## Macroeconomic Research in Low‑Income Countries — Third Year Annual Report to DFID (April 2014 – March 2015)

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---

### Programme overview and objectives
- Programme title: Macroeconomic Research in Low-Income Countries — An IMF/DFID Research Partnership.
- Report: Third Year Annual Report to DFID (for period April 2014 – March 2015); Authors: Andrew Berg and Catherine Pattillo; Date: May 31, 2015.
- Programme aims (IMF–DFID partnership):
  - enhance generation of high-quality research on key macroeconomic issues in low-income countries (LICs);
  - ensure research uptake through close collaboration with policymakers within and outside the IMF;
  - expand the network of macroeconomic researchers working on LICs using the IMF’s pulling power;
  - achieve the above cost-effectively.
- Project timeline:
  - Phase I: March 2012 to March 2015
  - Phase II: April 2015 to March 2017
- Budget and disbursement:
  - DFID will provide £9.45 million over the five years with £3.5 million spent to date.
  - As of March 2015, US$5,599,988 has been drawn down from the subaccount.

### Research agenda, outputs, and dissemination
- Research agenda eight topics:
  - (1) Monetary and exchange rate policies
  - (2) Public investment, growth, and debt sustainability
  - (3) Macroeconomic management of natural resource wealth
  - (4) Macroeconomic policies and income distribution
  - (5) Role of financial deepening in fostering macroeconomic stability and sustained growth
  - (6) Growth through diversification
  - (7) Capital flows
  - (8) Gender and macroeconomics
- Knowledge‑sharing and uptake mechanisms:
  - papers shared with DFID and external policymakers via DFID’s research portal and an IMF project website;
  - frameworks and tools designed to influence IMF policy for LICs;
  - presentations at high-level policy conferences, commissioned papers, quarterly e-newsletters, and project‑financed conferences.
- Publications and dissemination in Year 3:
  - 10 working papers completed in Year 3; 40 working papers total over three years.
  - 9 papers published externally during the third year; 16 published papers total as of reporting.
  - Six papers published in the February, 2015 issue of the Pacific Economic Review; additional publications in September, 2014 and December, 2014.
  - Quarterly e-newsletters and updates to the public web page; quarterly e-newsletters sent to more than 1000 academics, policymakers, central bank staff, and government representatives.

### Progress, achievements, and uptake
- Logframe performance highlights (Year 1, Year 2, Year 3, Total; End-of-Year-3 Targets summarized):
  - Working Papers (1.1): 13, 17, 10, 40; Targets H 36 M 24 L 12
  - Published Papers (1.2): 1, 6, 9, 16; Targets H 6 M 3 L 1
  - Uptake by IMF Teams (2.1): 9, 12, 13, 34; Targets H 18 M 10 L 6
  - Uptake by Authorities (2.2): 1, 2, 4, 7; Targets H 6 M 4 L 3
  - High-Level Policy Conferences (3.1): 6, 4, 2, 12; Targets H 6 M 4 L 3
  - Results reflected in IMF board/policy papers (3.2): 4, 4, 3, 11; Targets H 7 M 4 L 3
  - Commissioned Papers (4.1): 0, 13, 0, 13; Targets H 8 M 6 L 4
  - Attendance of External Researchers at Conferences (4.2): 6, 5, 5, 16; Targets H 6 M 4 L 3
  - Outputs disseminated via e-newsletter/webpage (4.3): 2, 4, 4, 10; Targets H 10 M 6 L 5
  - Thematic areas of IMF policy influenced and made LIC-specific (O.1): 3, 2, 0, 5; Targets H 6 M 3 L 2
- Selected measurable outputs achieved:
  - 40 working papers; 16 published papers; 8 IMF Board papers; 12 high profile conferences hosted at IMF; 34 cases of uptake by IMF country teams.
- Reported overall assessment:
  - Exceeded each of the "high" logframe targets except Output O.1 (thematic areas of IMF policy influenced).

### Major research findings and country applications
- Monetary and exchange rate policy (Year 3 working papers; 4 papers summarized):
  - Charry et al. (2014): semistructural model for Rwanda shows food and oil prices and the exchange rate accounted for the bulk of inflation dynamics in Rwanda.
  - Portillo and Zanna (2015): small open-economy model casts doubt on the view that international food price shocks are inherently inflationary in developing countries.
  - Houssa et al. (2015): global shocks play a more dominant role in South Africa than Ghana.
  - Farooq and Zaheer (2015): Islamic bank branches in Pakistan are less prone to deposit withdrawals during panics, tend to attract deposits, grant more loans during panics, and make lending decisions less sensitive to deposit changes; implication that greater financial inclusion of faith-based groups may enhance banking stability.
- Public investment, growth, and debt sustainability:
  - Buffie et al. (2012) framework applied to 12 countries and one economic union (Afghanistan, Benin, Burkina Faso, Cape Verde, CEMAC, Cote d’Ivoire, Ethiopia, Ghana, Liberia, Rwanda, Senegal, Togo, and Yemen) in IMF Article IV consultations, program reviews, and donor meetings.
  - Melina et al. (2014) model applied to Angola, Chad, Kazakhstan, and Mozambique: findings include that gradual scaling-up can pose smaller debt sustainability risks; resource-backed borrowing (e.g., Mozambique) can raise vulnerability if resource revenues fall short; volatility, uncertainty, and exhaustibility of resources affect borrowing strategies; combining gradual scaling-up with a resource fund can protect against boom-bust cycles (example: Angola).
  - Delechat et al. (2015) applied DIGNAR to Côte d’Ivoire, Guinea, Liberia, Sierra Leone: sustainable non-resource deficit targets can be robust to high resource uncertainty and deliver growth benefits; scaling-up magnitudes depend on projected resource revenue and absorptive capacity; adding social transfers raises private consumption.
  - CEMAC application (Buffie et al. (2012) model): current public investment programs would lead to a public-debt-to-GDP ratio of 46 percent in 2030 (compared to current level of 22 percent); oil discoveries sufficient to keep debt stable at around 30 percent of GDP beyond 2030 would need to raise the oil revenue-to-GDP ratio by 4.5 percentage points above its baseline level, starting in 2015; a negative shock of the same magnitude would lead to an oil-revenue-to-GDP ratio close to 60 percent in 2030.
- Macroeconomic management of natural resources and current account norms:
  - DIGNAR, DIG and tailored DSGE models used for Democratic Republic of Congo, Niger, Myanmar, Republic of Congo, Gabon, Mauritania and others; policy implications emphasize prudence in frontloading investment, the role of structural reforms to raise public capital without excessive debt pressure, and the effect of absorptive capacity on current account benchmarks (Gabon overvaluation estimates: 9.9 and 9.7 percent under cost overrun assumptions of 40 and 20 percent respectively).
- Financial deepening, inclusion, and macroeconomic stability:
  - Dabla‑Norris et al. (2015): micro‑founded GE model with heterogeneous agents shows country-specific constraints to financial inclusion matter for GDP, inequality and distributional tradeoffs.
  - Papi et al. (2015): across developing countries 1970-2010, participation in IMF-supported lending programs is associated with significantly lower likelihood of future banking crisis after controls.
- Country-specific operational uptake (selected):
  - Ghana: technical assistance and medium-term projections aided Bank of Ghana MPC preparation; contributed to IMF Extended Credit Facility engagement.
  - Uganda: support for inflation forecasts and policy stance under Policy Support Instrument; demand for regular updates before MPC meetings.
  - Rwanda: semi-structural model extended for money-targeting; money target misses largely explained by monetary policy shocks and instability in money demand.
  - Ethiopia: DIG variant customized with state-owned energy and banking sectors; reliance on domestic bank borrowing implies substantial fiscal adjustment and private crowding-out, while external commercial borrowing eases fiscal adjustment but raises non-concessional external debt risks.
  - Mauritania: DIGNAR application advises prudence given medium-run private consumption costs of planned public investment paths.
  - Mongolia: TA on debt sustainability modeling; training in Matlab and Dynare; presentation of "From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia" during Article IV.

