Chapter

CHAPTER 9 The Causes of Program Interruptions

Author(s):
Susan Schadler, and Hugh Bredenkamp
Published Date:
June 1999
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Author(s)
Mauro Mecagni

Adjustment programs are seldom implemented exactly as planned. Slippages, delays, midcourse corrections, and, occasionally, missed targets are in the nature of ambitious reform. Nevertheless, a track record of stable, market-oriented and consistently implemented economic policies is widely recognized as central to the achievement of sustained high growth, a principal objective of SAF/ESAF-supported programs.1 The rationale has to do mainly with the response of private investors—domestic and foreign—to uncertainty regarding the permanence of changes in macroeconomic and structural policies. If policies are perceived as likely to be reversed, and relative price incentives as highly uncertain, investors may delay committing resources and may postpone irreversible investment until such uncertainty is resolved. Because investment is a primary engine for growth, perceived uncertainty created by stop-and-go policy implementation risks locking the economy into a low-capital-accumulation, low-growth trajectory and reducing the effectiveness of resource allocation signals from structural reforms. These adverse effects may be farther exacerbated if delayed adjustment curtails access to external financing and provokes a crisis requiring harsh corrective measures.

Program interruptions are only one measure—probably prone to understatement—of unsteady policy implementation. In many SAF/ESAF-supported programs, original targets were modified in ways that at least partially accommodated intervening slippages. But cases in which IMF support for programs is interrupted are likely to encompass the most serious instances of policy reversal, involving policy outcomes typically concentrated at the poor end of the results spectrum for all annual programs (see Figure 9.1 for fiscal outcomes, for instance). Program interruptions may therefore imply important costs, albeit ones that are difficult to quantify in the absence of a reliable counterfactual. Their consequences may last well beyond the eventual resumption of adjustment because a discontinuous policy record adversely affects the credibility of new policy announcements, in turn inducing a wait-and-see attitude among potential investors. The costs may be especially high in low-income countries, where the productive base is often vulnerable to shocks, capital accumulation is constrained by volatile foreign financing, and the interruption of IMF disbursements may imply suspension of support and lending by donors and other financial institutions.

Figure 9.1Frequency Distribution of Changes in the Fiscal Balance1

(In percent of GDP; excluding grants)

Source: IMF staff estimates.

1Excluding Guyana.

2Or programs where interruptions were not related to past fiscal slippages.

3Represents number of cases in which the change in fiscal balance was less than - 7 percent of GDP.

4Represents number of cases in which the change in fiscal balance exceeded 7 percent of GDP.

It is thus a matter of some concern that as many as 28 of the 36 countries with SAF/ESAF arrangements approved between 1986 and end–1994 experienced one or more protracted program interruption (51 in total).2 Only 10 of the 40 expired SAF/ESAF arrangements with an intended life of three or more years were completed without significant discontinuities or deviations from programmed policies. Although it is beyond the scope of this study to investigate systematically the adverse consequences of faltering programs (the importance of which is uncontroversial), the high frequency of interruptions may help to explain the disappointing outcomes for investment and growth in many ESAF countries.3 Indeed, the record confirms that cumulative capital formation and per capita growth4 in interrupted arrangements were significantly slower than during uninterrupted arrangements (Table 9.1).5

Table 9.1Investment and Growth in SAF/ESAF-Supported Arrangements1(Mean values)
Outcomes During:
Ten arrangements completed without interruptionThirty interrupted arrangements
Real per capita GDP growth6.32.0
Change in investment/GDP5.1-1.4
Level of investment/GDP by third program year24.717.6

The sample includes 40 expired three-year arrangements; it excludes cases affected by significant measurement problems (Mozambique, Equatorial Guinea, and, for investment/GDP ratios, Guyana), as well as SAF arrangements that were replaced by ESAF arrangements before expiration and three-year arrangements that have not yet run their course.

The sample includes 40 expired three-year arrangements; it excludes cases affected by significant measurement problems (Mozambique, Equatorial Guinea, and, for investment/GDP ratios, Guyana), as well as SAF arrangements that were replaced by ESAF arrangements before expiration and three-year arrangements that have not yet run their course.

This chapter reviews the experience with program interruptions in the 28 countries affected. The analysis draws on IMF staff reports, country papers, and discussions with some IMF mission chiefs. Three broad questions are addressed. What circumstances lent themselves to program interruptions? What was the role of program design and monitoring? And what lessons does the experience suggest to minimize the incidence of interruptions in future programs?

The next section discusses the definition of program interruptions, followed by an examination of the stylized facts underlying program interruptions, including a classification of the episodes according to the importance of various proximate and underlying factors. Next, key aspects of program design and monitoring are analyzed, focusing on the ambitiousness and prioritization of program targets, administrative and technical capacity constraints, the continuity of program monitoring, and contingency planning. The final section summarizes conclusions and poses lessons for program design.

Defining a Program Interruption

Interruptions of IMF-supported programs can be identified by at least two (not mutually exclusive) indicators: the share of resources committed under IMF arrangements left undrawn, and discontinuities in the disbursement of IMF resources.

The first approach would define noncompletion by comparison with an arbitrary minimum threshold in the share of committed resources left undrawn. For instance, in a study of noncompletions of IMF-supported programs approved during 1980–90, Killick, Malik, and Manuel (1991) defined as uncompleted programs with 20 percent or more of total IMF commitments undrawn. Although convenient, this criterion is not sufficiently discriminating to gauge the incidence of interruptions in SAF/ESAF-supported programs. It is possible to construct examples of multiyear programs subject to several important discontinuities that would classify as “completed” according to this test.6

The rationale for the second approach—the approach adopted in this study—is that deviations from programmed policies dealt with quickly and decisively should have minimal repercussions on confidence. Conversely, delays in bringing policies back on track increase the likelihood of adverse economic effects stemming from uncertainties about policies. Three types of interruptions are relevant for ESAF arrangements. First, for most ESAF countries, the adjustment process encompasses more than one multiyear arrangement. Therefore, long intervals between multiyear arrangements may adversely affect investors’ confidence to the extent that they are perceived to involve deviations from sound policies. Second, within one multiyear arrangement, an extended gap between annual arrangements (or the cessation of the arrangement, if no farther annual program is approved) may signal important deviations from policy commitments or forward-looking disagreements between IMF staff and country authorities on the path of reform. Third, similar difficulties with regard to policies (past or prospective) may be signaled by long delays in completing a midterm review in an annual program.

In light of these considerations, we define a program interruption as either an interval of more than six months between different annual or multiyear IMF arrangements or a delay of more than six months in completing a program review.7 The arbitrary threshold of six months or more was chosen so as to maximize the chances of capturing all potentially significant policy deviations, while avoiding mere procedural delays.8

On the basis of this definition, there have been 51 program interruptions affecting 28 out of the 36 countries under review, since the inception of the SAF in 1986 (Figure 9.2). These interruptions were about evenly distributed across each of the three types considered, with a somewhat higher incidence of interruptions in between annual arrangements, but they differed considerably in duration.9 Most countries (17 out of 28) experienced more than one interruption—up to three in some cases (see Appendix 9.1, Table 9.10).

Figure 9.2Program Interruptions in SAF/ESAF Arrangements1

1Bars represent interruptions for delay or noncompletion of ESAF midterm reviews; symbol ((§)) within ESAF bars indicates when a review was completed. Circles represent interruptions between annual arrangements (including cases where a subsequent annual arrangement was not approved). Rectangles represent interruptions between multiyear arrangements.

2Intervening Stand-By Arrangement.

The incidence of interruptions is quite sensitive to the arbitrary choice of minimum time interval. For instance, lowering the threshold to three months would increase the number of countries with delays in completing midterm reviews from 16 to 24, and the number of countries with delays in approving subsequent annual arrangements from 17 to 34. However, a three-month threshold would probably overestimate the incidence of policy-related interruptions, giving too much weight to delays of a bureaucratic or institutional nature.

Another perspective on the incidence of program interruptions is provided by the number of arrangements envisaged to last three years (or four, for cases with an additional annual arrangement) that ran their full course without significant interruptions. Of 40 arrangements (16 SAFs, 24 ESAFs),10 2 (5 percent) were interrupted even before the end of the first year; 38 (95 percent) made it through at least one year; 22 (55 percent) made it through at least two years; and 15 (38 percent) made it through three years without interruption (5 SAFs, 10 ESAFs). However, of the latter 15 arrangements, 2 were interrupted during an additional fourth-year arrangement, and 3 saw policies veer off track in the third year so that a break of more than six months occurred before a new program could be agreed. Thus, only 10 arrangements (25 percent, four SAFs and six ESAFs) can be said to have run their full course uninterrupted.

Stylized Facts

This section examines the causes of the interruptions and the relative importance of various factors involved. Several questions are addressed. What circumstances led to program interruptions? Were deviations from agreed policy commitments the most important proximate cause of an interruption, or was it, rather, forward-looking disagreements on the path of reform in the absence of significant policy slippages?11 Were problems broadly or narrowly based, mainly related to financial or structural policies, or to both? What was the nature of exogenous shocks, and how central were they to the interruption of programs?

One would expect that programs are interrupted only as a result of severe deviations from agreed policy commitments. In fact, although this is most frequently the case, it is not true in all episodes. The sample of 51 interruptions encompassed a wide range of circumstances (details are given in Appendix 9.1, Table 9.11), and can be classified into three categories according to the underlying primary cause: forward-looking disagreements in the absence of significant deviations from past policy commitments; severe political disruptions; or serious slippages in past policies (see Appendix 9.1, Table 9.12). The incidence of these factors is summarized in Figure 9.3.

Figure 9.3Distribution of the 51 Program Interruption Episodes by Main Factor

Source: IMF staff estimates.

In 8 of the 51 episodes (about one-sixth), there had been no major deviations from planned policies prior to the interruption, but either the IMF staff and authorities were unable to agree on the extent or pace of financial and structural adjustments to be implemented in the period ahead, or the authorities needed more time to formulate a policy response to unexpected changes in the economic environment.12 Specific problems leading to interruptions driven solely by forward-looking disagreements included the need to respond to deteriorating macroeconomic conditions and make progress in key areas of structural reform (Bangladesh 1, Bolivia 2); the time required to adapt program design (ex post) to a sharp rise in oil prices as a result of the Middle East crisis (Lao P.D.R. 1); the need to adapt macroeconomic policies to a major supply shock—for instance, attacks on mining installations accounting for 60 percent of exports and a sizable share of budget revenues (Sierra Leone 2); or efforts to ensure consistency of the fiscal program with the outcome of last-minute negotiations with the trade unions (Benin 2). In other episodes, the disagreement reflected the presentation to parliament of budget policies falling short of agreed program understandings (Pakistan 3), or the authorities’ disagreement on the need to correct macroeconomic policies to account for reduced levels of external assistance (Mauritania 2). The case of Nepal 2 reflected instead the general problem of designing an appropriate response to a shock (severe floods) that had uncertain economic effects.13

Another 10 of the 51 interruptions stemmed from political disruptions serious enough to call into question the continuing authority of the government and, therefore, to prevent meaningful negotiations (see Appendix 9.1, Table 9.13 for a list of these episodes). The nature of political upheavals and the intensity of political or ethnic turmoil varied, but all cases were characterized by a severe reduction of the authorities’ ability to commit credibly to and implement adjustment policies. In fact, in Burundi 3, widespread ethnic violence led to the near complete breakdown of civil society. In Benin 1, Madagascar 1, Mali 1, and Nepal 1, fundamental and far-reaching reforms of the political system—the introduction of a multiparty system of government—were accompanied by severe social conflict. Togo 2 and Niger 2 featured an escalation of political tension and social unrest—effectively shutting down the formal economy for several months in Togo, and preventing meaningful program discussions in Niger. In Pakistan 2, the six-month period preceding the October 1993 elections was characterized by a deep institutional and political crisis.14 In Sri Lanka 2, the run-up to the August 1994 elections and the defeat of the government after 17 years in power had a profound effect on policymaking. These political events were rooted in the history of the countries involved, but in a few instances social unrest appeared to be linked to the implementation of measures supported by the IMF, rather than being exogenous to the program (Box 9.1).

The remaining 33 of the 51 interruptions (about two-thirds) were closely related to serious deviations from past policy commitments. Typically these deviations were broadly based, affecting either several areas of macroeconomic policy or the combination of macro and structural policies.15 Nevertheless, in the large majority of these episodes—27 out of 33—the root of the problem was fiscal in nature. Because of the limited development of markets and instruments for budgetary financing, in many instances fiscal policy slippages typically spilled over to problems in the control of domestic credit and domestic or external arrears.16

In 6 of the 33 episodes, the slippage from past policies was predominantly structural in nature.17 In Equatorial Guinea 1, the adjustment program went off track as a result of delays in implementing measures related to property rights, reform of state trading companies, and financial sector development. These delays partly reflected weak administrative capacity, a problem also in Lao P.D.R. 2. In Mauritania 1 most structural benchmarks under a SAF-supported program had not been observed, and delays affected a variety of areas—tariff, taxation and pricing reforms, banking sector restructuring, and external debt management, among others. In Nepal 3, structural reforms came to a halt in the run-up to a change in government, while in Guyana 1 the authorities had failed to follow through with privatization and public enterprise reform. In Mozambique 1, there were shortfalls in the management of counterpart funds of foreign aid in the budget, and recurrent difficulties in monetary control arising from the rapid expansion of “other items, net” in the central bank balance sheet—reflecting subsidies on foreign exchange operations and accounting and statistical problems.

In the 33 episodes where serious slippages from past policy commitments were the dominant factor, a variety of exogenous influences also played a role. First, political events affected a number of these episodes (13 of the 33), although not as disruptively as in the 10 episodes where they were the overriding factor. The specific nature of these events varied. In Burkina Faso 1, Ghana 1, Guinea 3, Kenya 1, Malawi 1, and Togo 1, the introduction of a multiparty system of government deflected the attention of the authorities from the economic program. In another 5 of these 13 episodes—Bolivia 3, Equatorial Guinea 2, Honduras 1, Nepal 3, and Senegal 1—a preelectoral climate in established political systems affected program performance (Box 9.2).18 In two episodes—Kenya 1 and Sri Lanka 1—policymaking was hampered by local ethnic violence or civil conflict.

Second, external shocks played a role in 11 of the 33 interruptions. These shocks typically involved declining commodity export prices or shortfalls in external financing, with sizable deviations from program assumptions (see Appendix 9.1, Table 9.14).19 Third, natural disasters (droughts or poor rainfall) were associated with 6 of the 33 interruptions.20 In several instances, more than one type of exogenous event—political, external, or natural disaster—look place around the time of the interruption.

Box 9.1Were Adjustment Measures a Factor Inducing Social Unrest?

Program interruptions that were influenced by social and political instability raise the question of whether some of these events were related to the implementation of adjustment programs supported by the IMF. The circumstances underlying ten such episodes were examined for this study—six of the ten cases involved major political upheaval, and four involved less severe episodes of social unrest (see Appendix 9.1, Table 9.13). In other instances associated with political events, the nature of the event—regular elections, transitions to a multiparty system of government, ethnic violence, and civil wars—was such that a direct link to specific economic policies appears highly unlikely.

In three of the ten episodes—Madagascar 1, Nepal 1, and Togo 2—political and civil disturbances were linked to deep-seated dissatisfaction with existing institutional and political arrangements that culminated in a dramatic escalation of tensions between different political groups. The unrest did not appear to be related to economic policy measures and was ultimately resolved by far-reaching reforms of the political system.

In three other cases—Mali 1, Niger 2, and Togo 1—massive demonstrations and civil unrest appear also to have reflected mainly preexisting problems. However, in these cases it is possible that tensions related to previous adjustment efforts may have played some role. Factors included opposition to previous revenue mobilization efforts (Mali 1); an attempt to curb the government wage bill, subsidies, and transfers (Niger 2); and simmering discontent with prolonged wage freezes and the social consequences of protracted adjustment efforts (Togo 1).

In the remaining four cases—Benin 1, Guinea 2, Mali 2, and Malawi 1—the link between adjustment measures adopted either prior to or during the program interruption episode and the emergence of social disturbances was more direct. Strikes and social unrest appear to have been motivated by the opposition to unpopular cuts in existing civil service benefits and employment (Benin 1); in civil service real wages (Guinea 2 and Malawi 1); and in public expenditure on scholarships (Mali 2).

To what extent can these unexpected events be said to have contributed to the policy slippages that culminated in program interruptions? This is a difficult question to answer in cases influenced by social and political events, since the threshold beyond which governance problems became an effective constraint on policymaking—by undermining commitment, or control of the policy apparatus, or both—is a matter of judgment. It is also difficult to separate the impact of these events from those of unrelated policy slippages. The review of the relevant interruption episodes suggests that social and political events did contribute by shifting the attention of the authorities away from programmed policies but that—unlike the major upheavals discussed above—they did not play a decisive role.

For the nine instances of interruptions where past policy deviations were affected by external shocks or natural disasters but not by political events, it is easier to trace through the direct effects of the shocks, and hence to determine whether they were critical to the interruptions. Table 9.2 summarizes the nature of the shocks in each of these interruptions, the areas where deviations from programmed policies were clearly shock-related, and any additional deviation not clearly linked to shocks. The record indicates that, in all cases, program interruptions reflected a combination of inadequate responses to unexpected events and an apparently unrelated inability or unwillingness of the authorities to meet their original policy commitments.

