Covering Memorandum by the President of the World Bank and the Acting Managing Director of the IMF on the Heavily Indebted Poor Country (HIPC) Initiative and Poverty Reduction Strategy Papers (PRSP) - Progress Reports
April 14, 2000
HIPC Initiative - A Progress Report
Poverty Reduction Strategy Papers: Operational Issues
Progress Report on Poverty Reduction Strategy Papers (PRSPs)|
Prepared by the Staffs of the World Bank and International Monetary Fund
April 13, 2000
Table of Contents
1. The Development and Interim Committees in September 1999 endorsed a framework to strengthen the link between debt relief and poverty reduction and to enhance the poverty focus of all Bank and Fund concessional lending. The new approach is based on poverty reduction strategies prepared by countries and embodied in Poverty Reduction Strategy Papers (PRSPs). PRSPs will provide the context for concessional assistance to low-income countries provided by IDA and by the Fund1. Ministers endorsed the proposal to make poverty reduction a key and more explicit element of the Fund’s growth-oriented strategy for low-income countries, replacing the ESAF with the Poverty Reduction and Growth Facility (PRGF).
2. This paper describes developments to date with respect to the PRSP program. Since the 1999 Annual Meetings, a great deal of groundwork has been undertaken to bring the program forward. While the process of country implementation is still in its early stages, preparations have begun, and early results are noted below.
3. The program goes well beyond a revision of the way in which concessional financing by the Bank and the Fund is provided. Its underlying goal is to support a comprehensive, country-led effort to help sharpen the poverty focus and effectiveness of development strategies in low-income countries, and of support for those strategies by external partners. The resulting strategies need to focus on policy actions to increase growth and reduce poverty, all within a coherent macroeconomic framework. Poverty reduction strategies are expected to be country-owned and designed in a participatory fashion (taking into account the views of Parliaments and other democratic bodies, where they exist, the donor community, civil society and specifically the poor themselves); comprehensive in approach (recognizing the multidimensional nature of the causes of poverty and strategies to alleviate it); and based on a medium and long term perspective, including appropriate monitoring indicators against which progress can be measured. PRSPs are also expected to be clearly linked with agreed International Development Goals (IDGs) for poverty reduction, education, health and gender equality.
4. To be effective, PRSPs will need to be built on partnerships with multilateral and bilateral donors to support national poverty reduction strategies. They reflect the principles of the Bank’s Comprehensive Development Framework (CDF). Successful implementation of this wider effort will require a joint commitment by member countries and the full range of development partners—multilateral and bilateral donors, the United Nations family, and nongovernmental organizations. In the spirit of a comprehensive, partnership-based approach, the Bank and Fund are committed to seeking the views of member countries and external partners on the PRSP program, and to the need for it to evolve in light of these views and lessons from experience. The paper briefly outlines consultations held to date and the responses from member countries and external partners.
5. Following the 1999 Annual Meetings, the Bank and the Fund undertook intensive work to develop proposed approaches to PRSPs. At the center of this effort was an articulation of the elements of a strategy for poverty reduction, based on a comprehensive view of the nature and causes of poverty. It was recognized that rapid economic growth is necessary for sustained poverty reduction, and that policies need to be strengthened to this end. However, growth alone is not sufficient: reducing poverty in all its dimensions depends critically on the pattern of growth, government policies, and institutional and social aspects. Moreover, both the level and pattern of growth are influenced by structural and social factors as well as macroeconomic policies. Hence, poverty reduction strategies would need to take into account the multidimensional elements involved in both the determinants of poverty and efforts to alleviate it. Experience has also shown that there is a two-way linkage between growth and poverty. Rapid growth is essential for reducing poverty, but persistent poverty and inequality can reduce growth potential. Finally, it was recognized that the PRSP process would need to evolve over time: early experience would be evaluated and used to refine the process of strategy implementation on an ongoing basis. A series of meetings, formal and informal, has been held with Executive Directors, for briefing, guidance and approval of the proposed approaches to PRSPs.
