IEO Annual Report 2005-06
Chapter

Appendix 8 Evaluation of Poverty Reduction Strategy Papers and the Poverty Reduction and Growth Facility: Recommendations, Board Response, and Subsequent Follow-Up

Author(s):
International Monetary Fund. Independent Evaluation Office
Published Date:
January 2007
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IEO RecommendationExecutive Board Response1Follow-Up2
Aligning incentives and objectives
(1) Introduce greater flexibility in the implementation of the PRS approach to fit better the needs of countries at different stages of the process and with different capacities and political and administrative systems.Directors broadly endorsed the recommendation, agreeing that the PRS approach will need to be implemented flexibly taking due account of country-specific circumstances and the core objectives of the PRS approach.Several changes have been made to introduce greater flexibility. In addition to the shift in focus from the Joint Staff Assessment (JSA) to the Joint Staff Advisory Note (JSAN) (see below), the Annual Progress Report can now be more closely aligned with domestic processes, giving the country an opportunity to assess progress and set the agenda for the period ahead. In most cases, Annual Progress Reports will not be discussed by the IMF and World Bank Boards and will be distributed for their information only.
Countries would be put more firmly in the driver’s seat by determining themselves:
(i) How the policy formulation, implementation, and monitoring processes will be built up over time. Progress would be monitored against an explicit set of country-determined intermediate benchmarks.The requirement that the PRS and the PRGF be fully consistent has been eased, with the aim of eliminating the need for last-minute formal adjustments to the strategy document.
(ii) What the output of these processes will be in terms of documents, with IMF process requirements minimized.
(2) Shift the emphasis of the initiative from the production of documents to the development of sound domestic policy formulation and implementation processes.Directors agreed that there should be less emphasis on document preparation and more on improving the capability of countries to develop and implement policies. Some Directors agreed that countries should set explicit criteria for judging progress toward key intermediate objectives, but many Directors cautioned that this should not imply excessive IMF involvement in assessing the country’s decision-making process and should not establish an unwarranted direct linkage between such assessments and the IMF’s lending decisions. Directors noted that further discussion was needed on how the IMF should react in cases where it believes that the pace of progress chosen is not ambitious enough.JSANs (see below) are to provide constructive feedback to the authorities, focusing on a limited number of suggested key improvements that could be made to the strategy. This increased selectivity is intended to focus efforts on substantive changes in policies and processes.
This would involve the following elements:
(i) Build in greater results orientation.
(ii) Shift the emphasis of the incentives structure to achieving substantive changes in domestic policies and processes that are objectively measured.
(3) Clarify the purpose of the JSA and redefine the vehicle accordingly.Directors called for a reformulation of the JSA with an emphasis on graduated rather than binary assessments.The Board subsequently accepted the staff proposal to replace the JSA with a JSAN that focuses on providing feedback to the authorities on the PRSP and that drops the binary (yes or no) assessment of the suitability of the PRSP
Clarifying the IMF’s role and improving its effectiveness
(4) Clarify what the PRS approach implies for the IMF’s own operations and strengthen the implementation of the agreed role. This would affect the following areas:Directors agreed that the IMF needs to set out more clearly its role in the PRS approach in each country, based on the IMF’s core mandate in macroeconomic and related structural policy issues.Additional work on the PRSP process will be done in the context of the Managing Director’s Report on the IMF’s Medium-Term Strategy, and a planned paper on the role of the IMF in the PRS process and in donor collaboration will be prepared.
(i) IMF engagement in the PRS process.Many Directors also supported a more active role for the IMF in the public debate on macroeconomic policy design and implementation. Where PRSPs are not yet operationally viable, the IMF should not insist on immediate tight alignment between the PRSP and PRGF-supported program. Instead, IMF staff should work with these members to strengthen their macro-economic frameworks in PRSPs. However, increased flexibility should not imply delinking the PRGF from the PRSP, and the IMF would still seek to apply the PRSP principles in its program work.
(ii) PRGF-related activities including clarifying the IMF role where the PRSP does not yet provide an operational road map.Board scrutiny has been simplified, as PRS documents and corresponding JSANs will no longer be put automatically on the Board agenda. Instead, they will be issued for information and discussed only at an Executive Director’s request.
(iii) Streamline IMF documentation and Board scrutiny.Where PRS documents do not provide an operational strategy, this can be set out in the context of PRGF-supported programs. Where the strategy has weaknesses that are critical to the success of PRGF-supported programs, the Letter of Intent/Memorandum of Economic and Financial Policies and staff report for the PRGF request or review is expected to set out how the weaknesses have been addressed.
A separate JSAN is no longer required for PRSP preparation status reports; instead, a brief discussion of the status report is included in the PRGF staff report.
(5) Strengthen prioritization and accountability on what the IMF itself is supposed to deliver within the broader partnership framework, built around the priorities emerging from the PRS process, and ensure that resources match commitments.Directors welcomed the emphasis on better defining priorities for the IMF’s work in low-income countries and indicated that the prioritization of budget resources must be guided by the IMF’s overall mandate. They called for a careful assessment of the resource implications of adapting the IMF’s role along the lines of the report’s recommendations.See response to No. (4) above.
(6)The IMF should encourage a strengthening of the framework for establishing the external resources envelope as part of the PRS approach.Directors indicated that the IMF should play a supportive role with donors and low-income members to help ensure adequate provision of aid to achieve the Millennium Development Goals (MDGs). In this regard, the IMF needs to consider how its signals can be clear and useful to its members.The IMF and World Bank are working with a number of countries to develop alternative macroeconomic framework that reflect the larger amount of aid needed to meet the MDGs.
The Board has established a new policy support instrument and an exogenous shock facility (under the PRGF) for low-income countries that may not need a PRGF arrangement but seek IMF assessment and endorsement of their economic policies.

This column summarizes the reaction of the Executive Board on each recommendation as reported in the Acting Chair’s Summing Up of the July 21, 2004, Board meeting. Although care has been taken to ensure accuracy, readers are invited to refer to the full text of the summary of the discussion, which is included in the published version of the report and can be accessed on the IEO website at www.imf.org/External/NP/ieo/2004/prsp-prgf/eng/index.htm.

The column on follow-up is meant to provide factual information on additional steps taken after the Board discussion. It is not intended to be an evaluation of any follow-up by management or by the Executive Board.

This column summarizes the reaction of the Executive Board on each recommendation as reported in the Acting Chair’s Summing Up of the July 21, 2004, Board meeting. Although care has been taken to ensure accuracy, readers are invited to refer to the full text of the summary of the discussion, which is included in the published version of the report and can be accessed on the IEO website at www.imf.org/External/NP/ieo/2004/prsp-prgf/eng/index.htm.

The column on follow-up is meant to provide factual information on additional steps taken after the Board discussion. It is not intended to be an evaluation of any follow-up by management or by the Executive Board.

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