Conditionality

Analysis

The ABC of the PRSP

14 June 2000 | Briefing

An introduction to the new Bank and Fund Poverty Reduction Strategy Papers

by Angela Wood

April 2000

What is the Poverty Reduction Strategy Paper (PRSP)?

The PRSP is a national programme for poverty reduction which is the foundation for lending programmes with the IMF and the World Bank and HIPC debt relief. The essential features are:

  • it is developed in a participatory way;
  • it is nationally owned;
  • it lays out a policy framework and agenda for tackling poverty.

How does the PRSP relate to WB and IMF lending?

The PRSP replaces the Policy Framework Paper (PFP), which was supposed to be a joint IMFWB document outlining a country’s policies and reform proposals. However, the PFP was produced by the IMF and was never really jointly used.

Only HIPC and ESAF countries are required to produce a PRSP. They must have a PRSP before they can seek new programme support from the IMF or Bank. The Bank and Fund Boards must approve a country’s PRSP before a lending programme is agreed with the Bank and Fund.

What is the connection between the PRSP and the HIPC Debt Initiative?

For a country to qualify for multilateral debt relief, ie to reach the decision point, it must produce a PRSP. The PRSP outlines, amongst other things, how resources saved from debt relief will be spent.

There is disagreement as to how far a PRSP must be implemented before a country reaches completion point. The UK has argued that if two or three key actions have been taken that should be sufficient but the US and others argue that a country should be required to implement it for a year.

What does ownership mean?

In practical terms it means that the government is responsible for writing the PRSP and for commissioning and organising technical and donor input into it. Whilst the government is now running the show, all the donors want to be in the process early on so that they can influence it.

Whether a PRSP is regarded as nationally- or government-owned will depend to what extent the government engages civil society and others in the process and how far their concerns are reflected in the PRSP document.

African ministers have noted a tension between developing nationally owned strategies and receiving endorsement from the IMF and Bank Boards. Many NGOs are concerned that this tension will mean that governments will opt to write programmes that they know will be accepted even if this conflicts with priorities identified through consultative processes. Thus national ownership could potentially be very limited. The Bank and IMF staff have argued that a government can present whatever plan it wants. However, without their endorsement governments wont get Bank or IMF funding and will be unlikely to get bilateral funding either. Thus it is questionable to what extent a programme can be expected to be truly government or nationally owned. It is more honest to say that the process will be government-led.

The IMF argues that endorsement is necessary because the PRSP forms the basis of their lending but this is not strictly true because the Letter of Intent and CAS actually form the basis of their lending programmes.

Is there a tension between qualifying for debt relief and allowing time to develop a good PRSP?

Yes. Some NGOs are concerned that the level of participation or quality of the poverty reduction strategy could take second place to a government’s desire to secure debt relief as early as possible. To address this problem countries which are likely to reach decision point soon are allowed to produce Interim PRSPs .

What will an interim PRSP (IPRSP) look like?

IPRSPs will detail: 1) what is the current poverty strategy and what needs to be done to build on this foundation to achieve a full PRSP; and 2) what steps will be taken to involve civil society in a participatory process; 3) a timetable for these actions.

Is the IPRSP participatory?

The first IPRSP, produced by Bolivia, involved no participation (on the grounds that civil society had been consulted on the “national dialogue” on which the IPRSP was based). This implies that a government can lay out the agenda and timetable for the full PRSP plus what steps it will take to include civil society without any input from civil society or others. If the IPRSP is then accepted by the IMF and Bank Boards, then implementing it is all the government must do to produce an acceptable PRSP.

How many countries have qualified for enhanced-HIPC debt relief and have produced IPRSPs?

3 countries have qualified for enhanced HIPC relief: Uganda, Mauritania and Bolivia. Only Bolivia was required to produce an IPRSP, the other two countries were granted relief on the basis that they had already well developed plans for poverty reduction.

The next countries likely to reach decision point are: Tanzania, Mozambique, Senegal, Benin, Burkina Faso, Guinea, Honduras, and Mali. They will all be required to produce IPRSPs or full PRSPs.

On what basis will the IMF and Bank boards accept a PRSP?

In addition to requiring a coherent policy strategy for poverty reduction, which will be assessed jointly by the Bank and Fund staff in terms of its objectives and policy content, the Boards will also be concerned with the extent to which governments have consulted with civil society and how governance issues will be addressed. The IMF board is particularly concerned about the latter but no criteria on which governance will be judged have been made public.