6. By the end of calendar 1999, the Bank and Fund had agreed on an approach to PRSPs, recognizing that it will evolve in the light of experience. This is described in "Poverty Reduction Strategy Papers—Operational Issues" (joint Bank-Fund paper R99–241 and SM/99/290, December 10, 1999); "The Poverty Reduction and Growth Facility—Operational Issues" (Fund paper SM/99/293, December 13, 1999); and "Poverty Reduction Strategy Papers—Internal Guidance Note" (Bank paper, R99–239, December 10, 1999 revised as R99–239/1, January 19, 2000). These documents, together with the concluding remarks by the Chairmen, Bank and Fund, are publicly available on the Bank and/or Fund websites. In the Bank, responsibility for dialogue and support to countries in PRSP preparation rests with the Regional units. In addition, a unit within the Bank’s Poverty Reduction and Economic Management (PREM) Vice Presidency has been specifically designated to support implementation of the PRSP program, including a team of Lead Advisers, who would help staff on PRSP matters. Other Bank units (other Networks, Operations Policy and Strategy) are actively supporting the process. Organizational changes in the Fund’s Policy Development and Review and Area Departments have also been made in support of the new approach. The IMF Institute and the World Bank Institute are also developing new training activities in support of the process.
7. Simultaneously, staff began working with countries at the operational level to support country preparation of PRSP documentation. It was recognized that the preparation of a full, country-owned, participatory PRSP would involve substantial time and effort on the part of countries. Hence in order not to delay progress with respect to the Enhanced HIPC Initiative or the provision of Bank and Fund concessional financing, it was decided that countries might initially prepare "Interim PRSPs" (I-PRSPs; see below, paras. 8–12) that would have a simpler format and content, and could be relatively short. Early in 2000, the Boards of the Bank and Fund considered the first country-owned I-PRSP, for Bolivia, and HIPC documents with I-PRSP content for Mauritania and Uganda; the Boards agreed that these countries could qualify for their decision points under the Enhanced HIPC Initiative2. More recently, the Boards have considered I-PRSPs for Mozambique and Tanzania. Uganda has prepared the first full PRSP. While timing of I-PRSPs and PRSPs will depend on countries’ own processes, some 25–35 additional countries are likely to have prepared PRSP documentation by the end of calendar 2000.3 A table showing possible country timelines for I-PRSPs and PRSPs—which are highly tentative and subject to change—is attached.
8. As already noted, full PRSPs will take time—one to two years depending on individual country circumstances—for countries to prepare. Thus there is an unavoidable tension between the principle of government-owned PRSPs prepared with the participation of a broad spectrum of stakeholders on the one hand, and the need to avoid delays in bringing as many countries as possible to their HIPC decision points within a timeframe appropriate to their need for debt relief, or in providing needed PRGF or IDA assistance, on the other. To deal with this problem, the Boards of the Bank and Fund have agreed that countries may initially prepare I-PRSPs.
9. As with full PRSPs, there is no single prescription for I-PRSPs. At a minimum, however, they should include a statement by the government of its commitment to poverty reduction; a description of the main elements of its existing poverty reduction strategy consistent with available diagnostics; and a three-year macroeconomic framework and policy matrix, both focusing on poverty reduction and specifically noting that outer year commitments and targets are tentative and would be revised as necessary in the full PRSP. I-PRSPs should also contain a timeline and a plan for preparing a PRSP, including a description of the participatory process the government plans to adopt, and an outline of the diagnostic and analytical work required. Depending on a country’s prior experience in developing poverty reduction strategies and on the time available to prepare an I-PRSP, some I-PRSPs would be expected to be more comprehensive than the minimum described above.
10. Experience from the I-PRSPs for Bolivia, Mozambique and Tanzania indicates that countries are addressing key proposed program elements.
11. Because different countries start from different levels and traditions of participation and need to prepare I-PRSPs under different time constraints, there will be no minimum threshold expected for consultation on an I-PRSP. Nonetheless, governments are encouraged to begin the participatory process as early as possible. As the program goes forward, it is increasingly likely that governments will be able to include some degree of participation in the preparation of the I-PRSP. Bank and Fund staff should not be prescriptive with respect to participatory processes, which must be developed by the governments concerned. Bolivia was able to benefit from the existence of a National Dialogue since 1997, which produced a document on "Proposals Against Poverty" as early as September 1998. Ghana, Honduras and Senegal, among others, provide examples of draft I-PRSP preparation in close consultation with civil society and the donor community. Nicaragua has already been involved in consultations with civil society in developing its own poverty reduction program, and this will be reflected in its I-PRSP.
