## Macroeconomic Research in Low Income Countries — June 2013 ## Source details **Canonical URL:** [Macroeconomic Research in Low Income Countries — June 2013](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/documents/june2013.pdf) ## Other formats - [Markdown version](/-/media/files/topics/lics/macro-research-for-development/documents/june2013.pdf.md) - [Structured JSON version](/-/media/files/topics/lics/macro-research-for-development/documents/june2013.pdf.json) --- ### Introduction and context - The project "Macroeconomic Research in Low Income Countries" is a strategic research partnership between DFID and the IMF with objectives to: - enhance generation of high-quality research on key macroeconomic issues in low-income countries (LICs); - ensure research uptake through design and execution in close collaboration with policymakers within and outside the IMF; - use the IMF’s pulling power to expand the network of macroeconomic researchers working on LICs; and - achieve this as cost-effectively as possible. - The project began in March, 2012 and will conclude in June, 2015. - DFID will provide £4.14 million over three years. (US$6.6m - of this $1,924,170 has been spent to date). - Rationale and motivation: - Growth is essential to poverty reduction (Commission on Growth and Development, 2008). - Research gap: much policy research focuses on developed and larger developing economies; LICs receive less attention partly due to lack of quality data. - DFID commissions growth research to deliver policy-focused, used research, focus on least developed countries, increase independence and diversity of advice, and support DFID strategic priorities (Wealth Creation, Gender, Private Sector Development). ### Expected results and impact - Outcome: better macroeconomic policy making in LICs leads to faster economic growth, job creation and poverty reduction in LICs. - Impact: deeper understanding of, and better engagement by IMF policy makers on LIC-specific macroeconomic issues based on robust analysis and evidence, and development of toolkits to enable LICs to benefit from development in six thematic areas. - Anticipated outcomes and example targets: - (i) Produce high quality research (some aimed at journals; large proportion operational/applied). - (ii) Uptake by IMF country teams: example target — at least 3 country teams to use the public investment/debt sustainability analysis tool in the year of completion and reference such analysis in Article IV and other staff reports. - (iii) Uptake by country authorities: example target — at least two central banks to use monetary policy models developed, evidenced through interactions with IMF staff and noted in IMF staff reports. - (iv) Strengthen IMF senior policymaker engagement; research to provide inputs to Fund Board papers (example: research under topic 3 informed Board paper on natural resource rich LICs). - (v) Expand researcher network: commission up to ten LIC papers and publish as conference volume via process similar to annual research conference. ### Outputs and Year 1 performance (scoring and key statistics) - Output 1: High quality, policy relevant research on macroeconomic issues affecting LICs — Produced. Score: A++. - Year 1: 13 working papers completed and 1 paper published in an academic journal on four of six topic headings. - Year 1 targets comparison: Medium (M) target 8 working papers and 0 published papers; High (H) target 12 working papers and 1 published paper. - Type of Output — Actual Output — Year 1 Output Targets: - 1.1 Working Papers: 13 — H 12, M 8, L 4 - 1.2 Published Papers: 1 — H 1, M 0, L 0 - Impact Weighting (%): 30% - Risk: LOW - Output 2: IMF Research Products (policy analysis, tools and frameworks) used by IMF country teams and partner authorities — Score: A++. - Uptake by IMF teams: Actual 10 — H 6, M 3, L 1 (achieved 67% higher than the high target). - Uptake by country authorities: Actual 1 — H 1. - Output 3 (high-level engagement) and Output 4 (capacity building/expanding researcher network) aggregate: - Output 3 score and performance: A++. - 3.1 High-Level Policy Conferences: Actual 6 — H 3, M 2, L 1 - 3.2 Results reflected in IMF board discussions and policy papers: Actual 4 — H 3 - Output 4 score and performance: A++. - 4.1 Commissioned Papers: Actual 0 — H 0, M 0, L 0 - 4.2 Attendance of External Researchers at High-Level Policy Conferences: Actual 6 — H 2, M 1, L 1 - 4.3 Outputs disseminated in e-newsletter and updated public web page: Actual 2 — H 2, M 2, L 1 - Overall first-year project score: A++. ### Topic-level research highlights (selected) - Topic 1 — Monetary and Exchange Rate Policy in LICs - Andrle et al. (2013) developed a forecasting and policy analysis system (FPAS) for sub-Saharan Africa assigning a central role to food prices; applied to Kenya. - Baldini et al. (2012) examined role of the financial system in transmitting external shocks. - Benes et al. (2013) studied managed floats and exchange rate interventions. - Shen and Shu-Chun (2012) studied government spending effects under limited international capital mobility. - Topic 2 — Public Investment, Growth, and Debt Sustainability - Buffie et al. (2012) produced a dynamic LIC-specific macroeconomic model enabling debt sustainability analysis and logically consistent scenarios for public investment surges; applied to Togo, Côte d'Ivoire, Burkina Faso, Cape Verde (Yibin (2012)), Rwanda, and Liberia; applications to Afghanistan, Senegal, Ghana, Tanzania, and Ethiopia underway. - Andrle et al. (2012) analyzed public investment scaling-up strategy for Togo. - Topic 3 — Macroeconomic Management of Natural Resources - Berg et al. (2013) developed a “sustainable investing tool” applied to Angola, the CEMAC currency union, Azerbaijan, and Mozambique. - Araujo et al. (2013) developed a model with private and public investment and frictions capturing LIC absorptive capacity and borrowing constraints; applied to CEMAC and being applied to Ghana and Azerbaijan. - Warner (2013) argued for combining social return thresholds with private sector incentive considerations for efficient government investment. - Topic 5 — Financial Deepening and Macroeconomic Stability and Sustained Growth - Poghosyan (2012) found concentrated market structures, lack of competition, and institutional weaknesses drive high intermediation costs in LICs. - Dabla-Norris and Narapong (2013) found financial depth dampens macroeconomic volatility up to a certain point (dynamic panel for 110 countries). - Barajas et al. (2013) introduced the “financial possibility frontier” concept linking overshooting in finance to credit booms and busts. ### Country applications and uptake by authorities (selected examples) - Angola - IMF used a DSGE model calibrated to Angola to assess an oil shock; finding: with fiscal buffers and slower public investment scaling-up Angola could withstand a 2008/2009-size price shock within three to five years. - Benin - Benin’s 2012 Article IV includes a “Financial Sector Review” Supplement—the first pilot review called for by the May 2012 “Enhanced Financial Sector Surveillance in Low-Income Countries” paper. - Burkina Faso - Buffie et al. (2012) model applied; finding: moderate and sustained increases in public investment financed through higher grants/concessional loans and increased revenue preferred; authorities intended to use model results in donor meetings. - Cape Verde; Côte d'Ivoire; Togo - Buffie et al. (2012) applications advised moderate scaling-up and emphasized public investment efficiency, revenue collection, and sustainable debt management. - Kenya - Andrle et al. (2013) model used; finding: monetary policy played key role in overall and non-food inflation and in reversing exchange rate depreciation. - Liberia - Buffie et al. (2012) model: most ambitious investment program yields largest medium-term growth dividend but risks unsustainable debt; combination of increased investment and capital spending efficiency could lead to a 1 percentage point increase in the average annual growth rate of real per capita income over ten years. - Rwanda; Senegal - Buffie et al. (2012) model used for scaling-up scenarios; Senegalese authorities trained and are modifying the model for local policy analysis; Liberia and Rwanda received training on model use. ### Impact on IMF policy and Board papers - Public investment model applications are mentioned in the IMF Board paper “Review of the Policy on Debt Limits in Fund-Supported Programs” (Box 3) as a tool to assess fiscal, growth, and debt sustainability implications of