I welcome the report of the Independent Evaluation Office (IEO) on IMF Engagement with Small Developing States (SDS), which finds a substantive and well-tailored Fund engagement with SDS across modalities over the last decade. I broadly agree that, going forward, the Fund’s continuous high-quality engagement—cognizant of the unique characteristics and challenges faced by SDS—should help enhance traction with this group of members. With the Fund’s agenda already well-oriented toward supporting SDS, including through new workstreams, I concur that a targeted recalibration of the Fund’s work on SDS would be the most effective at this juncture. However, the four recommendations and their detailed suggestions must be weighed against their budgetary implications, which are inconsistent with the just-approved Medium-Term Strategy and budget. The report and its recommendations should also be careful to not impinge upon areas that are still unfolding, such as the RST, crisis response, and CD provision, to avoid unnecessary duplication of efforts and ensure that a coherent and evenhanded framework is in place. I offer qualified and/or partial support to the recommendations, as discussed below, to serve better our SDS members.
The Fund has significantly stepped up its engagement with SDS over the last decade. In the aftermath of the Global Financial Crisis, the Fund increasingly tailored its toolkit to adjust to the unique characteristics and constraints faced by SDS, focusing on the members with the most pressing needs. The evaluation finds the Fund’s engagement in the evaluation period was broadly of high quality, well-tailored, and appropriately adjusted to the evolving circumstances. The evaluation also reveals SDS have been well served within the perimeter of the IMF’s mandate, framework, and resources, with outcomes in line or better than in comparator groups. Over the past few years, the dialogue with SDS at the Fund and external fora (including the World Bank and other institutions) has further strengthened the relationship with this group of members. In addition, the Fund’s flagship and regional reports as well as several Board policy papers have showcased SDS-related issues—including inclusive growth, climate change, and resilience-building—helping shape a significant body of knowledge to tailor and strengthen our SDS engagement. These actions have been in line with the Executive Board’s calls for strengthening our engagement with SDS over the last decade, including in the context of the 2015 Board paper on Macroeconomic Developments and Selected Issues in Small Developing States, the 2016 Board paper on Small States’ Resilience to Natural Disasters and Climate Change—Role for the IMF and the 2017 Board paper on Large Natural Disasters—Enhancing the Financial Safety Net for Developing Countries, among others.
With Fund engagement with SDS already strong and clearly on the right track, I concur with the evaluation that a major overhaul is not needed. There are several new workstreams that have already been launched, many of which are aligned with the special challenges of SDS. These include the RST, the Climate Change Strategy, the FSAP Review, and various Management Implementation Plans (MIPs) in response to IEO recommendations that have recently received Board endorsement. A targeted recalibration of the Fund’s overall engagement approach would indeed be the most effective. Thus, I partially support Recommendation 1—particularly to refresh the SDS Guidance Note (SGN) and continue enhancing the coordination mechanisms—albeit with qualifications to remain cost-effective. While I agree with the need to strengthen the focus and traction of Surveillance and Capacity Development (CD), I can only partially support, with qualifications, Recommendation 2. I offer qualifications given that surveillance and its related toolkits must remain consistent with the Fund’s policy frameworks and evenhandedness requirements. Budget constraints and the high-cost implications of this recommendation also play a role to my partial support, including in the current global environment, where the need for engagement on emerging (e.g., digital money) or unexpected issues (e.g., global tensions) also requires flexibility in prioritization of Fund resources.
I can partially support Recommendation 3, and with qualifications. I agree that there is room for exploring how UCT-quality Fund-supported programs may be better tailored to SDS, including by further accounting for growth and resilience objectives. I also consider it important that the [newly approved] Resilience and Sustainability Trust (RST) addresses the needs of all eligible members, including SDS. This said, the specific recommendation is somewhat premature as the Trust is yet to be operationalized. I would note that staff has designed the RST with SDS as a key potential eligible group; eligible SDS members facing longer-term structural challenges could qualify for RST financing to help address such challenges and make significant progress toward strengthening their prospective balance of payments (BOP). For this objective to be met, it would be particularly important for SDS members to be able and willing to undertake sometimes difficult reforms to address their macroeconomic vulnerabilities in the context of UCT-quality programs. I do not consider that raising access limits for emergency financing (EF) is the right approach to help members deal with large BOP needs over the longer-term—even those emerging recurrently from climate and weather-related disasters. For urgent BOP needs, the Large Natural Disaster Windows of the RCF and RFI already provide higher access limits than other EF windows, which were recently raised; moreover, EF is meant to have a catalytic effect, not to fill emerging BOP gaps in full.
Finally, I partially support, with qualifications, Recommendation 4 to adopt further HR management and budgetary commitments to increase the continuity and impact of staff’s engagement with SDS. While I restate my commitment to strongly support engagement with SDS in line with their special needs, several of the specific proposals can be addressed through various self-reinforcing measures already contained in the MIP on the Board Endorsed Recommendations Categorization of Open Actions, while others lack cost-effectiveness and may lead to unintended adverse consequences, including for staffing of others with macro-critical needs, such as fragile states (Table 1).
I provide below my detailed responses to each of the four recommendations in the evaluation. Prior to that, I would like to emphasize my agreement with the spirit of the recommendations made by the IEO, and the Fund’s institutional commitment to SDS. In offering qualifications to these proposals, I seek to strike the right balance between meeting the valuable objective of enhancing engagement with SDS while keeping a strategic and comprehensive view, and fully leveraging our toolkits, structures and workstreams to avoid costly overlaps and duplications. I firmly believe in the importance of providing the needed time for key reforms that are at the core of the IMF’s efforts to deliver needed support to its members; this includes the approval and implementation of the RST, the Climate Change Strategy, the FSAP Review, and recently endorsed MIPs, which already address several of the recommendations made by the IEO in this evaluation. I am also mindful of the fact that these recommendations carry substantial budgetary costs, while some of the proposals made to lower net costs (e.g., the use of regional or cluster approaches of CMAPs or FSSAs/FSAPs) are complex and are unlikely to generate the large savings suggested by the IEO; others, such as the higher use of virtual missions to offset the cost of more junior local staff, may have adverse consequences for the quality of engagement and the traction of our advice.
I would also remark that both Management and staff greatly appreciate the IEO’s efforts and recommendations. In answering the Board’s call for stronger engagement with SDS, I remain deeply committed to working constructively with the IEO, to learn meaningful lessons from its recommendations and implement them to further enhance the Fund’s operations, frameworks, and results. In this context, I look forward to future evaluations that rely somewhat less heavily on perception-based surveys and interviews to substantiate recommendations, and to follow more closely the Board-endorsed recommendations in the 2018 Third External Evaluation of the IEO, which stressed the need to deliver shorter and sharper reports with parsimonious, concrete, and measurable recommendations. If the IEO continues to include assessments of implications for enterprise risk in its reports, it would be important that such assessments are based on a sound methodology, clear qualification criteria for risks, and systematically applied rating scales. Following Board guidance,1 staff is working on developing a framework for assessing risks from slippages in implementing IEO recommendations and ways to anchor it to the forthcoming institutional Enterprise Risk Management (ERM) framework. Joint efforts in all these areas should help us to continue to leverage IEO evaluations for the purpose of fostering change and continued improvement in the Fund.
SU/21/139 of September 24, 2021.