Table 9.2Policy Deviations in Interruptions Affected by External Shocks and/or Natural Disasters1
Program InterruptionType of ShockDeviation from Programmed Policies Clearly Affected by ShockDeviation from Programmed Policies Not Clearly Affected by Shock
Bolivia 1Decline in export prices of tin and natural gas



Arrears in gas export payments
Lower-than-programmed fiscal receipts from sale of hydrocarbon products (most important source of fiscal revenues)

Larger-than-programmed loss of net international reserves
Larger-than-programmed public sector deficit even after taking into account export payments arrears, because of current expenditure overruns (wage increases)

Larger-than-programmed net domestic assets (NDA) expansion contributed to rise in imports and loss of reserves
Burundi 1Decline in coffee pricesLower-than-programmed central government revenues; larger-than-programmed deficit and bank credit to government

Shortfalls in external sector targets
Slippage in implementation of transactions tax reform and in tax increase on beer

Decline in nontax revenues owing to lower contributions by public enterprises to their debt-service payments

Steep increase in current public expenditure (interest payments and wages)
Equatorial Guinea 1Decline in cocoa pricesSignificant deterioration in public finances and external sector performanceMany structural reforms (forestry inventory, private sector incentives including investment and labor codes, land tenure and property rights, restructuring of parastatals and banks) fell behind schedule
Guinea 1Shortfall in external financingIncreased recourse to central bank financing of the budget deficit, and payment arrears with respect to external public debt service

Lower-than-targeted external reserves
Large shortfall in tax receipts from petroleum products owing to financial problems in parastatal entity

Considerable slippages in current public outlays, especially for wages and salaries
Mozambique 1Delays in disbursement of foreign aidLarger-than-programmed government borrowing from the banking system owing to shortfall in counterpart funds

Target on NDA expansion exceeded
Recurrent problems of monetary control owing to central bank operations (letters of credit)

Expenditure overruns linked to exchange rate pressures and negotiations to implement peace accord
Mozambique 2Delays in disbursement of foreign aidProgram benchmark for net government repayment to banks not met

Net foreign asset target not met
Delays in adjusting controlled prices

Delays in fulfilling structural benchmarks on preshipment inspection contracts and statistical law

Lower-than-expected customs collections (owing to delays in custom administration reform) and petroleum tax receipts
Nicaragua 1DroughtWeaker-than-programmed operating position of state-owned power company (owing to higher-than-normal use and cost of fuel), leading to worse-than-programmed public sector savingCurrent expenditure overruns because of slow progress in employment reduction program and higher transfers

Larger-than-programmed NDA expansion

Slippages in labor market reform, privatization, and reform of state-owned banks
Niger 1Shortfall in external assistance

Lower uranium export prices

Poor rainfall
Shortfall in government revenue

Excess government borrowing from the banking system
Delays in the implementation of revenue measures and weakening of tax administration

Larger-than-programmed increase in government wage bill

Public investment outlays short of target owing to administrative problems

Delays in public enterprise reform
Pakistan 1Shortfall in external financing of the budget (1989/90)

Higher petroleum prices (Middle East crisis)
Heavier-than-expected recourse to domestic financing (nonbank), leading to sharp increase of public debt relative to GDP

Larger-than-budgeted cost of petroleum imports
Overrun in defense expenditure

Disappointing revenue performance owing to delayed pass-through of higher petroleum import prices (in 1989/90)

Larger-than-programmed credit expansion

Delayed or insufficient implementation of structural reforms in fiscal trade liberalization and financing sector areas

The budget approved for 1990/91 (prior to the Middle East crisis) was inconsistent with SAF targets
Source: IMF staff estimates.

The sample includes interruptions closely related to slippages in past policies and not affected by political shocks.

Source: IMF staff estimates.

The sample includes interruptions closely related to slippages in past policies and not affected by political shocks.

A Closer Look at What Went Wrong: The Role of Program Design in Policy Slippages

In the 33 interruptions where past policy slippages played a major role, questions arise whether deficiencies in program design or monitoring may have contributed to or even caused the interruptions. Implementation problems, for instance, may have reflected excessively ambitious financial policy targets or pace of structural reforms, inadequate contingency planning, or weaknesses in administrative and technical capacity that, at least in principle, could have been addressed by a stepped-up technical assistance. This section examines the features of program design that might have helped to prevent some interruptions from occurring and considers whether the experience of these countries suggests ways to build programs that are more resilient to disruptive influences.

In examining whether interruptions could have been reduced by changes in program design and monitoring, firm and clear-cut answers are precluded by at least two methodological problems. First, many of the circumstances under consideration are obviously influenced by the extent of the authorities’ commitment to reform, a factor which is hard enough to gauge case-by-case, let alone across a sizable number of countries.

In practice, one can never be sure that policy failure is due to faulty program design or inadequate monitoring rather than weak commitment. Second, the nature of the questions involved would naturally call for counterfactuals, which are in practice unknown. Some comparisons with a control group of programs not affected by interruptions are made where feasible. But the heterogeneity of country circumstances makes it difficult to generalize this approach throughout the study.

With these caveats in mind, five aspects of program design that could have caused or contributed to the policy slippages were examined: (1) overly ambitious targets; (2) insufficient prioritization of structural reforms; (3) inadequate technical assistance; (4) insufficient staff contact and monitoring; and (5) weak contingency planning.

Overly Ambitious Targets

When interruptions were linked to past policy slippages, were program targets unusually ambitious—particularly in the fiscal area? There are of course conceptual problems in defining “overambition”: what is achievable in one country under given social and political conditions may not be a relevant benchmark for the same country in different circumstances, or for other countries with different capacities and constraints. Initial conditions are also crucial in gauging the strength of the fiscal efforts.

Nevertheless, we can shed some light on ambitiousness by examining whether the targeted adjustment in programs that were interrupted was “extraordinary” compared with all other programs. To do this, we focus on fiscal balance targets21—since deviations from policy commitments were in most cases fiscal in nature—from two perspectives. First, to gauge the ambitiousness of targets in annual programs interrupted because of policy slippages (28 cases in total),22 these targets are compared with the average annual targeted amount of fiscal balance adjustment (in percent of GDP, excluding grants) for all other annual SAF/ESAF-supported programs for which data are available.23 Initial conditions are controlled for by considering the link between targeted adjustment and initial imbalance in the sample of all annual programs. Second, for cases that stand out as particularly ambitious after controlling for initial conditions, it is useful to consider what the possible implications for the program would have been had the targets been set at the level of actual outturns.24 Might this have produced an acceptable outcome in terms of economic performance, while providing a slower but more sustainable pace of adjustment?

Box 9.2Elections and Program Performance

The six interruptions where elections in established political systems played a role—Bolivia 3, Equatorial Guinea 2, Honduras 1, Nepal 3, Senegal 1, and, among the cases of major political disruptions, Sri Lanka 2—highlight various channels through which electoral concerns influenced program performance.

In Bolivia 3 and Honduras 1, deviations from programmed policies included sizable expenditure overruns prior to presidential elections. These deviations were mainly due to large wage and salary increases to public sector employees. Similarly, in Sri Lanka 2, populist measures in the run-up to parliamentary (August 1994) and presidential (November 1994) elections generated revenue shortfalls and a large overrun in current expenditure.

In other cases, electoral concerns contributed to the postponement of corrective measures needed to address widening imbalances. In Equatorial Guinea 2, significant deviations from agreed policies had emerged in the first half of 1993. With the program significantly off track, the midterm review scheduled by August 1993 could not be completed, but IMF staff discussed with the authorities a package of corrective measures. The adoption of these measures was postponed, reflecting the authorities’ preoccupation with elections, held in November 1993. Likewise, in Senegal 1, the political agenda in the run-up to presidential (February 1993) and legislative (May 1993) elections delayed the adoption of corrective measures, after slippages in financial policies and structural reforms had derailed the adjustment process in the first half of 1992.

In Nepal 3, the resignation of the government in July 1994 led to a long electoral campaign culminating in the formation of a minority Marxist-Leninist cabinet in December 1994. Although macroeconomic policies remained broadly on track, the implementation of structural reforms came to a halt, and the new government proved unable to address key policy problems. Prospects for a catch-up with the original reform program were dimmed by continued political uncertainty in 1995.

We take as a benchmark for comparison the “average annual program” in all uninterrupted SAF/ESAF annual arrangements for which data are available. This average program targeted a mean annual deficit reduction (before grants) of ½ of 1 percentage point of GDP (median: 0.8 percentage points), starting from an average fiscal imbalance close to 10 percent of GDP. This implied reducing the initial imbalance by less than one-sixth over the three-year life of an arrangement. Standard deviations indicate a wide dispersion of both targets and initial conditions.

Programs interrupted because of policy slippages were indistinguishable from the benchmark in terms of mean targeted annual deficit change, starting from a broadly similar initial imbalance. The two groups also had similar distributions (Table 9.3).25 On the basis of these sample characteristics, and the fact that the differences in mean values are much smaller than the corresponding standard deviations, the data do not support the proposition that annual targets for interrupted programs were systematically more ambitious than those for the control group.

Table 9.3Fiscal Targets and Initial Conditions in Annual Programs(Fiscal balance in percent of GDP, before grants)
Programs Interrupted Because of Policy Slippages1All Other Annual Programs (Control Group)
Targeted change (percentage points)
Mean0.50.5
Median0.40.8
Standard deviation3.63.9
Initial balance
Mean-9.0-9.8
Median-8.0-8.5
Standard deviation6.06.5
Number of annual programs28103
Source: IMF staff estimates.

Annual targets for interrupted programs covered periods where interruptions were related to past policy slippages. The years considered are listed in Appendix 9.1, Table 9.15.

Source: IMF staff estimates.

Annual targets for interrupted programs covered periods where interruptions were related to past policy slippages. The years considered are listed in Appendix 9.1, Table 9.15.

The absence of a systematic tendency toward overambition is confirmed by a regression of targeted deficit changes on initial conditions in the joint sample of interrupted and uninterrupted annual programs. As would be expected from Table 9.3, an additive dummy for years in which programs were interrupted because of policy slippages was found to be statistically insignificant, irrespective of the inclusion or exclusion of outliers (Table 9.4).26 This finding is illustrated farther in Figure 9.4, where the regression line estimated on the joint sample excluding outliers crosses the scatter diagram of interrupted programs approximately in the middle. Sixteen programs targeted less ambitious adjustment than average, controlling for initial conditions, and fall below the regression line; the remaining 12 “more ambitious” programs lie above the regression line, albeit by a very small margin in some cases.

Figure 9.4Targeted Change in Fiscal Balance in Interruptions Affected by Policy Slippages1

(In percent of GDP; excluding grants)

Source: IMF staff estimates.

1The horizontal and vertical lines correspond to the average values of the variables in the control group of annual programs not affected by interruptions. The regression line shows the estimated relation between targeted change in fiscal balance, initial imbalance, and a constant for the sample of all annual programs. The sample excludes seven outlier observations.

2Using the initial fiscal balance as estimated at the time the program was formulated, which in some cases differs from the final data.

Table 9.4Relationship Between Fiscal Deficit Targets and Initial Conditions in All SAF/ESAF Annual Programs1
Full SampleExcluding Outliers
Constant-0.10-0.11-1.19-1.25
(t-statistic)(-0.16)(-0.17)(-2.05)*(-2.00)*
Additive dummy for interrupted programs0.040.19
(t-statistic)(0.05)(0.26)
Initial balance-0.06-0.06-0.23-0.23
(t-statistic)(-1.09)(-1.09)(-3.97)**(-3.96)**
R2 (corrected)0.001-0.0060.110.10
Number of observations131131124124
Source: IMF staff estimates.

The relationship between targeted change in the fiscal balance before grants as a percent of GDP (ΔX) and the initial balance (Xt–1) was estimated by ordinary least squares in the bivariate regression: ΔX = α + βXt–1 + εt. An additive dummy variable for interrupted programs was included to test for a systematic difference in fiscal targets after controlling for initial conditions.

Indicates statistical significance at 1 percent level (* at 5 percent level).

Source: IMF staff estimates.

The relationship between targeted change in the fiscal balance before grants as a percent of GDP (ΔX) and the initial balance (Xt–1) was estimated by ordinary least squares in the bivariate regression: ΔX = α + βXt–1 + εt. An additive dummy variable for interrupted programs was included to test for a systematic difference in fiscal targets after controlling for initial conditions.

Indicates statistical significance at 1 percent level (* at 5 percent level).

Even though fiscal targets in interrupted programs do not appear on average to have been more ambitious than others, might alternative targets—cased sufficiently to accommodate the observed outturns and thus to avoid the interruptions—have delivered results that would have warranted IMF support? This question was examined for the 12 relatively more ambitious programs—that is, those above and to the right of the regression line in Figure 9.4. Selected macroeconomic indicators for these cases (Table 9.5) suggest the following:

Table 9.5Targets and Outturns for the 12 Interruption Episodes in “More Ambitious” Programs1
Fiscal Balance Before Grants (in percent of GDP)Consumer Price Inflation (in percent)External Arrears (in percent of GDP)
Interruption Episode (year)Initial balance2Targeted changeActual changeActual change minus targeted changeTarget (t)Outturn (t)Outturn (t + 1)Outturn
Bolivia 3 (1987)-6.00.6-1.3-1.911.812.18.50.1
Burkina Faso 1 (1992)-8.51.0-0.9-1.93.0-2.00.6-0.5
Equatorial Guinea 2 (1993)-2.13.2-8.2-11.43.01.638.912.8
Equatorial Guinea 3 (1994)-8.29.95.7-4.235.238.911.413.9
Kenya 1 (1991/92)-7.93.63.1-0.512.019.627.32.7
LaoP.D.R. 2 (1993)-9.93.7-1.6-5.36.18.96.8n.a.
Mali 2 (1993)-11.33.61.4-2.22.52.633.20.7
Mauritania 1 (1988)-10.62.00.4-1.66.21.713.02.4
Pakistan 1 (1989/90)-7.31.01.10.18.06.012.70.0
Togo 1(1991)-5.31.1-1.9-3.02.00.00.21.1
Zimbabwe 1 (1993/94)-11.25.43.8-1.619.018.621.10.0
Zimbabwe 2 (1994/95)-7.71.3-3.9-5.220.821.125.00.0
Source: IMF staff estimates.

These correspond to the cases above the regression line in Figure 9.4.

As assessed at the time of the program.

Source: IMF staff estimates.

These correspond to the cases above the regression line in Figure 9.4.

As assessed at the time of the program.

  • Setting aside Equatorial Guinea (2 episodes), where there are major measurement problems, in five of the interruptions—Bolivia 3, Burkina Faso 1, Lao P.D.R. 2, Togo 1, and Zimbabwe 2—the fiscal deficit actually deteriorated, at times by several percentage points of GDP, starting from initial imbalances ranging from over 5 percent to 10 percent of GDP. The policies implemented resulted in the accumulation of external arrears in Bolivia 3 and Togo 1 and in concomitant inflation pressures in Zimbabwe 2.
  • In another four interruptions—Kenya 1, Mali 2, Mauritania 1, and Zimbabwe 1—the improvement in the fiscal accounts fell well short of targets. Moreover, in Kenya 1, Mali 2, and Mauritania 1, a program that would have “lowered the bar” to match actual outcomes would have needed additional financing amounting on average to about 2 percent of GDP to have avoided the accumulation of external arrears. In Kenya 1 and Zimbabwe 1, it would have implied accommodating increasing price pressures.
  • For Pakistan 1, while the most recent data reported in Table 9.5 indicate a deficit reduction in line with targets, IMF staff reports in the aftermath of the interruption ascribed it to a lower-than-programmed reduction of the fiscal deficit (by 0.3 percentage points of GDP), owing to current (defense-related) expenditure overruns; larger-than-programmed credit expansion; and slippages in the implementation of structural reforms. Problems in the fiscal area persisted, owing to delays in tax reforms and expenditure control, and were reflected in increasing inflationary pressures.
  • For the two interruptions in Equatorial Guinea, measurement problems and revisions of accounting methods also hinder target-outcome comparisons. Nevertheless, IMF staff reports in the aftermath of both interruptions ascribe them primarily to missed fiscal targets. Alternative programs would have needed additional financing of 13–14 percent of GDP annually to have avoided the accumulation of external arrears in each episode.

In sum, the evidence indicates that programs that were interrupted because of policy slippages were not unusually ambitious—against the standard of the average fiscal effort envisaged in all other annual SAF/ESAF-supported programs for which data are available. The record therefore does not suggest that a systematic tendency toward overly ambitious targets was a factor in the program interruptions. In the minority of cases where fiscal targets were more ambitious than the average, an easing of the targets to match policies that were implemented would have implied, in most instances, accepting a sizable deterioration in macroeconomic conditions.

Insufficient Prioritization

Another dimension to ambitiousness that might play a role in interruptions is the extent of the structural reform envisaged relative to the administrative ability of national authorities. One possible concern is that programs attempt to cover too many reform areas with too many measures. Indeed, there are many examples of policy framework papers and letters of intent that list several dozen—in some cases, over a hundred—measures to be taken over the three-year period. The obvious risk is that a “scattershot” approach may confuse the authorities about what is needed to maintain IMF support and prevent sufficient focus on the most important reforms.27

In fact, SAF/ESAF-supported programs do envisage a ranking of structural measures, represented by the selection of a few structural benchmarks and performance criteria. In this respect, the ESAF operational guidelines state that all ESAF arrangements will include a limited number of semiannual performance criteria including a few structural measures. And in the 1987 discussion of the ESAF in the IMF’s Executive Board, most Executive Directors favored the use of structural benchmarks to monitor implementation of the most important structural policy measures and noted that performance criteria will be limited in number and will generally involve only a subset of the benchmarks. This hierarchy reflects that structural benchmarks (SBs) are yardsticks for implementing and evaluating reforms but, unlike structural performance criteria (SPCs), are not directly linked to disbursements under the arrangement. Although all ESAF-supported programs thus incorporate an element of selectivity, the question arises whether those that were interrupted may have run into difficulties in part because they were less selective (had more structural conditions) than the average program.

To address whether subjecting too many structural measures to formal conditionality may have contributed to program failures, the number of SBs and SPCs in the annual program agreed prior to the interruptions affected by past policy slippages were examined.28 These were compared with the average for all recent ESAF-supported programs for which information is available.29

In the benchmark sample, the average combined number of SBs and SPCs was 9: almost 80 percent of ESAF-supported programs had at least one SPC, on average 2–3, and all programs included SBs, on average 7–8. The number of SPCs in the programs prior to the 29 episodes examined varied from zero to 5. In the 12 cases where they were included, there were on average 2—3 SPCs (Table 9.6). SBs were included in 25 of the 29 programs, and averaged 6–7 per program, excluding one outlier (Pakistan 1) with many SBs.30 Except in Pakistan, the number of structural conditions was not out of line with the averages from the comparator sample of ESAF-supported programs quoted above and does not support the hypothesis that excessive structural conditionality was an important factor behind interruptions.