alternative investment scenarios. - Berg et al. (2013) and related models contributed to Board paper innovations shifting advice for resource-rich LICs from permanent-income smoothing toward realizing development gains from resource windfalls. - Financial deepening research fed into an IMF Board paper and the Fund’s first financial sector surveillance strategy calling to “Facilitate sustainable financial deepening in countries with shallow financial systems to support economic growth and stability.” - One working paper featured in the October 2012 Global Financial Stability Report in a box on “Financial Deepening and Economic Performance.” ### Costs, financial performance, and value for money - Financial year covered: FY 2013 (March 2012–February 2013). - Project on-track against original timescale: Yes. - Project on-track against financial forecasts: No — project underspent substantially against the original budget and marginally against revised budget due to recruitment delays. - Key budget figures (Original, Revised, Actual Committed, Projected Total, Total Realized, Percent Difference) — selected lines preserved exactly: - Contractuals: 1,109,768$; 796,000$; 689,831$; 95,229$; -$; 785,060$; ( 10,940)$; -1.4% - Visiting Scholars: 1,202,883$; 635,000$; 335,258$; 134,592$; 56,913$; 526,764$; ( 108,236)$; -17.0% - Travel and Other Costs: 356,369$; 350,000$; 141,974$; 32,500$; 30,000$; 204,474$; ( 145,526)$; -41.6% - Conferences: 186,805$; 130,000$; 20,629$; 23,500$; -$; 44,129$; ( 85,871)$; -66.1% - Travel: 119,565$; 170,000$; 121,346$; 9,000$; 30,000$; 160,346$; ( 9,654)$; -5.7% - Contingency: 50,000$; 50,000$; -$; -$; -$; -$; ( 50,000)$; -100.0% - IMF Staff: 589,666$; 506,565$; 419,622$; -$; 20,194$; 439,816$; ( 66,749)$; -13.2% - IMF Staff Backstopping/Uptake: 543,102$; 460,000$; 377,114$; -$; 15,663$; 392,777$; ( 67,223)$; -14.6% - Project Management: 46,565$; 46,565$; 42,508$; -$; 4,531$; 47,039$; 474$; 1.0% - Subtotal: 3,258,687$; 2,287,565$; 1,586,686$; 262,321$; 107,108$; 1,956,114$; ( 331,451)$; -14.5% - TTF Management Fee (7%): 228,108$; 160,130$; 111,068$; 18,362$; 7,498$; 136,928$; ( 23,202)$; -14.5% - TOTAL: 3,486,795$; 2,447,695$; 1,697,754$; 280,683$; 114,605$; 2,093,042$; (354,652)$; -14.5% - Contingency of 50,000$ not used. - Direct project management costs represented approximately two per cent of the total first year budget; including the Trust Fund management fee, program management costs were still below nine per cent. - The IMF concluded the project represents very good value for money; unit cost per working paper compares favourably to other commissioned research in the growth research portfolio. ### Risks and mitigation - Overall Output Risk Rating: Low. - Risk of funds not being used as intended: LOW. - Specific risks and mitigations: - Risk that commissioned papers might not be genuinely new work — mitigation: web searches, correspondence, rejection of proposals lacking novelty, written confirmation by authors. - Risk that funded papers may not be usable by country authorities or IMF staff — mitigation: design research with uptake goals and pilot applications; workshops and hands-on training. - Recruitment and scaling risk addressed by shifting to longer-term visiting scholars and hiring project officer and administrative support. ### Key recommendations and operational adjustments - Recognize IMF’s strong performance; keep impact weighting at 30% for first year (recommendation to reduce to 25% for second and third years noted). - Convert Working Papers into shorter, accessible “policy briefs” to maximize uptake by policymakers. - Commission independent expert peer review of papers by experts not connected to the project or IMF; DFID to recommend reviewers and request IMF fund the reviews through existing project resources. - Revise log frame indicators to better capture capacity building in partner countries and to align outputs and indicators with delivered activities. - Shift output weighting in subsequent years to encourage uptake by IMF teams and country authorities. - Continue focusing on quality research while strengthening uptake activities in years 2 and 3; collect direct feedback from country authorities to assess effects on decision making. ### Forward plans (Year 2 highlights) - Six research workstreams to continue: monetary/exchange rate policies; public investment/growth/debt sustainability; natural resource management; macroeconomic policies and income distribution; financial deepening; growth through diversification. - Specific planned activities include: - Extensions to Buffie et al. model to incorporate uncertainty and external shocks; applications in Ghana, Senegal, Afghanistan, Ethiopia, Tanzania. - Combining sustainable investing tool with debt sustainability framework for resource revenue scenarios; applications: Kazakhstan, Mozambique, Turkmenistan; starts in Sierra Leone and Gabon. - Distributional consequences research: draft expected summer; presentations planned at multiple conferences; draft by Autumn, 2013. - Continued country trainings, workshops (e.g., weeklong modeling workshop in Liberia in August, 2013), and public dissemination via IMF-DFID web channels and conferences (pre-conference July 22-23, 2013; final conference January 30-31, 2014). - Personnel and commissioning approach adjusted toward one-to-two-year visiting scholar contracts rather than per-paper contracting to improve scalability and uptake support. *Macroeconomic Research in Low Income Countries (DFID–IMF project), June 2013 annual review and project materials.* ### Introduction and Context ### Introduction and Context ### What support is the UK providing? - “Macroeconomic Research in Low Income Countries” represents a strategic partnership in research between DFID and the IMF with the intention of: - enhancing the generation of high-quality research on key macroeconomic issues in low-income countries (LICs); - ensuring research uptake through the design of the research and its execution in close collaboration with policymakers within and outside the IMF; - using the IMF’s pulling power to expand the network of macroeconomic researchers working on LICs; and - achieving this as cost-effectively as possible. - The project began in March, 2012 and will conclude in June, 2015. - DFID will provide £4.14 million over three years. (US$6.6m - of this $1,924,170 has been spent to date). ### What are the expected results? - Outcome: better macroeconomic policy making in LICs leads to faster economic growth, job creation and poverty reduction in LICs. - Impact: a deeper understanding of, and better engagement by IMF policy makers on LIC-specific macroeconomic issues based on robust analysis and evidence, and the development of toolkits to enable LICs to benefit from development in six key thematic areas. - Anticipated outcomes: - (i) Produce high quality research. Some research targeted at high quality journals; a large proportion aimed at operational research, to build and pilot useful applied frameworks. - (ii) Strongly encourage uptake of research by IMF country teams. Example target: at least 3 country teams to use the public investment/debt sustainability analysis tool in the year of completion and reference such analysis in Article IV and other staff reports. - (iii) Encourage uptake by country authorities. Example target: at least two central banks to make use of the monetary policy models developed, as evidenced through interactions with IMF staff and noted in IMF staff reports. Uptake supported by workshops and conferences to bring together academics, policymakers and technocrats. - (iv) Strengthen engagement by IMF senior policymakers on issues affecting LICs. Research expected to provide direct inputs and influence Fund Board papers on LICs (example: research under topic 3 helped provide analytical basis for the Board paper on natural resource rich LICs). - (v) Expand the network of researchers working on macroeconomic issues affecting LICs. Proposal: establish a process similar to the annual research conference to commission up to ten research papers on LICs and publish papers as a conference volume. ### Context motivating UK support - The Growth Report of the Commission on Growth and Development (2008) concluded that ‘it is impossible for poor countries to lift large populations out of poverty without growth’ and emphasized the need to deepen understanding of how to apply growth strategies to specific economic and political contexts. - Much policy research is focused on developed economies and higher income/high population developing