42949 FAST TRACKBRIEF MARCH 6, 2008 To: Robert Zoellick Based on the IEG report Ethiopia Country From: Vinod Thomas, DGE Assistance Evaluation, which is scheduled for cc: MDs, VPs, EDs discussion by the CODE Sub-committee on March 17, 2008. Ethiopia Country Assistance Evaluation, 1998-2006 EthiopiaisamongtheWorldBank'slargestIDA-eligibleborrowersinSub-SaharanAfrica,withacountry portfolio comprising 22 active projects for a total net commitment of US$2 billion as of end-FY07. The Bank's overarching objective during the period under review (FY98-FY06) was to support the Government in its efforts to reduce poverty by helping to: (i) promote pro-poor growth, (ii) advance private sector development, (iii) enhance human development, (iv) respond to the needs of post-conflict and emergency rehabilitation, and (v) improve governance. TheevaluationfindsthatIDA'scountry strategyforEthiopiaandthe associatedprogramduringthe periodunder review were relevant to the country's development needs, which included the need to manage (and over time reduce the country's exposure to) frequent exogenous shocks and a fragile socio-political environment, especially following the post-election violence in 2005. IDA's strategy and program were also aligned with those of other development partners (DPs). The efficacy of the program was somewhat below average when measured against the goals envisaged at the outset. There were positive outcomes inter alia in post-conflict rehabilitation, economic growth, roads development, education and health. In contrast, the outcomes were less favorable in the key areas of private sector development and governance, which are crucial to sustaining growth over the longer-term and ensuring that its benefits are widely shared. Inhindsight,theefficacyof the program might havebeengreaterhadmore attentionbeen paidto:(a)developing and sustaining consensus among country team (CT) members around key policy issues and directions, (b) more candidly recognizing differences with the Government on certain key issues of policy and seeking ways to bridge gaps, and (c) ensuring a more comprehensive and occasionally more demanding approach to the governance dialogue, especially during the post-election turmoil in 2005. Finally, the efficiency of the program was not always commensurate with the volume of financial support or the efforts expended. Overall, the outcome of IDA assistance during the review period is rated moderately unsatisfactory. Goingforward,IEGrecommendsthatIDA:(i) tightenthelinkbetween thequalityof thepolicydialogueand resource transfers in support of particular reform areas; (ii) take a clear and consistent position on governance, including binding governance-related constraints on private sector development and hence on prospects for sustaining pro-poor economic growth; (iii) improve its knowledge base on how social, political and cultural factors can influence the effectiveness of its support, notably at the local level; and (iv) extend and deepen partnerships with non-traditional in-country stakeholders. Background is endowed with a rich and distinctive cultural heritage. The country has experienced a recent history of autocratic Ethiopia is Sub-Saharan Africa's second most populated rule, characterized by large disparities across status, class, country (after Nigeria) with 71.3 million inhabitants, and it ethnicity and gender lines, as well as two decades of Task Manager: James Sackey (202) 473-8171 Senior Manager, IEGCR: Ali M. Khadr (202) 458-7860 · Director, IEGWB: Cheryl W. Gray (202) 473-9188 military rule and a civil war. Ethiopia's per capita income both outcome in terms of the realization of development of US$160 (Atlas method) is about one-fifth of the objectives and sustainability) but below the Bank-wide average for Sub-Saharan Africa (SSA). A recent poverty average. During FY98-06, IEG reviewed 21 closed IDA- assessment by the Bank suggests that the incidence of financed projects in Ethiopia, representing US$1.95 billion consumption poverty fell from 45.5 percent in 1996 to in commitments. Outcome was rated satisfactory for 72 about 37 percent of the population in 2006. percent of the closed projects (by commitment), lower Ethiopia joined the World Bank in 1945 and is also a than the Bank-wide average of 80 percent but above the member of IFC and MIGA. Beginning with two credits average of 67 percent for the Africa Region. Fifty-six for roads and the financial sector in 1950, a total of 103 percent of operations (again by commitment) was rated credits and grants have been approved to date for about sustainable, compared to 61 percent for the Africa Region US$5.8 billion in commitments. As of end-FY07, the and 78 percent Bank-wide. Bank's active portfolio comprised 22 projects with Analytic Work. In several cases, analytical work was commitments of US$2 billion, making Ethiopia one of the highly relevant and served as the basis for IDA's country World Bank's largest borrowers in SSA. dialogue and project development. The share of IDA's Bank assistance during the FY98-FY06 period was