Sunday, July 22, 2007

Q. 3.9: The Poverty Reduction Strategy Paper (PRSP)

7.3 The Poverty Reduction Strategy Paper (PRSP)
It has been noted that the PRGF arose as a result of dissatisfaction with the
ESAF facility. Indeed, one of the most important lessons of the ESAF external
review, which itself led to the establishment of the PRGF, was the fact that ESAF
programmes had been designed in the absence of detailed input from the
country authorities themselves. As a consequence, it was argued, programmes
were unlikely to succeed, as they were not founded on a proper assessment of
the scale and nature of poverty in the recipient countries, nor were they based
on an accurate assessment of the macroeconomic, institutional and other
challenges in those countries and neither were they likely to secure the policy
commitment needed to succeed, because the countries did not feel a sense of
ownership of the ESAF programmes.
Accordingly, when the PRGF was launched, it was accompanied by a new
institutional device, known as the Poverty Reduction Strategy Paper (PRSP)
process. The PRSP represented a joint initiative between the IMF and the World
Bank and was intended to overcome the institutional flaws that had resulted in
poor outcomes from both the IMF’s ESAF arrangement and from the World
Bank’s experience of lending to low-income countries through its International
Development Association (IDA) facility.
The PRSP initiative envisaged that governments themselves would prepare
their own strategies for reducing poverty, and that these strategies would be
linked to manageable macroeconomic objectives and targets consistent with the
objectives being set by governments themselves. For this reason, it is the governments
concerned that prepare the PRSPs.
7.3.1 Linkage of PRSP to PRGF
When the IMF launched the PRGF and the PRSP, it linked the PRSP process
with the PRGF, by making it a condition that whenever a member applies for a
PRGF financial arrangement it will have already produced a PRSP. In the initial
stages, because of the very significant institutional resources needed to produce
a comprehensive and fully costed national poverty reduction strategy, the IMF
indicated that it would consider an ‘Interim PRSP’ as a satisfactory initial step
for access to the PRGF. However, from 2001, it has increasingly became necessary
for countries to prepare fully developed strategies for reducing poverty.
To promote the concept of broad domestic ownership of the poverty reduction
strategy, the IMF strongly urges that the PRSP process be based on a process
involving the active participation of civil society, NGOs, donors and international
institutions. While the country authorities develop the strategy, the IMF
and other donors expect that countries will keep civil society informed about
The International Monetary Fund and Economic Policy
10 University of London
developments in the programme, and will ensure that they are involved in
monitoring its implementation. That means involving a range of social and
economic bodies including employers’ associations, trades unions, chambers of
commerce, charities, rural associations, women’s groups and, ideally, publicising
the programme through the media.
One of the most important ingredients in the PRSP approach is its insistence on
measuring the budgetary costs of the country’s proposed poverty reduction
strategy. The budgetary tools used to achieve this assessment have become
increasingly complex, resulting in countries being able to assess not only the
short-term, but also the medium- and longer-term costs of trying to achieving
their selected poverty reduction objectives. This has been a helpful device for
the countries themselves, as it has forced to the attention of national authorities
the likelihood that poverty reduction strategies will be constrained by the
availability of financial resources; and in turn this has tended to promote
stronger recognition of the need to prioritise among various objectives. At the
same time, the process has also helped the IMF to better recognise the immensity
of the fiscal challenge that low-income countries confront in trying to
achieve poverty reduction and ensure macroeconomic stability.
Between its start in 1999 and 2004, over 30 countries have completed full PRSPs.
Both the PRSP and the PRGF initiatives have been subject to regular reviews by
the IMF. The most recent and extensive review of the PRSP took place in mid-
2003, and the findings were published in September 2003.
Your next reading, by James Levinsohn, traces the history and background to
the PRSP process, and provides a critical insight into the approach taken in the
first few years of the PRSP, following its launch in 1999.
􀀁 Reading
Please turn now to the second reading, ‘The Poverty Reduction Strategy Approach: Good
Marketing or Good Policy?’ In this chapter, which considers the experience countries have had
with this new approach since 1999, Levinsohn asks whether the very significant administrative
costs countries have borne in order to prepare these elaborate and detailed poverty reduction
strategies has been matched by equally significant benefits.
􀀃 Levinsohn’s chapter is critical of the early experience with the PRSP. As you read his chapter,
I would like you to make notes on the following issues:
􀀄 What are the five key principles on which PRSPs are expected to be based?
􀀄 Levinsohn outlines four elements of a PRSP which in his view should be present in all PRSPs.
What are these four elements ?
􀀄 Finally, based on the 2001 review of the PRSP process conducted by the IMF, to what extent
do you think that these four components of a sound PRSP have been present in the early
country examples?

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