## Annual Review of the Macroeconomic Research in Low Income Countries project (June 2016)

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---

### Introduction and context
- Project title: "Macroeconomic Research in Low Income Countries" — strategic partnership between DFID and the IMF.
- Project start: March 2012; extended to March 2017 by MoU amendment in December 2014.
- DFID funding: £9.61 million over five years (also reported as £9.45 million over the five years in project summary).
- Impact (stated): “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.”
- Outcome (stated): “better macroeconomic policy-making in LICs leads to faster economic growth, job creation and poverty reduction in LICs.”
- Principal objectives:
  - Produce high quality research.
  - Encourage uptake by IMF country teams and country authorities.
  - Strengthen engagement by IMF senior policymakers on LIC issues.
  - Expand the network of macroeconomic researchers working on LICs.
  - Achieve objectives cost-effectively.

### Performance and conclusions
- Overall assessment:
  - Project exceeded 75% of its output level “high” targets and met a further 17% of the “high” targets.
  - Only one indicator failed to achieve the “high” target but was closer to it than to the “medium” target.
  - Result: the project has scored A++ for almost every output and has scored A++ for the fourth consecutive year.
- Outcome assessment:
  - Outcome indicator: “Improved IMF policymaking and integration of LIC-specifics in project thematic areas”; targets by March 2016: High (7 thematic areas), Medium (5 thematic areas).
  - Programme reached the medium target through inclusion of research outputs in Article IV programmes and additional technical assistance missions.
  - Significant depth of uptake attained in thematic areas: i) Monetary policy; ii) Public investment, growth and debt sustainability; iii) Macroeconomic management of natural resources; iv) Current account norm.
- Comparative advantage and lessons:
  - IMF’s position enables quick policy influence producing outcomes within a few years.
  - Success drivers include a well-placed initial research team in the IMF and IMF’s preeminence in macroeconomic advice for developing countries.
  - Recommendation to calibrate future milestone targets carefully given consistent outperformance.
  - Coordination recommendation: DFID’s Growth Research Team should improve coordination between research programmes to maximise policy impact.

### Outputs, publications, and tool development
- Output scoring highlights:
  - Output 1: Produce high quality, policy relevant research on macroeconomic issues affecting LICs — Output Score A++; Risk: Low; Impact weighting: 30%.
  - Output 2: IMF Research Products used by IMF country teams and partner authorities — Output Score A++; Risk: Low; Impact weighting: 30%.
- Output 1 indicators and progress (By March 2016, accumulative):
  - 1.1 Number of priority research working papers produced: H (52 papers); M (45 papers); L (40 papers). Progress: 16 produced in 2015, 56 produced in total.
  - 1.2 Number of research papers accepted for publication in top journals: H (9); M (4); L (3). Progress: 8 published in 2015, 24 published in total.
  - 1.3 Number of freely available books published: N/A.
- Output 2 indicators and progress (By March 2016, evidence of applications):
  - 2.1 Application and use of tools and frameworks by country teams: H (26); M (14); L (8). Progress: 14 applications in 2015/16, cumulatively 48.
  - 2.2 Application and use of tools and frameworks by country authorities: H (8); M (5); L (4). Progress: 2 in 2015/16, in addition to 7 previously, total 9.
- Key quantitative outputs and dissemination:
  - Working papers: 16 completed in the year, total 56 over four years.
  - Peer-reviewed publications: 8 published in the last year, total 24 over four years.
  - The papers cover six thematic topics: Monetary and Exchange Rate Policy in LICs; Public investment, Growth, and Debt Sustainability; Macroeconomic Management of Natural Resources; Capital Flows; Financial Deepening and Macroeconomic Stability and Sustained Growth; Gender and Macroeconomics.
- Notable published items (selection):
  - “Current account norms in natural resource rich and capital scarce economies” — Juliana D. Araujo, Bin Grace Li, Marcos Poplawski-Ribeiro, Luis-Felipe Zanna (Journal of Development Economics, May 2016).
  - “Too much and too fast? Public investment scaling-up and absorptive capacity” — Andrea Presbitero (Journal of Development Economics, May 2016).
  - “Public debt and growth: Heterogeneity and non-linearity” — Markus Eberhardt and Andrea Presbitero (Journal of International Economics, September 2015).
  - “Debt Sustainability, Public Investment, and Natural Resources in Developing Countries: The DIGNAR Model” — Giovanni Melina, Susan Yang, Felipe Zanna (Economic Modelling, January 2016).
  - Chapter: “Monetary Policy Issues in Sub-Saharan Africa” — Andrew Berg et al. (The Oxford Handbook of Africa and Economics: Volume 2).
  - Special issue contributions in Oxford Review of Economic Policy: Oliver Morrissey; Daniel Roodman; Axel Dreher and Steffen Lohmann.

### Model and toolkit development and uptake
- Excel-based versions developed for two programme models:
  - DIG (Buffie et al (2012)) — analyzes macroeconomic consequences of scaling up public investment; extensions to energy and infrastructure investment.
  - DIGNAR (Melina et al (2014)) — explores implications of investment surges in natural resource rich countries including inefficiency, absorptive capacity constraints, Dutch Disease, and financing needs.
- Staff have applied both models to around 22 countries, with more on-going.
- Excel toolkits enable country administrations to run analyses with country-specific calibration returning customised results and plots.
- DIG toolkit used to teach an ICD course for IMF staff in January 2016 and a training course in Tanzania for country officials in March 2016; to be made openly available online.
- DIGNAR applied to Botswana during 2015/16; insights stressed importance of reforms improving public investment quality and efficiency.

### Key lessons and challenges
- Strengths:
  - Quick translation of research into policy influence via IMF channels.
  - Improved quality and breadth of peer-reviewed publications.
  - Successful development of user-friendly Excel toolkits increasing accessibility to country officials.
- Challenges:
  - Balancing outreach activities with maintaining frontier research and new ideas.
  - Need to broaden academic engagement and encourage external corroboration of IMF findings.
- Operational note:
  - Chief of Research Department’s Development Macroeconomics division moved to senior position in IMF’s Institute for Capacity Development (ICD), expected to enhance prominence of research programme activities in IMF training and technical assistance.

### Recommendations (summary for the next year)
- Continue discussions and planning for a third phase to consolidate research findings, increase policy uptake, and consider emerging research areas.
- Continue production of summary evidence products or synthesis papers, especially on:
  - Macroeconomic management of natural resources;
  - Macroeconomic policies and income distribution;
  - Financial deepening for macroeconomic stability and sustained growth;
  - Growth through diversification;
  - Gender and macroeconomics.
- IMF team should continue aiming for publications in more prestigious and widely read academic journals to influence academic debate and broaden researcher engagement.
- Explore opportunities to share IMF experience with other DFID research programmes and use training programmes to stimulate interest and external corroboration.
- Encourage production of policy briefs to broaden readership and consider adding policy briefs to the logframe.

### Monetary policy applications in DFID focus countries
- Countries with applied monetary policy research: Tanzania, Kenya, Ghana, Uganda (all DFID focus countries).
- Mission objectives to Central Banks focused on:
  - Improving central bank analysts’ modelling capabilities regarding inflation outlooks.
  - Enhancing the monetary policy formulation process.
  - Improving management and recording of central bank liquidity processes.
- Uganda:
  - Joint IMF-Central Bank research using a large micro-level credit register (2010–2014) — first analysis of the bank lending channel in a sub-Saharan economy based entirely on micro data.

### Public investment, growth and natural resource macro-model toolkits — country applications
- DIG model (Excel-based):
  - Used in ICD course (January 2016) and training in Tanzania (March 2016).
  - Enables simulations of public investment scaling-up and macroeconomic consequences via input fields generating output sheets.
  - Will be made openly available online.
- DIGNAR model (Excel-based):
  - Assesses implications of investment surges in natural resource-rich countries including inefficiency, absorptive capacity constraints, Dutch Disease, financing needs.
  - Applied to Botswana in 2015/16; results emphasized reforms to improve public investment quality and efficiency.

### Fiscal policy, inequality and country workshops — country applications
- Uganda:
  - Article IV mission analysis: increasing VAT rate would have a limited, adverse impact on equality while effectively raising revenues.
  - Workshop with Uganda Revenue Authority highlighted informality and changing incentives of economic agents.
- Ethiopia:
  - Analytical work “Economic Reforms and Broad Based Growth in Ethiopia” presented at National Bank of Ethiopia.
  - Proposed inclusive growth policies: (i) cash transfers (expansion of the PSNP), (ii) rural-urban migration, (iii) financial sector deepening.
  - Team’s work incorporated into the World Bank’s Systematic Country Diagnostic for Ethiopia.
- Malawi:
  - Analysis “Macroeconomic and Distributional Implications of FISP Reform in Malawi” presented to Ministry of Finance and donor community.
  - Results suggest trade-off between efficiency and equity can be ameliorated by compensatory measures; Minister of Finance requested further engagement, possibly a technical assistance mission.

### Training, workshops and dissemination
- During FY2015/16 the IMF team held six workshops covering:
  - Macroeconomic modelling and monetary policy analysis;
  - Macroeconomic policy and income inequality;
  - Gender responsive budgeting;
  - Macro-fiscal issues in natural resource management;
  - Modelling public debt with growth of public investment;
  - An ICD course on macroeconomic management in resource rich countries delivered to mid to senior level central bank officials.
- Training courses and country applications identified as important channels to stimulate demand and disseminate research outputs.
- Quarterly e-newsletters issued: May 2015, August 2015, November 2015, February 2016.

### Outputs, indicators and key statistics (selected)
- Output 3 (IMF strengthens engagement by senior IMF policy makers): Output Score A++; Risk: Low; Impact weighting: 30%.
  - Indicator 3.1: policy conferences drawing on outputs — By March 2016 targets: H (8), M (6), L (4). Progress: 12 in previous years, 1 in 2015/16, 13 total.
  - Indicator 3.2: evidence of research in IMF Board/SDN/etc. papers — By March 2016 targets: H (8), M (4), L (3). Progress: 11 in previous years, 2 in 2015/16, 13 total.
  - Indicator 3.2.1: evidence in IMF Board Papers — By March 2016 targets: H (6), M (4), L (3). Progress: 8 in previous years, 1 in 2015/16, 9 total.
- Output 4 (IMF strengthens capacity building by expanding network of LIC researchers): Output Score A+; Risk: Low; Impact weighting: 10%.
  - Indicator 4.1: number of commissioned research papers — By March 2016 targets: H (16), M (10), L (6). Progress: 13 in previous years, none added in review year, total 13.
  - Indicator 4.1.1: toolkits produced — By March 2016 targets: H (2), M (1), L (0). Progress: 1 produced in 2014, 1 produced in 2015/16, 2 total.
  - Indicator 4.2: attendance of external researchers at high-level policy conferences — By March 2016 targets: H (8), M (6), L (4). Progress: 16 in previous years, 15 in 2015/16, 31 total.
  - Indicator 4.3: updates of e-newsletter and/or webpage — By March 2016 targets: H (14), M (8), L (6). Progress: 10 in previous years, 4 in 2015/16, 14 total.

