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The IMF and aid to Sub-Saharan Africa

Date
Time (GMT +01) 12:00 13:30
Hero image description: Farming woman Tanzania Image credit:vredeseilanden Image license:Creative Commons

Speakers:
Joanne Salop
, Lead Author, Independent Evaluation Office, IMF
David Andrews, Assistant Director, Africa Department, IMF

Discussant:
Tony Killick, Senior Research Associate, International Economic Development Group, ODI

Chair:
Alison Evans
, Director of Programmes, Poverty and Public Policy Group, ODI

Alison Evans, in the chair, opened the meeting, explaining that its purpose was to discuss the implications of a report recently published on the provision of aid to Sub-Saharan Africa (SSA) by the IMF. The report covers 1999-2005 and presents evidence from the Poverty Reduction and Growth Facility (PRGF). The report is set against a period of significant change, especially the macroeconomic performance of SSA countries and changing development assistance technology. She welcomed Joanne Salop of the Independent Evaluation Office, IMF, and main author of the report; David Andrews, Assistant Director in the Africa Department, IMF; and Tony Killick, Senior Research Associate, International Economic Development Group, ODI.

Joanne Salop began by emphasizing that the report is an assessment of the performance of finance and aid architecture. It is not an evaluation of the PRFGs, for these are a vehicle for aid; instead the report evaluates the IMFs work in SSA. Through the study of 29 SSA countries and 6 country visits, the report found that:

  1. IMF work on aid is generally in line with IMF policies, but not well communicated outside IMF circles.
  2. Ambiguity and confusion about IMF work on poverty reduction and
    aid agenda exists both outside and inside the IMF.
  3. There are communication ‘blockages’ - in SSA, beyond the authorities, and more generally regarding the aid and poverty reduction agenda.

This ambiguity and confusion can be accounted for by changes in management, a lack of consensus on the Board, and a strong macro-economic professional culture. Salop then outlined some further findings from the report:

  1. In terms of aid forecasts, the PRGFs tend to slightly over-estimate in a program year, which prevents aid blockages, but under-estimate in the medium term, which impacts on potential investment decisions.
  2. On the accommodation of aid, it found that in countries with inflation rates above 5-7%, PRGFs typically did not allow the full spending of additional aid.
  3. PRGF programs have not systematically assessed absorptive capacity for aid, nor identified additional country aid opportunities where absorptive capacity exceeds projected aid inflows, and IMF staff have not mobilized additional aid.

Salop concluded that most of these issues can be rectified with increased clarification of policies. Similarly, the IMF needs to monitor more carefully the implementation of policies, ensure that external communications match policies and practices more closely, and become more candid and forthcoming in its communications. However, Mrs Salop reported that measures to combat the restricted spending of aid by countries with inflation rates above 5-7% were not adopted by the Board, who preferred to adopt a ‘case-by-case’ approach.

David Andrews drew upon the findings from the report, and stressed the importance of asking what the IMF is doing in relation to its mandate. He argued that the IMF was good at doing the things it is mandated to do, but where there is ambiguity the results are less clear. The IMF is a guided institution, and its mandate must be clear.

Andrews said that the report provides several positive messages alongside the necessary recommendations. It confirms an improvement in the macro-economic performance of SSA countries, and this is due not only improved commodity prices, but to the PRGFs implemented by the IMF. Furthermore, domestic resource mobilisation has been strengthened, there have been increases in social spending, and public financial management has improved. Mr Andrews emphasized the latter point, as civil society has an important role to play in making use of the financial architecture put in place, which in turn will encourage governments to become more accountable and deliver on the ground.

However, aid is still very volatile, and represents a challenge in macro economic management. Andrews said that the central issue is not the timing of the expenditure, but whether it is all spent eventually when the conditions are right. A case study representing the successful timing of expenditure is Ethiopia, where built-up reserves mean aid is less volatile.

Tony Killick praised the report for its systematic approach and judicious conclusions, but suggested that the recommendations do not reflect the richness of the preceding analysis.

A central question raised by the report is whether the IMF should become more active in the globalisation of aid. The report shows that IMF staff are not active in globalising aid and mobilizing additional aid, and this is largely due to a lack of guidance from managers and, ultimately, the mandate. Killick explored whether the globalisation of aid should be actively encouraged.

More aid is normally, though not always, better. Certain factors need to be taken into account: the level of need; existing levels of aid relative to local capabilities; aid dependency; the composition and quality of aid; and the willingness of governments to put aid to suitable use.

Furthermore, rapid increases in aid can act as an inflationary pressure. If absorbed into the balance of payments this can result in an appreciation of currency; if absorbed into the budget this can result in disincentives for the private sector. Thus the IMF must exercise caution in encouraging more aid.

Points and questions raised in the discussion included:

  • Speculation as to the position of management within the IMF. It was recognised that there had been no firm resolution regarding the ‘case-by-case’ additional aid issue, but it was still under consultation. Adopting a ‘case-by-case’ basis is not unusual for the IMF.
  • The need to communicate more effectively. This has been acknowledged by the management.
  • The importance of architecture in place for aid. This is necessary for the effective delivery of aid, and must be considered alongside inflation, interest rates and other factors.
  • The bigger picture: who is ultimately responsible? The proliferation of agencies, including the IMF and the World Bank, can leave governments with many organisations to deal with. This ties in with the recommendations to the IMF to align external communications and policies and practices more closely, and closer to external partners.

Description

The Independent Evaluation Office (IEO) of the IMF recently published an evaluation of aid to Sub-Saharan Africa. The report covers 1999-2005 and presents evidence from the Poverty Reduction and Growth Facility (PRGF).

The evaluation found ambiguity and confusion about IMF policy, practice and communications on the mobilisation of aid, the analysis of alternative aid scenarios, poverty and social impact assessments, and pro-poor and pro-growth budget frameworks. On the accommodation of aid, it found that in countries with inflation rates above 5-7%, PRGFs typically did not allow the full spending of additional aid; nor was the practice or its rationale clearly communicated to aid providers and civil society. The overarching message of the evaluation is that the IMF should be clearer about its policies and practices, more assiduous, transparent, and accountable in implementing them, and more candid and forthcoming in its communications.

At this ODI and IMF IEO event, Joanne Salop, the lead author of the report presented the IEO findings; David Andrews of the IMF's Africa Department discussed the implications for the IMF's work in Sub-Saharan Africa; and Tony Killick, a Senior Research Associate at ODI provided his perspective on the issues. The panel then responded to questions and comments from the audience.

To read the IEO press release about this report, please visit the IEO website at: http://www.imf.org/External/NP/ieo/2007/pr/eng/pr0701.htm