News Brief: Supporting Poverty Reduction Strategies: What's new in the IMF's approach?

September 7, 2000


The International Monetary Fund (IMF) today released new internal guidelines for staff involved in its poverty reduction efforts (posted on its website at http://www.imf.org/external/np/prgf/2000/eng/key.htm). The release responds to calls for a clear explanation of how Fund programs backed by the Poverty Reduction and Growth Facility (PRGF) introduced last year fulfill the institution’s commitment to poverty reduction. Although the paper is addressed to IMF staff, it will also be of interest to those outside the Fund who follow, or are involved in, the Fund’s work in poor countries.

The Poverty Reduction Strategy Paper, or PRSP, provides the foundation for IMF concessional lending under the PRGF. The PRSP was introduced a year ago as a participatory country-led mechanism to more sharply focus countries’ poverty reduction efforts. However, given the time needed to prepare these papers, and with dozens of poor countries needing immediate IMF financial assistance, waiting for countries’ PRSPs would have jeopardized the flow of concessional loans. Consequently, existing programs supported by the discontinued Enhanced Structural Adjustment Facility (ESAF) were initially converted to PRGF programs, to be modified as countries’ poverty reduction strategies are developed.

Based on recent country experiences, the expectations regarding the PRGF are now becoming clearer, and basic principles have been set out in the staff guidance note. There are seven key areas in which PRGF programs are expected to differ from or build upon ESAF programs. They are being phased in alongside the PRSP process (see News Brief 00/79, September 7, 2000), and it is expected that there will be measurable progress in incorporating these features within one year.

Key features of PRGF-supported programs

  • Broad participation and greater ownership. Basing the PRGF program on the country’s PRSP should ensure that civil society is involved and that the country authorities are in the driver’s seat.

  • Embedding the PRGF program in the overall strategy for growth and poverty reduction. PRGF staff reports will show how IMF programs derive from the poverty reduction strategy and are complementary to World Bank activities and conditionality.

  • Budgets that are more pro-poor and pro-growth. Government spending should shift toward activities that demonstrably benefit the poor, while tax reforms should improve both equity and efficiency.

  • Social impact analysis of major reforms. Where there are expected to be major reforms, analysis of the impact on the poor-normally by the World Bank-will need to be conducted and countervailing measures incorporated in the PRGF program.

  • Ensuring appropriate flexibility in fiscal targets. There should be scope to react to commonly experienced shocks, such as deteriorating terms-of-trade or poor harvests, or to spend newly-available aid when it is clear that it could be used productively.

  • Emphasis on measures to improve accountability for public resource management. Strengthening fiscal governance to improve public services and ensure proper use of HIPC debt relief and other government resources is to be a key objective of PRGF programs.

  • More selective conditionality. With greater ownership expected, PRGF conditionality can and should be more selective, focusing on measures central to the success of the country’s strategy.


Terms of the PRGF

  • A total of 80 low-income member countries are eligible for PRGF assistance.

  • Eligibility is based principally on a country’s per capita income and eligibility under the International Development Association (IDA), the World Bank’s concessional window (the current cutoff point for IDA eligibility is a 1998 per capita GDP level of $895).

  • An eligible country may borrow up to a maximum of 140 percent of its IMF quota under a three-year arrangement, although this limit may be increased under exceptional circumstances to a maximum of 185 percent of quota. The maximum amounts do not constitute an entitlement, and the amount lent will depend on the balance of payments need of the member, the strength of its adjustment program, its outstanding use of Fund credit, and its record on such use in the past.

  • Loans under the PRGF carry an annual interest rate of 0.5 percent, with repayments made semiannually, beginning five-and-a-half years and ending 10 years after the disbursement.





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