countries (e.g., Brazil, China, India, Indonesia); research on Low Income Countries (LICs) has received less attention, partly due to lack of quality data on LICs. - The Commission on Growth states that no economy can flourish amid macroeconomic instability; empirical studies by Bleaney (1996) and Fischer (1991, 1993) concluded macroeconomic stability matters for sustained growth, but disagreement remains on precise definition and preservation of stability in developing countries. - Reasons DFID commissions growth research: - DFID resources and incentives to deliver policy-focused, used research rather than research of general interest. - DFID incentives to focus on the least developed countries, an under-resourced area. - DFID growth research establishes greater diversity and competition in provision of research and advice to developing country policy-makers that is independent and not ideologically driven. - DFID growth research directly supports DFID strategic priorities including ‘Wealth Creation’, ‘Gender’ and ‘Private Sector Development’ and Research and Evidence Division’s three strategic objectives: (1) capacity to do and use; (2) new knowledge to help shape policy; and (3) evidence and new research are used for better decision-making. - Additional rationales: limited capacity to do/use macroeconomic research in LICs; the global macroeconomic crisis creating new challenges for LICs; DFID investment aims to protect and promote the LIC agenda. ### Section A: Detailed Output Scoring — Output 1 - Output 1: High quality, policy relevant research on macroeconomic issues affecting LICs — Produced. - Output 1 score and performance description: A++. - Rationale: The project produced a very impressive number of outputs during its first year; working papers substantially exceeded high target and published papers met high target. DFID economists assessed papers’ quality, relevance and originality very positively. - No significant cost drivers or substantial delays noted; no revisions to project budget or log frame required at this time. Progress against expected results (Year 1): - During the project’s first year, the IMF completed 13 working papers and published one paper in an academic journal on four out of the six topic headings. - This compares to a medium performance target of 8 working papers and no published paper, and a high performance target of 12 Working Papers and one published paper. Type of Output — Actual Output — Year 1 Output Targets: - 1.1 Working Papers: 13 — H 12, M 8, L 4 - 1.2 Published Papers: 1 — H 1, M 0, L 0 Topic-level outputs and highlights (Topics 1, 2, 3, 5 summarized): - Topic 1: Monetary and Exchange Rate Policy in Low-Income Countries - Andrle and others (2013) develop a forecasting and policy analysis system (FPAS) specifically for sub-Saharan African (SSA) countries; model explicitly assigns a central role to food prices and their relation to global developments; applied to Kenya. - Baldini et al. (2012) examine the role of the financial system in transmitting external shocks. - Benes et al. (2013) look at the role of managed floats and exchange rate interventions in monetary policy regimes. - Shen and Shu-Chun (2012) study the effect of government spending under limited international capital mobility. - Topic 2: Public Investment, Growth, and Debt Sustainability - Buffie et al. (2012) put forward a dynamic LIC-specific macroeconomic model providing a sophisticated debt sustainability analysis tool for LICs; model enables building logically consistent scenarios for public investment surges and other shocks; applied to Togo, Côte d'Ivoire, Burkina Faso, Cape Verde (see Yibin (2012)), Rwanda, and Liberia; applications to Afghanistan, Senegal, Ghana, Tanzania, and Ethiopia well underway. - Andrle et al. (2012) present an analysis of the public investment scaling-up strategy for Togo using a dynamic macroeconomic model that explicitly analyzes links between public investment, economic growth, and debt sustainability; model used to assess growth projections underlying standard Excel-based debt sustainability analysis for Togo. - Topic 3: Macroeconomic Management of Natural Resources - Berg et al. (2013) develop a “sustainable investing tool” allowing policymakers to consider macroeconomic and fiscal implications of different investment and saving strategies; team developing another model for assessing current account norms in resource-rich LICs; sustainable investing tool applied to Angola, the CEMAC currency union, Azerbaijan, and Mozambique. - Araujo et al. (2013) develop a model with private and public investment and frictions capturing LIC characteristics such as absorptive capacity and borrowing constraints; model applied to the CEMAC currency union and being applied to Ghana and Azerbaijan. - Warner (2013) examines efficient government investment and argues for combining social return thresholds with private sector incentive considerations to define a more efficient framework to justify state intervention. - Topic 5: Financial Deepening and Macroeconomic Stability and Sustained Growth - Poghosyan (2012) analyzes factors driving persistently higher financial intermediation costs in LICs and finds concentrated market structures, lack of competition in LIC banking systems and institutional weaknesses are key impediments. - Dabla-Norris and Narapong (2013) examine impact of financial depth on macroeconomic volatility using dynamic panel analysis for 110 advanced and developing countries; results show financial depth dampens volatility of output, consumption, and investment growth, but only up to a certain point. - Barajas et al. (2013) introduce the concept of the financial possibility frontier as a constrained optimum level of financial development and show overshooting beyond structural fundamentals is associated with credit booms and busts. Recommendations from the review team (Output 1): - Recognize IMF’s impressive performance despite initial staff mobilization delays. - Note successful collaboration between RES, Africa Department and Policy Divisions as strengthening relevance and use of research by IMF country operational teams and country authorities. - Suggest converting Working Papers into more accessible shorter “policy briefs” to maximize uptake by the broader policymaking community. - Recommend independent expert peer review of papers by individual(s) not connected to the research programme or IMF to assess internal and external validity; suggest initial funding through existing project resources. - Recommend the impact weighting be left unchanged at 30%. - Impact Weighting (%): 30% - Risk: LOW ### Section A: Detailed Output Scoring — Output 2 - Output 2: IMF Research Products (policy analysis, tools and frameworks) used by IMF country teams and partner authorities. - Output 2 score and performance description: A++. - Rationale: Outputs substantially exceeded expected performance. Progress against expected results (Year 1): - The expected performance against Output 2.1 was between 1 (low) to 6 (high) examples of uptake by IMF teams. The project achieved 10 instances of uptake (67% higher than the high target). - Progress against Output 2.2: target was between 0 (low) and 1 (high) example of uptake by country Authorities; the team achieved the high target for this sub-output. - Type of Output — Actual Output — Year 1 Output Targets: - 2.1 Uptake by IMF Teams: 10 — H 6, M 3, L 1 *Macroeconomic Research in Low Income Countries (DFID–IMF project), Introduction and Context (June 2013).