Table 9.6Number of Structural Conditions in Programs Prior to Interruption Episodes1
Program InterruptionNumber of Structural Performance Criteria (SPCs)Reported as Fully Observed2Number of Structural Benchmarks (SBs)Reported as Fully Observed2
Bolivia 10n.a.3n.r.
Bolivia 33273
Burkina Faso 10n.a.63
Burkina Faso 25482
Burundi 10n.a.83
Equatorial Guinea 10n.a.72
Equatorial Guinea 21140
Equatorial Guinea 32253
Guinea 10n.a.7n.r.
Guinea 20n.a.93
Guinea 30n.a.31
Honduras 10n.a.2n.r.
Kenya 12251
Lao P.D.R. 20n.a.50
Malawi 11030
Mali 230n.a.0n.a.
Mauritania 10n.a.91
Mongolia 13396
Mozambique 130n.a.0n.a.
Mozambique 202135
nepal 331113
nicaragua 152105
niger 130n.a.0n.a.
Pakistan 10n.a.2915
Sri Lanka 10n.a.93
Tanzania 11n.r.0n.a.
Togo 10n.a.10
Zimbabwe 12042
Zimbabwe 20n.a.71
Source: IMF staff estimates.

The sample includes all interruption episodes primarily affected by slippages in past policies and for which structural conditions were available.

N.a. and n.r. indicate, respectively, “not applicable” and “not reported for all conditions.”

No SBs/SPCs set in the midterm review.

Source: IMF staff estimates.

The sample includes all interruption episodes primarily affected by slippages in past policies and for which structural conditions were available.

N.a. and n.r. indicate, respectively, “not applicable” and “not reported for all conditions.”

No SBs/SPCs set in the midterm review.

The same conclusion may be seen from a different angle by noting that -within the range of SPCs and SBs considered here, there is no obvious correlation between the rate of observance and the number of SPCs/SBs: in regressions of the share of structural conditions observed on the (nonzero) number of conditions set—for all cases where at least some of the outturns were reported—the estimated slope coefficients were statistically insignificant at standard levels, and the explanatory power was poor (Table 9.7).31 The weak correlation should not be interpreted as evidence against a focused approach to setting structural conditions—one that takes into account administrative capacity constraints. It merely suggests that modifying the number of structural conditions would in itself not guarantee a better implementation record.

Table 9.7Observance Rates in Structural Conditionality1(Ordinary least squares)
VariablesObservance Rate for SPCs2Observance Rate for SBs3
Constant58.3311.69
(t-statistic)(2.01)4(1.10)4
Dummy (Pakistan I)-36.27
(t-statistic)(-0.97)4
Number of conditions set1.502.63
(t-statistic)(0.16)4(1.84)4
R2 (corrected)-0.110.11
Number of observations1122
Source: IMF staff estimates.

The sample includes the subset of programs prior to the interruption episodes listed in Table 9.6 for which conditions were set and at least some of the outturns were reported.

Pakistan 1 was excluded, since the interrupted program included no SPCs.

Regression results were broadly similar when Pakistan 1 was included, in that the slope coefficient was not significant at standard levels.

Not statistically significant at 5 or 1 percent levels.

Source: IMF staff estimates.

The sample includes the subset of programs prior to the interruption episodes listed in Table 9.6 for which conditions were set and at least some of the outturns were reported.

Pakistan 1 was excluded, since the interrupted program included no SPCs.

Regression results were broadly similar when Pakistan 1 was included, in that the slope coefficient was not significant at standard levels.

Not statistically significant at 5 or 1 percent levels.

A more difficult question is whether there may have been cases of “faulty prioritization,” where, for instance, measures were chosen that were relatively easy to implement but not central to the achievement of program objectives. One problem in analyzing this issue is that the program documents reviewed for this study were often not explicit about the rationale for the specific choice of structural conditions. Moreover, it would be necessary to examine structural conditions in the context of individual country cases, since the variety of initial conditions and the tailoring of structural measures to the problems of each country complicate cross-country comparisons. On this subject, however, the record of structural conditions and reform priorities for bank restructuring and reform of public enterprises in several countries does not identify a clear link between progress made and the extent to which structural conditions were met, suggesting that, in some cases, conditions were not set on the most relevant reform measures. A simpler aspect of the problem relates to whether the issues that ultimately caused the interruptions in cases affected mainly by slippages in structural policies—Equatorial Guinea 1, Guyana 1, Lao P.D.R. 2, Mauritania 1, Mozambique 1, and Nepal 3—had been prioritized, and their importance clearly signaled to the authorities. The answer is generally affirmative, since in most cases the areas identified as major problems had been subject to SPCs or SBs in programs preceding these interruptions.32

Inadequacy of Technical Capacity

Closely linked to the question of whether programs were overly ambitious in the financial program or in the agenda for structural reforms is that of adequacy of technical capacity. For many countries, limited administrative and technical abilities were a hindrance to policy implementation. Staff reports for programs affected by interruptions linked to past policy slippages point explicitly to a handful of cases—Burkina Faso 2, Equatorial Guinea 1, 2, and 3, and Lao P.D.R. 2—where administrative and technical constraints played an important role.33 It seems likely that other countries were also affected to varying degrees: for instance, in Mozambique 1 and 2, limited monitoring capacity was highlighted by recurrent problems with monetary control and management of foreign aid counterpart funds.

A comprehensive review of all technical assistance in response to these needs—through staff missions from IMF departments providing technical assistance, placement of long-term resident experts, training of public officials through the IMF Institute, and use of IMF resident representatives—is beyond the scope of this study. Nevertheless, for the four cases where IMF staff reports provide some discussion of the issues, it is of interest to consider the forms of technical or administrative constraints identified in programs prior to interruptions, and what was envisaged and ultimately done to improve the situation.

In Burkina Faso, the ESAFI program approved in March 1993 targeted an ambitious increase in tax and nontax revenues (1.8 percentage points of GDP). The authorities acknowledged shortcomings in public administration and requested technical assistance from the IMF in the areas of tax administration and expenditure control.34 This request was supported by IMF staff, who had cautioned the authorities that their envisaged schedule of tax reforms might be too ambitious.35 In the event, a sizable revenue shortfall emerged early in the program. An IMF staff visit (June 1993) identified as main factors the poor preparation of tax and customs authorities to implement the envisaged reforms (replacement of the turnover tax with the VAT and tariff reform), and the authorities’ poor record in resisting pressures for tax exemptions. A resident expert from the IMF’s Fiscal Affairs Department was placed in the field from June 1993. In the event, some performance criteria were missed by a wide margin, and the midterm review could not be completed. Despite repeated calls for action, the authorities failed to take corrective measures, and IMF staff suggested a monitoring period (through end–1993) as a precondition for discussions on a second-year program (approved in March 1994). Steps were also taken to place a long-term advisor in the area of budget planning and control. This case underscores the importance of ensuring appropriate preparation in advance of complex reform measures, but also the limited effectiveness of a step-up in technical assistance without a concomitant resolve on the part of the authorities to adhere to the requirements of reform.

The experience of Equatorial Guinea is unusual in that IMF staff explicitly recognized, after the fact, that many of the structural reforms envisaged in the SAFI policy framework paper proved to be too ambitious in relation to the country’s administrative and technical capacity, given the availability of technical assistance. Problems affected many areas, and it took two years (1990–91) for structural reforms to catch up to program aims.36 Before the subsequent ESAF arrangement (February 1993), IMF staff advised the government to intensify efforts to obtain technical assistance in the fiscal area. No specific plan involving the IMF was discussed in Executive Board documents, however, and assistance was limited to the placement of a Fiscal Affairs Department resident advisor (1992–93) on tax department reorganization and personnel training. There was no IMF resident representative office. At the midterm review, the authorities—preoccupied with the elections—were urged to establish a monitoring committee to ensure a timely flow of reliable economic and financial data. This recommendation, and the suggestion to seek further technical assistance, were repeated at the start of the ESAF II program (March 1994) and in the 1995 Article IV consultation, after the arrangement had veered off track. Again, no specific plan involving the IMF appeared in Executive Board documents. Many other factors were at play in these interruptions, including political influences, but the importance of following up on recognized technical assistance needs with an action plan, including a role for the IMF as a provider or coordinator of this assistance, is clear. Otherwise, priorities rightly signaled to the authorities by an SB cannot be said to have been thoroughly followed up with appropriate remedial measures.

The gradual move of Lao P.D.R. from a centrally planned to a market-oriented economy (supported in 1989 by a SAF arrangement) was complicated by limited implementation capacity. The program of technical assistance already under way was intensified in monetary, fiscal, and statistical areas with IMF staff missions and the placement of resident advisors. A resident representative office was opened in October 1990. Despite further missions and placement of other experts, however, at the start of the subsequent ESAF arrangement (June 1993), weak fiscal administration continued to pose a threat to financial stability, and further assistance was envisaged and provided. Although lack of political consensus on the path of reform also played a role, weak administrative capacity remained an important cause for slippages in structural reforms during the first annual ESAF arrangement. Given the persistence of these constraints, it appears that the improvements in implementation capacity needed to keep the program on track would probably not have been possible, even with an expanded technical assistance effort. In these circumstances, the structural reform agenda should perhaps have been set on a less ambitious course.

The two program interruptions in Mozambique were affected by excessive expansion of “other items net,” owing to poor mechanisms for monetary control and the inability to generate counterpart funds to foreign aid. Both problems were recurrent and analyzed in IMF staff reports before the interruption episodes. The problem in controlling “other items net” had been considered by a technical assistance mission from the IMF’s Monetary and Exchange Affairs Department and was complicated by the multiplicity of factors at play—central bank losses and implicit subsidized credit to importers through foreign exchange operations during periods of rapid exchange rate movements (pointing to the role of influential pressure groups), reclassification of items in the balance sheet of the banking system, and the impact of banking reforms on the production of monetary data. Two additional missions proved necessary to gain a better understanding. Control of counterpart funds remained a problem, however, reflecting the difficulty of predicting aid disbursements, but also the diversion of counterpart funds to off-budget items, such as unprogrammed lending to public enterprises. The experiences of Mozambique, Burkina Faso, and Equatorial Guinea show that the persistence of administrative weaknesses may sometimes be linked to deeper problems of governance. In these circumstances, an increase in technical assistance is probably a necessary but not sufficient condition to reduce interruptions.

Insufficient Monitoring

According to the ESAF operational guidelines, monitoring of programs supported by ESAF arrangements is to be conducted through semiannual performance criteria in all cases, and disbursements are to take place semiannually, upon approval of an annual arrangement, and subsequently, on the basis of observance of performance criteria and, in most cases, completion of a midyear review.37 ESAF provisions require a midterm review “in most cases.” This framework was intended to minimize the administrative burden on authorities while allowing for tighter monitoring relative to SAF arrangements (under which all disbursements were made upon approval of annual arrangements, without midcourse reassessments). At least in principle, however, the framework has some shortcomings: the requirement of a single midterm review may result in a dialogue between IMF staff and authorities that is less frequent or effective than necessary to keep the program on track, and there is no link between disbursements and progress in implementing policies in the latter part of each annual arrangement.38

These shortcomings have a potential bearing on the record of program interruptions. In this section, we focus first on whether staff contact was timely enough to ensure that imbalances were detected at an early stage, and whether tighter monitoring might have helped to forestall emerging slippages and prevent program interruptions.

The record of missions and meetings at headquarters prior to and during the 33 interruptions affected by policy slippages provides a crude indicator of the frequency of dialogue between staff and authorities. Since there is no information on high-level contacts outside the context of missions and meetings at headquarters, it is an incomplete measure. Nevertheless, it suggests that in two-thirds of the cases,39 contact with the authorities took place at least once in the few weeks prior to the start of these interruptions, and that policy dialogue was generally maintained thereafter (see Appendix 9.1, Table 9.17).40 Earlier mission activity (during the period when the problems were most likely emerging), however, was not particularly intense: in 19 of the 33 episodes examined, there was at most one mission in the semester prior to the interruption, and in the other 14 episodes there were two to four missions (Figure 9.5 and Table 9.8).41 That the more intensive IMF mission schedule in these cases did not avert the breakdown in policies, however—despite most missions being program negotiations (sometimes combined with Article IV consultations) or midterm review discussions, rather than staff visits—suggests that more frequent IMF staff contact, although it might have helped, would probably not have been sufficient to prevent policy discontinuities. Indeed, a limited survey of interruptions associated with sizable fiscal revenue shortfalls or expenditure overruns in the absence of shocks—Equatorial Guinea 3, Nicaragua 1, Tanzania 1, and Zimbabwe 1 and 2—points to persistent slippages despite repeated warnings and efforts to bring the program back on track. In some instances—Equatorial Guinea 3, Nicaragua 1, and Tanzania 1—even after an IMF mission had reached agreement with the authorities on corrective measures, these were not implemented.

Figure 9.5Frequency of Missions in the Six Months Leading Up to Interruptions Affected by Policy Slippages

Source: IMF staff estimates.

Table 9.8Program Monitoring Prior to Interruptions Affected by Past Policy Slippages
Program InterruptionNumber of Missions in Six Months Leading Up to InterruptionPresence of IMF Resident Representative
Bolivia 11Yes
Bolivia 31Yes
Burkina Faso 10No
Burkina Faso 21No
Burundi 11No
Burundi 20No
Equatorial Guinea 11No
Equatorial Guinea 22No
Equatorial Guinea 32No
Ghana 12Yes
Guinea 11Yes
Guinea 22Yes
Guinea 33Yes
Guyana 11No
Honduras 13No
Kenya 11No
Lao P.D.R. 21Yes
Malawi 14No
Mali 22Yes
Mauritania 11No
Mongolia 12Yes
Mozambique 12No
Mozambique 22No
Nepal 31Yes
Nicaragua 11Yes
Niger 11No
Pakistan 12No
Senegal 11Yes
Sri Lanka 10Yes
Tanzania 12Yes
Togo 11No
Zimbabwe 11Yes
Zimbabwe 22Yes
Source: IMF staff estimates.
Source: IMF staff estimates.

The question of whether more frequent program test dates and reviews would have helped to prevent interruptions is difficult to address empirically. The absence of relevant counterfactuals prevents general conclusions, since a comparison of programs with similar problems and initial conditions, some having biannual and others quarterly monitoring, is not possible: no ESAF-supported program has had quarterly test dates or reviews. Arguments based on the limited administrative capabilities in ESAF countries can be made on both sides of the issue. More frequent monitoring could impose an additional burden on administrative capacity. Alternatively, it could help to prevent problems and make adjustments easier—if only by prompting earlier corrective action—over time improving implementation capacity.42

All this said, a comparison of monitoring efforts in ESAF countries and those receiving IMF support under other facilities in the Baltics, Russia, and other former Soviet Union countries (BRO) may be informative. These countries face many of the same problems as those with ESAF-supported programs, both in terms of the policy challenges and their limited administrative capacity. The information available clearly suggests more intensive IMF involvement in the BRO countries. Formal quarterly (or more frequent) reviews were required in all Stand-By and Extended Arrangements approved in BRO countries, compared with the semiannual reviews in all ESAF arrangements. IMF resident representatives were quickly put in place in all 15 BRO countries but were present in only about half the ESAF countries at the time of a program interruption affected by policy slippages. Moreover, the frequency of contact between staff and authorities and the intensity of technical assistance efforts has been considerably greater in BRO than in ESAF countries (Table 9.9). Although it is not possible to attribute the outcome exclusively to greater frequency of monitoring, the incidence of program interruptions in arrangements approved in the two groups of countries differs markedly: using the same definition of program interruption, there were 5 interruptions in 29 Stand-By and Extended Arrangements approved in BRO countries before end–1996, compared with 51 interruptions recorded in the 68 SAF/ESAF arrangements under review.

Table 9.9Comparison of IMF Staff Resources in ESAF Countries and Baltics, Russia, and Other Former Soviet Union (BRO) Countries1(Averages per country)
1992/931993/941994/951995/96
ESAFBROESAFBROESAFBROESAFBRO
Total staff years5.58.96.210.86.211.76.111.5
Technical Assistance (TA) experts1.31.31.21.91.43.01.62.9
Non-TA missions2
Number0.82.53.25.63.76.8
Average size4.16.34.15.63.44.7
TA missions3
Number1.24.12.06.92.56.9
Average size2.32.73.03.22.52.8
Source: IMF Budget Reporting and Travel Schedule Systems.

Data are for the 36 ESAF countries under review and the 15 BRO countries. Kyrgyz Republic is in both groups. (ESAF arrangements in other BRO countries fall outside the period of this review.)

Article IV consultations, use of IMF resources missions, and other IMF staff visits.

Conducted by staff from the IMF’s Fiscal Affairs, Monetary and Exchange Affairs, and Statistics Departments.

Source: IMF Budget Reporting and Travel Schedule Systems.

Data are for the 36 ESAF countries under review and the 15 BRO countries. Kyrgyz Republic is in both groups. (ESAF arrangements in other BRO countries fall outside the period of this review.)

Article IV consultations, use of IMF resources missions, and other IMF staff visits.

Conducted by staff from the IMF’s Fiscal Affairs, Monetary and Exchange Affairs, and Statistics Departments.

In sum, devoting more attention—and resources—to the monitoring of ESAF-supported programs should be considered. This might include allowing the use of quarterly test dates, and possibly reviews, in ESAF-supported programs when the IMF and the authorities consider that it would help to sustain program implementation. Quarterly reviews could prove particularly helpful when a program is highly vulnerable to shocks of a kind that cannot be easily addressed by contingency planning and automatic adjusters.

Insufficient Contingency Planning

In principle, there are three ways for programs to deal with exogenous shocks. First, program reviews allow for revisions of policy and a reassessment of adjustment and financing needs as the program unfolds. Second, when shocks of a specific kind are considered to be particularly likely, automatic adjusters assigned to key performance criteria (sometimes referred to as in-built contingency mechanisms, or ICMs) introduce an element of contingency planning, in that they determine in advance the mix of adjustment and accommodation that would be required in case of unforeseen deviations from program assumptions. In cases where shocks are sufficiently minor that the fundamental assumptions of a program may still hold, adjusters are an economical alternative to the reopening of program discussions in the context of reviews. However, automatic adjusters do not indicate how any needed additional adjustment—in itself potentially contentious—would come about. A third element of contingency planning, therefore, would involve prior agreement with the authorities on a set of commitments to implement certain kinds of contingent measures in the event of shocks, as needed to keep the program on track.43 These precommitments could allow for greater readiness to cope with shocks, albeit at the cost of more complicated negotiations on the original program, and possibly longer IMF missions.

