3.  The current paper addresses the implications of the new strategy for the Fund's own lending through the Poverty Reduction and Growth Facility. It begins by setting out what the new approach is trying to achieve, and what the Fund's role will be. After noting some expected program design changes, the paper then turns to the framework to ensure that PRGF-supported programs stem from, and are consistent with, PRSPs, and are formulated in close coordination with the Bank. Since full-fledged PRSPs, by their nature, may take some time to develop, the paper discusses transitional arrangements governing PRGF operations based on interim PRSPs. The paper also offers some recommendations to streamline the documentation requirements. A review process is proposed to assess experience and formulate needed policy adjustments. After a discussion of resource implications, the paper concludes with issues for discussion.

II.  Objectives of the New Strategy and the Fund's Role

A.  Broad Implications

4.  The new strategy begins with a conviction that a concerted international effort to reduce poverty should be a fundamental element of assistance for low-income countries. Rapid, sustainable growth, always an underlying objective of Fund-supported programs, will be given renewed emphasis as the driving force behind any sustainable reduction in poverty. But the new approach recognizes the increasing evidence that entrenched poverty and severe inequality in economic opportunities and asset endowments can themselves be impediments to growth. To be effective and sustained, growth-oriented policies should be implemented in a framework in which the pressing need to reduce poverty is also a central objective. From this, and growing out of the analysis and recommendations made in the internal and external reviews of the ESAF, and from the constructive suggestions of many outside commentators, has come a commitment to making Fund-supported programs for low-income countries better integrated with policies to fight poverty, better-owned, and better-financed.

5.  Crucially, the new framework rests on a departure in the way objectives and policies are chosen. The country and its people will need to take the lead. PRSPs will be prepared by the government, and based on a process involving the active participation of civil society, NGOs, donors, and international institutions. The Fund and Bank will assist in the process. Locally-produced PRSPs are expected to generate fresh ideas about strategies and measures needed to reach shared growth and poverty reduction goals, and to help develop a sense of ownership and national commitment to reaching those objectives. Public accountability for those policies will be enhanced by a continuing policy debate, and by the setting of outcome indicators that will allow the effectiveness and efficiency of policies, including public spending, to be monitored. The Fund will need to be ready to assess new approaches and to recognize and support a healthy process of experimentation and innovation. Fund staff will be open to considering alternative adjustment paths, taking into account their impact on the poor.

6.  Macroeconomic policies will need to be better integrated with social and sectoral objectives, to ensure that plans are mutually supportive and consistent with a common set of objectives to spur growth and reduce poverty. To ensure this consistency, the PRSP will set out a coherent and comprehensive strategy, and the specific policies supported by the Fund (and Bank) will stem directly from this strategy. Key social and sectoral policies, infrastructure projects, institutional reforms, and other measures aimed at reducing poverty will be costed, prioritized, and incorporated within the macroeconomic framework. The need to finance poverty-reducing policies could have a direct impact on the design of the macroeconomic framework, underpinning a continuing environment of macroeconomic stability (see below). One key component will be to mobilize external support, and here Fund staff will need to redouble efforts to identify sustained increases in resources for countries where these can be used most effectively. All of this will require even closer coordination with the Bank than in the past, as well as with other donors, and links in this respect are also set out below.

7.  Sustained, pro-poor economic growth, based on robust private sector activity and investment, will be the keystone of the poverty reduction strategy. The Fund will continue to advise on and support policies to this end, including prudent macroeconomic management, freer and more open markets, and a stable and predictable environment for private sector activity. Direct anti-poverty measures will be incorporated in the macroeconomic framework. The participatory process will facilitate open debate on issues such as the social impact of policy measures and the pace and sequencing of reforms. Policies to promote good governance will also be given increasing emphasis, both generally in keeping with their role in supporting private investment and growth, and in particular to support efficient and transparent fiscal management. The latter will be particularly important given the need in many countries to shift public expenditures toward efficient, well-targeted, poverty-reducing programs and away from unproductive uses. Fund staff will cooperate with the Bank in assisting country authorities to increase the efficiency of such spending.

B.  Fund Program Design Elements

8.  The broadest and most fundamental changes to the work of the Fund arise from the fact that the targets and policies embodied in PRGF-supported programs will emerge directly from the country's poverty reduction strategy (as above). This section fleshes out the implications in two program design areas where important changes are expected relative to past practices: (i) the interaction of poverty reduction programs with the development of macroeconomic policies; and (ii) treatment of governance issues, notably in the area of public resource management.

