Public Information Notice No. 03/120

Public Information Notice: IMF Executive Board Reviews Poverty Reduction Strategy Papers-Progress in Implementation

September 22, 2003

On September 3, 2003, the Executive Board of the International Monetary Fund (IMF) considered joint IMF/World Bank staff papers reviewing progress in the implementation of Poverty Reduction Strategy Papers (PRSPs)¹.

Background

PRSPs present low-income countries' macroeconomic, structural and social policies and programs over a two to five-year horizon aimed at promoting broad-based growth and reducing poverty. PRSPs form the crucial link between national public actions, donor support, and development outcomes. The Monterrey Consensus has underlined the centrality of nationally owned poverty reduction strategies in making progress towards the Millennium Development Goals. PRSPs provide the operational basis for Fund concessional lending and for debt relief under the Enhanced Heavily Indebted Poor Country (HIPC) Initiative.

The core principles underlying the PRSP are that poverty reduction strategies be: (i) country-driven, with broad-based participation by civil society in the adoption and monitoring of the poverty reduction strategy; (ii) results-oriented and focused on outcomes that benefit the poor; (iii) comprehensive in recognizing the multidimensional nature of poverty; (iv) partnership-oriented, aimed at improved coordination between all development partners; and (v) based on a long-term perspective of the challenges of, and need for commitments to, reduce poverty.

The Executive Boards of the IMF and Bank have asked the staff of the two institutions to prepare annual reports on progress in implementing the PRSP approach. The papers considered by the Boards in September 2003 constitute the latest in this series.

There has been a significant accumulation of experience in the preparation and implementation of national poverty reduction strategies across all regions since the last report on progress in implementation (2002 Report) was considered by the Executive Boards of the Fund and the Bank. The total number of PRSPs under implementation has now reached 32, with 14 PRSPs completed over the past year. There have also been a further six annual PRSP Progress Reports, bringing the total to 11 reports by seven countries. Another three countries have produced Interim PRSPs since last September.

Executive Board Assessment

Executive Directors welcomed the continuing strong momentum of the Poverty Reduction Strategy Paper (PRSP) approach. They noted that there is evidence of progress across a wide range of fronts as the approach begins to mature, and that the imperative now is to address the emerging challenges in implementation.

Directors underscored the importance of government ownership of poverty reduction strategies. They welcomed the increasing engagement of parliaments and noted that the PRSP process has survived transitions in national governments in several countries, while requiring adaptations to reflect the programs of incoming administrations. Directors emphasized the need for greater cohesion between PRSPs and other planning documents and for better integration between teams responsible for PRSP preparation and other units of government.

Directors welcomed the greater openness of policy-making processes, which the PRSP approach is facilitating. The private sector is increasingly active and non-governmental organizations have often carved out roles for themselves as suppliers of information and watchdogs in monitoring government efforts. Directors acknowledged that at the same time, there remained some continuing criticisms from civil society organizations; in particular, that they are asked to react rather than to contribute to program formulation, and that some critical policies underpinning the PRSP—such as the macroeconomic framework—are sometimes not sufficiently open to public debate.

Directors underscored that the macroeconomic policies and projections provide the framework of any PRSP. Consistent with the PRSP as a country-owned process, they emphasized that the government, and not the Fund, should lead the discussion of the macroeconomic framework in the public domain and ensure that it is integral to the participatory process. It was, however, important for the Fund to also continue its outreach efforts to civil society and donors. Directors called on governments to provide an explicit forum for macroeconomic dialogue in the context of the PRSP process where Fund Resident Representatives could participate. Noting that deepening and widening of skills is a prerequisite to strengthen government's ownership of its own macroeconomic framework, Directors emphasized that the Fund would need to continue to support countries' capacity building efforts.

Directors noted the tension in PRSP formulation between the aspirations of low-income countries over the longer horizon and their need to formulate concrete plans and policies that can feasibly be implemented in the context of the annual budgets in which they operate. Directors highlighted the importance for PRSPs to set out credible plans and policies to help make progress towards the MDGs. They considered PRSPs to present an opportunity to put forward a coherent set of reforms to promote growth and reduce poverty along with the implications for the necessary levels of external financing on appropriately concessional terms. Directors pointed out that the challenge lay in translating medium-term goals subject to significant uncertainty into annual national budgets on the basis of actual policies and available financing, and they indicated that countries are likely to continue to revise their goals to reflect initial experiences.