* ### 2.2 Uptake by Authorities 1 H 1 ### 2.2 Uptake by Authorities ### Country applications of LIC-specific macroeconomic models - Angola - IMF team used a dynamic stochastic general equilibrium model calibrated to Angola to assess impact of an oil shock. - Finding: Through the use of fiscal buffers and a slower scaling up of public investment, Angola would be able to withstand a 2008/2009-size price shock within three to five years. - Benin - Benin’s 2012 Article IV report includes a “Financial Sector Review” Supplement—the first pilot review called for by the May 2012 “Enhanced Financial Sector Surveillance in Low-Income Countries” paper. - Purpose: Monitor qualitative and quantitative indicators, identify gaps (including through statistical benchmarking), and develop financial sector policies; highlighted efforts to strengthen stability, increase oversight and broaden access. - Burkina Faso - Appendix III applied the Buffie et al. (2012) model to examine public investment, growth, and debt sustainability. - Findings: Under certain conditions, scaling-up investment as envisaged in the new PRSP could raise economic growth substantially in the medium to long term, boost private investment, and increase consumption; financing options should be chosen based on implications for long-term fiscal and debt sustainability. - Policy advice: Prefer moderate and sustained increases in public investment financed through higher grants and concessional loans and increased government revenue; authorities welcomed the analysis and intended to use the model’s results in donor meetings. - Cape Verde - Scenario and sensitivity analyses using the Buffie and others (2012) model. - Findings: Moderate scaling-up of public investment combined with ensuring quality (to raise productivity) is more likely to contribute to stable and sustained medium- to long-term growth; more ambitious plans feasible if structural bottlenecks are solved and tax policy/administration revamped. - Côte d'Ivoire - Appendix 4 applied Buffie et al. (2012). - Finding: Simulation results advised against a massive and sustained surge in public investment due to likely debt sustainability problems; recommended moderate scaling up alongside structural reforms (public investment efficiency, revenue collection, returns to investment and productivity). - Kenya - Country report incorporated the Andrle et al. (2013) model to analyze whether disinflation is supply- or demand-driven. - Finding: Monetary policy played a key role in both overall and non-food inflation and in reversing Kenya’s exchange rate depreciation. - Liberia - Buffie et al. (2012) model used to evaluate scaling up public investment via three potential investment strategies. - Findings: The most ambitious program yields the largest medium-term growth dividend but risks unsustainable debt dynamics; a combination of increased public investment and efficiency of capital spending could lead to a 1 percentage point increase in the average annual growth rate of real per capita income over ten years. - Policy implication: Need to tackle bottlenecks to project implementation and prioritize high-return projects. - Rwanda - Buffie et al. (2012) model used to study scaling up public investment and resource requirements. - Findings: Scaled-up investment can boost growth but mobilizing required resources is challenging; realistic simulations combined increases in tax revenue, expenditure rationalization, and judicious external borrowing; emphasized reliance on concessional loans and public investment efficiency. - Authorities indicated they would draw on results for EDPRS II development. - Senegal - SPR and RES economists trained Senegalese authorities on the Buffie et al. (2012) model; implemented the model under various financing scenarios and parameter modifications. - Senegalese Ministry of Economics and Finance staff (notably Kalidou Thiaw) finalized and presented results; authorities are modifying the model (with DFID-financed IMF staff and consultants) to analyze expenditure and revenue options for deficit reduction; assistance included remote consultation and a mission in April 2013. - Togo - Appendix III applied Buffie et al. (2012) to inform policy dialogue on sustainable investment scaling up. - Finding: Larger investment scaling up could promote growth without jeopardizing debt sustainability under conditions requiring continued reforms on public investment efficiency/quality, sustainable debt management, and increased revenue collection. ### Uptake, training, and dissemination - IMF developed a publicly available website with project information, conferences, events, and access to policy and working papers; website to be updated quarterly. - IMF disseminated the first quarterly e-newsletter to LIC researchers, project stakeholders, and IMF staff. - Training and capacity building: - Course with hands-on session offered to IMF country desk economists via the IMF Institute for Capacity Development. - Internal IMF seminar for country desks and mission chiefs of the African Department to discuss lessons from applying the model. - Training on model use provided to country authorities in Liberia and Rwanda. - Senegalese authorities received training and are actively modifying the model for local policy analysis. ### Impact on IMF policy and Board papers - Public investment, growth, and debt sustainability - Team developed a dynamic LIC-specific macroeconomic model that explicitly captures: investment-growth linkages; potential inefficiencies of public investment; public debt accumulation (external concessional, external commercial, and domestic); and fiscal policy reactions for debt sustainability. - Applications: Togo, Burkina Faso, Côte d’Ivoire, Cape Verde, Rwanda, and Liberia informed Art. IVs and program reviews and complemented IMF-World Bank DSAs. - The model and country applications are mentioned in an IMF Board paper on the “Review of the Policy on Debt Limits in Fund-Supported Programs” (Box 3), as a tool to assess fiscal, growth, and debt sustainability implications for alternative investment scenarios. - Macroeconomic management of natural resource wealth - Team constructed a macroeconomic model (Berg et al., 2013) accounting for LIC features (investment inefficiency, low absorptive capacity) to inform investment scaling-up and fiscal buffer adequacy under resource revenue scenarios. - Built a framework analyzing optimal consumption and investment behaviors and implied current account benchmark for LICs receiving resource windfalls (item 1.1.10). - Two of five “key innovations” in an IMF Board paper on resource-rich developing countries draw on Berg et al. (2012) and Araujo et al. (2013); application 2.1.8 to Angola is described in the Board paper. - Financial deepening and macroeconomic stability - Research items (1.1.11, 1.1.12, 1.1.13) contributed to an IMF Board paper and an IMF/DFID policy conference; work cited in first financial sector surveillance strategy document calling to “Facilitate sustainable financial deepening in countries with shallow financial systems to support economic growth and stability.” - One working paper was featured in the October 2012 Global Financial Stability Report in a box on “Financial Deepening and Economic Performance.” - Pilot application in Benin; further applications underway in WAEMU, Senegal, and Ghana. - External advisory engagement: Prof. Robert Townsend of MIT agreed to serve as an external advisor; DFID-financed partnership with the Consortium for Financial Systems and Poverty (CFSP) to form an experts network. - Growth through diversification - Staff Discussion Note by Papageorgiou and Spatafora on stylized facts and macroeconomic implications of diversification in LICs. - Conference “Diversification and Structural Transformation for Growth and Stability in Low-Income Countries” held on February 21, 2013, with more than 150 attendees; opened by Min Zhu, with opening remarks by Ricardo Hausmann. ### Performance metrics, outcomes, and recommendations - Output 3 score and performance: A++ - Sub-output performance: - 3.1 High-Level Policy Conferences - Committed target: 1 (low) to 3 (high) conferences. - Actual delivered: 6 conferences. - 3.2 Results reflected in IMF board discussions and IMF policy papers (Staff Discussion Notes, policy memos to management, etc.) - High performance target: 3. - Actual delivered: 4 outputs reflected in Board discussions and policy papers. - Progress statement: - Research has increased senior IMF engagement on LIC issues; cited recognition from IMF management including Min Zhu, Olivier Blanchard, and Antoinette Sayeh. - Selected quotations from IMF senior staff emphasize the project’s role in addressing research gaps on LICs and fostering collaboration between departments. - Recommendations from review team: - IMF should provide a list of names of beneficiaries to the funder and seek direct feedback from users to evaluate use and impact of the research; feedback to strengthen country analytics and policy dialogue. - Continue focusing on quality research in the second year while strengthening uptake activities in the second and third years. - Collect feedback directly from country Authorities to assess effects on decision making. - Reduce impact weighting to 25% for the second and third years. - Key administrative and evaluative figures: - Impact Weighting (%): 30% (25% for 2nd and 3rd years) - Revised since last Annual Review? Y/N NO. THIS IS THE FIRST ANNUAL REVIEW. - Risk: Low/Medium/High: LOW - Revised since last Annual Review? Y/N NO *IMF — June 2013 project report, section 2.2 Uptake by Authorities.