Supporting country-led efforts

Pages7-10

Page 7

In 1999, the replacement of the IMF's concessional lending facility, the Enhanced Structural Adjustment Facility (ESAF), with the better-focused Poverty Reduction and Growth Facility (PRGF) raised expectations about the IMF's role in the fight against poverty. Loans under the PRGF-like ESAF loans-carry very low interest rates, long repayment terms, and a grace period. The PRGF differs from the ESAF in that it is based more directly on the premise of a mutually reinforcing relationship between macroeconomic stability, structural reform, growth, and poverty reduction. Yet this focus on poverty was not entirely new: since the late 1980s, IMF advice to its members has increasingly emphasized pro-poor policies while recognizing that the IMF's traditional focus on macroeconomic stabilization-especially on price stability-also benefits the poor.

Demand for PRGF resources has been high. In recent years, more than 40 countries have had new PRGF arrangements or had ESAF arrangements transformed to include the new features of the PRGF. Overall in 2001, the IMF committed new PRGF loan resources of $2.7 billion, a record high, up from $1 billion in 2000. Last year's increase partly reflected approval of a few large new commitments.

Current projections indicate that new commitments in 2002 could reach $2 billion. If high levels of new commitments continue, consideration will need to be given to mobilizing new PRGF loan and subsidy resources.

All poor countries seeking assistance under the enhanced HIPC Initiative or low-cost loans from the IMF or the World Bank are expected to prepare comprehensive poverty reduction strategies. These strategies-formulated by a country's government based on wide-ranging participation, including by civil society, donors, and international organizations, and spelled out in a poverty reduction strategy paper (PRSP)-now provide the basis for all concessional lending by the IMF and the World Bank.

There is no single blueprint for a country to follow in preparing its poverty reduction strategy. Rather, each country's PRSP should reflect its specific circumstances.

But each PRSP should describe the poor's main characteristics and specify strategies for the medium and long terms that would have the highest impact on poverty reduction. And it should also identify realistic and trackable poverty reduction goals and set out macroeconomic, structural, and social policies for reaching them.

Locally produced PRSPs are expected to generate fresh ideas about how shared growth and poverty reduction goals can be reached and should help create a sense of ownership and national commitment to those goals. The IMF and the World Bank participate in the process and, along with other multilateral and bilateral donors, provide advice and expertise. But the...

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