### Value for Money & financial performance — key figures
- Direct programme management costs and the Trust Fund management fee amount to less than 9% of the total budget.
- Direct programme management costs alone represent less than 2% of the total budget.
- Team time allocation estimate: staff, contractual employees, and visiting scholars spend 75 percent of their time on research papers and 25 percent on country applications.
- Total Staff/Contractual/Visiting Scholar Costs:
  - IMF Staff: $1,604,870   £1,099,617
  - Contractuals: $3,796,459   £2,601,239
  - Visiting Scholars (VS): $2,379,884   £1,630,637
  - Total Staff/Contractual/VS Costs: $7,781,213   £5,331,493
  - Split between:
    - Research Paper Costs (75%): $5,835,910   £3,998,619
    - Country Applications Costs (25%): $1,945,303   £1,332,873
- Outputs and unit costs:
  - Working Papers Produced: 56
  - Cost Per Working Paper: $104,213   £71,404
  - Published Papers Produced: 24
  - Cost per Published Paper: $243,163   £166,609
  - N.B. Exchange Rate obtained 19/05/2016 as $1: £0.685175 from www.xe.com
- Comparative performance versus Business Case:
  - BC predicted unit cost per published paper of £121,000 for IMF programme and £180,000 for the next best option.
  - Current cost per published paper after 4 years: $243,163 (£166,609), remaining below the next best cost estimated by the BC.
- DFID-sponsored vs Other IMF LIC papers (2012–2015):
  - DFID-sponsored Working Papers total: 46, Of which published: 10 (22%).
  - Other IMF LIC Working Papers total: 125, Of which published: 9 (7%).
  - Yearly breakdown:
    - 2012: 6 / 2 / 33%  ;  other IMF: 32 / 3 / 9%
    - 2013: 16 / 3 / 19% ;  other IMF: 29 / 4 / 14%
    - 2014: 8 / 2 / 25%  ;  other IMF: 31 / 0 / 0%
    - 2015: 16 / 3 / 19% ;  other IMF: 33 / 2 / 6%
  - Totals: DFID 46 / 10 / 22% ; Other IMF 125 / 9 / 7%

### Assessment, risk and commercial considerations
- Programme regarded to represent very good value for money; achieving outstanding results, exceeding ‘high’ targets and demonstrating uptake by IMF teams and LIC authorities.
- Cost-effectiveness drivers:
  - Adherence to IMF guidelines for hiring, travel, and conferences.
  - Competitive procurement for contractual hires.
  - Outputs under firm timeframes meeting Fund publication requirements.
  - Quality evaluated via peer-reviewed publications (24 peer-reviewed publications to date).
  - IMF research team’s unique ability to rapidly communicate findings to resident representatives and missions.
- Financial management:
  - Of the approximately $8.5m agreed for Phase 2 in December 2014, only $130,255 remained uncommitted by 30 April 2016.
  - Program management costs (direct) represented less than two percent of the total budget; including Trust Fund management fee, below nine percent.
- Overall risk rating: Low.
- Delivery against planned timeframe: IMF team exceeded almost all high output milestones; publication lags expected to continue but will likely reduce cost per published paper over time.

### Monitoring & Evaluation and governance notes
- Annual Review conducted by SRO Mark Dray (GRT Economic Adviser) and Peter Feinson (GRT), independent inputs from Andy Hindsley (DFID IFID), QA from Tim Hatton (GRT Senior Programme Manager).
- Date of last narrative financial report: 6 May 2016.
- Date of last audited annual statement: 30 April 2016.
- As of March 2016, US$9,149,434 has been drawn down from the subaccount.
- Approved Budget Total: $10,342,308; TOTAL (Years 1-4): $9,383,961 (detailed year and line items preserved in financial statements).
- No budget for an external evaluation included in project budget.

*Annual Review of the Macroeconomic Research in Low Income Countries project (June 2016).*

### 1.   Once again the Macroeconomic Research in LICs project has exceeded the “High” milestones for

### 1.   Once again the Macroeconomic Research in LICs project has exceeded the “High” milestones for

### Introduction and context
- The project, "Macroeconomic Research in Low Income Countries", is a strategic partnership between DFID and the IMF with intentions 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;
  - achieve these objectives cost-effectively.
- The project began in March 2012 and was extended to March 2017 by a MoU amendment in December 2014.
- DFID will provide £9.61 million over five years.
- The stated 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.”
- The stated Outcome: “better macroeconomic policy-making in LICs leads to faster economic growth, job creation and poverty reduction in LICs.”
- Principal objectives:
  - Produce high quality research.
  - Strongly encourage uptake of research by IMF country teams.
  - Encourage uptake by country authorities.
  - Strengthen engagement by IMF senior policymakers on LIC issues.
  - Expand the network of researchers working on macroeconomic issues affecting LICs.

### Performance and conclusions
- Overall assessment:
  - The project exceeded 75% of its output level “high” targets and met a further 17% of the “high” targets.
  - Only one indicator failed to achieve the “high” target but was closer to it than to the “medium” target.
  - Result: the project has scored A++ for almost every output and has scored A++ for the fourth consecutive year.
- Outcome assessment:
  - Outcome indicator: “Improved IMF policymaking and integration of LIC-specifics in project thematic areas”, with targets by March 2016:
    - High (7 thematic areas)
    - Medium (5 thematic areas)
  - Through inclusion of research outputs in Article IV programmes and additional technical assistance missions the programme has reached the medium target.
  - Significant depth of uptake attained in particular thematic areas: i) Monetary policy; ii) Public investment, growth and debt sustainability; iii) Macroeconomic management of natural resources; iv) Current account norm.
- Comparative advantage and lessons:
  - The IMF’s unique position enables quick policy influence, producing outcomes within a few years.
  - Success drivers may be partly unique: a well-placed initial research team in the IMF and the IMF’s preeminence in macroeconomic advice for developing countries.
  - Recommendation to calibrate future milestone targets carefully given consistent outperformance.
  - Coordination recommendation: DFID’s Growth Research Team should improve coordination between research programmes to maximise policy impact across the portfolio.
- Logframe:
  - The logframe was updated as part of the project extension in December 2014 and has not been updated since.
  - The programme is scheduled to end by March 2017; discussions about a third phase began at the end of the 2nd quarter 2016.

### Outputs, publications, and tool development
- Output scoring highlights:
  - Output 1 (Produce high quality, policy relevant research on macroeconomic issues affecting LICs): Output Score A++; Risk: Low; Impact weighting (%): 30.
  - Output 2 (IMF Research Products produced under this project used by IMF country teams and partner authorities): Output Score A++; Risk: Low; Impact weighting (%): 30.
- Output 1 indicators and progress (By March 2016, accumulative):
  - 1.1 Number of priority research working papers produced
    - H (52 papers)
    - M (45 papers)
    - L (40 papers)
    - Progress: 16 produced in 2015, 56 produced in total.
  - 1.2 Number of research papers accepted for publication in top journals
    - H (9)
    - M (4)
    - L (3)
    - Progress: 8 published in 2015, 24 published in total.
  - 1.3 Number of freely available books published: N/A
- Output 2 indicators and progress (By March 2016, evidence of applications):
  - 2.1 Application and use of tools and frameworks by country teams
    - H (26)
    - M (14)
    - L (8)
    - Progress: 14 applications in 2015/16, cumulatively 48.
  - 2.2 Application and use of tools and frameworks by country authorities
    - H (8)
    - M (5)
    - L (4)
    - Progress: 2 in 2015/16, in addition to 7 previously, total 9.
- Key quantitative outputs and dissemination:
  - Working papers: 16 completed in the year, total 56 over four years.
  - Peer-reviewed publications: 8 published in the last year, total 24 over four years.
  - The papers cover six thematic topics: Monetary and Exchange Rate Policy in LICs; Public investment, Growth, and Debt Sustainability; Macroeconomic Management of Natural Resources; Capital Flows; Financial Deepening and Macroeconomic Stability and Sustained Growth; Gender and Macroeconomics.
- Notable publications (selected items reported):
  - In May 2016 issue of the Journal of Development Economics:
    - “Current account norms in natural resource rich and capital scarce economies” — Juliana D. Araujo, Bin Grace Li, Marcos Poplawski-Ribeiro, Luis-Felipe Zanna.
    - “Too much and too fast? Public investment scaling-up and absorptive capacity” — Andrea Presbitero.
  - In September 2015 issue of the Journal of International Economics:
    - “Public debt and growth: Heterogeneity and non-linearity” — Markus Eberhardt and Andrea Presbitero.
  - In January 2016 issue of Economic Modelling:
    - “Debt Sustainability, Public Investment, and Natural Resources in Developing Countries: The DIGNAR Model” — Giovanni Melina, Susan Yang, and Felipe Zanna.
  - Chapter in The Oxford Handbook of Africa and Economics: Volume 2: Policies and Practices:
    - “Monetary Policy Issues in Sub-Saharan Africa” — Andrew Berg, Stephen O'Connell, Catherine Pattillo, Rafael Portillo, and Filiz Unsal.
  - Special issue of the Oxford Review of Economic Policy included:
    - “Aid and domestic resource mobilization with a focus on Sub-Saharan Africa” — Oliver Morrissey.
    - “On measuring loan concessionality in Official Development Assistance” — Daniel Roodman.
    - “Aid and growth at the regional level” — Axel Dreher and Steffen Lohmann.
- Model/tool development and uptake:
  - Development of Excel-based versions of two programme models:
    - DIG (developed by Buffie et al (2012)) — allows analysis of macroeconomic consequences of scaling up public investment, with extensions to energy and infrastructure investment.
    - DIGNAR (developed by Melina et al (2014)) — explores implications of investment surges in natural resource rich countries.
  - Staff have applied both models to around 22 countries, with more on-going.
  - Excel-based toolkits enable developing country administrations to complete analysis without detailed programming knowledge and to input country-specific calibration returning customised results and plots.

### Key lessons and challenges
- Strengths:
  - Quick translation of research into policy influence via IMF channels.
  - Improved quality and breadth of peer-reviewed publications, including publication in the Journal of Development Economics.
  - Successful development of user-friendly Excel toolkits to increase accessibility of models to country officials.
- Challenges:
  - Balancing outreach activities with maintaining frontier research and new ideas.
  - Need to broaden academic engagement further and encourage external corroboration of IMF findings.
- Operational notes:
  - The chief of the Research Department’s Development Macroeconomics division moved to a senior position in the IMF’s Institute for Capacity Development (ICD), expected to enhance prominence of research programme activities in IMF training and technical assistance.

### Recommendations (summary for the next year)
- Continue discussions and planning for a third phase to consolidate research findings, increase policy uptake, and consider emerging research areas.
- Continue production of summary evidence products or synthesis papers, especially on themes:
  - macroeconomic management of natural resources;
  - macro policies and income distribution;
  - financial deepening for macroeconomic stability and sustained growth;
  - growth through diversification;
  - gender and macroeconomics.
- IMF team should continue to aim for publications in more prestigious and widely read academic journals to influence academic debate and broaden researcher engagement in LIC macroeconomics.
- Explore opportunities to share IMF experience with other DFID research programmes, using training programmes to stimulate interest and allow external corroboration of IMF findings.
- Encourage production of policy briefs to broaden readership and reach; consider adding policy briefs to the logframe in the future.
- Continue advancing publication ambitions toward more prestigious journals as a core objective.

*Annual Review of the Macroeconomic Research in Low Income Countries project (June 2016).*

### 34. Research on monetary policy was applied to 4 countries, Tanzania, Kenya, Ghana and Uganda,

### Research on monetary policy was applied to 4 countries, Tanzania, Kenya, Ghana and Uganda

### Monetary policy applications in DFID focus countries
- Research was applied to Tanzania, Kenya, Ghana and Uganda, all of which are DFID focus countries.
- The majority of applications involved missions to Central Banks with objectives to:
  - improve central bank analysts’ modelling capabilities regarding inflation outlooks,
  - enhance the formulation process of monetary policy,
  - improve the management and recording of central bank liquidity processes.
- In Uganda the IMF team conducted a joint research project with staff from the Central Bank using a large micro-level dataset from the Ugandan credit register to explore the link between monetary policy and bank lending during the period 2010-2014.
- The Uganda project offers the first analysis of the bank lending channel in a sub-Saharan economy based entirely on micro data.

