Public Information Notice No. 04/21

Public Information Notice: IMF Executive Board Reviews Technical Assistance

March 17, 2004

On March 5, 2004, the Executive Board of the International Monetary Fund (IMF) reviewed the IMF's technical assistance (TA) since the last review held on July 8, 2002, in particular the experience in low-income countries, as well as the experience with using a regional approach to TA and training.¹ In addition, the Board reviewed the growing importance of external financing of TA, the ongoing efforts to strengthen TA information and resource management further, proposals to broaden external dissemination of TA reports, and TA project monitoring and related resource use.

Background

The objective of TA, as described in the IMF's Article I is "to contribute to the development of the productive resources of member countries by enhancing the effectiveness of economic policy and financial management." The IMF fulfills this objective by providing support to capacity building and policy design and implementation. Through staff missions sent from headquarters, the provision of short-term experts and resident advisors, and on-the-job or more formal training at headquarters and in regional training institutes, the IMF helps member countries strengthen their human and institutional capacity to formulate and implement growth-oriented and poverty-reducing macroeconomic and financial policies, and assists in the design of appropriate macroeconomic and structural policy reforms. The IMF provides TA in its core areas of expertise, namely: macroeconomic policy formulation and management; monetary policy; central banking; the financial system; foreign exchange markets and policy; public finances and fiscal management; and macroeconomic, external, fiscal, and financial statistics.

As a result of the expansion of the IMF's membership and the adoption of market-oriented economies by a large number of countries, TA grew rapidly in the early 1990s. In addition, in recent years, the IMF has mounted significant efforts, in coordination with other bilateral and multilateral TA providers, to provide prompt policy advice and operational assistance to countries emerging from conflict situations. A number of recent initiatives, relating to the IMF's efforts to strengthen the global financial architecture, has also generated new demands for IMF TA to help countries adopt and adhere to international standards and codes for financial, fiscal, and statistical management, including work on off-shore financial centers, anti-money laundering, and the fight against the financing of terrorism. At the same time, there is still a continuing demand for TA to help Heavily Indebted Poor Countries (HIPC) undertake debt sustainability analyses and manage debt-reduction programs, and to help low-income countries design and implement poverty-reducing and growth programs.

In light of the growing demand and competing needs for TA, effective prioritization is crucial for the IMF to use its TA resources effectively. A set of prioritization filters and guidelines were introduced in early 2001, to enable the IMF's functional departments to align resources with recipient-country needs more systematically, consistent with the IMF's core areas of competence, main program areas, and key policy initiatives.²

Measures have also been undertaken since 1999 to strengthen the effectiveness of IMF TA, particularly integrating TA more closely with surveillance and lending programs. Measures implemented to this end include reinforcing coordination and collaboration with other TA providers, especially the World Bank; improving modalities for TA delivery, in particular through the establishment of regional TA centers; strengthening the monitoring and evaluation of TA program; and promoting the dissemination of information on TA program more widely.

Executive Board Assessment

Executive Directors welcomed the opportunity to review IMF TA, which is being called upon to play an increasingly strategic role in responding to the diverse and evolving needs of the membership. Along with Fund surveillance and financial support, TA is now an important vehicle for helping countries to develop and implement sound economic policies, reduce their vulnerability to crises, and strengthen their financial sectors. Directors also underscored the essential contribution of IMF TA in helping low-income countries and countries emerging from conflict situations, in particular in laying the capacity, institutional, and governance foundations for sustained poverty reduction.

Directors generally considered that TA has made considerable strides toward acquiring a strategic focus and enhancing its impact and effectiveness in the past two years. However, given the critical role of TA across a range of policy areas—and the continued strong demand for it by Fund members—Directors emphasized that the main challenges continue to be to ensure that TA is well focused and prioritized, and that it is effective. A number of Directors were of the view that, given the significant excess demand for TA, consideration should also be given to allocating more resources for IMF TA.

Directors were encouraged by the continuing progress with implementing the prioritization process, introduced in 2001, and strengthening the focus of IMF TA on supporting the priorities established by the framework for Fund surveillance and arrangements on the use of Fund resources. They looked forward to continuing strong efforts at further improving the prioritization and effectiveness of TA, sharpening the focus on results, and systematically incorporating the lessons of TA evaluations. They endorsed the steps being proposed to work towards these objectives in the period ahead.

Directors agreed that to remain well-focused, the TA program will need to remain flexible, as this will help ensure that the balance among programs and initiatives remains appropriately tuned to the evolving needs of the membership over time. While TA requirements need to be met in a strategic way, the Fund must continue to have the TA instruments to respond to changing needs in a flexible and timely manner. Close coordination among IMF TA departments and area departments will continue to be important in this regard.