### Value for money, financial performance, and cost metrics
- Approved Budget TOTAL (Table 4): $6,585,404
- Realized Expenditures by Year:
  - Year 1: $1,826,834
  - Year 2: $2,298,894
  - Year 3: $1,775,828
  - Total Realized Expenditures: $5,901,556
- Drawdowns reported as of March 2015: US$5,599,988 drawn from the subaccount.
- Subcategory expenditures (Approved Budget; Year 1; Year 2; Year 3; Total Realized):
  - Contractuals: $2,374,668; $637,714; $894,169; $702,251; $2,234,134
  - Visiting Scholars: $1,566,242; $382,379; $475,306; $629,159; $1,486,844
  - Travel and Other Costs: $1,133,055; $214,972; $415,794; $33,022; $663,788
    - Conferences: $648,967; $49,077; $283,649; $0; $332,727
    - Travel: $384,088; $141,733; $132,145; $33,022; $306,899
    - Contingency: $100,000; $0; $0; $0
  - IMF Staff: $1,080,618; $472,256; $363,231; $295,221; $1,130,708
    - IMF Staff Backstopping/Uptake: $1,003,487; $409,732; $322,961; $280,217; $1,012,910
    - Project Management: $77,130; $45,185; $40,270; $15,003; $100,458
  - Subtotal: $6,154,583; $1,707,321; $2,148,500; $1,659,653; $5,515,473
  - TTF Management Fee (7%): $430,821; $119,512; $150,395; $116,176; $386,083
- Cost-efficiency metrics (Table 6):
  - Total Staff/Contractual/VS Costs: $4,851,686; £3,032,304
  - Research Paper Costs: $3,638,765; £2,274,228
  - Country Applications Costs: $1,212,922; £758,076
  - Working Papers Produced: 40
    - Cost Per Working Paper: $90,969; £56,856
  - Published Papers Produced: 16
    - Cost per Published Paper: $227,423; £142,139
  - Assumption: staff, contractual employees, and visiting scholars spend 75 percent of their time on research papers and 25 percent on country applications.
  - Comparison to benchmark: both cost per working paper and cost per published paper "compare favorably with the DFID benchmark of £150,000 per paper."
  - Expectation: "We anticipate that the cost per published paper will decrease as more of our working papers from the first three years are accepted for publication."
- Program management share:
  - Direct project management costs represented less than two percent of total budget.
  - Including Trust Fund management fee, program management costs were still below nine percent.

### Risk, monitoring, evaluation, and lessons learned
- Risk assessment: "The overall risk for this project remains low."
- Monitoring and reporting:
  - IMF reports to DFID annually regarding logframe outputs.
  - Quarterly updates to the website and quarterly e-newsletters.
  - Publicly available working and published papers uploaded to the R4D portal on the DFID website.
  - Commitment to provide "gold access" to journal publications for public access.
- Evaluation:
  - "No budget for an external evaluation was included in the project budget."
- Key operational lessons:
  - "Uptake" and research require different management and quality control approaches; uptake often demands close collaboration with other departments and country authorities.
  - Engaging experienced external experts directly in operations accelerates productive engagement in LIC research (example: Andrew Levin).
  - DFID contractual staff transitioning to regular IMF positions aided integration of researchers into IMF LIC research.
- Operational challenges:
  - Institutional complexity from changing IMF and DFID procedures requires frequent cross-departmental coordination.
  - Mainstreaming DFID-related work into the Fund remains challenging despite progress in monetary policy integration and increased AFRITAC role.

### Work plan and near-term priorities (planned activities)
- Monetary and exchange rate policies:
  - In-depth analyses and continued training for central banks in Kenya, Uganda, Rwanda, Tanzania, Ghana and Mozambique; follow-up workshops on forecasting and monetary policy analysis; scoping mission to Central Bank of Sri Lanka; TA to Reserve Bank of India.
- Debt sustainability and natural resources:
  - Working papers on optimal infrastructure spending accounting for inefficiencies; user-friendly "front end" for the DIG model; Ethiopia DIG variant paper; analytical papers on public investment efficiency.
  - Country applications planned for Lesotho, Republic of Congo, CEMAC, and Mongolia.
- Macroeconomic policies and income distribution:
  - Two-day workshop on macroeconomic policy and income inequality; adapt frameworks for operational use in Article IV consultations (Ethiopia pilot); papers on commodity prices and income inequality; working paper on labor markets in Africa.
- Growth through diversification:
  - Expand diversification toolkit to services and export-partner indices; update data through 2013 if possible; ICD external course on diversification to be held annually.
- Capital flows:
  - Construct new dataset on LIC private flows; document stylized facts; identify surges and compare LICs to EMs; assess cyclical behavior of non-FDI private capital flows.
- Gender and macroeconomics:
  - Launch research agenda on gender budgeting and macroeconomics; toolkit and dataset on global gender budgeting efforts; working paper on measuring gender inequality by summer, 2015; plan two-day 2016 conference on gender and macroeconomic issues.

### Summary of research working‑paper findings (select highlights)
- Adam and Bevan (2014): addressing the "recurrent cost problem" is essential so O&M expenditures sustain productive public capital services; distortionary taxation and public expenditure structures materially affect growth and debt sustainability.
- Warner (2014): weak positive contemporaneous association between investment spending and growth; public investment drives often financed by borrowing and suffer from poor project analytics and incentive problems.
- Dabla‑Norris et al. (2015): identified constraints to financial inclusion via a micro‑founded GE model; alleviating frictions yields differential GDP and inequality impacts across countries.
- Portillo and Zanna: international food price shocks are not inherently inflationary in developing countries when accounting for market structure and asset market access.
- Papi et al. (2015): IMF-supported lending program participation associated with lower probability of future banking crisis (1970-2010 analysis).
- Delechat et al. (2015): scaling-up with social transfers can raise private consumption; sustainable non-resource deficit targets can be robust to high resource uncertainty.

*Source: "Macroeconomic Research in Low Income Countries" (IMF–DFID project report, Third Year Annual Report to DFID, April 2014 – March 2015; Andrew Berg and Catherine Pattillo; May 31, 2015).*

### Introduction and Context

### Introduction and Context

### Programme overview and objectives
- Programme title: Macroeconomic Research in Low-Income Countries — An IMF/DFID Research Partnership.
- Report: Third Year Annual Report to DFID (for period April 2014 – March 2015).
- Authors: Andrew Berg and Catherine Pattillo.
- Date: May 31, 2015.
- Core introductory requirement: Briefly outline the programme, expected results and contribution to the overall Operational Plan and DFID’s international development objectives (including corporate results targets).
- Core contextual requirement: Where the context supporting the intervention has changed from that outlined in the original programme documents explain what this will mean for UK support.

### Performance and conclusions (Section B)
- Annual Outcome Assessment: Brief assessment of whether we expect to achieve the outcome by the end of the programme.
- Overall Output Score and Description: Progress against the milestones and results achieved that were expected as at the time of this review.
- Key lessons:
  - Any key lessons learned by programme and partners.
  - Whether assumptions have changed since design and what would be done differently if re-designing the programme.
  - How lessons will be shared within the team, across DFID and externally.
- Key actions:
  - Further information on actions (not covered in Summary Sheet) including timelines for completion and team member responsible.
  - Whether the logframe has been updated since the last review and key changes and implications.

### Detailed Output Scoring (Section C)
- For each Output:
  - Set out the Output and Output Score; enter a rating using the rating scale A++ to C.
  - Impact Weighting (%) — enter the %age number which cannot be less than 10%. (The figure should match the Impact Weight on the logframe and the figure to be entered on ARIES.)
  - Revised since last Annual Review (Y/N).
  - Risk Rating: Enter Low/Medium/High. (The Risk Rating should match the Risk on the logframe and the figure to be entered on ARIES.)
  - Where the Risk for this Output has been revised since the last review (or since inception, if this is the first review) or if the review identifies that it needs revision explain why, referring to section B Risk Assessment.
  - Key points: Summary of response to programme issues raised in previous annual reviews (where relevant).
  - Recommendations: Repeat above for each Output.

