THE WORLD BANK W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T 34335 2004 Annual Review of Development Effectiveness The World Bank's Contributions to Poverty Reduction OPERATIONS EVALUATION DEPARTMENT ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. OED assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T 2004 Annual Review of Development Effectiveness The World Bank's Contributions to Poverty Reduction 2005 The World Bank http://www.worldbank.org/oed Washington, D.C. © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved Manufactured in the United States of America The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Cover photo: Burkina Faso, schoolchildren on the way to school with their exercise books on their heads. Photo by Ron Giling/Lineair/Peter Arnold, Inc. ISBN 0-8213-6303-4 e-ISBN 0-8213-6304-2 Library of Congress Cataloging-in-Publication data has been applied for. World Bank InfoShop Operations Evaluation Department E-mail: pic@worldbank.org Knowledge Programs and Evaluation Capacity Telephone: 202-458-5454 Development (OEDKE) Facsimile: 202-522-1500 E-mail: eline@worldbank.org Telephone: 202-458-4497 Facsimile: 202-522-3125 Printed on Recycled Paper Contents vii Acknowledgments ix Foreword xi Executive Summary xii Main Messages xvii Acronyms and Abbreviations 1 1 Reducing Poverty 1 Patchy and Uneven Progress in Reducing Poverty 3 Economic Growth and Poverty Reduction 4 The Bank's Strategy for Assisting with Poverty Reduction 6 The Focus of this Review 7 2 Assessing the Bank's Poverty Focus at the Corporate Level 7 Country Business Models and Global Programs 7 Low-Income Countries 9 Middle-Income Countries 10 Global Programs 10 Country Assistance Strategies 10 Instruments 10 Lending 11 Analytical Work 15 3 Development Effectiveness at the Country Level 15 Overall Growth, Poverty, and Bank Assistance Outcomes 17 Major Determinants of Satisfactory Outcomes 17 Macroeconomic Stability 19 Relevance of Bank Country Strategies 22 Country Ownership of the Reform Agenda 23 Economic and Sector Work 25 Poverty Monitoring 27 4 Building the Climate for Investment, Jobs, and Sustainable Growth 27 Institutions and Economic Growth i i i 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S 29 Bank Strategies and Assistance 29 Sector Strategies 30 Analytical Work 31 Bank Lending 32 Key Constraints to Achieving Positive Results 32 Domestic Political Economy 34 Public Sector Capacity 36 Public Sector Corruption 38 Extractive Industries 39 5 Empowering Poor People to Participate in Development and Investing in Them 39 Increasing the Capabilities of the Poor 40 Social Sector Expenditures and Poverty Reduction 40 Reaching and Responding to the Poor 41 Output Targets and Sustainability of Outcomes 42 Public Expenditure Reforms and Social Sector Performance 43 Quality of Analytic Work 43 Empowering the Poor 44 Implementation of Social Development Activities 44 The Poverty Impact of Social Development Interventions 45 Sustainability of Social Development Activities 45 Decentralization 46 Participatory Activities in Bank Assistance 49 6 Conclusions 53 Appendixes 55 A: Project Performance Results 67 B: Economic Growth and Income Poverty 71 C: Statistical Tables 105 D: Management Comments 109 E: Chairman's Summary: Committee on Development Effectiveness (CODE) 111 Endnotes 117 References Evaluation Essentials 2 Evaluation Essentials 1 8 Evaluation Essentials 2 16 Evaluation Essentials 3 28 Evaluation Essentials 4 40 Evaluation Essentials 5 Boxes 4 1.1 The 1991 Poverty Strategy Improved the Bank's Operational Work 8 2.1 The Poverty Reduction Strategy Initiative Has Added Value to the Poverty Agenda . . . But Remains a Work in Progress 11 2.2 Bank Country Programs Could Strengthen Their Results Focus 13 2.3 Poverty Assessments Are a Useful Tool, but Can Be Improved 19 3.1 Appropriate Sequencing of Macroeconomic Reforms Is Important for Success i v C O N T E N T S 21 3.2 The Bank Has Had Difficulty Addressing Banking Reform in China 23 3.3 The Bank Needs to Be Prudent in Turnaround Situations 24 3.4 Good Country Knowledge Is Especially Important for First-Time or Renewed Borrowers and for Stop-Go Reformers 33 4.1 Microfinance Is a High-Potential Poverty-Reduction Tool That Is Difficult to Scale Up 35 4.2 Pakistan and Bangladesh: Government Commitment Makes All the Difference 35 4.3 What a Difference a (Near) Crisis (Sometimes) Makes . . . 37 4.4 Mozambique Takes an Integrated Approach to Reforming Its Public Sector 42 5.1 Inputs Do Matter . . . in the Context of Sector Reform 43 5.2 Global Disease Control Programs Are Stretching Health Delivery Systems 44 5.3 Social Development Themes Encompass a Wide Range of Activities 46 5.4 Targeting the Poorest Households Is a Difficult Challenge 47 5.5 Participatory Projects Do Not Necessarily Empower the Poorest Figures 2 1.1 Extreme Poverty Has Declined in Asia and Increased in Africa 3 1.2 Economic Growth Has a Strong but Variable Impact on Poverty 3 1.3 Rapid Economic Growth Remains Elusive for the Majority of the Bank's Client Countries 9 2.1 Post-Conflict Countries Received Very Different Levels of Bank Support 12 2.2 Bank Lending for Human Development Has Grown the Most Rapidly Since 2000 12 2.3 Investment Projects Emphasizing Human and Social Development and Protection Themes Have Had the Highest Outcome Ratings 16 3.1 Poverty Reduction Is Strongly Associated with Economic Growth 17 3.2 Even Some of the Modest and Poor Performers Had Satisfactory Outcomes Measured against Relevant CAS Objectives 20 3.3 CASs in Transition Countries Were Later in Adopting an Explicit Poverty Focus 20 3.4 OED Found Most Country Assistance Strategies Substantially or Highly Relevant 21 3.5 Bank Lending Has Generally Reflected Country Circumstances 28 4.1 How a Positive Investment Climate and Quality Public Sector Institutions Contribute to Economic Growth and Poverty Reduction 29 4.2 The Quality of Public Sector Institutions Is Higher in the Good Performers and the Transition Countries 29 4.3 The Quality of Public Institutions Improved Markedly in the Transition Countries from 1996 to 2002 31 4.4 The Good-Performing Countries Borrowed Less from the Bank for Privatization 33 4.5 Lending for Infrastructure Services Has Rebounded in the Past Five Years 34 4.6 Investment Climate and Financial Sector Projects Have Been More Successful than Average v 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S 37 4.7 Public Sector Corruption Remains Deeply Rooted in All Three Groups of Countries 40 5.1 Bank Lending Has Increased Significantly for Education, Health, and Other Social Services 41 5.2 Social Sector Projects Generally Do As Well As or Better Than the Bank Average Table 5 1.1 Sustainable Growth and Empowerment: The Two Pillars of the Bank's 2001 Poverty Reduction Strategy v i Acknowledgments This review was prepared by a team led by Chris Philip Keefer, Ali Mansoor, Anil Markandya, Gisu Gerrard. The core team comprised Shonar Lala, Mohadjer, Tawhid Nawaz, Maryvonne Plessis- Mirafe Marcos, Rupa Ranganathan, and Robert Fraissard, Martin Ravallion, Sudhir Shetty, Mark Subrick. Sundberg, Hasan Tuluy, and John Underwood. Contributions from numerous OED staff are Peer review was provided by Jeffrey Hammer gratefully acknowledged. In addition, helpful and Ravi Kanbur. comments were received from the following The team was assisted in the production of the Bank staff: James Adams, Ipek Alkan, Luca Bar- report by William B. Hurlbut and Julia Akumu bone, Jan Bojo, Francois Bourguignon, Aline Ooro. Caroline McEuen edited the report for Coudouel, Todd Crawford, Brigitte Duces, Jean- publication. Jacques Dethier, Shahrokh Fardoust, Marisa The review was prepared under the direc- Fernandez-Palacios, Prem Garg, Nidhi Khattri, tion of Victoria Elliott, Manager of OEDCM. Acting Director-General, Operations Evaluation: Ajay Chhibber Acting Director, Operations Evaluation Department: R. Kyle Peters Manager, Corporate Evaluation and Methods: Victoria Elliott Task Manager: Chris Gerrard v i i Foreword T he central mandate and corporate mission of the World Bank is to fight poverty. Toward this end, the Bank provides finance, knowledge, and advice to borrowing member countries, while attempting to tailor the particular mix of these instruments to the challenges facing each country. The Bank has evolved a multidimensional approach to poverty reduction that goes beyond income to include human development, security, voice, and participation. The 2004 ARDE looks at the growth and poverty Regrettably, only about one-third of developing reduction experience of client countries and as- and transition countries have grown at more than sesses the contributions that Bank interventions 2 percent per capita for the past decade. have made, taking as its framework the Bank's 2001 poverty reduction strategy. The ARDE ex- The Bank's Strategy and Business amines how well the elements of the strategy re- Models spond to the needs of the poor, how effectively The Bank's 2001 poverty reduction strategy ap- the Bank is implementing the strategy, and the propriately highlights both the growth and social extent to which its efforts are having an impact. aspects of poverty reduction. The strategy's two pil- Like previous ARDEs, it draws primarily upon lars provide a workable operational framework for OED's evaluation findings regarding Bank proj- identifying and categorizing the Bank's interven- ects, country programs, global programs, and tions, but the two-pillar model tends to overlook in- sectoral and corporate initiatives. teractions between the growth and social aspects Worldwide, the number of people living on of poverty reduction, which can have important ef- less than US$1 a day has declined since the 1980s. fects on poverty outcomes, and has, in practice, paid But there have been stark differences in out- insufficient attention to issues of growth. Without comes among regions. Extreme poverty has de- growth, no sustainable poverty reduction is likely. clined dramatically in East Asia, especially in China. The Bank has tried to align its country busi- Outside of China, the proportion of people living ness models with the goal of poverty reduction, on less than US$1 a day declined from 32 to 23 but these models have not yet realized their full percent between 1980 and 2001, but the absolute potential. The Poverty Reduction Strategy Ini- number rose from 850 to 880 million people. tiative, for instance, which is designed to support Growth is the critical driver of poverty reduction. the low-income countries, embraces a multidi- i x 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S mensional view of poverty reduction. But most into the spotlight at both the global and country of the national strategies produced so far have levels. But it is difficult to attribute changes in gov- not considered the full range of policy actions ernance to the Bank's interventions. This makes needed for poverty reduction. With improve- it essential for the Bank to establish what it hopes ment, the Poverty Reduction Strategy Initiative to achieve from its interventions in this area, and has the potential to allow more effective Bank to begin to assess the impact of its work so far. support for poverty reduction. As a key element of its poverty reduction strat- At the two ends of the development spec- egy, the Bank supports a range of reforms to im- trum--in the low-income countries under stress prove the legal and regulatory environment for (LICUS) and middle-income countries--the Bank's private investment and job creation. These reforms business models need further work. How best to are organized under the overlapping agendas-- support LICUS countries remains a formidable with their own organizational arrangements--of challenge. Many middle-income countries--even private sector development and public sector re- though they have pockets of poverty and many form. The Bank could do more to harness the syn- "near-poor" citizens--have development goals ergies between these two closely related areas. that do not center on poverty reduction. The The Bank has encouraged its client countries to Bank should further elaborate its business mod- increase their levels of social expenditures as a key els to make them more fully consistent with poverty-reduction measure. But increasing the lev- poverty reduction in varying country settings. els of expenditures has not always ensured that serv- In participating in global programs, the Bank ices will reach the poor or will be responsive to their needs to focus on global policy issues that hin- needs. Outcomes have been better when inter- der poverty-reducing growth in its client coun- ventions have been linked to institutional reforms tries. It should strengthen the links between and support for capacity development, and when county operations and global programs to ensure anchored in high-quality analytic work. that global programs add value to poverty re- The Bank has promoted empowerment of the duction at the country level. poor by supporting social development activities. The Bank has been more successful where it Bank Interventions in Support of the has supported home-grown initiatives, and less Poverty Reduction Strategy successful where it has tried to start new initia- Many of the Bank's country assistance strate- tives. The sustainability of such approaches re- gies focus on the right issues for poverty re- mains weak. Project objectives need to be more duction, but the links between specific realistic about the potential to affect the social interventions and poverty outcomes are not well relationships that underpin poverty. articulated or measurable. This incomplete ar- ticulation of how country-level assistance helps Implications countries meet specific poverty objectives ham- The ARDE demonstrates that in the fight against pers an assessment of the impact of the Bank's poverty, the Bank already has, as key assets, a well- assistance supporting poverty reduction. Weak founded strategy and a range of instruments that country capacity for monitoring results on re- are targeted toward the strategy's main elements. ducing poverty adds to the challenge in select- To fully realize the potential of these assets, the Bank ing activities with the highest poverty payoff. should focus more sharply on demonstrating the Recognizing the importance of good gover- results of its interventions, so as to ensure that all nance in fostering growth and investment, as well dimensions of its work--at the global, country, as improved service delivery, the Bank has de- and project levels--are directed at specific, well- veloped a variety of tools to put governance issues defined, and monitorable poverty reduction goals. Ajay Chhibber Acting Director-General, Operations Evaluation x Executive Summary T he central mandate and corporate mission of the World Bank is to fight poverty. Toward this end, the Bank provides finance, knowledge, and advice to borrowing member countries, while attempting to tailor the particular mix of these instruments to the challenges facing each country. The Bank also helps to address global and regional issues, such as environmental threats and communicable diseases, but its primary focus remains at the country level--helping people to lift themselves out of poverty. The Bank's understanding of poverty has broad- The Bank's 2001 poverty reduction ened from a narrow focus on income poverty in strategy appropriately highlights both the the 1980s to the multidimensional concept used growth and social aspects of poverty today, which also includes human development, reduction security, voice, and participation. The Bank's 2001 poverty strategy built on the This year's Annual Review of Development Ef- three themes of the 2000/2001 World Develop- fectiveness (ARDE): The World Bank's Contri- ment Report: Attacking Poverty--promoting op- butions to Poverty Reduction, looks at the portunity, facilitating empowerment, and growth and poverty reduction experience of enhancing security. The strategy comprises two client countries. It assesses the extent to which pillars: Bank interventions have contributed to growth and poverty reduction and the effectiveness of 1. Building the climate for investment, jobs, and different types of interventions. The review uses sustainable growth the key elements of the Bank's 2001 poverty re- 2. Empowering poor people to participate in duction strategy to examine the extent to which development and investing in them. these elements respond to the needs of the poor, are actually being carried out, and are hav- Like the 1991 strategy, the current (2001) ing an impact. Like previous ARDEs, this review strategy regards sustainable and equitable growth draws primarily on OED's recent evaluation stud- as vital to generating both jobs and resources for ies, synthesizing and highlighting the findings of public services, and views private sector invest- these studies around a common theme--in this ment as the primary engine of poverty-reducing case, poverty reduction. growth. In addition, the current strategy broad- x i 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S M a i n M e s s a g e s · The Bank's 2001 poverty reduction strategy appropriately highlights both the growth and social aspects of poverty reduction. · The two-pillar model tends to overlook interactions between the growth and social aspects of poverty reduction. · The Bank faces challenges in effectively customizing its poverty reduction strategy to individual countries. · Bank country business models and global programs are not yet fully aligned with poverty reduction. · Linking the Bank's country-level interventions to poverty reduction will require a sharper results focus. · There is an urgent need to assess the impact of the Bank's work on governance. · The Bank could do more to harness the synergies between private sector development and public sector reform. · The Bank needs to demonstrate the poverty impact of its interventions on behalf of empowerment and human development. · The Bank's monitoring and evaluation framework is not sufficiently poverty focused. ens the view of poverty to include not just in- downplaying the role of certain sectors--such as come but also human development, security, infrastructure, rural