Directors encouraged countries to devise strategies that can respond flexibly to changing circumstances. They considered it important for countries to continue to experiment and adapt to strike an appropriate balance between ambition and realism in setting macroeconomic targets, and suggested that there remained significant scope for PRSPs to flesh out contingency plans to address unexpected developments—both positive and negative—around macroeconomic frameworks derived from careful analysis of constraints and sources of growth. Directors welcomed the broader discussion of macroeconomic assumptions in recent PRSPs but agreed that the linkages between sectoral and structural policies being proposed in PRSPs, and the discussion of macroeconomic performance and growth prospects, could be strengthened.

Directors considered it generally too early, given the initial stages of implementation, to form judgments about whether PRSP policies were delivering on their stated objectives. They welcomed the focus being placed in PRSPs on measures to foster private sector development. Noting the identification by a number of PRSPs of weak governance and corruption as significant constraints, they considered the implementation of measures to improve the investment climate as key to improving growth prospects. Directors noted that poverty-reducing spending has increased in the PRSP countries where data are available, and were encouraged by the tentative signs of improved access of the poor to some basic services.

Directors considered improvements in public expenditure management to be critical but acknowledged that they will take time. The linkage between PRSPs and the annual budget and Medium Term Expenditure Frameworks generally remains weak, and PRSPs continue to include numerous uncosted measures. Directors agreed that problems in costing could be traced to weaknesses in fiscal data, capacity constraints, and institutional arrangements. They emphasized the need for countries to overcome capacity constraints and they pointed to the ongoing importance of Fund and Bank efforts to help improve public expenditure management through technical advice, diagnostic work, and lending operations.

Directors welcomed the broad backing by both donors and partner countries of the principles of good practice and standards of alignment and harmonization. They considered the implementation challenges in these areas to remain significant, in part due to tensions between the priorities and needs of external partners (including the Fund and the Bank) and country ownership and capacity. Directors concurred that many countries' systems to manage aid will require strengthening in order to make progress in alignment; coordinated technical assistance from donors would be crucial in this respect.

Directors noted that PRSPs have tended to become increasingly lengthy and that insufficient prioritization often resulted in inadequate focus, diminishing the potential value of the documents for both national authorities and donors. They recognized that to some extent, this stemmed from intrinsic tensions in the PRSP approach. Directors considered recommending PRSPs be streamlined into summary strategic documents. However, a number of Directors were concerned that such documents may no longer be compatible with the PRSP approach. Most directors saw merit instead on efforts being placed on addressing the underlying difficulties countries faced in improving the focus and emphasis of their PRSPs. They encouraged governments to clarify the `rules of the game' for the participatory process and how requests for public actions and new spending will be handled. They also suggested strengthening the institutional arrangements for coordinating PRSPs within governments. Directors noted that external partners, including the Fund and the Bank, had a crucial role in helping countries improve prioritization over time by providing support in capacity building, and supporting and respecting country priorities and sequencing in their own advice and assistance.

Directors saw Joint Staff Assessments as important means for providing constructive and candid feedback to governments about their PRSPs. They underscored the importance for such feedback to highlight the issues that are expected to be critical to the overall strategy delivering on its objectives, and to indicate capacity building needs. Directors, however, also emphasized that the JSA and the Board's consideration of the strategy should not detract from country ownership.

Directors concluded that the broad principles of the Comprehensive Development Framework expressed in the PRSP approach remained fully valid and that with progress in addressing the emerging challenges in implementation, the PRSP approach should be able to make a significant contribution to improving economic outcomes and reducing poverty in low-income countries.

Directors agreed that the next progress report on the implementation of the PRSP approach should be prepared jointly by Fund and Bank staff in 12 months time.

¹ "Poverty Reduction Strategy Papers--Progress in Implementation" (SM/03/279, Rev. 1 of September 12, 2003) at http://www.imf.org/external/np/prspgen/2003/091203.htm

"Poverty Reduction Strategy Papers--Detailed Analysis of Progress in Implementation" (SM/03/279, Supplement 1, Rev. 1 of September 15, 2003) at http://www.imf.org/external/np/prspgen/2003/091503.htm.