### Value for Money and Financial Performance (Section D)
- Key cost drivers and performance:
  - Consider the specific costs and cost drivers identified in the Business Case.
  - Identify changes from those in previous reviews or at programme approval and explain why.
- VfM performance compared to the original VfM proposition in the business case:
  - Performance against vfm measures and any trigger points identified to track through the programme.
  - Assessment of whether the programme continues to represent value for money.
  - Overall view on whether the programme is good value for money; if not, why and what actions need to be taken.
- Quality of Financial Management:
  - Consider best estimate of future costs against the current approved budget and forecasting profile.
  - Confirm whether narrative and financial reporting requirements have been adhered to; include details of last report.
  - Confirm whether auditing requirements have been met; include details of last report.

### Risk (Section E)
- Output Risk Rating: L/M/H — Enter Low, Medium or High, taken from the overall Output risk score calculated in ARIES.
- Overview of Programme Risk:
  - Changes to the overall risk environment/context and why.
  - Review key risks affecting successful delivery of expected results.
  - Identify any different or new mitigating actions required and whether existing mitigating actions address identifiable risks.
  - Any additional checks and controls required to ensure that UK funds are not lost, for example to fraud or corruption.
- Outstanding actions from risk assessment:
  - Describe outstanding actions from Due Diligence/ Fiduciary Risk Assessment/ Programme risk matrix.
  - Describe follow up actions from departmental anti-corruption strategies to which Business Case assumptions and risk tolerances stand.

### Commercial Considerations (Section F)
- Delivery against planned timeframe: Y/N — Compare actual progress against the approved timescales in the Business Case; if off track, provide explanation including implications for cost and remedial action.
- Performance of partnership:
  - How well are formal partnerships/contracts working.
  - Are lessons from partner experience being learned and applied.
  - How DFID could be a more effective partner.
- Asset monitoring and control:
  - Level of confidence in management of programme assets, including any monitoring or spot checks.

### Conditionality (Section G)
- Update on Partnership Principles and specific conditions:
  - For programmes using the Partnership Principles for management and monitoring, provide details on:
    a. Were there any concerns about the four Partnership Principles over the past year, including on human rights?
    b. If yes, what were they?
    c. Did you notify the government of our concerns?
    d. If Yes, what was the government response? Did it take remedial actions? If yes, explain how.
    e. If No, was disbursement suspended during the review period? Date suspended (dd/mm/yyyy).
    f. What were the consequences?
- For all programmes, make a judgement on the role, if any, the Partnership Principles should play going forward, considering the delivery mechanism and use of partner government systems.

### Monitoring and Evaluation (Section H)
- Evidence and evaluation:
  - Changes in evidence and implications for the programme.
  - Progress where an evaluation is planned.
  - How the Theory of Change and assumptions used in programme design are working in practice and whether modifications are required.
  - Any new evidence challenging programme design or rationale and contribution to the wider evidence base.
  - How evidence is disaggregated by sex and age, and by other variables.
- Monitoring process throughout the review period:
  - Direct feedback from stakeholders, including beneficiaries.
  - Monitoring activities during review period (field visits, reviews, engagement etc).
  - The Annual Review process.

### Report structure (Table of Contents)
- 1. PROGRAM DESCRIPTION (page 1)
- 2. OVERVIEW OF THE YEAR (page 3)
- 3. LOGFRAME OUTPUTS (page 6)
- 4. OUTPUTS: ADDITIONAL INFORMATION (page 18)
- 5. UPTAKE / ENGAGEMENT WITH BENEFICIARIES (page 19)
- 6. OUTCOMES AND IMPACTS (page 20)
- 7. COSTS, VALUE FOR MONEY AND MANAGEMENT (page 22)
- 8. WORK PLAN & TIMETABLE (page 24)
- 9. RISK (page 27)
- 10. MONITORING AND EVALUATION (page 28)
- 11. FURTHER INFORMATION (page 29)
- APPENDICES
  - 1. Logframe (page 30)
  - 2. Financial Reports (page 35)

*Third Year Annual Report to DFID (for period April 2014 – March 2015); Andrew Berg and Catherine Pattillo; May 31, 2015.*

### 3. Research Outputs...........................................................................................  39

### 3. Research Outputs

### Program Description
- The IMF–DFID partnership "Macroeconomic Research in Low Income Countries" aims to:
  - enhance generation of high-quality research on key macroeconomic issues in low-income countries (LICs);
  - ensure research uptake through close collaboration with policymakers within and outside the IMF;
  - expand the network of macroeconomic researchers working on LICs using the IMF’s pulling power;
  - achieve the above cost-effectively.
- Project timeline:
  - Phase I: March 2012 to March 2015
  - Phase II: April 2015 to March 2017
- Budget:
  - DFID will provide £9.45 million over the five years with £3.5 million spent to date.
- Research agenda eight topics:
  - (1) Monetary and exchange rate policies
  - (2) Public investment, growth, and debt sustainability
  - (3) Macroeconomic management of natural resource wealth
  - (4) Macroeconomic policies and income distribution
  - (5) Role of financial deepening in fostering macroeconomic stability and sustained growth
  - (6) Growth through diversification
  - (7) Capital flows
  - (8) Gender and macroeconomics
- Knowledge‑sharing and uptake mechanisms:
  - papers shared freely with DFID and external policymakers via DFID’s research portal and an IMF project website;
  - frameworks and tools designed to influence IMF policy for LICs;
  - presentations at high-level policy conferences, commissioned papers, quarterly e-newsletters, and project-financed conferences.

### Overview of the Year — Progress, Achievements, and Challenges
- Progress and achievements:
  - Exceeded each of the "high" logframe targets except Output O.1.
  - Research outputs (working papers, IMF Board papers, country applications, conferences) were well received by senior IMF staff, IMF Executive Board members, policymakers in LICs, and researchers.
  - Quoted endorsement by Siddharth Tiwari, Director, Strategy, Policy, and Review (SPR) Department, emphasizing the project's role in expanding policy-relevant applied research on LICs and enriching Fund policy thinking.
  - Integration of research and Fund operations: three additional outside collaborators joined—Janet Stotsky (gender budgeting expert), Ioana Moldovan (monetary policy), and Andrew Levin (monetary policy advisor).
  - Andrew Levin engaged as guest speaker in March 2015 and in technical assistance to Ghana.
- Operational impact and applications:
  - Public investment, growth, and debt sustainability framework (Buffie et al. (2012)) applied to 12 countries and one economic union: Afghanistan, Benin, Burkina Faso, Cape Verde, CEMAC, Cote d’Ivoire, Ethiopia, Ghana, Liberia, Rwanda, Senegal, Togo, and Yemen. Applications used in IMF Article IV consultations, program reviews, and donor meetings.
  - Model extensions analyzed investments in energy (Ethiopia, Senegal) and security (Afghanistan). Ongoing applications include Nicaragua and Vanuatu.
  - Melina et al. (2014) model applied to Angola, Chad, Kazakhstan, and Mozambique; findings:
    - gradual scaling-up can pose smaller risks for debt sustainability;
    - resource discoveries used as collateral (e.g., Mozambique) can raise vulnerability if resource revenues fall short of projections;
    - volatility of resource prices, uncertainty of resource output, and exhaustibility of reserves affect borrowing strategies;
    - combining gradual investment scaling-up with a resource fund can protect against boom-bust cycles (example: Angola).
  - Delechat et al. (2015) applied the DIGNAR model to Côte d’Ivoire, Guinea, Liberia, and Sierra Leone to examine public investment scaling-up and social safety nets; ongoing DIGNAR applications include Niger, Myanmar, and Mongolia.
  - DIG model variant used in IMF Article IV for Ethiopia to analyze financing schemes for investment scaling-up.
  - Technical assistance (TA) in monetary policy analysis and forecasting provided to central banks of Kenya, Uganda, Rwanda, Tanzania, Mozambique, Ghana, and India.
    - Four Bank of Uganda staff visited the IMF in July and November 2014 to work on the monetary transmission mechanism, STATA econometrics, and credit-registry micro-data analysis; the visit culminated in a presentation on credit aggregate responses to large monetary policy shocks in Uganda during 2010-2013.
  - Training on Public Investment, Growth, and Debt Sustainability framework delivered to Rwandan, Liberian, and Mongolian authorities; Liberian authorities visited Fund headquarters for continued training.
  - Internal training provided to Fund economists in collaboration with the Fund’s Institute for Capacity Development (ICD); a module included in the Online Course on Debt Sustainability Analysis (DSAx). A user-friendly front-end will be released to facilitate use of model-based frameworks.
  - Course "Macroeconomic Management in Resource Rich Countries" offered in March 2015 for mid- to senior-level officials.
  - "Macroeconomic challenges Facing Low-Income Countries" conference held January 2014; of 13 commissioned papers, two became working papers and six conference papers plus a special issue paper appeared in the February, 2015 issue of the Pacific Economic Review.
- Challenges and disappointments:
  - Institutional complexity: changing IMF and DFID procedures require frequent attention and cross-departmental coordination.
  - Mainstreaming DFID-related work into the Fund remains a challenge. Progress noted in monetary policy integration and increased AFRITAC role.
  - Two AFRITACs integrated DFID-related TA into workplans; AFRITAC West II to cooperate on TA in Ghana.
- Lessons learned:
  - "Uptake" and research require different management and quality control approaches; uptake often demands close collaboration with other departments and country authorities.
  - Engaging experienced external experts ("new blood") directly in operations accelerates productive engagement in LIC research (example: Andrew Levin).
  - DFID contractual staff have successfully transitioned to regular IMF positions, aiding integration of researchers into IMF LIC research.