Integrating poverty reduction with macroeconomic policies

9.  Discussions on the macroeconomic framework will become more open and iterative. Fund staff can expect to be requested by members to participate in broad-based consultations organized by the member in preparing its poverty strategy and the macroeconomic framework underpinning it. Key macroeconomic policies, including targets for growth and inflation, and the thrust of fiscal, monetary, and external policies, as well as structural policies to accelerate growth, would be subjects for public consultation. Key social and sectoral programs and structural reforms aimed at poverty reduction and growth will be identified and prioritized during the participatory PRSP process, and their budgetary impact will be costed--taking into account the need for efficient, well-targeted spending. The bottom-up approach to costing will be reflected in the design of the macroeconomic framework, including the level and composition of government expenditures, and the fiscal and external deficits.⁴ In this, the authorities will need to take into account effects on domestic demand, implementation capacity, and the need to maintain an adequate level of international reserves. They will need to ensure that spending programs can be financed in a sustainable, non-inflationary manner.

10.  In some countries, there may be scope to reallocate government spending, or raise additional domestic resources in support of the poverty reduction strategy. As in the past, the feasibility of mobilizing additional domestic fiscal revenues should be considered early on. Likewise, judgements would need to be made on the scope for additional domestic financing, taking into account the need to maintain macroeconomic stability and avoid unduly crowding out the private sector. Inevitably, questions will arise regarding the amount of domestic financing and the appropriate inflation target. Given that inflationary financing represents a tax whose incidence falls principally on the poor, the risks here need to be weighed carefully. Sacrificing low inflation to finance additional expenditures is not an effective means to reduce poverty, particularly in cases where inflation is above single digit levels. All of these issues will be discussed in the context of the participatory process leading to the PRSP and elaborated in the document itself.

11.  Once the domestic resource constraints are determined, reconciling macroeconomic stability with the spending levels needed to achieve poverty goals will generally, to a large extent, be a matter of raising an adequate level of external grants or highly concessional loans.⁵ This has three implications:

• Donors will need to be presented, during the formulation of a PRSP, with macroeconomic scenarios that give clearer indications than in the past of what financing would be needed to meet program goals agreed with the country, particularly with respect to poverty reduction, in the context of the longer term International Development Goals. It will be critical also to explain the implications for those program objectives if financing is more or less than proposed;

• The participatory process will need to identify priority program elements for poverty reduction, so that if funding and spending are lower than proposed, adjustments can be made that minimize the effect on poverty goals; and

• Since donors will have their own perspectives on priorities and funding possibilities, they need to be closely involved in the participatory process. This will help facilitate arrival at a fully-funded program.

12.  Fund and Bank staff will need to be more proactive in mobilizing external resources consistent with the poverty reduction strategy, with the aim of eliciting additional donor resources for the countries which most need and can effectively use such support.⁶ This will be an integral and important part of the PRSP process. The aim should be to maximize the overall impact of donor funding, in a framework donors have helped to develop.

13.  In parallel, the staff encourages donors to consider other changes in the way they provide support for low-income countries. Current donor practices frequently lead to substantial degrees of uncertainty about the amounts and timing of resource flows, and may have prevented effective allocation of donor funds to support sector strategies. Benefiting countries have noted that substantial, often overlapping, conditions set by donors and international financial institutions pose large administrative costs. This has hampered efforts to plan optimal multi-year macroeconomic policy frameworks, and may prevent the use of donor funds in supporting medium-term planning and policies. Thus, donors would be encouraged to participate actively in the design of the PRSP, and make medium-term commitments in support of the strategy agreed in that document. This also applies to other sources of concessional financing support such as regional development banks.

Additional emphasis on good governance

14.  PRGF-supported programs will need to increase their emphasis on improvements in governance as a fundamental underpinning for macroeconomic stability, sustainable growth, and poverty reduction. This could extend across the range of governance areas of relevance to the Fund.⁷ However, a primary focus will be on improving the management of public resources, achieving greater transparency, more active public scrutiny, and generally increasing government accountability in fiscal management. This will support the implementation and monitoring of costed social and anti-poverty measures. The Code of Good Practices on Fiscal Transparency points to a number of relevant general objectives: roles and responsibilities in government should be clear; information on government activities should be provided to the public; budget preparation, execution, and reporting should be undertaken in an open manner; and fiscal information should be subjected to independent assurances of integrity.⁸

15.  In countries where greater emphasis on governance and fiscal transparency is needed, PRGF-supported programs should be expected to identify specific measures and timing, with appropriate monitoring. Good governance will also be promoted by active involvement of civil society in monitoring relevant aspects of the program. Regular public expenditure reviews (led by the Bank) would also be key instruments in monitoring the impact of social and anti-poverty spending. An increase in technical assistance from the Fund, coordinating with other technical assistance providers, is expected to be necessary.