administrative budget allocated to economic and sector delivered under two country assistance strategies (CASs) work (ESW) for FY98-FY06, at about 10.7 percent, was and two interim strategies. The CASs and interim slightly below that of the Africa Region's 12 percent, strategies, developed by the Bank between 1997 and 2006, although this does not seem to have affected either the reflected in large measure the Bank's efforts to adjust to scope of ESW or its quality, as significant co-financing major events. The 2000 Interim Support Strategy (ISS) was made available by other DPs. Nevertheless, while responded to the 1998 Eritrean war, which had rendered ESW was generally of good quality, it could have been the 1997 CAS obsolete. The 2003 CAS was developed in used more effectively to flag and address policy close collaboration with the Government and was disagreements with the Government. anchored to the Sustainable Development and Poverty Aid Coordination. IDA's engagement with other Reduction Program (SDPRP), Ethiopia's Poverty development partners (DPs) has been strengthened Reduction Strategy Paper (PRSP). But the post-election substantially since the creation of the Development crisis in 2005 once again necessitated the development of Assistance Group (DAG) in 2000 (co-chaired by IDA and an Interim CAS (ICAS). Despite the lack of specificity in UNDP). Coordination among DPs has improved, as has selected benchmarks and targets, the major pillars of IDA the extent of alignment with the Government's priorities. assistance were relatively clear and were relevant to the But in the process, IDA's and DPs' leverage does not country's needs throughout the evaluation period. They appear to have increased in reform areas where dialogue is consisted of supporting the Government in its efforts to more challenging, such as governance. Beyond bilateral reduce poverty by helping to (i) promote pro-poor and multilateral DPs, IDA has begun to strengthen its growth, (ii) encourage private sector development, (iii) contacts with local organizations (universities, think-tanks, enhance human development, (iv) respond to the needs of CSOs, etc.). Building on this initial effort to forge durable post-conflict and emergency rehabilitation, and (v) partnerships with such organizations could also help improve governance. strengthen IDA's knowledge of local conditions and how Lending and Portfolio Management. During the they have evolved over time, including the extent to which period FY98-FY06, IDA committed a total of about rural communities have "voice" and are able to hold local US$3.3 billion in new financial support to Ethiopia, officials accountable for public service delivery. compared to a planned amount of US$3.4 billion in the Key Findings of the Evaluation high case scenarios of the 1997 CAS and the 2003 CAS taken together. The minor shortfall was the result of IDA assistance during the review period had positive wartime disruption of the 1997 assistance program and outcomes in several areas, including post-conflict and the post-election turmoil of 2005, which resulted in the emergency rehabilitation, roads development, education cancellation of the third Poverty Reduction Support and health, public financial management and donor Credit and in the scaling down and restructuring of a few coordination. In contrast, the outcome of IDA support other projects. Part of the shortfall was made up through was less favorable in private sector development and additional commitments under the 2000 ISS and the 2006 governance. Conclusions regarding Bank program ICAS. outcomes are, however, sensitive to the data source used, as inconsistencies in data between the Government and The IEG ratings of Ethiopia's closed projects were close other sources (notably of cross-country data) appear to be to the average for the Africa Region (taking into account relatively frequent. To address these issues, the Task Manager: James Sackey (202) 473-8171 Senior Manager, IEGCR: Ali M. Khadr (202) 458-7860 · Director, IEGWB: Cheryl W. Gray (202) 473-9188 Government could consider enlisting support from a The Government maintained prudent macroeconomic suitable source of statistical expertise to review and certify management, which likely supported faster economic its data compilation methods. growth towards the end of the review period. However, it is unclear how much of the improved macroeconomic Pro-poor Growth. Economic growth averaged about six management owes to IDA support rather than the IMF's. percent a year during the review period, just shy of the seven percent envisaged in the SDPRP. There are signs As regards the outcome of Bank Group assistance for that the underlying trend is improving, with the last three improvements in the investment climate, there was some years of the review period (and a further year after it) progress during the review period in business licensing, witnessing very substantial growth, although questions customs clearance, the tax regime, and labor and other remain regarding the consistency of the data. While it is business