To assess whether more widespread or effective use of contingency planning might have been helpful in coping with shocks, the design of programs prior to the 14 interruption episodes where past policy slippages were the dominant factor and external shocks or natural disasters were relevant44 was examined to see whether perceived sources of risk or uncertainty regarding exogenous variables prompted the use of ex ante contingency provisions. The two most frequent sources of perceived uncertainty were the extent and timing of external financing, and the evolution of the terms of trade. In 10 of the 14 cases examined—Bolivia 1, Burkina Faso 1, Burundi 1, Guinea 1, Kenya 1, Mozambique 1 and 2, Nicaragua 1, Niger 1, and Pakistan 1—uncertainty about external financing was considered ex ante a source of risk for the program: in all but one case (Niger 1) the risk was on the side of a financing shortfall. In five episodes—Guinea 1, Mozambique 1 and 2, Niger 1, and Pakistan 1—shortfalls or delays in external financing did materialize, and in one other case (Bolivia 1) sizable export payments arrears occurred.45 Yet, 9 out of 10 programs where such risk was perceived—and all 6 where it materialized—did not include an adjuster against a financing shortfall (see Appendix 9.1, Table 9.18). When present, ICMs were in all but one case (Nicaragua 1) asymmetric, in the direction of preserving (adding to reserves) windfall gains from external financing, or adding to credit to the private sector, in the case of adjustors assigned only to net credit to government.

The absence of adjusters was not in itself a program design flaw: these programs implicitly assumed that any financing shortfall would have to be offset fully and immediately by a tightening of policies or a contraction of imports, or dealt with in a subsequent review. This choice may have been justified by the limited scope for greater domestic financing and a weaker reserve position: the level of gross reserves per se was very low (less than two months of import cover) in Guinea 1, Kenya 1, Nicaragua 1, and Pakistan 1, and in most instances there were outstanding arrears to foreign creditors. In no case, however, were the modalities of the additional adjustment effort to address external financing shortfalls specified in advance, and hence agreed by the authorities.46

Although one can only speculate whether the inclusion of contingent measures in the program would in practice have been sufficient to avert an interruption, on logical grounds such inclusion might have increased the probability of a quick and adequate policy response. In Guinea 1, for example, some adjustment was ultimately achieved (albeit too late to keep the program on track) through increases in petroleum product prices and public utility tariffs. Had these measures, which could have been implemented quickly and would have had relatively rapid effects, been prespecified as contingencies, correction might have been accomplished in a more timely manner.47

A deterioration in the terms of trade was perceived as a source of risk in 8 of the 14 episodes examined. It materialized in five of these programs (Burkina Faso 1, Burundi 1, Equatorial Guinea 1, Malawi 1, and Niger 1), as well as in two other instances (Bolivia 1 and Guinea 3). Once again, none of these programs had ICMs. In a minority of cases where the risk was perceived (Niger 1, Pakistan 1, and Togo 1), some contingent measures were discussed to compensate for the potential effects on the balance of payments and the fiscal accounts.48 These contingencies, however, proved insufficient to prevent the program interruption, because of unrelated fiscal policy slippages. The measure finally adopted to counter the budgetary impact of declining world cocoa prices in Equatorial Guinea 1—specifically, the reduction of the administered producer price and export subsidy for cocoa—would have been a good candidate for a contingent commitment.

As for natural disasters, it is unclear whether contingency planning against the effects of droughts or poor rainfall in Kenya 1, Nicaragua 1, and Togo 1 would have helped to avoid the interruptions. In all cases, the shock does not appear to have been a major factor behind the slippage in policies, and, in the case of Nicaragua 1, slippages reemerged even after efforts to identify corrective measures (see Table 9.2 and Appendix 9.1, Table 9.10).

Table 9.10SAF/ESAF Review: List of Program Interruptions
Type of Interruption
Program InterruptionInterval between multiyear arrangements1Interval between annual arrangementsDelay in completing midterm review2Duration of Interruption (in months)Starting Date of Interruption2
Bangladesh1X8December 1989
Benin1X13June 1990
2X7June 1992
Bolivia1X17December 1987
2X7November 1990
3X12April 1993
Burkina Faso1X113March 1992
2X35November 1993
Burundi1X9August 1987
2X16July 1990
3X4IndefiniteMay 1993
Equatorial Guinea1X24December 1989
2X38September 1993
3X4IndefiniteOctober 1994
Ghana1X40March 1992
Guinea1X8July 1988
2X519March 1990
3X23November 1992
Guyana1X7December 1993
Honduras1X18July 1993
Kenya1X6IndefiniteMarch 1992
Lao P.D.R.1X7September 1990
2X8June 1994
Madagascar1X7IndefiniteJune 1991
Malawi1X22June 1992
Mali1X519January 1991
2X7August 1993
Mauritania1X57November 1988
2X730May 1990
Mongolia1X7June 1995
Mozambique1X7December 1993
2X8IndefiniteFebruary 1995
Nepal1X23November 1990
2X6October 1993
3X4IndefiniteSeptember 1994
Nicaragua1X4IndefiniteFebruary 1995
Niger1X9December 1989
2X4IndefiniteMarch 1991
Pakistan1X12December 1990
2X9December 1992
3X110February 1995
Senegal1X21June 1992
Sierra Leone1X576November 1987
2X9March 1995
Sri Lanka1X7March 1989
2X6IndefiniteOctober 1994
Tanzania1X4IndefiniteMarch 1993
Togo1X11June 1991
2X6IndefiniteNovember 1992
Zimbabwe1X7June 1994
2X7IndefiniteMarch 1995
Total
(51 interruptions in 28 countries)161916
Source: IMF staff estimates.

Or interval between expiration of last completed annual arrangement and cancellation of the multiyear arrangement or approval of a new arrangement.

For delays in completing a midterm review, the starting date of the interruption is the date by which the review was to be completed. For intervals between multiyear arrangements, the starting date is the expiration date of the last completed annual arrangement: extension periods in the absence of an agreed policy framework for annual arrangement are considered part of the interruption.

Review never completed, but subsequent annual arrangement approved.

Review never completed, and no subsequent annual arrangement approved.

Subsequent annual arrangement under SAF not approved.

Review for third annual arrangement not completed.

Subsequent annual arrangement under ESAF not approved.

Review for fourth annual arrangement not completed.

Source: IMF staff estimates.

Or interval between expiration of last completed annual arrangement and cancellation of the multiyear arrangement or approval of a new arrangement.

For delays in completing a midterm review, the starting date of the interruption is the date by which the review was to be completed. For intervals between multiyear arrangements, the starting date is the expiration date of the last completed annual arrangement: extension periods in the absence of an agreed policy framework for annual arrangement are considered part of the interruption.

Review never completed, but subsequent annual arrangement approved.

Review never completed, and no subsequent annual arrangement approved.

Subsequent annual arrangement under SAF not approved.

Review for third annual arrangement not completed.

Subsequent annual arrangement under ESAF not approved.

Review for fourth annual arrangement not completed.

In sum, strong conclusions about the role of contingency planning are not possible, since many of the program interruptions reflected a combination of shocks and unrelated policy slippages. Also, it is difficult to make an empirical case for the use of contingencies without reliable counterfactuals. Nevertheless, the interruption episodes reviewed indicate that there was little correspondence between perceived risks—such as external financing shortfalls or terms of trade shocks—and contingency planning in programs. It is possible, therefore, that in circumstances where the risk of a sizable shock is considered high, programs could benefit from contingent commitments to specific policy measures—particularly in the budget—accompanied where appropriate by simple and transparent adjusters to performance criteria. Against this, the practical difficulties of negotiating continency measures must be acknowledged, especially when there are other difficult policy issues to be resolved. Moreover, where a country faces various risks, or where the effects of possible shocks are highly uncertain ex ante, neither automatic adjusters nor contingent measures are likely to be feasible or effective. In such circumstances, a preferred approach might be to incorporate more frequent program reviews.

Conclusions and Lessons for Program Design

Although a third of program interruptions resulted either from forward-looking disagreements in the absence of significant policy slippages or from severe political disruptions, deviations from past policy commitments played an important role in most interruptions. These policy slippages were typically broadly based, affecting both the financial program and the structural reform agenda, but in the large majority of cases the root of the problem was fiscal in nature.

An examination of several aspects of program design that might have contributed to interruptions primarily attributable to past policy slippages did not find compelling explanations.

  • Most annual fiscal targets for interrupted programs were not unusually ambitious (accounting for initial conditions) when judged against the benchmark of the average fiscal effort envisaged in all SAF/ESAF arrangements. When targets were ambitious, in most cases “lowering the bar” to match the policies that actually were implemented, so as to avoid an interruption, would have entailed accepting a significant deterioration in macroeconomic conditions, calling into question the consistency with ESAF objectives. Thus, it appears that there was little scope to reduce the incidence of interruptions by setting less ambitious targets.
  • The evidence does not suggest that insufficient prioritization of structural conditionality was a factor behind program interruptions. The weak correlation between the rate of observance and the number of structural conditions set implies that merely cutting back on the number of conditions would not in itself guarantee better implementation. This is not to say, of course, that the priorities chosen in all programs were necessarily optimal (see Chapter 8).
  • In a few countries where implementation capacity was a factor behind weak policies and, ultimately, program interruptions, it seems that a step-up in technical assistance efforts could perhaps have been a necessary but not sufficient condition to prevent a program breakdown. The record underscores the importance of an adequate plan of action when there is a recognized need, based on a realistic assessment of how quickly the authorities can and will absorb the assistance. The ambitiousness of the structural reform agenda should be tailored accordingly. Such plans should be set out in greater specificity in policy framework papers.
  • A comparison between the intensity of program monitoring in ESAF countries and that in the BRO countries with Stand-By or Extended Arrangements suggests that there may be a case for closer monitoring of ESAF-supported programs. Specifically, in situations where IMF staff and authorities agree that it could enhance program implementation, quarterly test dates and reviews might be used in ESAF arrangements. Closer tailoring of disbursements to policy performance could help to prompt an early response to emerging problems, especially in programs subject to considerable uncertainties regarding, for instance, external conditions. Consideration could also be given to more widespread assignment of IMF resident representatives in ESAF countries.
  • Greater use of contingency planning might have helped to anticipate the need for a more timely policy response to exogenous shocks, particularly since, with hindsight, some of the measures ultimately adopted appear to lend themselves to precommitment on a contingency basis. Even here, however, the presence of unrelated policy slippages prevents strong conclusions. Also, in practical terms it seems likely that negotiations of contingency measures would lengthen the process of formulating and agreeing on programs.

In sum, there may be cases where modifications to program design and monitoring could help to improve future program implementation, and these should be actively considered where feasible. But it cannot be claimed that such changes would have been sufficient to avert or significantly reduce the incidence of program interruptions examined in this study. By implication, it appears that most interruptions have in fact been the result of factors that could not have been influenced by program design. In addition to instances of major political upheaval, discontinuities or weaknesses in policy management also appear to have been related, in roughly a dozen cases, to less severe forms of political disruption, including routine elections, transitions to multiparty political systems, and social unrest. These events typically resulted in government overspending and a general distraction of the decision-making authority. In many other episodes, lapses in policy were associated not with specific events of this kind, but rather with a combination of influences, including domestic political opposition, the authorities’ reluctance to confront special interest groups, poor organization, and governance-related weaknesses.

To the extent that such problems can be anticipated, the incidence of interruptions in IMF arrangements might be reduced by seeking greater assurances than in the past regarding the authorities’ ability to carry out policy commitments before proceeding with IMF support. Greater selectivity in this sense could serve not only to provide more protection for IMF resources but also to encourage national authorities in actions (such as more intensive consensus building) that would reinforce the commitment to reform. Such an approach is not without its own difficulties. In particular, possible criteria for selection—the basis on which commitment is to be judged adequate—are far from clear. One area for attention is election cycles, which frequently were a factor in interruptions. Greater selectivity might be achieved by requiring stronger assurances from authorities of their ability to implement programs through these cycles. Other indicators of commitment, however, such as a previously interrupted program or the record in an IMF staff-monitored program, appear not to be particularly telling.49 Nevertheless, without greater selectivity, interruptions are likely to remain a feature of the ESAF experience, as the IMF continues to assist members at the margins of commitment and in the midst of difficult political transitions.

Appendix 9.1. Detail on Program Targets, Interruptions, and Monitoring

Information on interruptions to SAF/ESAF-supported programs—including the factors underlying program disruptions—is presented in Tables 9.109.18.

Table 9.11SAF/ESAF Review: Factors Underlying Program Interruptions1
Occurrence of Shocks
CountryType and Timing of InterruptionBroad vs. Narrow “Disagreements"/Deviations from Agreed TargetsAreas of “Disagreement” Between Staff and Authorities/Main DeviationsExternalPoliticalNatural disasters
Bangladesh1 interruption: 8-month interval (Dec. 1989-August 1990) between SAF and ESAFBroad, involving major elements of structural reform and the correction of financial policy slippageShortfalls in revenue collection Current expenditure not contained within agreed limits

Sharp rise in credit to government and selected state enterprises
No (impact of Middle East conflict was felt after approval of ESAF arrangement)NoNo (floods had taken place in Sept. 1988, before the interruption)
Benin2 interruptions: 13-month interval (June 1990-July 1991) between SAF I and SAF II annual arrangements (both fully drawn)Broad; political unrest sharply reduced efficiency in public administration, led to extensive slippages and to substantial shortfalls in external assistanceNot applicable-extensive governance problemsNoChange in political regimeNo
7-month interval (June 1992-Jan. 1993) between SAF and ESAFNot applicable-negotiations were concluded by Sept. 1992Not applicableNoNoNo
Bolivia3 interruptions: 7-month interval (Dec. 1987-July 1988) between expiration of SAF I and cancellation of extended SAF/approval of ESAF 1988Broad; range of pending difficulties despite progress in structural reforms in 1987; main issues were related to fiscal and exchange rate policiesPending challenges included: the reversal of the deterioration of fiscal performance in 1987; conditions of state enterprises; liquidity and solvency problems in a number of commercial banks; heavy external debt burdenDecline in export prices (terms of trade deterioration) and accumulation of arrears by Argentina on national gas export paymentsNoNo
7-month interval (Nov. 1990-July 1991) between ESAF 1988 II and ESAF 1988 III annual arrangements (both fully drawn)Broad range of pending difficultiesPending challenges included reducing inflation and deepening structural reformIncreases in petroleum prices linked to Middle East conflict

Unanticipated capital inflows

Continued arrears on gas exports to Argentina
NoDrought
12-month delay (April 1993-April 1994) in completing the review for ESAF 1988 IV (fully drawn, extended from Sept. 1994 to May 1994), immediately followed by a 7- month interval between extended ESAF 1988 and approval of ESAF 1996Broad, involving large deviations from fiscal and financial targets, and agreed implementation of structural reformsLarge deviations from fiscal targets

Deviations from credit and net international reserves benchmarks

Delays in implementing financial sector and public expenditure control reforms
NoImpending presidential electionsNo
Burkina Faso2 interruptions: 13-month interval (March 1992-March 1993) between expiration of SAF I and cancellation of SAF/approval of ESAF.Broad, external and political factors affecting output and incomes, the public finances, and the external positionRelaxation of tax collection efforts

Insufficient attempts to compensate with expenditure cuts
Decline in cot- ton prices and workers remittancesElectionsUneven rainfall
ESAF I review not completed (scheduled by Nov. 1993); ESAF I 50% undrawn; ESAF II approved in March 1994Broad, including problems in revenue collection; incurrence of domestic and external arrears, continued loss of competitivenessTax reform and administration Arrears to multilateral institutions and Paris Club creditors CompetitivenessNo; shortfalls in external aid were the result of the program veering off trackNoNo
Burundi3 interruptions: 9-month interval (Aug. 1987-May 1988) between SAF I and SAF II annual arrangements (both fully drawn)Broad deviations-widespread effects on the economy of a decline in coffee receiptsSAF I targets missed for external current account reserves, fiscal deficit, financing of the government, domestic credit, and domestic arrearsLower-than-expected coffee exportsNoNo
16-month interval (July 1990-Nov. 1991) between SAF and ESAFBroadMain issue was the past record of policy implementation and monitoring by the authoritiesNoNoNo
ESAF II review not completed (scheduled by May 1993); ESAF II 50% undrawn; ESAF III not approvedNot applicableNot applicableNoAttempted military coup, political assasinations, and widespread ethnic violenceNo
Equatorial Guinea3 interruptions: 24-month interval (Dec 1989-Dec. 1991) between SAFI and SAFII arrangements (both fully drawn)Broad; policy slippages contributing to a significant deterioration of public finances and delays in structural reformsFar-reaching delays in structural measures related to property rights, state-trading companies, forestry policy, insolvent banks, investment and labor codesDecline in world cocoa pricesNoNo
ESAF I review not completed (scheduled by Sept. 1993); ESAF I 50% undrawn; ESAF II approved in May 1994Broad; the program went off track in several areasExpansionary fiscal and monetary policies; slower-than-envisaged progress in structural reformNoPre-election political climateNo
ESAF II review not completed (scheduled by Oct. 1994); ESAF II 50% undrawn; ESAF III not approvedBroad; most program targets missedExpansionary fiscal stance, inadequate budgetary control; extensive external arrears (including to IMF)NoNoNo
Ghana1 interruption: 40-month interval (March 1992-June 1995) between ESAF 1988 and ESAF 1995Broad; serious program setback, major slippagesFiscal policy slippages Problems in implementation of monetary policyShortfall in aid flows in 1994 owing to failure to meet macroeconomic conditionsCivil strife and elections in 1992, labor unrest in early 1995
Guinea3 interruptions: 8-month interval (July 1988-March 1989) between SAF I and SAF II arrangements (both fully drawn)Broad range of problems and policy slippagesFiscal slippages Rapidly expanding credit Accumulation of external payments arrearsShortfalls in external financingNoNo
19-month interval (March 1990-Nov. 1991) between SAF II (SAF III not approved) and ESAFBroad range of problems and policy slippagesOverruns in public spending