and urban development, voice, and participation. It advocates an increased and environment--whose activities cut across focus on public sector governance and institu- and complement economic growth, empower- tional reforms that support a positive climate for ment, and service delivery. private sector investment, and that empower and foster the participation of the poor in the The Bank faces challenges in effectively conduct of public institutions and in the deliv- customizing its 2001 poverty reduction ery of public services. strategy to individual countries Since 2001, the Bank has changed some of its The Bank needs to apply its strategy based on de- business processes to help implement the strat- tailed country knowledge and an appreciation of egy. It has explicitly aligned the Bank Group's ef- the willingness and ability of each country to forts with the Millennium Development Goals, implement reforms. In countries that have in- developed a results-oriented corporate culture, stitutionalized good macroeconomic manage- and promoted country-owned development ment, the Bank is supporting governance and strategies in low-income countries through the institutional reforms to enhance the investment Poverty Reduction Strategy Paper (PRSP) ap- climate and improve service delivery. The Bank's proach. The Bank has also sought to improve its efforts have been more successful in countries instrument mix and to tailor development ap- that are politically stable; where there is strong proaches to different country circumstances by ownership of reform; where the executive, the relying on knowledge products and analytical legislature, and the bureaucracy are working for services. common purposes; and where the country has the administrative capacity to implement re- The two-pillar model tends to overlook forms. The Bank's efforts have been less suc- interactions between the growth and cessful where one or all of these elements have social aspects of poverty reduction been lacking. The two pillars of the Bank's 2001 poverty re- In countries where macroeconomic stability duction strategy have generally provided a work- and growth remain elusive, the Bank should able operational framework for identifying and support both reforms to foster growth as well as categorizing the Bank's actual and potential longer-term institutional and social development country-level interventions. But the two-pillar interventions. To achieve the right balance be- model tends to overlook interactions between tween these two kinds of involvement is diffi- the growth and social aspects of poverty reduc- cult--it requires a realistic assessment of the tion that can have important effects on poverty political environment and the implementation ca- outcomes. The strategy may be inadvertently pacity for reform. The Bank can use economic x i i E X E C U T I V E S U M M A R Y and sector work (ESW), knowledge transfers volvement in global programs. Although some (including peer-to-peer learning), and support global programs, notably the Consultative Group to nongovernmental actors to foster greater on International Agricultural Research and the ownership and build capacity. The Bank should Special Programme for Research and Training be particularly prudent in turn-around situa- in Tropical Diseases, have generated innovations tions in which countries with a poor track record that help the poor, the Bank's criteria for selec- sign onto the reform agenda. tion and oversight of global programs have not featured poverty reduction as an explicit crite- Bank country business models and rion. In participating in global programs, the global programs are not yet fully aligned Bank needs to focus on global policy issues that with poverty reduction hinder poverty-reducing growth in its client The Bank has crafted business models for dif- countries. It should strengthen the links be- ferent groups of client countries that reflect tween county operations and global programs to their varying levels of development. The newer ensure that global programs add value to poverty business models are grounded in the objective reduction at the country level. And Country As- of poverty reduction, but have not yet realized sistance Strategies should identify how the Bank's their full potential. The Poverty Reduction Strat- global programs can help support development egy Initiative, for instance, has emphasized mul- at the country level. tidimensional income and nonincome goals for poverty reduction. Yet most national strategies Linking the Bank's country-level produced so far have not considered the full interventions to poverty reduction will range of policy actions needed for poverty re- require a sharper results focus duction. The Enhanced Highly Indebted Poor The Bank has yet to specify an operational results Countries Initiative added poverty reduction as chain that effectively links its country-level in- an objective of debt relief, but debt relief alone, terventions with poverty outcomes and ensures as implemented during the first few years of the that its assistance is based on measurable poverty Initiative, has not supported a comprehensive or results. This incomplete articulation of how sustainable approach to poverty reduction. country-level assistance helps countries meet The corporate objective of poverty reduction specific poverty reduction objectives hampers as- may appear inconsistent with some clients' de- sessment of the impact of the Bank's assistance velopment needs and priorities. Most middle-in- on poverty. come countries, even though they have pockets There are gaps in the Bank's understanding of poverty and large numbers of near poor, have of the poverty impact of programs and policies. development goals that do not center on poverty Poverty assessments constitute the Bank's main reduction. The Bank should further articulate its analytic work on poverty, and they have been use- mission of poverty reduction and progress on the ful in generating poverty profiles in many coun- Millennium Development Goals (MDGs) in ways tries. But they have tended to focus narrowly on that align with these visions. There are also in- the social sectors, while neglecting productive consistencies in the Bank's approach to post-con- sectors and governance issues, and they seldom flict clients. Some of the Bank's less-poor link analysis with conclusions regarding policy al- post-conflict clients have received per capita allo- ternatives and proposals. The Bank's analytical cations from the International Development As- work needs to pay more attention to the inter- sociation (IDA) that are up to nine times the sums action between the growth and social aspects of received by the poorest post-conflict clients. If poverty reduction. these allocations are to be understood, the ra- tionale for the Bank's lending decisions in post-con- There is an urgent need to assess the flict situations needs to be made more transparent. impact of the Bank's work on governance Poverty reduction has not been an explicit Differences in the quality of economic institu- criterion for selection and oversight of Bank in- tions--broadly understood as the "rules of the x i i i 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S game"--have been found to be the most signif- implemented in the context of deeply rooted so- icant source of sustained economic growth in cial and institutional relationships that affect both cross-country research and case studies. poverty. Most Bank-financed interventions can- Within just a few years, the Bank has developed not be expected to--and do not--affect these re- and mobilized a variety of tools--at the project, lationships unless sustainable social structures country, and global levels--that bring the qual- are created. Even in programs that target the ity of public sector institutions into the spot- poorest households, a progressive distribution light. So far, there is little evidence that of benefits is difficult to achieve. Assessing governance is improving or that corruption is de- whether beneficiaries will be able to sustain proj- creasing. It is essential for the Bank to establish ect benefits requires better tools than the Bank what it hopes to achieve from its various inter- currently has at its disposal. Project objectives ventions in the area of governance, to monitor need to be realistic about the potential to affect and measure their accomplishments, and to as- the social relationships that underpin poverty at sess their relative effectiveness in fostering eco- the community level. In participatory activities, nomic growth and reducing poverty. the Bank has had the most success when it has supported existing homegrown initiatives. The Bank could do more to harness the In the social sectors, the Bank has conflated synergies between private sector increased expenditures in education and health development and public sector reform with reducing poverty, often without adequate A healthy business environment for private sec- consideration of the actual impact of those ex- tor investment requires an effective and ac- penditures. Bank-supported interventions have countable public sector in order to protect been focused on inputs and outputs. Although property rights and to ensure equitable and con- these have frequently met or exceeded their sistent treatment under the law. The 2001 strat- physical and quantitative targets, they have often egy recognized the overlapping nature of private fallen short of bringing about qualitative and sector development and public sector reform sustainable improvements in human develop- by associating them in a single pillar. These kinds ment outcomes such as better learning achieve- of reforms entail changes in power and influence ment and improved health status. Increasing within a country, and therefore require the Bank expenditures alone have not ensured that the to understand the country's domestic political poorest are being reached. There is considerable economy and to make realistic assessments of scope for the Bank to improve its interventions country ownership. The Bank's organizational for better human development outcomes with arrangements--which place these related issues appropriate and good-quality, sector-specific an- under the leadership of different vice presiden- alytic work and with accurate diagnoses of serv- cies--do not foster the pooling of effort and ice delivery and institutional reforms. knowledge about reform. Combining or linking the Bank's knowledge about public and private The Bank's monitoring and evaluation sector issues could improve its understanding of framework is not sufficiently poverty what is likely to be effective. focused Weak country capacity for monitoring results The Bank needs to demonstrate the on poverty reduction adds to the challenges the poverty impact of its interventions aimed Bank faces in selecting activities with the high- at empowerment and human est poverty payoff. The monitoring of results on development poverty reduction remains weak in Poverty Re- The Bank has carried through with its intention duction Strategy Papers (PRSPs); only a few ma- to promote empowerment through social de- ture PRSP countries have enough data to assess velopment activities, but both the intended and whether there has been widespread improve- actual poverty impact of this type of intervention ment. If poverty reduction strategy processes remain to be demonstrated. Projects are typically are to maintain momentum and the support of x i v E X E C U T I V E S U M M A R Y diverse stakeholders, they will need to rapidly im- policy lending guidelines obligate staff to analyze prove their ability to demonstrate results in the poverty and social consequences of policies poverty reduction. supported by the operation on the poor and The poverty focus of the Bank's monitoring vulnerable. But guidelines on monitoring and and evaluation has improved at the country level evaluating projects are still a work in progress, with the introduction of results-based Country and the degree to which monitoring and evalu- Assistance Strategies and self-evaluation on a ation has a poverty focus depends on the ob- pilot basis. At the project level, development jectives specified for the project. x v ACRONYMS AND ABBREVIATIONS AAA Analytical and advisory activities AFR Africa Region (World Bank) AIDS Acquired immunodeficiency syndrome APL Adaptable Program Lending ARDE Annual Review of Development Effectiveness CAE Country Assistance Evaluation CAS Country Assistance Strategy CEM Country Economic Memorandum CDD Community-driven development CDF Comprehensive Development Framework CGAP Consultative Group to Assist the Poor CGIAR Consultative Group on International Agricultural Research CFAA Country Financial Accountability Assessment CPIA Country Policy and Institutional Assessment ECA Europe and Central Asia Region (World Bank) EAP East Asia and Pacific Region (World Bank) EI Extractive industries E-HIPC Enhanced Heavily Indebted Poor Country Initiative ESW Economic and sector work EU European Union FIRST Financial Sector Reform and Strengthening Initiative FSAC Financial Sector Adjustment Credit GDP Gross domestic product GEF Global Environment Facility HIPC Heavily Indebted Poor Country Initiative HIV Human immunodeficiency virus HNP Health, nutrition, and population (sector; World Bank department) IBRD International Bank for Reconstruction and Development (commonly known as the World Bank) ICGR Institutional and Governance Review ICRG International Country Risk Guide IDA International Development Association IMF International Monetary Fund ITC International Trade Center LCR Latin America and Caribbean Region (World Bank) LICUS Low-income countries under stress LIL Learning and Innovation Loan MDGs Millennium Development Goals M&E Monitoring and evaluation MNA Middle East and North Africa Region (World Bank) x v i i 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S MIC Middle-income country NGO Nongovernmental organization OECD Organisation for Economic Co-operation and Development OED Operations Evaluation Department OPCS Operations Policy and Country Services PA Poverty Assessment PER Public Expenditure Review PPAR Project Performance Assessment Report PREM Poverty Reduction and Economic Management Vice Presidency (World Bank) PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PRSC Poverty Reduction Support Credit PRSL Policy Reform Support Loan PRSP Poverty Reduction Strategy Paper PSAL Programmatic Structural Adjustment Loan PSIA Poverty and Social Impact Assessments PSD Private Sector Development (also a Bank vice presidency) PSI Private Sector Development and Infrastructure (a former Bank vice presidency) QAG Quality Assurance Group (World Bank) SAR South Asia Region (World Bank) TDR Special Programme for Research and Training in Tropical Diseases WBI World Bank Institute WDR World Development Report WTO World Trade Organization x v i i i 1 Reducing Poverty T he World Bank's central mandate and corporate mission is to fight poverty. Toward this end, the Bank provides finance, knowledge, and advice to borrowing member countries, while attempting to tailor the particular mix of these instruments to the challenges facing each country. The Bank also helps to address global and regional issues, such as environmental threats and communicable diseases, but its primary focus remains at the country level--helping people to lift themselves out of poverty. The Bank's understanding of poverty has cline in extreme poverty has occurred in East Asia broadened from a narrow focus on income as a whole, and China in particular. For the devel- poverty in the 1980s to today's multidimen- oping world outside China, the proportion of peo- sional concept, which encompasses human ple in extreme poverty declined from 32 to 23 development, security, voice, and participation. percent between 1980 and 2001, but the absolute This 2004 Annual Review of Development number rose from 850 to 880 million. Countries in Effectiveness (ARDE) uses the Bank's current Eastern Europe and the former Soviet Union ex- strategy for poverty reduction as a framework perienced a significant increase in extreme poverty for examining its contributions to poverty during the 1990s (associated with the initial stages reduction over the past 15 years. of their transitions to market economies), from less than 3 million in 1990 to more than 30 million in Patchy and Uneven Progress in Reducing 1999, before declining to 17 million in 2001. Many Poverty countries in East Asia, the former Soviet Union, and The aggregate, worldwide picture with respect Latin America suffered reversals in both economic to income poverty shows steady improvement growth and poverty levels in the wake of the crises since the 1980s. The number of people living in Mexico (1994), Asia on less than US$1 a day declined from 1.5 (1997), Russia (1998), Income poverty has billion (40 percent of the population) in 1981, and Brazil (1999). Mean- declined steadily since the to 1.2 billion (28 percent) in 1990, and 1.1 while, development in 1980s.There are stark billion (21 percent) in 2001. Sub-Saharan Africa lan- differences in poverty The aggregate picture masks stark differences guished in the 1990s. In among Regions (figure 1.1). The most dramatic de- addition to bearing the outcomes among Regions. 