### Public investment, growth and natural resource macro-model toolkits
- Research on public investment, growth and debt sustainability was applied to the Maldives, Lesotho and Tanzania.
- An Excel-based toolkit of the DIG model:
  - was used to teach an Institute for Capacity Development course for IMF staff in January 2016, and a training course in Tanzania for country officials in March 2016,
  - allows simulations of policy scenarios and analysis of macroeconomic consequences of scaling up public investment via simple input fields that generate an output sheet,
  - will be made openly available online.
- An Excel-based toolkit for the DIGNAR model:
  - assesses macroeconomic implications of investment surges in natural resource-rich developing countries, explicitly incorporating public investment inefficiency, absorptive capacity constraints, Dutch Disease, and financing needs to sustain capital,
  - has similar accessibility features to the DIG model toolkit,
  - was applied to Botswana during 2015/16, yielding insights including the importance of reforms that improve the quality and efficiency of public investment to strengthen economic impact.

### Fiscal policy, inequality and country workshops
- The IMF examined effects of fiscal policy on inequality in Uganda during the 2015 Article IV mission:
  - The IMF team analyzed quantitative impact of tax policy and administration improvements on inequality and found that increasing the VAT rate would have a limited, adverse impact on equality while effectively raising revenues.
  - The IMF team held a workshop with staff of the Uganda Revenue Authority highlighting the importance of the high level of informality in the Ugandan economy and changing incentives of economic agents.
- Two successful country authority engagements in 2015/16:
  - Ethiopia:
    - IMF presented analytical work “Economic Reforms and Broad Based Growth in Ethiopia” at the National Bank of Ethiopia (NBE),
    - Proposed three inclusive growth policies: (i) cash transfers (expansion of the PSNP), (ii) rural-urban migration, and (iii) financial sector deepening,
    - Team’s work incorporated into the World Bank’s Systematic Country Diagnostic for Ethiopia.
  - Malawi:
    - Government considering reforming the “Farm Input Subsidy Program (FISP)” to generate fiscal space and improve expenditure efficiency,
    - IMF staff presented “Macroeconomic and Distributional Implications of FISP Reform in Malawi” to Ministry of Finance and donor community,
    - Results suggest trade-off between efficiency and equity can be ameliorated by compensatory measures; Minister of Finance requested further engagement, possibly a technical assistance mission.

### Training, workshops and dissemination
- During FY2015/16 the IMF team held six workshops covering:
  - Macroeconomic modelling and monetary policy analysis,
  - Macroeconomic policy and income inequality,
  - Gender responsive budgeting,
  - Macro-fiscal issues in natural resource management,
  - Modelling public debt with growth of public investment,
  - An ICD course on macroeconomic management in resource rich countries delivered to mid to senior level central bank officials.
- Training courses and country applications are identified as important channels to stimulate demand from country teams and authorities and to disseminate research outputs.

### Recommendations
- Country applications tend to be demand-driven; training courses can stimulate this demand (case of Malawi).
- It is usually feasible to apply a modelling framework to an individual country unless there are very severe data constraints.
- The Fund team emphasized that the ability to respond to training needs and conduct country applications is possible because of DFID funding.
- Consider making training courses an explicit logframe output to incentivize running training and workshops; the movement of the previous programme lead, Andy Berg, to deputy director of the ICD presents an opportunity to extend training efforts.
- Explore sharing IMF team training experiences with other Growth Research Team programmes (e.g., IGC and UNU-WIDER) to leverage DFID’s research network outreach.
- Advertise Fund activities to DFID country teams, especially in DFID focus countries such as Ghana and Malawi.

### Outputs, indicators and key statistics
- Output: IMF strengthens engagement by senior IMF policy makers on macroeconomic issues affecting LICs (Output number per LF 3). Output Score: A++. Risk: Low. Impact weighting (%): 30.
  - Indicator 3.1: policy conferences drawing on outputs from the project:
    - By March 2016, targets H (8), M (6), L (4).
    - Progress: 12 in previous years, 1 in 2015/16, 13 total.
  - Indicator 3.2: evidence of research in IMF Board/SDN/etc. papers:
    - By March 2016, targets H (8), M (4), L (3).
    - Progress: 11 in previous years, 2 in 2015/16, 13 in total.
  - Indicator 3.2.1: evidence in IMF Board Papers:
    - By March 2016, targets H (6), M (4), L (3).
    - Progress: 8 in previous years, 1 in 2015/16, 9 in total.
- Research reflected in IMF Board paper “Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries” and in IMF Staff Discussion Note “From Ambition to Execution: Policies in Support of Sustainable Development Goals”.
- Output: IMF strengthens capacity building by expanding network of LIC researchers (Output number per LF 4). Output Score: A+. Risk: Low. Impact weighting (%): 10.
  - Indicator 4.1: number of commissioned research papers:
    - By March 2016, targets H (16), M (10), L (6).
    - Progress: 13 in previous years, none added in this review year.
  - Indicator 4.1.1: toolkits produced:
    - By March 2016, targets H (2), M (1), L (0).
    - Progress: 1 produced in 2014, 1 produced in 2015/16, 2 in total.
  - Indicator 4.2: attendance of external researchers at high-level policy conferences:
    - By March 2016, targets H (8), M (6), L (4).
    - Progress: 16 in previous years, 15 in 2015/16, 31 in total.
  - Indicator 4.3: updates of e-newsletter and/or webpage:
    - By March 2016, targets H (14), M (8), L (6).
    - Progress: 10 in previous years, 4 in 2015/16, 14 in total.
- Dissemination and conference activity:
  - Seven researchers attended and presented at 15 high level policy conferences, including presentation on gender budgeting at the Europe Gender Summit in Berlin (November, 2015).
  - Four newsletters were issued: May 2015, August 2015, November 2015, February 2016.

### Value for Money & financial performance — key figures
- Direct programme management costs and the Trust Fund management fee amount to less than 9% of the total budget.
- Direct programme management costs alone represent less than 2% of the total budget.
- Team estimate that staff, contractual employees, and visiting scholars spend 75 percent of their time on research papers and 25 percent on country applications.
- Total Staff/Contractual/Visiting Scholar Costs:
  - IMF Staff: $1,604,870   £1,099,617
  - Contractuals: $3,796,459   £2,601,239
  - Visiting Scholars (VS): $2,379,884   £1,630,637
  - Total Staff/Contractual/VS Costs: $7,781,213   £5,331,493
  - Split between:
    - Research Paper Costs (75%): $5,835,910   £3,998,619
    - Country Applications Costs (25%): $1,945,303   £1,332,873
- Outputs and unit costs:
  - Working Papers Produced: 56
  - Cost Per Working Paper: $104,213   £71,404
  - Published Papers Produced: 24
  - Cost per Published Paper: $243,163   £166,609
  - N.B. Exchange Rate obtained 19/05/2016 as $1: £0.685175 from www.xe.com
- Comparative performance versus Business Case (BC):
  - BC predicted unit cost per published paper of £121,000 for IMF programme and £180,000 for the next best option.
  - Current cost per published paper after 4 years: $243,163 (£166,609), remaining below the next best cost estimated by the BC.
- Table of DFID-sponsored vs Other IMF LIC papers (2012–2015):
  - DFID-sponsored Working Papers total: 46, Of which published: 10 (22%).
  - Other IMF LIC Working Papers total: 125, Of which published: 9 (7%).
  - Yearly breakdown (Number / Of which published / Share):
    - 2012: 6 / 2 / 33%  ;  other IMF: 32 / 3 / 9%
    - 2013: 16 / 3 / 19% ;  other IMF: 29 / 4 / 14%
    - 2014: 8 / 2 / 25%  ;  other IMF: 31 / 0 / 0%
    - 2015: 16 / 3 / 19% ;  other IMF: 33 / 2 / 6%
  - Totals: DFID 46 / 10 / 22% ; Other IMF 125 / 9 / 7%

### Assessment, risk and commercial considerations
- The programme is regarded to represent very good value for money and is achieving outstanding results, exceeding ‘high’ targets and demonstrating uptake by IMF teams and LIC authorities.
- Cost-effectiveness drivers:
  - Strict adherence to IMF guidelines for hiring, travel, and conferences with competitive procurement for contractual hires,
  - Outputs produced under firm timeframes meeting Fund publication requirements,
  - Quality further evaluated via peer-reviewed publications (24 peer-reviewed publications to date),
  - Unique ability of IMF research team to quickly communicate findings to IMF resident representatives and country missions to achieve policy impact.
- Financial management:
  - Of the approximately $8.5m agreed for Phase 2 in December 2014, only $130,255 remained uncommitted by 30 April 2016.
  - Direct project management costs represented less than two percent of the total budget; including Trust Fund management fee, program management costs were below nine percent.
- Overall risk rating: Low.
- Delivery against planned timeframe: IMF team exceeded almost all high output milestones; publication lags expected to continue but will likely reduce cost per published paper over time.

### Monitoring & Evaluation and governance notes
- The Annual Review (AR) was conducted by the SRO Mark Dray (GRT Economic Adviser) and Peter Feinson (GRT), with independent inputs from Andy Hindsley (DFID IFID) and quality assurance from Tim Hatton (GRT Senior Programme Manager).
- The IMF division chief of the Research Department’s Development macroeconomics division visited DFID in preparation for the AR; Mark Dray and Stevan Lee held a VC with the IMF team ahead of the Annual Report.
- Date of last narrative financial report: 6 May 2016.
- Date of last audited annual statement: 30 April 2016.

*Source: IMF/DFID Annual Review (FY2015/16) — June 2016.*

### Introduction and Context

### Introduction and Context

### Programme overview and objectives
- Programme title: Macroeconomic Research in Low-Income Countries — An IMF/DFID Research Partnership.
- Reporting period: April 2015 – March 2016.
- Report edition: Fourth Year Annual Report to DFID.
- Publication date: May 5, 2016.
- Lead authors listed: Andrew Berg, Catherine Pattillo, Prakash Loungani, and Rupa Duttagupta.
- Purpose: Briefly outline the programme, expected results and contribution to the overall Operational Plan and DFID’s international development objectives (including corporate results targets).
- If the context supporting the intervention has changed from the original programme documents, explain implications for UK support.

### Performance and conclusions (Annual Outcome Assessment)
- Annual Outcome Assessment requirement: Brief assessment of whether the outcome is expected to be achieved by the end of the programme.
- Overall Output Score and Description: Progress against the milestones and results expected at the time of the review.
- Key lessons to capture:
  - Any key lessons learned by the programme and partners.
  - Whether assumptions have changed since design and whether a redesign would be implemented differently.
  - How lessons will be shared internally and externally across DFID and partners.
- Key actions:
  - Additional actions (not covered in Summary Sheet), timelines for completion, and responsible team members.
  - Has the logframe been updated since the last review? If so, what are the key changes and implications for the programme?

### Detailed Output Scoring
- For each Output:
  - Set out the Output and Output Score.
  - Score entered 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 currently shown on the logframe and be entered on ARIES.
  - Revised since last Annual Review (Y/N).
  - Risk Rating: Low/Medium/High — must match the Risk currently shown on the logframe and to be entered on ARIES.
  - If Risk revised since last review or inception, explain why and refer to section B Risk Assessment.
  - Key points: Summary response to issues raised in previous annual reviews (where relevant).
  - Recommendations: Repeat above for each Output.