### Logframe Outputs (summary of outputs and targets)
- Four main output categories:
  1. Produce high quality, policy relevant research on macroeconomic issues affecting LICs.
  2. IMF research product produced under this project used by IMF country teams and partner authorities.
  3. IMF strengthens engagement by senior IMF policymakers on issues affecting LICs.
  4. IMF strengthens capacity building by expanding the network of LIC researchers.
- Table 3 output totals and end-of-Year-3 targets (Year 1, Year 2, Year 3, Total, Output Targets for End of Year 3):
  - 1.1 Working Papers: 13, 17, 10, 40; Targets H 36 M 24 L 12
  - 1.2 Published Papers: 1, 6, 9, 16; Targets H 6 M 3 L 1
  - 2.1 Uptake by IMF Teams: 9, 12, 13, 34; Targets H 18 M 10 L 6
  - 2.2 Uptake by Authorities: 1, 2, 4, 7; Targets H 6 M 4 L 3
  - 3.1 High-Level Policy Conferences attended by senior IMF staff: 6, 4, 2, 12; Targets H 6 M 4 L 3
  - 3.2 Results of papers reflected in IMF board discussions and policy papers: 4, 4, 3, 11; Targets H 7 M 4 L 3
  - 3.2.1 Results of papers reflected in IMF board papers: 3, 3, 2, 8; Targets H 5 M 4 L 3
  - 4.1 Commissioned Papers: 0, 13, 0, 13; Targets H 8 M 6 L 4
  - 4.1 Attendance of External Researchers at High-Level Policy Conferences: 6, 5, 5, 16; Targets H 6 M 4 L 3
  - 4.3 Outputs disseminated in e-newsletter and updated public web page: 2, 4, 4, 10; Targets H 10 M 6 L 5
  - O.1 Thematic areas of IMF policy influenced and made LIC-specific: 3, 2, 0, 5; Targets H 6 M 3 L 2

### Output 1 — Produce high quality, policy relevant research on macroeconomic issues affecting LICs
- Year 3 working papers: completed 10 working papers this year, total 40 over three years.
- Covered research topics in Year 3:
  - Monetary and exchange rate policies
  - Public investment, growth, and debt sustainability
  - Macroeconomic management of natural resource wealth
  - Role of financial deepening in fostering macroeconomic stability and sustained growth
- Monetary and Exchange Rate Policy working paper findings (four papers completed):
  1. Charry et al. (2014):
     - Developed a simple semistructural model for the Rwandan economy to understand monetary policy transmission.
     - Results: food and oil prices as well as the exchange rate have accounted for the bulk of inflation dynamics in Rwanda.
  2. Portillo and Zanna (2015):
     - Developed a tractable small open-economy model to study first-round effects of international food price shocks in developing countries.
     - Results: cast doubt on the view that international food price shocks are inherently inflationary in developing countries.
  3. Houssa et al. (2015):
     - Examined role of global and domestic shocks in macroeconomic fluctuations for Ghana; used South Africa for comparison.
     - Results: global shocks play a more dominant role in South Africa than in Ghana.
  4. Farooq and Zaheer (2015):
     - Compared Islamic and conventional banks during a financial panic in Pakistan.
     - Results:
       - Islamic bank branches are less prone to deposit withdrawals during financial panics;
       - Islamic branches tend to attract (rather than lose) deposits during panics;
       - Islamic branches grant more loans during financial panics;
       - Islamic branches make lending decisions less sensitive to changes in deposits;
       - Implication: greater financial inclusion of faith-based groups may enhance stability of the banking system.
- Public Investment, Growth, and Debt Sustainability:
  - Four working papers completed this year on the topic (details follow in project outputs and applications above).

*Source: "Macroeconomic Research in Low Income Countries" (IMF–DFID project report, June 2015).*

### 5. Adam and Bevan (2014) explore the macroeconomic implications of the “recurrent

### june2015 - 5. Adam and Bevan (2014) explore the macroeconomic implications of the “recurrent cost problem”

### Public investment, recurrent cost problem, and investment scaling-up
- Adam and Bevan (2014) study the “recurrent cost problem”: governments must ensure operations and maintenance expenditures are sufficient to sustain the flow of productive public capital services to private factors of production, recognizing that taxation is distortionary.
- Warner (2014) finds a weak positive association, on average, between investment spending and growth and only in the same year; public investment drives tend to be financed by borrowing and suffer from poor project analytics, incentive problems, and interest-group-infested investment choices.
- Ghilardi and Sola (2015) find that when the government faces spending and tax collection inefficiencies, the higher fiscal burden required to preserve fiscal sustainability would negate the welfare gain of higher public investments.
- Deléchat et al. (2015) (Côte d’Ivoire, Guinea, Liberia, Sierra Leone) show:
  - A sustainable non-resource deficit target is robust to high uncertainty of resources output and prices while delivering growth benefits through higher public investment.
  - Sustainable scaling-up magnitudes depend on the size of projected resource revenue and absorptive capacity.
  - Adding a social transfer raises private consumption, suggesting that a fraction of resource revenue could be used to expand safety nets.

### Macroeconomic management of natural resources and current account norm
- Research examines savings and investment strategies for resource windfalls and the appropriate current account deficit depending on the balance between domestic investment and saving in a sovereign wealth fund.
- Applications and findings:
  - Mauritania (DIGNAR model): authorities should be prudent regarding investment plans; currently planned public investment path will be costly in terms of foregone private consumption in the medium run.
  - Democratic Republic of the Congo (DIG/DIGNAR simulations): higher public capital can be achieved with structural reforms rather than aggressive frontloading, which pressures the resource fund and public debt.
  - Niger (DSGE tailored to resource-abundant small open economies): designing a sustainable public investment path is critical given projected mining-led resource export boom.
  - Myanmar (DIGNAR model with two public investment paths and two gas revenue scenarios): future gas revenue streams should finance a gradual scaling up in public investment while building fiscal space to maintain a stable macroeconomic environment.
  - Congo (Araujo et al. 2013 model): capital scarcity implies higher returns to public and private capital than international asset interest rates, making domestic investment of resource revenues profitable; calibrated results indicate mild real exchange rate overvaluation relative to traditional approaches.
  - Gabon (small open economy model with frictions): results suggest an overvaluation of 9.9 and 9.7 percent under cost overrun assumptions of 40 and 20 percent respectively; higher absorptive capacity constraints are associated with higher current account benchmarks.

### Debt sustainability and public investment trade-offs (selected quantitative findings)
- CEMAC application of Buffie et al. (2012) model:
  - Current public investment programs would lead to a public-debt-to-GDP ratio of 46 percent in 2030 (compared to the current level of 22 percent).
  - Beyond 2020, public spending would need to remain elevated to maintain accumulated public capital.
  - Increasing efficiency and return of public capital reduces public debt sustainability concerns and enhances non-resource growth.
  - Oil discoveries sufficient to keep debt stable at around 30 percent of GDP beyond 2030 would need to raise the oil revenue-to-GDP ratio by 4.5 percentage points above its baseline level, starting in 2015.
  - A negative shock to oil revenue of the same magnitude would lead to an oil-revenue-to-GDP ratio close to 60 percent in 2030.