* ### 1. Modernizing Monetary Policy Frameworks in Money-targeting Sub-Saharan African ### 1. Modernizing Monetary Policy Frameworks in Money-targeting Sub-Saharan African Countries ### Seminar summary and key challenges - Event: Seminar held on April 20, 2012, titled "Modernizing Monetary Policy Frameworks in Money-targeting Sub-Saharan African Countries." - Nature: Closed-door meeting between IMF staff and central bank governors and their high-level staff from several SSA countries. - Purpose: - Share country experiences from the region. - Stimulate new thinking on modernizing monetary policy frameworks to respond to new challenges facing emerging African economies. - Launch high-level cooperation between IMF (RES/SPR/AFR) staff and several central banks in the region (Kenya, Tanzania, Rwanda) based on research in topic 1 of the project. - Identified challenges facing money-targeting sub-Saharan African economies: - i) large and unexpected shocks; - ii) a fast changing financial sector landscape; - iii) a greater role of price signals in the financial systems. - Implication: These challenges have begun to challenge monetary policy implementation and raise the need for re-thinking monetary policy frameworks in the sub-region. ### Outputs, impact, and follow-up cooperation - Immediate outcome: Seminar helped launch subsequent cooperation at a high policy level between IMF (RES/SPR/AFR) staff and central banks in Kenya, Tanzania, and Rwanda. - Relationship to broader program: Seminar listed among high-level policy conferences supporting Output 3.1 (high-level policy conferences reflecting research findings) and Output 4 (capacity building and expanding LIC researcher network). ### Recommendations from the program review related to Topic 1 - Continue efforts by the programme team given the high profile among senior IMF staff. - Modify the language in output indicator 3.1: - From: "High level policy conferences reflects findings of research papers funded under this project" - To: "High level policy conference attended by senior IMF policy makers, reflect findings of research papers funded under this project" - Adjust impact weighting for this output: - From: 30% - To: 25% for the second and third years of the project. ### Relevant program-level performance and related outputs (contextual for the seminar) - Output 4 (IMF strengthens capacity building by expanding the network of LIC researchers) summary: - Overall score and performance description: A++ - Achievements: - Hosted 6 high-level policy conferences versus a high target of 2. - Commissioned 13 papers involving 25 total authors. - Hired researchers not previously working on LIC-related issues. - Developed a publicly available website with project information and policy/working papers (updated quarterly). - Disseminated the first quarterly e-newsletter to LIC researchers, stakeholders, and IMF staff. - New researchers engaged (examples): - Luisa Charry (former director of monetary policy analysis, Central Bank of Colombia) and Martin Fukac (monetary policy modeling experience at the Federal Reserve Bank of Kansas City and the Reserve Bank of New Zealand). - Adrian Peralta (Federal Reserve Bank of Saint Louis) and Irena Telyukova (University of California, San Diego). - Commissioning and participation metrics: - 4.1 Commissioned Papers: Actual 0; Targets H 0, M 0, L 0 - 4.2 Attendance of External Researchers at High-Level Policy Conferences: Actual 6; Targets H 2, M 1, L 1 - 4.3 Outputs disseminated in e-newsletter and updated public web page: Actual 2; Targets H 2, M 2, L 1 - Recommendations related to Output 4: - Capture capacity building in partner countries (e.g., training central bank staff in East Africa) more systematically in the log frame by adding a third indicator. - Revise indicator 4.1 language to "commissioned papers from new researchers." - Revise output indicator 4.2 to "attendance of external researchers and policy makers at high level policy conferences." - Increase impact weighting for Output 4 from 10% to 20% for the second and third years of the programme. - Impact Weighting for Output 4: - 10% (first year) 20% (second and third years) - Risk assessment for Outputs 3 and 4: LOW ### Program-level appraisal, feedback, and suggested dissemination steps - Overall program progress and results: - Has the logframe been updated since last review? NO. THIS IS THE FIRST YEAR ANNUAL REVIEW - Overall Output Score and Description: A++ - Rationale: The IMF met or exceeded first-year targets; in some cases substantially exceeded high output targets. - Direct feedback from beneficiaries (DFID economists) covered criteria: - Relevance, Originality, Accessibility, Quality, Uptake. - DFID feedback summary: - Research judged high quality, relevant, and original. - Working papers generally accessible; recommendation to produce shorter policy briefs to improve accessibility and policy uptake. *Source: IMF seminar "Modernizing Monetary Policy Frameworks in Money-targeting Sub-Saharan African Countries", April 20, 2012, and associated IMF project annual review materials.* ### 1.4 Summary of overall progress ### 1.4 Summary of overall progress ### Overall achievements and institutional uptake - During the first year of the project the IMF have exceeded each target outlined in the original proposal. - The broad body of research has been well received by senior IMF staff, IMF Executive Board members, policymakers in LICs, and a wide array of researchers interested in macroeconomic issues in LICs. - DFID funding enabled IMF staff to expedite production of working papers and expand opportunities to closely link IMF research with technical assistance. - The project has influenced IMF policy, encouraged close interdepartmental coordination and collaboration, and received strong commitment and support from IMF country teams and authorities. - Recognition: - The project has been recognized in both the Research and Strategy, Policy, and Review (SPR) departmental annual awards ceremonies. - In SPR, the Macroeconomic Policy Frameworks in Resource-Rich Developing Countries Board paper (which built on research from the DFID project) was recognized for its outstanding contributions. - In the Research Department, the IMF-DFID project as a whole was honoured for its excellence in cross-departmental collaboration. - High-level awareness: - IMF Deputy Managing Director Min Zhu, Chief Economist Olivier Blanchard, and African Department Director Antoinette Sayeh have been cited as keenly aware of the importance and impact of the project. - Olivier Blanchard: “[l]ow-income countries are not `systemically important,’ in the jargon we use here, and we do not do enough research on LICs. But the issues are critical. This project with DFID is going a long way to correcting this problem.” - Antoinette Sayeh: “Given the exigencies of the global financial crisis and the need to focus the Fund’s energies on systemically important countries, it is not surprising that research on LICs has not had the priority that we might have desired. The DFID-financed project goes a substantial way to addressing this gap. We value in particular the close collaboration that has taken place between your staff and my own, as well as the practical and applied nature of much of the research.” ### Major research outputs, tools, and country engagement - Monetary policy frameworks and FPAS: - Andrle et al. (2013) developed a monetary policy forecasting and policy analysis system (FPAS) specific to sub-Saharan Africa that assigns a central role to food prices in inflation analysis. - DFID funding supported direct training on this monetary policy model to several African central banks (Ghana, Kenya, Rwanda, and Uganda). - The FPAS training became a centerpiece of the Fund’s engagement with the East African Community on modernizing monetary policy frameworks and featured in seminars with central bank governors at the IMF Spring Meetings in April 2013. - The research anchors internal IMF analysis on modifying Fund conditionality on monetary policy in SSA LICs and training of African Department staff. - Debt sustainability framework (DSF) enhancements: - Buffie et al. (2012) produced a dynamic LIC-specific model addressing deficiencies in the IMF-World Bank DSF. - Internal uptake included a course with hands-on sessions for IMF country desk economists and an internal African Department seminar for mission chiefs. - The model has been widely used by IMF staff to enrich analyses of public investment/growth linkages in assessing debt sustainability. - Training