Changing Lives: Country Case Studies
IMF's staff measure progress through its capacity development to member countries by the difference it can make to people's lives. Below are some of the case studies which bring these achievements to life and show how countries' policies, supported by capacity development, are put into practice.
Enhancing Financial Stability in El Salvador
THE CHALLENGE
The Salvadoran authorities wanted to develop a strategy to enhance financial stability through stronger financial oversight and improved crisis prevention and management.
THE APPROACH
The IMF worked with the government to thoroughly review the financial sector. The resulting reform strategy focused on improving risk-based supervision, a strong crisis management framework, and a modernized securities market.
IMPACT
Around 120 stakeholders participated in a National Forum on Financial Stability to garner broader support for reform efforts and have an open dialogue on the best way forward for moving ahead with institutional reform. The Salvadoran government continues to work with the IMF to implement recommendations on crisis prevention and management that enhance financial stability and oversight.
A New Instrument to Promote Financial Stability
The IMF’s Monetary and Capital Markets Department has developed a new tool, Financial Sector Stability Reviews (FSSRs), which provides diagnostics upon which financial sector reform programs can be built and implemented. FSSRs assess country-specific risks, the adequacy of institutional frameworks and capacity in the areas of financial regulation, in addition to supervision and crisis prevention and management.
Financial Soundness Indicators (FSI) for better macroeconomic surveillance in Africa and the Asian and Pacific regions
THE CHALLENGE
Many developing countries do not have consistent, standardized data to report on and assess the health and soundness of financial institutions and their counterparts, such as households and corporations. This hinders the authorities' ability to understand what policies are necessary for safeguarding financial stability to promote growth and to attract international investment, as investors use such indicators to gauge macroeconomic stability.
THE APPROACH
Using a regional approach, the IMF aided numerous countries in Africa and the Asian and Pacific regions to develop financial soundness indicators (FSI) in line with international standards. Several intensive regional workshops — funded by the United Kingdom and Japan — helped officials become familiar with the indicators' methodology and data template, using a peer-to-peer learning approach. The IMF also worked with individual countries to support adoption of the indicators. Such efforts were successful even in fragile states, such as South Sudan, which helped facilitate supervision of the financial and non-financial sectors in this fledgling economy.
IMPACT
Many countries in Africa and the Asian and Pacific regions have since become FSI reporters (21 countries as of mid-2016), and the reported data is accessible to investors all over the world through the FSI website (http://data.imf.org/fsi).
Statistics at the IMF
The IMF's Statistics Department provides unique capacity development (CD) to support better data for better macroeconomic policies. Member countries work with the IMF to compile and disseminate data based on internationally-accepted statistical methodologies. The resulting data provides the foundation for economic analysis and decisions by policy makers and helps promote transparency.
A Holistic Approach to Strengthen Macroeconomic Capacity in Myanmar After Decades of Isolation
THE CHALLENGE
To support its reform and opening-up efforts, Myanmar needed to significantly boost its capacity in macroeconomic management, essential for maintaining macroeconomic stability and achieving sustainable, inclusive growth.
THE APPROACH
After careful reviews of Myanmar's needs and constraints, the IMF developed holistic capacity development programs, including training, largely funded by Japan, the European Union, and other development partners, targeting the most critical areas of reform.
IMPACT
Myanmar has reformed its central bank and foreign exchange market, developed monetary policy tools, set up a large taxpayer office, began modernizing tax collection and expenditure management, strengthened the anti-money laundering regime, established a macroeconomic monitoring group, and built a statistics program, including a redesigned consumer price index. With these and many other reforms, Myanmar has managed to lower inflation, boost financial access, increase government revenue, and achieve strong economic growth since 2011.
Statistics at the IMF
"In 2015, Myanmar was the largest recipient of IMF support for capacity development—with our work being very much demand-driven—and the country has made significant economic progress. However, many challenges remain, such as the lack of experienced, specialized staff." Yongzheng Yang, IMF Mission Chief, Myanmar
Mobilizing Domestic Revenue to Rebuild Fiscal Space in Senegal
THE CHALLENGE
Improving fiscal management is a key priority of the Plan Senegal Emergent, aimed at transforming the country into an emerging market. The Senegalese authorities called on the IMF to help them address core weaknesses in tax administration, including an outmoded and fragmented organizational structure, insufficient automation, and ineffective audit and enforcement.