### Financial deepening, inclusion, and macroeconomic stability
- Dabla-Norris et al. (2015): a micro-founded general equilibrium model with heterogeneous agents identifies constraints to financial inclusion; alleviating different financial frictions has differential impacts across countries, with country-specific characteristics central to linkages and trade-offs among inclusion, GDP, inequality, and distributional gains and losses.
- Papi et al. (2015): across developing countries 1970-2010, countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than non-borrowing countries, after controlling for standard determinants.

### Research outputs, publications, and dissemination
- During the third year, nine papers were published externally.
  - Six papers were published in the February, 2015 issue of the Pacific Economic Review.
  - A special issue paper by Camelia Minoiu and Galina Hale was also featured in the February, 2015 issue of the Pacific Economic Review.
  - Additional papers were published in September, 2014 (Asian Development Review) and December, 2014 (South African Journal of Economics).
- Output 2: IMF research products were used by IMF country teams and partner authorities, resulting in 13 country applications across six broad topics: 1) Monetary Policy; 2) Public investment, growth, and debt sustainability; 3) Macroeconomic management of natural resources; 4) Current account norm; 5) Diversification; and 6) Capital Flows.
- Diversification toolkit:
  - 12 internal requests and two external requests were made this year, bringing the total to thirty.
  - Plans to expand the toolkit to cover services and provide training to Fund staff and country authorities.
- Capital Account Liberalization Index:
  - Constructed a de jure index based on the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.
  - The index covers 168 countries with information on 10 types of asset categories over the period 1996 - 2013.
  - Applications include stylized facts on openness, regional characteristics, sequencing, and links between de jure liberalization and de facto capital flows.

### Country applications and policy implications (selected country summaries)
- Ghana (monetary policy): project team assisted IMF country team with medium-term projections and monetary policy advice prior to Bank of Ghana MPC meetings; initiative became important with Ghana’s request for and subsequent approval of a loan under the IMF’s Extended Credit Facility.
- Uganda (monetary policy): project team supported inflation forecast preparation and policy stance assessment under the Policy Support Instrument program; country team expressed interest in regular updates before Bank of Uganda MPC meetings.
- Rwanda (monetary policy): extended a semi-structural macro model to reflect a money targeting framework; analysis showed most money target misses are explained by monetary policy shocks and instability of money demand (changes in velocity and money multiplier).
- Ethiopia (public investment, DIG variant):
  - Customized model included: (i) a state-owned energy sector exporting electricity and selling at controlled, low prices; and (ii) a state-owned banking sector fixing interest rates and lending a large fraction of deposits to the public sector.
  - Policy scenarios: reliance on bank borrowing requires substantial fiscal adjustment to prevent macroeconomic instability and crowds out the private sector; external commercial borrowing eases fiscal adjustment and allows public investment to increase without crowding out private investment but raises risks from significant increases in public external debt-to-GDP ratios.
  - Tradeoffs involving gradual energy price increases and slower scaling up of investment were analyzed.
- Mauritania (DIGNAR model): ambitious public investment program aimed at infrastructure and non-extractive sector growth; model simulations advise prudence and improvements in investment management capacity.
- Myanmar (DIGNAR model): simulations indicate gas revenues should finance gradual scaling up in public investment while building fiscal space to maintain macro stability.
- CEMAC, Congo, Gabon, Niger: models used to assess external sustainability, current account norms, resource revenue management, and absorptive capacity constraints; specific quantitative results provided (see CEMAC and Gabon findings above).

*IMF June 2015 research summary.*

### 4. Mongolia

### 4. Mongolia

### Technical assistance to Bank of Mongolia
- IMF staff provided technical assistance to the authorities from Bank of Mongolia on debt sustainability modeling for a natural-resource-rich economy.
- Staff discussed various features of the model relevant for Mongolia and trained the authorities on Matlab and Dynare to apply these models for policy analysis.
- IMF staff presented the paper “From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia” at the Bank of Mongolia as part of the IMF Article IV policy consultation.

### Capacity building and follow-up training
- The IMF/DFID project provided capacity building by offering training on model-based frameworks for policy analysis to Fund economists and authorities from Rwanda, Liberia, and Mongolia.
- Training aimed to enable authorities to apply model-based diagnostics for public investment, natural resource inflows, and debt sustainability analysis.

*IMF staff / IMF-DFID project*

### Appendix 2 provides the formal financial reporting of the project, with a financial statement and projects

### Appendix 2 — Formal financial reporting and project performance

### Financial reporting and expenditures
- As of March 2015, US$5,599,988 has been drawn down from the subaccount.
- IMF financial systems lag actual expenses to enable verification before charging donor subaccounts; reported drawdowns therefore vary from figures in Table 4.
- Table 4: Project Expenditures in Years 1-3 — Approved Budget and Realized Expenditures
  - Approved Budget TOTAL: $6,585,404
  - Realized Expenditures by Year:
    - Year 1: $1,826,834
    - Year 2: $2,298,894
    - Year 3: $1,775,828
    - Total Realized Expenditures: $5,901,556
  - Subcategories (Approved Budget; Year 1; Year 2; Year 3; Total):
    - Contractuals: $2,374,668; $637,714; $894,169; $702,251; $2,234,134
    - Visiting Scholars: $1,566,242; $382,379; $475,306; $629,159; $1,486,844
    - Travel and Other Costs: $1,133,055; $214,972; $415,794; $33,022; $663,788
      - Conferences: $648,967; $49,077; $283,649; $0; $332,727
      - Travel: $384,088; $141,733; $132,145; $33,022; $306,899
      - Contingency: $100,000; $0; $0; $0
    - IMF Staff: $1,080,618; $472,256; $363,231; $295,221; $1,130,708
      - IMF Staff Backstopping/Uptake: $1,003,487; $409,732; $322,961; $280,217; $1,012,910
      - Project Management: $77,130; $45,185; $40,270; $15,003; $100,458
    - Subtotal: $6,154,583; $1,707,321; $2,148,500; $1,659,653; $5,515,473
    - TTF Management Fee (7%): $430,821; $119,512; $150,395; $116,176; $386,083

- Statement on exchange rates: "We do not foresee any changes in costs structures due to exchange rates."

### Value for Money and output efficiency
- Procedures to ensure cost-effectiveness:
  - Follow all Fund guidelines for hiring, travel, and conferences.
  - All contractual hires undergo a competitive process.
  - Outputs produced under firm timeframes and must meet Fund publication requirements.
  - Quality further evaluated when papers are submitted to peer-reviewed publications.
- Publications and output counts to date:
  - 16 publications (published papers) as of reporting.
- Table 5: DFID-sponsored and Other IMF LIC Working and Published Papers (2012–2014)
  - 2012:
    - DFID-sponsored WPs Number: 6; Of which published Number: 2; Share: 33%
    - Other IMF LIC WPs Number: 32; Of which published Number: 3; Share: 9%
  - 2013:
    - DFID-sponsored WPs Number: 16; Of which published Number: 3; Share: 19%
    - Other IMF LIC WPs Number: 29; Of which published Number: 4; Share: 14%
  - 2014:
    - DFID-sponsored WPs Number: 8; Of which published Number: 2; Share: 25%
    - Other IMF LIC WPs Number: 31; Of which published Number: 0; Share: 0%
  - Total (2012–2014):
    - DFID-sponsored WPs Number: 30; Of which published Number: 7; Share: 23%
    - Other IMF LIC WPs Number: 92; Of which published Number: 7; Share: 8%

- Cost metrics (Table 6):
  - Total Staff/Contractual/VS Costs: $4,851,686; £3,032,304
  - Research Paper Costs: $3,638,765; £2,274,228
  - Country Applications Costs: $1,212,922; £758,076
  - Working Papers Produced: 40
    - Cost Per Working Paper: $90,969; £56,856
  - Published Papers Produced: 16
    - Cost per Published Paper: $227,423; £142,139
  - Assumption used for allocation: staff, contractual employees, and visiting scholars spend 75 percent of their time on research papers and 25 percent on country applications.
  - Comparison to benchmark: Both cost per working paper and cost per published paper "compare favorably with the DFID benchmark of £150,000 per paper."
  - Expectation: "We anticipate that the cost per published paper will decrease as more of our working papers from the first three years are accepted for publication."

