Aligning the PRGF and the PRSP ApproachKey Elements

1
Aligning the PRGF and thePRSP ApproachKey
Elements

• 3rd Meeting of the
• African Learning Group on PRSPs
• Addis Ababa, Dec. 3-5, 2003
• Presentation by Elliott Harris,
• IMF

2
Overview

• Introduction
• Program Content and Design
• PRSP Process Change
• Interim Progress
• Other areas of alignment

3
Introduction

• PRSP as framework for bringing together national
  policies and donor support
• 2002 Review of the PRGF identified areas for
  further attention in alignment with the PRSP
• Board paper in April 2003Aligning the PRGF and
  the PRSP Approach Issues and Options

4
Program Content and Design (1)

• Key issues
• Overly optimistic projections of growth and
  associated economic variables (e.g. exports)
• Disconnect between macroeconomic frameworks of
  the PRSP and those of the PRGF-supported program
  and budgets
• Macroeconomic impacts of significant increases in
  aid-financed development spending
• Poverty and social impact analysis
• Strengthening public expenditure policies and
  management

5
Program Content and Design (2)Realistic
Projections

• Realistic and better substantiated projections
• More systematic testing of underlying assumptions
• Analyze sources of, and obstacles to, growth
• Systematic discussion of growth prospects
• including downside risks and uncertainties
• Early IMF engagement in discussing macroeconomic
  assumptions, and needed policy measures and
  institutional changes within PRSP process.

6
Program Content and Design (3)Aligning Macro
Frameworks

• Disconnect between frameworks of PRGF/budgets vs.
  PRSPs
• Framework to be operationally relevant, but with
  ambitious strategy for progressing toward the
  MDGs
• Proposal A baseline macroeconomic framework with
  contingency measures
• setting out how budgets would be adjusted in
  event of better/worse performance
• Clearly identify bottlenecks to better
  performance (institutional, policies,
  technical/financial)
• Note Board concerns about two-scenario approach,
  but used in Niger and Senegal

7
Program Content and Design (4)Accommodating
Higher Aid Flows

• Premise that fiscal and financing targets in
  PRGFs will accommodate higher aid-financed
  spending, if
• aid sufficiently concessional
• can be spent effectively
• does not endanger macro stability
• Examine absorptive capacity of economy and
  administrative capacity
• Implications for fiscal and external debt
  sustainability
• Effect of aid dependency on competitivenesshow
  aid flows are used (for imports or domestic
  nontraded goods/possible Dutch disease?)

8
Program Content and Design (5)Public Expenditure

• Improving public expenditure policies and
  management
• Object of enhanced Bank/Fund collaboration
• Premise of government-designed PE reform strategy
  in PRSPs
• Translate PRSPs objectives into concrete policies
  and commitments reflected in budget.

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Program Content and Design (6)Poverty and Social
Impact Analysis

• Basis for discussion of possible trade-offs and
  alternative policies
• Countries should do this themselves to extent
  possible, but donor assistance necessary
• Discussions between IMF and World Bank on
  respective roles in PSIA

10
PRSP Process Change (1)

• Internal Alignment of PRSP and National Budget
• Enhanced Donor Coordination
• Implications for the PRGF

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PRSP Process Change (2)Internal Alignment
PRSP/Budget

• Align PRSP content and cycle with budget
• Translate strategies into operationally relevant
  commitments and policies
• Strengthen annual progress report process
• Feed into budget and MTEF updates
• Greater precision and analysis would allow its
  use by donors for monitoring and evaluation of
  performance
• Need to strengthen fiscal management and
  budgetary procedures

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PRSP Process Change (3)Enhanced Donor
Coordination

• Each donor derives content and conditionality of
  its support program from PRSP
• Collective alignment among donor programs to
  avoid overlap and ensure full coverage
• Donors simplify and harmonize procedures and
  requirements
• Country-led framework (e.g. SPA pilot in ETH,
  BFO, RWA)
• Encourage early commitments of budget support and
  medium-term indications of support.

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PRSP Process Change (4)PRGF Implications

• Align PRGF cycle with PRSP/budget cycle
• Possibility new 3-yr PRGF following new PRSP
• JSAs would examine also donor alignment
• Greater exchange of analysis and information with
  government and other donors

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Interim Progress

• Alignment PRSP/Budget/PRGFAt end-2002 no country
  cases
• Of 9 new PRGFs approved since April 03
• Ghana, Sri Lanka, Nepal--together with full
  PRSPs, with identical program/fiscal years
• Mauritania, Tanzania--together with 2nd annual
  progress report
• Bangladeshtogether with I-PRSP, and Kenya with
  PRSP preparation status report
• In Burkina and Senegalno new PRSP document
• In Kenya, Tanzania and Senegal, program and
  fiscal years identical
• Donor Alignment
• SPA Pilot (Rwanda, Ethiopia, Burkina)
• Burkina's PRGF request has description of
  coordination process among six donors that ties
  disbursements to the PRGF and PRSP cycles.

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Interim Progress

• Realistic Projections
• Relatively little discussion of alternative
  policies and targets, and tradeoffs in PRSPs and
  PRGFs
• Growth projections still somewhat optimistic,
• Need for more discussion of linkages between
  macro, sectoral, and structural policies, and
  growth performance
• Need to include alternative scenarios and
  contingency plans in programs
• Higher spending
• Poverty reducing spending has increased (1½
  percent of GDP and 4 percent of govt. revenue) in
  PRSP countries
• In many cases, increase in available external
  financing has been modest (some notable
  exceptions like UGA, ETH)

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Interim Progress

• Public expenditure
• Progress in improving PEM but challenges remain
• Linkages between PRSPs and annual budget/MTEF
  remain weak in most cases
• Problems in costing PRSP programs
• PSIA
• Distributional analysis of reforms becoming more
  common
• Plans for PSIA in structural reforms, indirect
  taxation, sector strategies, etc, but often still
  only indicative plans
• Discussion of institutional respopnsibilities
  between IMF/WB