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Mr. Jan Kees Martijn, Gabriel Di Bella, Mr. Shamsuddin Tareq, Mr. Benedict J. Clements, and Mr. Abebe Aemro Selassie

Abstract

Macroeconomic outcomes in low-income countries (LICs) have improved markedly in recent years, but important questions remain regarding possible adjustments in the design of IMF-supported programs in such countries. This paper draws on a review of the literature as well as the experience of 15 LICs that have attained some degree of macroeconomic stability to discuss, for example, the appropriate target range for inflation in shock-prone LICs; whether countries should use fiscal space to cut excessive tax burdens, reduce high debt levels, or raise public spending; and how the effectiveness of public expenditures can be improved.

Yasemin Bal Gunduz, Mr. Christian H Ebeke, Ms. Burcu Hacibedel, Ms. Linda Kaltani, Ms. Vera V Kehayova, Mr. Chris Lane, Mr. Christian Mumssen, Miss Nkunde Mwase, and Mr. Joseph Thornton

Abstract

This paper aims to assess the economic impact of the IMF’s support through its facilities for low-income countries. It relies on two complementary econometric analyses: the first investigates the longer-term impact of IMF engagement—primarily through successive medium-term programs under the Extended Credit Facility and its predecessors (and more recently the Policy Support Instrument)—on economic growth and a range of other indicators and socioeconomic outcomes; the second focuses on the role of IMF shock-related financing—through augmentations of Extended Credit Facility arrangements and short-term and emergency financing instruments—on short-term macroeconomic performance.

Mr. Joachim Harnack, Mr. Sérgio Pereira. Leite, Ms. Stefania Fabrizio, Ms. Luisa Zanforlin, Mr. Girma Begashaw, and Mr. Anthony J. Pellechio

Abstract

This chapter explores the key relationships between participatory democracy and successful economic development and reviews the early steps of participatory decision making in Ghana. More generally, it sets the stage for a discussion of Ghana's main achievements and failures since 1992 in raising the standard of living of its population and reducing poverty. The high-profile political process that launched constitutional democracy in the 1990s and generated Ghana—Vision 2020 placed poverty reduction at the center of economic policy. Based on a set of price and unit labor cost indicators, Ghana's competitiveness improved in the early 1990s through 1994. The evidence for 1995–98 is quite strong. The Bank of Ghana is suspected to have used administrative means and moral suasion to influence the exchange rate, resisting the cedi's depreciation. The terms-of-trade shock forced the Bank of Ghana to focus more clearly on maintaining adequate foreign reserves. The depreciation may then have helped make the foreign exchange market more active and the nominal exchange rate more representative of market conditions.

Mrs. Ritha S. Khemani, Mr. Sanjeev Gupta, Mr. Calvin A McDonald, Mr. Louis Dicks-Mireaux, and Marijn Verhoeven

Abstract

The IMF’s mandate is, among other things, “to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income … of all members as primary objectives of economic policy.”3 To this end, the IMF promotes sound macroeconomic policies, growth-enhancing structural reforms, and good social policies–conditions for high-quality growth. The IMF has paid increasing attention to these considerations in its policy advice.

Mr. Benedict J. Clements, Ms. Gabriela Inchauste, Ms. Nita Thacker, Mr. Thomas William Dorsey, Mr. Shamsuddin Tareq, Mr. Emanuele Baldacci, Mr. Sanjeev Gupta, and Mr. Mark W. Plant

Abstract

The creation of the Poverty Reduction and Growth Facility (PRGF) in late 1999 represented the culmination of more than two years of internal and external reviews and IMF policy discussions on the assessment and transformation of the Enhanced Structural Adjustment Facility (ESAF) (Box 1). At the time the PRGF was instituted, it was envisaged that there would be some far-reaching changes in the way the IMF worked to support low-income member countries. First, there would be a change in the content of IMF-supported programs in these countries—the programs would be more pro-poor and pro-growth. Second, there would be an increased emphasis on country ownership of PRGF-supported programs. And third, there would be a better definition of the IMF’s role and relationship with other agencies supporting the development efforts of low-income countries. Although much of the structure for the anticipated changes was embedded in the Poverty Reduction Strategy Paper (PRSP) process, specific expectations for PRGF-supported programs were laid out in the Key Features of Poverty Reduction and Growth Facility (PRGF)-Supported Programs document (Box 2), which was issued in August 2000 after extensive internal and external consultation.

