6 , 2004
Report on the Evaluation of Poverty Reduction Strategy Papers (PRSPs) and The Poverty Reduction and Growth Facility (PRGF)1
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Summary of Major Findings, Lessons and Recommendations
1. The Poverty Reduction Strategy (PRS) approach consists of a series of process innovations designed to encourage broader-based participation in the development of a country-owned, long-term strategy for growth and poverty reduction that could also be a framework for coordinating donor support. It was accompanied by a transformation of the IMF's concessional lending facility into the Poverty Reduction and Growth Facility (PRGF). It is too early to evaluate the success of the new approach in achieving its longer-term objectives, especially the extent of reduction of poverty; progress in this dimension will become evident only over a longer period of time. The evaluation has, therefore, focused on intermediate stage outcomes, that is, the quality of the broader-based policy formulation process, the nature of the strategy and policy framework that has evolved, the interaction between this framework and the PRGF, and the effectiveness of the IMF's role. We summarize here our major findings as well as the lessons to be drawn from them and make a number of recommendations for the future. The final section reflects on some implications of the evaluation for the longer-term role of the IMF in low-income countries.
A. Summary of Major Findings
2. The broad picture that emerges from our study is that the PRS approach has the potential to encourage the development of a country-owned and credible long-term strategy for growth and poverty reduction, which could provide an effective framework for coordinating the efforts of donors and international financial institutions (IFIs), including the IMF. However, actual achievements thus far fall considerably short of potential. This is partly because it is unrealistic to expect quick gains given the initial conditions from which the process started in most low-income countries. But there were also shortcomings in the design of the initiative that have reduced its effectiveness, including a lack of clarity about the role which the IMF should play.
3. Participation in the formulation of Poverty Reduction Strategy Papers (PRSPs) was generally more broadly based than in previous approaches, and most stakeholders involved in the process viewed this as a significant improvement. However, the participatory processes were typically not designed to strengthen existing domestic institutional processes for policy formulation and accountability (e.g., through parliament). In a few cases, institutional arrangements to sustain the process are beginning to develop around the budgetary cycle.
4. The PRS process has had limited impact in generating meaningful discussions, outside the narrow official circle, of alternative policy options with respect to the macroeconomic framework and macro-relevant structural reforms. This reflects in part the absence of any mechanism to ensure that key issues were aired and the broader debate well-informed. Lack of clarity about the role of the IMF in this area contributed to this outcome. In the relatively few cases where a broader debate did occur, there was a positive impact on policy outcomes.
5. Results in terms of ownership are mixed. The approach has often generated relatively strong ownership in a narrow circle of official stakeholders responsible for driving the process, but much less among other domestic stakeholders. The perception that the approach is overly influenced by procedural requirements of the Bretton Woods Institutions (BWIs) is widespread.
6. In terms of diagnostics, the approach has generally contributed to a significant improvement in understanding the multidimensional nature of poverty, which has implications for designing poverty reduction strategies. However, the approach has been much less effective in identifying constraints to accelerating growth and making it more pro-poor. The approach has so far not contributed significantly to understanding the linkages between growth, poverty incidence, and macroeconomic policies at the individual country level. These issues present analytical challenges that are not necessarily resolved through participation alone.
7. Strategies outlined in PRSPs generally constitute an improvement over previous development strategies, in the sense of providing greater poverty focus, a longer-term perspective, and some results orientation. However, most PRSPs fall short of providing a strategic road map for policymaking, especially in the area of macroeconomic and related structural policies. The focus of most PRSPs is on the composition of public expenditures, especially social sector spending, with much less emphasis on other aspects of a broader strategy to encourage poverty-reducing growth. Even in the area of public expenditure, the operational value of PRSPs is often limited, because of the still rudimentary nature of most costing and prioritization. In many cases, PRSPs also avoid addressing key strategic choices involving "controversial" structural reforms. These weaknesses imply that in most cases PRSPs do not yet provide a policy framework in which PRGF-supported programs can be anchored.
