Friday, May 25, 2007

FE201|Q9

What role does the IMF play in low-income countries? Discuss with reference to country examples.

The title link has a good review of this question for the final also but let me make a couple of notes here.

Steps in the process for LICs to get help.
1. Creation of Poverty Reduction Strategy (PRS) which was defined as PEAP (Poverty Eradication Action Plan) in Uganda.
2. Submitting the Poverty Reduction Strategy Paper (PRSP) or 'Interim PRSP' as a satisfactory initial step for access to the...
3. Poverty Reduction Growth Facility (PRGF). Which is the concessional loans that the IMF lends to LIC (Low Income Countries).
4. Then after showing a commitment to maintaining a stable economy with an emphasis on poverty reduction they become eligible for Heavily Indebted Poor Country that were obliged to wait 3 years. Now with the 'Enhanced' HIPC the can debt relief by the concept of 'floating Completion Points'. This of course now depends on how quickly the country can formulate its won poverty reduction strategy.
5. HIPC initiative was not to eliminate debt by to reduce it to a manageable level of 150% of the LICs yearly exports or 250% of its government revenue. The concern was of creating a moral hazard if complete forgiveness occurred.
6. Since the class was produced it looks that Policy Support Instrument (PSI) has been added to the IMFs list of Technical Assistance (TA) that it provides LICs.
“PSIs are designed to address the needs of low-income members that may not need Fund financial assistance, but seek Fund endorsement and assessment of their economic policies. A PSI will be available only upon request of a member and will add to the toolkit of instruments from which low-income countries can choose their desired form of engagement with the Fund.”


Types of Technical Assistance (TA)
Monetary and Exchange Affairs Department(MAE)
Fiscal Affairs Department
Policy Development and Review Department
Statistics Department
Legal Department
Treasurer's Department
Bureau of Computing Services



James Levinsohn 'The Poverty Reduction Strategy Approach: Good Marketing or Good Policy?'

Debt and The PRSP Conditionality: The case for Kenya
Kenya’s problems are typical; when the economy was growing fast, it was possible for the government to fund new priorities while retaining the old ones but once growth stagnated and donor funding petered out, resource allocation became fixed and priorities failed to change in line with circumstances
...
Kenya received nineteen structural adjustment loans during the reform period.
...
Under the new HIPC initiative it is expected that debt to exports ratio in present value terms will be reduced to a sustainable level of not more than 150 percent of exports reduced from 250% under the original initiative.
...
Debt service to [government] revenue is projected to fall from 49% to 42% while debt to GDP ratio is projected to decline from 71% to 58%.
...
The poverty reduction strategy was introduced following the recognition that growth is necessary but not sufficient for poverty reduction. Therefore the need to put in place measures targeted to poverty reduction. The Interim PRSP had no pro-poor growth strategy and that this proved to be a major weakness. In order to address this weakness, the government commissioned work on Pro-Poor Growth Strategy.
...
Hanmer and Naschold (2000) as quoted in Ndung’u et al (forthcoming) conclude that
elasticity of poverty reduction with respect to growth is around 0.3 in highly unequal economies like Kenya.
...
The National Poverty Eradication Plan (NPEP) outlines the goal as poverty reduction by 50% by the year 2015.[...] Using this elasticity in the table above, it indicates that the economy needs to grow at 8% if the NPEP goal is to be achieved in the next fifteen years.
...
Another shortcoming in the introduction of the process in Kenya is that some useful
stages were left out of the budget process; the Project Investment Appraisal, (PIP), for instance has been omitted from the budget process. The PIP was useful in prioritisation of capital projects for inclusion in the budget. The interfacing of the development plan and the PRSP/MTEF is also not clear. The PER, which is useful in identifying implementation constraints, has not been undertaken for three years.
...
Investigating the growth-poverty relationship, Dollar and Kraay (2000) found standard
macro-pro growth policies—reducing government consumption, stabilizing inflation,
macro stability, openness to trade and secure property rights—to be good for the poor. They conclude that such policies raise mean incomes without significant adverse effect on the distribution of income.

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