IFI governance


The IMF to evaluate its role in determining aid resources to African countries

by Hetty Kovach, EURODAD

20 December 2005

The IMF’s Independent Evaluation Office (IEO) is undertaking a timely review of the Fund’s role in determining aid resources in sub-Saharan Africa, examining the Fund’s policy advice and programme design in these countries and its impact. A draft issues paper outlining the terms of reference for the review, entitled The IMF’s role in the determination of the External Resource Envelope in Sub-Saharan African Countries has just been released (December 13th). There is no date as of yet for when the evaluation is likely to be completed, but comments at this initial stage to the IEO on its terms of reference should be given by the end of January at the latest. The review will look specifically at the IMF’s role in:

A. Country dialogue: Looking specifically at what policy advice the Fund is giving to countries with regard to their aid absorptive capacity (addressing both the scope – are differing policy options provided and trade-offs made explicit – and the variation of advice to differing countries), the analytical underpinnings of the advice (how were aid projections derived, what were the theoretical and empirical considerations taken onboard) and the process by which this advice is given (transparency and involvement of other organisations in the negotiation process) and how this is translated into programme design.

B. Absorptive capacity: In particular the evaluation will examine the basis for the Fund’s assessment of a country’s aid absorptive capacities. The IEO identifies a number of factors as crucial to assessing a country’s absorptive capacities and is keen to explore the Fund’s policy take and programme design on these areas, including:

  • Aid and growth issues – exploring the Fund’s position on the tensions/trade-offs with aid flows and growth (Dutch disease concerns etc.)
  • Sustainability issues – exploring the Fund’s position on the implications of fiscal and debt sustainability of projected new aid flows
  • Governance Issues – exploring the Fund’s assessment of governance and leakage of aid and programme conditions (structural) which tackle this issue of corruption and accountability safeguards which might reduce the benefits of aid due to leakage problems
  • Sectoral issues – Where new money would be best spent – examining the net benefits of different types of public expenditure. This is of crucial importance to NGOs arguing about the need for greater flows to education and health, rather than other areas.
  • Policy and institutional issues – exploring the Fund’s assessment of wider policy and institutional issues and its impact on potential aid flows
  • Aid predictability and volatility

C. Alternative scenarios: Perhaps of most interest, is the IEO’s assessments of the Fund’s catalytic role in encouraging higher aid flows to countries, which will look specifically at the Fund’s role in assisting countries to develop alternative spending scenarios based on higher projected aid levels and more generally the Fund making the case for greater aid in countries.

D. Aid volatility: Finally the research will also examine the Fund’s advice to countries on how to manage aid violality. In particular, how flexible Fund programmes are in accommodating higher and lower aid. In theory Fund programmes are meant to have automatic adjusters to accommodate for small short-term deviations, but a recent Fund study, in relation to higher aid flows, found that in some countries where aid flows increased, the programme was unable to accommodate absorption and it had to go into the private sector or be put into savings.

The review will look at 29 countries with a completed or lapsed Poverty Reduction and Growth Facility (PRGF) in sub-Saharan Africa. Field visits will be undertaken in half a dozen countries as well.

Comments on the draft issues paper may be submitted to the IEO.

Bretton Woods Project commentary on the draft issues paper, sent to IEO, 9 January 2006

On ‘criticisms of mandate and culture’ (pg 14) – the paper rightly touches on the tension within CSO critiques between those who feel the Fund should be more engaged at the country-level, and those who believe the Fund is already too powerful. However, not picked up is the call for the nature of existing Fund engagement to be changed without necessarily increasing its presence/power at the national level. This would mean less exclusive negotation with finance ministries to allow for more input from other key ministries and parliamentarians.

On ‘country responses’ (pg 19) – while we applaud the attempt to look at the link between Fund policy prescriptions and ‘broad economic and social indicators’, we feel that the value of this could be diminished if one only examines growth and not the nature of growth. The Fund’s prescriptions, broadly speaking, are often successful at bringing down inflation; much less successful at encouraging economic growth. The interesting question however is the effect of Fund prescriptions on equality and industrial development. The Bank’s WDR 06 outlines the instrumental reasons for the importance of the former; numerous UNCTAD studies have pointed to the detrimental impact of Fund-advocated structural adjustment on the latter.

On methodology (pg 20-21) – we would like to see the term ‘country authorities’ defined more specifically. Will this include non-finance ministry officials? Parliamentarians? We also believe that, while the evaluation team is in country, it would be very useful to hold a limited number of discussions with key civil society figures (business, labour, NGO). Interviews are often much more revealing than surveys with regard to country-specific details.