### Value for Money and Financial Performance
- Key cost drivers and performance:
  - Consider specific costs and cost drivers identified in the Business Case.
  - Note changes from previous reviews or at programme approval and explain reasons.
- VfM performance compared to 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, reasons and required actions.
- 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 and include details of last report.
  - Confirm whether auditing requirements have been met and include details of last report.

### Risk
- 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:
  - What are the changes to the overall risk environment/context and why?
  - Review key risks affecting successful delivery of expected results.
  - Identify different or new mitigating actions required and whether existing mitigating actions directly address identifiable risks.
  - Specify additional checks and controls required to ensure 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
- Delivery against planned timeframe: Y/N — compare actual progress against approved timescales in the Business Case; if off track explain implications for cost and remedial action.
- Performance of partnership:
  - How well formal partnerships/contracts are 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 (Partnership Principles)
- Update on Partnership Principles and specific conditions.
- For programmes using the Partnership Principles for management and monitoring, provide details on:
  - a. 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 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 the Partnership Principles should play in future management and monitoring, taking into account the delivery mechanism and use of partner government systems.

### Monitoring and Evaluation
- Evidence and evaluation:
  - Changes in evidence and implications for the programme.
  - Where an evaluation is planned, progress made.
  - How the Theory of Change and assumptions used in programme design are working in practice; whether modifications are required.
  - Any new evidence challenging programme design or rationale and how implementation contributes 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 the review period (field visits, reviews, engagement, etc.).
- The Annual Review process.

### Annex: IMF Annual Report structure (selected contents)
- Title: Macroeconomic Research in Low-Income Countries — An IMF/DFID Research Partnership.
- Fourth Year Annual Report to DFID (for period April 2015 – March 2016).
- Table of Contents entries and page references as provided:
  - 1. PROGRAM DESCRIPTION .....................................................................................   1
  - 2. OVERVIEW OF THE YEAR ......................................................................................  3
  - 3. LOGFRAME OUTPUTS ...........................................................................................   6
  - 4. OUTPUTS: ADDITIONAL INFORMATION ...........................................................   19
  - 5. UPTAKE / ENGAGEMENT WITH BENEFICIARIES ...............................................   20
  - 6. OUTCOMES AND IMPACTS ..................................................................................   21
  - 7. COSTS, VALUE FOR MONEY AND MANAGEMENT ...........................................    23
  - 8. WORK PLAN & TIMETABLE ..................................................................................   25
  - 9. RISK .........................................................................................................................   28
  - 10. MONITORING AND EVALUATION .......................................................................  29
  - 11. FURTHER INFORMATION .....................................................................................   30
  - APPENDICES
    - 1. Logframe .........................................................................................................   31
    - 2. Financial Reports ...........................................................................................   36

*Macroeconomic Research in Low-Income Countries: An IMF/DFID Research Partnership. Fourth Year Annual Report to DFID (for period April 2015 – March 2016). May 5, 2016.*

### 3. Research Outputs...........................................................................................  40

### 3. Research Outputs

### Program Description
- “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;
  - achieve the above cost-effectively.
- Project timeline:
  - Phase I: March 2012 to March 2015
  - Phase II: April 2015 to March 2017
- Funding:
  - DFID will provide £9.45 million over the five years.
  - £5.8 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
- Delivery mechanisms and uptake channels:
  - IMF and DFID staff collaborate with project-funded researchers to produce policy-oriented papers targeted at senior policymakers in LICs and the IMF.
  - All papers are freely shared with DFID and external policymakers via DFID’s research portal and an IMF-maintained project website.
  - Additional components: frameworks and toolkits to support IMF policy for LICs; presentations at high-level policy conferences; commissioned papers; quarterly e-newsletters; project-financed conferences.
- Lead and partner organizations: IMF and DFID.

### Overview of the Year — Progress, Achievements, and Use of Research
- Productivity and reception:
  - The fourth year exceeded each of the “high” logframe targets for all but two outputs.
  - The project produced 56 working papers and 24 published papers over the first four years.
  - Research incorporated into IMF Board papers, Staff Discussion Notes, country applications by IMF staff, and technical assistance missions.
- Specific contributions to IMF outputs and country practice:
  - Contributed to IMF Board paper “Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries.”
  - Contributed to IMF Staff Discussion Note “From Ambition to Execution: Policies in Support of Sustainable Development Goals.”
  - MDAM (Macroeconomic and Distribution Analysis Model) built under the DFID project has been applied to Ethiopia and Malawi; work ongoing for Bolivia and Honduras; further uptake under consideration.
  - Research on public investment, growth, and debt sustainability (Buffie et al. (2012), Melina et al. (2014)) and capital flows (Araujo et al. (2015)) contributed to IMF efforts on financing for development and were cited in IMF Board papers addressing financing for development and the IMF’s role in the post-2015 development agenda.
  - Results and data from the global survey on gender budgeting will feed into an upcoming UN high-level panel report on women’s economic empowerment.
- Macroprudential and capital flows work:
  - Built on prior macroprudential policy research to influence IMF operationalization of macroprudential work in LICs.
  - Updated LIC capital flows database to add 2013 and 2014.
  - Work on capital flows and capital account management measures informed a thematic chapter in the IMF’s annual report on macroeconomic developments and prospects in low-income developing countries.
- Examples of model/tool uptake by IMF country teams and authorities:
  - Buffie et al. (2012) public investment, growth, and debt sustainability framework applied to 14 countries and a customs and economic union: Afghanistan, Benin, Burkina Faso, Cape Verde, CEMAC, Cote d’Ivoire, Ethiopia, Ghana, Lesotho, Liberia, Maldives, Rwanda, Senegal, Togo, and Yemen. Used in IMF Article IV consultations, staff visits, program reviews, and donor meetings.
  - Melina et al. (2014) debt sustainability model applied to Angola, Chad, Kazakhstan, Mozambique, Niger, Myanmar, Mongolia, and Botswana. Botswana simulations highlighted complementing scaling-up with reforms improving quality and efficiency of public investment.
- Capacity development and technical assistance:
  - Training and TA in monetary policy analysis and forecasting to central banks of Tanzania, Kenya, and Ghana under IMF RTACs and the DFID project.
  - IMF and AFRITAC East provided a two-week Customized Training mission to the Bank of Tanzania in November-December, 2015.
  - Three-week TA mission to Ghana arranged by IMF and AFRITAC West; seven Bank of Ghana staff visited IMF in August, 2015 for Macroeconomic Modelling and Monetary Policy Analysis.
  - ICD courses on Macroeconomic Management in Resource Rich Countries with DFID team presentations in March 2015 and January 2016.
  - August 2015 course to technical staff from Central Bank of Lesotho and Ministry of Finance on dynamic general equilibrium models and a model calibrated for a potential Lesotho electricity-exporting dam project.
- Toolkit improvements and dissemination:
  - DIG model (Buffie et al. (2012)) and DIGNAR model (Melina et al. (2014)) toolkits streamlined with user-friendly Excel-based interfaces; no prior Matlab knowledge required.
  - Toolkits were the subject of a course for IMF staff in January 2016.
  - A five-day workshop in March 2016 at the Bank of Tanzania (in partnership with East AFRITAC) trained government officials from Kenya, Tanzania, and Uganda on macro-fiscal issues in natural resource management.
  - Export and output diversification toolkit: interest from more than seven country teams this year; plan to expand coverage to services and update through 2014.
- Network expansion and conferences:
  - “Conference on Financing for Development” held April 15–17, 2015, at the Graduate Institute of International and Development Studies, Geneva; co-sponsored by IMF, DFID, the Graduate Institute, and the Center for Finance and Development. Selected papers published in a special issue of the Oxford Review of Economic Policy.

### Overview of the Year — Challenges, Disappointments, and Lessons Learned
- Challenges:
  - IMF and DFID procedures changed over time and/or became more complex, requiring frequent attention and cross-departmental coordination.
  - Two outputs met the medium rather than high target: Output 0 “Thematic areas of IMF policy influenced and made LIC-specific” and Output 4.1 “Commissioned Papers.”
  - Staffing changes: Prakash Loungani assumed Andy Berg’s former role as division chief of the Research Department’s Development Macroeconomics division; Rupa Duttagupta took over Cathy Pattillo’s role as division chief for SPR’s Developing Markets Strategy unit; Andy Berg promoted to deputy director in ICD; Cathy Pattillo promoted to assistant director in SPR.
  - Balancing continuity with innovation in the research agenda is an ongoing challenge.
- Lessons learned:
  - “Uptake” and research require different management and quality control methods.
  - Increasing uptake requires close collaboration with other departments (such as the African Department), central bank staff, and country authorities.
  - DFID contractual staff transitioning to regular IMF positions have had continued success, aiding integration of researchers new to LIC research into the IMF.

### Logframe Outputs — Summary and Performance Against Targets
- Four main output categories:
  1. Produce high quality, policy relevant research on macroeconomic issues affecting LICs.
  2. Have IMF research products produced under this project used by IMF country teams and partner authorities.
  3. Strengthen engagement by senior IMF policymakers on issues affecting LICs.
  4. Strengthen capacity building by expanding the network of LIC researchers.
- Table 3 summary of outputs (Year 1 through Year 4 totals and targets for end of Year 4):
  - 1.1 Working Papers: Year 1: 13; Year 2: 17; Year 3: 10; Year 4: 16; Total: 56. Targets: H 52; M 45; L 40.
  - 1.2 Published Papers: Year 1: 1; Year 2: 6; Year 3: 9; Year 4: 8; Total: 24. Targets: H 9; M 4; L 3.
  - 1.3 Books: Year 1: 0; Year 2: 0; Year 3: 0; Year 4: 0; Total: 0. Targets: H 0; M 0; L 0.
  - 2.1 Uptake by IMF Teams: Year 1: 9; Year 2: 12; Year 3: 13; Year 4: 14; Total: 48. Targets: H 26; M 14; L 8.
  - 2.2 Uptake by Authorities: Year 1: 1; Year 2: 2; Year 3: 4; Year 4: 2; Total: 9. Targets: H 8; M 5; L 4.
  - 3.1 High-Level Policy Conferences attended by senior IMF staff: Year 1: 6; Year 2: 4; Year 3: 2; Year 4: 1; Total: 13. Targets: H 8; M 6; L 4.
  - 3.2 Results of papers reflected in IMF board discussions and policy papers: Year 1: 4; Year 2: 4; Year 3: 3; Year 4: 2; Total: 13. Targets: H 8; M 4; L 3.
    - 3.2.1 Results of papers reflected in IMF board papers: Year 1: 3; Year 2: 3; Year 3: 2; Year 4: 1; Total: 9. Targets: H 6; M 4; L 3.
  - 4.1 Commissioned Papers: Year 1: 0; Year 2: 13; Year 3: 0; Year 4: 0; Total: 13. Targets: H 16; M 10; L 6.
    - 4.1.1 Toolkits: Year 1: 0; Year 2: 0; Year 3: 1; Year 4: 1; Total: 2. Targets: H 2; M 1; L 0.
  - 4.2 Attendance of External Researchers at High-Level Policy Conferences: Year 1: 6; Year 2: 5; Year 3: 5; Year 4: 15; Total: 31. Targets: H 8; M 6; L 4.
  - 4.3 Outputs disseminated in e-newsletter and updated public web page: Year 1: 2; Year 2: 4; Year 3: 4; Year 4: 4; Total: 14. Targets: H 14; M 8; L 6.
  - O.1 Thematic areas of IMF policy influenced and made LIC-specific: Year 1: 3; Year 2: 2; Year 3: 0; Year 4: 0; Total: 5. Targets: H 6; M 3; L 2.

