Public Information Notice No. 08/129

Public Information Notice: IMF Executive Board Discusses the Policy for Country Contributions for Capacity Building

October 3, 2008

On August 8, 2008, the Executive Board of the International Monetary Fund (IMF) discussed options for strengthening the policy on country contributions for technical assistance and training services provided by the Fund. The new policy for country contributions will be implemented beginning in May 2009.

Background

Technical Assistance (TA) and training are core activities of the Fund. They focus on the IMF's core areas of expertise, namely, macroeconomic policy, tax policy and revenue administration, expenditure management, monetary policy, the exchange rate system, financial sector stability, corresponding legislative frameworks, and macroeconomic and financial statistics. Fund TA is integrated with the institution's surveillance and lending functions.

Since 1996, the Fund has had in place a framework for requiring countries receiving certain types of IMF TA to provide a specific contribution; this framework was last amended in 2001. Under this framework, contributions in specified amounts were required for all long-term expert assignments, based on the per capita income group in which the recipient fell.

In May 2008, the IMF's Executive Board discussed broad proposals for reforms to enhance the efficiency and impact of IMF TA (Public Information Notice (PIN) No. 08/58, May 22, 2008) and training (Public Information Notice (PIN) No. 08/66, June 11, 2008). During those meetings, the Executive Board called for a further discussion of a possible new policy strengthening country contributions to ensure that capacity-building services provided by the IMF would aim to rationalize demand for IMF TA and training, enhance ownership by recipients and create incentives to allocate and use the IMF's resources more efficiently while, at the same time, increasing accountability for resource use within the IMF.

As a follow-up to the Executive Board meeting and seminar in May, the Executive Board discussed on August 8, 2008 the specifics of a strengthened country contribution policy of Fund members and nonmembers and international organizations. It will apply to TA provided by the Fund and training of officials taking place at Fund headquarters. The contribution rate will be graduated according to the recipient country's per capita income level with a rate of charge of 10 percent of cost for low income countries, 30 percent for lower middle income countries, 50 percent for upper middle income countries and 100 percent for high income countries; the income groups will be established once a year. International organizations will be subject to contributions according to the level of the unweighted average income of the relevant organization's member countries.

For TA, the cost base will be all direct TA project-related costs, including staff and expert salaries and travel expenses. Exempt from the policy are (1) assessments under the Financial Sector Assessment Program (FSAP) or Reports on the Observance of Standards and Codes (ROSCs); (2) donor-financed TA; (3) TA to program countries; (4) TA interventions falling under a de minimis threshold; (5) regional TA seminars, workshops and conferences; and (6) cross participation of Fund staff in other international organizations' TA missions.

For training, the cost base will be average participant costs, including for travel, accommodation, and living expenses; staff costs, course delivery, and development costs are excluded. Exempt from the policy are (1) training provided outside Fund headquarters; and (2) training provided at Fund headquarters, which is funded or co-funded by donors.

Fund TA is not expected to be limited with respect to those countries that need it most. The impact of the charging regime is expected to be mitigated because of the differentiated rate of charge, but also because of a stepped up fundraising effort. On the latter, staff is exploring the scope of opening new Regional Technical Assistance Centers (RTACs) and strengthening Fund capacity building through topical trust funds, such as for fragile states or for public debt management. To explain the new policy to members and other capacity-building recipients, the Fund will engage in outreach activities.

Executive Board Assessment

Executive Directors welcomed the opportunity to discuss further the strengthened country contributions policy for capacity building. This policy is an important element in the Fund's efforts to enhance the efficiency of its support for capacity building to member countries.

Directors expressed broad support for management's intention to strengthen the country contributions policy in light of competing demands for Fund technical assistance (TA) and training, the Fund's reduced budget environment, and the objectives of strengthening ownership and improving allocative efficiency. Directors endorsed the proposal to extend the contribution policy to nonmembers and to international organizations on the same basis as it applies to members. They noted that the strengthened policy framework outlined by management, and set out in Attachment 1 of the staff paper, builds on the useful Board discussions in May on capacity-building reforms, and takes into account many of the views expressed by Directors on those occasions. Some Directors, however, reiterated their strong reservations about charging for technical assistance and training, which could limit the delivery of much-needed assistance from the Fund particularly to low-income countries, thereby ultimately weakening the Fund's surveillance and crisis prevention roles. A number of Directors also recognized that the new charging regime may face implementation challenges at the outset.

