 using text analysis with human oversight.
  - Main findings:
    i) an economically significant and persistent relationship between financial stress and output;
    ii) larger effects in emerging markets and developing economies;
    iii) larger effects for higher levels of financial stress;
    iv) OLS estimates tend to overestimate magnitude; authors construct a novel instrument—financial stress originating from other countries;
    v) difference-in-differences evidence shows larger effects for firms that are more financially constrained and less profitable.
- Mobile Internet, Collateral, and Banking:
  - Using Rwandan administrative data and quasi-experimental variation in 3G availability, finds mobile connectivity shifts borrowers from microfinance to commercial banks and improves loan terms.
  - Collateral availability mediates 35% of the overall effect of mobile internet on credit and 80% for collateralized loans.

### Topic 3 — Building resilience (selected findings)
- Coping with Climate Shocks: Food Security in a Spatial Framework:
  - Develops a quantitative spatial general equilibrium model to study household vulnerability to food insecurity from climate shocks, calibrated to 51 districts in Nepal.
  - Estimates annual GDP losses from floods, landslides, droughts and storms combined of 2.3 percent.
  - Estimates welfare losses of 3.3 percent for the average household and increased undernourishment by 2.8 percent.
  - Undernourished households experience roughly 50 percent larger welfare losses; remote households suffer welfare losses roughly two times larger than less remote locations (5.9 vs 2.9 percent).
  - Counterfactuals show better access to migration and trade builds resilience to climate shocks.
- Monetary Policy Design with Recurrent Climate Shocks:
  - Develops a New Keynesian DSGE model conceptualizing disasters as left-tail productivity shocks with quantified likelihood, creating a trade-off for central banks between inflation risks and reduced output.
  - Results suggest modifying the Taylor rule to give equal weight to responses to both inflation and output growth, indicating a gradual approach to climate-exacerbated economic fluctuations.

---

*Source: FCDO-funded Macroeconomic Research in Low-Income Countries (MRLIC) program chapter "9. RISK" and related sections from the MRLIC Annual Report (log-frame, outputs, and selected working paper summaries).*

### 8.   Social Unrests and Fuel Prices: The Role of Macroeconomic, Social and Institutional Factors

### 8. Social Unrests and Fuel Prices: The Role of Macroeconomic, Social and Institutional Factors

### Summary findings
- Paper investigates the impact of fuel price increases on social unrests and the macroeconomic, social and institutional factors driving this relationship.
- Uses the IV fixed-effect estimator on a sample of 101 developing countries during 2001-2020.
- Finds that changes in fuel prices are positively associated with the number of social unrests, mainly anti-government demonstrations.
- The findings provide support to the grievance and deprivation theory in explaining the association between fuel price increases and social unrests, but fail to find evidence for the resource theory and the theory of political opportunities.

### Empirical approach and data
- Estimation method: IV fixed-effect estimator.
- Sample: 101 developing countries during 2001-2020.
- Outcomes: number of social unrests, with emphasis on anti-government demonstrations.
- Robustness checks include an instrumental variable approach to address reverse causality concerns and alternative measures using changes in diesel or gasoline prices.

### Amplifying factors (conditions that increase the impact of fuel price rises on unrest)
- Economic and macro variables:
  - Impact is amplified during economic downturns.
  - Impact is amplified during periods of high exchange rate instability.
- Government spending and public services:
  - Impact is amplified when government spending is low, especially on health and education.
  - Policy implication drawn: streamlining fuel subsides and diverting parts of the reform savings to the health and education sectors could appease social tensions.
- Social and institutional characteristics:
  - Impact is amplified in countries with high income inequality.
  - Impact is amplified in countries with low institutional quality.
  - Impact is amplified in countries with high levels of corruption.

### Policy recommendations and implications
- Streamline fuel subsidies and reallocate portions of reform savings to the health and education sectors as an appropriate policy that could appease social tensions.
- Recognize that fiscal space and the composition of government spending (not just its level) matter for mitigating social unrest linked to fuel price changes.
- Consider institutional quality and corruption control as part of the strategy to reduce susceptibility to unrest following fuel price shocks.

### Robustness and theory implications
- Results are robust to a battery of tests, including an instrumental variable approach to address reverse causality (social unrests could prompt a freeze in fuel prices).
- Consistent results obtained using either changes in diesel or gasoline prices.
- The empirical evidence supports grievance and deprivation explanations for unrest following fuel price increases, and does not support resource theory or the theory of political opportunities.

