Making the IMF Work Better for Africa

1
Making the IMF Work Better for Africa

• ECA Presentation to the Committee of Experts
• 29-30 May 2003
• Addis Ababa

2
Evaluating the IMFs role

• Prior to 1998 the IMF had taken few steps to
  openly evaluate its operations
• It had no external evaluations department unlike
  its sister Bretton Woods Institution
• To remedy this the IMF Executive Board
  established the first external review of ESAF in
  1998-chaired by Prof Kwesi Botchwey
• Recommendations on ownership, conditionality,
  social impact analysis were made.

3
Meltzer Report--critical

• In 2000, the US Congress called for another
  external review of the IMFchaired by Prof.
  Meltzer
• This review called for a major downsizing of the
  IMF, no more loans to African countries and
  immediate debt cancellation for the poorest
  countries
• Recommendations were rejected by the G-8 and not
  implemented by the Clinton Administration

4
Much progress by the IMF

• Independent evaluation office was established in
  2001
• Numerous internal reviews have been conducted and
  discussed by the Executive Board.
• The PRGF replaced ESAF in 1999.
• In 2001, the IMF committed new PRGF resources of
  2.7 billiona record high.
• IMF projections indicate that new commitments in
  2002 could reach 2 billion.

5
IMF has a key role to play in AfricaBut reforms
necessary

• IMF is vital to promoting sound economic policies
  conducive to sustained higher growth
• IMF is critical in providing technical assistance
  in areas of its comparative advantage---fiscal
  policy, exchange rates and monetary policy.
• IMF plays important role in establishing codes
  and standards for data, financial and banking
  regulations.

6
To be effective, progress needed in 4 key areas

• Streamlining conditionality
• Reinforcing long-term external debt
  sustainability
• Alignment of the PRSP approach and the PRGF
• Renewing efforts to mobilize additional resources
  for development

7
Conditionality on the rise
8
Streamlining conditionality is key to IMF-Africa
relations

• Conditions are too numerous and too
  intrusiveundermine country ownership
• Lack of flexibility in the implementation
  schedule for complex structural reforms
• Cross conditionality between the IMF and World
  Bank

9
Three proposals to streamline conditionality

• Reduce and streamlining structural conditions
• Critical conditions to achieving macro objectives
  
• Conditions are within IMFs core areas of
  responsibility
• Introduce floating tranche conditionality
• Loan disbursement is tied to completion of agreed
  structural reformsincreases flexibility
• Disbursement does not depend on implementing the
  entire programpromotes de-linking reforms
• Introduce outcomes based conditionality
• Disbursement is based on resultssafeguards IMF
  resources
• Countries are responsible for designing
  policiespromotes ownership

10
Issues for discussion

• Are the recent attempts by the IMF to streamline
  its conditionality making any difference to
  African governments?
• How successful has the PRSP process been, in
  shifting away from the traditional form of
  conditionality towards greater ownership?
• Which proposal for moving away from strict
  conditionality is most appropriate for African
  countries?

11
Status of Enhanced HIPC Initiative

• Altogether nominal debt service relief of 41
  billion debt stock (25 billion in NPV terms)
• 22 African countries have received debt reduction
  packages

12
Debt stock and debt service ratios have improved
13
Additional resources to poor
14
Reinforcing long-term debt sustainability is
crucial

• Enhanced HIPC Initiative has failed to deliver
  long term debt sustainability
• Lack of comparable debt relief from non-Paris
  Club creditors (including HIPC to HIPC)
• High levels of new borrowing for poverty
  reduction undermines sustainability
• HIPC conditions constraint fiscal flexibility
  needed for poverty reduction spending
• Debt sustainability analysis is based on
  overoptimistic macro projections
• No market based schemes to reduce commodity price
  volatility

15
HIPC initiative needs to be revamped

• Get non-Paris Club creditors to buy into HIPC
  initiative
• Build legal capacity to forestall lawsuits
• Introduce a realistic framework for debt
  sustainability analysis
• With realistic macro and growth projections
• With domestic debt included in the analysis
• With room for accounting for illusory debt relief
• Develop mechanisms to mitigate commodity price
  shocks
• Reinstate Marketing Boards to hedge risks through
  forward markets

16
Issues for discussion

• Should a new institution be established to manage
  a legal technical assistance facility to help
  HIPCs deal with creditor litigation?
• How can the IMF best provide technical assistance
  to work out negotiated solutions for HIPC-to-HIPC
  debt?
• How can IMF revise its debt sustainability
  analysis?
• What role can the IMF play in smoothing commodity
  price shocks?

17
Several concerns with the alignment of PRGF and
PRSP

• Macroeconomic alignment of PRGF to PRSP/budget
  cycles key for PRGF success
• Projections in PRSPs and associated
  PRGF-supported programs are too optimistic
• Unrealistic assumptions on growth, budget
  revenues and exports disrupt IMF programs

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Introduce more rigor into IMF analysis

• Introduce rigorous analysis of macro variable and
  growth prospects as an integral part of PRGF
  support
• Build multiple macro scenarios--including an
  ambitious scenario for achieving MDGs
• Incorporate downside risks into macro scenarios--
  commodity price volatility, natural disasters and
  aid shortfall
• Accommodate higher aid flows

19
Issues for discussion

• To what extent the IMF has been able to link
  PRGFs to PRSP objectives?
• To what extent the IMF has been able to link
  PRGFs to PRSP/budget cycles?
• How can IMF improve its analytical rigour?
• How helpful will it be if all PRGFs recorded
  discussion of policy choices and compared two or
  three fiscal scenarios?

20
Mobilizing additional resources--50B per year
until 2015

• Promote trade, private sector development, and
  scaling up ODA
• Ensure successful Doha round
• Support Investor Advisory Councils
• Call for more ODA
• Establish a Trust Fund for MDGs by allocating
  SDRs
• Support UK proposal for International Financing
  Facility

21
Issues for discussion

• How can IMF play a key role in the success of
  Doha trade round?
• Do we support the proposal for a Trust Fund for
  MDGs?
• Do we support UK proposal for an International
  Financing Facility?

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Thank you.