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E v a l u a t i o n E s s e n t i a l s 1 · Progress in reducing poverty has been patchy and uneven. · Rapid economic growth is the major force for reducing poverty, but remains elusive for the majority of developing countries. · The Bank takes a broad, multidimensional view of poverty, focusing not just on income poverty but also on human develop- ment, security, voice, and participation. · Its approach to poverty reduction now emphasizes public sector governance, institutional reforms, and empowerment of the poor. Rapid economic growth is brunt of the world The development community endorsed a HIV/AIDS crisis, the multidimensional view of poverty with the adop- the major force for number of people liv- tion of the eight Millennium Development Goals reducing poverty. ing in extreme poverty (MDGs) in 2001, only the first of which relates in the Region increased to income poverty. The last 40 years have wit- between 1990 and 2001, both relatively (from 45 nessed historic improvements in life expectancy, to 47 percent of the total population) and ab- other health measures, educational achieve- solutely (from 227 to 313 million people). Overall, ment, and literacy rates. The countries of East- the proportion of people living in extreme poverty ern Europe and Central Asia have also achieved increased between 1990 significant recoveries in both income and non- A low degree of income and 2001 in more than 40 income poverty measures since 1998. But the of 100 developing and challenge of the MDGs remains immense. The inequality enhances the transition countries for Bank, along with its partners, will need to in- impact of economic whichtherearedata,and crease the effectiveness of its assistance if it is growth on poverty. in which about 900 mil- to make a meaningful contribution to their lion people live. achievement. E x t r e m e P o v e r t y H a s D e c l i n e d i n A s i a a n d F i g u r e 1 . 1 I n c r e a s e d i n A f r i c a Percentage of the population living on less than US$1 per day Millions of people living on less than US$1 per day 70% 700 60% 600 50% 500 40% 400 30% 300 20% 200 10% 100 0% 0 East Asia China Eastern Latin Middle South Sub- East Asia China Eastern Latin Middle South Sub- and Europe America East Asia Saharan and Europe America East Asia Saharan Pacific, and and and Africa Pacific, and and and Africa excluding Central Caribbean North excluding Central Caribbean North China Asia Africa China Asia Africa 1981 1990 2001 Source: Chen and Ravallion 2004. 2 R E D U C I N G P O V E R T Y Economic Growth and Poverty Reduction E c o n o m i c G r o w t h At the country level, economic growth in per H a s a S t r o n g b u t F i g u r e 1 . 2 capita income and poverty-reducing shifts in V a r i a b l e I m p a c t the distribution of income are the two major o n P o v e r t y ways of reducing income poverty. That economic growth, and therefore the policies 100% line that promote economic growth, are generally 80% the associated with reductions in income poverty in 60% (as well as improvements in social indicators) is poverty 40% the 20% now well documented. Based on an analysis of change 0% household surveys conducted in 47 countries below ­20% in the 1980s and 1990s, Ravallion (2001) found percent ­40% that a 1 percent increase in per capita income living ­60% reduced the proportion of people living on less ­80% than US$1 a day by an average of 2 percent. Annualized ­100% Updating this analysis for 80 developing and ­40% ­30% ­20% ­10% 0% 10% 20% 30% 40% population transition economies for the period from 1990 Annualized percent change in mean income/consumption to 2001 yields a similar result (figure 1.2). expenditure per capita in 1999 PPP Economic growth reduces poverty because Note: The regression analysis is based on 205 spells in 80 countries for which at least 2 household economic growth per se does not--on average, surveys have been conducted since 1990, inclusive. A "spell" is a time period of at least one year be- tween sequential household surveys in one country. across countries--systematically affect the Source: Appendix B. distribution of income. Even in China and India, where inequality has been rising, the positive impact of economic growth on poverty Rapid Economic has outweighed the negative impact of increas- Growth Remains ing inequality (Ravallion 2004). Nonetheless, F i g u r e 1 . 3 Elusive for the there is considerable variability around the Majority of the Bank's general growth/poverty reduction relationship Client Countries (depicted by the regression line in figure 1.2). A major factor contributing to the diverse Greater than 4.0% 2003­ impacts of a given rate of economic growth on 3.0 to 4.0% poverty appears to be the initial level of 1990 inequality. Some cross-country work and a 2.0 to 3.0% larger body of subnational and micro research capita, point to important interaction effects among per 1.0 to 2.0% various dimensions of inequality, including GDP 0.0 to 1.0% physical and human assets and urban-rural of dualism (Ravallion and Datt 2002; Bourguignon ­2.0 to 0.0% 2004, 2005). This highlights the need to growth combine efforts to accelerate economic growth of Less than ­2.0% with work to ensure that poor people are able Rate 0 5 10 15 20 25 to take advantage of the opportunities being Number of countries (out of 120) created in a growing economy. Source: World Bank database. Of the 120 developing and transition countries with a population of more than one million, only 42 countries (35 percent) have the countries achieved positive growth, but of achieved average annual rates of economic less than 2.0 percent per capita. The remaining growth of more than 2.0 percent per capita one-quarter experienced a decline in their GDP since 1990 (figure 1.3). Another two-fifths of per capita between 1990 and 2003. 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S The Bank's Strategy for Assisting One decade later, the 2000/2001 World with Poverty Reduction Development Report: Attacking Poverty, an The Bank's approach to assisting with poverty OED evaluation of the Bank's performance in reduction efforts has evolved over the past reducing poverty in the 1990s (box 1.1), and quarter-century. Drawing on the analysis of the other research and evaluation studies of the 1990 World Development Report (WDR): experience of the 1990s affirmed the Poverty, and influenced by the successful experi- importance of broad-based growth and the ence of East Asian countries in promoting broad- equitable provision of social services for based growth and reducing poverty in the 1970s reducing poverty. The 2000/2001 WDR also and 1980s, the Bank articulated a two-part advocated an increased focus on public sector strategy for reducing poverty in December 1991: governance and institutional reforms that would empower and foster the participation of 1. Efficient, labor-intensive growth based on ap- the poor in the conduct of public institutions propriate market incentives, physical infra- and the delivery of public services. It articu- structure, institutions, and technological lated a conceptual framework for attacking innovation that promote the productive use of poverty based on three themes: promoting labor, the most important asset of the poor. opportunity, facilitating empowerment, and 2. Improved provision of education, health care, enhancing security. nutrition, and other social services--both to im- Using these findings, the 2001 Strategic prove welfare directly and to enhance the abil- Framework and Strategic Directions papers, ity of the poor to take advantage of the which guide the Bank's strategic and opportunities arising from economic growth. operational work, translated the WDR's three themes of opportunity, empowerment, In addition, the 1991 strategy called for well- and security into two action-oriented pillars: targeted transfers to the sick, the aged, and others who continue to experience severe 1. Building the climate for investment, jobs, and deprivation, as well as safety nets for those who sustainable growth are most vulnerable to income-reducing 2. Empowering poor people to participate in shocks.1 development and investing in them. T h e 1 9 9 1 P o v e r t y S t r a t e g y I m p r o v e d t h e B o x 1 . 1 B a n k ' s O p e r a t i o n a l W o r k An OED evaluation of the Bank's performance in reducing to broad-based growth. Insufficient attention was paid to en- poverty in the 1990s--part of the Bank's overall effort to revise suring that social services actually benefited the poor, and to the its approach to poverty reduction--found that the 1991 strat- role of social safety nets in managing risk and vulnerability to egy had a significant and positive impact on the Bank's oper- shocks. The Bank's implementation of the strategy was also in- ational work on poverty. The strategy highlighted the sufficiently focused on measuring and monitoring results linked importance of broad-based growth for poverty reduction and to Bank assistance. focused operational priorities on the equitable provision of so- The evaluation concluded that the two major challenges in cial services. It helped to reshape the composition of Bank as- implementing the Bank's 2001 poverty reduction strategy would sistance and spurred a significant improvement in the poverty be (1) to design and implement tailor-made country and sector knowledge base. assistance strategies deliberately aimed at poverty reduction, But the Bank also found it difficult to move from the policy and (2) to develop a strategic framework for measuring results generalities of the 1991 strategy toward Country Assistance that would allow ongoing review of the new poverty reduction Strategies that address specific social and structural constraints framework and country poverty strategies. Source: OED 2000a. 4 R E D U C I N G P O V E R T Y The 2001 Strategic Directions paper also incorporated directly The 2001 poverty reduction articulated five corporate advocacy priorities and in the second pillar, strategy gives prominence specific business lines under these two pillars instead of being to both the growth and (table 1.1), and characterized the corporate supplementary, as in advocacy priorities as the "critical enablers of the 1991 strategy. social aspects of poverty poverty reduction that the Bank is particularly Since 2001, the reduction. well-qualified to champion by sharing knowledge Bank has changed (both research and experience) and building some of its business processes to help implement awareness with clients, development partners, the strategy. It has explicitly aligned the Bank and other stakeholders."2 Group's efforts with the Millennium Development The 2001 strategy summarized in table 1.1 Goals (MDGs) and provided an overall framework continues to regard sustainable and equitable to focus Bank assistance to client countries on growth as vital to generating both jobs and the achieving them. The Bank intends to scale up its resources for the public services that are crucial impact by developing a results-oriented corporate for poverty reduction. The private sector is culture, by forging strong global and local part- viewed as the primary engine of poverty- nerships, and by enhancing country knowledge and reducing growth. The first pillar of the 2001 institutional capacity. The Bank also aims to in- strategy gives greater prominence than did the form the implementation of the 2001 poverty re- 1991 strategy to public sector governance and duction strategy with country-specific assessments institutional reforms, including the institutional- of poverty and the investment climate in individ- ization of macroeconomic stability, based on the ual countries and to link the strategy to measuring, experience and research of the 1990s. The monitoring, and managing results, based on coun- second pillar aims not so much to shift the distri- try-owned development strategies (through the bution of income in a poverty-reducing manner, Poverty Reduction Strategy Paper [PRSP] approach as to help poor people participate in the growth in low-income countries, knowledge transfer in process. Civic engagement and participation are low-income countries under stress [LICUS], and in- seen as goods in themselves that lead, among creased emphasis on country ownership in middle- other things, to better and more responsive income countries). The Bank seeks to improve its public sector institutions that will lift incomes instrument mix and to tailor development ap- economy-wide. Social risk management is proaches to individual country circumstances, with S u s t a i n a b l e G r o w t h a n d E m p o w e r m e n t : T a b l e 1 . 1 T h e T w o P i l l a r s o f t h e B a n k ' s 2 0 0 1 P o v e r t y R e d u c t i o n S t r a t e g y Building the climate for investment, jobs, and Empowering poor people to participate in development sustainable growth and investing in them 1. Investment climate 3. Empowerment, security, and social inclusion · Support for urban and rural development · Gender mainstreaming · Infrastructure services to support private sector development · Civic engagement and participation · Regulatory reform and competition policy · Social risk management (including risk mitigation) · Financial sector reform 4. Education 2. Public sector governance · Education for all--with emphasis on girls' education · Rule of law (including anti-corruption) · Building human capacity for the knowledge economy · Public administration and civil service reform 5. Health (including public expenditure accountability) · Access to clean water, clean air, and sanitation for poor people · Access to and administration of justice (judicial reform) · Maternal and child health care Source: World Bank 2001b. 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S increased emphasis on knowledge-based prod- poverty reduction, and the effectiveness of dif- ucts and analytical services. ferent types of interventions. Since the Bank's overall mission is to fight The Focus of this Review poverty, assessing the Bank's contributions to The 2002 Annual Review of Development Ef- poverty reduction could be tantamount to as- fectiveness: Achieving Development Outcomes-- sessing the development effectiveness of the Bank The Millennium Challenge, noted that the MDGs as a whole. In order to keep the task manageable, build substantially on the Bank's corporate pri- this review uses the key elements of the Bank's orities and capabilities, emphasizing areas of 2001 poverty reduction strategy, set out in table 1.1, priority that the Bank had adopted long before to examine the extent to which these respond to it officially endorsed the MDGs. The Bank's work, the needs of the poor, are actually being carried especially the design of its country programs, out, and are having an impact. In common with would be helped by the push for the quantified previous ARDEs, it also draws primarily on OED's and time-bound objectives and targets associated recent evaluation studies, synthesizing and high- with the MDGs. The 2003 Annual Review of De- lighting the findings of these studies around a velopment Effectiveness: The Effectiveness of common theme--in this case, poverty reduction. Bank Support for Policy Reform, noted that the Reviewing progress at the corporate, country, and Bank considers reform not as an end in itself, but thematic levels, the 2004 ARDE address the fol- as a means of creating lowing questions: The 2004 ARDE examines an environment con- · What has the Bank done to enhance its poverty ducive to growth and focus in its country business models, Country the extent to which key poverty reduction. Assistance Strategies, and instruments (both elements of the Bank's 2001 The 2003 ARDE found lending and nonlending)? poverty reduction strategy that two-thirds of de- · What has been the Bank's contribution to sus- respond to the needs of the veloping countries had tainable growth and poverty reduction in se- improved their poli- lected countries since 1990,3 based on the poor, are actually being cies (as rated by sev- findings of OED's most recent Country Assis- carried out, and are having eral indicators), and tance Evaluations? an impact. that policy reform paid · How effective has the Bank's assistance been off in higher growth. in relation to the first pillar of the 2001 strat- This year's ARDE, The egy--building the climate for investment, jobs, World Bank's Contributions to Poverty Reduc- and sustainable growth? tion, by contrast, looks directly at the growth and · How effective has the Bank's assistance been poverty reduction experience of client coun- in relation to the second pillar of the 2001 tries. It assesses the extent to which Bank in- strategy--empowering poor people to partic- terventions have contributed to growth and ipate in development and investing in them? 6 2 Assessing the Bank's Poverty Focus at the Corporate Level T his chapter assesses the degree to which the Bank has adopted a poverty focus in its country business models, Country Assistance Strate- gies, and lending and analytical instruments. The Bank has made a se- rious effort at the corporate level to place poverty reduction at the forefront of its corporate business models, assistance strategies, and projects. But there is scope for further alignment with the Bank's poverty reduction goals, and its monitoring and evaluation framework remains a work in progress. Country Business Models and Global objective of "enhancing the poverty impact of the Programs Bank's work in IDA countries" (World Bank and The Bank has established different categories IMF 1999b), and the Enhanced HIPC Initiative for its client countries to help guide its business (for a subset of IDA countries) adds the explicit ob- model or approach to financing in each jective of "freeing up resources for higher social category. The Poverty Reduction Strategy (PRS) spending for poverty reduction" to the original Initiative is the centerpiece of Bank relations HIPC objective of bringing debt levels to sustain- with low-income countries. Other strategic able levels (World Bank and IMF 1999a).1 Poverty initiatives govern the Bank's assistance to post- reduction strategy processes have improved the conflict and fragile countries, at one end of the poverty focus of national development strategies development spectrum, and to middle-income by highlighting the need for sound data on poverty countries, at the other, as well as its involve- and emphasizing multidimensional income and ment in global programs. Global programs are nonincome poverty a comparatively new and growing activity for indicators. The Bank has made poverty the Bank Group. But these ap- reduction an objective of proaches have not yet Low-Income Countries realized their full po- its programs in low-income The Bank and the International Monetary Fund tential for poverty re- countries, but there (IMF) introduced both the Poverty Reduction duction. OED's 2004 remains scope for Strategy (PRS) and the Enhanced Heavily In- evaluation of the improving how they are debted Poor Country (HIPC) Initiatives in 1999. Poverty Reduction The Poverty Reduction Strategy Initiative has the Strategy Initiative (box implemented. 