Is the PRGF Living Up to Expectations?

• Author: Sanjeev Gupta, Mark Plant, Thomas Dorsey, and Benedict Clements
• Position: Assistant Director/Division Chief/Deputy Division Chief in the IMF's Policy Development and Review Department/Deputy Division Chief in the IMF's Fiscal Affairs Department

When the IMF launched the Poverty Reduction and Growth Facility (PRGF) in 1999, it envisaged some far-reaching changes in its operations. First, there would be a change in the content of IMF-supported programs in low-income countries to emphasize pro-poor and pro-growth policies, fiscal flexibility, and better economic governance. IMF conditions for lending, known as "conditionality," would be limited to measures central to the success of the borrowers' strategies and to the areas of the IMF's core expertise. Second, country ownership of programs would be encouraged by basing them on national poverty reduction strategy papers (PRSPs) (see "Taking Stock of Poverty Reduction Efforts" in this issue). Third, the IMF's role and its relationship with other agencies would be better defined and coordinated to ensure that PRGF programs were consistent with the countries' overall poverty reduction strategies and complementary to other institutions' activities.

All of this would be done through new design elements in the PRGF that would improve on the IMF's concessional loan facility at the time, the Enhanced Structural Adjustment Facility (ESAF). As it has turned out, demand for PRGF resources has been high. New commitments climbed to $2.7 billion in 2001 from $1.0 billion in 2000. In 2002, the projected loan volume is expected to be somewhat less-$2 billion-but it is still very large, reflecting, in part, the aftermath of the global economic downturn of the past few months. More than 40 countries have had new PRGF arrangements or had ESAF arrangements transformed to include the new features of the PRGF.

But is this new facility living up to expectations? To answer this question, the IMF undertook a major review, drawing on a broad range of internal and external views gathered between July 2001 and February 2002. These included a survey of key officials in PRGF countries, as well as those of a wide range of participants (including country officials) in regional meetings on the PRSP approach and the January 2002 International Conference on National Poverty Reduction Strategies organized by the IMF and the World Bank. The focal point of the study was 35 requests for loans under the PRGF considered by the IMF's Executive Board between July 1, 2000, and September 30, 2001. The sample included 19 countries with new, three-year PRGF programs, while 16 countries had transformed ESAF programs into PRGF programs.

Given that the PRGF is only a few years old and PRGF Arrangements run three years, the review was necessarily limited in scope, focusing primarily on program design. It is too early to assess whether PRGF programs are achieving their goals for poverty reduction and growth; this will have to wait for another review, which is slated for the spring of 2005. Indeed, in most cases, it is even too early to gauge the success of policy implementation. Moreover, the poverty reduction strategies themselves are still in their infancy. By October 2001, only six countries had PRGF-supported programs supported by a full PRSP; other countries had prepared only an interim PRSP-a preliminary document that, unlike a full PRSP, does not necessarily contain a widely discussed or fully articulated set of macroeconomic and structural policies.

Major findings

How did the PRGF measure up against the promised key features?

Pro-poor, pro-growth public spending. The review found that the composition of budgeted and actual public spending is becoming more pro-poor and pro-growth. Countries with PRGF-supported programs are allocating more, as a percentage of GDP and...