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TWN Info Service on Finance and Development (Mar07/01)

20 March 2007


INTERNAL EVALUATION CRITICISES IMF’S CONFUSED ROLE IN AFRICA

An internal evaluation of the International Monetary Fund (IMF)’s role in sub-Saharan Africa (SSA) reveals that there is ambiguity and confusion about the institution’s policy and practice on aid and poverty reduction in the region and that there is a disjuncture between the IMF’s rhetoric and its policies on the ground, leading to incoherent policy responses from the institution.

The report, a culmination of research by the IMF’s Independent Evaluation Office (IEO) into the IMF’s operations in sub-Saharan Africa from 1999 – 2005, also concludes that the expected institutional changes which were to accompany the IMF’s switchover from the Enhanced Structural Adjustment Facility (ESAF) to the Poverty Reduction and Growth Facility (PRGF) during that period have not been borne out in practice.

The IEO findings will increase the pressure on an institution reeling from a crisis of legitimacy. The IMF is already facing the strain of maintaining relevance among its members, with the withdrawal of many of its middle-income members from its financing facilities and the graduation of a number of its low-income members, including SSA countries, from its concessional lending programmes in recent years.

Below is a report on the findings of the IEO evaluation. It was published in SUNS #6213 Monday 19 March 2007.

With best wishes
Martin Khor
TWN

Internal Evaluation Criticises IMF’s Confused Role in Africa
By Celine Tan

An internal evaluation of the International Monetary Fund (IMF)’s role in sub-Saharan Africa (SSA) reveals that there is ambiguity and confusion about the institution’s policy and practice on aid and poverty reduction in the region and that there is a disjuncture between the IMF’s rhetoric and its policies on the ground, leading to incoherent policy responses from the institution.

The report, a culmination of research by the IMF’s Independent Evaluation Office (IEO) into the IMF’s operations in sub-Saharan Africa from 1999 – 2005, also concludes that the expected institutional changes which were to accompany the IMF’s switchover from the Enhanced Structural Adjustment Facility (ESAF) to the Poverty Reduction and Growth Facility (PRGF) during that period have not been borne out in practice.

In other words, in spite of the so-called conceptual shifts towards country ownership, poverty reduction and the inclusion of other stakeholders in policymaking under the PRGF, the IMF has reverted to its old economic policy prescriptions in affected countries, attributing these limitations to weak staff performance in these areas, inconsistent guidance by the Executive Board and Fund Management and less than effective collaboration between the IMF and the World Bank.

According to the report, released on Monday, the PRGF, when introduced in 1999, was supposed ‘to be far more than a name change’ but ‘in the face of a weakening consensus in the Board and a staff professional culture strongly focused on macroeconomic stability – and, most important, changes in Senior Management and a resulting lack of focused institutional leadership and follow-through – the Fund gravitated back to business as usual’.

The IEO report will increase the pressure on an institution reeling from a crisis of legitimacy. The IMF is already facing the strain of maintaining relevance among its members, with the withdrawal of many of its middle-income members from its financing facilities and the graduation of a number of its low-income members, including SSA countries, from its concessional lending programmes in recent years.

In a response to the evaluation at an Executive Board meeting on 5 March, The IMF’s Managing Director, Rodrigo de Rato, had welcomed the report’s ‘candid assessments and useful recommendations’ saying that it ‘will help management and the Board clarify further the institution’s mandate and policies to help SSA achieve growth and reduce poverty’, adding that it ‘should be considered in the context of the Fund’s Medium-Term Strategy (MTS)’.

The issue of policy coherence was central to the evaluation’s findings. The IEO argues that the differences in the views of Executive Directors about the IMF’s role and policies in low-income countries had contributed fundamentally to the failure of this ‘attempted – but ultimately unsuccessful – institutional change’ in their operations in SSA..

The lack of clarity on the institution’s stance and policies on the mobilisation of aid, alternative macroeconomic scenarios and the application of poverty and social impact assessments (PSIAs) of macroeconomic policy has led to Fund staff reverting to a focus on macroeconomic stability ‘in line with the institution’s core mandate and their deeply ingrained professional culture’.

