POVERTY REDUCTION STRATEGY PAPERS

Introduction

The poverty reduction strategy papers

(PRSPs) were designed as a response to growing international criticisms that the

World Bank and the International Monetary Fund (IMF) development programmes were not sympathic to the poor in both their orientation and their application. In response, the IMF introduced the Poverty Reduction Growth Facility (PRGF), while the World Bank introduced the Poverty Reduction Support Credit (PRSC) as financing windows to ensure that the development programmes they prescribed would benefit the poor. These facilities are specifically meant to be accessed by highly indebted poor countries (HIPC), i.e. countries which are facing problems with their debt repayments, and have declining development indicators.

As a condition the HIPCs are required to prepare poverty reduction strategic papers that are in line with the Bretton Woods millennium development goals (MDGs). In return for implementing a successful poverty reduction strategy, the World Bank and the IMF, with other cooperating partners, promise to cancel over half of a qualifying country’s foreign debt and reschedule the remaining debt repayment. Most HIPCs formulated the PRSPS and the periods of implementation of these PRSPS varied from country to country. For example, Zambia’s poverty reduction strategy, which was implemented in 2002, was scheduled to end in 2004. Before a country can qualify for the PRSP, it has to prove that it is poor and highly indebted. It is disappointing the amount of excitement generated by African governments when they qualify for this dreadful status. They become proud to be called a highly indebted poor country, because it gives them access to funds.

What are PRSPs?

The poverty reduction papers are frameworks outlining programmes and activities that a country intends to implement in order to reduce poverty and respond to millennium development goals within a specified period of time. They can be loosely described as project proposals to get IMF and World Bank funding. It is important to note that preparing a good PRSP is one thing, but to implement it is another. While some countries have prepared good PRSPs and completed their implementation, there has been no corresponding decline in poverty levels.

The World Bank has prescribed that PRSPs be formulated using the following guidelines:

• There must be participation by all stakeholders in formulating PRSPs;

• It must be holistic in approach and nationally owned;

• It must clearly provide a framework indicating activities and programmes that are to be undertaken to contribute to reducing poverty;

• It must be implemented in partnership with all stakeholders.

Financing PRSPs

Most PRSPs are cautious in their use of language regarding financing, despite knowing that a big portion of the resources has to come from external sources. This is because the international financial institutions do not make concrete commitments for funding. The process is supposed to be financed both internally and externally.

External sources include the World Bank, which uses the poverty reduction support credit facility,and the IMF’s poverty reduction growth facility. Other sources of external financing may come through grants and loans from other cooperating partners.

Domestic financing is supposed to be raised by the country concerned from its own resources through revenue collection, which could be in the form of taxes.

Critique of PRSPs

These poverty reduction strategies have not worked in countries that have used them as a development model. For example, in Zambia where they were implemented for three years, but there has been no significant reduction in the country’s poverty levels. To the contrary, there has been an increase in the number of people living below the poverty line, about 85%.

Why PRSPs failed

Difficulties in accessing external finances

Accessing external funds to finance PRSPs has been a problem as the partners involved have been reluctant to release funds citing the absence of good governance, lack of proper accountability procedures and the general lack of democratic institutional frameworks in the concerned countries. This has resulted in the failure of implementing poverty reduction strategies within the agreed time frames and extending deadlines. Some scholars have argued that this has been deliberate on the part of the IMF and the World Bank so that they delay the cancellation of national debts for the HIPCs. Zambia, which only qualified for external funding three years after starting its programme, is a good example of this phenomenon. This raises questions as to whether Zambia should implement the activities that were meant to have been implemented over three years in just five months.

Difficulties in raising domestic finances.

It is very clear that finances raised through domestic resources are not adequate because these HIPCs have narrow tax bases. They are unable to allocate within their budgets, meaningful amounts that can go towards poverty reduction. On the average, their annual budget distribution (as is the case of Zambia) is as follows:

• 50 percent towards staff salaries;

 

• 25 percent towards recurrent expenditures;

 

• 20 percent to repaying external debt;

 

• Five percent or less is allocated towards poverty eradication.

 

In most cases very little or none is allocated for reducing or paying domestic debt which is usually high in most HIPCs. Poverty reduction activities rank very low as resources are usually allocated to political party-related things like by-elections, holding party conventions etc.

 

Debt cancellation versus poverty reduction

Most HIPCs have concentrated on qualifying for the status in order to have their debts cancelled. This has largely been at the expense of reducing poverty.

These countries have frozen wage increments; cut down on recruitment in the public sector; and cut down on social service expenditure in accordance with the IMF and World Bank requirements.

The paradox however, is that by the time these countries qualify, their poverty levels will have reached irreversible levels that will probably require borrowing much more than the cancelled debt.

 

Participation

While the World Bank emphasizes on the participation of stakeholders in the formulation and implementation of PRSPs, it has largely been observed that this has not happened. Organisations and stakeholders that may have divergent views have been systematically left out during the consultation process. The methodologies used in formulating and implementing PRSPs are not inclusive. Most people, particularly those in rural communities, have been left out when the programmes are meant to benefit them. Furthermore, implementation has largely been left in the hands of government ministries and departments.

 

Ownership

The World Bank largely determines the process and content of PRSPs. It has, therefore, been difficult for poor communities to claim ownership of the process. The activities being implemented are usually imposed on the people. Constricting local initiatives. Most countries currently implementing poverty reduction programmes had their own initiatives in place which were constricted and disrupted by PRSPs. This frustrated poor countries vulnerable to foreign-imposed development models. PRSPS in this regard are merely reinforcing neo-liberal policies.

Accountability and re-colonisation.

Poverty reduction strategies have forced governments to become more accountable to the IMF and the World Bank rather than to the people who elected them into power. PRSPs are also being used as tools for re-colonising Africa because the World Bank and IMF continue to dictate what they think is best for Africa through using their credit power.

Way forward

Most countries continue to service foreign debts at the expense of their domestic debts. There is a need for African governments to focus their attention on reducing domestic debt, which will in turn encourage local production. Local production will increase earnings. Further, there is a need to encourage the development of local initiatives to fight poverty, which are locally financed. These will ensure that foreign debts do not continue to increase. However, this may require broadening the tax bases of poor countries.

There is also a need to increase advocacy and lobbying on the need for debt cancellation so that more and more resources are redirected towards poverty eradication. This may require building stronger social movements and strengthening networking among the social movements in order to increase the voice for debt cancellation.

Finally, there is a need for stronger political will if poverty is to be reduced. Politicians are more pre-occupied with consolidating their power, than with combating poverty. This has led to politicians diverting resources meant for poverty reduction to be used for other political agendas.

By Lameck Simwanza