THE APPROACH
In 2011 the IMF launched a targeted technical assistance program funded by the Tax Policy and Administration Trust Fund. The project focused on modernizing the organizational structure, strengthening the tax administration's headquarters functions, improving compliance controls for large and medium-sized taxpayers, and ensuring robust IT support for all core processes. The IMF's Regional Technical Assistance Center for West African francophone countries provided critical and complementary assistance to set up medium-sized taxpayer units and improve audit capacity.
IMPACT
By 2015 good progress had been made. The tax administration's head office and regional directorates now have a sound organizational structure. There are full-fledged large and medium-sized taxpayer offices that account for a large proportion of tax collection, and electronic filing procedures are in place. These changes have helped Senegal maintain a tax revenue ratio of 20 percent of GDP, outperforming regional peers.
Building A Top-notch Credit Registry to Facilitate Access to Credit in the West Bank and Gaza
THE CHALLENGE
Building sustainable financial and monetary institutions and fortifying administrative capacity has been challenging in the West Bank and Gaza (WBG) given the tense political and economic environment. With no efficient credit registry system, it was particularly difficult for smaller companies and individuals to gain access to credit, and banks were unable to monitor credit risk effectively.
THE APPROACH
An IMF regional center based in Lebanon (METAC) worked with the Palestine Monetary Authority (PMA) to build a modern credit registry system that allows financial institutions to monitor credit more effectively. This included extensive on-the-job training on the use of the system, analyzing the reports, and troubleshooting.
IMPACT
With METAC's assistance, which started in 2008, the PMA implemented an automated, online 24/7 credit registry system that is now among the best credit registries in the Middle East and North Africa region. The PMA, Palestinian banks, and microfinance institutions now use the system to monitor credit risk efficiently. The new registry's implementation has contributed to the expansion of credit to households and small businesses and a significant decline in credit delinquencies and losses.
Statistics at the IMF
"The credit registry has helped to expand credit in WBG, and the non-performing loan ratio went down as a result of the credit registry." Director, Palestine Monetary Authority
METAC is supported by: European Commission, EIB, USAID, France, Germany, Oman, Kuwait
Reining in Risk with Georgia’s Central Bank to Enhance Financial Stability
Since 2014, Georgia has been forced to deal with large and persistent external challenges to its economic stability, including pressure on its currency as well as lower global oil and commodity prices, which have undercut Georgia’s export receipts.
Under these circumstance, the National Bank of Georgia (NBG) has undertaken a number of reforms, making real progress in improving its operations and governance in recent years, drawing upon advice from the IMF and other central banks. In April 2015, Georgia collaborated with a technical assistance team from the IMF’s monetary and capital markets, legal, and finance departments, with the specific aim of helping Georgia’s authorities strengthen its central bank’s financial reporting and risk management work.
The technical assistance project focused on several areas in which Georgia’s central bank could contribute to greater financial stability. The IMF team’s recommendations grew out of interviews with management and staff and then were conveyed to the NBG via presentations on theory and in-depth interactive workshops with operational staff.
First, the team helped the NBG initiate a stronger, more-clearly defined set of risk management policies in line with international standards and best practices. This entailed guiding the NBG to improve its risk culture by raising risk awareness throughout the organization. The team also identified the need to develop further risk appetite analyses and finalize ongoing work on tools, such as its risk taxonomy and registry as well as a centralized incident register.
These policies and procedures rely on accurate and timely financial reporting. To this end, the IMF team helped develop an improved management information system, and suggested ways to better integrate strategic considerations into the yearly budget process.
Some other outcomes from this successful collaboration included the NBG joining the International Operational Risk Working Group, which consists of more than 60 central banks around the world that share best practices on risk management. The mission also helped establish an ongoing dialogue between Georgia’s and the Netherlands’ central banks, with the Netherlands providing follow-up technical assistance to Georgia. The fruits of the collaboration have enhanced the NBG’s reputation as a governance role model for other central banks in and outside of the region. In the end, strengthening the NBG’s internal organization set the tone for governance of the financial sector as a whole, and strengthened its stewardship of Georgian financial stability.