### Output 1: Produce high quality, policy relevant research on macroeconomic issues affecting LICs
- Working papers:
  - Year 4 completed 16 working papers, bringing the four-year total to 56.
  - Year 4 working papers covered five project topics: 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; and Gender and macroeconomics.
- Monetary and exchange rate policy in LICs:
  - Objective: advance understanding of existing regimes and the macroeconomic environment in which monetary policy operates.
  - This year completed four working papers on monetary and exchange rate policy.

*Source: IMF and DFID “Macroeconomic Research in Low-Income Countries” project annual reporting (project start March 2012; Phase II April 2015–March 2017; DFID funding £9.45 million).*

### 1. Many LICs do not use interest rates as their main monetary policy instrument.

### 1. Many LICs do not use interest rates as their main monetary policy instrument.

### Monetary policy: empirical findings and model implications
- Gonçalves (2015) estimates small-scale models for Kenya, Uganda, and Tanzania and finds that monetary policy in these countries respects the Taylor Principle; on average, nominal interest rates have been pushed higher by more than one-to-one with inflation by these countries’ central banks.
- Abuka et al. (2015) assess the bank lending channel in Uganda during 2010–2014 using a supervisory dataset of loan applications and granted loans:
  - An increase in interest rates reduces the supply of bank credit on both the extensive and intensive margins.
  - There is significant pass-through to retail lending rates.
  - A strong bank balance sheet channel is documented: lending behavior of banks with high capital and liquidity differs from that of banks with low capital and liquidity.
  - Overall results indicate significant real effects of the bank lending channel in developing countries.
- Portillo et al. (2016) introduce subsistence requirements in food consumption into a simple new-Keynesian model with flexible food and sticky non-food prices:
  - Derive a welfare-based loss function for the monetary authority.
  - Show optimal policy calls for complete (in some cases nearcomplete) stabilization of sticky-price non-food inflation despite a food subsistence threshold.
  - Subsistence amplifies the welfare losses of policy mistakes, raising the stakes for monetary policy at earlier stages of development.
- Airaudo et al. (2016) analyze coordination of monetary and exchange rate policy in a two-sector small open economy model with imperfect substitution between domestic and foreign financial assets:
  - Management of the exchange rate greatly enhances the efficacy of inflation targeting.
  - In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy and small inflation shocks may escalate into much larger increases in inflation ex post.
  - Both indeterminacy and shock amplification disappear when the central bank leans heavily against the wind in a managed float.

### Public investment, growth, and debt sustainability: trade-offs and empirical patterns
- Many LICs are scaling up public investment in infrastructure, energy, and critical sectors, often funded by non-concessional loans, making debt sustainability a key concern.
- Dreher and Lohmann (2015) use highly disaggregated geo-coded World Bank aid data for 130 countries over 2000-2011 to test aid effects on nighttime light growth:
  - Find significant correlations between aid and growth in sub-national regions but no causal effects.
- Atler et al. (2015) analyze tradeoffs between savings, debt, and public investment in the Republic of Congo:
  - Large public investment scaling-up combined with oil price volatility and a projected decline in the oil revenue to GDP ratio poses risks to fiscal and capital sustainability.
  - Structural reforms improving public investment efficiency can promote faster sustainable public capital buildup and sustain higher non-oil growth without adversely affecting the debt ratio or savings.
- Berg et al. (2015) argue that the output growth “bang” per additional unit of public investment depends on public investment efficiency, but high-efficiency and low-efficiency countries may have similar growth impacts because efficiency and scarcity of public capital are likely inversely related; efficiency and rate of return must be considered together.
- Presbitero et al. (2015) examine EMDEs’ ability to issue sovereign bonds during 1995-2013:
  - An EMDE is more likely to issue a bond if it is larger in economic size, has higher per capita GDP, and has stronger macroeconomic fundamentals and government.
  - Spreads on sovereign bonds are lower for countries with strong external and fiscal positions, robust economic growth, and government effectiveness.
  - Sovereign bond spreads are reduced in periods of lower market volatility.
- Shen et al. (2015) develop a new-Keynesian small open economy model showing that LIC features—different financing types including aid, marginal efficiency of public investment, and home bias—play a key role in fiscal policy effects and multipliers.
- Buffie et al. (2016) compare public-private partnerships (P3s) and own-investment (OI) in a dynamic general equilibrium model with private capital accumulation and involuntary unemployment:
  - P3s typically cost more but produce higher-quality infrastructure and better on-time completion records than OI.
  - P3s are comparatively more effective in reducing underinvestment in private capital and infrastructure, unemployment, and poverty.
  - The asymmetric impact on macro externalities raises the social return to P3 by 2 - 9 percentage points relative to the social return to OI, depending on externality operation and P3 speed advantages.

### Macroeconomic management of natural resources
- Research examines macroeconomic consequences of different savings and investment strategies for natural resource revenues, the current account norm, efficient government investment, and private sector roles when externalities are present.
- Gupta et al. (2015) use a structural model to analyze public investment strategies’ impacts on debt, consumption, sovereign wealth funds, and real exchange rates, applying the model to Mongolia:
  - Findings suggest fiscal policy adjustment—particularly moderating infrastructure investment and optimizing investment efficiency—is needed to maintain macroeconomic and external stability and boost long-term sustainable growth for Mongolia.
- Warner (2015) studies whether commodity booms since 2000 promoted productivity-improving change outside resource sectors:
  - New data on GDP per person outside the resource sector show that non-resource GDP per person was on average no faster during boom years than before.
  - No country exhibited statistically-significantly higher non-resource growth per person during the boom years.
  - Little evidence that booms produced anticipated productivity transformation; current policies overall appear insufficient to spur lasting development outside resource-intensive sectors.

### Capital flows
- Araujo et al. (2015) construct a comprehensive dataset on gross private capital flows with focus on non-FDI flows in low-income developing countries (LIDCs):
  - Since the mid 2000s, periods of surges in gross non-FDI private inflows in LIDCs are broadly comparable to those of emerging markets (EMs); gross non-FDI inflows to LIDCs are on average much lower than those to EMs.
  - The LIDC top quartile gross non-FDI inflow is comparable to the EM median inflow and converges to the EM top quartile inflow.
- Araujo et al. (2015) on cyclicality of private capital inflows to LIDCs over 1990-2012:
  - Capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies.
  - Flows to LIDCs are more persistent than flows to EMs.
  - Policy implication: private capital inflows are likely to become more procyclical as LIDCs develop, raising policy challenges including reforming traditional monetary policy frameworks.
  - Database updated to include 2013-2014 and experiences summarized in the Spring 2016 World Economic Outlook.

### Financial deepening, labor allocation, and macro-stability
- Karayalcin and Pintea (2015) construct a three-sector model to examine large agricultural employment shares in developing countries:
  - Key factors: 1) barriers to labor movement from subsistence farming to modern agriculture, and 2) productivity differences and transportation costs.
  - Calibrations show productivity improvements in modern agriculture may increase the employment share of agriculture in countries where subsistence agriculture is initially large.
  - Policy implication: first address barriers to labor mobility, then increase productivity of modern sectors or decrease transportation costs to reduce welfare losses.

### Gender and development trends
- Stotsky et al. (2016) construct time-consistent versions of the UNDP’s Gender Development Index and Gender Inequality Index to examine trends:
  - Recent decades show global movement closer to gender equality and narrowed gaps in education, health, and economic and political opportunity.
  - Substantial differences remain, especially in South Asia, the Middle East, and sub-Saharan Africa.

### Publications and knowledge transfer
- Seven papers and a book chapter were published externally during the third year; two papers were included in the May 2016 issue of the Journal of Development Economics.
- The IMF team completed 12 country applications covering five topics: 1) Monetary Policy; 2) Public investment, growth, and debt sustainability; 3) Macroeconomic management of natural resources; 4) Current account norm; and 5) Inequality.
- Monetary policy country applications and technical assistance highlights:
  - Tanzania: two-week Customized Training mission to the Bank of Tanzania in Dar es Salaam during November-December, 2015 to refine FPAS, upgrade macro modeling toolkit, construct a new baseline forecast, and align reserve money definition in the model with BoT framework.
  - Kenya: 2015 AFR mission adopted a simple New-Keynesian quarterly projection model (QPM) to analyze monetary policy; staff and CBK discussed inflation outlook, relative weights of demand and supply factors, and agreed on importance of gradually re-aligning the interbank interest rate with the policy rate to achieve the inflation objective.
  - Ghana: three-week TA mission to the Bank of Ghana focused on strengthening IT regime pillars: reorganizing BOG structure, enhancing monetary policy deliberations, and strengthening forecasting and analytical capacity.
  - Uganda: IMF staff visited Kampala in May, 2015 as part of a joint IMF-BOU research project exploring monetary policy and bank lending for 2010-2014 using a large micro-level credit register dataset; the project investigates how credit supply response to monetary policy is influenced by banking sector conditions and currency denomination of loans.
- Maldives: Article IV consultations examined a proposed ambitious 4-year public investment scaling-up plan:
  - Baseline model suggests sustained growth increase if scaling up succeeds with gradual rise in private investment, private capital, and consumption over the medium term.
  - Model implies a substantial increase in tax rates and/or cuts in public transfers to contain public deficits, illustrating pressure on public finances posed by scaling-up projects.
  - If project management yields lower returns, public investment would not add much to growth but would instead drive fiscal deficit and debt levels further away from rules under the Fiscal Responsibility Act.

*Summarized from IMF research outputs and country applications described in the June 2016 document.*

### 6. Lesotho

### 6. Lesotho

### Model development and application
- IMF staff developed a dynamic general equilibrium model to analyze the impact on public debt and growth of a public investment in an electricity exporting dam and applied it to a potential project in Lesotho.
- The results were published in the 2015 Article IV report.

### Capacity building and training
- IMF staff visited Maseru in August 2015 and taught a course to technical staff from the Central Bank of Lesotho and from the Ministry of Finance on the theory of dynamic general equilibrium models and on a model that IMF staff developed to analyze the impact on public debt and growth of a public investment in an electricity exporting dam with a calibration for a potential project in Lesotho.

*Reported by IMF staff and published in the 2015 Article IV report.*

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

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

### Financial reporting and expenditures
- As of March 2016, US$9,149,434 has been drawn down from the subaccount.
- The IMF’s financial systems lag behind actual expenses to enable requisite verification before charging donor subaccounts.
- We do not foresee any changes in cost structures due to exchange rates.

- Approved Budget and realized/planned spending (years and totals preserved exactly):
  - Approved Budget Total: $10,342,308
  - Year 1: $1,826,834
  - Year 2: $2,298,894
  - Year 3: $1,775,828
  - Year 4: $3,482,405
  - TOTAL (Years 1-4): $9,383,961

- Detailed budget lines (Approved Budget and Years 1–4 totals preserved exactly):
  - Contractuals: $4,608,668; Year 1 $637,714; Year 2 $894,169; Year 3 $702,251; Year 4 $1,562,325; Total $3,796,459
  - Visiting Scholars: $2,093,242; Year 1 $382,379; Year 2 $475,306; Year 3 $629,159; Year 4 $893,040; Total $2,379,884
  - Travel and Conferences: $1,369,055; Year 1 $214,972; Year 2 $415,794; Year 3 $33,022; Year 4 $325,057; Total $988,845
  - Contingency: $150,000; Year 1 $0; Year 2 $0; Year 3 $0; Year 4 $0
  - IMF Staff: $1,594,743; Year 1 $472,256; Year 2 $363,231; Year 3 $295,221; Year 4 $474,162; Total $1,604,870
    - IMF Staff Backstopping/Uptake: $1,464,287; Year 1 $409,732; Year 2 $322,961; Year 3 $280,217; Year 4 $245,231; Total $1,258,141
    - Project Management: $130,455; Year 1 $45,185; Year 2 $40,270; Year 3 $15,003; Year 4 $52,527; Total $152,985
  - Subtotal: $9,665,708; Year 1 $1,707,321; Year 2 $2,148,500; Year 3 $1,659,653; Year 4 $3,254,584; Total $8,770,058
  - TTF Management Fee (7%): $676,600; Year 1 $119,512; Year 2 $150,395; Year 3 $116,176; Year 4 $227,821; Total $613,904

- Program management cost shares:
  - Direct project management costs represented less than two percent of the total budget.
  - Including the Trust Fund management fee, program management costs remained below nine percent.

