IMF Consultations

Consultation on Integrating Member’s Poverty Reduction Strategies with Fund-Supported Programs in Low-Income Countries

1. Background.

Fund-supported programs for Low-Income Countries (LICs) are explicitly designed to foster strong and durable poverty reduction and growth, whether under the Poverty Reduction and Growth Facility or the Policy Support Instrument (PSI). Since 1999, the Poverty Reduction Strategy Papers (PRSP) approach has been a poverty reduction strategy that has served as a framework for the delivery of IMF concessional assistance including under the Heavily Indebted Poor Countries (HIPC) Initiative.

2. PRSP requirement and preparation.

The HIPC process is now almost complete. In this context, the World Bank has recently adopted an approach to country engagement that no longer requires the production of a PRSP to be eligible for concessional financial support from the Bank (IDA). In addition, the preparation of comprehensive PRSPs tend to be resource-intensive for LIC authorities and many countries now produce their own national strategies or vision statements that address broadly similar issues.

3. The IMF’s new approach.

In light of the above developments, the Fund is also considering a new approach for ensuring that Fund support continues to be aligned to members’ poverty reduction strategies (PRSs). The approach under consideration is to be guided by the following principles: (i) the Fund would continue to rely on members’ PRS documentation as a key element underpinning Fund-supported programs under ECF arrangements and PSIs; (ii) national ownership of poverty reduction and social development strategies would be preserved and the approach will use existing national PRS documents where possible; (iii) outside the HIPC initiative, any PRS documentation required by the Fund, would be significantly streamlined in relation to PRSPs; and (iv) the Fund would continue to collaborate closely with the World Bank on social and poverty reduction issues.

4. Integrating a member’s PRS.

As under the PRSP approach, it is envisaged that policies supported by an ECF arrangement or PSI would be underpinned by a national PRS. The documentation provided by the member elaborating its policies under a Fund-supported program would cover the macro-critical aspects and priorities of the PRS and specific policy measures to be adopted over a multi-year period. For countries that remain HIPC-eligible, the PRSP would continue to serve in documenting the member’s PRS. Equally, this would be an option for post-HIPC countries that have recently completed a new PRSP. Outside the HIPC initiative, for countries that already publish national PRS materials, for example in the form of a national development plan, the authorities could use these materials to document, in part or in full, their PRS for Fund purposes. Countries that do not have a clear or sufficiently comprehensive PRS would prepare a new Poverty Reduction Document (PRD) that provides greater clarity on the member’s PRS to enable the links between the policies to be supported by the Fund and the PRS to be established. The PRD would be significantly streamlined compared to a PRSP, and in these cases, the Fund could provide a good-practice model for PRD coverage.

5. Consultation and transparency.

As in the past, countries are strongly encouraged to consult with civil society on their PRS and the nature of the consultation process would be reported on in the program documentation circulated to the IMF Executive Board. The member’s implementation of the PRS would be discussed in the Memorandum of Economic and Financial Policies (MEFP) in the context of program reviews. Other than for countries still under the HIPC initiative, countries would no longer need to prepare lengthy Annual Progress Reports (APRs) for Fund purposes.

6. Informing the Fund on the PRS.

Executive Board approval of a request for Fund support under an ECF arrangement or a PSI would not be conditional on immediate provision of PRS documentation. Instead, the latter would need to be finalized by the time of subsequent reviews, broadly in line with current policy.

7. Staff assessment.

As currently, the member’s policies to attain the objectives laid out in its PRS would be subject to Fund staff analysis in the staff report, and an assessment by the World Bank would be included with Fund program documentation.

8. Timeline for new policy.

The aspects of the policy under discussion are subject to change and to final approval by the IMF Executive Board. The intention is to launch the new policy in mid-2015, following approval of the IMF Executive Board. It will not affect PRS documentation required under the HIPC Initiative for the few remaining HIPC-eligible countries.