and country applications: one-week training sessions in Rwanda and Liberia (Liberian authorities requested additional training and offered to pay), close work with Senegalese authorities including a two-week visit to calibrate the DSF model and begin collaborative paper work. - Natural resource macroeconomic management: - Araujo et al. (2013) and Berg et al. (2013) produced research critical in encouraging a rethink by the IMF of its policy towards the use of sovereign wealth funds. - The two papers resulted in tools to help countries decide when to convert resources into domestic public capital; these tools were featured as “critical innovations” in the IMF Board paper on Macroeconomic Policy Frameworks for Resource-Rich Developing Countries. - Pilot applications included Angola, Azerbaijan, and the Democratic Republic of Congo. - Distributional implications of macroeconomic policy: - Initial draft papers presented at several conferences; forming the basis for institutional collaboration on applying micro/macro models to specific country cases. - Financial sector surveillance and financial deepening: - Barajas et al. (2013), Dabla-Norris and Narapong (2013), and Poghosyan (2012) informed a new IMF approach presented in the Board paper “Enhancing Financing Surveillance in LICs: Financial Deepening and Macro-Stability.” - The research provides frameworks for policy and institutional constraints to sustainable financial deepening and specifies linkages between financial deepening and macroeconomic stability. - Pilot country applications included Benin, Senegal, Ghana, and several others; findings discussed with authorities and featured in Article IV staff reports; team engagement at an IMF conference in Thailand attracted high-level policy makers from Asia. - Diversification and structural transformation: - Papageorgiou and Spatafora (2013) presented stylized facts and frameworks for analyzing economic diversification, underpinning several IMF country case studies and a DFID-financed conference that connected IMF management and senior staff with top academics and previewed a toolkit to analyze quality upgrading. ### Research dissemination, events, and human capital - Publications and outputs: - The IMF have produced 13 working papers and have had one paper published in the first year. - Conferences and outreach: - Conference 1: Financial Deepening, Macro-Stability, and Growth in Developing Countries — held on September 24, 2012; IMF Deputy Managing Director Min Zhu gave opening remarks; Robert Townsend (MIT) delivered the keynote. - Conference 2: Diversification and Structural Transformation for Growth and Stability in Low-Income Countries — held on February 21, 2013; Min Zhu opened the conference; Ricardo Hausmann (Harvard University) provided opening remarks. - The conferences were open to the public and attracted more than 150 attendees. - Web and communications: - A publically available website provides detailed information on the project, upcoming conferences and events, and access to all policy and working papers; the website is updated quarterly. - The IMF disseminated its first quarterly e-newsletter to LIC researchers, project stakeholders, and IMF staff. - Recruitment and talent attracted: - The project attracted high-level researchers on one-to-two-year contracts. - Examples of hires: - Luisa Charry (former Director of Monetary Policy Analysis, Central Bank of Colombia; former Head of Equity Research at Valores Bancolombia) and Martin Fukac (worked on monetary policy modeling at the Federal Reserve Bank of Kansas City and at the Reserve Bank of New Zealand) now work closely with country teams and central bank researchers in developing countries. - Adrian Peralta (Federal Reserve Bank of Saint Louis) and Irena Telyukova (assistant professor at the University of California, San Diego) have published in top journals (e.g., Econometrica and Review of Economic Studies) and focus on heterogeneous agent models for macro policy analysis in LICs. - Team members presented papers at conferences attended by central banks, the World Bank, regional development banks, and academics from Harvard, Oxford, Berkeley, MIT, and other institutions. - The IMF held two conferences to bring together LIC researchers. ### Key operational challenges and lessons learned - Scaling and hiring: - Main challenge: difficulties in scaling up, particularly in getting the right people. - Two recruitment models evaluated: 1) offer contracts for individual papers, or 2) hire new staff for one to two year postings. - The IMF determined that contracting individual papers was not easily scalable or manageable for operational research; greater emphasis was placed on hiring new researchers for one-to-two-year postings. - The IMF underestimated the time required to complete searches and onboard new hires; as a result, some resources were reprogrammed from the first year to a new third year and log-frame output dates were pushed back. - Interdepartmental coordination and bureaucracy: - The project’s joint design between Research (RES) and Strategy, Policy, and Review (SPR) Departments and close work with area departments (particularly the African Department) created unusual interdepartmental collaboration that, while critical for uptake, proved challenging due to Fund bureaucracy (budgeting and hiring are usually department-internal). - The interdepartmental nature sometimes created difficulties but was critical in breaking down barriers and facilitating uptake in area departments and IMF policy papers. - Administrative and overhead issues: - Initial under-spending on overhead costs, including failure to hire a project officer early; Lisa Kolovich was eventually brought in as project officer. - Some counterpart funds were used to provide additional staff assistant resources to the HR team in Research, easing burdens. - Integration of DFID-financed work with Fund procedures could not readily be contracted out and placed substantial demands on human resources and budget staff. - Scarcity of Fund staff time: - Producing uptakeable research required substantial investments by Fund staff to shape the research from beginning to end, making IMF staff very scarce resources in the process. - The operational nature of the research made publication in top macroeconomic journals harder, particularly for applied work focused on sub-Saharan Africa. - Limits on uptake capacity: - Uptake is not just dissemination of papers or codes; it requires designing research with uptake goals and helping with pilot applications — activities that limit the number of uptake instances the IMF can support. - Monetary policy frameworks example: - The team began with a model focusing uptake on one or two central banks as potential regional leaders, but authorities prefer moving in parallel and jointly (notably the East African Community), placing additional demand not anticipated in initial project design. - Internal demand from the African Department exceeded initial expectations; the IMF drew on Institute for Capacity Development resources and non-DFID resources and used DFID resources to engage consultants (e.g., OGResearch led by David Vavra) to support simultaneous training/uptake with several central banks, but the scale of demand remains a challenge. ### Outcomes and outlook - Despite operational and bureaucratic challenges, the IMF have surpassed their targets for the first year and anticipate that they will again exceed their “High” targets in the second year. *Source: IMF-DFID project report (section 1.4 Summary of overall progress).