Fund and Bank roles

16.  The staffs of the Fund and Bank will need to cooperate closely and seek to present the authorities with a coherent overall view, focusing on their traditional areas of expertise in line with past agreements between the two institutions.⁹ The Fund staff will take the lead in areas of its traditional mandate and responsibility. This would include promoting prudent macroeconomic policies; structural reforms in related areas, such as exchange rate and tax policy; and issues related to fiscal management, budget execution, fiscal transparency, and tax and customs administration. The Bank staff will take the lead in advising the authorities in the design of poverty reduction strategies, including the necessary diagnostic work such as poverty assessments and their monitoring, the design of sectoral strategies, reforms that assure more efficient and responsive institutions, and the provision of social safety nets; and in helping the authorities to cost the priority poverty-reducing expenditures designed to achieve particular outcomes. The Bank staff would also take the lead in advising on how to improve the effectiveness and poverty-orientation of public expenditure (through Public Expenditure Reviews and the like) and in other structural reforms such as privatization and regulatory reform. Many areas will need to be shared between the two staffs, such as the establishment of an environment conducive to private sector growth, trade liberalization, and financial sector development.

17.  In order to fulfill their role in assisting in preparation of the macroeconomic strategy, the Fund staff will need to be able to interpret the work of the Bank and other institutions. However, consistent with the views of the Board, the Fund staff will not attempt to supplement or substitute for Bank work in poverty analysis or the development of social policies.

Other features of the PRGF

18.  Outside of the substantive changes required to implement an enhanced poverty focus, the other main terms and conditions applying to arrangements under the PRGF remain unchanged from the ESAF. The framework for access will be as agreed by the Board in January 1999, and specific decisions on the amount of access would be expected to be differentiated according to the strength of the program. Further, for example: eligibility for the PRGF covers the set of countries eligible for ESAF; commitments of resources will be based on a three-year arrangement; performance criteria, reviews, and disbursements will be semiannual, or quarterly in selected cases; the interest rate will be 0.5 percent; and loans will mature in 5½-10 years. The presumption will remain that all letters of intent and policy memoranda for use of PRGF resources would be made public.

III.  Linking the PRGF to the PRSP

19.  IMF arrangements under the PRGF must support and be consistent with the overall poverty reduction strategy. The link with the PRSP will need to be assessed by the staff at the time PRGF arrangements are recommended for Board approval, and reassessed at the time of program reviews. The structure proposed below sets out links to ensure that the underlying PRSP is sufficiently current to underpin the PRGF. Procedures for dealing with unexpected developments are suggested. The proposed framework relies on developing and exploiting even closer coordination with the Bank as the primary means to ensure that the PRSP and its implementation are satisfactory in areas where the Bank takes the lead.

Endorsement and Board timing

20.  A current PRSP that has been endorsed in their respective areas of responsibility by the Boards of both the Fund and Bank would be a condition for Fund approval of a PRGF arrangement, or for completion of a review thereunder. After the transition period during which interim PRSPs would be prepared,¹⁰ it is suggested that a PRSP elaborated through a participatory process would normally be prepared every three years, with annual progress reports prepared by the authorities updating the strategy as appropriate in the intervening years. Thus, a current PRSP or progress report endorsed by the Bank and Fund should be available at any time the Fund Board is asked to approve a new PRGF arrangement or complete a review.

21.  Timing of Board discussions of the PRSP needs to balance a number of objectives. The following points set out a tentative approach:

• It is proposed that Board discussion of the PRSP or progress report would normally take place at the same time as that on a PRGF arrangement or review.

• Given the natural rhythm in country policy-making cycles, it would probably be desirable that PRSPs be completed in time to support the preparation of the country's annual budget, and thus Board discussion would generally synchronize with requests for new 3-year arrangements or yearly reviews. To the extent possible, preparations for the PRSP (including those set out in the interim PRSP, discussed below) would be expected to aim for this timing objective, with the cooperation of all participating parties to achieve this. At the same time, staff considers it important to avoid linking the timing of PRSP discussions unduly to Fund operations, given the objective that all major parties supporting the country's poverty reduction efforts should aim to key their operations off the PRSP.

