Social services


IMF in low-income countries

22 April 2005 | Resource

Chaired by Mark Plant, head of PDR

The spring meetings were quiet on this issue but were an overture to UN millenium development summit, the G8 summit at Gleneagles and the World Bank autumn meetings. The IMFC and the Development committee agreed that they are not moving forward enough, and that “more aid and liberalised trade” is needed. Ministers and heads of states they are considering how to move from rhetoric to action.

Both committees commended the Global Monitoring Report, saying it represented a consensus on how to move forward. He particularly emphasized the GMR chapter on Africa asserts that “growth is country specific”, highlighting the importance of PRSPs, home grown strategies, a strong private sector, vibrant markets and “a good surrounding environment”, qualified as governance and regulatory institutions.

Debt relief

“Up to 100% debt relief” was considered at the last annual meetings, but work now is on the detail of the proposals as the way it is carried out will differ according to the aims of debt relief (is it to help countries achieve the MDGs, or to deal with debt overhangs?)

On the HIPC initiative: HIPC is not fully financed and there are still Sudan, Somalia and Liberia to reach completion point. Priority should go to fully funding HIPC before launching new debt initiatives. However, it will take those countries sometime to achieve completion poit due to governance issues.

Development finance

Explained that a number of governments are opposed to the IFF, but encouraged those in support to move forward on this. A curious change in rhetoric from “global taxes” to “global contributions”, which may include such issues as aviation tax. The IMF has scored these various financing options and found that aviation tax scores well and countries can proceed independently.

Aid modalities

The IMFC agreed to finance the PRGF, and also welcomed the design of the Programme Monitoring Arrangement (for countries that don’t need the fund’s money but still want a signal from the Fund on their macro-economic performance) and a shocks facility. The Bank and Fund are jointly preparing an indepth review of the PRSP approach and the PDR is still working a review of macro-economic program design, their work in LICs and PRGFs.

Discussion with civil society

On the programme monitoring arrangement (PMA): would have to indicate good policy and would need to be approved by the board. It would also need to be linked with the shocks facility; countries in the PMA would have fast track access to this facility. There are only a handful of countries that can currently move away from the PRGF, and a number of which are still vulnerable to exogenous shocks, to which they need to be able to respond to in a timely manner.

On tightness of fund programmes: IMF staff didn’t agree with the conclusion of the Sachs report. They are looking into fiscal programme design but are concerned that too much fiscal space could lead to another HIPC situation down the road; countries have made progress in macrostability and this should be built on an maintained. However, they recognize that some flexibility might be required in response to the HIV crisis – for example low inflation should not be pursued dogmatically at the expense of trying to manage the AIDS crisis.

On Poverty social impact assessments (PSIA): They have just completed 6 PSIA reports on petroleum sector pricing in Bolivia and Ghana; the groundnut sector in Senegal; macroeconomic shocks in Mali and debt reform in Uganda, which they will be circulating shortly. They are writing “guidance notes” to use as a basis for conducting seminars on aspects of PSIA, including: How PSIA might relate to macroeconomic reform; pricing and taxing issues (including reform of subsidies and tax systems).

On the IMF and parliaments: “Is the IMF encouraging governments to sidestep national parliaments with regards to budgets, new loans, grants and conditions?”

“parliaments have taken decisions that we don’t think is in the best interest of the country”; “we don’t encourage the government to break the law, but to go back to parliament”; “We need more interaction with parliaments to make our positions clear”; “Often parliament says things that runs counter to the interests of its people”; “In many cases parliaments make laws we consider are against countries’ interests e.g extending tax exemptions and subsidies”; “Parliamentarians are not usually lobbying for the poor”… rather in favour of “certain interest groups”.

NGOs expressed concern that undermining parliament can be very damaging in the long run, and that the PRGF doesn’t have the exposure it should. Also in the case of Tanzania, the fund saw the draft budget before parliament did. However, IMF staff said that this was often better, time-wise, as IMF guidance would ensure a more feasible budget went to parliament.

On the case of Ghana, parliamentary approval of a new budget which included increases in the tariffs on rice and poultry was overturned by the government following a meeting with IMF staff, in direct violation of the Ghanaian constitution. The IMF responded that this took place “with no direct intervention” from them. Also, the IMF cannot engage in the political affairs of member countries, it is thus up to the executive to decide how to report back to parliaments, and that the legislative framework for the budgetary process is respected. They don’t know of any country where the government has circumvented parliament at the IMF’s behest.

On debt cancellation. Whilst there is support for general principles of debt relief, for which the purpose is to overcome the debt overhang, there is a discussion that HIPC hasn’t got us over the debt overhang. Debt relief is a good way of mobilizing finance for MDGs.