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Transforming The Business Of Development: By Process, Not Paper Alone

12 May 2004

The introduction of the Poverty Reduction Strategy Paper (PRSP) approach in 1999 is beginning to transform the business of development and development assistance. Does it hold real promise as a more successful approach to development?

It is too early to be certain. But the signs from experience in some Commonwealth countries are that there is a real prospect that it will work better than earlier approaches, and that it is developing into more than just another set of form-filling to qualify for IMF and World Bank support.

The lessons of past economic programmes supported by the IMF, World Bank and others and the case for the PRSP approach as seen by those who launched it is as follows.

Development is not something done to a country, but something that countries do for themselves. Reforms and conditions imposed from outside rarely stick: the only successful reform programmes are home grown ones, 'owned' by the country and its government. And successful development and poverty reduction are not just a matter of securing fiscal balance and low inflation: they require action in many different areas - strengthening governance and tackling corruption; providing a better environment for business and one in which people can earn livelihoods; providing basic education and healthcare to all; and providing the infrastructure that underpins both social services and business activity.

This underpins the global message endorsed by world leaders at the 2002 Monterrey summit on financing for development. Developing countries undertook responsibility for creating their own reform programmes, setting out their strategies in a PRSP or a similar national strategy document.

And as far as they do, donors and the international financial institutions undertook to provide the external support countries need if they are to have a chance of meeting the Millennium Development Goals (MDGs).

How well is the process working? Thirtyseven countries, 12 of whom are members of the Commonwealth, now have fully developed poverty reduction strategies, and have had these approved as a sound basis for concessional support by the IMF and the World Bank. Several assessments have been or are being made, including by the Commonwealth, and some important lessons are emerging:

* PRSPs only work if they are fully integrated into national decision-making strategies. However well-written and coherent a country's PRS paper is as a document, and however elaborate and participatory the process of producing it, it is worthless as a stand-alone document. It needs both to provide an operational roadmap for a country's development strategy, and to be linked to the implementing mechanisms such as budget setting processes. It is the whole PRS 'process' that matters.

* The participatory process for preparing PRSPs, with wide and transparent consultation among civil society, has proved a success. However, PRSPs and their implementation need to be much better integrated into the democratic process. In some cases they have been debated in Parliaments, but the general practice so far has been of only minimal involvement in the process by MPs and parliamentary committees.

* Donors are beginning to use the PRS as a framework for their own development assistance, aligning assistance behind the national strategy, and moving away from the self-standing aid projects of the past towards direct support for country budgets and sector programmes. For countries that have up to 40-50% of their budgets funded by overseas assistance this is absolutely vital.

* Not enough change has occurred - although it is much needed - in the area of macroeconomic policy and in other policy areas most directly relevant to economic growth.

The last two points deserve to be developed.

It is becoming clear that making the PRS approach work will take changes in behaviour and practices of donors - changes that may be as difficult for them to implement as some of the reforms being introduced are for recipient governments.

Donor support must be for programmes and projects falling within the PRS strategy, and many are finding that the simplest way to achieve this is to switch from support for individual aid projects to budget support or support for sector investment programmes. Aid needs to be predictable, which means that donors have to make a long term commitment - otherwise governments are not able to plan their investment programmes properly. In many cases it is also important to have aid available to cover recurrent costs - it's no use investing in new schools and teaching equipment if funds are not available to pay teachers' salaries.

And, of course, in order to be effective, aid needs to be untied.

To this end, donors must rely on countries' own budget and auditing arrangements, rather than insisting on their own separate arrangements. This will involve fundamental changes in donor practices. Canada, for example, has had to pass domestic legislation so that it can adopt this kind of approach. In some Commonwealth countries, such as Tanzania, Uganda and Mozambique, donors are already beginning to implement the new approach.

Macroeconomic policy is probably the area where opening up policy decisions to debate has been most difficult. In some cases - Tanzania for example - there has been some debate involving outside experts, resulting in agreement on greater fiscal 'space' for government investments. But this is the exception.

There has also been too little focus on the poverty and social impacts of macroeconomic policies. The IMF agrees in principle on the importance of poverty and social impact analysis (PSIA) but has been slow to use it.

In particular, strategies produced so far have not focused sufficiently on policies that would boost underlying growth rates, and help the kind of growth that benefit the poor.

Most of the Poverty Reduction Strategies produced to date have focused on social investment programmes in health and education. Far less attention has been given to policy changes which support growth, making it easier to set up and run small businesses and providing the infrastructure needed - particularly in the area of agriculture, the most important sector in most PRS countries.

These areas are starting to receive more attention. Unless they do, it is hard to see how the PRSP approach will deliver its expected benefits.

Finally, I should mention the third essential leg of the Monterrey compact: trade.

Developing countries undertook to implement reforms and improve governance. Developed countries, for their part, undertook to support such policies with greater and more effective aid. Developed countries also committed themselves to support the process by providing market access, particularly for agricultural and labour intensive products, which are crucially important to developing countries.

The World Bank's Overall Trade Restrictiveness Index shows that the combined effect of industrial country tariffs and subsidies impose the equivalent of an average 25% tariff on agricultural exports from developing countries. Therefore, a successful PRSP approach - and indeed success in meeting the MDGs - hinges critically on a successful outcome to the Doha development round.

So the jury is still out. In some respects, the PRSP approach has catalysed changes that hold great promise, in donor behaviour as well as country policies. But there are lessons from experience so far that point to key areas for action if the approach is to succeed. We are active in the Commonwealth in assessing past experience and seeking to help improve the process.

If the PRSP approach develops in the ways I think it should, I believe it really can transform the business of development - for the better.

This feature is appears courtesy of Panos Features