• Ideally, the three-year cycles of the PRSP and PRGF would align, and a new PRGF arrangement would begin at the same time as a new PRSP was endorsed. While this will sometimes occur, staff would not recommend making it a requirement. The possibility of seeking early cancellation of existing PRGF arrangements, and starting new ones when a new PRSP is prepared, could be disruptive for both borrowing countries and creditors. However, existing PRGF-supported programs would need to be flexible in incorporating the macroeconomic and structural objectives and measures elaborated in the PRSPs when these documents emerge in the middle of the three-year PRGF arrangement.

• In general, a prerequisite for approval of a new PRGF arrangement or completion of reviews under existing arrangements would be endorsement of a PRSP or a progress report by Bank and Fund Boards within the preceding 12 months.

Unexpected developments

22.  In cases where the Board considers PRGF decisions without a simultaneous PRSP or progress report, the documents for PRGF-supported programs would need to assess whether circumstances had affected the relevance of the latest PRSP. The policies in a current PRSP may sometimes need intra-year adjustments if unforeseen events arise. Any proposed departures from a current PRSP considered necessary in the context of the completion of a review should be agreed with the authorities and with Bank staff, and noted explicitly in the program documents. The policies embodied in the PRSP and the underlying PRGF-supported program would be expected to be reconciled at the time of the next annual PRSP or progress report.

Staff assessments of implementation

23.  Since Fund decisions on use of PRGF resources would not necessarily be made at the same time as the PRSP or progress report was endorsed by both Boards, a mechanism is needed to ensure that the poverty strategy remains on track at the time PRGF arrangements are approved or reviews completed. For this, management would recommend Board action only if they consider that the implementation of the PRSP remains satisfactory, after consulting with Bank staff and management. In cases where implementation had gone off-track, the management recommendation would require agreement on sufficient, credible remedial measures to put the poverty reduction strategy back on track. In light of suggestions made in earlier Board discussions, this approach implies a broader linkage to implementation of Bank-led elements of the poverty strategy, in comparison to the earlier proposal to base this linkage on identification of two or three key poverty-related measures in PRGF-supported programs.¹¹

24.  In macroeconomic and structural areas within the Fund's mandate, Fund staff and management will make the assessment of PRSP implementation. For social policies, most poverty-reducing measures, and other structural policies within the Bank's primary mandate, the Fund staff should ascertain whether the Bank staff has any major outstanding concerns about the adequacy of implementation before the Fund staff and management make their own assessment of whether to recommend Board approval of a PRGF arrangement or completion of a review.¹² It is expected that the views of the Bank staff would be given heavy weight in the assessment of progress in these areas. Furthermore, the views of the Bank staff regarding implementation of the elements of the PRSP within their mandate would be included in each PRGF staff report. Parallel provisions will apply for communicating Fund views in key Bank documents.

IV.  A Framework for Conditionality

Complementary program monitoring

25.  Close coordination with the Bank, in a context in which all lending operations will stem from the PRSP, offers scope to reduce overlapping Fund and Bank conditionality and monitoring in their lending operations. The intention would be to improve the transparency and accountability of the two institutions' program monitoring, while increasing its efficiency. By contrast, ESAF-supported programs have often contained numerous structural conditions, many in areas led by the Bank such as public enterprise reform, civil service restructuring, and sectoral policies. Primary responsibility for monitoring of some criteria has remained with the Bank. This has led to situations where Fund program benchmarks may lose their relevance when the Bank and authorities agree on new strategies.

26.  To tighten the focus and efficiency of conditionality, it is therefore proposed that the PRSP or accompanying documents would identify, for each measure, whether the Fund or Bank would take primary responsibility for supporting the government's policy formulation and for monitoring. As always, the other institution would remain involved in discussions as appropriate. Other international institutions, donors, and civil society are expected also increasingly to take a role in supporting policy formulation and monitoring policy in some areas. In such cases, the designation as a Bank or Fund responsibility would indicate which institution would act as primary liaison for work with these other groups.