The key elements of the rationale underlying the strengthened country contributions policy remain unchanged from the May discussions. Most Directors supported management's proposal and reiterated their agreement with these elements. These Directors considered that charging for TA and training would help rationalize demand and create incentives for recipients to use the Fund's services more efficiently and to engage in more in-depth, upfront dialogue with the Fund on TA and training, thereby enhancing ownership, prioritization, and allocative efficiency. The policy would also send a positive signal to donors about the Fund's commitment to enhance its TA processes, while increasing accountability for resource use for capacity building services within the Fund. While agreeing that a move toward a costing system could enhance accountability within the Fund, a few Directors were skeptical that charging would necessarily help rationalize demand as recipient countries already face costs related to Fund TA. Although charges would compensate for some of the cuts in the budget for TA and training, Directors underscored that they are not a revenue-generating measure. In addition, Directors considered that it would be important to ensure that the policy does not preclude countries most in need of Fund capacity building services from obtaining timely and responsive Fund TA and training due to an inability to pay. Directors offered a number of valuable comments on specific aspects of the policy, which will help management and staff in finalizing the new policy framework and carrying forward its implementation.

Directors agreed with the proposed widening of country contributions to apply to a broad range of capacity building activities and delivery modalities, including short-term TA and training provided at Fund headquarters. Most Directors favored the suggestions for specific exemptions from charging for particular categories of Fund bilateral services, including assessments under the Financial Sector Assessment Program and Reports on the Observance of Standards and Codes, as well as donor-financed capacity-building services. Most Directors considered that donor-financed TA and training, which already pass a test of positive value at the margin, should be exempted. Directors also saw merit in not requiring country contributions for TA delivery that falls below a de minimis threshold established by management. They supported an exemption from charging for regional TA seminars, workshops, and conferences in particular, because of the likely administrative burden of charging for such programs. Some Directors expressed concern that allowing certain exemptions—such as for donor-financed TA—might weaken the policy and skew allocations. Some Directors also observed that exemption of TA delivery by Regional Technical Assistance Centers could serve to increase reliance on these already busy TA providers, and encouraged the Fund to stand ready to strengthen them as necessary.

Most Directors supported the exemption of program countries from TA charges. TA in the program context can be especially helpful in assisting countries to strengthen institutions and implement programs effectively, which in turn helps safeguard Fund resources. A few Directors were not convinced of the rationale for this exemption especially when it concerned TA not directly related to program conditionality, and were uneasy about inequities that the exemption could be perceived as creating relative to non-program countries at similar income levels.

Most Directors supported introducing a system of differentiated charges based on the per-capita-income level of the recipient country for Fund TA and training. However, a few Directors remained in favor of a charging system applicable to all countries, with the costs to low-income countries being subsidized through donor contributions. Some Directors expressed concern that a charging system could reduce much-needed TA and training to low-income members, while a few noted that the Fund's stepped-up fundraising could mitigate this effect. Some Directors considered that TA and training for all low-income countries should remain free of charge.

Directors stressed that the charging regime should avoid overburdening the administrative capacities of members and minimize the potential for arrears in the payment of charges. Many Directors saw merit in introducing a transparent, and administratively simple, upfront payment system for the charges. At the same time, many other Directors were concerned about the consistency of a system of advance payments with the established procurement systems of member countries. There is a broad understanding that arrears in the payment of charges for capacity building services should be avoided, and that these services should not continue to be provided in cases where arrears have arisen. Based on today's discussion, management will proceed on the understanding that members will be billed ex post for capacity building services rendered. Members will of course do their best to remit the charges on a timely basis. However, where arrears in the payment of charges for capacity building services do occur, and only in those cases, further delivery of the type of service to which the arrears relate (i.e., TA or training) will require the clearance of the arrears, and the advance payment of charges for such services for a certain period of time.

Directors welcomed the intention to rely upon a cost-base of all TA project-related costs, including associated backstopping, management, and administrative support. Directors observed that this approach to TA costing follows the practice being put in place for donor-financed TA. Directors found appropriate the cost base for training at headquarters based on all participant-related costs and the associated fee based on per capita income.

Directors called for extensive outreach to members prior to the implementation of the strengthened country contributions policy in May 2009, and also encouraged management to expedite and broaden its efforts to raise additional funds from donors, including from non-traditional donors.

Directors called for careful monitoring and review of the experience with the charging regime. They concurred with management's intention to bring to the Board a review of the experience with the implementation of the policy early in FY2011. We should of course stand ready at that time to revise or adjust the strengthened policy as needed in light of experience.