## Rebuilding Fiscal Institutions in Postconflict Countries

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### IMF Assistance Framework and Objectives
- The International Monetary Fund’s assistance to postconflict countries consists of three main elements:
  - (i) technical assistance to rebuild capacity in key economic institutions;
  - (ii) policy advice; and
  - (iii) financial and technical assistance in mobilizing donor support.
- Objective: lay the basis for sustainable growth through institutional development and by addressing macroeconomic imbalances.
- Typical delivery: assistance provided in the context of internationally coordinated efforts with other multilateral agencies and bilateral donors.
- Purpose of this paper: discuss experiences in reestablishing fiscal management; review challenges in rebuilding fiscal institutions based on experiences in 14 postconflict countries; identify key priorities in the fiscal area following the cessation of hostilities.

### Key Findings from the Literature
- Conflict damages social, economic, legal, and political organizations—i.e., institutions—reducing capacity for economic development.
- Five market-supporting institutions identified (Rodrik, 2000): property rights, regulatory, macroeconomic stabilization, social insurance, and conflict management institutions.
- Empirical evidence links these market-supporting institutions to economic growth (North, 1990; Olson, 1993; Rodrik, Subramanian, and Trebbi, 2002; Acemoglu and others, 2003; Rodrik, 2004).
- Institutional reconstruction is a priority in the postconflict period to sustain peace and resume economic activity.
- Pattern of aid: surge immediately after cessation of hostilities then taper off (Collier and Hoeffler, 2002a); capacity to absorb assistance is low early postconflict partly due to weak political and administrative capacity.
- A stabilization‑recovery‑development framework should center on three pillars:
  - (i) rebuilding the state and its key institutions;
  - (ii) jumpstarting the economy; and
  - (iii) addressing urgent needs and reconstructing communities (Addison, 2003; Michailof, Kostner, and Devictor, 2002).
- Reestablishing state capacity for macroeconomic management and fiscal operations is an important component of the framework.
- Immediate postconflict priorities include rebuilding revenue administration and systems to generate internal resources to finance reconstruction and essential services.
- Sound macroeconomic policies accelerate recovery and reduce the risk of relapse into conflict (Staines, 2004).
- There is a “virtuous circle” between institution building and good economic policies: improvements in public expenditure management and tax administration help establish fiscal discipline, supporting stabilization and growth, which in turn facilitates further institution building (Addison, 2003).
- Strengthening institutions and policies is necessary to attract private investment and support broad-based recovery.
- Structural characteristic increasing conflict risk: dependence on natural resource rents; risk of conflict highest when natural resource exports constitute 25 to 30 percent of GDP (Collier and Hoeffler, 2002b).

### Implications for Fiscal Institutional Reconstruction
- Rebuilding fiscal capacity must be prioritized in the early postconflict period to:
  - enable budget formulation, execution, and reporting;
  - design and implement critical reforms;
  - strengthen revenue administration to mobilize internal resources for reconstruction and delivery of essential services.
- Institutional and policy reform sequencing should recognize limited absorption capacity immediately after conflict and the need for donor coordination.
- The IMF’s role typically includes technical assistance through its Fiscal Affairs Department, policy advice, and support in coordinating donor financing and technical cooperation.

### Scope and Structure of the Paper (as presented)
- Chapter II: Nature and form of IMF technical assistance (Fiscal Affairs Department), importance of donor coordination.
- Chapter III: Overview of macroeconomic and fiscal consequences of conflict via key variable changes in a subsample of postconflict countries (before conflict, end of conflict, latest available year).
- Chapter IV: Experiences in reestablishing fiscal management and key priorities for rebuilding fiscal institutions in the early postconflict period.
- Chapter V: Case studies of IMF technical assistance implementation in six countries: Islamic Republic of Afghanistan; Bosnia and Herzegovina; Democratic Republic of the Congo; Lebanon; Mozambique; Timor-Leste.
- Chapters VI–VII: Lessons from IMF involvement and conclusions.

*IMF Occasional Paper 247 — Rebuilding Fiscal Institutions in Postconflict Countries*

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_Source: https://www.imf.org/-/media/websites/imf/imported-publications/external/pubs/nft/op/247/_op247.pdf_