12. While it is too early to draw firm conclusions, experience to date from Africa and Latin America suggests that countries are strong in laying out a poverty profile and a general strategy for addressing broad issues, but they are less well equipped to prepare quantified targets, to cost the strategy, and to evaluate trade-offs under conditions of limited resource availability. This indicates the importance of timely technical assistance to countries which are preparing poverty reduction strategies. Issues also have arisen with respect to the time needed to develop an appropriate domestic dialogue and hence the potential trade-off between the quality of that dialogue and the timely completion of a PRSP document. Concerns have also been expressed about the risk that participatory processes may promote divisions rather than consensus at the national level and with respect to donor coordination and the perceived dominance of the Bank and the Fund in the process. These issues will need to be carefully handled as the PRSP program evolves.
13. There is no single blueprint for PRSPs. They are expected to reflect individual country circumstances, and to evolve in light of experience and countries’ and partners’ views. Nonetheless, some core components are likely to be common across countries. An analysis of the causes and dimensions of poverty is the starting point, based on existing data, but also noting data gaps where additional information is needed.4 This analysis will lead into a description of the macroeconomic, structural, social and institutional obstacles to faster growth and poverty reduction, and of priority objectives and policies for a poverty reduction strategy. Sustained poverty reduction will not be possible without rapid economic growth; macroeconomic stability, structural reforms and social stability are required to move countries to sustainable higher growth. Consistency between an appropriate macroeconomic framework, sectoral policies aimed at poverty reduction, and costed poverty reduction actions, along with associated outcome indicators and their relationship to domestically agreed and IDG goals, should be an objective of the PRSP. Achieving consistency between the macroeconomic framework and costed poverty reduction programs will require significant preparatory work, including poverty diagnostics and public expenditure reviews. 5
14. Because outcomes may only emerge over a relatively long period of time, intermediate or proxy objectives and indicators (such as net primary educational enrollments for overall improvements in literacy) would need to be specified. The Uganda Poverty Eradication Action Plan (PEAP), which forms the basis for the Uganda PRSP, illustrates several of the key elements noted above, including its use of poverty data and diagnostics and links between poverty outcomes and public expenditures. Coordination of donors’ activities to develop sector-wide approaches would be helpful in formulating coherent strategies. Experience in Mozambique during I-PRSP preparation illustrates the potential in this area.
15. The PRSP should provide an account of the main aspects of the participatory process adopted in its formulation. Information on partnership activities and needs with respect to external financial and technical assistance would also be included. Finally, it would describe how the implementation of the strategy will be monitored, including provision for the involvement of key stakeholders. For instance, the Uganda PEAP is notable for its reliance on participatory processes. Guyana’s draft National Development Strategy, which lays out, among other things, a poverty-oriented strategy for development, also uses a strongly participatory approach. PRSPs and the Comprehensive Development Framework (CDF) share the same principles—notably those of country ownership, participatory design, comprehensiveness of approach, and a medium- to long-term time horizon. For this reason, countries in the CDF pilot group, such as Bolivia, Ghana and Uganda, tend to be at relatively more advanced stages of PRSP preparation in these areas.
16. PRSPs are expected to be prepared on a three-year cycle, with annual progress reports in intervening years, all embedded within a continuing long term overall framework for poverty reduction. While country ownership is central to the PRSP process, the Bank and Fund will provide support as needed to countries through joint and separate missions. It is also hoped that the full range of development partners, including multilateral and bilateral donor agencies, will provide support for the poverty reduction strategy process and be encouraged to base their assistance on the PRSP (see below, section III) . Finally, the Bank and Fund recognize that country conditions vary widely; it would therefore be counterproductive to lay down a rigid, "one size fits all" approach to PRSPs. While wishing to share the benefits of international experience as appropriate, both institutions are mindful of the need for countries to develop and take ownership of their own approaches to poverty reduction.
