To gain access to debt relief and, increasingly, other forms of financing from international financial institutions (IFIs), developing countries must complete Poverty Reduction Strategy Papers (PRSPs) approved by those IFIs. Emerging in the late 1990s after the Asian financial crisis, PRSPs were promoted as a new, empowering method of boosting growth and cutting poverty. But are they delivering the local benefits that were promised?
This article, published in World Development, is a contribution to the PRSP review announced by the World Bank and International Monetary Fund in 2001. The authors argue that the review is too limited, and should be widened to consider PRSPs in the context of the global political economy. Here, PRSPs are identified as an instrument of ‘inclusive’ liberalism. They represent a new policy convergence in which governments and agencies from both developed and developing countries co-operate to create the ideal governance conditions for international finance and investment. The result is a technical and juridical approach that, as demonstrated by the case of Uganda, limits local options, undermines democracy and imposes heavy costs.
In Uganda, where full democratic decentralisation was implemented in 1997, debt relief and other funds to support poverty reduction programmes have been channelled from national to local level via a poverty action fund (PAF). The PAF has undercut local democracy in the following ways:
- Donors have preferred to channel money into the social sector, improving school attendance and public services, but leaving agriculture under-resourced.
- In contrast to the district development program (DDP) financed by the United Nations, where funds are transferred to local government with few conditions, PAF funds must be used for pre-defined purposes, restricting local autonomy.
- The conditionality of the PAF has boosted the dominance of central government, which dispenses the funds, and created a big administrative burden at the local level.
- Increased reliance on central government for funds and allocation decisions has weakened local ownership of poverty reduction, as well as local governance.
Uganda’s experience clearly demonstrates local subordination to the technical structures of the PRSP and debt relief process. The main cost is the opportunities that are lost as central and local governments channel resources into meeting those technical requirements. Decentralisation is only effective where the legitimacy of local authorities depends on what they do with locally raised resources. Yet the interference of global and state institutions implicit in PRSP works against this. To improve the current poverty reduction approach:
- IFIs and their backers should make it clear that developing countries are not required to stick to narrow blueprints.
- Local governments must be able to inform IFIs about the negative impact of certain frameworks.
- PRSP policy should be shaped to allow for a trade-off between local and global knowledge and competition for legitimate ownership.