Directors stressed that careful planning and monitoring, close coordination with other providers in both the design and implementation of TA strategies, efficient leveraging of external financing, and broader dissemination of lessons learned will all be critical stepping stones in the broad-based effort that is underway to further enhance TA effectiveness. Directors highlighted, in particular, the importance of actively involving national authorities in the design of TA to foster strong country-ownership and commitment, and help ensure the sustainability of TA results. In this context, Directors expressed support for the proposal to set milestones for the continuation of TA, in particular in the context of longer-term programs. Directors also suggested that further consideration be given to the development of exit strategies as a way of enhancing effectiveness and ownership of the reform effort. Some Directors continued to see merit in further exploring pricing mechanisms, with a view to fostering country-ownership of TA projects and enhancing implementation incentives. It was suggested, in this connection, that the Fund also examine the funding mechanisms of other TA providers. Some other Directors, however, saw considerable difficulties in pursuing pricing mechanisms, highlighting the positive externalities of IMF TA, and the broad range of services which the Fund is providing to the membership as a whole.

Directors supported the actions underway to improve the management, monitoring, and results-based evaluation of TA. They welcomed the launching of a formal three-year rolling program of evaluations, and looked forward to a standardized evaluation methodology and the possible establishment of an independent TA evaluation function within the Fund. Directors also endorsed the swift establishment of a Fund-wide, computerized TA information management system (TAIMS), which will provide the basis for more effective monitoring and evaluation.

Directors welcomed the focus of the review of IMF TA program on TA for low-income countries. The provision of high-quality and effective TA to these countries raises particular challenges, given the complexity and the scope of assistance needed—in particular in supporting long-term capacity building—and the importance of producing lasting results with relatively limited resources.

Directors noted that the major share of IMF TA to low-income countries is provided in the context of Fund financial arrangements. To help ensure effectiveness and lasting results in these circumstances, Directors underscored that TA strategies for these countries need to be firmly aligned with country-owned poverty reduction strategies, taking into account absorptive and administrative capacity constraints, and the role of other TA providers. It will also be important that TA strategies in low-income countries go beyond the objective of producing short-term results, and remain firmly directed toward supporting institution building in a longer-term horizon, while remaining sufficiently flexible to respond swiftly to evolving needs. To ensure close coordination of IMF TA with other TA providers, Directors encouraged the staff to proactively identify potential TA partners and seek to promote clear understandings between TA providers and the authorities on the broad road map for assistance and division of labor. They noted the useful role that Fund resident representatives can play in this area.

Directors welcomed the growing evidence that regional arrangements for TA delivery and training appear to be providing an effective way of delivering TA, while fostering ownership and enhancing coordination with other TA providers. In view of the significant resource requirements for the Fund and external donors, they stressed the need for continuous close monitoring and regular evaluation of the operations of the regional TA centers, and looked forward to the planned evaluation of the Africa Regional TA Centers. Most Directors welcomed the expansion of the IMF Institute's regional programs, which they saw as cost-effective, and well adapted to the needs of the regions they serve.

Directors commended the generous external funding provided by donors to complement the Fund's own TA resources. They saw several challenges going forward. These include: securing an adequate volume of external resources over the long term, based on fair burden sharing; ensuring that staff resources, instruments, and adequate systems are available to manage external financing according to international best practice; and prioritizing externally financed TA as rigorously as Fund-financed TA. A number of Directors supported the recruitment of externally-financed TA managers as a way of alleviating staff resource constraints.

Directors welcomed the enhanced dissemination of TA reports to staff and the offices of Executive Directors through the Fund's Institutional Repository, as well as selected TA providers. They looked forward to increasing dissemination rates in the years ahead. To foster the wider sharing of lessons learned from TA experience, Directors encouraged member countries to consent to the voluntary publication of TA reports on the Fund's external website, with due consideration to ensuring the confidentiality of sensitive information. Many Directors also encouraged further steps to enhance accountability and transparency with respect to TA outcomes, through more systematic coverage—perhaps based on a template—of the use of TA in staff reports on Article IV consultations, especially for countries receiving substantial TA.

In concluding the current review of IMF TA, Directors stressed that efforts to strengthen TA provision are an ongoing process, which needs to be continuously refined in light of progress with monitoring and evaluation of TA. They looked forward to the forthcoming evaluation by the IEO of IMF TA, which they hoped would provide additional guidance on how to further enhance TA performance. It was also suggested that a future comprehensive review of the definition of TA, and its implications for pricing mechanisms, as well as of the process of TA prioritization, could be helpful for providing useful insights on the way forward.