- Program management share:
  - Direct project management costs represented less than two percent of total budget.
  - Including Trust Fund management fee, program management costs were still below nine percent.

### Project outcomes and outputs achieved
- Outputs listed as achieved (selected):
  - 40 working papers
  - 16 published papers
  - 8 IMF Board papers
  - 12 high profile conferences hosted at IMF
  - 34 cases of uptake by IMF country teams
- Logframe achievements (selected entries):
  - Output Indicator 1.1 (Number of priority research papers produced): Planned H (36 papers) by March 2015 — Achieved: 13 30 40
  - Output Indicator 1.2 (Proportion accepted for publication in top journals): Planned H (6 papers) by March 2015 — Achieved: 1 7 16
  - Output Indicator 2.1 (Application and use by country teams): Planned H (18) by March 2015 — Achieved: 9 21 34
  - Output Indicator 2.2 (Application by country authorities): Planned H (6) by March 2015 — Achieved: 1 3 7
  - Output Indicator 3.1 (High-level policy conferences drawing on outputs): Planned H (6) by March 2015 — Achieved: 6 10 12
  - Output Indicator 3.2 (Research findings reflected in IMF Board/SDN/etc. papers): Planned H (7) by March 2015 — Achieved: 4 8 11
  - Output Indicator 3.2.1 (IMF Board papers using research findings): Planned H (5) by March 2015 — Achieved: 3 6 8
  - Output Indicator 4.1 (Commissioned research papers produced): Planned H (8) by March 2015 — Achieved: 0 13 13
  - Output Indicator 4.2 (Attendance of external researchers at high-level conferences): Planned attendance at six high-level conferences — Achieved: 6 11 16
  - Output Indicator 4.3 (Updates to e-newsletter/webpage): By March 2013 target H (10) — Achieved: 2 4 10

### Work plan and timetable — main thematic priorities and planned activities
- 1) Monetary and exchange rate policies in LICs
  - In-depth analyses of monetary policy in Kenya, Uganda, Rwanda, Tanzania, Ghana and Mozambique.
  - Continued intensive training of central bank staff in Kenya, Uganda, Tanzania, Rwanda, Mozambique, and Ghana in macroeconomic modeling, forecasting and policy analysis, and assistance to improve monetary policy formulation.
  - Plan to organize a follow-up workshop on forecasting and monetary policy analysis; first peer-to-peer workshop was held in March, 2015 for technical-level staff from multiple African central banks and others; second workshop would involve top management and examine modern forward-looking monetary policy.
  - Planned scoping mission to the Central Bank of Sri Lanka (CBSL) to diagnose forecasting and policy formulation and design a work plan to enhance CBSL systems.
  - Technical assistance provided to Reserve Bank of India in macroeconomic modeling, forecasting and policy analysis.

- 2) Debt sustainability analysis and management of natural resources (extension)
  - Professors Giovanni Melina and Paul Levine, with Fund staff, to produce a working paper studying optimal infrastructure spending accounting for public investment inefficiencies and tax collection issues and high returns to public capital.
  - Professor Ioana Moldovan, with Fund staff, to produce a working paper on optimal and implementable fiscal rules and reserve accumulation rules in volatile aid contexts.
  - Professor Ed Buffie working with Fund staff on implications of public-private partnerships for public investment, growth, and debt sustainability in LICs.
  - Fund staff to complete a user-friendly "front end" for the DIG model developed in Buffie et al. (2012).
  - Fund staff and Professor Ed Buffie to produce a paper describing the Ethiopia version of the DIG model incorporating energy sector investment and a banking sector.
  - Fund staff to produce an analytical paper on misconceptions about public investment efficiency and growth.
  - Fund staff and Ondra Kamenik (OGR) to complete work on incorporating uncertainty about parameters and external shock shocks into the DIG model.
  - Country applications of DIG, DIGNAR, and current account models include Lesotho, Republic of Congo, CEMAC, and Mongolia.

- 3) Macroeconomic policies and income distribution
  - Plan to organize a two-day workshop on macroeconomic policy and income inequality in LICs, expanding the network of scholars and policy makers; papers from teams to be presented.
  - Adapt framework to work with Ethiopia team in upcoming Article IV consultation as a pilot to operationalize income inequality work launched by IMF in 2014.
  - Plan to hire Professor Xuan Tam (City University in Hong Kong) for a project on macro and distributional implications of revenue mobilization; draft working paper expected by end of summer of 2015.
  - Plan to submit paper on commodity prices and income inequality (Ghana data) to a journal such as the Review of Economic Studies.
  - Louise Fox (visiting professor at UC Berkeley) to finalize and produce an IMF working paper on what macroeconomists need to know about labor markets in Africa.
  - Team engaging with other IMF departments to develop direct country applications.

- 4) Growth through diversification
  - Thirty country teams requested the dataset from the Board paper on diversification and structural transformation for use in working papers and Article IV consultations.
  - Planned extensions to the diversification toolkit:
    - Incorporate export partners diversification indices to complement existing indices on export products.
    - Develop and incorporate an index on export services in addition to goods.
    - Update the data through 2013 if possible.
  - IMF’s Institute for Capacity Development (ICD) initiated an external course on diversification in resource-rich countries with lecture and separate hands-on workshop; ICD plans to hold the course annually.
  - Diversification Board paper translated into French and posted online to meet Francophone demand.
  - "The Elusive Effect of Trade on Growth" by Theo S. Eicher and David Kuenzel (included in the IMF Board paper and supplement) is now forthcoming in the Canadian Journal of Economics.

- 5) Capital Flows
  - Project goal: better understand private capital flows in LICs and contribute to policy debate on risks associated with frontier LICs gaining market access.
  - Specific objectives for the coming year:
    - Construct a new dataset on low-income countries private flows.
    - Document stylized facts concentrating on behavior of these flows.
    - Identify periods of surges and compare LICs to a control group of EMs.
    - Assess empirically the cyclical behavior of non-FDI private capital flows and the link on accumulation of private capital flows and the Lucas Paradox.
  - This year’s Board paper on low-income and developing countries will include a chapter on capital flows featuring the team’s work.

- 6) Gender and Macroeconomics
  - Begin a research agenda focusing on gender issues in LICs to place gender in IMF policy research.
  - Develop first comprehensive assessment of gender budgeting initiatives globally; kickoff workshop held in March 2015.
  - Produce working papers highlighting gender budgeting experiences in six regions and develop a toolkit with a dataset on global gender budgeting efforts.
  - Complete a working paper on measuring gender inequality using indices and individual indicators by summer, 2015.
  - Ongoing work on relationship between gender, inequality, and growth; quantify how restrictions to women’s economic rights impede economic diversification.
  - Plan to host a two-day conference on gender and macroeconomic issues in 2016 targeting academics and senior policy makers.
  - Team members contributed datasets and reading suggestions to the IMF Knowledge Exchange website on Gender and are involved in the IMF Managing Director’s advisory group on gender.

### Risk, monitoring, and evaluation
- Risk assessment: "The overall risk for this project remains low."
- Monitoring:
  - IMF reports to DFID annually regarding logframe outputs.
  - Quarterly updates provided to the website and quarterly e-newsletters sent to an audience of more than 1000 academics, policymakers, central bank staff, and government representatives.
  - Publicly available working and published papers uploaded to the R4D portal on the DFID website.
  - Commitment to provide "gold access" to journal publications for public access.
  - Video conference calls conducted when deemed necessary by IMF and DFID project members.
- Evaluation:
  - "No budget for an external evaluation was included in the project budget."