regulations. Nevertheless, there was little difficult to attribute this outcome to IDA support, the fact progress during the review period on some of the most that recent growth has been driven inter alia by the rural binding constraints to the expansion of private sector sector, one of the focal points of IDA assistance, suggests activity (such as unevenness of the "playing field" and the at least some likelihood that the Bank played a role in the dominance of parastatals in certain areas). Although a growth. Competition Commission was established and began functioning, there are few signs to date that it is tackling There appear to be some favorable elements in the the reportedly common problem of preferential treatment fundamentals, though the signs are not always clear. by the Government of "party-statals" (i.e., privately Changes over time in agricultural productivity, a key driver owned but party-affiliated businesses). Similarly, while the of pro-poor transformation of the sector, remain unclear pace of privatization may have accelerated after 2005/06 because of inconsistent data sources. Ongoing reforms in following a streamlining of procedures and guidelines, the land certification and decentralization are likely to have a outcome falls short of original expectations. positive effect in support of pro-poor transformation, though of uncertain timing and magnitude. Expenditure in Finally, although there were gains in the expansion of road pro-poor sectors (especially health and education) infrastructure and in its management, the outcomes of increased rapidly during the period, largely with the IDA support for other areas of infrastructure (power, support of the IDA and other DPs. water, transport, telecommunication, etc.) were less clear- cut. Overall, because some of the binding constraints Overall, the declining poverty rate (especially in the rural facing PSD (competition, barriers to entry and areas) and improvements in key social indicators linked to infrastructure) were at best only partially addressed, the service delivery point to some progress under the outcome of IDA assistance for private sector Government's pro-poor growth strategy, which IDA and development during the review period is rated moderately other DPs have supported. Nevertheless, there are unsatisfactory. This said, there are signs that beyond the important question marks on the longer-term review period (i.e., in the last two years) the pace of sustainability of the newfound growth. One is that the reform may be picking up. last few years have been spared major droughts, which history suggests will strike again, pulling down growth Human Development. IDA assistance helped the averages over time. Another is to what extent the pace of Government meet several of its goals in terms of economic growth is being fueled by overseas development extending access to health and education services. IDA assistance (ODA), as the sustainability of this is unclear. support for health facilitated progress consistent with the Given the uncertainty about the sustainability of growth, benchmarks in both government and Bank strategy the outcome of IDA support for promoting pro-poor documents, although significant shortcomings under two growth is rated moderately satisfactory. of IDA's main interventions (the Health Sector Development Project and the Mulitisector HIV/AIDS Private Sector Development. The Bank sought to Project) cast doubts on the outcome of IDA assistance, encourage private sector development (PSD) through which as a consequence is rated only moderately support for a stable macroeconomic framework, satisfactory. The expansion in educational enrolment was improvements in the investment climate (including striking, although several challenges relating to low quality strengthened competition and privatization), and the as well as regional and gender disparities have yet to be expansion of infrastructure. The latter was directed mainly resolved. The outcome of IDA support for education is at strengthening transportation (through improvements in rated satisfactory. In water and sewerage, IDA support the road network), energy and telecommunications. facilitated some improvements in access to potable water and sanitation services, but it remains unclear (owing to inconsistent data sources) whether there has been Task Manager: James Sackey (202) 473-8171 Senior Manager, IEGCR: Ali M. Khadr (202) 458-7860 · Director, IEGWB: Cheryl W. Gray (202) 473-9188 sufficient progress towards meeting the relevant MDGs. during the review period. In sum, IDA assistance for civil The outcome of IDA support for water and sewerage is society empowerment fell short of achieving its goals for rated moderately satisfactory. Overall, the outcome of enhancing citizen participation and is rated unsatisfactory. IDA support for human development is rated moderately Given the importance of strengthening accountability satisfactory. mechanisms for effective long-term governance reform, including public financial management and decentralized Post-Conflict and Emergency