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E v a l u a t i o n E s s e n t i a l s 2 · The Bank has made a serious effort at the corporate level to put poverty reduction at the forefront of its corporate business models, assistance strategies, and projects. · The Bank's country business models and global programs are not yet fully aligned with poverty reduction. · Linking the Bank's interventions at the country level to poverty reduction will require a sharper results focus. 2.1) found that national strategies focused largely strained the efficiency of the additional spend- on allocating public expenditures to reduce ing. And reducing poverty in a holistic and sus- poverty, but did not consider the full range of pol- tainable way requires a focus on other icy actions envisaged in the 2001 poverty reduc- growth-enhancing and poverty-reducing actions-- tion strategy.2 Within the domain of public such as trade access, investment climate, agricul- expenditures, the majority of funds were allocated ture, and infrastructure development--that have to expanding service delivery in the social sec- received insufficient attention (OED 2003b). Fi- The HIPC and PRSP tors, and much less to nally, for the poverty reduction strategy process to investments to remove maintain momentum and support from diverse initiatives are overly bottlenecks in eco- stakeholders, it will need to rapidly improve the data focused on increasing nomic or productive to demonstrate results on poverty reduction in public expenditures rather sectors. Similarly, the low-income countries. Enhanced HIPC's re- In 2002, the Bank created a special category of than a more comprehensive quirement that coun- low-income countries under stress (LICUS). approach to poverty tries allocate "savings" These countries have particularly weak policies, reduction. from debt relief to pub- institutions, and governance--the legacies of lic expenditures in the conflict or prolonged crisis. OED's ongoing social sectors did not contribute to a compre- evaluation of World Bank support to LICUS, hensive or sustainable approach to poverty re- planned for fiscal year 2006, will evaluate the duction, according to OED's 2003 evaluation of the extent to which LICUS is aligned with the Bank's initiative.3 Absorptive capacity constraints in the so- poverty reduction objectives (OED 2004i). The cial sectors in many debtor countries have con- Bank's Post-Conflict Fund, which preceded T h e P o v e r t y R e d u c t i o n S t r a t e g y I n i t i a t i v e B o x 2 . 1 H a s A d d e d V a l u e t o t h e P o v e r t y A g e n d a . . . B u t R e m a i n s a W o r k i n P r o g r e s s Achievements Areas that need attention · Improved poverty focus of national development strategies · Strategies are overly focused on public expenditures, and · Consultations undertaken opened up space for policy dia- neglect the wider range of policy actions required for growth logue and poverty reduction · Provided a constructive framework for donors' dialogues · Monitoring of poverty-reduction results remains weak with governments · External partners, including the Bank, have not yet defined how the content of their programs will change · Conditionality of the initiative inhibits country ownership, re- sulting in a focus on completing documents to access re- sources rather than on improving processes Source: OED 2004s. 8 A S S E S S I N G T H E B A N K ' S P O V E R T Y F O C U S AT T H E C O R P O R AT E L E V E L LICUS, was designed to provide a fast and flexible P o s t - C o n f l i c t instrument the Bank could use to assist conflict- C o u n t r i e s affected regions.4 OED's review of the Post- F i g u r e 2 . 1 R e c e i v e d V e r y Conflict Fund found it has not quickly or D i f f e r e n t L e v e l s effectively filled gaps during the transition from o f B a n k S u p p o r t relief to reconstruction and development assistance, except in East Timor and Afghanistan 50 (OED 2004r). There is also no consensus within (US$) 45 the Bank or among its potential partners on what 40 kind of action would be most effective or on what capita the most appropriate role for the Bank would be per 35 in conflict-affected countries. The Bank's lending 30 allocations reveal tensions between poverty and 25 the special needs of conflict-affected clients. 20 Some of the less-poor post-conflict clients, such commitments as Bosnia-Herzegovina and the West Bank and IDA 15 Gaza, have received per capita IDA commitments 10 more than three times the average for all IDA average 5 borrowers, and up to nine times as much as Rwanda, the poorest post-conflict client (figure 0 Annual 2.1).5 While differences in policy performance Bosnia- Timor West Bank Rwanda Eritrea Cambodia Herzegovina Leste and Gaza (1994­97) (1994­97) (1992­95) and absorptive capacities account for some of (1996­99) (1999­02) (1994­97) these discrepancies, the rationale for the Bank's Source: OED 2004e and World Development Indicators. lending decisions in post-conflict situations needs to be made more transparent. $1 a day). The addi- Assistance to post-conflict Middle-Income Countries tional 16 percent who countries is not highly The World Bank's strategy in middle-income live on between $1 and correlated with their countries (MICs) adopts the organization's $2 a day are vulnerable overarching objective of poverty reduction. to falling into extreme poverty levels. The 2001 Strategic Framework paper asserted poverty in crisis situa- that continued engagement in middle-income tions or during economic shocks. Nonincome countries is central to the Bank's mission of poverty can also be significant in the MICs. Poverty fighting poverty, since "IBRD-eligible countries in the richer MICs tends to be regionally or ethni- are home to the majority of the world's people cally concentrated. In spite of the significant num- living on less than $2 a day" (World Bank ber of poor and near poor in many of these 2001a). The Bank's strategy in the MICs was countries, many of the MIC clients envision de- restated in 2004 to include International Bank velopment in terms of joining the ranks of devel- for Reconstruction and Development (IBRD) oped countries (World Bank 2004e). While the support for "sustainable, equitable and job- two pillars of the Bank's poverty reduction strat- creating economic growth . . . rais[ing] living egy are still appropriate for the MICs, the Bank faces standards," and an emphasis on select global a challenge in aligning its corporate focus on public goods under the umbrella of poverty 6 poverty with the varying aspirations of its hetero- reduction (World Bank 2004c). geneous MIC clients. The MIC group, as defined by the Bank, in- The Bank needs to for- The Bank needs to align its cludes countries with per capita incomes that mulate its emphasis on corporate focus on poverty ranged from $765 to $9,385 in 2003, with different poverty in a way that with the aspirations of its poverty profiles. About 11 percent of the popula- the MICs will find at- tion in the MICs lives in extreme poverty (under tractive and that will middle-income clients. 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S prompt them to seek the Bank's assistance in Strategies (CASs). The poverty focus of CASs achieving their goals. has improved, according to the 2003 CAS Retrospective.7 The share of CASs rated Global Programs satisfactory or better for poverty focus The World Bank's involvement in global part- increased from 61 percent in the second half of nership programs has accelerated since 1998, fiscal year 1998 and all of 1999, to 71 percent in and broadened from global public goods pro- fiscal year 2000 and first half of the 2001 period, grams to multicountry corporate advocacy pro- and the share of CASs with marginally satisfac- grams (OED 2004b). The largest of these, the tory treatment declined from 28 to 18 percent Consultative Group on International Agricultural (World Bank 2003a). Research, has helped reduce poverty through an Notwithstanding the improved poverty focus, increased and more se- the 2003 CAS Retrospective suggested the need The Bank's involvement in cure food supply, a rise for greater cohesion between CAS objectives global programs has not in employment, and and poverty reduction goals (World Bank been driven by poverty- lower food prices. The 2003a). Accordingly, the latest staff guidance on reducing goals, even though Special Programme for CASs specifies that the CAS take as its vision the Research and Training PRSP in low-income countries, or other national some global programs have in Tropical Diseases development strategy in middle-income helped reduce poverty. has supported the de- countries (World Bank 2004d). CASs are also velopment of new expected to take into account the links between treatments for diseases of the poor such as on- the country's objectives and the targets of the chocerciasis, leprosy, and malaria and helped to MDGs. The guidelines are thus aligned with the strengthen health research capacity in develop- Bank's overall mandate of poverty reduction.8 ing countries. But poverty reduction has not been As part of the Bank's move to a results focus at an explicit criterion for selection and oversight of the country level, the traditional CAS is being Bank involvement in global programs--it has only replaced by a results-based CAS, and the CAS been implicit in other Completion Report has been introduced on a pilot It has so far proven criteria. Even though basis. The monitoring and evaluation of poverty most global programs impact in CASs will require additional effort to difficult to measure the have now aligned their overcome the dearth of data on poverty at the impact of assistance on objectives to the country level. A clearer assessment of the impact poverty, even in results- MDGs, their strategies of the Bank's assistance in poverty reduction, even have lacked both in the pilot results-based CASs, has also been based CASs. strong analytical foun- hampered by the inadequate delineation of the dations and well- links between Bank interventions, actions to thought-out results chains. In participating in achieve intermediate outcomes, and intermediate global programs, the Bank needs to focus on outcome indicators (OED 2004a). OED's initial global policy issues that hinder poverty-reducing reviews of CAS Completion Reports suggest ways growth in its client countries. It should also to improve the links (box 2.2). strengthen the links between country operations and global programs to ensure that global pro- Instruments grams add value to poverty reduction at the coun- try level. Country Assistance Strategies very rarely Lending show how the Bank's global programs can help Guidelines for Bank lending put poverty focus at support development at the country level. the forefront. Bank investment lending is required to support poverty reduction, and Country Assistance Strategies development policy lending to take into account The Bank's corporate objectives are embodied the impact on poverty. The Bank's 1994 at the country level in Country Assistance Operational Policy on investment policy lending 1 0 A S S E S S I N G T H E B A N K ' S P O V E R T Y F O C U S AT T H E C O R P O R AT E L E V E L includes a criterion that it must "contribute to B a n k C o u n t r y poverty reduction." The development policy P r o g r a m s C o u l d B o x 2 . 2 lending guidelines, issued in a revised OP 8.60, S t r e n g t h e n T h e i r Development Policy Lending, enable a greater R e s u l t s F o c u s poverty focus than did previous adjustment operations by requiring staff to determine Bank Country Assistance Strategies should: whether policies supported by the operation are · Further elaborate how Bank assistance contributed to CAS objec- likely to have significant poverty and social tives. consequences, especially on poor and vulnera- · Provide more specific recommendations on how to collect data for ble groups (World Bank 2004g).9 The Poverty use in decision-making. Reduction Support Credit (PRSC) is a develop- · Emphasize development impact rather than resource transfer. ment policy lending instrument designed specif- · Define monitorable indicators for measuring progress in key areas. ically to support poverty reduction, anchored in · Lend beyond a minimal program only if agreed reforms have been the PRSP. The poverty impacts of the 31 PRSCs implemented. completed so far have not yet been assessed. To what extent do the Bank's monitoring and Source: OED reviews of FY03 and FY04 CAS Completion Reports. evaluation systems support a poverty focus in its lending? Guidelines on monitoring and evalua- tion of Bank lending are still a work in progress, and the degree to which monitoring and evalua- assessment of the Poverty assessments should tion has a poverty focus depends on the poverty situation, an focus more on the links to objectives specified for the project. analysis of the impact economic growth. About half of Bank lending between 2000 and of growth and public 2004 was directed toward the five themes that actions on poverty, correspond to the first pillar of the Bank's 2001 and an appraisal of poverty monitoring and strategy, and an additional one-fourth toward the evaluation systems (World Bank 2004j). second pillar (figure 2.2). The remaining quarter Poverty assessments have been useful in consisted of lending to urban and rural develop- analyzing poverty profiles in many countries ment and environment, areas with activities that (OED 2004s). They have a high quality of cut across both pillars: economic growth and analysis, and now make better use of qualita- empowerment.10 Within the first pillar, Bank tive data on the poor, according to a review of lending has shifted from assistance for first- eight fiscal year 2002 Poverty Assessments by generation reforms such as economic manage- the Bank's Quality Assurance Group (QAG) ment (which declined by an average of 14 percent (World Bank 2003b). However, QAG found that a year) to public sector governance (which the Assessments tend to focus on the social increased by 11 percent a year). Within the second sectors, while neglecting the productive pillar, Bank lending for human development has sectors, and could do a better job of linking grown by almost 30 percent a year, and for social analysis with conclusions on policy alternatives development by almost 10 percent a year. The and proposals (box 2.3). increased lending to the second pillar is In 2003, the Bank introduced poverty and so- supported by a higher overall performance of cial impact analysis (PSIA)--an analysis of the these investment projects relative to other themes distributional impact of policy reforms on the (figure 2.3).11 well-being of different stakeholder groups--to in- form PRSP design and Analytical Work Bank interventions in Limited progress has been The Bank's Operational Policy 1.00 on Poverty all client countries. In made in analyzing the Reduction sets up an expectation that the the last two years, the Bank will conduct periodic poverty assess- World Bank has fi- poverty and social impact ments that will include three activities: an nanced about 70 PSIA- of reforms. 1 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S B a n k L e n d i n g f o r H u m a n D e v e l o p m e n t H a s F i g u r e 2 . 2 G r o w n t h e M o s t R a p i d l y S i n c e 2 0 0 0 Trade & integration (4%) Pillar 1: Building the climate Public sector governance (14%) for investment, jobs, and Rule of law (2%) sustainable growth Financial & PSD (24%) Economic management (6%) areas Human development (10%) Social development/gender (6%) Pillar 2: Empowering poor people to Thematic Social protection & risk (9%) participate in development and investing in them Urban development (8%) Rural development (9%) Pillars 1 and 2 Environment & natural res (7%) ­20% ­15% ­10% ­5% 0% 5% 10% 15% 20% 25% 30% Average annual growth rate in Bank commitments, 2000­04 (log-linear trend) Note: Numbers in brackets on left vertical axis represent share of total commitments by thematic area from 2000 to 2004. Themes are allocated to the respective pillars of the 2001 poverty reduction strategy in line with similar allocations in Bank budget documents (World Bank 2004j). Source: World Bank data. Investment Projects type activities, mainly on reforms in utilities, Emphasizing Human and public sector, agriculture, trade, and macroeco- Social Development and nomic policy.12 But the Bank has conducted F i g u r e 2 . 3 Protection Themes Have fewer PSIAs than planned (OED 2004s). Data Had the Highest constraints, analytical barriers such as estimating Outcome Ratings the impact of reforms over time, and limited government demand for distributional analysis 100 have posed challenges, according to the 2003 95 and 2004 PRSP Progress in Implementation re- 90 ports (World Bank 2003b and 2004l). (%) 85 There remains a knowledge gap in the linkages 80 77% among policies, programs, and individual sector 72% outcomes strategies on the one hand, and poverty-related 75 71% 68% outcomes on the other, particularly the social im- 70 pact of macroeconomic policies (OED 2004u). 65 The Bank's analytical work tends to focus on one 60 Satisfactory or the other pillars of the poverty reduction strat- 55 egy, but to overlook potential interactions be- 50 Economic Investment Human and Environment, tween the two. For instance, public investments management, climate and social urban, and in the education of the poor can lead to faster trade, and public sector development rural growth. And improved public sector institutions integration governance and protection development can empower the poor to improve the delivery of education and health services. The poverty di- Note: Percent satisfactory outcomes of investment projects approved since 1990 and exiting the port- folio by 2004; 1990 is the first year for which Bank projects are coded by theme. mension of the Bank's analytical work tends to be Source: World Bank data. concentrated in work surrounding PRSPs and in 1 2 A S S E S S I N G T H E B A N K ' S P O V E R T Y F O C U S AT T H E C O R P O R AT E L E V E L P o v e r t y A s s e s s m e n t s A r e a U s e f u l T o o l , B o x 2 . 