* ### 1.6 Annual Outcome Assessment ### 1.6 Annual Outcome Assessment ### Outcome summary - The IMF committed to achieving between 1 (low) and 3 (high) examples of improved IMF policymaking and integration of LIC specifics into project thematic areas. - The IMF achieved 3 instances of improved IMF policymaking linked to the project’s thematic areas, equivalent to the high outcome target. - Outcome indicator O.1: "Evidence of Improved IMF policymaking and integration of LIC specifics in project thematic areas" — Actual: 3; Targets: H 3, M 2, L 1. ### Thematic impacts and analytical contributions - Public Investment, Growth, and Debt Sustainability - Research transformed IMF policy and analysis on public investment/growth links and their role in debt sustainability analysis for low-income countries (LICs). - Identified risks of traditional DSAs underweighting investment-growth linkages and highlighted LIC-specific features such as investment inefficiency and poor absorptive capacity. - Developed a dynamic LIC-specific macroeconomic model (item 1.1.5) that makes explicit: - (i) the investment-growth linkages; - (ii) the potential inefficiencies of public investment; - (iii) public debt accumulation (external concessional, external commercial, and domestic); - (iv) the fiscal policy reactions necessary to ensure debt-sustainability. - Model applied to Togo, Burkina Faso, Cote d’Ivoire, Cape Verde, Rwanda and Liberia in the context of IMF policy work (Art. IVs and program reviews) and complemented IMF-World Bank DSAs (see section 2.1, items 2,3,4,5,6, and 7). - Model and country applications cited in IMF Board paper “Review of the Policy on Debt Limits in Fund-Supported Programs” (item 3.2.1) as a tool to assess fiscal, growth, and debt sustainability implications for alternative investment scenarios (Box 3 of item 3.2.1). - Capacity-building: a course with hands-on session offered to IMF country desk economists by the IMF Institute for Capacity Development; internal IMF seminar for African Department country desks and mission chiefs; training provided to country authorities in Liberia and Rwanda. - Macroeconomic Management of Natural Resources - Noted that IMF policy toward resource-rich countries had relied on a version of the “permanent income hypothesis” favoring saving abroad and smoothing spending, which may be inappropriate for LICs facing capital scarcity and constrained access to international capital markets. - Constructed a macroeconomic model (Berg et al., 2013, item 1.1.8) accounting for developing-country features such as investment inefficiency and low absorptive capacity, enabling simulations of many investment trajectories under different resource revenue scenarios to inform choices about investment scaling-up and fiscal buffers. - Built a simple framework to analyze optimal consumption and investment behaviors and implied current account benchmark for LICs receiving a resource windfall (item 1.1.10). - Both frameworks applied by country teams in Article IV consultations. - Research formed two of five key innovations in an IMF Board paper (item 3.2.2) that shifts Fund advice for LICs away from traditional permanent-income-based consumption-smoothing toward realizing development gains from resource windfalls. - Ongoing country applications and outreach efforts. - Financial Deepening for Macroeconomic Stability and Sustained Growth - Identified shallow and undiversified financial systems in LICs as constraining policy choices, policy transmission, risk transfer, and vulnerability to external shocks. - Issued research projects (items 1.1.11, 1.1.12, 1.1.13) that served as principal input into an IMF Board paper (item 3.2.3) and an IMF/DFID policy conference (item 3.1.4). - Work referenced in the Fund’s first financial sector surveillance strategy document calling to “Facilitate sustainable financial deepening in countries with shallow financial systems to support economic growth and stability.” - One working paper’s analysis featured in the October 2012 Global Financial Stability Report in a box on “Financial Deepening and Economic Performance.” - Pilot application in Benin (item 2.1.9); applications underway in WAEMU, Senegal, and Ghana. - Initiative to form an experts network and promote knowledge-sharing with Prof. Robert Townsend (MIT) as external advisor; DFID-funded partnership with the Consortium for Financial Systems and Poverty (CFSP). ### Costs and timescale — financial performance (FY 2013: March 2012-February 2013) - Project on-track against original timescale: Yes. - Project on-track against financial forecasts: No. - The project underspent substantially against the original budget, and marginally against the revised budget; the budget was revised due to delays in recruitment. - Budget breakdown (Original, Revised, Actual Committed, Projected Total, Total Realized, Percent Difference) - Contractuals: 1,109,768$ (Original); 796,000$ (Revised); 689,831$ (Actual Committed); 95,229$ (Projected); -$; 785,060$ (Total); ( 10,940)$; -1.4% - Visiting Scholars: 1,202,883$; 635,000$; 335,258$; 134,592$; 56,913$; 526,764$; ( 108,236)$; -17.0% - Travel and Other Costs: 356,369$; 350,000$; 141,974$; 32,500$; 30,000$; 204,474$; ( 145,526)$; -41.6% - Conferences: 186,805$; 130,000$; 20,629$; 23,500$; -$; 44,129$; ( 85,871)$; -66.1% - Travel: 119,565$; 170,000$; 121,346$; 9,000$; 30,000$; 160,346$; ( 9,654)$; -5.7% - Contingency: 50,000$; 50,000$; -$; -$; -$; -$; ( 50,000)$; -100.0% - IMF Staff: 589,666$; 506,565$; 419,622$; -$; 20,194$; 439,816$; ( 66,749)$; -13.2% - IMF Staff Backstopping/Uptake: 543,102$; 460,000$; 377,114$; -$; 15,663$; 392,777$; ( 67,223)$; -14.6% - Project Management: 46,565$; 46,565$; 42,508$; -$; 4,531$; 47,039$; 474$; 1.0% - Subtotal: 3,258,687$; 2,287,565$; 1,586,686$; 262,321$; 107,108$; 1,956,114$; ( 331,451)$; -14.5% - TTF Management Fee (7%): 228,108$; 160,130$; 111,068$; 18,362$; 7,498$; 136,928$; ( 23,202)$; -14.5% - TOTAL: 3,486,795$; 2,447,695$; 1,697,754$; 280,683$; 114,605$; 2,093,042$; (354,652)$; -14.5% - Categories with greater than five percent difference between revised budget and realized expenditures: Visiting Scholars, Travel and Other Costs, IMF Staff. - Contingency budget of 50,000$ not used. - Project management slightly above revised budget by 1.0%. ### Key cost drivers and procurement changes - Biggest planned costs: additional staff on short-term contracts, and visiting scholars. - Project found it more effective to hire staff for one year or more contracts rather than per-paper contracts, resulting in substantial underspend on the ‘Visiting Scholars’ line. - Change in procurement approach caused delays and re-profiling of the budget, pushing 1m$ back into a third year. - No anticipated changes in cost structures due to exchange rates. ### Forward plans and research workstream (Year 2 and upcoming activities) - The IMF will continue work on all six broad research topics and expand research capacity. Plans include: 1) Monetary and exchange rate policies in LICs - Ongoing work: real determinants of food price inflation; pitfalls using VARs to uncover monetary policy effects in LICs; case studies of recent monetary policy decisions in East Africa. - Collaborations: Christopher Adam, Edward Buffie, Peter Montiel, Peter Pedroni, Stephen O'Connell, David Vavra, Jan Vlcek. - Country analyses: ongoing work on Kenya, Uganda, Rwanda; analyses in Ghana and Tanzania; encouragement of new researchers into LIC monetary policy. 2) Public investment, growth, and debt sustainability - Working with Czech consulting firm OGR to extend the model to incorporate uncertainty and external shocks. - Assessing risks of debt sustainability where countries discover natural resources and consider borrowing against future export revenues. - Applications in Ghana, Senegal, Afghanistan, Ethiopia, and Tanzania. - Collaborations: Edward Buffie, Christopher Scott Adam, David Bevan, Mouhamadou Bamba Diop, Kalidou Thiaw. - Planned weeklong modeling workshop in Liberia in August, 2013. 3) Macroeconomic management of natural resource wealth - Combining the sustainable investing tool with the debt sustainability framework to analyze investment scaling-up using natural resource revenues and external borrowing. - Applications in progress: Kazakhstan, Mozambique, Turkmenistan; starts in Sierra Leone and Gabon. - Collaboration: Ioana Moldovan. 4) Macroeconomic policies and income distribution - First working paper version expected this summer; presentations planned at CSAE conference in Oxford, Georgetown University, Econometric Society Summer meetings (mid June), and Society for Economic Dynamics Annual Meeting (late June). - Hired Irina Telyukova (UCSD) to investigate distributional consequences of macro policy and shocks in LICs; draft paper expected by Autumn, 2013. 5) Role of financial deepening in fostering macroeconomic stability and sustained growth in LICs - Professor Robert M. Townsend (MIT) serving as external advisor to strengthen surveillance analysis and policy advice. 