Poverty Reduction And Growth Facility Research Articles

The Future Governance Agenda for Country Assistance Strategies: An Approach to Governance Reform (The Iqbal Memorial Lecture)

The development industry is increasingly recognising that institutional constraints in developing countries are fast becoming a primary limiting factor for growth. Institutional decay and breakdown is also placing the stability of democratic political systems at risk. If this decay and breakdown is not reversed, ultimately democracy and free markets in developing countries will also face increasing risks thereby creating further negative impacts on institutions. Reversing this vicious cycle must be the subject of international development pre-eminence as all “sectors” rely on primary institutions to function.1 The framework for institutional assistance interventions to developing countries is missing or has remained marginally addressed. The Millennium Development Goals (MDGs) and the Poverty Reduction and Growth Facility (PRGF) do not directly address the governance aspect of the post colonial societies and its role in achieving poverty reduction or millennium development goals.2 If “institution matter” what should the international assistance approach to designing interventions that promote governance and institutional revival be? What is the knowledge base required to design governance interventions? What is the new governance research that can produce that knowledge base?

The Dynamics of Spending and Absorption of Aid: Panel Data Analysis

In September 1999, the International Monetary Fund (IMF) established the Poverty Reduction and Growth Facility (PRGF) to make the reduction of poverty and the enhancement of economic growth the fundamental objectives of lending operations in its poorest member countries. This paper studies the spending and absorption of aid in PRGF-supported programs, verifies whether the use of aid is programmed to be smoothed over time, and analyzes how considerations about macroeconomic stability influence the programmed use of aid. The paper shows that PRGF-supported programs permit countries to utilize all increases in aid within a few years, showing smoothed use of aid inflows over time. Our results reveal that spending is higher than absorption in both the long-run and short-run use of aid, which is a robust finding of the study. Furthermore, the paper demonstrates that the long-run spending exceeds the injected increase of aid inflows in the economy. In addition, the paper finds that the presence of a PRGF-supported program does not influence the actual absorption or spending of aid.

Modification of Access Policies for the Poverty Reduction and Growth Facility and the Exogenous Shocks Facility

The paper proposes a doubling of access limits on concessional lending to ensure that the Fund can respond effectively to the needs of low-income countries (LICs) severely affected by the current world economic downturn. Pending adoption of broader reforms to the LIC facilities architecture, higher access limits under the Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility-High-Access Component (ESF-HAC) would give the Fund greater flexibility in assisting LICs, which have become more exposed to global volatility over time. A doubling of access limits would restore them to their 1998 levels in percent of GDP and would be consistent with the approach taken in determining new access limits for General Resources Account (GRA) resources. It would also be in line with the projected doubling of medium-term demand for concessional resources.

Kenya: 2006 Article IV Consultation and Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Requests for Extension and Rephasing of the Arrangement, Reduction in Access, and Waiver of Performance Criteria: Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Kenya

Three years of broad-based economic recovery in Kenya brought GDP growth to nearly 6 percent in 2005/06, its highest in two decades. This 2006 Article IV Consultation focuses on how to sustain Kenya’s recent strong economic growth. It argues that this would require accelerating structural reforms and upgrading infrastructure, while preserving macroeconomic stability. The report recommends completion of the Second Review under the Poverty Reduction and Growth Facility (PRGF) arrangement, extension of the arrangement to November 20, 2007, and a reduction and rephasing of access.

Benin: Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion and Augmentation of Access: Staff Report; Staff Supplement; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Benin

This paper discusses key findings of the Sixth Review under Poverty Reduction and Growth Facility (PRGF) for Benin. The macroeconomic outlook is weaker for 2009–10, reflecting the impact of the crisis. Real GDP growth is expected to slow down to about 3–4 percent in 2009–10. The authorities’ policy response of allowing automatic fiscal stabilizers to work is appropriate. The implementation of structural reforms needs to be accelerated to enhance the competitiveness of Benin’s economy and increase its resilience to exogenous shocks.

Central African Republic: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, Extension of Arrangement, and Financing Assurances Review: Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Central African Republic

This paper discusses key findings of the Fourth Review for the Central African Republic (CAR) under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). Short-term fiscal policy of the CAR attempts to stabilize demand through government spending while preserving medium-term fiscal discipline. The revised program safeguards budgeted spending and incorporates new externally financed peace-process spending. Structural reforms are focused on areas critical to economic stability and the recovery of growth. IMF staff supports completion of the fourth review, augmentation of PRGF access, and program extension.

