To receive debt reduction through the World Bank and International Monetary Fund (IMF), low- income countries must prepare of a Poverty Reduction Strategy Paper (PRSP) to show how money freed up from debt servicing will be used to alleviate poverty. PRSPs describe the country's macroeconomic, structural and social policies and programmes to promote growth and reduce poverty, as well as outline associated external financing needs and major sources of financing. The World Bank and the IMF Board of Directors approve the PRSP produced in each country.
The PRSP is usually a condition of bilateral and other multilateral lending by developed countries as well as IMF and World Bank concessional lending. The Canadian International Development Association (CIDA) now requires that low-income countries complete a PRSP as a condition of receiving Canadian aid.
Introduced in 1999, the Poverty Reduction Strategy approach was to have included five core elements. The process was to reflect a country’s individual circumstances and the inputs of its people and be:
- country-driven — involving broad-based participation by civil society and the private sector in all operational steps;
- results-oriented — focusing on outcomes that would benefit the poor;
- comprehensive in recognizing the multidimensional nature of poverty;
- partnership-oriented — involving coordinated participation of development partners (bilateral, multilateral, and non-governmental); and
- based on a long-term perspective for poverty reduction.
As of May 2005, twenty-four countries under the Heavily Indebted Poor Countries (HIPC) initiative have produced PRSPs as a condition to access debt relief. Of those, eighteen have qualified for debt reductions while the remaining six must implement further conditions before debt relief is granted.
PRSPs – Under fire
Experiences thus far from Asia, Africa and Latin America indicate that country governments have little control over the structure, content and policy prescriptions in their respective PRSPs, thus making a mockery of the original peramaters including national ownership, public accountability and broad-based participation.
Critics, including the independent evaluation offices of the IMF (2003) and World Bank (2004) as well as the United Nations Development Programme (2005) have identified a series of obstacles that have prevented or limited the achievement of PRSP goals:
(i) Dominance of the Bank and IMF in agenda-setting and outcomes,
(ii) Uniformity of policy outcomes across countries;
(iii) Lack of public and Parliamentary involvement in the PRSP process or poor quality engagement where it exists,
(iv) Severe administrative capacity constraints in low-income countries,
(v) No mechanism or guidance to adapt the PRSP processes and requirements to differing country conditions,
(vi) Shortcomings of data including poverty and social impact analyses,
(vii) Failure to consider the full range of policy actions required for growth and poverty reduction,
(viii) Failure to integrate the Millennium Development Goals within the process;
(ix) Pressure to expedite the PRSP process without proper analysis and without full country participation because countries wished to be eligible for enhanced HIPC debt relief.
In spite of the recommendations by the institutional evaluations to enhance flexibility, quality of participation and country ownership, PRSPs remain fundamentally grounded in inequality because they must be approved by the Boards of the World Bank and IMF.
If the purpose of PRSPs was to actually formulate “country-owned” homegrown policy prescriptions, then the executive boards of the IFIs would not undercut the sovereignty of their borrowers by requiring that they first approve PRSPs as a condition for extending credits, grants and debt relief. (Action Aid April 2004)
The Bank’s process for presenting a PRSP to the Board undermines ownership. Stakeholders perceive this practice as “Washington signing off” on a supposedly country owned strategy. (World Bank Operations Evaluation Department 2004)
The PRSP process may have helped refocus the national and international agendas on poverty eradication and increased public engagement in select issues in a number of low-income countries. However, the inherent contradiction of PRSPs remains. If the PRSP process had been the result of democratic “country-owned” participatory process, there would be no need to make loans, aid and debt relief conditional on its implementation (World Development Movement 2005).
PRSPs are imposed policy prescriptions accepted under pressure by the World Bank and IMF as a means to obtain debt relief or new loans. They are fundamentally undemocratic and are increasingly a condition of not only World Bank and International Monetary Fund finance, but Canadian government aid as well.
One of the most critical requirements of meaningful consultation and public participation in economic decision-making is the democratic right to be heard and treated equally. Until such time as the PRSP is owned by the citizens of the country that prepare it, it remains little more than another means by which the World Bank and IMF lever neo-liberal policy conditionality on countries powerless to stop them by virtue of debt dependency.