Lax tax administration

Delays in public enterprise restructuring

Domestic and external payment arrears

Inadequate monitoring
Low levels of external assistance reflected mainly delays in implementing key structural measuresIn early 1991, growing social unrest (when program was already off track)No
23-month interval (Nov. 1992-Sept. 1994) between ESAF I and ESAF II annual arrangements (both fully drawn)Broad range of problem areasGovernment revenue shortfalls as a result of tax evasion and fraud

Difficulties in expenditure control

Weak monitoring of program developments
Declines in aluminum and bauxite export pricesPresidential electionsNo
Guyana1 interruption: 7-month interval (Dec. 1993-July 1994) between ESAF 1990 and ESAF 1994Broad; delay reflected forward-looking disagreement on fiscal issues and structural reformsFiscal program (public wage rise and revenues)

Privatization and public enterprise reforms
NoNoNo
Honduras1 interruption: 18-month interval (July 1993-Jan. 1995) between ESAF I and ESAF II annual arrangements (both fully drawn)Broad, range of fiscal/macro issues of a forward-looking natureProblems in setting an adequate fiscal program given protracted policy slippagesPositive shock; increase in coffee prices (Oct.-Nov. 1994) expected to cause a major rise in external receipts in 1995 (7.8% of GDP)Presidential electionsNo
Kenya1 interruption: ESAF 1989 III review not completed (scheduled by March 1992); ESAF 1989 III expired (56.3% undrawn) after being extended to March 1993, followed by a 9-month interval until the approval of ESAF 1993 (ESAF 1989 IV) in Dec. 1993BroadProblems in the implementation of monetary and to a lesser extent, fiscal policy

Problems in sustaining reform in maize marketing and trade and exchange liberalization

Delays in structural reforms and renewed slippage in monetary policy
No; the emergence of a large financing gap was the result of lack of reform implementation and corruption practicesElections, tribal clashes, riotsDrought
Lao P.D.R.2 interruptions: 7-month interval (Sept. 1990-April 1991) between SAF and SAF II annual arrangements (both fully drawn)Not applicableThe need to evaluate impact of higher oil prices in program design and incorporate contingency provisionsHigher oil pricesNoNo
8-month interval (June 1994-Jan. 1995) between ESAF I and ESAF II arrangements (both fully drawn)Broad-a number of prior actions not implemented as scheduledThree areas of delayed prior actions were recapitalization of state banks, property rights legislation, and trade policy Formulation of the budgetNoNoNo
Madagascar1 interruption: After expiration of ESAF II annual arrangement (June 1991), ESAF III was not approved (ESAF expired with 33.3% of total resources undrawn)Not applicable-social and political unrestSharp deterioration in fiscal, monetary, and external areas

Halted process of structural reform
NoCivil unrest and protracted period of civil tensionsNo
Malawi1 interruption: 22-month delay (June 1992-March 1994) in completing the review for ESAF IV, extended to March 1994 and fully drawnBroad deviations from reform path associated with ongoing process of political reforms complicating macroeconomic policy implementationDifficulties in controlling expenditure and deficits compounded by large wage increasesContinued deterioration of terms of trade linked to decline in tobacco export prices (cutoff of nonhumanitarian balance of payments assistance not exogenous, but linked to political conditions)Transition to multiparty system, labor unrestSevere drought
Mali2 interruptions: 19-month interval (Jan. 1991-Aug. 1992) between SAF II and ESAF; SAF expired with 28.6% of total resources undrawn (SAF II fully drawn)Not applicable-social and political unrestNot applicableNoCivil unrest and coup d’etatNo
7-month interval (Aug. 1993-March 1994) between ESAF 1 and ESAF II annual arrangementsBroad deviations from macro targets and structural reformsSlippages in fiscal policies Delays in public enterprise reformsNoSevere civil disturbances (combined with policy slippages)No
Mauritania2 interruptions: 7-month interval (Nov. 1988-May 1989) between expiration of SAF II and cancellation of SAF/approval of ESAF 1989Broad deviations from past macro targets and especially structural reform timetableCredit policy, fiscal operations, and external arrears

Delays in implementing a wide range of structural reforms
NoNoNo
30-month interval (May 1990-Dec. 1992) between ESAF 1989 1 (fully drawn) and ESAF 1992; ESAF 1989 II and ESAF 1989 III were never approved and the ESAF 1989 arrangement expired with 66.6% of total resources undrawnBroad; the authorities tried to use the negotiated macroeconomic framework for 1990–91 without any adaptation to changed external assistance and declines in competitiveness owing to poor investment and high costs in key sectorsIn 1990–91 fiscal and monetary policies remained expansionary, leading to sharp weakening of external positions

Fragile banking sector (50% of total private sector credit nonperforming throughout the interruption)
Marked reduction of donors assistance (motivated by alleged human rights violations and position on Middle East crisis)Negotiations were complicated by unsettled political conditions during a process of political reform and new electionsDrought (in 1990)
Mongolia1 interruption: 7-month delay (June 1995-Feb. 1996) in completing the review for ESAF II (fully drawn)Broad, involving both financial program key elements and structural reformsFiscal performance in early 1995

Delays in some public enterprise reforms

Faster than programmed credit growth

Wage policy
NoNoNo
Mozambique2 interruptions: 7-month interval (Dec. 1993-June 1994) between ESAF III and ESAF IV (ESAF III fully drawn, ESAF IV not)In a post-chaos situation, the disagreement on “other items net” appears a narrow one; the issue of excess credit to government due to external shortfalls was not handled by automatic adjustersMonetary expansion in excess of targets due to unexpected expansion of “other items net” and credit to government due to lower than expected foreign aidDelays in the disbursement of foreign aid causing lower than expected nonproject counterpart fund financing available to the budgetNoNo (Cyclone Nadia preceded the interruption but was not a cause of it)
ESAF IV review (scheduled by Feb. 1995) not completed; ESAF IV 50% undrawnAlthough several targets were not met on schedule, the is sues of disagreement were narrowTarget for net government repayment to banks and NFA (by a small margin)

Delays in implementation of structural benchmarks (SBs)
Decline in foreign disbursements contributed to the shortfall in counterpart funds for the governmentNoNo
Nepal3 interruptions: 23-month interval (Nov. 1990-Oct. 1992) between SAF and ESAFNot applicable-political conditions were the overriding factorNot applicableNoTransition to first democratic elections in three decades, followed by fragile political conditions and civil disturbancesPoor monsoon
6-month interval (Oct. 1993-April 1994) between ESAF I and ESAF II annual arrangement (ESAF I fully drawn, ESAF II not)Not applicableNot applicableNoNoSevere floods in July 1993 (3!/2 percent of GDP in economic costs)
ESAF II review (scheduled by Sept. 1994) not completed; ESAF II 50% undrawn; ESAF III was never approved, and ESAF arrangement expired (Oct. 1995) with 50% of total resources undrawnBroadPolicies could not be spelled out

Structural reforms came to a halt
NoLong electoral campaign and protracted political instabilityNo
Nicaragua1 interruption: ESAF I review (scheduled by Feb. 1995) not completed; ESAF I 50% undrawn; ESAF II to date not approvedBroad, involving deviations in both macro and structural reformsPublic expenditure overruns

Deterioration of operating position of state enterprises

Credit policy

Slow pace of privatization, public employment reduction, and state banks reform
NoNoNo
Niger2 interruptions: 9-month interval (Dec. 1989-Sept. 1990) between ESAF I and ESAF II annual arrangements (ESAF I fully drawn, ESAF II not)Broad, involving deviations in both macro and structural reformsFiscal revenue measures Government payments arrears Public enterprise reforms Trade regulationsShortfall in external financial assistance; further decline in terms of trade (lower uranium prices)NoPoor rainfall
ESAF II review (scheduled by March 1991) not completed; ESAF II 50% undrawn; ESAF III was never approved, and ESAF arrangement expired (Dec. 1991) with 50% of total resources undrawnNot applicable-political problems were the overriding factorNot applicable (but budgetary performance in 1990 substantially short of expectations and further deterioration during 1991)NoExtensive social disturbances and political tensionsNo
Pakistan3 interruptions: 10-month interval (Dec. 1990-Dec. 1991) between SAF and SAF III annual arrangement (both fully drawn)Broad, involving deviations in both macro and structural reformsOverrun in defense expenditure

Disappointing tax revenue performance

Higher-than-programmed credit expansion

SBs in fiscal trade and financial policies not fully implemented
Modest shortfall in net external budget financing (0.3 percent of GDP in 1989/90)

Increase in oil prices due to Middle East crisis
Two changes in government in 1990/91

Tensions in Kashmir region (1989/90)
No
9-month interval (Dec. 1992-Sept. 1993) between SAF and intervening Stand-By Arrangement (SBA); ESAF arrangement approved in Feb. 1994Not applicableNot applicableUnfavorable export price conditionsProlonged political crisisFloods (Sept. 1992)
10-month interval (Feb.-Dec. 1995) between end ESAF I (fully drawn) and cancellation ESAF/approval of SBA; ESAFII was never approvedBroad, forward-looking disagreements in macro policies and structural reformsApproved budget short of agreed target

Maximum custom tariff lowered by less than agreed

Base of general sale tax not expanded as planned

Tax exemptions and concessions not removed
NoNoNo
Senegal1 interruption: 21-month interval (June 1992-March 1994) between ESAF 88 and intervening SBA; ESAF 1994 approved in Aug. 1994Broad slippages in fiscal policies and structural measuresRevenue shortfalls

Expenditure overruns

Delays in reforming labor codes; agricultural policies; and privatization
No (drops in prices and volume of major exports in 1992 were not a cause)ElectionsNo
Sierra Leone2 interruptions: 6-year and 4-month interval (Nov. 1987- March 1994) between SAF 1986 and SAF 1994; SAF 1986 II was not approvedNot applicableNot applicable---
9-month interval (March-Dec. 1995) between ESAF I and ESAF II annual arrangements (ESAF I fully drawn, ESAF II review scheduled for Oct. 1996)Not applicableNot applicableSevere curtailment of export capacity and increase in import pricesMajor security problems due to attacks by rebel forcesNo
Sri Lanka2 interruptions: 7-month interval (March-Oct. 1989) between SAF I and SAF II arrangements (both fully drawn)Broad slippages in performance under SAF I (most quantitative benchmarks not respected)Budgetary spending overruns and revenue shortfalls (owing to security problems affecting collection)NoRising violence, civil conflict, and wave of disruptive strikesNo
ESAF III review (scheduled by Oct. 1994) not completed; ESAF III 50% undrawn, extended to July 1995Broad deviations in 1994, with financial and structural policy slippages associated with political eventsIncrease in budget subsidies

Fiscal performance short of expectations

Accommodating monetary policy

Only a few structural reforms implemented as scheduled
NoRegional and parliamentary elections amid continued peace negotiations; change in governmentNo
Tanzania1 interruption: ESAF II review (scheduled by March 1993) not completed; ESAF II 50% undrawn; ESAF III was never approved, and ESAF expired with 52.9% total resources undrawnBroad; considerable deviations from financial program, particularly in fiscal areaShortfalls in revenues caused by delays in tax reforms Domestic bank financing of the budget higher than programmedNoNoNo
Togo2 interruptions: 11-month interval (June 1991-May 1992) between ESAF 1989 II and ESAF 1989 III annual arrangements (ESAF 1989 II fully drawn; ESAF 1989 III not)Broad; substantial weakening of fiscal stance, and accumulation of domestic and external arrearsAbrupt decline in government revenues

Large wage increases for military personnel
NoSocial and political unrest, in the run-up to first multiparty elections (with attempted coup d’etat)Poor weather conditions
ESAF 1989 III review (scheduled by Nov. 1992) not completed; ESAF 1989 III 50% undrawn; immediately followed by 16-month interval (May 1993-Sept. 1994) between end- ESAF 1989 II and approval of ESAF 1994Not applicable-major social breakdownNot applicableForeign aid suspension (as a result of social and political developments)Major social and political unrest, with protracted strikesNo
Zimbabwe2 interruptions: 7-month delay (June 1994-Feb. 1995) in completing the review for ESAF II (fully drawn)Broad, involving both fiscal policy issues and structural reforms in public sector entitiesFiscal policy slippages due to inadequate expenditure control mechanisms

Delays in reform of monitored public enterprises
NoNoNo
After expiration of ESAF II (March 1995), ESAF III annual arrangement was never approved, and ESAF expired (Sept. 1995) with 24.3% of total resources undrawnBroad, involving major deviations from fiscal targets and planned structural reformsPublic expenditure overruns

Delays in public enterprise reforms
NoNoNo
Total51 interruptions in 28 countries:

6 with 3 interruptions;

11 with 2 interruptions;

11 with 1 interruption
16 cases27 cases11 cases
Source: IMF staff estimates.

Only interruptions taking place before end–1995 are considered.

Source: IMF staff estimates.

Only interruptions taking place before end–1995 are considered.

Table 9.12Classification of Critical Factors in 51 Interruption Episodes
Forward-Looking Disagreements Only (time needed to formulate a policy response to shocks; no major policy slippages)Political Disruptions (serious enough to prevent meaningful negotiations or call into question continuing authority of current government)Deviations from Past Policies
Fiscal issuesStructural reforms
Bangladesh 1Benin 1Bolivia 1Equatorial Guinea 1
Benin 2Burundi 3Bolivia 3
Bolivia 2Madagascar 1Burkina Faso 1Guyana 1
Lao P.D.R. 1Mali 1Burkina Faso 2Lao P.D.R. 2
Mauritania 2Nepal 1Burundi 1Mauritania 1
Nepal 2Niger 2Burundi 2Mozambique 1
Pakistan 3Pakistan 2Equatorial Guinea 2Nepal 3
Sierra Leone 2Sierra Leone 1
Sri Lanka 2Equatorial Guinea 3
Togo 2
Ghana 1
Guinea 1
Guinea 2
Guinea 3
Honduras 1
Kenya 1
Malawi 1
Mali 2
Mongolia 1
Mozambique 2
Nicaragua 1
Niger 1
Pakistan 1
Senegal 1
Sri Lanka 1
Tanzania 1
Togo 1
Zimbabwe 1
Zimbabwe 2
8 cases10 cases27 cases6 cases
Source: IMF staff estimates.
Source: IMF staff estimates.
Table 9.13Factors Underlying Program Interruptions Affected by Extensive Strikes and Social or Political Unrest
Program Interruption1Underlying Circumstances
Benin 1

(13-month interval-June 1990- July 1991-between SAF I and SAF II)
In late 1989 and early 1990, growing political unrest and widespread strikes virtually halted government activities. The unrest came in the midst of economic disarray, the collapse of the banking sector, and major arrears in government payments of wages, salaries, and scholarships. Intermittent civil service strikes up to late March 1990 also reflected the cuts in benefits and in the number of civil servants made in 1989. These measures had led to a reduction of 10 percent in the wage bill.
Guinea 2

(19-month interval-March 1990- November 1991—between SAF II and ESAF)
In May 1991, growing social unrest and demands for more rapid political liberalization led the government to grant an across-the-board doubling of basic civil service salaries. The 1991 budget bill had provided for a 20 percent salary increase (corresponding to a 4 percent decline in real terms, based on targeted inflation for the year), but since then there had been marked increases in utility fares (electricity, transportation, and water).
Madagascar 1

(after expiration of ESAF II, ESAF III was not approved)
The eruption of political disturbances and strikes in late June 1991 reflected deep-seated dissatisfaction with institutional and political arrangements. The resolution of these problems involved the formation of a transitional government with a mandate to guide the country to multiparty democracy and the establishment of the Third Republic.
Mali 1

(19-month interval-Jan. 1991- Aug. 1992—between SAF II and ESAF)
The massive demonstrations that broke out in early 1991 and led to the coup d’etat in March 1991 reflected mainly deep-seated problems, resolved with the formation of an interim government (April 1991), a democratization process, the adoption of a new constitution (January 1992), and new elections. Insofar as the protests involved the destruction of administrative facilities and equipment of tax and customs offices, they may also have involved a reaction to recent revenue mobilization efforts.
Mali 2

(7-month interval-Aug. 1993- March 1994—between ESAF I and ESAF II)
At the time of the ESAF I review, it was noted that the authorities had not been able to scale down expenditure on scholarships before the beginning of the school year as planned, but that renewed efforts in this direction were to be expected in 1993. Following the completion of the ESAF I review (April 1993), severe disturbances by students led to the resignation of the prime minister and the formation of a new government.
Malawi 1

(22-month delay-Jun. 1992- March 1994—in completing the review for ESAF IV)
Amid domestic and external pressures for political liberalization and a severe drought hitting staple food production, unprecedented labor unrest broke out in April-May 1992. An increase in minimum wage (the first since May 1989) was to be limited to 20 percent, well below the intervening increase in consumer prices. Government salaries were to increase by 25 percent on average, also the first increase in some years. In the absence of established mechanisms for discussion and settlement, demonstrations and wildcat strikes led to further major wage hikes (68 percent in the civil service, 50 percent or less in the rest of the economy).
Nepal 1

(23-month interval-Nov. 1990-Oct. 1992—between SAF and ESAF)
Following the SAF, Nepal entered a transition to democracy culminating in the mid–1991 elections. The new government inherited a difficult macroeconomic environment amid heightened expectations. Civil disturbances and antigovernment demonstrations broke out in April 1992. In the 1991 Article IV consultation, IMF staff noted that the government had succumbed to pressures for a significant increase in wage and recurrent expenditure, prompting politically sensitive adjustments to public enterprise prices to limit the fiscal deterioration.
Niger 2

(ESAF II review not completed—scheduled by March 1991)
After the approval of ESAF II (Sept. 1990), Niger experienced civil unrest that led to the convening of a national conference and the formation of a transitional government. It is not clear whether the strikes and political tensions were linked to the prior actions taken in mid–1990. Some of these measures were politically sensitive, as they included the reduction of budgetary subsidies and transfers, and the virtual freezing of the government wage bill by keeping the size of the civil service unchanged, suspending automatic and discretionary promotions, and avoiding cost of living adjustments.
Togo 1

(11-month interval-Jun. 1991-May 1992—between ESAF 1989 II and ESAF 1989 III)
After 24 years of military-controlled one-party rule, political pressures increased sharply in October 1990 when the sentencing of students triggered widespread riots. Simmering discontent culminated in severe disturbances in March and April 1991. In response, a transition to multiparty elections began. Staff recognized that the political liberalization brought to the surface popular discontent with the social implications of the prolonged period of adjustment and structural reform. Strong pressures emerged for increasing salaries and benefits in the public and parapublic sectors, and for reductions in taxation. These pressures forced the authorities to end the wage freeze in effect since 1987, and increase the wage bill and the amount of scholarships.
Togo 2

(ESAF 1989 III review-scheduled by Nov. 1992—not completed)
The political situation in Togo worsened significantly from the second half of 1992, with an escalation of tensions between the president and the military on one side and the government-established national conference on the other. Elections scheduled for mid–1992 were repeatedly postponed and political violence increased. A government reshuffle in September 1992 further heightened tensions. Following acts of violence by the military against the civilian population, the opposition called for a general strike in November 1992 that effectively shut down the formal economy for several months.
Source: IMF staff estimates.

