Chapter

I Introduction: The Key Features of the PRGF

Author(s):
Benedict Clements, Gabriela Inchauste, Nita Thacker, Thomas Dorsey, Shamsuddin Tareq, Emanuele Baldacci, Sanjeev Gupta, and Mark Plant
Published Date:
September 2002
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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.

The PRGF now functions as the IMF’s principal instrument to support low-income countries in implementing their poverty reduction strategies. Targets and policies embodied in PRGF-supported programs should emerge from the country’s own poverty reduction strategy, as laid out in its PRSP or Interim PRSP (I-PRSP). Key social and sectoral programs and structural reforms aimed at poverty reduction are identified, assigned priorities, and given cost estimates in the country’s I-PRSP/PRSP, which are produced in a transparent process involving broad participation from the government, nongovernmental organizations (NGOs), civil society, and donors. The IMF is expected to focus on its core areas of expertise while working with the authorities in the framework of the PRGF-supported program to ensure that these targets can be achieved within a stable macroeconomic environment.

PRGF-supported programs have some features in common (Box 2).

  • PRGF-supported programs should be drawn from the country’s I-PRSP/PRSP. The overall macro framework for PRGF-supported programs must also derive from and reflect the overall growth and poverty reduction strategy. PRGF-supported programs should indicate how the specific measures supported under the program are embedded within the country’s overall poverty reduction strategy. Staff reports for PRGF-supported programs should highlight aspects of the strategy that promote growth through private sector development.
  • Conditionality should be selective and should focus on the IMF’s core areas of expertise. These will normally cover fiscal, monetary, and external sectors and structural reforms in related areas such as exchange rate and tax policy and issues related to fiscal transparency, budget execution, and tax and customs administration. Conditionality in other areas may be included to the extent that this is critical to achieve the macroeconomic objectives of the program.
  • Budgets should be pro-poor and pro-growth. Government spending should be oriented toward poverty-reducing activities and outlays that foster the development of human and physical capital. In order to monitor this shift in the composition of public spending, it will be necessary to improve public expenditure management (PEM) systems (see below). Efforts should be made to improve the efficiency and targeting of spending, and tax reforms should aim at improving both efficiency and equity.
  • Fiscal targets should be flexible and allow increases in public expenditures to accommodate the government’s poverty reduction strategy within a stable macroeconomic framework. Programs could also be presented in ways that could signal financing needs. Thus, normative macro-projections in PRSPs could be presented as possible alternatives.

Box 1.Evolution from the ESAF to the PRGF

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). This process included

  • The 1997 staff review of the ESAF ten years after the facility’s inauguration in 1987.1
  • An external review of the ESAF in 1998.2
  • A summary paper on the internal and external reviews—Distilling the Lessons of the ESAF Reviews—discussed by the Executive Board in July 1998 and leading to a first round of changes to the ESAF architecture and staff guidance.3
  • Discussions in the Executive Board and the Interim Committee of the Board of Governors in September 1999 leading to the decision to transform the ESAF into the PRGF and link the PRGF closely to Poverty Reduction Strategy Papers (PRSPs).
  • An Operational Issues paper for the PRGF discussed by the Executive Board in December 1999.4

A paper providing more precise staff guidance as to the expectations of the PRGF and PRSPs—Key Features of Poverty Reduction and Growth Facility-Supported Programs5—was distilled from the Operational Issues paper and its summing up, issued to the Executive Board, and subsequently published.

