Chapter 2

Section 2

4. PRSP and MDGs

PRSP

As stated in Part I (refer for details), the background to PRSP and the MDGs was criticism of the structural adjustment programs (SAPs) that were the development approach of the 1980s and 1990s. The SAPs attempted to deal with development issues by improving the macroeconomic policies of developing countries, reducing government intervention as much as possible, and promoting income increases through revitalization of the private sector. Beginning in the 1980s, the international community, in particular the IMF and the World Bank, provided a variety of assistance to developing countries implementing these programs.

However, now it is thought that the benefits of the SAPs were extremely limited. The cause of this is sought in the Policy Framework Papers (PFPs) formulated by the governments of developing countries, a conditionality attached to the SAPs. It has been observed that although a large number of polices were recorded along with implementation deadlines in the PFPs, because they were essentially a conditionality attached to the SAPs in a form which did not include sufficient ownership on the recipient country side, in actual fact many of the policies were never implemented.

In addition to this, most low-income countries, primarily in Africa, have a weak capacity for formulating development plans to effectively combine project-type assistance from the donor countries designed to improve individual issues and they also have insufficient monitoring and evaluation capacity, etc. And due to the reality that they have weak public financial management capacity for appropriately allocating the necessary state budget to increase the effects of development, the effects of assistance did not increase.

In this context, there has been a spreading awareness that in order for development assistance to contribute to poverty reduction, it is necessary to shift from the former policies that place importance on economic growth to policies placing importance on comprehensive measures including distribution of income, human development, good governance, etc. As a result of these developments, at the Annual Meeting of the International Monetary Fund and the World Bank in October 1998 an approach called the Comprehensive Development Framework (CDF), which aimed for both macroeconomic stability of recipient countries and development with a balance between structural, social and human aspects, was advocated by President of the World Bank James Wolfensohn. PRSPs are formulated and implemented by each developing country based on the CDF approach.

PRSPs are economic and social development strategies placing the focus on formulating the three to five year policies necessary to achieve poverty reduction. In the Joint Development Committee and in IMF’s Interim Committee at the time of the Annual Meeting of the International Monetary Fund and the World Bank in September 1999, it was decided that the more than 70 Heavily Indebted Poor Countries (HIPCs) and countries targeted by the International Development Association (IDA)²¹ should be asked to prepare PRSPs as a condition of debt relief and IDA funds provision. Under the principle of ownership by the government of the recipient country and with the participation of a wide range of stakeholders such as donor countries, international organizations, all of civil society including the poor, NGOs, the private sector, etc., in the PRSP formulation process, the state of poverty and its causes are analyzed, goals and indicators are established, development strategies are constructed, and monitoring and evaluation methods, etc. are determined. And the recipient country is required to draw up a Mid-Term Expenditure Framework (MTEF), a medium-term budget allocation plan based on the PRSP, in order to more realistically implement the PRSP. In addition, monitoring and evaluation of the progress of development and validity of the strategy is carried out every year with the participation of related organizations, including assistance organizations, and the PRSP is revised as required by the actual conditions in the recipient country. In this context, it is desirable for donor countries and international organizations to provide support based on the PRSPs which were formulated and implemented with the wide participation of stakeholders.

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Recent Movements Surrounding PRSPs

As of the end of November 2003, final edition PRSPs had been formulated by 35 countries and interim PRSPs had been formulated in 47 countries. When the PRSP process initially commenced, there was a tendency for too much importance to be placed on social development sectors, such as education, health and medical care, etc. with a view to achieving the direct reduction of poverty. However, in recent years, because PRSPs have been formulated in a large number of countries with different socioeconomic conditions, the content of the PRSPs has diversified for each country. For example, in Viet Nam and Mongolia, PRSPs placing more priority on economic growth have been formulated. In response to the formulation and implementation of increasingly diverse PRSPs, Japan is providing support tailored to conditions in each recipient country. For example, Japan has demonstrated an initiative to introduce an economic infrastructure element to the CPRGS, Viet Nam’s PRSP. (Refer for details.)

Moreover, as PRSPs have been formulated in a large number of countries and in a few countries the first PRSP period has been completed and phase 2 entered, the interest of the international community is moving from PRSP formulation to the effective implementation of development based on the PRSPs. Currently, there is increasingly vigorous discussion in the international community concerning how to implement the PRSPs more efficiently. Issues being discussed include how to improve coherency between the sector development programs, which are the action plans for each priority sector of the PRSPs, and the PRSPs, how best to go about monitoring and evaluation in order to appropriately measure the progress of the PRSPs and amend the plan as necessary, how to strengthen the public financial management capacity of the governments of the recipient countries in order to realize the PRSP strategy, and how to achieve the effective coordination of ODA and the private sector. In particular, strengthening the public financial management capacity of recipient countries is an extremely important element not only for improving the coherency of the PRSP and the program strategy for each sector, but also for clarifying the strategy of the PRSPs which tend to be very general and lack clear prioritizing of issues. For this reason, not only international financial organizations such as the World Bank and the IMF but also donor countries are placing importance on strengthening the public financial management capacity of recipient countries and a variety of discussions are under way about how best to implement assistance to that end.