Arabic numerals indicate the interruption of a SAF/ESAF-supported program; Roman numerals indicate annual arrangements; and dates indicate the start of a multiyear arrangement.

Source: IMF staff estimates.

Arabic numerals indicate the interruption of a SAF/ESAF-supported program; Roman numerals indicate annual arrangements; and dates indicate the start of a multiyear arrangement.

Table 9.14External Shocks in 11 Program Interruptions Affected by Past Policy Slippages1
Program InterruptionType of ShockProgram ProjectionOutturn
Bolivia 1Decline in export prices of tin and natural gasTotal export values and terms of trade projected to decline by 13 percent each in 19872Total exports (70–80 percent in tin and natural gas) declined by 14 percent and terms of trade by 8.8 percent in 1987
Arrears in gas export payments (to Argentina)No overdue gas export paymentsPayment arrears increased by $96 million (2.3 percent of GDP)
Burkina Faso 1Decline in cotton export prices

Decline in workers’ remittances
Cotton exports projected to increase to CFAF 38 billion in 19922

workers’ remittances projected to remain constant at CFAF 45 billion in 1992
Cotton exports declined to CFAF 27.6 billion in 1992

workers’ remittances declined to CFAF 43 billion in 1992
Burundi 1Decline in coffee export pricesCoffee prices projected to increase by 50 percent in 1986, decline by 14 percent in 1987, and remain unchanged thereafterCoffee prices 18 percent lower than programmed in 1986; declined by 43.3 percent in 1987 and recovered in 1988
Equatorial Guinea 1Decline in cocoa export pricesTotal exports projected to increase from $38.7 million in 1987 to $41.5 million in 1988 and $43.9 million in 19892Cocoa unit values declined by 12.5 percent in 1988 and by 19.2 percent in 1989; total exports in 1989 ($32.7 million) 15 percent lower than in 1987
Guinea 1Shortfall in government external financingNet government external financing projected at 3.8 percent of GDP in 1988Net government external financing estimated at 0.9 percent of GDP in 1988
Guinea 3Decline in aluminum and bauxite export pricesBauxite export price assumed to decline by 8 percent in 1992 (baseline scenario); aluminum prices also assumed to decline2In 1992 bauxite export prices (Compagnie des Bauxites de Guinee) declined by 10.9 percent; aluminum export price declined by 23.8 percent
Malawi 1Deterioration of terms of trade linked to decline of tobacco export pricesTerms of trade assumed to improve by 7.3 percent in 1992 and 3.9 percent in 1993Terms of trade deteriorated by 15.4 percent in 1992 and 10 percent in 1993
Mozambique 1Delay in disbursement of foreign aidExternal grant receipts in the budget projected at 31.4 percent of GDP in 1993External grant receipts in the budget estimated at 17.1 percent of GDP in 1993
Mozambique 2Delay in disbursement of foreign aidExternal grants in the budget projected at 20.6 percent of GDP in 1994 and 13.7 percent of GDP in 1995External grants in the budget were 21.5 percent of GDP in 1994 and 15.4 percent in 1995), but in the first half of 1995 there was a shortfall in counterpart funds; for the year, shortfall was 5 percent of GDP, reflecting lower foreign disbursement and unexpected lending to a parastatal entity
Niger 1Shortfall in external financingOfficial transfers projected at 7.8 percent of GDP and inflows of public and private capital projected at 6.2 percent of GDP in 1989Official transfers 6.7 percent of GDP and gross capital flow 4.2 percent of GDP in 1989
Decline in uranium export pricesExport price of uranium projected to decrease by 5.5 percentUranium export contract price fell by 9.3 percent in 1989
Pakistan 1Shortfall in net external budgetary financing in 1989/90Foreign financing (including grants) projected at 3.0 percent of GDP in revised programNet foreign budget financing estimated at 2.7 percent of GDP
Higher petroleum import prices and loss of workers’ remittances due to the Middle East crisis (1990/91)Revised program projections (Dec. 1989) for 1990/91 set total imports at $5.7 billion, and workers’ remittances at $1.9 billionTotal imports $7.9 billion and workers’ remittances $1.7 billion; effect of the Middle East crisis was estimated at about 1.5 percent of GDP, in part offset by exceptional foreign grants
Source: IMF staff estimates.

In addition to the shocks examined, declines in external assistance affected Ghana 1, Guinea 2, Kenya 1, Malawi 1, and, among cases affected by severe political disruptions, Togo 2. However, these declines cannot be considered as exogenous shocks since they resulted from a poor past record of policy implementation or were linked to political conditions (Kenya 1, Malawi 1).

Specific price projections not available.

Source: IMF staff estimates.

In addition to the shocks examined, declines in external assistance affected Ghana 1, Guinea 2, Kenya 1, Malawi 1, and, among cases affected by severe political disruptions, Togo 2. However, these declines cannot be considered as exogenous shocks since they resulted from a poor past record of policy implementation or were linked to political conditions (Kenya 1, Malawi 1).

Specific price projections not available.

Table 9.15Annual Fiscal Targets Prior to Interruptions Affected by Past Policy Slippages
Program InterruptionRelevant Annual Arrangement or Midterm Review Prior to InterruptionYear Considered
Bolivia 1SAF I1987
Bolivia 3ESAF 1988 IV1992
Burkina Faso 1SAF I1992
Burkina Faso 2ESAF I1993
Burundi 1SAF I1987
Burundi 211
Equatorial Guinea 111
Equatorial Guinea 2ESAF I1993
Equatorial Guinea 3ESAF II1994
Ghana 111
Guinea 1SAF I1988
Guinea 2SAF II1990
Guinea 3ESAF I review1992
Guyana 111
Honduras 1ESAF I review1993
Kenya 1ESAF 1989 III1991/92
Lao P.D.R. 2ESAF I review1993
Malawi 1ESAF IV1991/92
Mali 2ESAF I review1993
Mauritania 1SAF II1988
Mongolia 1ESAF II1995
Mozambique 1ESAF III review1993
Mozambique 2ESAF IV1994
Nepal 3ESAF II1994
Nicaragua 1ESAFI1994
Niger 1ESAF I review1988/89
Pakistan 1SAF II1989/90
Senegal 111
Sri Lanka 1SAF I1988
Tanzania 1ESAF II1992/93
Togo 1ESAF 1989 II review1991
Zimbabwe 1ESAF II1993/94
Zimbabwe 2ESAF II review1994/95
Source: IMF staff estimates.

Annual fiscal targets not available.

Source: IMF staff estimates.

Annual fiscal targets not available.

