IFI governance


The IMF programme cycle

31 January 2007 | Inside the institutions

While emergency negotiations between IMF officials and country authorities in times of financial crisis have been dramatised through popular accounts of the Asian financial crisis in 1997, the IMF has regular, systematic engagement with government representatives at many levels. Implementation of the IMF’s programme cycle varies from one country to the next, depending on the situation and need of the country in question. The nature of the programme cycle is highlighted by looking at the cases of Uruguay and Mozambique.

The most well-known interaction between the IMF and its members is the Article IV consultation, an annual surveillance mission on the member state’s economy and finances that is required for all Fund members. In practice, the report is not prepared annually for all countries. For small economies and countries with frequent interaction with the Fund, the Article IV report may be prepared on 18-month or 24-month rotations. In Uruguay the most recent Article IV consultation was held in conjunction with a review of a lending programme in May 2006. Its next Article IV consultation is scheduled for 2008. Like Uruguay, Mozambique is on a two-year cycle for Article IV reports, the most recent happening in March 2005, with the next consultation scheduled for March 2007.

The two most common lending arrangements are the Stand-By Arrangement (SBA), for middle income countries, and the Poverty Reduction and Growth Facility (PRGF) for low-income countries. Once negotiations are completed and conditions agreed the first amount of funding is released. Then reviews take place to approve further release of funds. This is done quarterly for SBAs and semi-annually for PRGFs. However reviews in the later stages of a programme may be combined if the country is performing well. The reviews generally involve a large mission (6 or 7 staff) from IMF headquarters visiting the country for up to several weeks. The missions assess the macroeconomic situation, the borrower’s adherence to conditions and benchmarks, negotiate conditions for the next phase of the programme, and entertain requests for waivers of conditions or extensions of the repayment period.

In 2006, IMF staff from the Western Hemisphere Department visited Uruguay four separate times – in February, May, August, and November – for reviews of its stand-by arrangement. At the end of the year the government decided to cancel the arrangement and repay all of the outstanding debt before the executive board could consider the combined fifth and sixth reviews. The PRGF review schedule for Mozambique was a bit less hectic, because the formal reviews only occur twice a year. In between formal reviews there is a desk evaluation by IMF officials in Washington. The formal IMF missions from the Africa Department arrived in Maputo in March 2006 and again in October. Though less frequent the review missions for Mozambique also addressed technical assistance strategy and needs, necessitating negotiations on both the PRGF conditions and on the terms of reference for consultants and technical assistance.

While surveillance and lending programmes give rise to relatively routine interactions between the IMF and country authorities, technical assistance (TA) programmes operate more variably. TA strategy papers are drafted by the IMF functional department associated with that TA project, for example the fiscal affairs department, and then agreed to by the country authorities. TA can be on any subject related to the Fund’s areas of operations, including macroeconomic policy, central bank operation, financial management, data standards and preparation, budgets and tax policy.

Uruguay had five missions related to TA in 2006, most of which were small missions for assistance with the restructuring of the state-owned housing bank. Another TA project relates to the administration of tax, customs and social security programmes. Finally, one technical advisor has been stationed in Montevideo since July to assist the Banco de Previsión Social (Social Security Bank) with its reform.

IMF missions to Uruguay in 2006

Mission from: Size of mission Purpose Date Duration
Monetary and Financial Systems Department 7 people FSAP preparation January – February 10 days
Western Hemisphere Department 6 people SBA third review February 2 weeks
Fiscal Affairs Department 3 people Review of  tax, customs and social security administration March 10 days
Western Hemisphere Department 6 people SBA fourth review, biannual Article IV May 2 weeks
Monetary and Financial Systems Department 1-2 people State-owned bank restructuring May 1 week
Fiscal Affairs Department 4 people Technical assistance: tax, customs and social security July 9 days
Western Hemisphere Department 5 people SBA fifth review August 2 weeks
Monetary and Financial Systems Department 1 person State-owned bank restructuring August 9 days
Monetary and Financial Systems Department 1 person State-owned bank restructuring November 9 days
Western Hemisphere Department 5 people SBA sixth review November 2 weeks

