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Highlights of the World Bank - IMF spring meetings 2006
Evaluating the impact of the PRGF: The cases of Ethiopia, Malawi, Tanzania and Zambia
28 April 2006 | Minutes
Hosted by Afrodad, Jubilee USA and Action Aid USA. Notes by Olivia Mcdonald, ChristianAid.
Charles Mutasa from Afrodad presented their recent research (funded by Norwegian Church Aid) about the impact of the PRGF on social spending in five African countries. The research found that the PRGF continues to inform the PRSP, not the other way around. In Tanzania, the IMF has been far more flexible in negotiating conditions because it has stabilized. They have been far stricter on Malawi and Zambia. But more flexibility is needed to ensure donor commitments can be fulfilled, for example who gives anti-retroviral drugs if no medical staff. There are many privatisation conditions and in general no evidence that IMF philosophy has changed.
Antoine Heuly from UNDP argued that the PRGF had seen some improvements, especially if compared to ESAF, their previous facility for low-income countries. Although weak, there is a welcome linkage to the PRSP. Responding to the Afrodad study, he said that there was a misunderstanding of the definition of pro-poor growth – UNDP for example defines it as growth that benefits the poor disproportionately.
There is a tendency to blame to PRGF for too many things, essentially it is a signaling instrument for donors and a funding tool to achieve macro stability and provide growth. It is generally doing this but the question is whether it is an appropriate tool to deliver human development. The PRGF is inadequate and will not deliver next generation PRSPs based on MDGs. Growth is not trickling down, in its place is required instead a facility for poverty reduction and development that sets out expansionary macroeconomic policies that look to the long-term rather than the short-term. However, he thought that some recent papers from the IMF signaled more openness on these issues, for example on the budgetary losses from trade liberalisation and the macroeconomic implications of scaling up aid to Africa.
Angela Wood discussed some research she has done recently that looks at the impact of budget ceilings and wage ceilings more specifically on the provision of healthcare in selected African countries. In these countries the health budget is only set after debt repayments, interest and wages are taken out. The health budgets in these countries are increasing, but only slowly. The IMF does not set ceilings for health sector workers, but for staff overall, and thus argue the government are free to employ as many staff as they want as long as from the healthcare budget. But this is still an implicit ceiling. Because of the problems of raising domestic revenue and low growth rates the IMF focuses of the efficiency of spending. The IMF is obsessed that recurrent salaries are inefficient, that civil servants host numerous ghost workers and that an increase in one sector will have multiplier effect as other civil servants demand pay rises. The budget should be a flexible macroeconomic tool, but becomes less flexible the greater the proportion allocated to recurrent expenditure.
The IMF is not necessarily a baddie but is rather cautious and pessimistic about government and donor funding plugging the gap for recurrent expenditure. This situation undermines good governance, because to ensure they can stick to IMF ceilings, global funds are increasingly funding salaries through the back door. She recommended that the IMF advocate for improved aid quality.
Discussion considered the following:
The role of China as a donor and whether it would create more policy space as it does not follow the IMF agenda so closely. However, there is considerable evidence that Chinese aid is very weak, often tied and linked to the mistreatment of labour.
The potential for countries such as Burkina Faso and Senegal to go without an IMF programme because of concern re its conditionalities.
The potential for the IMF to define expansionary fiscal policies for development and poverty reduction and its role more broadly in development in low-income countries.
The potential of the current tension between the IMF and US on the US deficit.
The shift in donor aid to overcome these problems: for example DFID has agreed to pay recurrent salaries in Malawi for health and/or education workers for four years and the Dutch are paying for doctors in Zambia.
It is not just about salaries for doctors, teachers and nurses, but also brain-drain that gives trained staff incentives to move to developed countries, and the lack of infrastructure in rural areas where they are needed.
The IMF did not send someone to present their position. Antoine said UNDP would like to host a similar meeting in May to discuss some UNDP case studies on this issue and to secure IMF participation.
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