17. The process of PRSP development will involve a high level of collaboration between the Bank and Fund6, within the overall framework of wider collaboration among development partners. The Bank and Fund will each support countries’ PRSP formulation as appropriate in its traditional areas of expertise, taking into consideration assistance available from other external partners. Fund staff will focus on areas of its traditional mandate and responsibility. This would include promoting: prudent macroeconomic policies; structural reforms in related areas, such as exchange rate and tax policy; and better fiscal management, budget execution, fiscal transparency, and tax and customs administration. Bank staff will focus on the necessary diagnostic work such as poverty assessments and their monitoring, the design of sectoral strategies, reforms that assure more efficient and responsive institutions, and the provision of social safety nets; and in helping the authorities to cost the priority poverty-reducing expenditures designed to achieve particular outcomes. Bank staff would also advise on how to improve the effectiveness and poverty-orientation of public expenditure (through Public Expenditure Reviews and the like) and in other structural reforms such as privatization and regulatory reform. Some areas will need to be shared between the two staffs, such as trade liberalization, and financial sector development.
18. In addition to joint work on the framework for the PRSP program as a whole, Bank and Fund operational cooperation has already been extensive in recent months. In Latin America, for example, there have already been nine joint missions to four countries in support of their efforts to prepare I-PRSPs. A Joint Staff Assessment (JSA) for Bolivia and a draft JSA for Honduras have been prepared; the I-PRSP for Bolivia has already been discussed by the Boards, and three others are in various stages of preparation. In Africa, there have been joint Bank-Fund missions to about ten countries. JSAs have been finalized for Mozambique, Sao Tome and Principe, Tanzania, and Uganda.
19. Taking advantage of the framework for close cooperation between the Bank and Fund, the new approach will allow for a reduction in overlapping conditionality. There is a presumption that, as PRSPs are developed, PRGF- and IDA-supported programs will cover only areas within the mandate of the Fund and the Bank, respectively. However, if the Fund (the Bank) judges that a particular measure within the other institution’s mandate would have a direct and critical impact on the PRGF-supported (IDA-supported) program—such that the program would be derailed if the measure were not implemented—then they would address this measure in the PRGF-supported (IDA-supported) program, after close consultation and subject to agreement with each other. Further information on Fund and Bank mandates is contained in the papers noted in paragraph 6.
20. The Bank and Fund have been gearing up to meet the challenge of implementing the PRSP program through expanded knowledge management and training efforts. A Bank-Fund PRSP "Sourcebook" is being prepared for country participants and staff counterparts likely to be engaged in developing PRSPs7. The Sourcebook is designed as a compilation of useful resources and international best practices rather than as a "how to" guide for PRSP preparation, since there can be no single blueprint for a good PRSP. It covers three broad themes—core techniques for PRSP development; macro and sectoral approaches; and cross-cutting issues (such as governance, gender and environment).
21. A full-scale PRSP training event for Bank and Fund staff is planned for April 24–26, 2000. Staff from other development institutions, selected counterparts from member countries and NGOs have also been invited. The event is expected to attract over 250 participants; cover the goals, content and processes of a PRSP; provide an opportunity to discuss with development partners questions of capacity building and aid coordination; and form the basis for launching a broader learning program focused on PRSP countries. The first effort associated with this learning program will take place in Abidjan on June 12–16, focusing on 10–12 African countries, and will be followed by similar events in other regions.
22. The Bank and the Fund are using their websites to enhance the transparency of the PRSP process. As noted above, key documentation on the program framework has already been posted on the institutions’ websites, as has a brochure that answers frequently asked questions on the program; the joint Bank-Fund paper on Operational Issues and the brochure have been posted in French and Spanish as well as English. The Bank’s website also contains the chapters of the PRSP Sourcebook (see footnote 4), and hosts an online consultation on its content. For NGOs and other civil society groups, the Bank has established a special website, complete with slide presentations, notes from consultations with NGOs, and news from PRSP countries. Once an I-PRSP or PRSP is complete, it will generally be published by the country before it is discussed by the Bank and Fund Boards. After Board consultation, each I-PRSP, PRSP and JSA will also be posted on the Bank and Fund websites, together with a press release describing the views of the Boards.