Consequently, the study found that PRGF programmes had limited focus on the linkages between infrastructure spending and supply-side responses from the economy in spite of macroeconomic implications and made limited use of poverty and social impact analysis, partly reflecting their weak collaboration with the World Bank. Programmes also failed to adopt more ambitious targets with regard to aid and aid inflows.

The IEO report concludes that although ‘social impact analysis was to inform the consideration of distributional impacts of program design and the identification of countervailing measures to offset adverse impacts’, PSIAs carried out by the World Bank and other donor agencies ‘have not systematically informed PRGF program design’.

Additionally, Bank staff involved in the formulation of PSIAs revealed to the IEO that ‘they generally lacked incentives and resources to meet the specific needs of Fund-supported programs’. This reveals a lack of synchronicity between the IMF and its sister agency, in spite of increased collaboration being a distinct objective of the Poverty Reduction Strategy Paper (PRSP) framework which underpins the PRGF and the work of the Bank’s concessional lending facility, the International Development Association (IDA).

On the IMF’s role in mobilising aid, the study found that some of the criticism directed at the institution’s conservative macroeconomic programmes and the blocking of aid inflows were unfounded, arguing that ‘PRGF-supported macroeconomic policies have generally accommodated the use of incremental aid in countries whose recent policies have led to high reserves and low inflation’. However, it did acknowledge that ceilings on public expenditure, particularly budgetary wage caps, have led to the undermining of countries’ capacity to absorb additional aid inflows for the hiring of additional staff in social sectors, such as health and education.

The report also concludes that PRGFs have generally not set ambitious targets or identified additional aid opportunities where such absorptive capacity exceeds projected aid flows and that the Fund has not been ‘proactive in mobilizing aid flows’. Moreover, IMF staff ‘have done little to analyze additional policy and aid scenarios and to share the findings with the authorities and donors’.

The IEO study further found that public investment in infrastructure has declined relative to social spending in sub-Saharan Africa during the evaluation period, arguing that the ‘pendulum’ in public expenditure in sub-Saharan African countries under PRGF programmes ‘has gone too far in the direction of pro-poor spending for safety net programs, at the expense of pro-growth spending for infrastructure’ 

This potentially undermines private sector growth, external competitiveness and employment creation in these countries. These concerns concur with conclusions of other external evaluations of the PRGF programmes, including the study of the PRSP approach by the United Nations Conference on Trade and Development (UNCTAD) in 2002.

According to the IEO, the Fund’s failure to live up to its promises under the PRGF has been compounded by the overselling by Fund communications of the institution’s commitments on poverty reduction and aid, creating an ‘external impression’ that the Fund is committed to more work on aid mobilisation and poverty reduction analysis in its programmes than it actually delivers.

For example, it argues that ‘institutional communications continue to suggest a more expansive view of the Fund’s role in aid mobilization, advocacy for aid, and alternative MDG scenarios than the Board has agreed’. Consequently, the ‘resulting disconnect has reinforced cynicism about, and distrust of, the Fund’s activities in SSA and other low-income countries’.

The Fund has also missed opportunities to build alliances with ‘a broader audience’ in sub-Saharan Africa, including engagement with other donors and local partners, including civil society actors, say the report. The evaluation found that in spite of a network of resident representatives across SSA which act as ‘a largely untapped source of information on what is happening on the ground among donors and civil society’, their observations ‘do not systematically inform institutional positions’ on SSA.

The evaluation’s main recommendations to the IMF stemming from its findings is primarily the improvement of coherence – ‘actual and perceived’ – by the IMF of its policies and actions relating to aid to sub-Saharan Africa, including the clarification by the Executive Board of Fund policies on the issues raised in the report and the provision of clear guidance by IMF Management to its staff based on the Executive Board’s directives.

Additionally, the Fund Management ‘should establish transparent mechanisms for monitoring and evaluating the implementation of the clarified policy guidance’ and clarify expectations and resource availabilities to local representatives and their interactions with local partners.

The IEO report, ‘The IMF and Aid to Sub-Saharan Africa’ can be found at: http://www.imf.org/External/NP/ieo/2007/pr/eng/pr0701.htm

 


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