### Value for money and research outputs
- Rationale for cost effectiveness:
  - Strict adherence to Fund guidelines for hiring, travel, and conferences.
  - Competitive process for contractual hires.
  - Outputs produced under firm timeframes and must meet Fund publication requirements.
  - Quality evaluated through submission to peer-reviewed publications.

- Publication counts and composition (exact figures preserved):
  - To date, 21 total publications:
    - Four in the Oxford Handbook of Africa and Economics
    - Seven in a special issue of the Pacific Economic Review
    - 10 in peer-reviewed journals

- Comparative publishing performance (Table 5; preserved row values):
  - 2012: DFID-sponsored WPs Number 6; Of which published 2; Share 33% — Other LIC WPs Number 32; Of which published 3; Share 9%
  - 2013: DFID-sponsored WPs Number 16; Of which published 3; Share 19% — Other LIC WPs Number 29; Of which published 4; Share 14%
  - 2014: DFID-sponsored WPs Number 8; Of which published 2; Share 25% — Other LIC WPs Number 31; Of which published 0; Share 0%
  - 2015: DFID-sponsored WPs Number 16; Of which published 3; Share 19% — Other LIC WPs Number 33; Of which published 2; Share 6%
  - Total: DFID-sponsored WPs Number 46; Of which published 10; Share 22% — Other LIC WPs Number 125; Of which published 9; Share 7%

### Work plan and timetable — major research areas and planned activities
- 1) Monetary and exchange rate policies in LICs:
  - In-depth analyses of monetary policy in Kenya, Uganda, Rwanda, Tanzania, Ghana, Mozambique, and Sri Lanka.
  - Intensive training for central bank staff of Kenya, Uganda, Tanzania, Rwanda, Ghana, Mozambique, and Sri Lanka in macroeconomic modelling, forecasting and policy analysis.
  - Support regional FPAS working group for the EAC Partner States (Kenya, Uganda, Rwanda, Tanzania, Burundi).
  - Scoping mission planned to the Reserve Bank of Malawi (RBM) to diagnose forecasting and policy formulation processes and design an enhancement work plan.
  - Research on traditional money targeting in practice.

- 2) Debt sustainability analysis and management of natural resources:
  - Professor Paul Levine (University of Surrey) to complete a working paper on optimal infrastructure spending given inefficiencies and high returns to public capital.
  - Professor Ioana Moldovan (University of Glasgow) to complete work on optimal and implementable fiscal and reserve accumulation policy rules in volatile aid contexts.
  - Professor Ed Buffie (Indiana University) working on public-private partnership implications for public investment, growth, and debt sustainability in LICs.
  - IMF staff to make the DIG toolkit publicly available.
  - FMI staff and Professor Ed Buffie to produce an Ethiopia-specific DIG model paper incorporating energy-sector investment and a banking sector.
  - Analytical paper on misconceptions about public investment efficiency and growth.
  - Work with Ondra Kamenik (OGR) to incorporate parameter uncertainty and external shock uncertainty into the DIG model.
  - Country applications of DIG, DIGNAR, and current account models: Lesotho, Republic of Congo, CEMAC, Mongolia.

- 3) Macroeconomic policies and income distribution:
  - Organize a third workshop or larger conference on macroeconomic policy and income inequality in LICs.
  - Country applications/adaptations: Bolivia (commodity price boom and bust), Republic of Congo (commodity shock and fiscal envelope), Honduras (VAT reform, price controls, VAT rebates to intermediate goods).
  - Country applications to be part of the IMF’s Article IV consultations with team participation and presentation to authorities and development partners.
  - Planned hires and support: Professor Xican Xi (Fudan University) for climate change macro/distributional project; Vinzenz Ziesem as summer RA.
  - Submission plan: Revenue Mobilization in Developing Countries to a journal such as the AEJ Macro.
  - Teaching plan: class to IMF staff on the MDAM model and development of a toolkit for country teams.
  - Collaborative working paper (possibly SDN): “Understanding Inequality in Developing Countries” addressing incidence, correlates, inclusiveness of pro-growth policies, and policy options for LIDCs.

- 4) Growth through diversification:
  - Continue extending export diversification and quality upgrading through 2014; incorporate an index on export services.
  - Use updated data to write one or two new working papers, possibly with outside experts.
  - Present diversification toolkit and working papers at top conferences and universities.

- 5) Capital Flows:
  - Goal: better understand private capital flows in LICs and policy risks for frontier LICs gaining market access.
  - Capital flows toolkit (non-FDI capital flows dataset and capital controls dataset) in final stage and set to release this year.
  - Manuscripts and publication status:
    - “Non-FDI Capital Inflows in Low-Income Developing Countries: Catching the Wave?” due for publication in the IMF Economic Review.
    - “Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins” sent to Journal of Money, Credit & Banking.
    - “Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries” sent to Journal of International Money and Finance.

- 6) Gender and Macroeconomics:
  - Develop first comprehensive assessment of gender budgeting initiatives and wrap up six regional working papers.
  - Develop toolkit/dataset on global gender budgeting efforts enabling country comparisons by income, region, gender budgeting status, etc.
  - Potential incorporation of gender budgeting research into an upcoming UN high level panel report on gender inequality.
  - Course offering to IMF staff on gender budgeting through the IMF’s Institute for Capacity Development in July, 2016.
  - Provide preliminary gender budgeting information to IMF country teams (Morocco, Rwanda) and continued coordination.
  - Host a conference on gender budgeting at the IMF in fall 2016 with anticipated IMF management participation.
  - Ongoing work on gender inequality and human capital and quantifying effects of restrictions to women’s economic rights on economic diversification; inclusion in an IMF book on gender to be released in summer 2016.
  - Plan to host a two-day conference on gender and macroeconomic issues in early 2017.
  - Continued contributions to the IMF Knowledge Exchange website on Gender and involvement in the IMF Managing Director’s advisory group on gender.

### Risk, monitoring, and evaluation
- Risk:
  - 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 reaching an audience of more than 1000 academics, policymakers, central bank staff, and government representatives.
  - All publicly available working and published papers uploaded to the R4D portal on the DFID website.
  - “Gold access” to journal publications to ensure public access to outputs produced through the grant.
  - 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.

### Logframe — impact, outcomes, outputs, targets, and achievements (selected indicators and preserved values)
- Impact indicators (planned timing preserved):
  - Impact Indicator 1: Proportion of people living in extreme poverty in LICS — Planned 2015 2016 2017; Achieved (blank in source)
  - Impact Indicator 2: Increase in employment to population ratio in LICs — Planned 2015 2016 2017; Achieved (blank in source)

- Outcome Indicator 0 (IMF policymaking influence):
  - Planned: Six thematic areas influenced by March 2015. H (6) M (4) L (3)
  - By March 2016: H (7) M (5) L (3)
  - Target by March 2017: Eight thematic areas influenced. H (8) M (6) L (5)
  - Achieved: 5 5
  - Source: IMF

- OUTPUT 1 — High quality, policy relevant research on macroeconomic issues affecting LICs:
  - Output Indicator 1.1 — Number of priority research papers produced (six thematic areas):
    - Planned: 36 priority papers produced by March 2015. H (36) M (24) L (12)
    - By March 2016: H (52) M (45) L (40)
    - Target by March 2017: 68 working papers. H (68) M (58) L (48)
    - Achieved: 40 56
    - Source: IMF
  - Output Indicator 1.2 — Number of research papers accepted for publication in top journals:
    - Planned: Six papers published by March 2015. H (6) M (3) L (1)
    - By March 2016: H (9) M (4) L (3)
    - Target by March 2017: 17 papers published. H (17) M (11) L (8)
    - Achieved: 16 24
  - Output Indicator 1.3 — Number of freely available books published:
    - Planned: N/A; By March 2016: H (0) M (0) L (0)
    - Target by March 2017: Two books published. H (2) M (1) L (0)
    - Achieved: 0 0
    - Source: IMF
  - IMPACT WEIGHTING: 30%

- OUTPUT 2 — IMF research products used by country teams and authorities:
  - Output Indicator 2.1 — Application and use of tools and frameworks by IMF country teams:
    - Planned: Application by 18 country teams by March 2015. H (18) M (10) L (6)
    - By March 2016: H (26) M (14) L (8)
    - Target by March 2017: 38 applications by IMF country teams. H (38) M (25) L (16)
    - Achieved: 34 48
    - Source: IMF
  - Output Indicator 2.2 — Application and use by country authorities:
    - Planned: Application by six country authorities by March 2015. H (6) M (4) L (3)
    - By March 2016: H (8) M (5) L (4)
    - Target by March 2017: Application by 11 country authorities. H (11) M (8) L (6)
    - Achieved: 7 9
    - Source: IMF
  - IMPACT WEIGHTING: 30%

- OUTPUT 3 — Strengthen engagement by senior IMF policymakers:
  - Output Indicator 3.1 — High-level policy conferences reflect research findings:
    - Planned: Research findings reflected in six high-level conferences by March 2015. H (6) M (4) L (3)
    - By March 2016: H (8) M (6) L (4)
    - Target by March 2017: 11 high-level conferences. H (11) M (9) L (6)
    - Achieved: 12 13
  - Output Indicator 3.2 — Research results reflected in IMF Board/SDN/etc. papers:
    - Planned: Seven IMF Board/SDN/etc. papers using research findings by March 2015. H (7) M (4) L (3)
    - By March 2016: H (8) M (4) L (3)
    - Target by March 2017: 11 IMF Board/SDN/etc. papers. H (11) M (6) L (4)
    - Achieved: 11 13
  - Output Indicator 3.2.1 — IMF Board papers using research findings:
    - Planned: Five IMF Board papers using research findings by March 2015. H (5) M (4) L (3)
    - By March 2016: H (6) M (4) L (3)
    - Target by March 2017: Seven IMF Board papers. H (7) M (5) L (4)
    - Achieved: 8 9
  - IMPACT WEIGHTING: 25%

- OUTPUT 4 — Capacity building and expanding the LIC researcher network:
  - Output Indicator 4.1 — Number of commissioned research papers produced:
    - Planned: Eight commissioned research papers by March 2015. H (8) M (6) L (4)
    - By March 2016: H (16) M (10) L (6)
    - Target by March 2017: 20 commissioned research papers. H (20) M (18) L (10)
    - Achieved: 13 13
  - Output Indicator 4.1.1 — Toolkits with publicly available datasets:
    - Planned: N/A; By March 2016: H (2) M (1) L (0)
    - Target by March 2017: Three toolkits. H (3) M (2) L (1)
    - Achieved: 1 2
    - Source: IMF
  - Output Indicator 4.2 — Attendance of external researchers at high-level policy conferences:
    - Planned: Attendance at six conferences by March 2015. H (6) M (4) L (3)
    - By March 2016: H (8) M (6) L (4)
    - Target by March 2017: Attendance at 11 high-level conferences. H (11) M (9) L (6)
    - Achieved: 16 31
  - Output Indicator 4.3 — Outputs and project disseminated in e-newsletter and updated public webpage (number of updates):
    - By March 2015, number of updates: H (10) M (6) L (5)
    - By March 2016, number of updates: H (14) M (8) L (6)
    - By March 2017, target 18 updates: H (18) M (14) L (10)
    - Achieved: 10 14
  - IMPACT WEIGHTING: 15%

*Source: IMF — Appendix 2, project financial statement and project reporting (as of March 2016).*

### Annex 3: Research Outputs

### Annex 3: Research Outputs

### Working Papers — Summaries and Key Findings

- Taylor Visits Africa — Carlos Eduardo Goncalves
  - Many low-income countries do not use interest rates as their main monetary policy instrument; in East Africa targeting money aggregates has been common but targets are seldom met and often readjusted.
  - Estimations for Kenya, Uganda and Tanzania suggest these "monetary targeters" are respecting the Taylor Principle, increasing nominal interest rates more than proportionally to inflation on average.
  - Steep deviations from the Taylor Rule occurred in Kenya and Tanzania; deviations in Uganda are much smaller, similar in size to Taylor Rule deviations found for Brazil and smaller than South Africa’s.