The Bank and Fund are discussing with bilateral donors whether there should be a “core” content which would cover, for example, macroeconomic policy and government expenditure.

NGOs are calling for all critieria by which programme content and processes are to be judged to be publicly disclosed.

Does the PRSP do away with policy conditionality?

No. Conditions (performance criteria) will be attached to Bank and Fund lending and will be laid out in their Country Assistance Strategies (CASs) and Letters of Intent (LofI). The Bank and Fund do suggest though, that the more tightly a government can define its policy targets and the timing of actions in the PRSP, the more likely it is that these will form the conditions in the Bank and Fund lending programmes. The implication is that those governments less willing or able to so will have to accept conditions laid down by the IMF and Bank. Conditions will be linked to the PRSP‘s core objectives. IMF conditions will be limited to the macroeconomic framework.

Who will judge the quality of the participatory process?

The IMF and Bank staff say that they will not make any judgement on the quality of the participatory process, this is for the Boards to decide. Thus they argue that there are no explicit criteria by which the participatory process will be judged. However, the Boards will have to base their judgements on some criteria, whether these are implicit or explicit. To make the process transparent and fair, some NGOs are calling on the Boards to make it clear what these factors will be. African ministers meeting in Libreville, Gabon, in January endorsed the PRSP process but demanded that it should not lead to any new conditionality and that assessment of the participatory process should be case by case.

To what extent can civil society participate?

Obviously a government can seek as much participation as it wishes. However, the IMF and Bank documents implicitly suggest that participation will be largely confined to analysing the extent and causes of poverty and monitoring programme implementation. There seems to be little encouragement in the documents for including civil society in a detailed policy dialogue. Generally participation seems to be viewed as a means for ensuring more efficient implementation of programmes rather than as a right or a means to improve policy content.

NGOs are keen to ensure that civil society is able to participate as effectively as possible to the extent that they want to do so. This includes participation in the macroeconomic framework. Many are also concerned that the IMF and Bank should not impose new processes on developing countries but that the PRSP process should be tailored to existing consultation processes; that the process should encourage permanent mechanisms for participation to be established at the national level which will exist beyond the PRSP exercise; and to ensure that the Bank does not neglect participation in other areas of its work.

Will the content of PRSPs be the same as Structural Adjustment Programmes (SAPs)?

The IMF appears to believe that participation will not challenge programme content, ie it will not lead to radically different programmes being formulated, it will simply give civil society a better understanding of why “IMF-style” reforms are necessary and thus ownership of them. Generally, many donors believe it will be business as usual with a greater focus on social sectors and better safety-nets to address the poverty element.

Some NGOs are arguing that to allow civil society to judge whether it is worth their while participating, the IMF must demonstrate how flexible it is willing to be about what it will accept as a suitable macroeconomic framework. They want the IMF to state in advance where there is room for discussion. The IMF has not responded clearly to this but has suggested that there may be little room for manoeuvre, “we haven’t overturned the rules of economics”, stated Tony Boote at a recent meeting with NGOs.

The IMF has stated that the new approach means formulating the macroeconomic framework from “the bottom up”, ie that the financial needs for achieving poverty targets should be established first and then the macroeconomics targets set in line with these. The implication is that it will be less stringent in setting fiscal targets and where there are gaps between resource needs and actual availability of resources then the IMF will endeavour to persuade donors to fill the gaps. However, where additional resources are not forthcoming the poverty strategy would be scaled back in line with the resources available.

Who will assess coherence between the poverty goals and the macroeconomic framework?

Whilst the IMF will still lead the dialogue on the macroeconomic framework it will be the Bank’s responsibility to assess what impact it will have on poverty reduction. This would suggest that the Bank should have the final say on whether a framework is acceptable or not (currently the IMF has the ultimate authority to judge the macro policy content). Apparently no institution will have the final word, instead there is now a clear dispute resolution procedure which means that any differences between the two institutions will be ironed out.

Does the Bank have tools for assessing the poverty reduction impact of macroeconomic policies?

No, the Bank has no tools for assessing the poverty impacts of macroeconomic policies before they are applied. It is looking at the possibility of doing so.

What is the PRGF?