Mozambique hosted six TA missions from IMF headquarters in 2006. Usually the terms of reference for consultants and technical assistance are set during the March PRGF review. In 2006 the ten-day-long visits related to reviewing the budget, assessing tax policies, implementing a new financial management system, preparing the consumer price index, and creating a centralised revenue authority within the government. The mission for reviewing the budget, though similar to technical assistance, could also be classified as a programmatic review because it is conducted by the Africa department as part of their PRGF monitoring.

Under the joint umbrella of technical assistance and surveillance falls the Financial Sector Assessment Program (FSAP) including the Report on Standards and Codes (ROSC). The FSAP, a joint programme between the World Bank and the IMF, is only prepared on invitation by the country authorities. It generally includes the preparation of a detailed ROSC on the implementation of several of 12 international codes, which are developed by multilateral bodies, often in conjunction with the IMF. Agreeing to an FSAP will generate another visit or two from IMF headquarters in the year the FSAP is prepared. Some of the ROSCs will also require a separate mission from IMF staff along with external experts. The ROSCs are then updated by another field visit on an ad hoc schedule, which ranges from one to five years. The FSAP may also spawn technical cooperation programmes in addition to the normal Fund TA.

Uruguay has recently completed its first full FSAP, which required IMF mission visits in October 2005 and from January to February 2006. During that time ROSCs on banking supervision and the payments system were prepared. In November 2005 a mission visited Montevideo for more than 2 weeks to prepare a separate ROSC on anti-money laundering. Previously, Uruguay had ROSCs prepared on data dissemination in October 2001, and fiscal transparency in March 2001, neither of which has yet been updated. As a consequence of the 2006 FSAP, technical cooperation has focused on financial sector laws, enhancing central bank independence, strengthening the supervisory and bank resolution frameworks, and developing the capital market.

In the case of Mozambique, the joint IMF-World Bank missions for preparation of the FSAP visited the country in February and March 2003 for a total of three weeks. Separately, the first ROSC on fiscal transparency was produced in early 2001, then updated by a mission in June 2002 and again updated by the 2003 Article IV report. A two-week mission in June 2002 prepared a ROSC on data dissemination, which was updated by a one-week mission in May 2005.  A two-week mission was needed in November 2005 for an anti-money laundering ROSC. Most recently, in October 2006 a mission from the monetary and capital markets department of the Fund was tasked with following up the recommendations from the FSAP in the areas of monetary and foreign exchange operations, banking regulation and supervision, monetary policy formulation and central bank accounting.

In between these formal missions, the IMF’s resident representative in Maputo states “numerous expert visits have taken the [technical cooperation] agenda forward”. This is on top of the three permanent resident advisors in the fiscal area and one in the statistics area.

IMF missions to Mozambique in 2006

Mission from: Size of mission Purpose Date Duration
Africa Department 6 people PRGF fourth review, biannual Article IV, technical assistance strategy paper March 2 weeks
Fiscal Affairs Department 2 people + 2 consultant experts Review of tax policies March 10 days
Legal Department 1 person Review of draft laws on inheritance and gift tax April 1 week
Fiscal Affairs Department and Office of Technical Assistance Management 3 people Implementation of the central revenue authority (ATM) May 10 days
Fiscal Affairs Department 2 people + 2 consultant experts Implementation and roll-out of new financial management system August 10 days
Africa Department 2 people Budget review before Parliament September
Africa Department 6 people PRGF fifth review October 2 weeks
Monetary and Capital Markets Department 2 people + 4 consultant experts FSAP follow-up technical cooperation October 2 weeks
Fiscal Affairs Department 3 people Implementation of the central revenue authority (ATM) November 10 days
Statistics Department 1 person Assistance with preparation of Consumer Price Index 10 days