27.  On the basis of the agreed division of responsibilities, there would be a presumption that PRGF letters of intent and policy memoranda would cover and reach understandings only in those areas where the Fund was primarily responsible (and in these areas conditionality would be used parsimoniously). Conditionality covering areas within the primary mandate of the Bank would be the responsibility of the Bank, and would not be expected to appear in PRGF arrangements.¹³ Performance in areas of Bank responsibility would then be reported in Fund staff reports, in summary form, in the proposed statement of Bank staff views. This framework for complementary program monitoring and conditionality represents a departure from current practices, and experience in its implementation will need to assessed in the context of reviews (see below).

28.  By eliminating areas of overlap, it is expected that borrowing countries would begin to benefit from greater simplicity in meeting assistance conditions. Greater strides in this direction would be achieved to the extent that other institutions and aid providers use the PRSP framework to coordinate and condition their own lending strategies.

Fund-specific conditionality

29.  Conditionality in PRGF arrangements will be aimed at evaluating implementation of the program with a view to ensuring attainment of its objectives. For macroeconomic developments, monitoring in PRGF arrangements would aim to protect the macroeconomic objectives developed in the PRSP. The PRSP would contain a quantified medium-term macroeconomic framework, and specific quarterly performance benchmarks deriving from that framework would be elaborated in the PRGF-supported program. It is expected that macroeconomic monitoring would be based on established practice, using intermediate targets in fiscal, monetary, and external sectors.

30.  PRGF conditionality would cover as appropriate those measures identified as being within the Fund's area of responsibility in a given country which were deemed to be critical in ensuring macroeconomic stability and implementing the strategy to increase durable growth and reduce poverty. Fund and Bank roles would be determined as described in paragraphs 16 and 17 above. In some areas where institutional responsibility is shared, such as trade or banking sector reforms, conditionality in specific PRGF-supported programs would cover the sectors where the Fund was taking the lead in that particular country.

31.  Structural reform conditions in PRGF-supported programs would be drawn from or elaborate on the universe of structural measures contained in the PRSP. If the PRSP has set out a highly specific set of policy measures, then the LOI/MEFP for the PRGF might essentially be an excerpt covering measures for the coming year. If, on the other hand, the PRSP contains only more general policy directions, then the LOI/MEFP would need to flesh out specific, dated actions in support of the agreed strategy.

V.  Transitional Arrangements

32.  The process of developing comprehensive PRSPs has been launched, but country-owned and participatory strategies will take time to prepare. Transitional arrangements are needed in the interim to ensure that ongoing Fund support for countries under the PRGF is not halted, that the programs incorporate elements of the new strategy as quickly as possible, and provide incentives to prepare a full PRSP early on.¹⁴ The staffs of the Bank and Fund have begun preparations for a rapid phase-out of the PFP, and to base ongoing lending on an interim PRSP. The contents and preparation process of interim PRSPs are described in the joint companion paper.

33.  An interim PRSP would be needed to underpin new yearly programs under the PRGF. As had been the case with the PFP, the interim PRSP could be prepared concurrently with the request for a new annual program, or it might be prepared earlier in support of a new Bank Country Assistance Strategy or for a HIPC Initiative decision point document. In general, an interim PRSP endorsed within the last six months would be expected to underpin a new annual program under the PRGF. Most of the institutional arrangements would be similar to those described above for the PRSP. Endorsement by both the Fund and Bank Boards of the interim PRSP, based on a joint staff assessment, would be required as a condition for the Fund Board's approval of three-year PRGF arrangements, or disbursements in support of new annual programs. Further, in decisions on whether to recommend completion of mid-term reviews, Fund staff would seek the views of Bank staff and these views would be reported in the staff report. Finally, monitoring and conditionality arrangements would be based on the complementary framework of responsibilities for the Fund and Bank as proposed above, to the extent this is feasible using interim PRSPs.

34.  Staff will urge member countries to begin replacing interim PRSPs with PRSPs as soon as possible, and will support this through active assistance. Early efforts will concentrate on countries that are eligible for assistance under the HIPC Initiative and which are past or approaching the decision point (Table 1). In general, it is envisaged that--in line with the expectation that a PRSP would be produced within two years--countries would submit only one interim PRSP before a move to a PRSP a year later. Progress in preparing PRSPs will be subject to periodic review (see below).