*Source: IMF financial reporting and project appendix (Appendix 2 and related sections).*

### Appendix 2: Financial Reports

### Appendix 2: Financial Reports

### Research outputs — Working papers: key findings and implications
- 1. Public Investment, Public Finance, and Growth: The Impact of Distortionary Taxation, Recurrent Costs, and Incomplete Appropriability (Christopher Adam and David Bevan)  
  - Effective public investment requires addressing the "recurrent cost problem" so O&M expenditures sustain productive public capital services.  
  - Model (building on Buffie et al (2012)) shows distortionary taxation and public expenditure structures materially affect growth and debt sustainability in low-income countries.  
  - Stylized experiments include replacing a distortionary output tax with a uniform consumption tax and restoring O&M expenditures to efficient levels.

- 2. Introducing a Semi-Structural Macroeconomic Model for Rwanda (Luisa Charry, Pranav Gupta, Vimal Thakoor)  
  - Developed a simple semi-structural model with a modified uncovered interest parity condition to capture limited capital mobility.  
  - Filtration of observed data shows food and oil prices and the exchange rate accounted for the bulk of inflation dynamics in Rwanda.

- 3. Public Investment as an Engine of Growth (Andrew M. Warner)  
  - Empirical evidence shows only a weak positive association between investment spending and growth contemporaneously; lagged impacts are not significant.  
  - Little evidence of long-term positive impacts on growth; some country exceptions exist (example: Ethiopia).  
  - Short-term associations likely reflect reverse causality or Keynesian demand effects; many historical public capital drives later preceded slumps.  
  - Failures attributed to borrowing-financed drives, poor project analytics, incentive problems, and interest-group distortions. Policy implication: improve analytics and safeguard decision processes.

- 4. Identifying Constraints to Financial Inclusion and Their Impact on GDP and Inequality: A Structural Framework for Policy (Era Dabla‑Norris, Yan Ji, Robert Townsend, D. Filiz Unsal)  
  - Micro-founded general equilibrium model with heterogeneous agents identifies constraints in access, depth, and intermediation efficiency.  
  - Firm-level data from World Bank Enterprise Survey for six countries (Uganda, Kenya, Mozambique, Malaysia, the Philippines, Egypt).  
  - Policy simulations show alleviating different frictions yields differential impacts on GDP and inequality; country-specific characteristics determine tradeoffs and distributional outcomes.

- 5. On the First‑Round Effects of International Food Price Shocks: the Role of Asset Market Structure (Rafael Portillo, Luis‑Felipe Zanna)  
  - Small open-economy model with three goods and varying food tradability; analyzes complete markets, incomplete markets, and financial autarky.  
  - Under complete markets, first-round inflationary impact proportional to food share in consumption.  
  - Under financial autarky, first-round effects proportional to the country's food balance (endowment minus consumption), typically small in developing countries.  
  - Incomplete markets mix the two extremes. Result: international food price shocks are not inherently inflationary in developing countries.

- 6. The Sources of Business Cycles in a Low Income Country (Romain Houssa, Jolan Mohimont, Christopher Otrok)  
  - Analysis for Ghana using Bayesian VARs with sign and recursive restrictions to identify productivity, credit supply, and commodity price shocks.  
  - Comparison benchmark for South Africa shows global shocks more dominant in South Africa; global shocks operate via trade, credit, and commodity price channels.

- 7. IMF Lending and Banking Crisis (Luca Papi, Andrea Presbitero, Alberto Zazzaro)  
  - Empirical study for developing countries over 1970-2010 using instrumental variables and propensity score matching.  
  - Finding: countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than nonborrowing countries.  
  - Evidence suggests compliance with conditionality and loan size matter.

- 8. Are Islamic Banks More Resilient during Financial Panics? (Moazzam Farooq, Sajjad Zaheer)  
  - Using Pakistani data where Islamic and conventional banks co-exist, Islamic branches are less prone to deposit withdrawals during panics, unconditionally and after controls.  
  - Islamic branches of dual-operation banks attract deposits during panics, suggesting religious branding.  
  - Islamic branches grant more loans during panics and lend less sensitive to deposit changes. Policy implication: financial inclusion of faith-based groups may enhance banking stability.

- 9. Harnessing Resource Wealth for Inclusive Growth in Fragile States (Corinne Delechat et al.)  
  - General equilibrium study for Côte d’Ivoire, Guinea, Liberia, Sierra Leone assessing public investment scaling-up and social transfers.  
  - Sustainable non-resource deficit targets can be robust to resource uncertainty and deliver growth via higher public investment.  
  - Scaling-up magnitudes depend on projected resource revenue and absorptive capacity; adding social transfers raises private consumption, implying some resource revenue could expand safety nets.

- 10. Investment Scaling-up and the Role of Government: the Case of Benin (Matteo F. Ghilardi, Sergio Sola)  
  - Scaling up public investment yields higher long-run output and consumption but requires fiscal stabilization to preserve sustainability.  
  - Welfare rises when fiscal adjustment is smoothed via higher borrowing; higher welfare is achieved when financing relies mostly on capital taxation.  
  - Reducing tax collection inefficiency lowers fiscal costs. A trade regime change causing revenue decline can erase welfare gains from public investment due to higher fiscal burden.

### Published papers (select listing)
- Monetary policy in low income countries in the face of the global crisis: A structural analysis (Alfredo Baldini, Jaromir Benes, Andrew Berg, Mai C. Dao, Rafael A. Portillo)  
- Banking market structure and macroeconomic stability: Are low income countries special? (Franziska Bremus, Claudia M. Buch)  
- Are Islamic banks more resilient during financial panics? (Moazzam Farooq, Sajjad Zaheer)  
- The sources of business cycles in a low income country (Romain Houssa, Jolan Mohimont, Christopher Otrok)  
- International financial flows in low income countries (Philip R. Lane)  
- Investing volatile resource revenues in capital-scarce economies (Christine Richmond, Irene Yackovlev, Shu‑Chun S. Yang)  
- Macroeconomics of low income countries: New perspectives (Camelia Minoiu, Galina Hale)  
- Afghanistan: Balancing Social and Security Spending in the Context of a Shrinking Resource Envelope (Aqib Aslam et al.)  
- On the Sources of Inflation in Kenya: A Model-Based Approach (Michal Andrle et al.)

### Uptake by IMF teams — applications and country-level implications
- Monetary policy support and modeling:
  - Ghana: Project team helped prepare medium-term projections and formulate monetary policy advice before Bank of Ghana MPC meetings; informed confidential memorandums ahead of meetings. Initiative became important with Ghana’s request for and approval of a loan under the IMF’s Extended Credit Facility.  
  - Uganda: Regular support to assess monetary policy stance and prepare inflation forecasts under the Policy Support Instrument; country team expressed interest in regular updates and consultations before Bank of Uganda MPC meetings.  
  - Rwanda: Extended Charry et al. (2014) semi-structural model to reflect money-targeting framework of the National Bank of Rwanda; analysis showed majority of money target misses can be explained by monetary policy shocks and instability of money demand (particularly changes in velocity and money multiplier).

- Public investment, growth, and debt sustainability applications:
  - Ethiopia (2014 Article IV Consultation): Staff used a variant of Buffie et al. (2012) model customized for Ethiopia with (i) a state-owned energy sector selling electricity at controlled, low prices and exporting to neighbors, and (ii) a state-owned banking sector fixing interest rates and lending a large fraction of deposits to the public sector. Policy scenarios:  
    - Reliance on bank borrowing requires substantial fiscal adjustment and crowds out the private sector.  
    - External commercial borrowing eases fiscal adjustment and allows public investment to increase without crowding out private investment, but raises public external debt-to-GDP ratios and associated risks.  
    - Scenarios also analyzed gradual increases in energy prices and slower investment scaling-up.
  - Mauritania (Selected Issues): DIGNAR model applied to natural resource management, public investment, and debt sustainability. Findings: authorities should be prudent with investment plans, especially if iron ore prices decline further; improve investment management capacity. Currently planned public investment path is costly in terms of foregone private consumption in the medium run—including under current commodity price projections.
  - Central African Economic and Monetary Community (CEMAC: Select Issues): Application of Buffie et al (2012) model yields principal findings:  
    - Current public investment programs would lead to a public-debt-to-GDP ratio of 46 percent in 2030 (compared to the current level of 22 percent).  
    - Beyond 2020, when scaling-up is completed, public spending would need to remain elevated to maintain the stock of public capital.  
    - Increasing efficiency and the return of public capital reduces debt sustainability concerns while enhancing non-resource growth.  
    - Oil discoveries required to keep debt stable at around 30 percent of GDP beyond 2030 would need to be large enough to allow the oil revenue-to-GDP to rise by (text truncated in source).