6) Growth through diversification - Working paper on export quality and another on five case studies (Angola, Bangladesh, Malaysia, Tanzania, and Vietnam) forthcoming. - Plans for an IMF Board paper on diversification and structural transformation, focusing on policy challenges and responses. - Development of a web-based toolkit providing access to diversification indices. - Additional commissioned work: 13 papers covering topics including management of capital flows; impact of uncertainty on macroeconomic management; distributional effects of fiscal and monetary policy; growth impact of privatization; link between financial liberalization and macroeconomic stability; methods for estimating output and growth in real time. - Authors span Ph.D. students to full professors from inside and outside the U.S. - Events: pre-conference on July 22-23, 2013; final conference on January 30-31, 2014. - Dissemination: papers to be publicly available on IMF-DFID website and through the Pacific Economic Review’s special issue on the conference; gold access provided by the grant for journal publications. ### Evidence and evaluation - No changes to the evidence that challenge the original justification for the project; the project continues to fill gaps in the research agenda. - Given completion of only the first year, it is too early to conduct a proper evaluation of the program. ### Risk assessment - Output Risk Rating: Low. - Justification: progress during the first year and delivery surpassing log frame expectations in Year 1. - Risks and mitigation: - Risk: commissioned papers might not be genuinely new work. Mitigation: web searches for earlier versions and correspondence with authors; several proposals rejected on novelty grounds; authors confirmed in writing that papers were at an early stage, had not been issued as working papers, and had not been submitted for peer-reviewed journals. - Risk: funded papers may not be usable (uptakeable) by country authorities and IMF staff or may not be well received by country authorities due to arm’s-length commissioning. - Definition of a “new researcher”: researchers who have not worked substantively in LIC macroeconomics, especially with respect to sub-Saharan Africa. A researcher with one or two prior LIC papers is still “new” if the vast bulk of their work is on other topics. - Examples considered “new”: Philip Lane (vast research on advanced and emerging markets but little on LICs); Nicholas Bloom (focused on macroeconomics of advanced economies with one paper on India). - Examples considered not “new”: Romain Houssa (more than half of his papers on LICs); Matt Lowe (graduate student specializing in development and LIC topics). - Authors from international development institutions (World Bank, African Development Bank) typically not considered “new” due to extensive LIC coverage and operational experience. - A commissioned paper is “new” if at least one coauthor meets the “new” definition. *Source: IMF Annual Outcome Assessment (June 2013).* ### 4.3 Risk of funds not being used as intended ### 4.3 Risk of funds not being used as intended ### Risk assessment - The risks of funds not being used as intended remain LOW. ### Climate and Environment Risk - Climate and environment risks remain unchanged from those described in detail within the business case for the project. ### Value for Money — Overview - While it is still quite early in the project to fully evaluate the cost effectiveness (i.e. value for money) of this project, all decisions related to the project are guided by this principle. - All contractual hires undergo a competitive process, and Fund guidelines for travel and conferences are strictly followed. - Outputs are produced under firm timeframes and must meet Fund requirements for publication. - The quality of papers is further evaluated when the papers are submitted to peer-reviewed publications. ### Performance on VfM measures — Cost structure and outputs - Direct project management costs represented approximately two per cent of the total first year budget; if this includes the Trust Fund management fee, program management costs were still below nine per cent. - The vast majority of the funds available to this project were spent on producing high quality research rather than on project management. - The IMF have exceeded all of the “High” targets indicated on the log frame and hence unit costs of research papers are at the low end of the spectrum. Key outputs (first year): - 13 working papers - 1 published paper - 2 IMF Board papers - 2 high profile conferences hosted at IMF - 6 training or technical assistance missions ### Commercial Improvement and Value for Money — Lessons and adjustments - Based on experience over the first year, the IMF have learned a few important best practices which they plan to incorporate into their plans for years 2 and 3. - They have moved towards hiring longer-term visiting scholars. - They have brought in a project officer and administrative assistant to help manage the project. - These two decisions will allow the IMF to operate more efficiently in the coming year, particularly now that the first year process of scaling up is complete. - They are planning to work with more central banks than originally envisaged, to meet the high demand for technical assistance and training. - They have been able to draw on and through resources provided by DFID leverage other non-DFID resources such as their own Institute for Capacity Development. - The project has been able to use DFID resources to draw on consultants who present relatively low transaction costs and have exactly the right mix of skills. ### Role of project partners - (No additional details provided beyond descriptions of collaboration with DFID and IMF internal units.) ### Does the project still represent Value for Money? - Yes. The project represents very good value for money. - The unit cost per working paper compares favourably to other commissioned research papers within the growth research portfolio. ### Conditionality - There are no specific conditions attached to the programme, over and above those specified in the business case. ### Conclusions and recommended actions Findings: - The project has exceeded expectations during its first year. - It has been well received by senior IMF staff, Executive Board members, policymakers in LICs, and a wide array of researchers interested in macroeconomic issues in LICs. - The papers have contributed to the overall body of currently very limited research on LICs and brought much-needed attention to the importance of LIC research at the Fund. - The IMF’s Deputy Managing Director Min Zhu, Chief Economist Olivier Blanchard, and African Department Director Antoinette Sayeh, among others, are all keenly aware of the importance and impact of this project. - The high quality, relevance and originality of outputs have been confirmed by DFID staff reviews, and demonstrated by one paper being accepted for journal publication. - The research is closely linked with the provision of technical assistance, has already influenced IMF policy, encouraged close interdepartmental coordination and collaboration, and received strong commitment and support from IMF country teams and authorities. - On the basis of this progress the review team scored the project an A++. Recommendations: - Make modest changes to the log frame to improve the fit between the outputs and indicators and to better capture all the activities being delivered under the programme. - Shift the output weighting for the second year towards encouraging uptake and themes by IMF teams and country authorities. - Consider translating the Working Papers into shorter and more accessible Policy Briefs, to increase further the uptake of the project’s outputs. - Have the papers independently peer reviewed by an expert in the field not linked to the project or the IMF; DFID will make recommendations in this regard. - Request the IMF fund the independent peer review through existing project resources. ### Review Process - The Annual Review process was carried out over a period of 3 months. - It involved consultation with the IMF, DFID country economists, and policy colleagues. - It involved review of progress reports, various IMF policy documentation and the research outputs. - It was carried out by DFID Growth Research Team staff (Senior Economic Advisor, Economic Advisor, Deputy Programme Manager), the Senior Economic Advisor, Ghana, the Economic Advisor, Zambia, Economic Advisor agricultural research team (formerly economic advisor in the macroeconomic policy team). - The latter 3 colleagues acted as independent peer reviewers. - The report was quality assured by Growth Research Programme Manager, Growth Research Team. - Video conference discussions were held with IMF staff to provide inputs into the review process, feedback on the scoring and discuss and agree recommendations contained in the report. - VCs were also held with DFID country staff. - The approver for the project is DFID’s Chief Economist. --- _Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/documents/june2013.pdf_