35.  Different transitional arrangements are needed for those low-income countries that do not prepare an interim PRSP within the coming year. This group would include those countries that do not currently have Fund-supported programs or active IDA lending operations, and are not in active discussion towards such arrangements. For these, it is proposed that a further transition period be allowed prior to preparing a full PRSP, although countries should prepare such documents even outside the context of Bank or Fund lending operations. These provisions would also apply in the future to countries that have had a PRGF arrangement based on a PRSP, but where that arrangement expired and was followed by a prolonged interruption in Fund/Bank support, and without an intervening update of the PRSP. For low-income countries falling into these categories, the following schema is proposed, depending on the initial means of Fund support:

• Emergency assistance (for post-conflict countries or natural disasters): If the authorities and staff expect that such access would lead to a PRGF-supported program, then the authorities' documents should from the outset define a timeline for preparing a PRSP.¹⁵ No PRSP would be required by the Fund until the first PRGF-supported program is proposed, which would then be based on an interim PRSP or PRSP according to the timetable agreed earlier.

• Stand-by arrangements: Again, no PRSP would be required for the stand-by arrangement, but the LOI/MEFP would define a timeline for preparing a PRSP if the authorities and staff expected the country would subsequently request a PRGF-supported arrangement.¹⁶ In comparison to countries which initially use emergency assistance, countries requesting stand-by arrangements would be expected to produce a PRSP more quickly, since these countries would, by definition, have a stronger institutional framework for macroeconomic and structural policy implementation.

• PRGF arrangements: An interim PRSP would be required to underpin the request for Board approval of the three-year arrangement. A PRSP would then generally be expected for staff and management to recommend approval of the review covering the second year.

VI.  Documentation

36.  It is proposed that a short assessment, prepared jointly by Fund and Bank staff, would be circulated to both Boards alongside the PRSP and annual progress reports. This paper, which is discussed further in the joint paper on PRSPs, would assess the PRSP strategy and justify the staff recommendation for (or against) Board endorsement. With this new requirement, together with the additional demands of a PRSP in comparison to a PFP, the documentation required for a PRGF-supported program will likely be greater than under the ESAF.

37.  It is thus appropriate to consider ways to streamline somewhat the overall documentation for PRGF arrangements. Staff have been conscious of the significant degree of overlap in the documents underlying ESAF-supported programs (Table 2). Efforts to reduce this have been successful only at the margins, mainly because of the differing functions, audiences, and policies with regard to publication applying to the various papers. Given the additional explanatory material which will be contained in the PRSP and the staff assessment, and the expectation that both of these documents would be published, the following concrete steps are proposed to streamline the documentation required for PRGF-supported arrangements:

• Except for a covering letter of transmittal, letters of intent (or memoranda of economic and financial policies) should be confined, where the authorities concur, to a list of policy measures, under broad headings, and necessary tables of performance criteria and benchmarks. The policy measures would be expected to be in bullet or matrix form. In comparison with many current policy documents, this would be aimed at eliminating the background review of the economic situation, and program performance to date, since these areas would be covered in the PRSP, staff assessment, and staff report.

• Staff reports could be shorter, given the material contained in the PRSP and accompanying staff assessments. Staff reports should focus on explanation and analysis, and would refer only to key measures in the text, otherwise referring to the LOI and PRSP. If the authorities prefer to include background material in their LOI/MEFP, then this could be eliminated from the staff report with appropriate cross references, and the staff report would then focus on the staff appraisal.

• In cases where a PRSP and LOI are published simultaneously with, or shortly prior to, HIPC Initiative documents, the latter would not contain forward-looking policy intentions, but would instead refer to the PRSP. Recent changes to the HIPC Initiative have also allowed for a shortening of the sections of HIPC documents discussing vulnerability, since the sustainability targets are no longer chosen from ranges based on vulnerability.

VII.  Review

38.  The policies proposed in this paper, and in the companion papers, represent a major departure for the Fund's work with low-income countries. A process of early review and follow-up is warranted. Staff proposes that a full review of the PRGF facility be conducted by end-2001, by which time it is expected that most or all PRGF users will have prepared at least one PRSP. This review would assess the role of PRGF-supported programs in supporting the strategy set out in PRSPs, and would involve contributions from member countries, international institutions, other aid providers, and civil society.

VIII.  Resource Implications

39.  The strategy to implement the increasing poverty focus as expeditiously as possible will have a significant impact on the work of the Fund, and thus carries implications for needed resources. Staff and management consider that the new approach cannot be satisfactorily implemented without a firm commitment from the Board to increase staff resources in the affected departments. Initial, specific estimates of resource requirements have been forwarded to the Board.¹⁷ A brief listing of the new work areas follows. While some of these areas contain an element of reallocation away from existing tasks, most will require net additions to resources.

