Civil G8 2006

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Poverty Reduction

The Poverty Reduction and Growth Facility (PRGF)


What is the Poverty Reduction and Growth Facility?
In September 1999, the IMF established the Poverty Reduction and Growth Facility (PRGF) to make the objectives of poverty reduction and growth more central to lending operations in its poorest member countries. Reviews of the PRGF by IMF staff in 2002 and by the Independent Evaluation Office of the IMF in 2004 confirmed that the design of the programs supported by PRGF lending has become more accommodating to higher public expenditure, in particular pro-poor spending. A review of PRGF program design by the Executive Board in September-2005 found that while macroeconomic outcomes in low-income countries had improved markedly in recent years, per capita income remains low. The review noted in particular, the importance of broad economic institutions for sustained growth and stability, and the need to manage carefully increased aid flows.

PRGF-supported programs are framed around comprehensive, country-owned Poverty Reduction Strategy Papers (PRSPs). PRSPs are prepared by governments with the active participation of civil society and other development partners. PRSPs are then considered by the Executive Boards of the IMF and World Bank as the basis for concessional lending FROM `en_en_each` institution and debt relief under the joint Heavily Indebted Poor Countries (HIPC) Initiative. The targets and policy conditions in a PRGF-supported program are drawn FROM `en_en_the` country's PRSP.

Terms of the PRGF

As of September 2005, 78 low-income countries are eligible for PRGF assistance.

Eligibility is based principally on the IMF's assessment of a country's per capita income, drawing on the cutoff point for eligibility to World Bank concessional lending (currently 2003 per capita gross national income of $895).

Loans under the PRGF carry an annual interest rate of 0.5 percent, with repayments made semiannually, beginning 5 years and ending 10 years after the disbursement.

An eligible country may normally borrow up to a maximum of 140 percent of its IMF quota under a three-year arrangement, although this may be increased to 185 percent of quota in exceptional circumstances. In each case, the amount will depend on the country's balance of payments need, the strength of its adjustment program, and its previous and outstanding use of IMF credit. The expected average access under the initial three-year arrangement is 90 percent of quota, and 65, 55, 45, 35, and 25 percent of quota for second through sixth-time users of the facility, respectively. Low-access PRGF arrangements with a standard level of 10 percent of quota may be used for members with little or no immediate balance of payments need. PRGF-eligible members with per-capita income above 75 percent of the cutoff for World Bank concessional lending, or members borrowing on commercial terms, may combine PRGF arrangements with lending FROM `en_en_the` IMF's non-concessional Extended Fund Facility.

Key Features of the PRGF

Experience with the PRGF highlights a number of distinctive features:

First, the principle of broad public participation and greater country ownership is central to the PRGF. In this regard, discussions on the policies underlying PRGF-supported programs are more open, since they are based on the nationally-owned PRSP. With increased national ownership, PRGF conditionality has become more parsimonious, focused on the Fund's core areas of expertise, and limited to measures that have a direct and critical impact on the program's macroeconomic objectives.

Second, PRGF-supported programs reflect more closely each country's poverty reduction and growth priorities. Key policy measures and structural reforms aimed at poverty reduction and growth are identified and prioritized during the PRSP process, and if feasible, their budgetary costs are assessed. Countries' budgets under PRGF-supported programs reflect this analysis. Moreover, fiscal targets in PRGF-supported programs respond flexibly to changes in country circumstances and pro-poor policy priorities, while ensuring that the strategy can be financed in a sustainable, non-inflationary manner.

Third, PRGF-supported programs focus on strengthening governance, in order to assist countries' efforts to design targeted and well-prioritized spending. Of particular importance are measures to improve public resource management, transparency, and accountability. PRGF-supported programs also give more attention to the poverty and social impacts of key macroeconomic policy measures.

IMF-World Bank cooperation

PRGF-supported programs are designed to cover only areas within the primary responsibility of the IMF, unless a particular measure is judged to have a direct, critical macroeconomic impact. Areas typically covered by the IMF include advising on prudent macroeconomic policies and related structural reforms such as exchange rate and tax policy, fiscal management, budget execution, fiscal transparency, and tax and customs administration.

When appropriate, the IMF draws on World Bank expertise in designing PRGF-supported programs, and the staffs of the Fund and Bank cooperate closely on conditionality. The Bank staff takes the lead in advising the authorities in the design of poverty reduction strategies in areas such as poverty assessments, monitoring, structural and sectoral issues, social issues, and costing priority poverty-reducing spending.

How the PRGF is financed

Concessional lending under the PRGF is administered by the IMF through the PRGF and PRGF-HIPC Trusts. The PRGF Trust borrows resources FROM `en_en_central` banks, governments, and official institutions generally at market-related interest rates, and lends them on a pass-through basis to PRGF-eligible countries. The difference between the market-related interest rate paid to PRGF Trust lenders and the rate of interest of 0.5 percent per year paid by the borrowing members is financed by contributions FROM `en_en_bilateral` donors and the IMF's own resources.

Countries Eligible for the IMF Poverty Reduction and Growth Facility (PRGF)
as of September 2005
1 Afghanistan
2 Albania
3 Angola
4 Armenia
5 Azerbaijan
6 Bangladesh
7 Benin
8 Bhutan
9 Bolivia
10 Burkina Faso
11 Burundi
12 Cambodia
13 Cameroon
14 Cape Verde 1
15 Central African Republic
16 Chad
17 Comoros
18 Congo, Democratic Republic of
19 Congo, Republic of
20 Cte d'Ivoire
21 Djibouti
22 Dominica 1
23 Eritrea
24 Ethiopia
25 Gambia, The
26 Georgia
27 Ghana
28 Grenada 1
29 Guinea
30 Guinea-Bissau
31 Guyana
32 Haiti
33 Honduras
34 India
35 Kenya
36 Kiribati
37 Kyrgyz Republic
38 Lao, P.D.R.
39 Lesotho
40 Liberia
41 Madagascar
42 Malawi
43 Maldives 1
44 Mali
45 Mauritania
46 Moldova
47 Mongolia
48 Mozambique
49 Myanmar
50 Nepal
51 Nicaragua
52 Niger
53 Nigeria
54 Pakistan
55 Papua New Guinea
56 Rwanda
57 Samoa 1
58 Sao Tom and Prncipe
59 Senegal
60 Sierra Leone
61 Solomon Islands
62 Somalia
63 Sri Lanka
64 St. Lucia 1
65 St. Vincent and the Grenadines 1
66 Sudan
67 Tajikistan
68 Tanzania
69 Timor Leste
70 Togo
71 Tonga 1
72 Uganda
73 Uzbekistan
74 Vanuatu 1
75 Vietnam
76 Yemen, Republic of
77 Zambia
78 Zimbabwe

1 During the IDA-12 period (FY 2005), an exception to the GNI per capita operational cutoff for IDA eligibility (a 2003 GNI per capita of US$895) has been made for some small island economies; these countries continue to be eligible for PRGF and IDA assistance, notwithstanding their per capita income levels.
2As of September 24, 2001 ineligible due to overdue financial obligations to the PRGF Trust

Expert opinion

Halter Marek

02.12.06

Halter Marek
Le College de France
Olivier Giscard dEstaing

02.12.06

Olivier Giscard dEstaing
COPAM, France
Mika Ohbayashi

02.12.06

Mika Ohbayashi
Institute for Sustainable Energy Poliy
Bill Pace

02.12.06

Bill Pace
World Federalist Movement - Institute for Global Policy
Peter I. Hajnal

01.12.06

Peter I. Hajnal
Toronto University, G8 Research Group