23. The concept of partnership is at the core of the PRSP program. Ideally, all donors and multilateral development institutions will support countries by contributing to the poverty reduction strategy’s design and consultative processes, identifying their specific participation, and making up-front commitments in support of that participation. To that end, it is important for country authorities to bring development partners fully and early into the process, and Bank and Fund staff will encourage them to do so. A well-designed, partnership-oriented poverty reduction strategy will allow donors to plan their aid commitments and to lend their expertise to recipient governments and civil society, based on the country’s own strategy. Finally, greater and more coordinated participation by the entire donor community will help track progress toward the International Development Goals.
24. More specifically, while country ownership is critical for the effectiveness of poverty reduction strategies over time, and many HIPC and IDA/PRGF-eligible countries already have strategies for poverty reduction, these strategies can vary widely in terms of scope, depth and the nature of the participatory process. Hence, in some cases appropriate support from partners—including United Nations agencies, the multilateral development banks, bilateral donors, NGOs and private sector bodies, and the Bank and the Fund—may be needed to help country authorities to strengthen their capacity to devise a successful poverty reduction strategy. The efforts at consultation described below (para. 26) aim to ensure that all partners are informed well and in a timely manner, so as to secure the support and harmonization necessary to facilitate the donor coordination effort at the country level. However, in this connection, it will be important to establish in practice the principle that it is the government concerned that has the responsibility for coordinating the use of external assistance, and that partnerships need to be formed on the basis of a country-driven process.
25. The Tanzania I-PRSP is a good example of this process, and specifically of the integration of donor assistance into the overall poverty reduction strategy through the government-led Tanzania Assistance Strategy. In the case of Ghana, the government was able to manage strategy development effectively as a result of a number of factors, including the existence of a national strategy document ("Ghana-Vision 2020"); the successful initiation of the first United Nations Development Assistance Framework (UNDAF); and strong collaboration among members of the UN family. This has put Ghana in a good position with respect to PRSP preparation.
26. Bank and Fund staff have undertaken a wide-ranging effort since the 1999 Annual Meetings to inform and consult with partners with respect to PRSPs. Operational discussions are underway with a number of developing country partners on the possible content and timing of PRSPs as part of the ongoing country dialogue. These discussions have focused particularly, but not exclusively, on early HIPC Initiative cases. In addition, a series of meetings has taken place with member countries and with the international development community (multilateral institutions, bilateral donors and NGOs), designed both to present PRSP concepts to interlocutors and to obtain feedback from them. These meetings have included:
27. The consultation process has created a constructive dialogue that has helped to inform and refine the PRSP program. The dialogue has been very positive, although it has raised issues that will need to be resolved as the process proceeds.
28. Countries that are in the process of preparing I-PRSPs or PRSPs have raised a range of important issues with respect to PRSP content and processes. With respect to content, points of emphasis have included the following: growth and macroeconomic stability are critical for poverty reduction, but cannot be considered as ends in themselves; poverty reduction strategies need to be comprehensive in nature, and are not simply about social programs; explicit links need to be made between public policy and poverty reduction, between poverty reduction strategies and the macroeconomic framework, and between the latter and sectoral programs. Countries have also noted that strategies should address the composition and efficiency of public expenditure, should deal with the issue of cost recovery, and should put special emphasis on job creation and questions of more equitable income distribution. They have also raised issues with respect to capacity to prepare PRSPs, including the need for technically sound poverty diagnostics and for donor support with PRSP formulation and implementation (but without undermining country ownership).
29. With respect to processes, countries’ views have centered on issues of participation, ownership and donor relations. These have included the nature and extent of the participatory process and specifically how best to consult with the poor; the need to put PRSP-based participatory processes appropriately in the context of national political processes, and to avoid undermining political legitimacy or letting powerful interest groups dominate the process; and the need to develop effective feedback and monitoring systems. On ownership, countries have noted the potential tension between the time needed to build country ownership on the one hand and the requirement for timely PRSP preparation on the other.