1 George Abed. 1998. Fiscal Reforms in Low-Income Countries, IMF Occasional Paper No. 160 (Washington: International Monetary Fund). Hugh Bredenkamp and Susan Schadler, eds., 1999, Economic Adjustment and Reform in Low-Income Countries (ESAF Review Background Papers) (Washington: International Monetary Fund). International Monetary Fund, 1998, The ESAF at Ten Years: Economic Adjustment and Reform in Low-Income Countries, IMF Occasional Paper No. 156 (Washington).2 ESAF Evaluation Board, 1998, External Evaluation of the ESAF (Washington: International Monetary Fund).3Summing Up by the Chairman of the Executive Board—Distilling the Lessons from the ESAF Reviews, IMF Executive Board Meeting, July 8, 1998, available via Internet: http://www.imf.org/external/np/sec/buff/9862.htm. Distilling the Lessons from the ESAF Reviews, July 1998, available via Intemet: http://www.imf.org/extemal/pubs/ft/distiMndex.htm.4The Poverty Reduction and Growth Facility (PRGF)—Operational Issues. December 13, 1999, available via Internet: http://www.imf.org/external/np/pdr/prsp/poverty2.htm.5Key Features of IMF Poverty Reduction and Growth Facility (PRGF) Supported Programs, August 16. 2000, available via Internet: http://www.imf.org/external/np/prgf/2000/eng/ key.htm. Concluding Remarks by the Chairman of the IMF’s Executive Board—Poverty Reduction Strategy Papers—Operational Issues and Poverty Reduction and Growth Fuciiiry—Operational Issues, IMF Executive Board Meeting, December 21, 1999, available via Internet: http://www.imf.org/external/np/pdr/prsp/1999/99l221.htm. The Poverty Reduction and Growth Facility (PRGF)—Operational Issues. December 13, 1999.
  • PRGF-supported programs place strong emphasis on measures to improve public resource management and accountability by incorporating steps to improve PEM systems and implementation of fiscal governance measures.
  • Finally, PRGF-supported programs are expected to report on the social impact of measures in the program that could have an adverse effect on the poor. Countervailing measures are expected to be included in the program based on such analysis. The World Bank is expected to take the lead on the analysis.

The remainder of this paper provides an assessment of the extent to which PRGF-supported programs have implemented the individual key features. Section II provides an overview of study sample design and the methodology used in the study. Section III describes whether PRGF-supported programs are consistent with key features 1 and 2—broad ownership and participation, and embedding the PRGF in the overall strategy for growth and poverty reduction. Section IV tackles the issue of whether government budgets are more pro-poor and pro-growth (key feature 3). Section V addresses whether there is fiscal flexibility in PRGF-supported programs (key feature 4). Section VI examines whether PRGF-supported programs have incorporated more selective structural conditionality (key feature 5). Section VII covers measures to improve public resource management and accountability (key feature 6). Completing the examination of key features. Section VIII discusses whether PRGF-supported programs incorporate poverty and social impact analysis of major macroeconomic adjustments and structural reforms (key feature 7). Section IX discusses the potential role of capacity building in strengthening the design of PRGF-supported programs. The final part, Section X, provides a summary of the experience thus far with PRGF program design.

Box 2.Key Features of PRGF-Supported Programs

As use of the PRGF has evolved, a number of distinctive features of the new facility have emerged. Foremost among these is broad public participation and increased national ownership. Basing a PRGF-supported program on the country’s PRSP should ensure that civil society has been involved in the formulation of the program, that the country authorities are the clear leaders of the process, and that the program is properly embedded in the overall strategy for growth and poverty reduction. Thus, IMF staff are required to explain to the Executive Board how these programs derive from the poverty reduction strategy and how they are complementary to the World Bank’s activities and conditionality.

An important outcome of the new approach is that more attention is being given to the economic aspects of governance than in the past. At the same time, more attention should be given to the social impact of major reforms under the program. Where major reforms are expected, analysis of the impact on the poor has to be conducted (normally by the World Bank where governments lack the capacity to do this work themselves) and, where necessary, countervailing measures incorporated in the PRGF-supported program. With improved country ownership, PRGF conditionality can and should be more selective, focusing on measures central to the success of the country’s strategy, particularly in the macroeconomic and financial area.

Key features are as follows;

  • Broad participation and greater ownership
  • Embedding of the PRGF in the overall strategy for growth and poverty reduction
  • Budgets that are more pro-poor and pro-growth
  • Appropriate flexibility in fiscal targets ensured
  • More selective structural conditionality
  • Emphasis on measures to improve public resource management/accountability
  • Social impact analysis of major macroeconomic adjustments and structural reforms
Sources: International Monetary Fund, 2001, IMF Lending to Poor Countries—How Does the PRGF Differ from the ESAF?, IMF Issues Brief 01/06 (Washington). Key Features of IMF Poverty Reduction and Growth Facility (PRGF) Supported Programs, August 16, 2000. available via Internet: http://www.imf.org/external/np/prgf/2000/eng/key.htm. Additional details on the breadth of the key features (seven features with a total of 22 sub-elements falling within the scope of this review) can be found in Appendix III,

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