40.  Assisting in the preparation of PRSPs is likely to be both time consuming and resource intensive. The following are expected:

• Additional mission work: The amount and nature of work involved make it likely that preparation of PRSPs will necessitate additional missions to countries using, or expected to use, PRGF resources. Missions are likely to be longer, and include more travel within countries. At least one additional mission per year appears likely to most PRGF-eligible countries, although more missions might be needed to help prepare the first PRSP. In addition, it is proposed that the Fund staff would participate in preparing PRSPs in countries borrowing concessionally from the Bank, even if these countries were not expected to receive assistance under the PRGF.

• Coordination with World Bank: Ongoing coordination will need to be close, including both for country teams, policy departments, and management. One or more of the internal briefing memoranda for PRSP missions would be prepared jointly by Fund and Bank staff, as would the staff assessment of the PRSP. Experience with the HIPC Initiative shows that such joint work is a highly effective means of ensuring close communication, airing issues, and resolving differences, but that this has been costly in terms of staff and management time.

• Additional demands on resident representatives: The consultation process required to prepare and monitor the PRSP will be intensive, and presentation of Fund views will likely need to extend well beyond mission work. Resident representatives will be required to take an active role. At least one resident representative would be needed for most PRSP countries, and some countries with active PRGF-supported programs are likely to require two.¹⁸

• Technical assistance: A substantial effort to provide Fund technical assistance in fiscal management and transparency will be needed, and additional technical assistance in banking and statistics may also be required.

• Additional staff papers: A short joint staff assessment will be needed to accompany a PRSP or progress report when the Fund and Bank Boards' endorsement in their respective areas of responsibility is sought, although streamlining will be undertaken in other papers, as noted above.

41.  The above work will have important implications for staffing and travel costs. While Fund area department mission chiefs and desk economists have often covered more than one country, such a practice will be more difficult in PRGF-eligible countries. This will particularly affect the African Department, but will also have implications in all other area departments--APD, EU1, EU2, MED, and WHD. In addition, it should be noted that HIPC Initiative activities will be demanding over the next few years for many country teams, with attendant impacts on reviewing departments. Furthermore, additional contributions from FAD and PDR economists will be needed in mission work, and FAD, INS, MAE, and STA are all likely to be involved in providing further technical assistance and training.

42.  Beyond work directly linked to preparing country PRSPs, a substantial staff effort to prepare policies for the new strategy has begun, and more will be needed. For the most part these policies will need to be joint with the World Bank. A process of internal discussion and review in the Fund is needed to benefit from the views of all participating departments, and ensure that the new policies are implemented effectively in country work. Basic research on the interactions between macroeconomics and poverty is needed. Furthermore, substantial ongoing efforts will be needed to explain Fund policies in external fora. Some of these activities are expected to be particularly concentrated over the coming year or two, although others such as external relations will likely continue.

IX.  Issues for Discussion

43.  Many issues for discussion on the overall strategy and relating to PRSPs are set out in the joint companion paper on PRSP issues. Directors' views are sought here on the implications of the new approach for the Fund's operations, including especially the links between the PRGF and PRSP. Directors may wish to address the following:

Role of the Fund

• Directors' comments are sought on the description of the overall implications for Fund work of the new poverty-focused strategy. Do Directors agree with the roles identified for the Fund and Fund staff in carrying out this strategy?

• Do Directors agree with the proposal that costed measures to enhance growth and reduce poverty will be integrated into the macroeconomic framework? Do Directors consider staff should be more proactive in seeking needed external financing?

• Do Directors agree with the focus on measures to improve governance where needed, with a particular emphasis on transparent and accountable fiscal management?

Linking the PRGF to an underlying PRSP

• Do Directors agree with the proposed approach on timing of Board discussions of PRSPs?

• Do Directors agree that a PRGF program should be interrupted if overall implementation of the PRSP--including in areas within the primary mandate of the Bank--is judged to be unsatisfactory?

Conditionality

• Do Directors support the proposal to identify, in the PRSP or accompanying documents, whether the Fund or Bank will take the lead in supporting policy formulation and monitoring each measure?

• Do Directors agree with the proposal to tighten the focus and efficiency of conditionality, by limiting PRGF conditionality to those areas in which the Fund is primarily responsible--except where a structural or other condition had a direct, crucial macroeconomic impact?

