Making the IMF Work Better for Africa - PowerPoint PPT Presentation

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Making the IMF Work Better for Africa

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Title: Making the IMF Work Better for Africa


1
Making the IMF Work Better for Africa
  • ECA Presentation to the Committee of Experts
  • 29-30 May 2003
  • Addis Ababa

2
Evaluating the IMFs role
  • Prior to 1998 the IMF had taken few steps to
    openly evaluate its operations
  • It had no external evaluations department unlike
    its sister Bretton Woods Institution
  • To remedy this the IMF Executive Board
    established the first external review of ESAF in
    1998-chaired by Prof Kwesi Botchwey
  • Recommendations on ownership, conditionality,
    social impact analysis were made.

3
Meltzer Report--critical
  • In 2000, the US Congress called for another
    external review of the IMFchaired by Prof.
    Meltzer
  • This review called for a major downsizing of the
    IMF, no more loans to African countries and
    immediate debt cancellation for the poorest
    countries
  • Recommendations were rejected by the G-8 and not
    implemented by the Clinton Administration

4
Much progress by the IMF
  • Independent evaluation office was established in
    2001
  • Numerous internal reviews have been conducted and
    discussed by the Executive Board.
  • The PRGF replaced ESAF in 1999.
  • In 2001, the IMF committed new PRGF resources of
    2.7 billiona record high.
  • IMF projections indicate that new commitments in
    2002 could reach 2 billion.

5
IMF has a key role to play in AfricaBut reforms
necessary
  • IMF is vital to promoting sound economic policies
    conducive to sustained higher growth
  • IMF is critical in providing technical assistance
    in areas of its comparative advantage---fiscal
    policy, exchange rates and monetary policy.
  • IMF plays important role in establishing codes
    and standards for data, financial and banking
    regulations.

6
To be effective, progress needed in 4 key areas
  • Streamlining conditionality
  • Reinforcing long-term external debt
    sustainability
  • Alignment of the PRSP approach and the PRGF
  • Renewing efforts to mobilize additional resources
    for development

7
Conditionality on the rise
8
Streamlining conditionality is key to IMF-Africa
relations
  • Conditions are too numerous and too
    intrusiveundermine country ownership
  • Lack of flexibility in the implementation
    schedule for complex structural reforms
  • Cross conditionality between the IMF and World
    Bank

9
Three proposals to streamline conditionality
  • Reduce and streamlining structural conditions
  • Critical conditions to achieving macro objectives
  • Conditions are within IMFs core areas of
    responsibility
  • Introduce floating tranche conditionality
  • Loan disbursement is tied to completion of agreed
    structural reformsincreases flexibility
  • Disbursement does not depend on implementing the
    entire programpromotes de-linking reforms
  • Introduce outcomes based conditionality
  • Disbursement is based on resultssafeguards IMF
    resources
  • Countries are responsible for designing
    policiespromotes ownership

10
Issues for discussion
  • Are the recent attempts by the IMF to streamline
    its conditionality making any difference to
    African governments?
  • How successful has the PRSP process been, in
    shifting away from the traditional form of
    conditionality towards greater ownership?
  • Which proposal for moving away from strict
    conditionality is most appropriate for African
    countries?

11
Status of Enhanced HIPC Initiative
  • Altogether nominal debt service relief of 41
    billion debt stock (25 billion in NPV terms)
  • 22 African countries have received debt reduction
    packages

Completion Point At decision point To be considered
6 16 10
12
Debt stock and debt service ratios have improved
13
Additional resources to poor
14
Reinforcing long-term debt sustainability is
crucial
  • Enhanced HIPC Initiative has failed to deliver
    long term debt sustainability
  • Lack of comparable debt relief from non-Paris
    Club creditors (including HIPC to HIPC)
  • High levels of new borrowing for poverty
    reduction undermines sustainability
  • HIPC conditions constraint fiscal flexibility
    needed for poverty reduction spending
  • Debt sustainability analysis is based on
    overoptimistic macro projections
  • No market based schemes to reduce commodity price
    volatility

15
HIPC initiative needs to be revamped
  • Get non-Paris Club creditors to buy into HIPC
    initiative
  • Build legal capacity to forestall lawsuits
  • Introduce a realistic framework for debt
    sustainability analysis
  • With realistic macro and growth projections
  • With domestic debt included in the analysis
  • With room for accounting for illusory debt relief
  • Develop mechanisms to mitigate commodity price
    shocks
  • Reinstate Marketing Boards to hedge risks through
    forward markets

16
Issues for discussion
  • Should a new institution be established to manage
    a legal technical assistance facility to help
    HIPCs deal with creditor litigation?
  • How can the IMF best provide technical assistance
    to work out negotiated solutions for HIPC-to-HIPC
    debt?
  • How can IMF revise its debt sustainability
    analysis?
  • What role can the IMF play in smoothing commodity
    price shocks?

17
Several concerns with the alignment of PRGF and
PRSP
  • Macroeconomic alignment of PRGF to PRSP/budget
    cycles key for PRGF success
  • Projections in PRSPs and associated
    PRGF-supported programs are too optimistic
  • Unrealistic assumptions on growth, budget
    revenues and exports disrupt IMF programs

18
Introduce more rigor into IMF analysis
  • Introduce rigorous analysis of macro variable and
    growth prospects as an integral part of PRGF
    support
  • Build multiple macro scenarios--including an
    ambitious scenario for achieving MDGs
  • Incorporate downside risks into macro scenarios--
    commodity price volatility, natural disasters and
    aid shortfall
  • Accommodate higher aid flows

19
Issues for discussion
  • To what extent the IMF has been able to link
    PRGFs to PRSP objectives?
  • To what extent the IMF has been able to link
    PRGFs to PRSP/budget cycles?
  • How can IMF improve its analytical rigour?
  • How helpful will it be if all PRGFs recorded
    discussion of policy choices and compared two or
    three fiscal scenarios?

20
Mobilizing additional resources--50B per year
until 2015
  • Promote trade, private sector development, and
    scaling up ODA
  • Ensure successful Doha round
  • Support Investor Advisory Councils
  • Call for more ODA
  • Establish a Trust Fund for MDGs by allocating
    SDRs
  • Support UK proposal for International Financing
    Facility

21
Issues for discussion
  • How can IMF play a key role in the success of
    Doha trade round?
  • Do we support the proposal for a Trust Fund for
    MDGs?
  • Do we support UK proposal for an International
    Financing Facility?

22
Thank you.
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