Table 9.16Structural Conditionality in Programs Prior to Interruptions Affected by Past Policy Slippages
Program InterruptionStructural Performance Criteria (SPCs)ObservedStructural Benchmarks (SBs)Observed
Bolivia 1None1.Implementation of tax reformNot reported
2.Formulate public sector investment program for 1987 that is endorsed by the World BankNot reported
3.Reorganize state mining company (COMIBOL)Not reported
Bolivia 31.Send the 1993 budget proposal to Congress with budget figures for revenue and expenditure integrated with the fiscal programDelayed1.Implement supporting mechanisms of expenditure controlNo
2.Offer for sale or begin to liquidate 31 public enterprisesYes2.For 20 public enterprises, sale has been awarded or enterprise has been closedYes
3.Complete reconciliation of accounts and recapitalization of Central BankYes3.Central Bank and Banking System Law approved by CongressNo
4.Complete liquidation of the Bolivian Agricultural Bank, the Bolivian Mining Bank, and the national Mining Exploration FundNo
5.Curtail operations of Banco del Estado (BANEST)Yes
6.Regularize overdue loans and liquidate or sell two hotels belonging to BANESTYes
7.Privatize the operation of 12 customs houses.Partially
Burkina Faso 1None1.Abrogation of decree ANV–003/PP/PLAN-COOPYes
2.Introduction in March 1991 of a regulation requiring the prior approval of the Minister of Finance for any decision calling for disbursement of external funds or making expenditure commitments that involve foreign financingYes
3.Completion of the restructuring program for BND-B and the BIB (2 banks) by June 1991Partially
4.Reduction in the number of categories of products subject to import authorizationNot reported
5.Transmission to the IMF by September 1, 1991, of the modalities for making the Minister of Finance sole paymaster of the governmentNot reported
6.Reorganization of the Ministry of Finance before end-September 1991Yes
Burkina Faso 21.Communication to the IMF the results of study on the actuarial position of the CNSS (public pension system)Yes1.Decision on the future role of the BND-BNot final
2.Adoption of a measure granting the BRCB (Bureau de Recouvrement des Creances de Burkina) collection authority similar to that of the treasuryYes2.Decision on the future role of OFNACER (National Cereals Marketing Board)Yes
3.Understandings with the IMF on the budgeting of the decision regarding the future of the BND-BNot fully3.Revision of the labor codeYes
4.Establishment and communication, as of end-February 1993, of a quarterly TOFE (Tableau des operations financieres de I’Etat)Yes4.Submission of draft law introducing a single value-added tax (VAT) rate as well as a single threshold for medium and small enterprises in the formal sectorNot reported
5.Reduction in the number of products subject to import authorization from 15 to 10Yes5.Replacement of the system of automatic step increases for government employees by a selective system based on meritNot reported
6.Completion of a study on the actuarial position of the CARFO (private pension system)No
7.Replacement of the current system of taxation of oil products by a new tax system that comprises import duties, a VAT, and an ad valorem excise taxNot reported
8.Reduction in the number of products subject to import authorization from 10 to 5Not reported
Burundi 1None1.Automatic granting of import licenses for all products except glass, textile, and pharmaceutical products, and a few luxury items, which will remain subject to temporary controlsYes
2.The remaining quantitative restrictions on luxury items will be replaced by import tariffsNo
3.Review of the restrictions on other productsNo
4.With objective of eliminating or replacing them with appropriate tariffsNo
5.Increase in the limits on outward foreign remittancesYes
6.Consolidation of the import and fiscal duties, and establishment of a new range of tariffsPartially
7.Introduction of new tariffs for water and electricityYes
8.Launching of rehabilitation program for five priority enterprisesDelayed
Equatorial Guinea 1None1.Annual review of the 1986 agreement between government and the private sector timber companies will be undertaken before end-January each yearYes
2.Review cocoa prices annuallyYes
3.Incorporate all counterpart funds in the 1989 investment budget before the end of 1988Partially
4.Establish by October 1988 a centralized system for monitoring actual development expenditureInitiated
5.Revise investment code by December 31, 1988No
6.A review of progress in the liquidation of Gunextebank and BCD will be done before the end of the year to ascertain that the liquidation can be completed by end-1989Initiated
7.The restructuring of the tax department and the abolition of the tax commission will be accomplished by mid–1989, the revision of the turnover tax by October 1988, and the introduction of a 25 percent surcharge on alcoholic beverage and tobacco imports by December 1988Partially
Equatorial Guinea 21.Completion of tailoring the size of logging concession areas to the installed capacity of the logging companiesYes1.Establishment of an agricultural credit institutionNo
2.Completion of negotiations with debtors regarding CFAF 1.8 billion of unreimbursed domestic bank loans and reimbursement of depositorsNo
3.Modification of the procurement policy and pricing structure of the petroleum monopoly (GE-TOTAL)No
4.Offering of the state-owned maritime transport company for private sector participationNo
Equatorial Guinea 31.Implementation of the UDEAC (Customs and Economic Union of the Central African States) tariff reformYes1.Submission of monthly fiscal, monetary, and external sector data (including debt service) to the IMF within 6 weeks of the end of each monthIrregularly
2.Establishment of a new price and tax structure for petroleum productsYes2.Elimination of stamp fees for payment of taxes in MalaboYes
3.Elimination of the cross compensation system between government and taxpayersYes
4.Establishment of a list of major taxpayers with a view to enhancing tax collectionYes
5.Preparation of an action plan to implement a public administration reform programIn progress (as of 6/95)
Guinea 1None1.Increase in hydrocarbon pricesNot reported
2.Introduction of new instruments of financial intermediationNot reported
3.Introduction of a quarterly evaluation mechanism for deposit and lending interest ratesNot reported
4.Harmonization of the tax system applicable to imported and domestically produced goodsNot reported
5.Incorporation of rental income and income in kind in the base for general income taxNot reported
6.Elimination of the exemption from the turnover tax for imported products other than those benefiting from an authorized exemption from customs dutyNot reported
7.Strengthening of the authorization and monitoring mechanism for external debt operationsNot reported
Guinea 2None1.Create petroleum distribution company (SGP) in February 1989; company to start operations by July 1989Partially
2.Administrative reform-adopt organizational structures and appoint staff (January 1989)Yes
3.Notification to spending ministries of appropriations (January)Yes
4.Adopt decree on regulation of government accounting procedures (May)Delayed
5.Adopt agreement between government and central bank on modalities of government borrowing (February)Delayed
6.Establish a temporary accounting system for commitments (January)Yes
7.Centralization and computerization of payrollDelayed
8.Review of water and electricity sector and tariff adjustmentsPartially
9.Review of external competitiveness and interest rates (quarterly)Not reported
Guinea 3None in the midterm program reviewQuantitative Structural Benchmarks:
1.Total budgetary revenueNo
2.Budgetary expenditure excluding interest on external debt and externally financed investmentYes
3.Government wage billNo (marginally)
Honduras 1NoneIndicative Structural Benchmarks:
1.Elimination of remaining import surchargeNot reported
2.Reduction of rediscount lines funded with domestic resources by L 50 millionNot reported
Kenya 11.Progress in liquidation and divestiture of state corporationsYes1.Implement specified export promotion measuresPartially
2.Intensify monitoring of the fiscal situation throughout the fiscal yearYes2.Progress in price decontrolPartially
3.Targets for reduction in government employmentNot reported
4.Tuition and direct charges for university students and reduction in amount of student loanYes
5.Management reform and corporate restructuring of KPTCNo
Lao, P.D.R. 2None in the midterm program review1.Implementation of laws and decrees on arbitration, bankruptcy, negotiable instruments, and secured transactionsDelayed
2.Completion of recapitalization of commercial banksDelayed
3.Retrenchment of civil servants by about 10 percent on a net basis (or a gross retrenchment of about 8,400 workers and a new hiring of about 1,400 persons)No
4.Removal of all remaining quantitative restrictions and licensing requirements for importsNo
5.Privatization of 19 large and medium-sized and 6 small enterprises.Partially
Malawi 11.A study of external competitiveness—according to agreed terms of reference—to be provided to the IMF staffNo1.Formulation of a detailed plan for the restructuring of the Post Office Savings Bank based on the terms of reference agreed with the World BankNo
2.Introduction of a monthly composite consumer price index based on the Household Expenditure Survey of June 1990-July 1991No
3.Formulation of a comprehensive restructuring plan for Malawi Railways as specified in paragraph 56 of the Policy Framework Paper 1991/92–1993/94No
Mali 2None in the midterm program reviewNone in the midterm program review
Mauritania 1None1.Elimination of customs tariff exemption for raw materials and intermediate goods for projects agreed under the Investment Code (end-1987)Delayed
2.First step toward elimination of exemptions for externally financed projects (end-1987)Delayed
3.Implementation of customs tariff reform (1988)Delayed
4.Reform of corporate income taxation and preparation of reform of turnover tax (end-1987)Partially
5.Introduction of comprehensive system for monitoring external debt (end-1987)Delayed
6.Reform of marketing of agricultural products and transfer of rice mills to private operators (end-1987)Delayed
7.Elimination of system of maximum markups on the price of domestically manufactured products, and the transfer of certain products from the certified price system (prix homologues) to a system of ex-post price control based on production costs (end-Oct. 1987)Delayed
8.Elimination of import licenses for intermediate goods for industry and related services (end-Oct. 1987)Yes
9.Finalization of the transfer of certain banks to the private sector, and strengthening of supervision of the banks by the Central Bank (end-1987)No
Mongolia 11.Establish a regulatory commission to review the tariffs for public utilities and to introduce a mechanism for automatic price adjustmentsYes1.Enact legislation on land ownership and other property rightsYes
2.Introduce central bank refinancing facilityYes2.Identify and rectify remaining legal and regulatory constraints on foreign direct investmentYes
3.Refrain from introducing new restrictions and conditions (licensing, quota, and taxes) on exports, except for royalty-type taxes on nonrenewable resources and limits for environmental, cultural, and security reasonsYes3.Adjust the prices of petroleum products other than gasolineYes
4.Raise domestic heating tariffs for residential use by 60 percentYes
5.Sell one-fourth of the list of public enterprises earmarked for cash privatization in 1995Yes
6.Complete repayment of outstanding directed creditsPartially
7.Undertake provisioning against losses and recapitalization of banks on the basis of recommendations made by the working committeePartially
8.Abolish the ban on raw cashmere exportsNo
9.Agree on a timetable for implementation of improvements in price, government finance, and balance of payments statisticsYes
Mozambique 1None in the midterm program reviewNone in the midterm program review
Mozambique 21.Presentation of definitive monetary survey (performance criterion for end-September)No1.Presentation of a business strategy plan for the BCM (Banco Comercial de Mozambique)No
2.Maintenance of a positive real minimum interest rate on 6-to 12-month deposits (performance criterion for end-September 1994; otherwise, benchmarks)Yes2.Implementation of revised procedures for check clearing as well as a working group on payments system with participation from banksNot reported
3.Bank of Mozambique to ensure timely reporting by its correspondence banksYes3.Identification of the nonperforming loans of the BPD (Banco Popular de Desenvolvimento) and presentation of business strategy plan for the BPDNo
4.Regular adjustment of remaining administered pricesPartially
5.Completion by the Enterprise Restructuring Unit (UTRE) of the public tenders for at least five large public enterprises and an additional three large public enterprisesNot reported
6.Sign a new preshipment inspection arrangement that takes into account World Bank recommendationsNo
7.Adjust controlled prices regularly to reflect changes in costsPartially
8.Complete public tenders for five large enterprisesYes
9.Implement System of National Statistics as described in proposed Statistics Law; the Statistics Law is to be submitted to Parliament before June 1995Delayed
10.Make substantial progress in the compilation of national accounts data based on the System of National Accounts methodologyYes
11.Adjust the rediscount rate of the Bank of Mozambique to positive real levels at quarterly intervalsYes
12.Produce monthly central bank balance sheet and analytical summary thereof within thirty daysYes
13.Produce monthly monetary survey and supporting data within 45 days usually and no more than 60 daysYes
Nepal 31.Establishment of effective expenditure monitoring by transferring check-issuing responsibilities to selected District TreasuriesNo1.Prepare preliminary rolling three-year prioritized expenditure programYes
2.Preparation of a set of contingency revenue and expenditure measures equivalent to at least NRs 500 million at the beginning of the 1994/95 fiscal yearNo2.Issue regulations limiting overdrafts extended by the Nepal Rastra Bank to the governmentNo
3.Commence audits of both state-owned commercial banksYes3.Commence reclassification of budget according to internationally accepted norms with a view to full incorporation in the 1995/96 budgetYes
4.Privatize/liquidate 13 identified public enterprisesPartially
5.Complete system for consolidating public enterprise accountsNo
6.Reduce lag on submission of audited accounts by all public enterprises to no more than 18 monthsNo
7.Extend the coverage of the sales tax to more services and widen the input-credit system to further itemsYes
8.Move toward an invoice-based system of import valuationPartially
9.Sale of additional equity in Nepal Bank Limited to the private sectorNo
10.Further reduce the number of import tariff bands and peak tariff ratesPartially
11.Implement plan to improve balance of payments reporting proceduresNo
Nicaragua 11.Eliminate central bank financing of the state-owned banks on a net basis (financing could change during the year because of seasonal reasons)No1.Implement the voluntary employment-reduction program to reduce the number of public sector employees by 7,000No
2.Limit incremental central bank financing of the FNI (National Investment Fund) to the relending of the external resources provided by regional institutions and external donors for specific programs, net of programmed repayments to central bankYes2.Implement the voluntary employment-reduction program to reduce the number of public sector employees by an additional 2,000Not reported
3.Maintain the mechanism which central bank interest rates (short-and long-term) are set quarterly on the basis of an average of the rates on 30-day deposits plus a spread of 1/4 of 1 percentage pointYes3.Avoid any recapitalization of BANADES (state bank) with government resources; any revaluation of the banks’ assets will be limited to cover a deficit in loan provision requirements and/or indemnization expenses to personnel, and their continued compliance with the prudential norms of the Superintendency will be enforced.Yes
4.Offer for sale at least 40 percent of the shares of the state-owned telecommunications company, including management contractNo4.Reduce BANIC’s (state bank) operating losses (excluding gains from exchange rate corrections) by at least half of the 1993 level (estimated at C$12–13 million)Yes
5.Offer for sale, offer for lease to the private sector, or cease the operations of at least another 33 enterprises still managed by CORNAP (National Corporation of Public Enterprises)No (Delayed)5.Proceed with the issuance of regulations pertaining to the privatization law and present to the National Assembly a draft law for the telecommunications sector permitting the privatization of TELCOR (state-owned telecommunications company)Yes
6.Offer for sale, offer for lease to the private sector, or cease the operations of all but 39 enterprises still managed by CORNAP (National Corporation of Public Enterprises)Yes
7.Present draft legislation to the National Assembly allowing private sector participation in the hydrocarbon and electricity sectorsPartially
8.Lift existing restrictions on the making of payments for education, health, and travel expenses through the official marketDelayed
9.Eliminate multiple currency practice through full unification of the exchange markets (including capital transactions)Not reported
10.Refrain from introducing any nontariff barriers on exports or imports not justified by health or security reasonsYes
Niger 1None in the midterm program reviewNone in the midterm program review
Pakistan 1None1.Annual revision to excises at specific rates to ensure revenue elasticity (1989/90 and 1990/91)Partially
2.Effective implementation of General Sales Tax (July 1, 1990)Partially
3.Reduce exemptions for income and profit taxes (1989/90 and 1990/91)Partially
4.Tighten expenditure control, including quarterly control and reporting system (1989/90 and 1990/91)Partially
5.Ensure no net cash subsidy for urea (1989/90 and 1990/91)Yes
6.Implement agreed schedule of reductions of economic subsidies, with a view to eliminating the subsidy for phosphatic fertilizers by 1991 and the subsidy for potash fertilizer by 1995Yes
7.Adjust power tariff as required (1989/90 and 1990/91)Yes
8.Increase issue price of wheat by no less than the increase in the procurement price of wheat (March-May 1990)Yes
9.Pass through to consumers increases in the international price of crude oil (June 30, 1990)Partially
10.Adjust price of natural gas supplied to domestic household consumersYes
11.Remove further categories of items from the import negative list; reduce by at least one-third the number of remaining categories of items on the restricted list, with a view to eliminating the restricted list by July 1, 1992 (July 1, 1990)Partially
12.Remove most exemptions from the standard customs duties, except for duty drawbacks for exports and incentives for industries as given in 1988/89 budget (1989/90 and 1990/91)Yes
13.Reduce maximum tariff rate further to 100 percent; and rationalize tariff structure, with a view to lowering effective protection in subsequent years (July 1, 1990)Delayed
14.Increase the real value of ceilings on imports of machinery and mill-work against cash licenses and on imports by actual users (July 1, 1990)Yes
15.Rationalize the structure and reduce the rates of the National Savings Schemes (1989/90 and 1990/91)Partially
16.Institute mechanism to ensure that government issues paper to the State Bank of Pakistan (SBP) at market rates (March 1990)Partially
17.Implement auction program for treasury bills (1989/90)Delayed
18.Limit distribution of credit (1989/90)Yes
19.Establish special unit with representatives from various departments of the SBP to analyze monetary and financial developments and make specific recommendationsNo
20.Create committee within SBP to review all information collected from financial institutions with a view to formulating streamlined and rationalized data reporting; and introduce monthly analytic reporting system to serve as primary database for monetary analysis (1989/90)No
21.Submit draft legislation to parliament to unify supervision of all financial institutions, including leasing companies, mudarabas, and private investment finance companies under the SBP (1989/90)Yes
22.Initiate program/timetable for recapitalization/restructuring of NCBs (May/June 1990)Partially
23.Implement new legislation and program debt recovery; and establish a program to reduce arrears (1990/91)No
24.Take measures to narrow premium between the market price of foreign exchange bearer certificates and the official exchange rate (increase allowances for invisible transactions and unify related procedures) (1989/90)Yes
25.Eliminate mandatory minimum margin requirements for opening letters of credit (June 1990)Yes
26.Improve flexibility of rates for forward cover for cash transactions, with exchange rate premiums that reflect interest rate differentials (1989/90)Yes
27.Accelerate phasing out of existing bilateral agreements with IMF members (June 1990)Yes
28.Government will not expand the list of specified industries (1989/90)Yes
29.Adjust the investment sanctioning limit annually to account for inflation (1989/90 and 1990/91)Yes
Sri Lanka 1None1.Complete register of firms under Business Turnover Tax in Colombo, Kandy, and Ratnapura (May 31, 1988)Yes
2.Amend excise ordinance so that taxation of luxury items is through excise duty and not tariff structure-at the same time, reduce tariffs on luxury items to 60 percent (July 31, 1988)Delayed
3.Introduce new regulations for the supervision of finance companies and for strengthening existing procedures for bank supervision (May 31, 1988)Yes
4.Amend State Gem Corporation Act and liberalize import of precious and semiprecious stones and imitation jewelry for the domestic market (September 30, 1988)Yes
5.Eliminate import licensing of machinery for plastics and automatic filling and packing industry (September 30, 1988)Delayed
6.Transform 16 public manufacturing corporations and business undertakings into public liability companiesNot reported
7.Initiate sales of shares of State Distilleries, United Motors, and Ceylon Oxygen (May 31, 1988)Partially
8.Establish a database for the 12 most important public enterprises and extra budgetary units with a view to consolidating their financing needs with those of the central government (1988)Initiated
9.Prepare a timetable to implement the recommendations of the Administrative Reforms Committee to reduce overstaffing during 1989/90 (December 1988)Initiated
Tanzania 11.Nonincurrence of domestic payment arrearsNot reportedNone
Togo 1None in the midterm program review1.Adoption of public investment program for 1991 approved by the World Bank and compatible with macroeconomic program targetsDelayed
Zimbabwe 11.Reduce civil service establishment (number of posts)No1.Increase export retention rateYes
2.Establish and maintain maize pricing policy to limit any temporary trading loss by GMB (Grain Marketing Board) to an amount consistent with the government budgetNo2.Accelerate public enterprise reformNo
3.Maintain positive real interest ratesYes
4.Reform financial sector legislationNo
Zimbabwe 2None1.Implement and maintain market-based pricing policy for maizeNo
2.Reduce civil service establishment (number of posts)No
3.Take over the debt of GMB (Grain Marketing Board), CMB (Cotton Marketing Board), CSC (Cold Storage Commission)No
4.Change legal status of AZC (Air Zimbabwe) to Companies Act (effect change)No
5.Rehabilitation/privatization of ZISCO (Zimbabwe Iron and Steel Company) (consultant team in place and preliminary recommendations by consultants)No
6.Maintain positive real interest ratesYes
7.Reform financial sector legislation (presentation to Cabinet of revised legislation governing the Reserve Bank, the deposit-taking institutions, and the financial services industry, effectiveness of revised legislation)No
Source: IMF staff estimates.
Source: IMF staff estimates.
Table 9.17Program Monitoring in Program Interruptions Affected by Past Policy Slippages
Program InterruptionStarting Date of InterruptionDuration of Interruption (months)1Number of Missions in Six Months Leading Up to InterruptionApproximate Time Lapse Between Timing of Missions Prior to and Starting Date of Interruption (months)Timing of Missions Prior to InterruptionTiming of Missions During InterruptionPresence of IMF Resident RepresentativePresence of IMF Staff-Monitored Program
Bolivia 1December 19877115August-September 1986January-February 1988YesNo
14October 1986May 1988
<1December 1987
Bolivia 3April 1993212113March 1992July 1993YesNo
9June-July 1992October-November 1993
1February-March 1993February-March 1994
March 1994
BurkinaMarch 199213016November 1990June 1992NoNo
Faso 18July 1991September-October 1992
December 1992
BurkinaNovember 199325113September-October 1992November 1993NoYes
Faso2(November-December 1993)
11December 1992February 1994
2September 1993
Burundi 1August 19879117March 1986September-October 1987NoNo
16April 1986January-February 1988
1July 1987
Burundi 2July 199016020November 1988October 1990NoNo
17January-February 1989April-May 1991
July 1991
August 1991
EquatorialDecember 198924117July 1988November 1990NoNo
Guinea 16May-June 1989June 1991
September 1991
EquatorialSeptember 19932n.a.212July-August 1992January 1994NoNo
Guinea 29November 1992
3May 1993
1July-August 1993
EquatorialOctober 19942n.a.215July-August 1993July 1995NoNo
Guinea 311January 1994
6May 1994
2September 1994
Ghana 1March 199240215December 1990July 1992YesYes, in 1993 and 1994
8June-July 1991March-April 1993
7August 1991
3December 1991
2January 1992
Guinea 1July 19888119November-December 1986December 1988YesNo
15March-April 1987
<1June-July 1988
Guinea 2March 199019215December 1988July 1990Yes, except from October-November 1990No
3January 1990October 1990 to June 1991
<1March 1990
March 1991
April 1991
December 1991
Guinea 3November 199223311December 1991November-December 1992YesYes, in 1992, 1993, and 1994, first half
10January 1992
6May 1992March-April 1993
3July-August 1992
2September 1992
Guyana 1December 19937114October 1992March 1994NoNo
9March 1993June 1994
8April 1993
1October-November 1993
Honduras 1July 199318315March-April 1992October-November 1993After August 1994No
14May 1992
5February 1993February 1994
2May 1993May 1994
1June 1993August 1994
October 1994
Kenya 1March 19922n.a.113February 1991April 1992No (Only after December 1993)Yes, in March-December 1992
11April 1991September 1992
9June 1991
3December 1991
Lao, P.D.R. 2June 19948116February 1993September 1994YesNo
9September 1993November 1994
2April 1994
Malawi 1June 1992222412June 1991October 1992NoYes, in 1993 and 1993/94
3March 1992April 1993
2April 1992
1May 1992
<1June 1992
Mali 2August 19937213June-July 1992November 1993YesNo
8December 1992January 1994
6February 1993
<1July-August 1993
Mauritania 1November 19887112November 1987November-December 1988NoNo
9February 1988
4May-June 1988February 1989
Mongolia 1June 199527213April-May 1994September 1995YesNo
11July 1994December 1995
9September 1994
5January 1995
1May 1995
Mozambique 1December 19937215September 1992March 1994NoNo
7April-May 1993April 1994
3August-September 1993
1November 1993
Mozambique 2February 19952n.a.215November 1993September 1995NoNo
11March 1994November-December 1995
10April 1994
5September 1994February-March 1996
1February 1995
Nepal 3September 19942n.a.114July 1993January 1995YesNo
7January-February 1994June 1995
3June 1994October-November 1995
Nicaragua 1February 19952n.a.114November-December 1993March-April 1995YesYes, after September 1995
11March 1994August-September1995
10April 1994February 1996
4October 1994
Niger 1December 19899115August-September 1988April-May 1990NoNo
7May 1989June 1990
<1November-December 1989
Pakistan 1December 199012214October 1989April 1991NoNo
3September 1990July 1991
<1December 1990September 1991
Senegal 1June 199221116January-February 1991August 1992YesNo
11July 1991September 1992
10August 1991July 1993
1April-May 1992October-November 1993
December 1993
January 1994
Sri Lanka 1March 19897016November 1987May 1989YesNo
14January 1988July 1989
9June 1988August 1989
Tanzania 1March 19932n.a.213February 1992May 1993YesYes, in second half of FY 1993–94 (January-June 1994)
9May-June 1992July 1993
6August-September 1992October 1993
1February 1993January-February 1994
Togo 1June 199111114March-April 1990November 1991NoNo
9September 1990March 1992
7October-November 1990
1May 1991
Zimbabwe 1June 199427112June 1993October-November 1994YesNo
11July 1993December 1994
9September 1993
7November 1993
1May 1994
Zimbabwe 2March 1995n.a.216November 1993April-May 1995YesNo (SMP after ESAF expiry-September 1995)
10May 1994June 1995
4October-November 1994December 1995
3December 1994
Source: IMF staff estimates.

“Not applicable” (n.a.) indicates that the midterm review was not completed, or, in the case of Zimbabwe 2, that a subsequent annual arrangement was not approved.

Program interruption owing to delay in completing a midterm review. The starting date is the date by which the review was to be completed.

Source: IMF staff estimates.

“Not applicable” (n.a.) indicates that the midterm review was not completed, or, in the case of Zimbabwe 2, that a subsequent annual arrangement was not approved.

Program interruption owing to delay in completing a midterm review. The starting date is the date by which the review was to be completed.

Table 9.18Contingencies in Programs Prior to Interruptions1
In-Built Contingency Mechanisms (ICMs, or Adjusters)
Program InterruptionType of ShockExternal Reserves2/External ArrearsSources of Risk in IMF Staff AssessmentsPerformances criteria (PC) subject to adjustment3Adjustors applied to:NatureExtent of adjustment capContingent MeasuresModified Access
Bolivia 1

7-month interval (Dec. 1987-Jul. 1988) between expiration of SAF1 and cancellation of extended SAF/approval of ESAF 1988.
Decline in export prices of tin and natural gas Arrears in gas export payments7.9/YesAdverse effects of capital inflows on competitiveness Shortfall in concessional financingNonen.a.n.a.n.a.Non.a.4
Burkina Faso 1

13-month interval (March 1992-March 1993 between expiration of SAF 1 and cancellation of SAF/approval of ESAF
Decline in cotton export prices Decline in workers’ remittances Poor rainfall6.0/YesDependence on concessional external financing Vulnerability to gold and cotton export developments, and world oil pricesNonen.a.n.a.n.a.Commitment to adjust retail petroleum product prices to guarantee the transfer to budget by the Equalization Fund (CGP)No
Burundi 1

9-month interval (Aug. 1987-May 1988) between SAF 1 and SAF
Decline in coffee prices (prices 18 percent lower than estimated in the program in 1986, and declining by 43 percent in 1987)2.0/NoExternal assistance inflows Coffee prices assumed to increase by 50 percent in 1986, decline by 13 percent in 1987, and remain stable thereafterNonen.a.n.a.n.a.Non.a.
Equatorial

Guinea 1

24-month interval (Dec. 1989- Dec. 1991) between SAF 1 and SAF II
Decline in cocoa prices1.5/YesImpact of prices on expansion of output and export of cocoaNonen.a.n.a.n.a.Non.a.
Guinea 1

8-month interval (July 1988- March 1989) between SAF1 and SAFII
Shortfall in external financing0.6/YesShortfall in external financing and deterioration in terms of trade-NFA

- CBSPS

-NDA
Excess use of balance of payments assistance and shortfall of selected expenditure Excess use of external budget assistance, and to offset use of credit lines by small and medium-sized enterprisesAsymmetric (NFA upward, CBSPS downward)Any amount in excess of time-varying limits; no capNon.a.
Guinea 3

23-month interval (Nov. 1992- Sept. 1994) between ESAF 1 and ESAF II annual arrangements
Decline in aluminum and bauxite export prices2.2/YesShortfall in tax collection on petroleum products Rising pressure on civil service wage bill prior to elections-NFA

-NDA

-NCG

- CBSPS

- External debt
Net accumulation of external debt payment arrears less the shortfall in nonproject financing and changes in central bank revaluation accountsUnclear direction of adjustmentNoNoNo
Kenya 1