Rehabilitation. IDA service delivery, it is unclear to what extent the progress responded in a timely manner to Ethiopia's needs achieved during the review period in public sector following the two-year war with Eritrea and a severe management is sustainable without deeper governance drought in 1998/99 by developing the Emergency reforms. Balancing the uneven achievements across the Demobilization and Reintegration Project (EDRP) under various areas, it is IEG's judgment that the overall the 2000 Interim Support Strategy. The EDRP achieved outcome of IDA support for governance reform has been most of its objectives of demobilization and reintegration moderately unsatisfactory. of veterans. IDA support also helped develop instruments to enhance food security, including the use of public In arriving at an overall rating for the outcome of Bank works and income support initiatives, but the precise gains assistance, IEG weights the ratings for the individual in terms of lowering families' exposure to food insecurity strategic goals according to their relative importance to remain unclear. In addition, without access to significant country outcomes. Governance has consistently been off-farm income sources and alternative coping considered as a key goal in the Bank's country strategy mechanisms, the sustainability of food security documents for Ethiopia, and IEG also considers it as a improvements is unlikely to be assured. The outcome of key goal, as it underlies the achievement of the other goals IDA support for post-conflict and emergency programs is and is closely intertwined with private sector development rated moderately satisfactory. and public service delivery. Given the importance of Governance. IDA intended to support Ethiopia's governance and accountability, as well as private sector governance program by helping to: (i) improve public development, to sustained long-term growth and poverty sector management, (ii) support the empowerment of reduction in Ethiopia, these outcomes received somewhat communities, and (iii) strengthen accountability higher weighting in the overall evaluation, resulting in a mechanisms. IDA support for public sector management rating of moderately unsatisfactory for the outcome of IDA's reforms was substantial and involved considerable effort country program as a whole. and ingenuity. Many intermediate outputs/outcomes were Lessons achieved, including the establishment of a sophisticated framework of intergovernmental fiscal arrangements, a IDA's experience in Ethiopia over the past decade major increase in the transfer of revenue to local suggests several lessons, consistent with those learned governments, and a large amount of training at all levels. elsewhere: The outcome of IDA support for public sector management reforms is rated satisfactory. Achieving pro-poor growth depends in large part on the creation of income-generating opportunities for the As regards IDA support for "the empowerment of poor. In this regard, it would have been advisable to communities in the utilization of public resources" (2003 put greater emphasis on improving the policy CAS), progress in channeling increased resources to environment in order to enhance non-farm income- communities was achieved through support for the earning opportunities in rural areas, where the majority decentralization process, and more specifically through of Ethiopia's poor live. Similarly, constraints on PSD IDA's post-2005 lending modalities. Nevertheless, it is and therefore on pro-poor growth could have been not clear to what extent local control of resources and identified more centrally as governance concerns. civil society involvement have increased, as envisioned in IDA's effectiveness is hampered in the absence of the CASs, and to what extent these vary by region. More consensus with the Government on the needed importantly, progress towards IDA's main objective of direction and pace of reform. In Ethiopia, the Bank supporting the empowerment of communities through Group would likely have been significantly more improved quality of representation, increased effective had it been more candid about major policy accountability, and greater participation of civil society differences with the Government and put forward was only partially achieved at best. Few direct measures to realistic ways of managing these differences (inter alia bolster citizen demand for accountability, essential for through ESW), rather than making the unrealistic improved service delivery, were taken, although there may assumption that the Government would proceed to have been some indirect advancement in decentralization implement reform measures about which it was Task Manager: James Sackey (202) 473-8171 Senior Manager, IEGCR: Ali M. Khadr (202) 458-7860 · Director, IEGWB: Cheryl W. Gray (202) 473-9188 expressing reservations. This could have avoided IDA needs to tighten the link between the scale of repeated deferral of key actions, most notably in the key resource transfers in support of particular areas and areas of private sector development