"Training through practical policy-oriented courses, specialized workshops, and recommendations delivered throughout the technical assistance mission were designed to increase both human and institutional capacity within the National Bank of Georgia. Proposed solutions to the key issues identified within the financial reporting and risk management processes were aimed to enhance the quality and effectiveness of internal processes and policies."—Archil Mestvirishvili, Vice Governor, National Bank of Georgia
Nicaragua: International Bond Market Access
Nicaragua is one of the least developed countries in Central America and the second poorest country in the Americas by nominal GDP. The small country's economy is focused primarily on the agricultural sector. In recent years, the economy has been on a solid growth track, following significant foreign debt reductions under the IMF/World Bank Heavily Indebted Poor Countries (HIPC) initiative during 2006-07.
On the back of an improved external debt position and stronger macroeconomic performance, the country turned to the IMF to request technical assistance to help the authorities assess the possibility of issuing a bond on international capital markets. Given the low global interest rate environment and relatively undeveloped domestic capital markets, countries like Nicaragua have increasingly eyed international capital markets for prospective funding.
The technical assistance mission discussed the pros and cons of issuing an international bond with the authorities and suggested a series of steps that should be taken before issuing the bond. In particular, the mission noted that while there are merits to issuing international bonds, it is important to evaluate carefully the authorities' overall funding needs, the cost associated with the issuance, and possible funding alternatives, including from the domestic market. At the same time, a number of operational and technical prerequisites have to be met—including related to financial reporting and being rated by a major credit rating agency—to make the debut issuance a success.
The authorities agreed to do further preparatory work prior to issuing the international bond, including putting together a strategy for engaging with rating agencies. "While international bond market issuance can be a boon for countries, it needs to be done right, taking into consideration several factors, including the countries overall funding needs and debt management strategy" according to Guilherme Pedras, the IMF's Technical Assistance mission chief. The IMF will continue to work with the authorities to help make a potential debut international bond issuance a success, while at the same time helping to further develop local debt markets and improve the authorities' debt management capabilities.
"As a result of the TA, the authorities acquired a better understanding on a number of strategic and operational issues to be considered before a first-time bond issuance in the international markets. The TA was also useful to prepare the country's strategy for engaging with the rating agencies."
Carlos G. Sequeira Manager of the International Division Banco Central de Nicaragua
Cyprus
Cyprus, an island country in the eastern Mediterranean Sea, is one of the latest beneficiaries of technical assistance provided by the International Monetary Fund (IMF). Between 2015 and 2016, the IMF’s Monetary and Capital Markets Department (MCM) supported the Cyprus Public Debt Management Office to improve the effectiveness of public debt management and gain access to domestic and international financial markets.
Through the medium-term debt management strategy that analyzed the financing requirements, debt portfolio risks, and financing sources, the government of Cyprus has effectively communicated its borrowing to all stakeholders. The consequence is that the country’s debt management actions are well understood at an important time for the country’s economy. In addition, the medium-term debt management strategy has paved the way for restoring the domestic treasury bill market. As a result, treasury auctions are now held regularly, leading to a reduction in the cost of borrowing relative to previous arrangements.
This technical assistance, which also involved other international financial institutions, has had other positive impacts. These include improvements in the institutional structure of the public debt management office, introduction of new functions such as investor relations, and the management of domestic treasury auctions that were important towards re-engaging financial markets. Most recently, the Treasury plans to engage firms that buy securities directly from the government more actively to strengthen their presence in the capital markets and enhance liquidity for government securities, all aimed at reducing the cost to the taxpayer by borrowing as efficiently as possible.
'MCM found a strong counterpart and partner in its work with the Cyprus Public Debt Management Office that made the work interesting and rewarding both on a personal and a professional level', Thordur Jonasson, Senior Financial Sector Expert, Monetary and Capital Markets Department.