ESAF 1989 III review not completed (scheduled by March 1992); ESAF III expired after being extended to March 1993, followed by 9-month interval until the approval of ESAF 1993 (ESAF 1989 IV) in December 1993
Drought1.6/YesShortfall in export earnings and capital inflows Insufficient restraint in fiscal policy and in import activities of state companies-NDA (Banking System)

-NCG
Excess in net external financing of the deficit, or in domestic nonbank financingAsymmetric (downward)Any amount in excess of limitsNoYes; augmentation by 14 percent of quota to compensate for lost tourism receipts due to Middle East crisis
Malawi 1

22-month delay (June 1992- March 1994) in completing the review for ESAF IV
Deterioration of terms of trade linked to decline of tobacco export prices Severe drought2.6/ NoVulnerability to conditions of external transport routes and to world price developments-NCGDisbursement of external cash loans in excess of prespecified limitsAsymmetric (downward)Full for any amount in excess of limitsNoNo
Mozambique 1

7-month interval (Dec. 1993- June 1994) between ESAF III and ESAF IV
Delays in disbursement of foreign aid4.8/YesDisbursement of external aid, particularly for financing peace-related expenditure-NCGExcess nonproject external assistance disbursed to governmentAsymmetric (downward)Any amount exceeding Mt.293 millions (by end-June 1993); no capNoNo, but additional arrangement approved in recognition of catalytic role for foreign aid
Mozambique 2

ESAF IV review (scheduled by Feb. 1995) not completed
Delays in disbursement of foreign aid4.4/YesContinued heavy dependence of foreign assistance on concessional terms-NCGExcess nonproject external assistance disbursed to governmentAsymmetric (downward)Amount exceeding specified time-varying limits; no capNoNo
Nicaragua 1

ESAF 1 review (scheduled by Feb. 1995) not completed; ESAF II to date not approved
Drought1.3/YesDifficult external debt and debt-service outlook, and continued heavy dependency on concessional support and exceptional financing-NIR

-NDA

- NDFPS

-CGCE
Deviations in nonprojectrelated grants and credits, and debt service from program assumptions Difference between TELCOR privatization proceeds and their use to redeem compensation bonds5Symmetric- NIR adjustment limited upward to $20 million, downward to $15 million

- Full amount
NoNo
Niger 1

9-month interval (Dec. 1989- Sept. 1990) between ESAF 1 and ESAF II
Shortfall in external assistance Lower uranium export prices Poor rainfall6.9/NoExcess of external budgetary assistance and impact of lower uranium contract prices-DC

-NCG
Excess external budgetary assistance received prior to end- 1988/89Asymmetric (downward)Any amount exceeding specified, time-varying limits; no capNot for external financing shortfalls; midterm review report discussed policy areas to compensate for lower fiscal revenues from uranium sectorNo; access reduced on approval of ESAF II
Pakistan 1

10-month interval (Dec. 1990- Dec. 1991) between SAF II and SAF III annual arrangements
Shortfall in net external budget financing0.7/NoVulnerability of budget and balance of payments to external financing and price developments-NDA

-NCG
Net external budget financing in excess of the assumed quarterly levelsAsymmetric (downward)Any amount exceeding specified limits except for U.S. ACE/ECE greater than expected disbursementsNot for short- fall in external financing; commitment to full pass-through of increases in international oil pricesNo
Togo 1

11-month interval (June 1991- May 1992) between ESAF 1989 II and ESAF III and annual arrangements
Poor rainfall6.9/YesImpact of late rains, a drop in phosphate exports, and increase in oil prices in 1990Nonen.a.n.a.n.a.Yes; midterm review discussed increases in gasoline domestic prices as a way to partially offset the oil price increase; authorities’ intention to freeze nominal expenditure to compensate for the trend in phosphate exportsNo
Source: IMF staff estimates.

The sample includes all programs affected by external shocks and natural disasters, and where the slippages from past policies were the primary factor affecting interruptions. Arabic numerals indicate the interruption of a SAF/ESAF-supported program; roman numerals indicate annual arrangements; and dates indicate the start of a multiyear arrangement.

Presence of external arrears in the annual arrangement prior to the interruption.

NIR = net international reserves of the central bank; NDA = net domestic assets of the central bank; CNFPS = central bank credit to the nonfinancial public sector; NFA = net foreign assets of the central bank; CBSPS = credit of banking system to public sector; NCG = net bank credit to government; NDFPS = net domestic financing of the combined public sector; CGCE = central government current expenditure.

Bolivia effected a purchase under the IMF’s Compensatory Financing Facility on July 27, 1988 for a shortfall in merchandise exports in the 12 months ending March 1988.

TELCOR is a state-owned telecommunications company.

Source: IMF staff estimates.

The sample includes all programs affected by external shocks and natural disasters, and where the slippages from past policies were the primary factor affecting interruptions. Arabic numerals indicate the interruption of a SAF/ESAF-supported program; roman numerals indicate annual arrangements; and dates indicate the start of a multiyear arrangement.

Presence of external arrears in the annual arrangement prior to the interruption.

NIR = net international reserves of the central bank; NDA = net domestic assets of the central bank; CNFPS = central bank credit to the nonfinancial public sector; NFA = net foreign assets of the central bank; CBSPS = credit of banking system to public sector; NCG = net bank credit to government; NDFPS = net domestic financing of the combined public sector; CGCE = central government current expenditure.

Bolivia effected a purchase under the IMF’s Compensatory Financing Facility on July 27, 1988 for a shortfall in merchandise exports in the 12 months ending March 1988.

TELCOR is a state-owned telecommunications company.

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1See Goldsbrough and others (1996), and the variety of cross-country and case studies surveyed therein.
2The next section discusses the definition of program interruption adopted in this study.
3See Little and others (1993) and Serven and Solimano (1994), among others; for a review of failed stabilization attempts in Latin America, see Agénor and Montiel (1996) and Edwards (1995); and for an earlier discussion of IMF program implementation in African cases, see Zulu and Nsouli (1985).
4Median values for cumulative real per capita GDP growth and cumulative changes in gross domestic investment to GDP ratios were broadly similar to mean values. In both cases, despite sizable dispersion, the differences between means for uninterrupted and interrupted arrangements were statistically significant, based on likelihood ratio tests. In contrast, the wider dispersion of investment ratios to GDP by the third program year prevented the corresponding difference in means from reaching statistical significance at standard levels.
5This finding does not necessarily imply one-way causality: slower growth may affect the probability of program interruption, for instance through lower budget revenues.
6Consider, for instance, an ESAF-supported program subject to policy slippages at the end of both the first and the second annual arrangements, requiring long and drawn-out negotiations for the formulation of each subsequent annual arrangement (eventually completed, with approval of an extended commitment period for the ESAF), and recording slippages so severe during the third annual arrangement as not to warrant completion of the final midterm review. Such a program would pass the above completion test (only one-sixth of total resources would be left undrawn), despite obviously confused signals about consistency and continuity of policies.
7The presence of other intervening IMF arrangements, for instance Stand-By or Extended Arrangements, is taken into account in considering whether a time interval during or in between SAF/ESAF arrangements qualifies as an interruption.
8The definition adopted has some shortcomings. For instance, the review covers arrangements approved before end- 1994 and interruptions that took place before end–1995. Time intervals between the end of the last completed multiyear arrangement and the cutoff date are generally treated as if the adjustment process for these countries had been completed, and are not considered as potential interruptions. In the case of Ghana, however, the long interval between the ESAF program ended in March 1992 and the subsequent ESAF approved in June 1995 corresponded to a serious setback in the process of economic reform, and this episode is therefore included in the list of interruptions. In principle, the definition might also have picked up nonprogram periods when policies were sound but the authorities simply did not need or want a program. In practice, none of the potential interruptions considered was “problem free,” except for the case of Uganda, where an interval between successive ESAF arrangements corresponded to a continued commitment to reform and strong performance. In this case, the interval was not considered a program interruption.
9Hereafter, program interruptions will be identified by the chronological label for each country defined in Appendix 9.1, Table 9.10. Arabic numerals following a country’s name indicate the program interruption (Roman numerals indicate annual arrangements and dates indicate the start of a multiyear arrangement). For instance, “Benin 2” refers to the sevenmonth interval (June 1992-January 1993) between the SAF and the ESAF arrangements.
10The 68 SAF or ESAF arrangements approved between 1986 and end–1994 less: (1) 18 arrangements not yet expired by end–1995; (2) one ESAF arrangement (Mauritania, 1992) with intended duration of only two years; and (3) nine SAF arrangements (Equatorial Guinea, The Gambia, Ghana, Kenya, Madagascar, Niger, Senegal, Togo, and Uganda) replaced by ESAF arrangements.
11In a fundamental sense, all program interruptions reflect a failure to agree on future policies. Even when significant slippages materialize, programs can in principle be continued as soon as the IMF and the authorities can agree on the implementation of adequate remedial measures.
12The interruption episodes classified in this category are Bangladesh 1, Benin 2, Bolivia 2, Lao P.D.R. 1, Mauritania 2, Nepal 2, Pakistan 3, and Sierra Leone 2.
13Because of such uncertainty, revisions to policies were postponed until a subsequent annual arrangement, the negotiations for which took longer than expected because of other intervening issues—specifically, the need to obviate past monitoring problems and to allay World Bank concerns over the impact of a large infrastructural project.
14This crisis involved the dismissal of the Prime Minister and the National Assembly by the President, the subsequent reversal of these decisions by the Supreme Court, the ensuing resignation of both President and Prime Minister, and the formation of an interim Cabinet.
15Although problems in implementing structural reforms featured in about half of the interruptions, deviations from macroeconomic policy commitments generally received greater prominence in staff reports than shortcomings in structural policies. One cannot read too much into this—fiscal shortfalls typically accompanied the failure to implement fiscal-related measures—but it may indicate an implicit hierarchy of targets, with the macroeconomic ranking above the structural.
16In Kenya 1, however, there were problems of monetary control as well as insufficient fiscal discipline, with larger-than- programmed expansion of credit to both government and the private sector. Similar problems took place in Malawi 1, where excessive private sector credit growth reflected difficulties in moving away from direct instruments of monetary control.
17This group includes Equatorial Guinea 1, Guyana 1, Lao P.D.R. 2, Mauritania 1, Mozambique 1, and Nepal 3.
18A preelectoral climate also affected, more disruptively, Sri Lanka 2.
19Financing shortfalls cannot be considered as exogenous events in instances—Ghana 1, Guinea 2, Kenya 1, and Malawi 1—where external assistance was reduced as a result of a poor past record of policy implementation or political reform. Similar considerations apply to Togo 2, affected by an overriding political disruption.
20Burkina Faso 1, Kenya 1, Malawi 1, Nicaragua 1, Niger 1, Togo 1. Droughts or floods also affected two episodes where the main factor was a forward-looking disagreement (Bolivia 2 and Nepal 2), and two episodes affected by overriding political disruptions (Nepal 1 and Pakistan 2).
21For the purpose of this exercise, the targeted change in the fiscal deficit is taken as a summary indicator of ambitiousness. The composition of fiscal adjustment in terms of revenue and expenditure policies is equally important and is analyzed in detail in Abed and others (1998).
22For 5 of the 33 interruption episodes associated with policy reversals or slippages, annual fiscal targets are not available. In four cases (Burundi 2, Ghana 1, Guyana 1, and Senegal 1), this is because the episodes corresponded to interruptions between multiyear arrangements for which program targets were not specified, and in another case (Equatorial Guinea 1) because target data for the interrupted program were not available.
23As in any control-group exercise, we implicitly assume here that countries being examined share with the control group a similar structure and initial conditions.
24In this case there would have been no breach of targets, assuming that setting the latter at a less stringent level would not have resulted in even further slippage in policies.
25In terms of medians, the targets in the interrupted programs were less ambitious than the average uninterrupted program.
26The 7 outliers are Mozambique 1 and 2 in the sample of interrupted programs; Guyana (ESAF I), Mongolia (ESAF I), and Mozambique ESAF I and ESAF III, in the control group of uninterrupted programs. These outliers mask the link between fiscal targets and initial imbalances when they are included in the full joint sample.
27In part, this may reflect a lack of consensus on design of structural reform programs, perhaps linked to the widely held view that success depends on a “critical mass” of reforms, implying pressing for action across a wide range of areas.
28Only 29 of the 33 interruptions affected by policy slippages can be considered. In four instances (Burundi 2, Ghana 1, Guyana 1, and Senegal 1), structural conditions were not available, since policy slippages or reversals took place in between multiyear arrangements.
29For the purpose of this exercise, the comparator sample was taken to be the sample of all ESAF-supported programs included in the IMF’s database on Monitoring of Fund Arrangements (MONA), which covers programs approved since 1991 in 17 of the 36 countries under review.
30The 29 structural benchmarks included in Pakistan’s SAF II annual program addressed areas such as tax and expenditure control, domestic pricing, trade reform, financial sector reform, the exchange system, industrial policy, and investment accounting. In the event, only about half of the measures were implemented (see Appendix 9.1, Table 9.16).
31In 5 of the 29 programs examined, compliance with structural conditions was incompletely reported in IMF staff reports. For these the observance rate was based on conditions reported as fully implemented. Four additional cases where program documents did not report on compliance with any of the conditions were excluded from the regressions.
32The two exceptions are Equatorial Guinea 1 and Mozambique 1. In the former case, several problem areas—such as the clarification of property rights, the update of the land registry, and the restructuring of some parastatal entities—had not been prioritized in terms of structural conditions. Similarly, in the latter, the need to improve the monitoring of the banking system’s credit and foreign exchange management to avoid recurrent problems of sizable fluctuations in “other items net” in the monetary survey was recognized in program documents but was not specified as a benchmark.
33In Lao P.D.R., these constraints were also present in the first of the two interruptions, where the crucial factor was, however, the need to adapt the program to a change in the external environment (see the section “Stylized Facts,” above). In Nepal 3, it is unclear whether the halted implementation of structural reforms reflected technical or political constraints.
34The request was made after two 1992 missions from the IMF’s Fiscal Affairs Department helped to improve tax administration and organize seminars far accountants and taxpayers in preparation for the introduction of the value-added tax (VAT).
35The brief for the midterm review (September 1993) mentions that the authorities had insisted on beginning reform measures in January 1993, against the recommendation of the IMF staff, who were concerned about haste in the implementation of the tax reform.
36Reforms were delayed in the areas of agricultural and forestry policies; investment and labor codes; commercial bank restructuring; clarification of land tenure and property rights; and the restructuring of parastatal entities. The IMF staff appraisal for the 1989 Article IV consultation noted that the country was benefiting from considerable foreign technical assistance—in the areas of tax and customs administration, expenditure control, public accounting, and development planning—and that significant progress also depended on public administration reform aimed at streamlining the administrative structure and strengthening personnel management.
37In practice, all ESAF annual arrangements considered here envisaged a midterm review.
38Annual ESAF arrangements have no test date or disbursement at end-year. Thus, there is no direct penalty for poor policy performance in the second half of the program. A penalty comes only indirectly through the prospect of more protracted negotiations and perhaps more difficult corrective measures for the approval of a subsequent annual arrangement.
39For 12 of the 33 episodes, the program interruption was due to a delay in completing a midterm ESAF review, and the starting date was considered as the date by which the review was to be completed. Typically, however, problems started to arise earlier than this.
40In addition to mission contacts, efforts to bring programs back on track or reestablish a stronger track record through IMF staff-monitored programs were made in 7 of the 33 episodes considered (Burkina Faso 2, Ghana 1, Guinea 3, Kenya 1, Malawi 1, Nicaragua 1, and Tanzania 1), with a mixed measure of success. The IMF staff-monitored programs set the stage for a subsequent annual arrangement in Burkina Faso and Guinea. The programs were less successful in Malawi, and especially in Ghana, Kenya, Nicaragua and Tanzania, where implementation was partial and policy deviations reemerged.
41The three episodes where no mission took place in the semester prior to the start of the interruption are Burkina Faso 1, Burundi 2, and Sri Lanka 1.
42Not every aspect of policy would need to be subject to formal quarterly conditions. In some cases, it may be appropriate to apply quarterly conditions primarily to macroeconomic policies, while retaining a longer-term focus for structural reforms.’
43The importance of contingency mechanisms in program design was underscored in the Executive Board discussions on the 1993 ESAF review (Schadler and others, 1993). In ESAF arrangements, the response to shocks may also involve augmentation of access at the time of approval of annual arrangements and, since July 1990, at midterm reviews. In practice, this option was used in only one of the selected cases discussed in this subsection—Kenya 1, to compensate for lost tourism receipts due to the Middle East crisis—because most episodes also featured policy slippages unrelated to shocks. Other forms of ex post emergency assistance are also available (see IMF, 1995). However, only Bolivia effected a purchase under the Compensatory Financing Facility (CFF) in July 1988, motivated by an export shortfall in the 12 months ending March 1988.
44Five of these 14 interruptions—Burkina Faso 1, Guinea 3, Kenya 1, Malawi 1, and Togo 1—were also affected by political events.
45In Nicaragua, an increase in private capital inflows more than compensated for lower-than-projected official external assistance.
46The fragility of the situation and the constraints were acute in Mozambique, where prior to the second interruption the IMF staff had pointed to the risks of the program being forced off track by the limited ability of the authorities to adjust to another unexpected decline in foreign aid.
47In the other three cases where external financing shortfalls materialized—Mozambique 1 and 2, and Niger 1—either no corrective measures were adopted in the aftermath of the shortfall, or such measures (for instance, sharp cuts in security and defense expenditure during a demobilization period) were unlikely to have been an option.
48The shock anticipated in Niger was lower uranium prices. The agreed contingent measures involved eliminating export taxes on livestock and agricultural products, simplifying export procedures and reinforcing marketing channels to compensate for lower uranium export receipts, and broadening the revenue base. In Pakistan 1 and Togo 1, the commitment to increase the pass-through to domestic petroleum product prices was discussed as a way to offset partially the impact of higher world oil prices. In Togo 1, the authorities were also committed to freeze public expenditure in nominal terms, to compensate for the declining trend in phosphate revenues.
49Among the countries under review that had an interrupted program, only about half experienced another interruption subsequently. Similarly, out of nine countries that had IMF staff-monitored programs through 1994, only five (barely more than half) went on to complete an IMF-supported program without interruption.

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