Transitional arrangements

• Do Directors agree with the proposals for using interim PRSPs in support of new PRGF loans?

• For countries which do not prepare an interim PRSP within the coming year, do Directors agree with the proposed transitional provisions described in paragraph 35?

Review

• Do Directors agree that a review of the PRGF should be conducted by end-2001 which would involve contributions from member countries, international institutions, other aid providers, and civil society?

Table 1. PRGF-eligible Countries as of end-November 1999
	Country	PRGF  arrangement in  place at end- November 1999	HIPC Initiative assistance has  been or could  be committed by end-20001			Country	PRGF  arrangement in  place at end- November 1999	HIPC Initiative assistance has  been or could  be committed by end-20001
1	Afghanistan				41	Kyrgyz Republic	•
2	Albania	•			42	Lao, P.D.R.		•
3	Angola				43	Lesotho
4	Armenia	•			44	Liberia
5	Azerbaijan	•			45	Macedonia, F.Y.R.	•
6	Bangladesh				46	Madagascar	•
7	Benin	•	•		47	Malawi		•
8	Bhutan				48	Maldives
9	Bolivia	•	•		49	Mali	•	•
10	Bosnia and Herzegovina				50	Mauritania	•	•
11	Burkina Faso	•	•		51	Moldova
12	Burundi				52	Mongolia	•
13	Cambodia	•			53	Mozambique	•	•
14	Cameroon	•	•		54	Myanmar
15	Cape Verde				55	Nepal
16	Central African Republic	•			56	Nicaragua	•	•
17	Chad		•		57	Niger		•
18	China				58	Nigeria
19	Comoros				59	Pakistan	•
20	Congo, DR				60	Rwanda	•	•
21	Congo, Republic of				61	Samoa
22	Côte d'Ivoire	•	•		62	São Tomé and Príncipe
23	Djibouti	•			63	Senegal	•	•
24	Dominica				64	Sierra Leone		•
25	Egypt				65	Solomon Islands
26	Equatorial Guinea				66	Somalia
27	Eritrea				67	Sri Lanka
28	Ethiopia		•		68	St. Lucia
29	Gambia, The	•			69	St. Vincent and the Gren.
30	Georgia				70	Sudan
31	Ghana	•			71	Tajikistan	•
32	Grenada				72	Tanzania		•
33	Guinea	•	•		73	Togo
34	Guinea-Bissau		•		74	Tonga
35	Guyana	•	•		75	Uganda	•	•
36	Haiti				76	Vanuatu
37	Honduras	•	•		77	Vietnam
38	India				78	Yemen, Republic of	•
39	Kenya				79	Zambia	•	•
40	Kiribati				80	Zimbabwe
					Total		31	24
1Source: Fund and Bank staff.

 

Table 2.  Documentation Requirements
Document	Periodicity	Ownership	Audience
A. Documents needed for ESAF Arrangement
Policy Framework Paper	Annual	Prepared jointly with Fund and Bank; country's document	Fund and Bank Boards; most countries now publish
Letter of Intent (may include Memorandum of Economic Policies)	With every request for arrangement or review	Country prepares jointly with Fund; country's document	Fund Board; most countries now publish
Staff Report	With every request for arrangement or review	Fund staff prepares	Fund Board
B. Proposed documentation for PRGF Arrangement
Poverty Reduction Strategy Paper (PRSP)	PRSP every 3 years; with annual progress report in intervening years	Country prepares and owns, in consultation with civil society and donors, with assistance from Fund and Bank	Public document; Fund and Bank endorsement needed to underpin their operations; donors may use to organize support
Staff Assessment of PRSP	With every PRSP, progress report, and interim PRSP	Fund and Bank staff prepare jointly	Fund and Bank Boards; to be published
Letter of Intent (may include Memorandum of Economic Policies)	With every request for arrangement or review	Country prepares jointly with Fund; country's document	Fund Board; most countries now publish
Staff Report	With every request for arrangement or review	Fund staff prepares	Fund Board
Memorandum: HIPC documents
HIPC Initiative documents (for countries requesting assistance under the Initiative)	Before decision point (preliminary document), at decision point, and at completion point	Fund and Bank prepare on basis of DSA prepared jointly by country, Fund, and Bank	Fund and Bank Boards; other creditors affected by HIPC Initiative; most countries have so far agreed to publish decision and completion point documents