Emerging issues on PRGF – By Vitalice Mej AFRODAD

OUTLINE INTRODUCTION AND BACKGROUND AFRODAD STUDIES EMERGING ISSUEs

Introduction The achievement of millennium development goals (MDGs) constitutes a major challenge for low-income countries With the current high energy and food prices chances that Africa will achieve the millennium development goals have been reduced This calls for more resources as well as targeted expenditure on sectors that will lead to better outcome in the realisation of the MDGs

Introduction The international community, through the enhancement HIPC initiative and, the multilateral debt relief initiative (MDRI), has provided an external debt reduction and relief for HIPC countries, including Mozambique, with the explicit aim to help move these countries on the path leading to the achievement of the MDGs. One of the requirements of the HIPC initiative is for a country to have the Poverty Reduction and Growth Facility (PRGF), which is an IMF loan arrangement packed with structural reforms and quantitative conditions whose aim is to improve the fiscal positions of borrowing countries.

Introduction However after varying years of implementation across the countries in Africa, there has been little trickle down from the macroeconomic stability and growth to poverty reduction. PRGF has been subjected to many criticisms due to its structural conditions and benchmarks that are hard and sometimes hurtful to the poor that the program is supposed to help.

AFRODAD studies AFRODAD commissioned 4 country studies in Cameroon, Malawi, Mozambique and Uganda to examine the extent to which the PRGF has created policy space. Specifically the studies sought to address the following objectives; Establish how the PRGF has been underpinned within the national macro – economic framework Establish how the programs have shaped the public expenditure framework

AFRODAD STUDIES The challenges in the implementation of the PRGF The failures and the gains from the implementation of program Establish the linkage between the program with various national instruments including National development plans/visions/strategies Medium term expenditure framework National Budget Sector allocations

Emerging Issues - Positives Evaluation of PRGF shows that it has contributed to debt relief, economic growth, through the compliance with the macroeconomic, financial and fiscal targets and structural reforms across the countries Through IMF positive signaling, PRGF has also contributed to donors’ willingness to provide more resources to countries which led to an increase in fiscal space Overall it can be said that fiscal space has increased due to debt relief, economic growth and donor contributions in the short run. The governments in all the countries were able to increase public expenditures over time while maintaining fiscal and monetary targets and the sustainability of expenditure.

Emerging Issues - Positives The implementation of reforms in the context of the PRGF has led a budgetary process which yielded budgets that are more comprehensive, and whose execution is more targeted to priority sectors. i.e The budget structures are currently composed of expenditures on a detailed administrative, economic and functional basis across the countries. Has improved tax collection systems and procedures thereby improving domestic revenue generation

Emerging issues - Negatives Fiscal space was increased within the framework of a restrictive development model in which compliance with macroeconomic targets and structural benchmarks set by the Fund is prior to the definition of government’s priorities for resource allocation The increase in assistance from development partners has come up against the IMF’s need to preserve the country’s macroeconomic indicators, highlighting the weaknesses of the PRGF as a development strategy. For example, some governments were unable to hire additional teachers and nurses due to constraints on its wage bill and sector ceilings. Since the growth of government expenditure has been restrained, the allocation of funds to priority sectors such as education and health has been less than desired. As a result, the quality of primary and secondary education has been compromised and medical facilities have had to do with inadequate drugs.

Emerging issues - Negatives Even though Agriculture is defined as a priority area for poverty reduction due to its potential and the fact that the majority of rural population depend on it for subsistence in all the countries, PRGF, through its conditions, have had a negative impact to the agriculture sector in areas with emphasis to the abolition of subsidies and liberalization. Fiscal space created by PRGF has increased credit ratings of the countries involved without addressing the structural and regulatory framework of debt management in the countries involved. As a result new debts are quickly accumulating across the countries.

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