[stop-imf] Eurodad: Official IMF evaluation finds flaws in PRSP process

[Rob Weissman]

Note from European Network on Debt and Development:


Official IMF evaluation finds flaws in PRSP process



European Meeting on follow-up to official PRSP Reviews, Brussels, 21
September

=01


The IMF's independent evaluation unit has just released its analysis of
the PRSP process. While it does not go as far as many civil society
groups would hope it has some strong criticisms of the first few years
of PRSPs and a number of useful recommendations. These include that the
Fund should engage in greater public discussion of macroeconomic policy
options and ensure that PRS processes are embedded in existing national
institutions. Civil society groups and officials dealing with PRSPs
in-country or internationally will want to familiarise themselves with
the report's findings, which are summarised below.



As one of several events in different regions, Eurodad is holding a
meeting on 21st September with speakers from the World Bank and IMF
evaluation offices, plus officials from European donor agencies to
discuss the findings of the reviews and the follow-up actions by the
Bank, Fund and other donors. Further information below.



Best wishes


Hetty

---------------------

Hetty Kovach

Policy and Advocacy Officer

European Network on Debt and Development

Avenue Louise 176

Brussels 1050, Belgium

www.eurodad.org <http://www.eurodad.org> / hkovach@eurodad.org
<mailto:hkovach@eurodad.org>

+ 32 2 543 90 60 / Direct Line: + 32 2 543 9062



=01


Official IMF evaluation finds flaws in PRSP process

=01


The IMF=92s Independent Evaluation Office has just released a major new
report on the PRSP process. The report argues that PRSPs have the
potential to encourage country-owned development, but that achievements
so far fall considerably short of their potential. This echoes findings
in the World Bank=92s recent evaluation of PRSPs. The report calls for
greater country ownership of the process and a more country-specific
flexible approach to policy design. Demands for the process to be firmly
embedded in domestic institutional processes are made, with countries
gaining greater control over procedures and monitoring arrangements. It
is also recognized that there is a need to ensure policy is tailored to
individual countries. Finally, the report calls for greater clarity as
to the IMF=92s exact role in the process. Highlighting that though donors
clearly want an IMF signal on the quality of the macro-economic
environment, this does not necessarily have to also involve the IMF
providing financing and conditionality



The report looks at PRSPs in general, the IMF=92s specific role in the
process and the longer term role of the IMF in Low Income Countries
(LIC). It includes comments from IMF management, staff and the Board of
Director and draws on case studies from Guinea, Mozambique, Nicaragua,
Tajikistan, Tanzania, and Vietnam

=01
Key findings of report:



Greater broad based participation in the formulation of PRSPs, but
failure to translate this into strengthening existing domestic
institutional processes: The report found that overall the PRSP process
was perceived as more participative than previous IFI strategies by
numerous stakeholders. However, it noted that =93participatory processes
were typically not designed to strengthen existing domestic
institutional processes for policy formulation and accountability (e.g.,
through parliament)=94 (p7). The report recommends greater work to ensure
these are strengthened (see recommendations below).



Limited success in embedding the PRGF in the PRSP: =93Success in embedding
the PRGF in the overall strategy for growth and poverty reduction has
been limited in most cases=94 (p9). The report attributes this failure
partly on shortcomings in the strategies themselves. Nevertheless, the
report does note some positive changes in PRGF program design,
highlighting the incorporation of greater fiscal flexibility to
accommodate aid flows, for example. Some readers may be surprised to
note that the report also finds no evidence of generalized "aid
pessimism" or a systematic "disinflation" bias.



IMF structural conditionality streamlined, but report unable to reach a
definitive conclusion on aggregate IMF-World Bank conditionality: The
report finds that though IMF conditionality has streamlined, there is a
serious question mark over whether overall there has been a reduction in
IMF and World Bank conditionality, indicating that perhaps the Bank is
taking up many previous IMF conditionalities.





Lack of meaningful discussions of alternative policy options with
respect to the macroeconomic frameworks and structural reforms: Firstly,
the report found that IMF staff typically did not actively inform
domestic stakeholders about the policy debate on macro issues during the
PRS formulation process. This was attributed to IMF staff generally
interpreting the emphasis on country ownership as implying that
involvement on their part should be limited. However, the report also
highlighted a general failing to explore alternative macro-economic
policy options. Importantly, the report highlights that in the
relatively few cases where a broader debate did occur there was a
positive impact on policy outcomes.

Failure to understand macro-micro linkages has led to agreement to
conduct ex ante Poverty and Social Impact Analysis within the IMF, but
this has yet to be streamlined into program design: The report
highlights that PRSPs are weak on exploring the linkages between growth,
poverty incidence and macroeconomic policies at the individual country
level. The IMF in response has called for ex ante PSIA, but the report
notes that this call has not yet translated into mainstreaming such
analysis in program design.



Recommendations:



1. Introduce greater flexibility in the implementation of the PRS
approach to fit better the needs of countries at different stages of the
process and with different capacities and political and administrative
systems.



The report notes that the PRS approach would have greater value added if
it was made more flexible in practice to fit different country
situations. The report highlights that countries need to be put even
more firmly in the driver=92s seat by determining themselves how the
policy formulation, implementation, and monitoring processes will be
conducted and built up over time. Specifically, the report recommends
that progress of PRSPs should be monitored against an explicit set of
country-determined intermediate benchmarks (see recommendation 3).
Finally, the output of these processes in terms of documents and timing
should rely as much as possible on domestic institutional arrangements,
with minimal IMF-imposed requirements.