Liberia: Third Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver and Modification of Performance Criteria, and Financing Assurances Review: Staff Report; Informational Annex; and Press Release

This paper discusses key findings of the Third Review for Liberia Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). The program remains on track. All performance criteria (PC) for end-June 2009 were met, except the PC on total revenue collection. IMF staff supports the authorities’ request for a waiver on the basis that the deviation was temporary and did not jeopardize key program objectives. Structural reform commitments were largely met, albeit some with delays. The 2010 quantitative and structural reform program is appropriately ambitious.

Togo: 2009 Article IV Consultation and Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility: Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Togo

This 2009 Article IV Consultation discusses that a nascent recovery in Togo’s economy is expected to be offset in 2009 by the impact of the global recession. The authorities have reiterated their commitment to the Poverty Reduction and Growth Facility (PRGF)-supported program and aim to accelerate growth-enhancing structural reforms. Executive Directors have commended the Togolese authorities for their strong implementation of economic policy and reforms, despite the adverse global and domestic circumstances. They have also welcomed the authorities’ intention to continue to focus on targeted measures to mitigate the social impact of shocks.

Islamic Republic of Afghanistan: Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria, and Rephasing and Extension of the Arrangement: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Islamic Republic of Afghanistan

This paper discusses key findings of the Fifth Review for Afghanistan under the Poverty Reduction and Growth Facility (PRGF). Performance under the PRGF-supported program has been mixed. Monetary and financial policies were broadly consistent with the program. However, difficulties were evident in reforming public enterprises and in the fiscal area. The economic program for 2009/10 envisages a prudent monetary policy to ensure fast disinflation, fiscal adjustment anchored on remedial measures to increase revenues and contain spending, and closer monitoring of public enterprises that pose fiscal risks.

Review of Access Policy in the Credit Tranches and Under the Extended Fund Facility and the Poverty Reduction and Growth Facility, and Exceptional Access Policy

This paper reviews the Fund’s access policy under its main financing facilities in the General Resources Account (GRA) and under the Poverty Reduction and Growth Facility (PRGF). It responds to the Board’s request for a periodic review of the access policy, that is, the rules and practices that govern the amount of financing the Fund makes available to its members.

Burundi: Sixth Review Under the Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria: Staff Report; Staff Supplement; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burundi

Burundi showed commendable performance owing to its prudent macroeconomic policies and ambitious structural reforms under the Poverty Reduction and Growth Facility (PRGF). Executive Directors appreciated its macroeconomic stability, strong fiscal discipline, and prudent monetary policies in support of low inflation objectives. They emphasized the need to reduce poverty, sustain macroeconomic stability, and strengthen implementation of structural reforms in reaching the MDGs. They appreciated the efforts taken to deepen implementation of the Poverty Reduction Strategy Paper (PRSP), which offers a framework for the diversification of growth and exports, the improvement of public finance management, and the integration of the regional and global economy.

Liberia: Fourth Review of Performance Under the Staff - Monitored Program and Request for Three - Year Arrangement Under the Poverty Reduction and Growth Facility and the Extended Fund Facility: Staff Report; Press Release on the Executive Board Discussion

This paper reviews Liberia’s performance under the staff-monitored program (SMP) through December 2007, and proposes a three-year program to be supported by the Poverty Reduction and Growth Facility (PRGF) and the Extended Fund Facility (EFF) once Liberia’s arrears to the IMF have been cleared and its rights to access IMF resources restored. Satisfactory performance on the PRGF/EFF-supported program would pave the way for comprehensive treatment of external debt under the Heavily Indebted Poor Countries (HIPC) Initiative and beyond-HIPC debt relief.

Guinea: First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criteria, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea

This paper discusses key findings of the First Review Under the Poverty Reduction and Growth Facility (PRGF) for Guinea. All but two quantitative performance criteria (PC) were met. IMF staff supports the authorities’ requests for waivers of nonobservance, based on their remedial actions. Progress of structural reforms was broadly satisfactory and all structural PCs and benchmarks for end-December 2007 were met. However, several quantitative indicative targets for end-March 2008 were missed, in part on account of a delayed response to the financial pressures arising from higher fuel prices.

Cameroon: Fourth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Performance Criterion, and Financing Assurances Review: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cameroon

Cameroonian monetary developments in the first half of 2007 continued to be driven by high oil prices while inflation declined. Fiscal performance in the first half of 2007 was broadly satisfactory, although concerns about investment execution remain. Performance under the Poverty Reduction and Growth Facility (PRGF)-supported program over January-June 2007 was mixed, but corrective actions have been taken. The medium-term fiscal strategy aims at expanding priority spending while preserving macroeconomic sustainability. The authorities agreed that non-oil revenue mobilization remained key to ensuring fiscal sustainability.