*Source: Appendix 2: Financial Reports, IMF (June 2015).*

### 4.5 percentage points above its baseline level, starting in 2015. A negative shock to oil revenue of the

### Macroeconomic Management of Natural Resources

### DIGNAR model applications and simulation findings
- The Debt, Investment, Growth and Natural Resources (DIGNAR) model (based on Buffie et al. (2012), Berg et al. (2013) and Melina et al. (2014)) was applied during IMF Article IV consultations to analyze projected declines or booms in natural resource revenues and their implications for public investment, growth, fiscal and debt sustainability.
- Democratic Republic of Congo (Article IV consultation)
  - Simulations show that higher public capital can be achieved with structural reforms rather than aggressive frontloading of public investment, which places pressure on the resource fund and public debt.
  - Work continues to extend the model framework to study policy options for other countries experiencing oil production decline.
  - Model simulations highlight the importance of a prudent approach to public investment.
- Niger (Selected Issues)
  - A DSGE model tailored to resource-abundant small-open developing countries was used to assess debt sustainability and growth impacts from large public investment scaling-ups in the face of a natural resource revenue boom.
- Myanmar (2014 Article IV Consultation)
  - The DIGNAR model explicitly accounts for the impact of scaled-up investment on growth and capacity constraints due to low public investment efficiency.
  - Simulations were run around two potential public investment paths and two alternative gas revenue scenarios.
  - Simulations indicate that future gas revenue streams in Myanmar should be used to finance a gradual scaling up in public investment while building fiscal space to help maintain a stable macroeconomic environment.
- Quantitative scenario from source content:
  - "4.5 percentage points above its baseline level, starting in 2015." (reference to an oil revenue shock scenario)
  - "A negative shock to oil revenue of the same magnitude would lead to an oil revenue-to-GDP ratio close to 60 percent in 2030."

### Current account norm and external sustainability analysis
- Republic of Congo (Article IV)
  - The model developed in Araujo et al. (2013) was used to assess external sustainability and current account dynamics for 2013–2019.
  - The model incorporates capital scarcity, public investment inefficiencies, absorptive capacity constraints, and country risk premia, and matches several macroeconomic ratios for 2013.
  - Results indicated some mild overvaluation of the real exchange rate relative to traditional external sustainability approaches that do not account for resource-rich, capital-scarce country features.
- Gabon (2014 Article IV Consultation)
  - DIFD methodology solving for a current account norm suggests an overvaluation of 9.9 and 9.7 percent under cost overrun assumptions of 40 and 20 percent respectively.
  - Higher absorptive capacity constraints are associated with higher current account benchmarks since it is optimal to reduce the pace of investment.

### Diversification toolkit and capacity building
- A diversification toolkit was created to enable country teams to assess potential for structural transformation and quality upgrading.
- Uptake and planned expansion:
  - 12 internal requests and two external requests were made for the diversification toolkit in the reported year.
  - The toolkit will be expanded to cover services in the coming year, and training will be offered to Fund staff and country authorities.

### Capital flows and capital account liberalization index
- A de jure Capital Account Liberalization Index was constructed based on the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions.
- Features of the index:
  - Covers 168 countries.
  - Provides information on 10 types of asset categories.
  - Covers the period 1996 -2013.
  - Enables analysis of the evolution, regional characteristics, sequencing of capital account openness, and links between de jure liberalization and de facto capital flows.
  - Disaggregated asset categories allow assessment of the de jure liberalization of specific asset types and their impact on actual capital flows.

### Uptake by authorities: country-specific analytical and technical assistance outcomes
- Ethiopia (Article IV)
  - A variant of the open-economy Debt, Investment, and Growth (DIG) model (Buffie et al (2012)) was customized to include:
    - (i) a state-owned energy sector that exports electricity to neighboring countries and sells to firms and households at controlled, low prices;
    - (ii) a state-owned banking sector that fixes interest rates and lends a large fraction of deposits to the public sector.
  - Model simulations found:
    - Reliance on domestic bank borrowing would require substantial fiscal adjustment to prevent macroeconomic instability, crowd out private investment, and trigger a sharp increase in inflation in the short run.
    - External commercial borrowing would allow public investment to increase without cuts in recurrent expenditure, temporary crowding-out of private investment, and a sharp increase in inflation, but would raise ratios of non-concessional debt and total external debt to GDP.
    - Tradeoffs in scenarios involving gradual increases in energy prices and slower scaling up of public investment were analyzed.
- Ghana
  - Technical assistance (TA) in February 2015 helped the Bank of Ghana develop forecasting tools, train core staff, provide policy recommendations, advise on data management, and assist during six real-time forecast updates for MPC meetings.
  - The authorities requested continued TA and expansion to training senior management on policy formulation and communication under inflation targeting.
- Mongolia
  - IMF staff provided TA on debt sustainability modeling for a natural resource rich economy, trained authorities on Matlab and Dynare, and presented the paper "From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia" during Article IV consultation.
- Kenya
  - DFID-financed TA uptake increased at the Central Bank of Kenya (CBK); the CBK analytical team provided regular medium-term inflation forecast updates and policy recommendations at each MPC meeting.
  - The CBK Research Department was restructured (including establishing a formal forecasting team) and the forecasting process was formalized to adopt the FPAS.

### High-level policy conferences, dissemination, and research uptake
- IMF-DFID involvement at events and conferences:
  - 2014 IMF Annual Meetings: sessions on "Growth and Reform Challenges" and "Fiscal Policy and Income Inequality in Sub-Saharan Africa" with contributions drawing from DIFD diversification work.
  - Preconference Workshop on Capital Flows in Frontier and Emerging Markets (February 2015) covered flows and policy cyclicality, allocation of flows, macro-financial risks, and new datasets with extended LIC coverage.
  - Global Development Conference in Accra, Ghana (June, 2014): presentation on structural transformation and diversification; more than 430 participants from 60 countries attended.
  - 11th International Conference Preliminary Program in Wellington, New Zealand (January 2015): presentation of "Harnessing Resource Wealth for Inclusive Growth in Fragile States"; over 400 registrants from 35 countries.
  - North American Meeting Econometric Society, Minneapolis, USA: presentation on commodity price booms and distributional implications; findings include differential impacts of import and export price shocks on farmers and the urban poor and nonlinear joint shock effects.
  - CSAE conference: six IMF-DFID project papers presented across sessions on macroeconomics and monetary policy, including topics such as public investment, natural resource inflows, fiscal responses, redistribution, aid and reserve/fiscal policies, and public-sector employment effects.
  - IMF Seminar: "Sustaining Long-Run Growth and Macroeconomic Stability in Low-Income Countries" (presented by Sarwat Jahan at JICA in June 2014 and at IMF OAP seminar) with about 30 attendees from government, private sector, academia, and media.

### Results reflected in IMF Board discussions and staff guidance
- IMF Board Papers:
  - "Macroeconomic Developments and Selected Issues in Small Developing States" recognized IMF-DFID work; Box 2 highlights research on diversification in small states and links limited diversification to volatility in growth.
  - "Macroeconomic Developments in Low-income Developing Countries" (inaugural IMF policy paper, October 2014) key messages include:
    - 1) most LIDCs have recorded strong economic growth based primarily on factor accumulation rather than productivity growth;
    - 2) about one-half of LIDCs are classified as being at medium/high vulnerability to a growth shock, with weakened fiscal positions a key source of vulnerability;
    - 3) fiscal institutions should be strengthened to pre-empt the build-up of potential new imbalances.
- IMF Staff Guidance Note:
  - "Staff Guidance Note on Macroprudential Policy – Considerations for LICs" analyzes financial system characteristics in low-income countries (vulnerability to external shocks, shallow banking systems) and how macroprudential tools can be adapted to LIC contexts.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/documents/june2015.pdf_