The Relationship Between the PRSPs and the MDGs

As previously stated, the MDGs put in place the basic conditions for the future prosperity of the human race, and are positioned as important shared goals of the entire international community. They establish clear quantitative goals concerning poverty reduction, primary education, health and medical care, gender, the rights of children, the environment, etc. and set deadlines for the achievement of those goals.

On the other hand, as stated above, it was decided that the HIPCs and countries targeted by the IDA should be requested to prepare PRSPs as a condition of debt relief and IDA funds provision. However, it is being indicated that poverty is not simply an income issue, but rather a multifaceted issue and therefore that a comprehensive development approach is necessary and so PRSPs are now being used as a method for coordinating assistance over all development issues in developing countries.

In particular, it has been argued in recent years that efforts to achieve the MDGs and the efforts of concerned countries in implementing PRSPs should be integrated. For example, in the World Bank/IMF Joint Development Committee Communiqué issued at the committee’s meeting held in September 2003, it was stated that it is necessary to make efforts to more closely coordinate implementation of the PRSPs and achievement of the MDGs. With respect to this point the important issue is to localize the MDGs to match the conditions in each country (i.e. to take into account local conditions and replace international goals with country level goals). Specifically, by agreement the deadline for achieving most of the MDGs is 2015 but it is necessary to replace these goals with the achievement goals and indicators in the PRSPs which are formulated in each country with a first phase of three years in most cases.

It is necessary to survey local conditions and process the statistics to localize the MDG indicators, but the actual situation is that it is frequently difficult for low-income countries that often have limited survey and statistics processing capacity to carry out sufficient surveys on their own. For this reason, in the formulation and implementation of PRSPs, along with coherency with the MDGs, deep involvement in the establishment of indicators and the monitoring of progress by the international community, including international organizations such as the World Bank, UNDP, etc. and donor countries such as Japan is required.

Japan’s Approach to PRSPs

Based on recent international trends in assistance, in the new ODA Charter, Japan adopts the strengthening of collaboration with the international community, including international organizations and other donor countries, as one pillar of its basic policies and makes poverty reduction one of its priority issues.

Japan, from a medium and long-term perspective, is participating in a series of activities centered on the PRSPs as actively as possible. And Japan is implementing assistance with the awareness that it is necessary for it to do so based on the PRSPs in order to more effectively implement ODA. Based on this awareness, Japan has established local ODA task forces in 54 countries in order strengthen local assistance strategy formulation functions. The local ODA task forces are exchanging views and information and revitalizing collaboration in assistance implementation with the governments of the recipient countries, other donor countries, other concerned organizations, etc. Japan intends to continue these efforts in future.

In order to steadily realize the MDGs, it is desirable for developing countries to localize the MDGs and to formulate PRSPs designed to achieve the goals tailored to the conditions faced by each country. The developing countries are each placed in a different environment with respect to their level of poverty, financial situation, and administrative capacity. When localizing the MDGs, it is important to reflect the unique environment of each country. And it is important to rank, by priority, the policies incorporated in the PRSP. Japan believes that PRSPs are essentially compilations of this series of studies and intends to actively contribute to the implementation of surveys, etc. in the establishment of PRSP indicators, etc.

PRSPs formulated in this way are also important from the perspective of effectively and efficiently utilizing financing. As already stated, a number of people have indicated the necessity of additional financing for development in order to achieve the MDGs (Refer for details), but to achieve the MDGs it is not enough to simply expand the quantity of assistance. It is essential that appropriate policy management be carried out based on PRSPs, which have been localized and have had policies prioritized as described above and it is important to increase the capacity of the governments of developing countries to that end.

Concerning the emerging trend to place importance on economic growth in the PRSP process, Japan has been asserting this position all along. It has already been stated that due to Japan’s initiative, an element of economic infrastructure was introduced into the CPRGS, the PRSP of Viet Nam. (Refer for details.)

In order to resolve the issues that have emerged in the transition from the formulation of the PRSPs to the implementation stage, for example the enumeration of wide-ranging policies, the formulation of excessively ambitious policies, etc., it is necessary to do careful budget estimates for each policy incorporated in the PRSP and to work to ensure coherency between the annual budget and the medium-term financial plan. And Japan believes that in addition, it is necessary to conduct careful studies of whether or not the strategy can be realized in light of the macroeconomic balance and the situation of public debt. The PRSPs are reviewed and revised as necessary in the implementation process and for that reason, monitoring to accurately measure their progress is essential. It has already been stated that in order to develop an MDG-related database for this monitoring, the World Bank and the UN have been taking coordinated measures primarily supported by Japan. (Refer for details.)

21. The IDA is an organization established by the World Bank. The IDA provides assistance to the developing countries under more favorable lending conditions than normal through the World Bank. The IDA provides loan and grant aid to developing countries that cannot receive financing under the normal lending conditions of the World Bank and other organizations.