3 b u t C a n B e I m p r o v e d QAG's review of eight Poverty Assessments found that they · Task teams have engaged counterparts, which has enabled performed well overall, and particularly well on some di- them to probe more sensitive aspects ­ such as geographic mensions: and ethnic differences in the incidence of poverty ­ than · Poverty Assessments are selected strategically to fit gov- would have been possible otherwise. ernments' programming cycle and the Bank's Country As- sistance Strategies. The review identifies three areas that need improvement: · The quality of analysis is high, particularly the effective gen- · Poverty Assessments tend to focus on the social sectors, where eration and use of empirical evidence. presumably information is available, at the cost of attention to · There has been a vigorous effort to develop qualitative in- infrastructure sectors, the rural sector, and other economic as- formation, such as self-perception of poverty and insecu- pects such as labor market participation and performance. rity, as well as user feedback on public services geared to · The treatment of public sector management is too often naïve the poor. in Poverty Assessments. Little attention is given to governance · Some Poverty Assessments have introduced historical con- and transparency issues. text as a way to explain initial conditions ­ which, in turn, · Poverty Assessments are weak in synthesizing findings and explain the distribution of assets and opportunities ­ and the conclusions from their analysis. Many fail to identify rela- political economy of change. tive priorities and the appropriate phasing of actions and their likely cost and fiscal implications. Source: World Bank 2003b. poverty assessments, and is only partially linked the interactions be- There remains a knowledge to the analytical work done to support the growth tween the two pillars, gap between development and investment agenda. Somewhere in the Bank's such as the impact of interventions and poverty- ESW program--such as its Country Economic growth and investment Memoranda--analytical work should focus on policies on poverty. related outcomes. 1 3 3 Development Effectiveness at the Country Level T his chapter reviews the effectiveness of the Bank in using its various in- struments at the country level--assistance strategies, lending, and an- alytical work--based largely on 21 of OED's most recent country assistance evaluations (CAEs).1 Overall Growth, Poverty, and Bank Armenia, Croatia, and Mongolia; 1994 in Lithua- Assistance Outcomes nia; 1997 in Bulgaria; 1998 in Russia; and 1999 The 21 countries fall into three groups based on in Moldova. All experienced substantial their economic growth and poverty reduction increases in poverty during their transition experience between 1990 and 2003 (figure 3.1). recessions, increases in inequality from the This validates the strong relationship illustrated generally low levels of the 1980s, and deteriora- in figure 1.2 between economic growth and tions in social conditions. Income poverty has poverty reduction at the country level. declined and social indicators have improved The first group of six, classified as good during the past few years as a result of robust performing countries (Chile, China, Dominican economic growth in many of these countries. Republic, India, Tunisia, and Vietnam), experi- The third group of eight modest- and poor- enced growth in gross domestic product (GDP) performing countries (Brazil, Guatemala, per capita of more than 3 percent between Jordan, Lesotho, Morocco, Peru, Zambia, and 1990 and 2003--from 3.1 percent per annum in Zimbabwe) experienced either negative or low Tunisia to 8.1 percent in China. This growth led rates of growth in GDP per capita between 1990 to a substantial decline in income poverty, from and 2003--ranging from ­0.9 percent in an average of 35 percent of these countries' Zambia and Zimbabwe to 2.1 percent in Peru. populations in 1990 to 16 percent in 2001, as About 20 percent of the populations of the well as to improvements in social indicators middle-income countries in the group such as health and education outcomes. remained poor throughout the decade, and 50 The second group of seven counties experi- percent of the low-income countries. enced significant declines in GDP in the early How effectively did the World Bank work in 1990s, associated with the initial stages of their these three very different environments? In all transitions to market economies. Each then 2 six good-performing countries, OED rated the began a slow recovery, starting in 1993 in outcome of Bank assistance as fully or 1 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E v a l u a t i o n E s s e n t i a l s 3 · The Bank's 2001 poverty reduction strategy is well grounded in the development experience of the 1990s. · Economic growth is vital for reducing poverty, and macroeconomic stability is necessary to underpin economic growth. · The Bank's country strategies have become more poverty focused and consistent with the needs of client countries. · The lack of country ownership of reforms has constrained the Bank's effectiveness in a number of countries. · The Bank needs to expand its assistance for monitoring poverty in order to help design more effective country-level interventions. Poverty moderately satisfactory (figure 3.2).3 And even in Reduction Is some of the less-successful countries, the Bank's Strongly assistance has had fully satisfactory outcomes. F i g u r e 3 . 1 Associated Among the seven Even in some of the less- with Economic transition countries, Growth successful countries, the Armenia and Lithua- Bank's assistance had fully nia had the best out- GDP per capita (1995 US$) comes. The Bank's satisfactory outcomes. 3,000 assistance made major 2,500 contributions to the achievement and maintenance of macroeco- 2,000 nomic stability in both countries, which facilitated 1,500 both an earlier economic recovery than in other 1,000 countries and sustained economic growth thereafter. In Armenia, the Bank also contributed 500 to important reforms in the energy, transport, 0 and agriculture sectors. The Bank had more 1990 1992 1994 1996 1998 2000 2002 success in promoting private sector development Proportion of population below the poverty line than public sector reform, and in the area of 45% privatization than in improving the business 40% environment for small and medium-size job- 35% 30% creating enterprises (OED 2004c, p. 22). In 25% Lithuania, the Bank contributed successfully to 20% important reforms in the fiscal, financial, energy, 15% and transportation sectors. Economic and sector 10% work (ESW) in the energy sector--the focus of 5% early analytic work--provided clear guidelines on 0% converting the state from owner to regulator with 1990 1992 1994 1996 1998 2000 2002 Good performers: Chile, China, Dominican Republic, India, step-by-step reforms, such as unbundling the Tunisia, Vietnam generation and distribution of energy and Transition countries: Armenia, Bulgaria, Croatia, Lithuania, improving the quality of supervisory boards Moldova, Mongolia, Russian Federation Modest and poor performers: Brazil, Guatemala, Jordan, (OED 2004m, pp. 14-15, 20-21). Lesotho, Morocco, Peru, Zambia, Zimbabwe Brazil entered the 1990s plagued with economic instability, slow growth, and high rates Note: The proportions of the population below the poverty line are the sim- of inflation. In 1994, the government introduced ple averages of the countries in each group, so that the large countries do not swamp the other countries in each group. The poverty line is a relative the Real Plan, which had an immediate and measure of poverty in which people are deemed poor if they do not attain positive effect of reducing inflation rates from an either the $1 a day consumption level or one-third of the mean consump- tion in each country, since this better facilitates comparisons across both average over 1,600 percent over 1990­94 to 16.6 low- and middle-income countries. percent over 1995­99. The stabilization had a Source: Table C.1 and Appendix B. 1 6 D E V E L O P M E N T E F F E C T I V E N E S S AT T H E C O U N T R Y L E V E L E v e n S o m e o f t h e M o d e s t a n d P o o r F i g u r e 3 . 2 P e r f o r m e r s H a d S a t i s f a c t o r y O u t c o m e s M e a s u r e d a g a i n s t R e l e v a n t C A S O b j e c t i v e s Highly Good performers Transition countries Modest and poor performers satisfactory 6 Satisfactory 5 Moderately satisfactory 4 Moderately unsatisfactory 3 Unsatisfactory 2 Highly unsatisfactory 1 0 Chile ChinaTunisiaVietnam Rep. India Fed. Brazil Peru ArmeniaLithuania MongoliaBulgaria CroatiaMoldova Jordan LesothoMoroccoZambia Zimbabwe Russian Guatemala Dominican Note: The time periods for these outcomes correspond to the review periods for the 21 CAEs, and range from 1985­99 for Chile to 1993­03 for Croatia and Moldova. See table C.1 for more details. Source: Table C.1. strong positive impact on poverty because the also helped to design projects such as the high rates of inflation had disproportionately national school improvement program affected the poor. While the Bank did not play a (Fudescola) initiated in 1996 and supported by significant role in initiating Brazil's Real Plan, it three Bank loans (OED 2005b, p. 8). contributed to the consolidation of stabilization during the 1995­98 period with fiscal reform and Major Determinants of Satisfactory privatization loans. Timely ESW examined the Outcomes serious fiscal imbalances in the Brazilian states, Better outcomes of Bank assistance across the which were jeopardizing the success of the Real three groups of countries were associated with Plan. Then, after the 1999 crisis, the Bank three key factors: (1) achieving and sustaining supported the government's fiscal austerity macroeconomic stability, (2) the relevance of program with five adjustment loans amounting Bank country strategies, and (3) country to US$2.8 billion and several complementary ownership of the reform agenda. assistance loans. The adjustment loans included two fiscal reform loans, one social protection Macroeconomic Stability loan, and two social security reform loans. The Bank has supported macroeconomic Timely ESW also helped the Bank direct its stabilization in all 21 countries in 3 general lending to regions and sectors that could have ways: ongoing diagnostics and advice, adjust- the greatest impact on poverty. Bank lending ment lending to provide balance of payments was increased to education, health, and rural and budgetary support (often, but not always, poverty projects in the poorer Northeastern following an economic crisis), and technical region of Brazil with successful outcomes. ESW assistance and investment loans to institution- 1 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S alize macroeconomic stability. Assistance under pressure to lend and went ahead with ad- outcomes have been more satisfactory where justment loans even though little progress was stability has been achieved and maintained, as being made with stabilization and reform (OED in the group of six good-performing countries. 2005b, pp. 9­10). Conversely, a lack of macroeconomic stability The appropriate sequencing of macroeco- has greatly constrained the effectiveness of nomic reforms with trade and financial sector Bank assistance. The macroeconomic crises liberalization is important for successful stabi- that occurred in the transition economies in lization (box 3.1). So is the institutionalization of the early 1990s, and that were associated with monetary and fiscal reforms, including hard the 1997 Asian crisis, the 1998 Russian crisis, budget constraints on banks and enterprises, re- and the 1999 Brazilian crisis, led to reversals in form of the tax system, and restructuring of pub- economic growth and increases in poverty lic expenditures. In Russia, the widespread use of levels in the affected countries. arrears and noncash payments to circumvent hard The Bank provided timely and effective budget constraints led to government borrowing advice (without any adjustment lending) to on an unsustainable scale, especially in the wake China during two tests of growth and stability of the 1997 Asian crisis. The subsequent default on during the 1990s. In 1993, when inflation rose a large part of its sovereign debt had repercussions to about 20 percent annually, the Bank's throughout the former Soviet Union (World Bank argument that macroeconomic instability was 2002c, p. 54). the result of incomplete reform rather than an In Peru, the Bank played a constructive and inherent part of reform helped influence important role in stabilizing the economy in the subsequent efforts to reform the central bank early 1990s by supporting the government's and monetary management and to undertake macroeconomic stabilization and structural fiscal reforms to restore and partially re-central- reform and participating in the international ize revenue collection. The 1994 fiscal reforms effort to reintegrate Peru into the world financial in intergovernmental fiscal relations, strongly economy. Progress in the area of institutional advocated by the Bank, helped China avoid a reform was substantial in the early 1990s--the precipitous decline in revenue collection and most significant and longest-lasting achieve- fiscal collapse. Then, during the 1997 Asian ment was the dismantling of myriad government crisis, the Bank influenced China's decision to agencies such as development banks, the forgo a competitive devaluation, which helped foreign commerce institute, and state-owned China limit the crisis and maintain its growth enterprises. The government revamped and rate, and neighboring countries recover more created technically efficient and autonomous quickly. agencies responsible for monetary and fiscal Adjustment lending has generally been suc- policy. But in 1997, the government's declining cessful when combined with a strong govern- interest for reform led to the weakening of ment commitment to macroeconomic macroeconomic management and backtracking stabilization. In the absence of such a commit- on reforms. Although the Bank had been instru- ment, such lending has saddled the countries mental in helping Peru revive its economy in the with additional unproductive debt and has weak- early 1990s, it was unable to prevent the govern- ened incentives for future reforms. In Bulgaria ment's retrogression in economic policymaking and Brazil, the Bank appropriately delayed in the late 1990s until the election of a new planned adjustment government in 2001. The Bank's adjustment lending when reforms In low-income countries, where macroeco- lending was generally stalled. But in five nomic programs are usually supported by an successful when the other countries--Mo- IMF Poverty Reduction and Growth Facility rocco, Peru, Russia, (PRGF) and are expected to be anchored in government was also Zambia, and Zim- PRSPs, these national strategies have not committed to stabilization. babwe--the Bank was uniformly explored macro-related areas such as 1 8 D E V E L O P M E N T E F F E C T I V E N E S S AT T H E C O U N T R Y L E V E L A p p r o p r i a t e S e q u e n c i n g o f M a c r o e c o n o m i c B o x 3 . 1 R e f o r m s I s I m p o r t a n t f o r S u c c e s s Countries should implement fiscal and trade reforms before were made led to capital flight and prolonged the country's high opening their capital markets. In India, both an appropriate inflation. The delayed stabilization contributed to the need for more macroeconomic framework and the proper sequencing of trade stringent fiscal tightening, undermined necessary public invest- reforms contributed to the country's impressive export and ments, and extended the period of stagnant growth in the early growth performance during the 1990s. A significant deprecia- 1990s. In Zimbabwe, the government, in the context of the Bank's tion of the real exchange rate, which increased export incen- Structural Adjustment Credit, implemented a wide range of lib- tives and cushioned the impact of lower import barriers on eralizing economic reforms in domestic labor and financial mar- domestic industry, preceded the first trade liberalization meas- kets, international trade, and foreign currency markets that were ures in 1991. Trade liberalization also preceded the opening of intended to encourage private sector development. But liberal- the capital account. izing financial markets and lowering taxes before government ex- In Zambia and Zimbabwe, in contrast, inappropriate se- penditures were reduced led to larger government deficits and quencing led to unsatisfactory results. In Zambia, opening the cap- high real interest rates, which undermined the positive effects of ital account before the needed public expenditure reductions economic liberalization on private sector investment. Source: Tang and Harrison 2005, p. 160; OED 2002i, p. 22, 2003j, p. 22. tax/revenue policies and exchange rate manage- tors, have been Most PRSPs do not provide ment (OED 2004s, p. 15). Most PRSPs fall short lacking or weak in all of providing a strategic road map for macroeco- groups of countries. a road map for nomic and related structural policymaking (IEO OED has rated the macroeconomic reforms in 2004, p. 4). In Vietnam, the PRSP framework Bank's Country Assis- low-income countries. alone was unable to overcome policy differ- tance Strategies as sub- ences between the Bank and the Fund on the stantially or highly scope and sequencing of reform of state-owned relevant in 17 of 21 countries in terms of their goals enterprises, even though the process was andobjectives,analyticalfoundations,andproposed considered highly country-driven with clear instruments for achieving sustainable growth and indications of the government's views on povertyreduction(figure3.4).ThattheBank'sstrate- reform (OED 2004s, p. 20). gieswerelessrelevantinMoldova,Lesotho,Zambia, and Zimbabwe largely explains the unsatisfactory Relevance of Bank Country Strategies overall outcomes in these countries (figure 3.2). The Bank's Country Assistance Strategy A lower degree of relevance also explains why documents were increasingly informed by assistance outcomes for two of the good per- poverty assessments or other ESW during the formers--the Dominican Republic and India-- 1990s, and strategies and priorities were were rated only moderately satisfactory. increasingly framed in terms of poverty goals Relevance was impaired in the Dominican Re- (Tables C.2 and C.3). The Bank's 1991 poverty public by a lack of continuity in the policy dia- reduction strategy provided a workable logue and by the absence of the Bank during operational framework for identifying priority critical times and in the key areas of structural programs and projects that was increasingly reform and privatiza- The Bank's country followed throughout the 1990s. The Bank's tion (OED 2003c, strategies in the transition economies were p. 19). In India, while strategies have become somewhat slower in adopting an explicit the Bank provided more poverty-focused and poverty focus (figure 3.3). And arrangements 4 timely assistance for reflect the needs of client for monitoring the achievement of poverty- economic growth and focused goals, including monitorable indica- structural adjustment countries. 