- Monetary Policy in a Developing Country: Loan Applications and Real Effects — Charles Abuka, Ronnie K. Alinda, Camelia Minoiu, José-Luis Peydró, and Andrea F. Presbitero
  - Empirical assessment of the bank lending channel in Uganda during 2010–2014 using a supervisory dataset of loan applications and granted loans.
  - Period analyzed: policy rate rose by 1,000 basis points and then fell by 1,200 basis points.
  - Findings:
    - An increase in interest rates reduces the supply of bank credit on both the extensive and intensive margins.
    - Significant pass-through to retail lending rates.
    - Strong bank balance sheet channel: lending behavior differs by banks' capital and liquidity levels.
    - Impact of monetary policy on real activity across districts depends on banking sector conditions.
  - Conclusion: significant real effects of the bank lending channel in developing countries.

- Implications of Food Subsistence for Monetary Policy and Inflation — Rafael Portillo, Luis-Felipe Zanna, Stephen O’Connell, and Richard Peck
  - Introduce subsistence requirements in food consumption into a simple new-Keynesian model with flexible food and sticky non-food prices.
  - Calibrated model spans rich and poor countries and replicates inflation properties across development levels, including dominant role of relative food price changes in poor countries.
  - Derive a welfare-based loss function; optimal policy calls for complete (in some cases nearcomplete) stabilization of sticky-price non-food inflation despite a food-subsistence threshold.
  - Subsistence amplifies welfare losses of policy mistakes, raising stakes for monetary policy at earlier development stages.

- Inflation Targeting and Exchange Rate Management in Less Developed Countries — Marco Airaudo, Edward F. Buffie, and Luis-Felipe Zanna
  - Two-sector small open economy model with imperfect substitution between domestic and foreign financial assets.
  - Central finding: exchange rate management greatly enhances efficacy of inflation targeting.
  - In a flexible exchange rate system, inflation targeting risks indeterminacy and small inflation shocks can escalate; these problems disappear when the central bank leans heavily against the wind in a managed float.

- Aid and Growth at the Regional Level — Axel Dreher and Steffen Lohmann
  - Brings aid effectiveness debate to the sub-national level using geocoded World Bank aid data for up to 2,221 ADM1 regions and 54,167 ADM2 regions in 130 countries over the 2000-2011 period.
  - Preferred identification exploits interaction of an IDA concessional-aid threshold indicator with a recipient region's probability to receive aid in a sample of 478 ADM1 regions and almost 8,400 ADM2 regions from 21 countries.
  - Findings: significant correlations between aid and growth in ADM2 regions, but no causal effects.

- Public Investment in a Developing Country Facing Resource Depletion — Adrian Alter, Matteo F. Ghilardi and Dalia S. Hakura
  - Analyze tradeoffs between savings, debt and public investment in the Republic of Congo amid oil exhaustibility concerns.
  - Results highlight risks to fiscal and capital sustainability from large public investment scaling-up and oil price volatility given projected decline in oil revenue to GDP ratio.
  - Structural reforms improving public investment efficiency can enable faster sustainable public capital buildup and higher non-oil growth without harming debt ratio or savings.
  - Low public investment quality (misallocation) can hinder attainment of sustainable public capital and positive non-oil growth even under prudent fiscal policy.

- Some Misconceptions about Public Investment Efficiency and Growth — Andrew Berg, Edward F. Buffie, Catherine Pattillo, Rafael Portillo, Andrea Presbitero, and Luis-Felipe Zanna
  - Reconsider macroeconomic implications of public investment efficiency (ratio of actual increment to public capital to amount spent).
  - In a simple standard model, increases in public investment spending in inefficient countries do not have a lower impact on growth than in efficient countries; confirmed by a simple cross-country regression.
  - Explanation: marginal product of public capital declines with the capital/output ratio, implying efficiency and scarcity of public capital are likely inversely related across countries.
  - Policy implication: both efficiency and rate of return must be considered; blanket recommendations against increased public investment in inefficient countries need reconsideration.
  - Changes in efficiency ("investing in investing") through structural reforms can have very high rates of return.

- International Sovereign Bonds by Emerging Markets and Developing Economies: Drivers of Issuance and Spreads — Andrea F. Presbitero, Dhaneshwar Ghura, Olumuyiwa S. Adedeji, and Lamin Njie
  - Examine determinants of ability of EMDEs to issue sovereign bonds and drivers of spreads using dataset covering 1995-2013.
  - Findings:
    - EMDEs more likely to issue when larger in economic size, higher per capita GDP, and stronger macroeconomic fundamentals and government.
    - Spreads lower for countries with strong external and fiscal positions, robust economic growth, and government effectiveness.
    - Global factor: sovereign bond spreads are reduced in periods of lower market volatility.

- From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia — Pranav Gupta, Bin Grace Li, and Jiangyan Yu
  - Structural model-based analysis of macroeconomic impacts of different public investment strategies on debt, consumption, sovereign wealth fund, and real exchange rates; application to Mongolia.
  - Findings: fiscal policy adjustment—moderating infrastructure investment and optimizing investment efficiency—is needed to maintain macroeconomic and external stability and boost long-term sustainable growth.

- Natural Resource Booms in the Modern Era: Is the curse still alive? — Andrew Warner
  - Examine whether global commodity price boom since 2000 promoted productivity growth outside booming sectors.
  - Use new data on GDP per person outside resource sector; find GDP growth per-capita outside booming sectors was on average no faster during boom years than before.
  - No country shows statistically significantly higher (non-resource) growth per-person during boom years.
  - In some Gulf states, oil rents financed migration-facilitated expansion with small or negative productivity gains.
  - Conclusion: little evidence booms produced anticipated productivity transformation; current policies overall insufficient to spur lasting development outside resource-intensive sectors.

- Government Spending Effects in Low-Income Countries — Wenyi Shen, Shu-Chun S. Yang, and Luis-Felipe Zanna
  - New-Keynesian small open economy model showing LIC-specific features—aid and other external financing, marginal efficiency of public investment, degree of home bias—shape fiscal policy effects and multipliers.
  - External financing like aid:
    - Increases resource envelope and mitigates private-sector crowding out, raising the output multiplier.
    - Tends to appreciate the real exchange rate, causing traded output to respond negatively and reducing the overall output multiplier.
  - Capital scarcity implies high returns to public capital in LICs; declines in public investment efficiency can substantially dampen the output multiplier.
  - High import content of public investment in LICs may limit short-run stimulation of domestic production.

- Macroeconomic Dimensions of Public-Private Partnerships — Edward F. Buffie, Michele Andreolli, Bin Grace Li, and Luis-Felipe Zanna
  - Dynamic general equilibrium model with private capital accumulation and involuntary unemployment (efficiency wages) to compare P3s and own-investment (OI).
  - Typical tradeoffs: P3s cost more but produce higher-quality infrastructure and better on-time completion than OI.
  - P3s are comparatively more effective in reducing underinvestment in private capital, underinvestment in infrastructure, unemployment and poverty.
  - Social return in P3 exceeds social return to OI by 2 - 9 percentage points depending on externalities and P3 speed advantage.

- Non-FDI Capital Inflows in Low-Income Developing Countries: Catching the Wave? — Juliana D. Araujo, Antonio C. David, Carlos van Hombeeck, and Chris Papageorgiou
  - Construct new dataset on gross private capital flows focusing on non-FDI flows in LIDCs.
  - Identify shifting patterns of gross non-FDI private inflows to LIDCs: since the mid 2000's, periods of surges in gross non-FDI private inflows in LIDCs are broadly comparable to those of EMs.
  - Although average gross non-FDI inflows to LIDCs are much lower than to EMs, the LIDC top quartile gross non-FDI inflow is comparable to the EM median inflow and converging to the EM top quartile inflow.

- Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries — Juliana D. Araujo, Antonio C. David, Carlos van Hombeeck, and Chris Papageorgiou
  - Using new dataset for 1990-2012, capital inflows to LIDCs are procyclical but considerably less procyclical than flows to more advanced economies.
  - Flows to LIDCs are more persistent than flows to EMs.
  - Changes in risk aversion are significant correlates of private capital inflows; LIDCs are less sensitive to global risk aversion changes than EMs.
  - Policy implication: as LIDCs develop, private capital inflows are likely to become more procyclical, raising policy challenges including reforming traditional monetary policy frameworks.

- The Role of Productivity, Transportation Costs, and Barriers to Intersectoral Mobility in Structural Transformation — Cem Karayalcin and Mihaela Pintea
  - Multi-sector model with barriers to labor movement from low-productivity traditional agriculture to modern sectors.
  - With mobility barriers, improvements in modern-sector productivity or reductions in transportation costs can raise agricultural employment and, via terms-of-trade effects, harm subsistence farmers if the traditional subsistence sector exceeds a critical size.
  - Policy implication: reducing barriers to mobility (skill acquisition cost reductions, institutional changes) and improving productivity of subsistence farmers should precede policies that increase modern-sector productivity or decrease transport costs.

- Trends in Gender Equality and Women’s Advancement — Janet G. Stotsky, Sakina Shibuya, Lisa Kolovich, and Suhaib Kebhaj
  - Examine trends in gender equality and women’s development using individual indicators and gender equality indices; extend UNDP’s Gender Development Index and Gender Inequality Index to examine time trends.
  - Findings: world has moved closer to gender equality and narrowed gaps in education, health, economic and political opportunity in recent decades; substantial differences remain, especially in South Asia, the Middle East, and sub-Saharan Africa.
  - Suggestion: countries can make meaningful improvements in gender equality even while significant income differences persist.