Mr. Joachim Harnack, Mr. Sérgio Pereira. Leite, Ms. Stefania Fabrizio, Ms. Luisa Zanforlin, Mr. Girma Begashaw, and Mr. Anthony J. Pellechio

Abstract

In 1992 Ghana held its first elections in over a decade, taking a decisive step in the return to democratic rule. Although many countries in Africa moved to democracy in the 1990s, Ghana had reached that point only after a virtual meltdown in the early 1980s. What has been all the more laudable in Ghana’s case is therefore the steady progress since the return to democratic rule in enhancing a democratic environment.

Mrs. Ritha S. Khemani, Mr. Sanjeev Gupta, Mr. Calvin A McDonald, Mr. Louis Dicks-Mireaux, and Marijn Verhoeven

Abstract

Sound economic policies favor both growth and the poor. The contribution of macroeconomic and structural reforms to long-run economic growth and poverty reduction is now well established. Research has demonstrated that low fiscal deficits and price stability promote economic growth,6 and economic growth is the most significant single element that contributes to poverty reduction.7 Macroeconomic adjustment generally benefits the poor.8 Dismantling product and factor market rigidities helps reduce poverty by increasing not only the supply of essential goods, but also the poor’s access to them.9 In addition, based on cross-country studies, there is increasing evidence that lower inflation also enhances income equality (Milanovic, 1994; Bulír and Gulde, 1995; Sarel, 1997; Bulír, 1998; and Guitán, 1998).

Mr. Benedict J. Clements, Ms. Gabriela Inchauste, Ms. Nita Thacker, Mr. Thomas William Dorsey, Mr. Shamsuddin Tareq, Mr. Emanuele Baldacci, Mr. Sanjeev Gupta, and Mr. Mark W. Plant

Abstract

In reviewing the implementation of the key features, the analysis focuses on the extent to which program design in PRGF-supported programs has been consistent with these goals. Because of the early stage of the transformation from the ESAF, it is not yet possible to consider questions about how the PRGF has affected poverty and growth. The process of transformation from the ESAF to the PRGF is ongoing, and in many respects it is still at an early stage—a large majority of PRGF-supported programs in place are either new PRGF-supported arrangements that have not yet reached their first review or ESAF-supported arrangements that have been transformed into PRGF-supported arrangements in midstream.1 Nevertheless, an attempt has been made to evaluate outcomes in relation to objectives wherever data were available (mostly in the fiscal area).

Mr. Joachim Harnack, Mr. Sérgio Pereira. Leite, Ms. Stefania Fabrizio, Ms. Luisa Zanforlin, Mr. Girma Begashaw, and Mr. Anthony J. Pellechio

Abstract

The high-profile political process that launched constitutional democracy in the 1990s and generated Ghana– Vision 2020 placed poverty reduction at the center of economic policy. The main themes of Ghana– Vision 2020 were economic growth, investment in human capital, rural development, and an enabling environment for private entrepreneurship and investment. These themes were carried into the medium-term program for the first five-year period of the strategy, 1996–2000, with human development as the focus for efforts at poverty reduction (Government of Ghana, 1997a). The basic goals in this area were to improve health, life expectancy, and the capabilities of all persons; eliminate extreme deprivation; and ensure an equitable distribution of the benefits of development.

Mr. Jan Kees Martijn, Gabriel Di Bella, Mr. Shamsuddin Tareq, Mr. Benedict J. Clements, and Mr. Abebe Aemro Selassie

Abstract

PRGF-supported programs in the 15 mature stabilizers during 2000–03 have generally sought to consolidate macroeconomic stability and foster growth. By and large, growth outcomes have been in line with program targets. Reflecting favorable initial conditions, there has been limited emphasis on further disinflation. On the fiscal front, programs have sought to increase capital spending, but have not been generally successful. Developments in the external accounts have been less favorable; while external reserves have increased, current account deficits have remained too large to ensure external viability even after debt relief from the enhanced HIPC Initiative. The rest of this section discusses these stylized facts in more detail.