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Making the IMF Work Better for Africa

Making the IMF Work Better for Africa. ECA Presentation to the Committee of Experts 29-30 May 2003 Addis Ababa. Evaluating the IMF’s role. Prior to 1998 the IMF had taken few steps to openly evaluate its operations

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Making the IMF Work Better for Africa

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

  2. Evaluating the IMF’s 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 IMF—chaired 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 billion—a record high. • IMF projections indicate that new commitments in 2002 could reach $2 billion.

  5. IMF has a key role to play in Africa—But 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 intrusive—undermine 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 IMF’s core areas of responsibility • Introduce floating tranche conditionality • Loan disbursement is tied to completion of agreed structural reforms—increases flexibility • Disbursement does not depend on implementing the entire program—promotes de-linking reforms • Introduce outcomes based conditionality • Disbursement is based on results—safeguards IMF resources • Countries are responsible for designing policies—promotes 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. Altogether nominal debt service relief of $41 billion debt stock ($25 billion in NPV terms) 22 African countries have received debt reduction packages Status of Enhanced HIPC Initiative

  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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