### Published Papers — Titles and Authors

- Current account norms in natural resource rich and capital scarce economies — Juliana D. Araujo, Bin Grace Li, Marcos Poplawski-Ribeiro, Luis-Felipe Zanna
- Too much and too fast? Public investment scaling-up and absorptive capacity — Andrea Presbitero
- Public debt and growth: Heterogeneity and non-linearity — Markus Eberhardta and Andrea Presbitero
- Debt Sustainability, Public Investment, and Natural Resources in Developing Countries: The DIGNAR Model — Giovanni Melina, Susan Yang, Felipe Zanna
- Monetary Policy Issues in Sub-Saharan Africa — Andrew Berg, Stephen O'Connell, Catherine Pattillo, Rafael Portillo, Filiz Unsal
- Aid and domestic resource mobilization with a focus on Sub-Saharan Africa — Oliver Morrissey
- On measuring loan concessionality in Official Development Assistance — Daniel Roodman
- Aid and growth at the regional level — Axel Dreher and Steffen Lohmann

*Annex 3: Research Outputs (June 2016 collection of working papers and published papers).*

### 2.1 Uptake by IMF Teams

### 2.1 Uptake by IMF Teams

### Monetary Policy: Country engagements and modeling assistance
- Tanzania
  - The IMF and AFRITAC East organized a two-week Customized Training (CT) mission to the Bank of Tanzania (BoT) in Dar es Salaam during November-December, 2015.
  - The mission assisted the BoT in refining its Forecasting and Policy Analysis System (FPAS) as part of strengthening BoT’s monetary policy formulation process.
  - Focus areas: upgrading the BoT’s macroeconomic modeling toolkit to allow for better analysis of fiscal policies; constructing a new baseline forecast; reconciling the definition of reserve money in the model with BoT liquidity operations.
- Kenya
  - During the 2015 AFR program mission, the IMF team adopted a simple New-Keynesian quarterly projection model (QPM) to analyze monetary policy based on a medium-term inflation outlook.
  - Staff assessment: inflation risks would remain elevated in the near term due to a combination of continued demand pressures from a 2015/16 fiscal impulse and supply shocks from rising non-food non-fuel inflation.
  - Central Bank of Kenya (CBK) staff assessment: recent pickup in inflation reflected mostly temporary supply shocks expected to subside in the second half of 2016.
  - Agreement between CBK and staff: importance of gradually re-aligning the interbank interest rate with the policy rate to achieve the inflation objective.
- Ghana
  - The IMF and AFRITAC West organized a three-week technical assistance (TA) mission to Accra to strengthen the Bank of Ghana’s (BOG) monetary policy formulation process (follow-up to February, 2015 scoping TA mission).
  - Mission focus across inflation targeting (IT) pillars:
    - Reorganizing BOG structure to support policy formulation.
    - Enhancing monetary policy deliberations by adjusting processes leading to policy decisions and increasing interactions between staff and the Monetary Policy Committee.
    - Strengthening the quality and sustainability of the staff’s forecasting and analytical capacity.
- Uganda
  - IMF staff visited Kampala during May, 2015 as part of a joint IMF-Bank of Uganda (BOU) research project on monetary policy.
  - Project examines the link between monetary policy and bank lending for 2010-2014 using a large micro-level dataset from the Ugandan credit register.
  - Analysis investigates how credit supply responses to monetary policy depend on banking sector conditions and distinguishes loans denominated in local versus foreign currencies.
  - The collaboration enables the first analysis of the bank lending channel in a sub-Saharan economy based entirely on micro data.

### Public investment, growth, and debt sustainability: country applications and toolkits
- Maldives: Selected Issues
  - Article IV consultations analyzed a 4-year plan to scale up public investment, recognizing heavy dependence on tourism and uncertainties about returns (e.g., Male International Airport expansion complexity and need for private sector supporting actions).
  - Baseline model implications:
    - Sustained increase in growth if scaling up is successfully implemented and accompanied by a gradual rise in private investment, private capital, and consumption over the medium term.
    - Substantial increase in tax rates and/or cuts in public transfers would be implied to contain public deficits, illustrating pressure on public finances and policy trade-offs from scaling up.
    - Poor project management with lower returns would yield little growth benefit and would drive fiscal deficits and debt levels further away from Fiscal Responsibility Act rules.
- Lesotho
  - IMF staff developed a dynamic general equilibrium model to analyze the impact on public debt and growth of a public investment in an electricity-exporting dam; results published in the 2015 Article IV report.
- DIG toolkit
  - Excel-based interface for simulating policy scenarios analyzing macroeconomic consequences of public investment scaling up without requiring Matlab skills.
  - User supplies country-specific calibration, specifies exogenous shocks, and chooses customized plots and variables to export back to Excel.
  - Used to teach an ICD course for IMF staff in January 2016 and in a training course in Tanzania for country officials in March 2016.
  - Will be made openly available online.

### Macroeconomic management of natural resources and DIGNAR toolkit
- Botswana
  - IMF staff applied the DIGNAR model of Melina et al. (2014) during December 2015 Article IV consultations to assess macroeconomic effects of scaling-up public investment calibrated to Botswana.
  - Simulations highlighted the importance of complementing scaling-up with reforms that improve the quality and efficiency of public investment to strengthen economic impact.
  - Results included in a Box and an Appendix in the Staff Report.
- DIGNAR Model Toolkit
  - Excel-based interface for simulating policy scenarios with the DIGNAR model.
  - Comprises an ‘input’ spreadsheet for country-specific calibration and option selection, produces customized plots, and saves outcomes in an ‘output’ spreadsheet.
  - Assumes no knowledge of Matlab programming skills.

### Current account norm applications
- CEMAC: 2015 Article IV Consultation
  - IMF staff applied the Current Account model developed by Araujo et al. (2013) to determine the optimal current account for an energy-exporting developing country using a dynamic general equilibrium framework; results published in the 2015 Article IV report.
- Congo: 2015 Article IV Consultation
  - IMF staff applied the Araujo et al. (2013) current account model to Congo; results published in the 2015 Article IV report.
- Gabon: 2015 Article IV Consultation
  - Staff solved for a current account norm based on a small open economy model with private and public investment and frictions (absorptive capacity constraints, inefficiencies in investment, borrowing constraints).
  - Results suggest an overvaluation of 3.4 and 7.2 percent under cost overrun assumptions of 60 and 40 percent respectively.
  - Higher absorptive capacity constraints are associated with higher current account benchmarks as it becomes optimal to reduce the pace of investment.
- Ecuador: Selected Issues Paper
  - The October 2015 Selected Issues paper applied the Araujo et al. (2013) current account model to analyze the impact of an oil price reduction on Ecuador’s current account balance.

### Inequality: fiscal policy analysis
- Fiscal Policy and Inequality in Uganda
  - During the 2015 Article IV mission, the IMF team analyzed quantitative impacts of tax policy and administration improvements on inequality using a model of heterogeneous households and fiscal policy.
  - Key findings:
    - Increasing value-added tax revenues would have a limited, adverse impact on equality while effectively raising revenues.
    - The analysis highlights the importance of accounting for the high level of informality in the Ugandan economy and changing incentives of economic agents when designing fiscal policy measures.

### 2.2 Uptake by Authorities

### Pilot initiatives and country uptake on inequality, distribution, and reform implications
- Ethiopia
  - The IMF has begun pilot initiatives on inequality, gender, and climate issues to strengthen surveillance engagement; Ethiopia is a pilot country for inequality issues.
  - During a recent Article IV mission, the IMF-DFID team presented analytical work on “Economic Reforms and Broad Based Growth in Ethiopia” at the National Bank of Ethiopia (NBE).
  - The team used a dynamic general equilibrium model tailored to Ethiopia to study macroeconomic and distributional implications of reforms to improve revenue mobilization, efficiency, and broad-based growth.
  - Main result: proposed reforms generate macroeconomic growth, 0.5% increase in GDP per year, largely due to higher investment in manufacturing.
  - Distributional caveat: although reforms generate higher growth, the distributional cost in terms of inequality and poverty are high.
  - Policy recommendation: to sustain inclusive growth, authorities should consider complementary policies to alleviate negative distributional impacts; the team proposes three inclusive growth policies: (i) cash transfers (expansion of the PSNP), (ii) rural-urban migration, and (iii) financial sector deepening.
- Malawi
  - The government of Malawi is considering reforming its “Farm Input Subsidy Program (FISP)” to generate fiscal space and improve expenditure efficiency.
  - At the recent Article IV consultation, IMF staff presented analysis titled “Macroeconomic and Distributional Implications of FISP Reform in Malawi” developed by SPR, RES, and AFR.
  - Results indicate a trade-off between efficiency and equity under the proposed reform that can be ameliorated with compensatory measures.
  - The analysis was presented to the Ministry of Finance and the donor community, generated intense debate, and led the Minister of Finance to request a private meeting and further engagement, possibly a technical assistance mission.

### 3.1–4.3: Conferences, policy dissemination, and toolkits uptake

### High-level policy conferences and dissemination
- Conference on Financing for Development
  - Held at the Graduate Institute of International and Development Studies in Geneva, Switzerland, on April 15–17, 2015.
  - Co-sponsors: IMF, DFID, the Graduate Institute, and the Center for Finance and Development.
  - Focus: post-2015 development agenda and strategies to catalyze domestic and external financing from official and private sectors.
  - A selection of papers published in a special issue of the Oxford Review of Economic Policy.

### IMF Board and staff policy outputs informed by research
- IMF Board Paper: Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries
  - Builds on three years of IMF-DFID research on monetary policy issues in low-income countries.
  - Examines how LICs can adopt forward-looking frameworks to better anchor inflation and promote stability and growth.
  - Highlights technical assistance with central banks in sub-Saharan Africa (e.g., Central Bank of Kenya developed a forward-looking policy recommendation process underpinned by model-based forecasts; work with Uganda, Ghana, and Rwanda on medium-term inflation projections).
- Staff Discussion Note: From Ambition to Execution: Policies in Support of Sustainable Development Goals
  - Examines economic transformation and inclusiveness priorities for developing countries and environmental sustainability priorities for all countries.
  - Emphasizes synergies between economic, social, and environmental objectives, analyzes trade-offs, and outlines policies to minimize trade-offs to support sustainable, inclusive, and environmentally sustainable growth.

### Toolkits and training
- DIGNAR Model Toolkit
  - Excel-based, no Matlab required; input spreadsheet for calibration and options, output spreadsheet saves simulation outcomes.
- DIG Toolkit
  - Excel-based interface for public investment scaling-up scenarios; country calibration, exogenous shocks, customized plots; used in January 2016 ICD course and March 2016 Tanzania training; to be made openly available online.

### Academic and policy presentations by external researchers
- Prakash Loungani: presented the DIGNAR model (simulations by Felipe Zanna, Ioana Moldovan, Giovanni Melina) at The Global Public Debt Outlook, Brookings Institution, March 2016.
- Chris Papageorgiou: presented work on Export Quality and Economic Diversification at multiple events in 2015–2016, including World Bank Conference on Diversification (Mexico City, January 2016) and AEA Meetings (San Francisco, January 2016).
- Marina Tavares and Adrian Peralta: presented The Distributional Implications of Fiscal Consolidation in Developing Countries at four institutions (including Instituto Tecnológico Autónomo de México and Federal Reserve Bank of St. Louis).
- Grace Li: presented From Natural Resource Boom to Sustainable Economic Growth: Lessons for Mongolia at the Singapore Economic Review Conference 2015; presented VAR meets DSGE: Uncovering the Monetary Transmission Mechanism in Low-Income countries at the Oxford seminar series.
- Filiz Unsal: organized a session at the American Economic Association Annual Meeting (San Francisco) titled "Macroprudential Policies for Low-Income and Developing Countries" and presented two papers: Credit Booms and Macro-Prudential Policies in Low Income Countries; Macroprudential Policies in Low-Income Countries.
- Lisa Kolovich: presented work on gender budgeting at Europe Gender Summit (Berlin, November 2015).

### E-newsletter dissemination
- Quarterly e-newsletters spotlighting working papers, conferences, and activities:
  - 1. May 2015 Newsletter
  - 2. August 2015 Newsletter
  - 3. November 2015 Newsletter
  - 4. February 2016 Newsletter

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/documents/june2016.pdf_