and governance the quality of the policy dialogue. The "return" on covered by the PRSC program. IDA support, or its efficiency, has been perceived in various evaluations (including by the Country Team) to be Where major--and unbridgeable--differences of view lower-than-anticipated. IDA should consider restricting its constrain broad-based engagement by the Bank Group, interventions to policy dialogue and/or analytic work it may still be possible to make progress in selected (rather than lending) in key areas where there are clear areas if committed counterparts ("champions") can be policy disagreements with Government (which ESW can found who can sustain momentum and see reform help to address more frontally). The Bank made some programs through to fruition. In Ethiopia, instances of adjustments of this type during the review period (e.g., by this arose with the roads program as well as with the cancelling plans to prepare a telecommunications project framework for fiscal transfers to local governments. and reducing the total amount of PRSC I by one-fifth in Identifying such entry points while remaining realistic response to less-than-expected delivery on the PSD about prospects for broader agreement is a key reform agenda), but more ambitious adjustments could challenge for country programs in weak or difficult have avoided repeated backsliding in some areas. governance environments. IDA needs to take a clear position on governance by Consensus within the Bank Group's Country Team, highlighting the constraints on PSD (and thus future including full engagement of sector and local office pro-poor growth prospects) as governance issues. staff, is essential for a sound dialogue with the client Failure to do so may have the unintended consequence of and for effective design and delivery of needed support. weakening the quality of the Bank Group's governance In the Ethiopia program, a shortage of open dialogue analysis and assistance and ultimately the extent to which within the entire Country Team sometimes limited the the constraints on pro-poor growth are adequately ability of the Bank Group to achieve this needed identified and addressed. consensus, particularly during the challenging post- Because an important part of IDA's program now election period of 2005. focuses on channeling support directly to local In countries with weak administrative capacity, Bank communities, the Bank Group needs to continue to Group projects and programs need to be modest in improve its knowledge of whether and how social, scale and in breadth and depth of policy content to political and cultural factors influence the impact of match the Government's implementation capacity. This its support. In particular, the Bank Group needs to too would help avoid repeated deferrals and "recycling" continue its analytic effort to develop a better of reform measures. The design of IDA assistance in understanding of the constraints to voice and participation Ethiopia was sometimes overly complex and beyond the at the local level, as an in-depth understanding of social capacity of the host institutions. cohesion, inclusiveness, and accountability at the community level is essential to designing effective While adverse shocks (such as droughts) can prolong interventions. Understanding the power structure at local aid dependence, effective aid coordination can foster levels, including the sources of the administrators' rapid recovery following shocks and ensuing crises. authority and the incentives they have for serving local residents, is very important, as the roles and actions of sub-district administrators can have a decisive influence Recommendations on the economic behavior of rural residents, as well as on IDA needs to seek consensus within the Country their access to public services. Team and between the Bank and the Government on IDA needs to continue its efforts to develop realistic reform implementation goals and targets. It partnerships with non-government stakeholders in is important to have both a clear understanding with the Ethiopia's development. IDA needs to work with local client and a clear consensus within the Country Team. It partners that traditionally may not have interacted closely is also important for IDA to assess in depth which reform with the Bank Group, including the media, measures it considers essential to meet the country's parliamentarians, and members of local councils, development and poverty reduction goals, and which academicians, nongovernmental organizations, and private measures are less essential. IDA can then calibrate its sector representatives. Effective prevention of famine, for support more effectively by focusing its lending on areas example, hinges on the free flow of information and where there are both country ownership and strong expression of views among a broad coalition that goes development impact. beyond the Government and a few development partners. Task Manager: James Sackey (202) 473-8171 Senior Manager, IEGCR: Ali M. Khadr (202) 458-7860 · Director, IEGWB: Cheryl W. Gray (202) 473-9188