Nepal: 2008 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Nepal

Limited progress has been made in addressing Nepal’s structural weaknesses in tax administration and public financial management. Macroeconomic performance under the recent Poverty Reduction and Growth Facility (PRGF)-supported program has been stable. The outlook for 2007–08 remains stable. Although the macroeconomic performance has been stable, progress on structural reforms has been held back by the fragile political circumstances. Public enterprises and the Nepal Oil Corporation, in particular, pursue quasi-fiscal activities involving significant subsidies. Nepal’s growth prospects depend most importantly on a peaceful political transition.

The International Monetary Fund’s Influence on Trade Policies of Low-income Countries: A Valid Undertaking?

This article explores the involvement of the IMF in influencing the setting of trade policy and tariff regimes of low-income countries, in the specific context of the HIPC (Heavily Indebted Poor Countries) initiative and the related PRGF (Poverty Reduction and Growth Facility) lending mechanism. The authors begin by discussing, in brief terms, the prominence of Washington Consensus considerations on the guidance provided by the Fund, followed by a legal critique of the Fund’s mandate on trade, notably in what pertains to surveillance activities and conditionality; in this section, the authors analyse whether the broadening of the Fund’s traditional focus from monetary and fiscal policy to trade policy is truly within the boundaries of its mission. The authors tackle the issue of direct and indirect influencing by the IMF of poor countries’ trade policies and tariff regimes, and how such influencing may occur as part of traditional interactions between the Fund and these countries, with special emphasis on the HIPC initiative, PRSPs (Poverty Reduction Strategy Papers) and the related provision of financial resources through the PRGF lending facility. Given the lack of consensus on the assumed benefits of trade liberalization for poorest countries as far as poverty reduction and economic growth are concerned, the

The Development Dimension of IMF Lending Policies

The debate on the role of the IMF in low-income countries has recently gained strength in light of the commitment by the international community to support achievement of the Millennium Development Goals by 2015. The IMF fulfils an important role as an information provider to low-income aid-recipient countries and their bilateral donors, who consider Fund signals as a useful device in their allocation decisions. The IMF also provides lending to low-income countries through the Poverty Reduction and Growth Facility (PRGF), established in 1999. The PRGF was designed to address earlier criticism claiming that IMF lending programs to low-income countries had privileged stabilisation over poverty-reducing growth through financial arrangements that had shown little ownership by those countries. The PRGF was meant to support a balanced macroeconomic framework in which low-income economies could pursue growth-enhancing measures with relevant poverty-reducing effects, reflecting policy priorities put forward by the countries themselves. Based on the available evidence, PRGF-supported countries have recorded a favourable growth performance vis-à-vis non-PRGF-supported countries, although the extent to which this outcome has translated into poverty reduction has yet to be assessed.

Poverty Reduction and the Poverty Reduction Facility at the IMF: Carving a New Path or Losing its Way?

Since 1999, all concessional lending by the International Monetary Fund (IMF) must be targeted at poverty reduction. The paper critically examines the design and implementation of the IMF's poverty reduction initiative by focusing on the operations of the Poverty Reduction and Growth Facility (PRGF). The data relating to the lending activity of the facility, coupled with an econometric explanation of the size of a PRGF arrangement in terms of key macro-economic variables, reveal some surprises. Not only does the lending activity of the new facility not appear to be much different - in frequency, size or total lending - than that under the Structural Adjustment Facility or Enhanced Structural Adjustment Facility (SAF/ESAF), but the average lending to individual countries over the period 2000-2004 is also inversely related to the human poverty index. At a time when IMF is quickly losing its traditional clientele, such findings raise doubts about the fund's efficacy in administering development finance.

Burkina Faso: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility: Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Burkina Faso

Burkina Faso’s request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility is discussed. The proposed new Poverty Reduction and Growth Facility (PRGF) program would help anchor macroeconomic stability and support Burkina Faso’s poverty reduction and growth strategy. Macroeconomic performance under the previous PRGF arrangement has been good. Average real GDP growth has been above 6 percent, inflation has been low and stable, and the current account has improved. Increasing domestic revenues would create fiscal space for poverty-reducing expenditures while keeping debt sustainable.

Dominica: Seventh Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Financing Assurances Review-Staff Report; Press Release on the Executive Board Discussion

This paper discusses key findings of the Seventh Review Under the Poverty Reduction and Growth Facility (PRGF) for Dominica. Policy implementation under the program has remained strong. All end-June 2006 performance criteria were met, and all indicative targets for end-June and end-September were met with comfortable margins. Progress has been made on the structural benchmarks for the Seventh Review. Fiscal performance in FY2005/06 was commendably strong, and the FY2006/07 budget reflects a continuation of strong fiscal policies.