8. Except in a few countries where the process is beginning to be embedded in domestic institutions, there is limited feedback from initial implementation to policy design. This is particularly problematic in the area of macroeconomic policy where the original PRSP was often overtaken by events or proved unrealistic, and there was little in the PRSP to guide choices on key strategic trade-offs involved in recalibrating macro-economic targets.
9. Capacity constraints have been a severe impediment to progress in the implementation of the PRS approach. There has been insufficient attention to developing a systematic plan of action to strengthen capacity, including in the IMF's areas of primary competence. Budgetary processes are weak, and the linkages between the PRSP, medium-term expenditure frameworks, and budgets are generally poor. In particular, public expenditure management (PEM) systems are generally too weak to allow the PRSP to play a central role in implementing expenditure priorities or modifying them on the basis of feedback on actual costs and outcomes. Strengthening PEM has been recognized as central to the success of the initiative and is one area where systematic monitoring by the BWIs on the basis of commonly agreed benchmarks is being undertaken (at least for the Heavily Indebted Poor Countries (HIPCs)). The results suggest moderate progress. In other areas, however, capacity limitations which constrain policy design and implementation have largely not been addressed systematically, including through BWI contributions.
10. On balance, joint staff assessments (JSAs) do not perform adequately the many tasks expected of them. The clarity, candor, and comprehensiveness of the assessment are uneven, with scope for improvement even in "good practice" cases. This partly reflects a built-in bias to reach a "yes or no" signalwhich is always "yes" in practice, encapsulated in standardized language. Other factors limiting the usefulness of JSAs include the lack of explicit benchmarks in most areas on which to base the assessment. Their main contribution has been in giving feedback to the authorities on weaknesses in the PRSP, but JSAs are virtually unknown outside the narrow official circle and consequently have no impact on the broader policy debate. They do not incorporate systematic inputs from development partners and, in practice, have played a limited role in informing lending decisions, including those of the BWIs.
11. The effectiveness of the IMF's contribution has varied considerably across different components of the initiative and across countrieswith marked differences between "good" and "average" practice. Its overall contribution has fallen well short of the (admittedly very ambitious) goals it set for itself in the original policy documents:
12. Success in embedding the PRGF in the overall strategy for growth and poverty reduction has been limited in most casespartly reflecting shortcomings in the strategies themselves. Nevertheless, program design under the PRGF has incorporated greater fiscal flexibility to accommodate aid flows, and there is no evidence of generalized "aid pessimism" or a systematic "disinflation" bias. Expenditures designated as poverty reducing have increased markedly since 1999, although there are questions about how "pro-poor" some of this spending is. IMF structural conditionality has been streamlined, but we have not been able to reach a definitive conclusion on what has happened to aggregate IMF-World Bank conditionality, which is not monitored by the two institutions. There were only minor improvements in program implementation under the PRGF.
13. In terms of outcomes, only tentative messages emerge at this stage.
14. To summarize, in cases where the PRS approach has been integrated into domestic institutional structures, there have been important improvements in domestic policy processes. In most cases, however, while the PRS approach has generally helped make progress in the right direction, achievements are more tentative. Where the PRS approach has been implemented as an externally imposed, ad hoc exercise, it has acted more as a distraction from strengthening the domestic policy framework.
1 This report was prepared by a team headed by David Goldsbrough and including Jeffrey Allen Chelsky, Martin Kaufman, Steve Kayizzi-Mugerwa, Isabelle Mateos y Lago, Alex Segura-Ubiergo, Daouda Sembene, and Tsidi Tsikata. Research assistance was provided by Patricia Yang-Yang Chen and Mike Taib. Important contributions were also received from Professor Arne Bigsten, Soren Jensen, David Peretz, and Kerfalla Yansane. The report was approved by Montek S. Ahluwalia, Director of the Independent Evaluation Office (IEO). Final judgments are the responsibility of the IEO alone.