30. In the area of donor relations, countries have noted that donors may need to consider new patterns of assistance consistent with PRSP priorities, specifically including longer term support consistent with the long term time horizon of poverty reduction strategies, together with greater emphasis on budgetary support (rather than project aid) as the most efficient way of supporting comprehensive country strategies. They have also raised the issue of donors’ willingness to realign their procedures and interventions in line with national poverty reduction strategies. Specifically with respect to the Bank and Fund, they have noted the need for change on both sides—the Bretton Woods Institutions (BWIs) need to give countries space to design their own programs, and countries need to allow the BWIs to make professional assessments of those programs. Countries have also asked about the potential for deriving more streamlined and less detailed Bank and Fund conditionality from the PRSP process, and about linkage between BWI Boards’ endorsement of PRSPs and mobilization of assistance from other donors. Finally, they noted the potential tension between the concept of country ownership and the provision that PRSPs be broadly endorsed by the Boards (see footnote 1).
31. Other development partners have also been supportive of the PRSP approach, but have raised some questions about implementation. Several have noted that the PRSP concept fits well with their own development strategies’ emphasis on the centrality of poverty reduction, the partnership approach, and the inclusion of civil society as well as governments in program design. Others have noted the potential of the process for helping to achieve the IDGs, the importance of the country-driven approach and country ownership embedded in the PRSP process, and the emphasis placed on results orientation and monitoring. Their main concerns have been similar to some of those expressed by low-income countries—namely, the time and capacity needed to formulate PRSPs, the specific need to use I-PRSPs in order not to delay debt relief under the HIPC initiative, the need for flexibility and careful consideration of individual country conditions in program implementation, and the question of how best to organize participatory processes. Some development partners have also noted that issues of good governance and transparency will be critical for the success of the PRSP program, and have emphasized the importance of dealing with questions of equity and asset allocation in the context of poverty reduction. Finally, they have noted the importance of partners’ early engagement in discussions with countries as they frame their strategies.
32. The consultation process has been of great value and will continue into the future. These and other issues arising from it will continue to require attention as the program proceeds and will need to be handled within the collaborative, responsive, learning-by-doing framework planned for the program as a whole.
April 10, 2000
1 PRSPs, Interim PRSPs, or annual PRSP progress reports, supported by Joint Staff Assessments (JSAs) and broadly endorsed by the Boards of both the Bank and Fund within the previous 12 months, will be a necessary condition for approval of new PRGF arrangements or reviews of existing arrangements; for HIPCs to reach a decision or completion point under the HIPC Initiative; and in the case of all IDA borrowers, at a date to be determined no later than January 1, 2001 in the light of experience during the first year, for a high-case lending scenario and adjustment lending, except in special circumstances such as emergency or crisis situations. In the absence of a PRSP or Interim PRSP broadly endorsed by the two Boards, Bank management would set out in the Country Assistance Strategy (CAS) the rationale for any lending program to be proposed within the CAS period.
In reviewing a country’s PRSP, the Bank and the Fund Boards would be asked to consider and broadly endorse the overall strategy as an integrated whole; each institution would focus on those policies and programs it supports in its area of responsibility and as a basis for lending operations. The term "endorsement" is not intended to constitute formal approval of the PRSP, which is a country owned document.
2 PRSPs or Interim PRSPs will be required for all future HIPC Initiative decision points.
3 These include both countries reaching HIPC Initiative decision points or completion points and other countries presenting I-PRSP/PRSPs for a PRGF arrangement or a review thereunder.
4 In many instances, data on poverty and intermediate indicators of progress towards poverty reduction are inadequate and need improvement.
5 The possible core components of a PRSP outlined here are described more fully in the Joint IMF/World Bank Paper on Poverty Reduction Strategy Papers: Operational Issues, December 10, 1999. The Boards agreed that these guidelines would be reviewed in light of experience. This review will need to consider the appropriate balance between standardization of core components of PRSPs and flexibility to adapt to country needs and facilitate country ownership. It will also consider the appropriate level of analytical detail in what needs to be a strategic document.
6 See "Report of the Managing Director and the President on Bank-Fund Collaboration," September 1998.
7 Components of the Sourcebook have been posted for comment on the Bank’s external website (http://www.worldbank.org/poverty/strategies/sourcons.htm).