The PRGF is the Poverty Reduction and Growth Facility. It has replaced the IMF‘s Enhanced Structural Adjustment Facility (ESAF). All those countries which previously were receiving loans from ESAF are now receiving PRGF loans. The interest rate and repayment conditions are the same. World Bank funding for these countries comes from the International Development Association.

The Meltzer report for the US Congress has recommended that the IMF should get out of long-term adjustment lending and the PRGF should be closed down. Similarly, the UK Treasury Committee has recommended that the IMF should not be involved in debt reduction programmes.

How does the PRSP relate to the CDF, UNDAF and NSSDs?

The Comprehensive Development Framework (CDF) is a World Bank tool for organising donor, civil society and private sector input into a “coherent” development programme, it is being piloted in 13 countries. The United Nations have developed a similar tool called the UN Development Assistance Framework (UNDAF), which is also being used is some countries. These frameworks apply to countries borrowing from the multilateral institutions. Also, an outcome of the Rio+5 follow-up summit to the 1992 Earth Summit was a commitment that all countries would produce National Strategies for Sustainable Development (NSSD) by 2002.

These can be seen as nested frameworks with the NSSD being the overarching framework within which sits the CDF or UNDAF, whilst the PRSP is a mechanism for operationalising the CDF/UNDAF.

Can the Bank and Fund work together?

The common framework requires a certain amount of cooperation. In the words of a Bank staffer this “has already begun to through differences up to the surface.” Differences exist both in terms of the policy analysis and the definition of terms. For example, there is disagreement about the meaning and implications of “participation”.

Also, it appears that Bank staff have been concerned that the IMF is infringing on their territory and is trying to expand its remit. Whilst the IMF has publicly tried to allay these fears by insisting that it is not moving into social areas, questions have been asked as to why the World Bank’s Vice President for poverty, Masood Ahmed, has joined the IMF‘s policy department as Deputy Director.

Will there be changes in the Bank and Fund operational procedures?

It is clear that the Bank and Fund, whilst admitting that participation will mean longer processes for developing poverty strategies and that these will have longer time frames, expect the poverty framework to fit into established mechanisms and time-frames for agreeing programmes and providing finance.

Some NGOs argue that policy and programme development should be seen as the continuous process that it is, with participation and evaluation an implicit, on going part of it. This implies building on and developing permanent mechanisms at the national level which the Bank and Fund should fit in to rather than requiring national processes to fit into Bank and Fund cycles.

What will Country Assistance Strategies and Letters of Intent look like?

The PRSP will not do away with CASs and LofI. However, these will be slimmed down documents containing only details of the programme of policies actions and other reforms which the Bank and Fund are providing lending for and the performance criteria which governments must apply to trigger lending.

The analysis of the state of the economy and the country’s overall reform agenda, which formed “part 1” of the CAS, will now be contained in the PRSP.

Can the Bank deliver on poverty reduction?

A lot of emphasis is being placed on the Bank to deliver on poverty reduction, however, its internal evaluations have shown that it is still not focussed on poverty reduction goals in its programme and sector work.

The Bank’s new thinking on poverty reduction will be enshrined in its forthcoming WDR on poverty. It can be anticipated that this will be the back bone of the analysis it uses to advise governments. It now accepts a much broader, multidimensional interpretation of what it is to be in poverty and what is needed to address it. It will be important to see how the Bank can mainstream this understanding into its policy analysis and its lending programmes and projects.

What are the implications for bilateral donors?

There will need to be increased bilateral donor coordination to ensure aid is delivered on time and in a coherent package, and to streamline reporting and evaluation requirements. Also, African governments, in the Libreville Decleration and in meetings with donors, have urged that the PRSP is an opportunity for donors to move more decisively away from project financing towards un-tied budget support and long-term aid commitments.

What documents will be available?

PRSPs and staff assessments will be available, plus summaries of the Boards’ discussions. IPRSPs should also available. Publication of Letters of Intent will be up to each country to decide, there is a presumption that these will be published. The Bank’s Board is still discussing the release of Bank programme documents. It is likely that it will agree that this is up to each country to decide but with a presumption in favour of publication.

Some NGOs have called for draft CASs and Letter of Intent to be made available so that civil society and others can evaluate whether the multilateral lending programmes reflect the national poverty strategy before they are agreed to by the government.

When will the process be evaluated?

After 18months (Spring 2001). It will be an external evaluation.

An evaluation of the Comprehensive Development Framework will be made in time for the Annual General Meetings in Prague, September 2000.