1 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S C A S s i n Tr a n s i t i o n in the early 1990s, with increasing emphasis on C o u n t r i e s W e r e L a t e r the social sectors, rural development repre- F i g u r e 3 . 3 i n A d o p t i n g a n sented a gap in the Bank's strategy. Poverty re- E x p l i c i t P o v e r t y duction in rural areas was limited by inadequate F o c u s infrastructure services (OED 2001a, p. 36). Lending for the transition economies and for the modest- and poor-performing Good countries, most of which were still trying to performers stabilize their economies in the mid-1990s and thereafter, focused more on economic manage- ment, trade liberalization, and private sector Transition development (figure 3.5). Lending for the good countries performers, all of which achieved macroeco- nomic stability in the 1980s or early 1990s, focused relatively more on human develop- Modest and ment, urban and rural development, and the poor performers environment. Between 1990 and 2004, adjust- 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% ment lending constituted 42 percent of total Period during which 21 CASs adopted an explicit commitments for the seven transition poverty focus, by country groups economies and 37 percent for the modest- and 1990­94 1995­99 2000­04 poor-performing countries, compared with Source: Table C.2. only 13 percent for the six good-performing countries. The Bank has had difficulty initiating a substantive dialogue and lending program on some key issues in both good and poor performing countries, such as the banking O E D F o u n d M o s t sector in China (box 3.2). In Zimbabwe, the C o u n t r y A s s i s t a n c e CASs did not contain strategies to address land F i g u r e 3 . 4 S t r a t e g i e s reform ­ clearly the largest social issue in the S u b s t a n t i a l l y o r country ­ despite significant expertise on the H i g h l y R e l e v a n t subject in the Bank. Even when the fiscal year 1997 CAS finally acknowledged the skewed ownership of land in favor of the white Good minority, it gave no signal that the Bank was performers ready to work with the government on meaningful land reform. The Bank's strategies also placed too little emphasis on infrastruc- Transition ture in communal lands, where rural poverty countries was concentrated (OED 2004v, p. 8). Selectivity among priorities in line with the Modest and Bank's comparative advantage has been difficult poor performers to achieve in both good- and poor-performing countries. Bank strategies tend to be so broadly 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% defined that a wide range of activities can find OED ratings of 21 Country Assistance Strategies, justification in the general objectives. In by country groups Vietnam--a good performer with a highly Modest Substantial High relevant strategy--OED found that the main Source: Table C.3. weakness in the Bank's assistance program was 2 0 D E V E L O P M E N T E F F E C T I V E N E S S AT T H E C O U N T R Y L E V E L its wide-ranging character: it covered many B a n k L e n d i n g sectors and subsectors. The lack of selectivity H a s G e n e r a l l y arose from the internal and external pressures F i g u r e 3 . 5 R e f l e c t e d C o u n t r y on the Bank to be present in most sectors (OED C i r c u m s t a n c e s 2001f, p. 23). In Lesotho--a modest performer with a modestly relevant strategy--the CASs pursued so many goals and recommended so Good many measures that government authorities, performers NGOs, and civil society found them difficult to gauge and implement. The 1995 poverty reduction action plan suggested between 3 and 7 Transition demanding, but unprioritized, interventions in countries each of 9 sectors, and the 1998 CAS identified 11 of 14 areas as high development priorities. The CASs were not sufficiently realistic and misjudged Modest and poor performers Lesotho's political stability, limited resources, and weak institutions (OED 2001b, p. 11). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% In some cases, even when the Bank's assis- tance strategy has been relevant at the broadest Share of total Bank commitments, 1990­04 level, specific interventions have been less relevant. Economic management, trade, and integration In China, relevance has long been constrained by Investment climate and public sector governance the government's insistence that projects gener- Human and social development, and protection ate revenue to repay the Bank's loans, sometimes Urban and rural development, and environment at the expense of higher-return public goods com- Source: World Bank data. ponents. And since the Bank ended China's eligi- bility for International Development Association (IDA) lending in fiscal year 2000, lending for so- cial sectors and poorer regions has become in- creasingly constrained.5 In the transition T h e B a n k H a s H a d D i f f i c u l t y A d d r e s s i n g B o x 3 . 2 B a n k i n g R e f o r m i n C h i n a Carrying out a substantive dialogue on China's banking sector a diagnostic audit of several branches, which revealed worri- has proved challenging for the Bank. The magnitudes involved some operational procedures, but the larger purpose of begin- are staggering. Banking deposits are now 150 percent of GDP, ning a substantive dialogue on reforming the banking system was up from 30 percent in 1978. Most are in the former state-owned not accomplished. Although the project's outcome was consid- banks that lend with little regard for borrowers' ability to serv- ered satisfactory, the Bank, for a variety of reasons related both ice the loans, and the large proportion of nonperforming loans to reluctance on the side of the Chinese authorities and dis- creates worries about their fiscal implications. agreement within the Bank on the approach, has made no other In the past 10 years, although several loans have been pre- loans in the financial sector since 1993 and had no effective di- pared for the sector, the only Bank loan approved and disbursed alogue for about five years, between 1995 and 2000. Starting in was a Financial Sector Technical Assistance Project for US$60 2000, the Bank has ramped up its nonlending activities, produc- million in fiscal year 1993. The preparation and supervision of the ing four (informal) policy notes (on interest rate liberalization, de- project enabled the Bank to engage government officials on pol- posit insurance, bank supervision, and reforms of state banks), icy issues. This led to a reorganization of the central bank and but their impact on the pace and direction of reforms is unclear. Source: OED 2005e, p. 20, 2005a, pp. 73­75. 2 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S Selectivity among and economies, the initial dialoguewiththeBanktoworktogether,theyre- within broad priorities emphasis in the early mained very much in the driver's seat, deter- and mid-1990s on mining both the priorities and the pace of reforms. remains a challenge. rapid privatization of The Bank can neither take credit for the major medium-size and large achievements, nor be held responsible for the enterprises to promote private sector develop- major shortcomings of large, dynamic economies ment did not always achieve the intended im- such as China and India. pacts, because a supporting legal and institutional The transition economies presented both framework was not present (OED 2004l, p. 18; the Bank and the countries themselves with World Bank 2002c, p. 79). unprecedented challenges arising from the In two cases where the Bank's strategy was collapse of an entire regional system, the rated as substantially relevant, the actual lending breaking apart of nations, and associated program was less so. In Croatia, prior to fiscal year internal conflict and civil war. It was 2002, the government rejected proposals for ad- understandably difficult to reach consensus on justment and sector reforms in public adminis- the reform agenda, especially in the early and tration, the judiciary, health, and other sectors. The mid-1990s, and there was little capacity to resulting lending program focused much more implement reforms. Conflicts between the on infrastructure than the CAS proposals, and less executive and the legislative branches or on the reforms needed in public expenditure, between the executive branch and the bureau- debt, growth, and governance (OED 2004g, pp. cracy slowed progress. In Mongolia, the 21­22). In Morocco, commitment to reform among the political The subsequent lending the shifting of a sub- leadership did not spread to other branches of program sometimes turns stantial portion of the the government. The politicians responded by out to be less relevant than proposed lending pro- replacing civil servants, which improved politi- gram in the 1997 CAS cal cohesion, but seriously undermined the initial assistance from investment to ad- government capacity. In Moldova, there was a strategy. justment operations, façade of ownership of Bank-suggested along with the loose reforms, and only partial or deferred reform focus of the largest adjustment loan, the Policy Re- actions (OED 2004p, p. 21). In Russia, form Support Loan (PRSL), reduced the potential macroeconomic stability was difficult to for the program to make a measureable contri- achieve because the authorities lacked instru- bution to increasing the productive capacity of ments for indirect control of the economy and the economy and reducing poverty.6 Morocco's there was no consensus on how to spread the performance in growth and poverty reduction costs of adjustments (OED 2002e, p. x). has been disappointing compared with both the Among the seven modest- and poor- CAS projections and with other countries in the performing countries in the areas of growth and Middle East and North Africa Region. poverty reduction, Brazil was committed to reforms after the introduction of the Real Plan Country Ownership of the Reform Agenda in 1994. Jordan and Morocco were less commit- The six good-performing countries presented the ted to reforms once macroeconomic stabiliza- Bank with a favorable working environment. Gen- tion was achieved. Guatemala, Lesotho, Peru, erally committed to reform, the countries had a Zambia, and Zimbabwe have been politically clear idea of their priorities, well-established re- unstable at times. In Lesotho, the Bank was too form processes, and optimistic in the 1998 country strategy in stating Good-performing countries the administrative ca- that the May 1998 elections would lead to have provided a more pacity to implement greater democratization and stability (despite reforms. Although the negative 1993 election experience) and favorable working they were generally failed to include contingency plans in the event environment for the Bank. willing to enter into a that the democratization process fell apart, 2 2 D E V E L O P M E N T E F F E C T I V E N E S S AT T H E C O U N T R Y L E V E L which it did (OED 2001b, p. 13). The Bank tions of country The Bank sometimes overestimated the government's willingness to knowledge-sharing ac- overestimated country undertake civil service and parastatal reform in tivities and World ownership and capacity for Zimbabwe (OED 2004v, p. 8). Bank Institute (WBI) The Bank needs to be more careful in assess- learning programs reform. ing the political environment in which reforms also show the poten- will be implemented, as well as borrower tial of peer-to-peer exchanges and learning ac- receptiveness to Bank advice, willingness to tivities focused on country-specific problems, undertake difficult reforms, and capacity to development of action plans, and follow-up implement agreed-upon measures. When faced measures to enhance the use of knowledge with questionable ownership for reform or gained--but these kinds of activities account policy slippages, the Bank should be more for only a small proportion of Bank-supported prepared to reduce the level of planned knowledge-sharing efforts (OED 2003h, 2005f). assistance. It should be particularly prudent in Also, in settings where research and training ca- turnaround situations (box 3.3). pacities are weak, building cross-country pro- At the same time, the Bank can utilize ESW, fessional networks to meet knowledge needs knowledge transfers (including peer-to-peer has shown considerable potential and may be a learning), and support to nongovernmental ac- promising area for greater Bank support in the tors to foster greater ownership and build ca- context of weak ownership and capacity. pacity. ESW can help build increased understanding of why and how to improve a Economic and Sector Work country's public sector performance and help High quality and timely ESW has led to more build internal analytic capacity. But experience suitable assistance The Bank can use ESW, shows that the full potential of ESW to facilitate strategies, better de- greater ownership and capacity building is not velopment outcomes, knowledge transfers, and being utilized. This is in part because there has and reduced risks. In support to NGOs to foster been an incomplete diagnosis of capacity build- Vietnam, analytical greater ownership and ing constraints and inadequate participation of work demonstrating clients in the actual analysis and subsequent di- that rural poverty was capacity for reform. alogue on the findings of the work. Self-evalua- associated with a lack T h e B a n k N e e d s t o B e P r u d e n t i n B o x 3 . 3 T u r n a r o u n d S i t u a t i o n s In the early stages of its assistance to Bulgaria's transition, the new government exhibited commitment to sound macroeco- Bank overestimated client ownership and capacity to implement nomic and structural policies. a heavy volume of projects. It also did not invest sufficiently in In Mongolia, the Bank played an important role in stabiliz- reaching broad segments of the population with lessons of de- ing the initial crisis associated with transition. After the stabi- velopment to promote common understanding of the need for lization in 1993, the Bank was slow to shift toward a longer-term reforms. When the government reneged on its commitments strategy. The interventions adopted between 1993 and 1996 were for financial and enterprise reforms in 1996, the Bank learned short-term rather than systemic, sustainable approaches fo- its lesson and prudently delayed the processing of the Finan- cused on long-term development goals. In retrospect, greater pol- cial and Enterprise Structural Adjustment Loan. After the adop- icy and institution-building content in the lending program from tion of the currency board in 1997, the Bank maintained a the mid-1990s onward would have lent greater relevance to the cautious stance, delaying further adjustment lending until the Bank's program as the emergency receded. Source: OED 2005b, p.18, 2002a, p. 21, OED 2004p, p. 18. 2 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S of economic infrastructure was instrumental in in fiscal 1999 did not address fundamental steering the lending program toward infrastruc- problems in the sector, which an ongoing ture (OED 2005a, p. 8). In Armenia, a fiscal 2002 financial sector assessment had correctly identi- growth study, which analyzed the phenomenon fied (OED 2005b, p. 9). of limited income benefits from growth, had a sig- Assistance strategies in many countries nificant impact on subsequent adjustment lend- were based on a much stronger projected ing. The findings that a poor business climate and growth performance than warranted by past weak private sector capabilities were hindering country experience, or experience of other private sector activity were incorporated into the countries facing similar constraints and Structural Adjustment Credit IV and two subse- prospects. In Jordan, the Bank projected quent Learning and Innovation Loans (OED growth rates of over 6 percent annually in the 2004c, p. 13). In Jordan, a 1994 economic report 1990s, when the low level of investment (both that emphasized opening the country to trade as- government and private nonhousing) since sisted with the establishment of a partnership 1985 should have indicated much more agreement with European Union in 1999 and its modest projections. In Zambia, the Bank's accession to the World Trade Organization in economic projections for its fiscal 1996­2001 2000 (OED 2004l, p. 14). strategy failed to reflect the initial contraction In certain countries, even though the ESW associated with adjustment, the impact of the was timely and of good quality, the findings were failing copper mines, and the negative impact not incorporated into the Bank's strategy. In of HIV/AIDS, and failed to fully incorporate the Mongolia, Bank operations before fiscal year findings of analytical work on external debt 2000 did not include policy conditions, despite a management (OED 2002i, p. 13, 2005b, pp. 14- range of analyses and recommendations in 15). Unrealistic growth estimates entail real Country Economic Reports and Policy Notes. In costs for the countries concerned, including Jordan, Bank lending during the 1990s did not exacerbated debt situations. The Bank should address reducing the level of government have conducted more analytical work on the expenditures, despite sufficient analytical work sources and constraints to growth and on debt identifying how these expenditures could be sustainability issues based on more realistic reduced and better targeted. Jordan's govern- growth projections. It then could have made ment expenditures continued to hover around greater efforts to persuade countries to 40 percent of GDP during the 1980s and 1990s-- undertake deeper reforms to accelerate higher than in comparable countries, even economic growth, and to seek debt relief or allowing for Jordan's greater military expendi- other forms of concessional assistance, and tures. In Peru, the Financial Sector Reform Loan thus avoid overly high external debt burdens. G o o d C o u n t r y K n o w l e d g e I s E s p e c i a l l y B o x 3 . 