*From the IMF chapter "Social Unrests and Fuel Prices: The Role of Macroeconomic, Social and Institutional Factors" by Alassane Drabo, Kodjovi M. Eklou, Patrick A. Imam, and Kangni R Kpodar.*

### 5.   Mauritania –   DIGNAD country application in the context of the RST facility

### 5.   Mauritania –   DIGNAD country application in the context of the RST facility

### Main findings from DIGNAD climate-shock modelling
- Climate shock modelling using the DIGNAD (Debt, Investment, Growth, and Natural Disasters) model suggests substantial economic benefits from improved climate-adaptive public investment.
- The DIGNAD model highlights the additional resilience to climate shocks provided by:
  - increased public investment efficiency, and
  - public infrastructure investment adapted to climate change.

### Implications for growth and resilience
- Improved public investment efficiency amplifies the resilience benefits of adaptation-focused infrastructure by making available resources go further in reducing output losses from shocks.
- Climate-adaptive public infrastructure investment directly enhances the economy’s capacity to withstand and recover from natural disaster shocks.

### Policy recommendations implied by the analysis
- Prioritize public investment projects that are designed and implemented with climate adaptation criteria.
- Strengthen public investment management (PIM) to raise public investment efficiency so adaptation spending delivers greater resilience per unit of fiscal cost.
- Use DIGNAD-based analysis to inform the sequencing and composition of public investment toward projects that maximize resilience dividends.

*Source: Islamic Republic of Mauritania—First Reviews Under the Arrangements Under the Extended Credit Facility and the Extended Fund Facility, Requests for Modification of Performance Criteria and a Waiver of Nonobservance of Performance Criterion, and Request for an Arrangement Under the Resilience and Sustainability Facility (IMF).*

### 1.   Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies

### 1. Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies

### Market-oriented reforms and debt outcomes
- Empirical analysis based on 62 EMDEs over 1973-2014 finds that market-oriented structural reforms are associated with sizeable and long-lasting reductions in the debt-to-GDP ratio.
- Primary channels for debt reduction:
  - Higher fiscal revenues.
  - Lower borrowing costs.
- Heterogeneity in effects:
  - Larger fiscal and debt gains in countries with greater tax efficiency.
  - Larger gains where informality is lower.
  - Larger gains where initial debt is higher.

### Model-based insights and policy implications
- Model analysis shows fiscal gains from reforms can be enhanced when revenue windfalls are:
  - Saved; or
  - Channeled through higher public investment.
- Policy recommendation: Combine market-oriented structural reforms with fiscal strategies that preserve or redirect reform-induced revenue windfalls toward savings or public investment to strengthen and prolong debt-reduction effects.

### Key statistics and parameters (exact)
- Sample: 62 EMDEs over 1973-2014.

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### World Economic Outlook—October 2023: Chapter 1 (Box 1.1) — Global Prospects and Policies

### Declining growth expectations: observations and drivers
- Trend: Declining growth expectations for the global economy over the medium term, observed since the 2008 global financial crisis.
- Recent exacerbation: Economic shocks of 2020-22, such as the COVID-19 pandemic and the Russian invasion of Ukraine, have exacerbated the decline.
- Timing of trend:
  - Decline in growth expectations started in the early 2000s for advanced economies.
  - Decline started post-crisis for emerging markets and developing economies.
- Main contributors to the decline in per capita output growth:
  - Lower total factor productivity growth (primary contributor, especially in advanced economies).
  - Declines in labor force participation.
  - Capital deepening.

### Implications
- Slower income convergence: The diminished growth prospects imply a much slower pace at which poorer countries can catch up with richer ones in terms of living standards.

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### World Economic Outlook—October 2023: Chapter 2 (Box 2.2) — Managing Expectations: Inflation and Monetary Policy

### Public debt and inflation expectations
- Finding: Higher public debt is associated with expectations of higher inflation, conditional on a specific monetary policy framework.
- Monetary policy framework measurement: The IAPOC index developed by Unsal, Papageorgiou, and Garbers (2022) is used to capture the monetary policy framework.
- Amplifying conditions:
  - Impact is more evident when the stock of public debt is in foreign currency.
  - Impact is exacerbated when fiscal deficits are persistent.

### Policy implication
- Adopting a strong monetary policy framework can ease the difficulties that higher public debt levels pose for managing inflation expectations in emerging market and developing economies.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/annual-reports/fcdo-ar-june2024.pdf_