2. Shift the emphasis of the initiative from the production of documents
to the development of sound domestic policy formulation and

implementation processes.



The report recommends building in greater results-orientation, with
countries encouraged to establish substantive criteria for judging
progress towards key intermediate objectives. The report cites the
existing public expenditure management (PEM) benchmarking exercise as an
example. The report also highlights the need for a shift in the emphasis
of the incentives faced by countries away from procedural aspects and
production of documents to achieving substantive changes in domestic
processes and policies.





3. Clarify the purpose of the Joint Staff Assessment and redefine the
vehicle accordingly.



The report notes that despite its failings the JSA - an assessment by
Bank and Fund staff of the adequacy of the PRSP - is a useful concept
whose potential has not been realized. The report notes the need for a
greater focus on the adequacy of domestic policy choices and the quality
of domestic processes, as well as actual progress towards intermediate
objectives. The report also calls for making explicit the criteria and
benchmarks used by staff to form their judgments and reporting on the
views of third parties (especially local stakeholders and donors) when
available.





4. Clarify what the PRS approach implies for the IMF=92s own operations
and strengthen the implementation of the agreed role.



The report recommends that the Fund place greater emphasis on activities
that help to better inform broad based policy discussions in its areas
of competence. Guidelines to staff, it notes, need to be clarified so as
to encourage more active inputs to such discussions, including analyzing
alternative policy options and tradeoffs. One possible approach
suggested is that IMF staff prepare a short note on key macroeconomic
issues that need to be addressed in the broader growth and poverty
reduction strategy, which the authorities could make public if they wished.



The report also highlights that rather than establish uniform
=93standards=94 for the IMF=92s role, expectations should be tailored to
country-specific circumstances, including the government=92s wishes. It is
noted that this is also likely to require a combination of: (i) more
=93stand alone=94 missions, set apart from program negotiations, and (ii)
enhancing the role of resident representatives.



In relation to the PRGF the report calls for the rationale for IMF
policy recommendations and program design to be subject to broader
scrutiny and debate. The report also calls for greater clarify over the
approach to be taken by the IMF in those cases where the PRS approach
has not yet produced an operational road map or the necessary
institutional framework for PRGFs to be based on.





Recommendation 5. Strengthen prioritization and accountability on what
the IMF itself is supposed to deliver within the broader partnership
framework, built around the priorities emerging from the PRS process,
and ensure resources match commitments.



The report calls for the IMF to tailor its involvement more closely to
country needs, taking into account the contributions from other
partners. Because these needs vary widely and because resource
constraints on the IMF will remain tight, a more systematic approach is
needed to (i) setting priorities on what the IMF itself will deliver;
and (ii) ensuring appropriate coordination of key inputs from other
stakeholders.





Recommendation 6. The IMF should encourage a strengthening of the
framework for establishing the external resources envelope as part of
the PRS approach.



The report highlights that the present =93architecture=94 of the PRS
approach does not provide a clear framework for helping countries and
donors decide what is an appropriate medium term resource envelope in
which the macroeconomic strategy should be derived. The evaluation
recognizes that it has not yet produced sufficient evidence for it to
recommend a particular =93right=94 approach on this issue. However, the IEO
indicates that it does not favor a greatly expanded role for the IMF
that would risk taking it beyond its comparative advantage.



Comments on longer term role of the IMF in Low-Income Countries (LIC):



The report summarizes some key decisions that need to be taken when
exploring the longer term role of the IMF in LICs and suggests a number
of principles that should be borne in mind when taking them. Below are
some of the key questions it raised, others are contained within report.



What should be the signaling role of the IMF in the longer term and how
should it be provided? The report notes that donors clearly want an IMF
signal on the quality of the macro-economic environment. However, the
report questions whether this signal necessarily also has to involve IMF
providing financing and conditionality, and calls for greater clarity in
identifying what roles the IMF are being asked to fulfill.



What should be the IMF=92s financing role in low-income countries and what
should be the criteria for =93exit=94 from such financing? The report
highlights that the current criteria used for financing in LIC is
incredibly vague (protracted balance of payment crisis) and does not
provide effective guidance for when the IMF should shift its support
from traditional lending arrangements to other forms of engagement. The
report calls for unbundling the various non-lending functions that the
IMF is expected to perform under the PRS approach and making clear that
the IMF can remain very substantially involved in the PRS process
without providing baseline financing over long periods.



It is helpful that this major IEO study has echoed much of what civil
society groups have been arguing for some time. While it is an official
part of the IMF the IEO does not, however, have any power to force
acceptance of its recommendations. This relies on members of the IMF
board and staff responding favourably, and to pressure that can be
created by civil society groups. Eurodad recently coordinated a sign-on
letter to the IMF Managing Director and all IMF Executive Directors and
is initiating discussions with colleagues on other ways to ensure the
useful messages of the review are followed up.


Eurodad is planning to produce a longer analysis of the key findings of
the IMF and World Bank PRSP Reviews incorporating the management, staffs
and Board=92s repsonses and highlighting key areas for potential action
paper. This will be made available on the web in about two weeks. We are
interested in your reactions to this report.



Full report available:
http://www.imf.org/External/NP/ieo/2004/prspprgf/eng/index.htm
<http://www.imf.org/External/NP/ieo/2004/prspprgf/eng/index.htm> .