IMF Executive Board Discusses "2018 Review of Program Design and Conditionality"
IMF News, May 20, 2019
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- Published: May 20, 2019
Background
- Review period examined: programs ongoing between September 2011 and end-2017.
- Review discussed by the Executive Board on May 3, 2019.
- Components of the review:
- A main paper with key findings and recommendations.
- A background supplement with additional information on survey results, additional areas of analysis and methodological material.
- A paper with in‑depth case studies in the key analytical areas.
- The RoC builds on prior work: the 2011 RoC, the 2015 Crisis Program Review, and various Independent Evaluation Office (IEO) studies.
- The RoC assesses: resolving members’ balance of payments problems; achieving medium-term external viability; fostering sustainable economic growth; providing adequate safeguards for Fund resources.
- The RoC draws on quantitative and qualitative analysis, including stakeholder surveys and in‑depth case studies.
- The RoC complements other Fund policy reviews: Review of Facilities for Low-Income Countries (LICs); Debt Sustainability Framework (DSF) Review for Market Access Countries (MAC); Review of the Fund’s Debt Limits Policy (DLP); Strategy for IMF Engagement on Social Spending; Building Resilience in Developing Countries Vulnerable to Large Natural Disasters workstream.
Executive Board assessment — summary
- Overall finding highlighted by Directors: three‑quarters of Fund‑supported programs had achieved success or some success during the review period.
- Directors broadly agreed with the RoC findings and, with some caveats, supported key recommendations.
- Implementation of several recommendations would require further discussions in upcoming reviews of relevant Fund policies.
Growth assumptions and program realism
- Finding: growth assumptions were often too optimistic.
- Causes identified: global forecasting errors; underestimation of the impact of policy adjustment; overestimation of structural reform payoffs.
- Director-supported proposals:
- Increase scrutiny of baseline assumptions.
- Deepen discussion of risk scenarios.
- Improve contingency planning in program design.
- Explore reforms to modernize the review‑based monetary policy conditionality framework (inflation not a major issue during the period, but reform exploration supported).
Quality of fiscal adjustment
- Directors saw room for more granular fiscal conditionality to improve quality, composition, and growth orientation of fiscal adjustment.
- Examples: capital spending floors or revenue targets.
- Emphasized considerations:
- Retain sufficient flexibility and account for member implementation capacity.
- Focus on quality of social spending and prioritize structural conditions on social issues where relevant.
- Take a case‑by‑case approach and streamline conditions to maintain parsimony.
- Importance of close collaboration with other international financial institutions and early engagement with country authorities to strengthen ownership.
Public debt
- Directors welcomed comprehensive analysis of debt vulnerabilities—key concern during the review period.
- Evidence from a limited sample: programs that included debt operations tended to be more successful than those without such undertakings, mainly in small and non‑systemic cases.
- Directors cautioned:
- Positive impact of debt restructuring on program outcomes could not be generalized.
- Need to mitigate bias in judgment on debt sustainability and to evaluate case‑by‑case the costs and benefits of debt operations.
- Observed issues:
- Programs experiencing large overshooting of public debt mostly went off track.
- Ongoing and recommended actions:
- Improve debt transparency.
- Strengthen data reporting capacity.
- Sharpen debt sustainability analysis (DSA) tools.
- For PRGT‑supported programs: enhance domestic resource mobilization and quality of investment to strengthen catalytic role in mobilizing external concessional financing.
- Further discussion of debt‑related issues in context of DSF for market access countries and Fund’s debt limits policy, including plans to update guidance on treatment of collateralized debt in the program context.
Structural conditionality
- Observation: marked increase in volume of structural conditions.
- Director recommendations and views:
- Prioritize reforms critical to specific program objectives to ensure parsimony and depth of structural conditionality.
- Selection of conditions should be informed by structural gaps identified in surveillance and technical assistance, and involve collaboration with relevant institutions.
- Continue building expertise in areas such as labor, product, and financial market reforms.
- Strengthen cooperation with other international institutions (notably the World Bank) on governance and anti‑corruption.
- Set more realistic implementation timetables and estimates of reform payoffs given implementation difficulties.
- Longer‑duration engagement considerations:
- Most Directors welcomed or were open to considering a follow‑up paper on longer‑duration arrangements in the General Resources Account (GRA) for members addressing large and persistent structural challenges, with appropriate safeguards.
- Some Directors expressed concern longer engagement could increase reform fatigue and undermine the revolving nature of Fund resources.
- General merit seen in greater use of successor Policy Coordination Instruments to support ongoing structural reforms.
Ownership and implementation tools
- Directors highlighted benefits of anchoring programs with integrated national reform plans and improving two‑way communication to support public buy‑in.
- Plans welcomed to strengthen analysis of institutional and political capacity.
- Where programs have gone off track:
- Directors encouraged greater use of staff‑monitored programs (SMPs) to monitor macroeconomic policies while authorities build support for delayed critical reforms.
- Calls to de‑stigmatize SMPs to promote their use for building a policy track record that would facilitate access to Fund resources.
Tailoring, evenhandedness, and small/fragile states
- Finding: programs generally well‑tailored to country needs and consistent with uniformity of treatment.
- Areas for improvement:
- Better tailoring and streamlining of program objectives and structural conditions for fragile and small states given economic circumstances and capacity constraints.
- Ensure application of the 2017 Staff Guidance Note on the Fund’s Engagement with Small Developing States.
- Integrate critical resilience‑building measures into programs.
- Concerns noted by some stakeholders about perceived lack of evenhandedness in program access within and between the GRA and PRGT.
- Directors acknowledged differences in access largely driven by underlying Fund policy frameworks.
- Directors were generally open to further discussion on proposals to increase PRGT access norms and limits, and to promote more blending of GRA and PRGT resources while maintaining PRGT self‑sustainability.
- Further discussion expected in the forthcoming review of facilities for low‑income countries.
- Monitoring and oversight:
- Directors welcomed efforts to improve the Monitoring of Fund Arrangements (MONA) database and looked forward to periodic reports to the Board on program performance.
- Noted observed increase in off‑track programs warrants close scrutiny, including by the Board.
- Some Directors called for further consideration of ways to improve Board monitoring of delays in program implementation.
- Several Directors saw a role for the Independent Evaluation Office regarding evenhandedness.
Next steps and overall direction
- Directors recognized tradeoffs in program design and potential benefits of shifting toward:
- More realism.
- More granularity.
- Greater gradualism.
- Increased parsimony.
- Agreement: the Guidelines on Conditionality remain broadly appropriate.
- Implementation pathway:
- Most recommendations could be implemented through a revised Operational Guidance Note and delivery of related workstreams.
- Successful implementation would require a change in culture, continued adaptation, and learning.
Press Release No. 19/174 — IMF Communications Department, May 20, 2019.