4 I m p o r t a n t f o r F i r s t - T i m e o r R e n e w e d B o r r o w e r s a n d f o r S t o p - G o R e f o r m e r s In Vietnam, while awaiting approval to resume lending, the Policy notes between 1990 and 1991 built on the existing Bank built up its knowledge of the economy and provided a database and provided timely advice on the most urgent range of nonlending services including ESW. This nonlend- structural reforms and stabilization measures, which were ing assistance was extremely useful in developing the implemented by the newly elected government. In Bulgaria, Bank's relationship with Vietnam and for preparing subse- however, ESW was cut back when new lending stopped quent credits. In Peru, the analytic work during the nonac- after the 1994 financial crisis. ESW and other nonlending in- crual phase in the late 1980s was instrumental in building struments should be viewed as a long-term investment, re- a knowledge base that could be utilized once lending began. quiring regular maintenance. 2 4 D E V E L O P M E N T E F F E C T I V E N E S S AT T H E C O U N T R Y L E V E L Poverty Monitoring (OED 2004l, p. 4). Al- Monitoring poverty is Monitoring poverty is an integral part of though living standard critical for borrowers to fighting poverty, and essential for informed surveys were initiated track and improve their decision making and resource allocation. To quite early in a few achieve results, decisionmakers need informa- countries, they tended performance, and for the tion they can use to verify that they are on to focus on short-term Bank to measure its course and to improve performance (OED, labor market and social effectiveness. 2004a). It is also critical for demonstrating protection issues. The results. The Bank has emphasized that first comprehensive improved country outcomes on sustainable poverty assessments were carried out only in the growth and poverty reduction are its bottom- mid- to late 1990s. The lack of analytical work and line measure of development effectiveness monitoring indicators was an impediment to de- (World Bank 2002b). Better data on poverty veloping anti-poverty programs in many of the would help the Bank delineate and assess transition countries.7 In Armenia, analytical work results along the chain from interventions to on poverty was well linked to the Bank's lending outcomes and impacts. At the same time, program. This led to the establishment of a new poverty monitoring systems should be country- social benefit system, well-targeted to the poor, owned and sustainable, above and beyond which replaced a complex system of child al- donors' needs. lowances and other The Bank has supported clients in building benefits that had been The Bank was slow to their capacity for monitoring poverty provided to poor and realize the importance of outcomes. In China, the Bank's research on the nonpoor alike (OED poverty monitoring in the determinants and measurement of poverty has 2004c, p. 16). influenced both scholarly and policy views Among the poor- transition economies until (OED 2005a, p. 19). The Bank's Development performing countries, the mid to late 1990s. Economics department has worked closely the Bank did empha- with China's Bureau of Statistics, providing size periodic poverty training and advice on defining and measuring monitoring and analysis in Zambia, which has poverty and on the design of the household helped make the level and depth of poverty and survey and other monitoring activities. In the characteristics of the poor well known (OED Vietnam, the Bank's support for poverty 2002i, p. 11). But in Zimbabwe, a full Poverty As- analysis was in the forefront of its strategy and sessment has never been completed, which has is considered best practice. The Bank provided left a gap in the Bank's policy dialogue (OED technical assistance to the Vietnamese statisti- 2004v, p. 17). For instance, an agricultural sector cal office to carry out a living standards survey memorandum, apart from mentioning food in- and to analyze the results. The 1995 Poverty security and the need for a more equitable dis- Assessment not only provided a good baseline tribution of assets, made no reference to for monitoring the impact of economic widespread and deep poverty in rural areas. development on poverty, but also covered The Bank relies on borrowers' monitoring sys- relevant policy issues in public finance, such as tems to measure the impact of Bank interventions intergovernmental fiscal relations, and target- and whether CAS objectives are being attained, ing infrastructure investments and the since client countries are responsible for moni- provision of social services. This was followed toring the achievement of their poverty objectives. by another living standards survey and the 1999 But countries often have weak capacity to meas- Attacking Poverty report, which was highly ure poverty outcomes. Low-income countries, in praised in Vietnam (OED 2001f). particular, tend to have limited monitoring and In the transition countries, Bank support for evaluation capacity at the national and local lev- poverty monitoring came to the forefront too late els. A large share of the existing data collection ca- to influence decisionmaking early in the transition pacity is associated with donor-supported projects 2 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S Low-income countries have and is not connected poverty reduction strategy process has spurred to national or sectoral sustained interest in enhancing institutional ca- limited capacity for databases (OED pacity. In Albania, the PRSP crystallized the gov- monitoring and evaluating 2004s). With poverty ernment's decision to move ahead with poverty outcomes. data systems at a nas- monitoring activities in all ministries. In Tanzania, cent stage, most a broadly participatory mechanism for monitor- poverty reduction strategies are based on the ing has been introduced, which has substantively best available poverty profiles, which in some enhanced national processes for poverty moni- cases are incomplete or outdated. toring. In other countries, progress in improving In low-income countries, the poverty reduc- monitoring has been slow--a common stum- tion strategy process, under the principle of bling block has been the decision to track a large "results-orientation," aimed to stimulate the de- number of indicators, despite significant data mand for including challenges (in Mozambique, for instance). The The PRS Initiative has yet to monitorable indicators monitoring of results on poverty reduction re- in national poverty re- mains weak overall in poverty reduction strate- markedly improve the duction strategies and gies. Of 12 mature PRSP countries that had issued capacity of low-income improving in-country an annual progress report as of May 2004, only countries to monitor arrangements for mon- a few countries had enough data to assess itoring and evaluation. whether there had been progress toward achiev- poverty outcomes. In some countries, the ing the Millennium Development Goals. 2 6 4 Building the Climate for Investment, Jobs, and Sustainable Growth T he promotion of private sector investment has been at the core of the Bank's strategy for sustainable growth and poverty reduction since at least 1991. A healthy business environment is intended to increase in- vestment, and in turn to create jobs and raise the incomes of the poor. Pri- vate sector investment also requires an effective and accountable public sector in order to protect property rights and ensure equitable and consistent treat- ment under the law. The 2001 strategy recognizes the overlapping Institutions and Economic Growth nature of the investment climate and public The development research literature bears out the sector governance by associating them in a relevance of institutions for growth. Although single pillar (figure 4.1), even though the cultural and geographical factors may also affect responsibilities for their implementation are economic performance, differences in the qual- dispersed across four Bank vice presidencies.1 ity of economic institutions--broadly understood It also recognizes more explicitly than the 1991 as the "rules of the game"--have been found to strategy did that institutions affect growth by be the most significant source of sustained eco- shaping the incentives that private and public nomic growth in cross-country research (Ace- individuals face, and thereby influencing private moglu, Johnson, and Robinson 2004) as well as investment decisions, the ways firms organize in case studies (Rodrik 2003). However, recent re- their production processes, and the quality of search suggests that an acceleration of economic public regulation of business. The need for growth in many countries is not always associated reforms in the rule of law and public adminis- with major institutional Higher-quality economic tration to underpin the investment climate reforms (Hausmann, suggests that it may be most appropriate to Pritchett, and Rodrik institutions are the most pursue selective, step-by-step reforms based on 2004). Rather, growth significant source of in-depth, country-specific understanding and accelerates when se- sustained economic growth identification of the binding constraints on lective reforms or atti- investment in each country. tudinal changes occur across countries. 2 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E v a l u a t i o n E s s e n t i a l s 4 · The Bank's work on investment climate has improved since the early 1990s. · The Bank has increased its efforts to promote reforms in the rule of law and public administration. · The Bank could do more to harness the synergies between private sector development and public sector reform. · Designing appropriate reforms requires understanding the conditions that affect private sector activity in each country. · There is an urgent need to assess the impact of the Bank's work on public sector governance. in the political elite that relieves the local binding Improvement in public sector institutions constraints on economic activity. These constraints and the investment climate reduce poverty differ from country to country. For instance, Ro- primarily through their effect on overall drik and Subramanian (2004) found that the ac- economic growth. Better-developed financial celeration of growth in India in the early 1980s markets improve the allocation of capital by resulted from government's adoption of a more reducing informational and enforcement pro-business attitude toward economic develop- problems, which in turn increases the rate of ment (in response to the need for political sup- economic growth (Levine, forthcoming). port from business groups). Designing selective Removing imperfections in capital markets may reforms therefore requires specific understand- also reduce poverty by improving poor ing of the local conditions that affect private sec- entrepreneurs' access to credit. But there is tor activity. little evidence that improving the investment H o w a P o s i t i v e I n v e s t m e n t C l i m a t e a n d Q u a l i t y P u b l i c S e c t o r I n s t i t u t i o n s F i g u r e 4 . 1 C o n t r i b u t e t o E c o n o m i c G r o w t h a n d P o v e r t y R e d u c t i o n Investment climate · Macroeconomic · Improving the business environment stability · Privatization and enterprise · Financial and restructuring labor conditions · Infrastructure and services for · Barriers to entry private sector development and exit · Financial sector reform · Other risks and transactions costs Private sector Sustainable investment growth in traded and and non- poverty Public sector governance traded reduction · Rule of law · Rules and goods · Judicial reform constraints · Public administration and · Competitive civil service reform pressures · Public financial management · Voice and · Anti-corruption partnerships · Decentralizaion 2 8 B U I L D I N G T H E C L I M AT E F O R I N V E S T M E N T, J O B S , A N D S U S TA I N A B L E G R O W T H climate induces a poverty-improving shift in The Quality of Public the distribution of income in addition to its Sector Institutions Is impact on economic growth. There is some F i g u r e 4 . 2 Higher in the Good evidence that countries with high-quality Performers and the institutions have lower levels of income Transition Countries inequality and poverty (for a given level of income) than countries with low-quality 0.50 institutions (Chong and Calderon 2000a, b). 0.40 Corrupt bureaucracies and biased enforcement 0.30 of contract and property rights inhibits the poor from making investments in physical and 0.20 human capital that could raise their incomes. 0.10 Low-quality institutions also limit the ability of 0.00 the poor to hold public officials accountable. ­0.10 Evidence from the three groups of countries reviewed in Chapter 3 confirms the association ­0.20 between the average quality of public sector ­0.30 institutions and economic performance (figure ­0.40 4.2). But the six good-performing countries ­0.50 also demonstrate that it is possible to stimulate Voice and Political Government Regulatory Rule of law Corruption rapid economic growth, at least for a period of accountability stability efficiency quality time, without high-quality public sector institu- Good performers Transition countries Modest and poor performers tions across the board. Among the six good Note: By design, these indicators have an average of zero and a standard deviation of unity among performers, only Chile scores one standard all 199 countries in the survey. deviation above the mean on all six indicators Source: Kaufmann, Kraay, and Mastruzzi 2003. (table C.4). While the average score of the six good performers is above the mean on political The Quality of Public stability and government efficiency, it is well Institutions Improved below the mean on voice and accountability, F i g u r e 4 . 3 Markedly in the because China, Vietnam, and Tunisia all score Transition Countries low on this measure. The greatest improve- from 1996 to 2002 ments in the quality of public sector institu- tions between 1996 and 2002--the first and 0.50 latest years for which these indicators are 0.40 available--occurred in the transition countries (figure 4.3). 0.30 0.20 Bank Strategies and Assistance 0.10 0.00 Sector Strategies The Bank has shifted its private sector develop- ­0.10 ment strategy to a deeper focus on institutions ­0.20 as a result of its experiences in transition and in ­0.30 developing countries in the 1990s. In the transi- ­0.40 tion economies, the limited benefits of the Bank's initial focus on privatization and enterprise re- ­0.50 Voice and Political Government Regulatory Rule of law Corruption structuring suggested that more fundamental re- accountability stability efficiency quality forms were necessary for the full gains from Good performers Transition countries Modest and poor performers privatization to be realized. In developing coun- Source: Kaufmann, Kraay, and Mastruzzi 2003. 2 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S The Bank has shifted its tries, private invest- Region , the 1997 Asian crisis, and emerging re- ment in infrastructure search. The Asian crisis revealed weaknesses in fi- private sector development did not deliver the ex- nancial markets in affected countries and had major strategy to a deeper focus pected economic short-term impacts on poverty. The actions of gov- on institutions as a result gains. It was concen- ernments to address the crisis were generally of its experiences in trated in only a few deemed inadequate by private investors, and the cri- sectors (especially sis spread beyond Asia to Russia, Brazil, and (ulti- transition and developing telecommunications), mately) Turkey. The Asian crisis had one of the countries in the 1990s. unevenly distributed greatest fiscal impacts in history and adversely af- among developing fected the distribution of income, not only through countries, and dropped sharply after the 1997 its fiscal impact, but also through implicit net trans- Asian crisis. Bank lending for infrastructure proj- fers from poorer households to financial system ects declined from US$10.3 billion in 1993 to participants, as governments rescued and recapi- US$5.1 billion in 2002. The largest declines oc- talized failed banks (Serven and Montiel 2004; Halac curred in the electric power and water sectors-- and Schmukler 2003). In Indonesia, the most ad- two sectors in which private sector participation versely affected country, the incidence of poverty in- has proven to be less feasible than in other ac- creased from 17.7 to 24.2 percent (Kiguel 2004, p. tivities (OED 2003d, f). The critical challenges are 10). now viewed to be the design and implementation The Bank's 2001 Financial Sector Strategy of stable and effective regulation that takes into focuses on (1) improving the legal and judicial account which segments of each infrastructure environment, (2) strengthening banking systems, sector are naturally competitive and which are (3) promoting capital markets, and (4) finding naturally monopolistic, and the design of pricing market-based solutions to access to credit, in policies and subsidy mechanisms to increase ac- contrast to the Bank's 1992 Operational Directive cess to affordable services for previously un- 8.30 on Financial Sector Operations, which dealt served customers, generally the poorest (Kessides mainly with the macroeconomic environment, 2004, pp. 17 and 19). Whether infrastructure interest rates, and subsidized credit. The 2001 services are publicly, privately, nationally, or locally strategy is largely consistent with the current owned--or some combination of those--mat- literature on financial sector reform. ters less than that they are provided in a business- like manner in a stable, transparent, and effective Analytical Work regulatory environment. The Bank uses a large and diverse set of It is noteworthy that, with the exception of diagnostic tools and indicators (generated Chile, the six good-performing countries have both by the Bank and by other organizations) not implemented large-scale privatizations and to guide its work on investment climate and have borrowed less than the other countries for public sector governance. Most of these tools privatization (figure 4.4). China, India, and have been developed over the past five years Vietnam encouraged and address a wide range of issues that affect The Bank's financial sector private sector invest- each country's investment climate (table C.5). strategy now focuses on ment, leading to The Bank operationalizes the findings and improving the legal and economic growth, by information available from these tools in the judicial environment, means other than Country Policy and Institutional Assessment privatization. (CPIA), and thereby in Bank lending alloca- strengthening banking The Bank's evolving tions, and through CASs and programmatic systems, promoting capital approach to the finan- lending. In addition, some of these tools serve markets, and finding cial sector has been in- as global public goods, which can be used to fluenced by its motivate reforms through cross-country market-based solutions for experience in the Eu- comparisons and benchmarking. Almost all access to credit. rope and Central Asia provide specific country-level information to 3 0 B U I L D I N G T H E C L I M AT E F O R I N V E S T M E N T, J O B S , A N D S U S TA I N A B L E G R O W T H better analyze and design appropriate T h e G o o d - reforms. That these tools are currently P e r f o r m i n g managed by a variety of private sector C o u n t r i e s F i g u r e 4 . 4 development and public sector governance B o r r o w e d L e s s units in the Bank suggests the possible f r o m t h e B a n k f o r advantages of linking these tools in order to P r i v a t i z a t i o n ensure a unified approach to investment climate issues in the Bank. Good · Investment Climate Assessments (ICAs) survey performers managers and firms to systematically analyze conditions for private investment and enter- Transition prise growth and to monitor changes over countries time. Investment Climate Assessments have so far influenced the Bank's strategy in some counties, according to a work by Andrew Stone Modest and of the Bank's Middle East and North Africa Re- poor performers gion (2004). In Algeria, for example, after an ICA revealed that firms lacked access to land, the 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% most recent CAS incorporated reforms to in- Share of total Bank commitments for financial and crease the supply of public land and reform in- private sector development, 1990­04 dustrial land markets. Similarly, when the ICA Enterprise restructuring and privatization for Cambodia identified weaknesses in the Regulation and competition policy Infrastructure services for PSD rule of law, widespread corruption, and high Other financial and PSD bureaucratic costs as significant deterrents to Source: World Bank data. investment, the CAS included activities to in- crease transparency in the public sector. · The "Doing Business" Project gathers quanti- ideas rather than The Bank's work on tative indicators on business regulations and Bank financing are investment climate and their enforcement that will allow comparisons having the largest across more than 145 countries and over time. impact in countries public sector governance The indicators are based on assessments of that have not yet uses a large and diverse set laws and regulations, with input from and ver- made substantial in- of diagnostic tools and ification by local experts (unlike ICAs, which are stitutional and pol- based on surveys of firms). icy reforms. Second, indicators. · Institutional and Governance Reviews (IGRs) IGRs are helping the trace the institutional roots of weak govern- Bank better identify "good fit" approaches to ment performance and offer practical recom- institutional and policy reform. The IGR for Ar- mendations for improving government menia has had several notable impacts, such operations and development strategies. These as influencing the government's strategy for are intended to inform the Bank's country health sector reform, according to another strategies, identify institutional weaknesses PREM study (PREM 2002b). that undermine government performance, help set operational priorities based on insti- Bank Lending tutional and political feasibility, and contribute Total Bank lending for public sector governance, to better project designs. Two lessons have so rule of law, and financial and private sector de- far emerged, according to a study by the velopment combined has averaged around 40 Poverty Reduction and Economic Management percent of Bank commitments since 1990, with vice presidency (PREM) (PREM 2002a). First, no significant trend up or down. Lending for in- 3 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S Bank lending for core frastructure services successful outcomes.4 This strongly suggests has rebounded (in that Regional units that are members of the investment climate projects line with the new In- Financial Sector Board should be closely and financial sector reform frastructure Action involved in quality control (whichever sectoral has had more satisfactory Plan), and that for pri- unit has overall responsibility for the project), outcomes than Bankwide vatization continues and financial sector specialists should be to decline (figure assigned to supervise the components (OED averages. 4.5).2 The most rapid 2005e, pp. 31-32). growth among the The same OED study also found that public sector governance themes is occurring in countries that borrowed from the Bank for public expenditure and financial management financial sector reforms made more progress and administrative and civil service reform ­ than nonborrowers in reducing both govern- the areas emphasized in the 2000 public sector ment ownership of banks and the spread strategy, and in which the Bank is perceived to between lending and borrowing interest rates have a comparative advantage. An OED review (a proxy for efficiency of the financial sector). of a sample of 24 recently completed CASs from But credit to the private sector (measured by 2001 to 2004, representing all the Bank's Re- claims on the private sector by the banking gions, also revealed an increasing focus on tra- system) grew less rapidly in countries that ditional public financial management issues. borrowed from the Bank, and remains very The most recent CASs, such as those for Arme- low--at less than 30 percent of GDP in the 62 nia, Bolivia, Ghana, India, and Tunisia, focused borrowing countries for which information was more on this issue compared with CASs from the available, and less than 10 percent in 17 beginning of the period, which had also em- countries. The Bank has also had limited phasized more fundamental reforms such as success promoting microfinance for the poor improving the legal system. (box 4.1). The outcomes of Bank lending for core investment climate projects and financial Key Constraints to Achieving Positive sector reform were more satisfactory than the Results Bankwide averages between 1993 and 2003 The impact of Bank lending has been less (figure 4.6).3 The recent OED study on Bank satisfactory in certain sectors--such as private assistance for financial sector reform also found sector development, public sector governance, that the outcomes of financial sector projects and rural development--than is suggested by under the control of regional units that are the outcome ratings on individual projects in members of the Financial Sector Board those sectors, according to a recent review of exceeded by a significantly different 20 25 CAEs (OED 2005ba, pp. 5-6). The political percentage points--88 to 69 percent--the economy of the reform process tends to be outcomes of financial components of multisec- more problematic in these sectors. Successful tor projects under the supervision of other outcomes are more dependent on economy- Bank networks. This probably results, on the wide factors such as macroeconomic stabiliza- Bank side, from the preparation of projects by tion and fiscal deficits, and also on institutional specialized staff, the reforms and capacity building, which take time. Countries that borrowed review process within the network prior to for financial sector reforms loan approval, and Domestic Political Economy have made more progress the quality of Bank The Bank's contrasting experiences in Turkey than non-borrowers on supervision, all of and Romania illustrate the importance of politi- which focus more cal commitment for implementing investment reducing government resources and more climate reforms. In Turkey, the Privatization ownership of banks. effort on achieving Implementation Assistance and Social Safety Net 3 2 B U I L D I N G T H E C L I M AT E F O R I N V E S T M E N T, J O B S , A N D S U S TA I N A B L E G R O W T H L e n d i n g f o r I n f r a s t r u c t u r e S e r v i c e s H a s F i g u r e 4 . 5 R e b o u n d e d i n t h e P a s t F i v e Y e a r s Infrastructure services for PSD (12%) Public expenditure and financial management (14%) Administration and civil service reform (9%) Rule of law (6%) Decentralization (6%) Tax policy and administration (5%) Regulation and competition policy (13%) Enterprise restructuring and privatization (14%) ­15% ­10% ­5% 0% 5% 10% 15% 20% 25% 30% Average annual growth rate in Bank commitments, 2000­04 (log-linear trend) Note: The numbers in brackets on the left vertical axis represent the share of total commitments to investment climate and public sector governance, by thematic area, from 2000 to 2004. Source: World Bank data. Project (approved in 1994) did not achieve its legal system successfully nullified the proposed objectives of accelerating privatization and laying privatizations (OED 2001e). In Romania, the the foundation for further divestiture of state- Private Sector Adjustment Loan (approved in owned enterprises, because broad-based politi- 1999) supported the passage of a law on collat- cal support for the project was absent and the eral and the establishment of a registry for M i c r o f i n a n c e I s a H i g h - P o t e n t i a l P o v e r t y - B o x 4 . 1 R e d u c t i o n T o o l T h a t I s D i f f i c u l t t o S c a l e U p Individual microfinance institutions have demonstrated that of performance indicators. The Bank has also provided over they can both achieve financial sustainability and serve the $70 million in grants to the Consultative Group to Assist the poor. Impact assessments of the Bangladesh Rural Advance- Poor (CGAP), a global partnership program that promotes mi- ment Committee (BRAC) and the Grameen Bank have demon- crofinance for the poor. While CGAP has been successful in strated their ability to help the poor increase their assets and spurring innovation and learning it has been less successful in their incomes. fostering national policy environments conducive to micro-fi- Recognizing the potential of microfinance as a poverty re- nance. CGAP's linkages to the Bank's country operations have duction tool, the Bank has supported it, but with limited success. been minimal. Its current strategy observes that "it is becoming Although it has provided more than US$1.7 billion in microfinance increasingly apparent that large-scale sustainable microfi- and small and medium-size enterprise lines of credit since 1995, nance can only be achieved if financial services for the poor are these projects have not received satisfactory scores on an index integrated into the overall financial system." Source: OED 2004h. 3 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S I n v e s t m e n t C l i m a t e reform was absent. The Public Sector Reform a n d F i n a n c i a l S e c t o r and Export Promotion (PSREP) Credit was initially F i g u r e 4 . 6 P r o j e c t s H a v e B e e n premised on securing civil service reform with M o r e S u c c e s s f u l the agreement of the president and Ministry of t h a n Av e r a g e Finance. However, when serious opposition sur- faced from affected civil service groups, the 100 PRSEP had to be refocused. The Bank has now opted for a more gradual approach, extending 95 Adaptable Program Loans for public service re- 90 form over the anticipated time frame of at least (%) 85 a decade (OED 2003j). 80 Economic and financial crises are often a catalyst for initiating reforms in both the invest- outcomes 75 ment climate and public sector governance (box 70 4.3). In Russia, the Bank found that the govern- 65 ment was not interested in engaging in discus- Satisfactory 60 sions with respect to good governance, fiscal 55 management, or public financial accountability 50 until the 1998 financial crisis. Since the crisis, the Core investment Financial All Bank Bank has supported capacity building, especially climate sector projects in public administration, judicial reform, revenue and expenditure management, and Note: Percent satisfactory outcomes of projects exiting the portfolio between 1993 and 2003, inclu- financial accountability. The Bank has prepared sive. Core investment climate projects comprise the following themes: corporate governance, judicial reform and other dispute resolution mechanisms, the legal institutions of a market economy, personal position papers to assist the government's and property rights, and regulation and competition policy. Financial sector projects comprise finan- deliberations on modernizing public administra- cial sector adjustment loans, financial sector components in multisector loans, and financial sector technical assistance loans. tion. Recent and ongoing ESW covers public Source: OED 2005d, e. investment, anti-corruption, and federal budget management, while other donors are funding secured transactions to facilitate private sector reviews of public expenditures in specific development. The project achieved positive re- sectors (OED 2002e, pp. 22­23). sults because of the government's commitment Crises provide opportunities for reform to reform, even though the economy experi- both by revealing systemic problems in either enced some economic turmoil at the time (OED the investment climate or public sector 2003g). The Bank's experiences in Pakistan and governance and by altering the incentives faced Bangladesh also illustrate how government by powerful groups or individuals that were commitment made all the difference in relation previously able to block the reforms (Alesina to financial sector reforms (box 4.2). and Drazen 1991; Rodrik and Fernandez 1991). In Zambia, little progress was made in the 1990s in recasting the role of the state; revising Public Sector Capacity human resources and remuneration policies, To ensure high-quality public services, promoting administrative and fiscal decentral- countries need to complement reforms with ization; and enhancing planning, budgeting, and sustained capacity building. Capacity building expenditure management (OED 2002i). Although has long been a goal of Bank interventions. adjustment lending Until the late 1990s, these interventions Economic and financial supported civil service focused primarily on reorganizing government crises are often a reform and downsiz- units and building individual skills. Influenced ing until late in the by the 1997 WDR, The State in a Changing catalyst for initiating 1990s, the broad sup- World, the Bank has broadened its approach to reforms. port required for such include strengthening public institutions and 3 4 B U I L D I N G T H E C L I M AT E F O R I N V E S T M E N T, J O B S , A N D S U S TA I N A B L E G R O W T H P a k i s t a n a n d B a n g l a d e s h : G o v e r n m e n t B o x 4 . 2 C o m m i t m e n t M a k e s A l l t h e D i f f e r e n c e Pakistan began to reform its financial sector in the late 1980s, government was insufficiently committed to addressing the cor- but the limited measures taken (such as partial privatization of ruption and governance problems plaguing the sector. By the late two state banks) failed to make significant improvements. Only 1990s, half of the loans were nonperforming; the large state- after Pakistan experienced a banking crisis in 1996 did the gov- owned banks practiced insider lending, fraud, and negligence; ernment begin to tackle the serious issues facing the sector, and the enforcement of prudential regulations by the central bank including poor governance; rampant default by large, well- was lax. So, for 10 years, Bank lending to Bangladesh concen- connected borrowers; over-staffing; and undue interference by trated on microfinance, which was intermediated by specialized labor unions in bank operations. The Bank has supported the re- institutions outside the banking sector. Bank lending for finan- forms with a series of loans. Significant progress has been cial reforms resumed in 2003, with a multisector credit to address made in downsizing and restructuring the large state banks. Cen- prudential regulations and bank restructuring, with a view to tral bank supervision has improved and prudential regulations eventual privatization. Although stronger prudential regulations have been strengthened. have been passed, political opposition to bank privatization Bangladesh, too, borrowed from the Bank in the early 1990s has been stronger than expected and the process of preparing for financial sector reforms, but with poor results because the banks for privatization has been slower than planned. Source: OED 2005e, p. 21. stimulating public demand for performance improve- the Bank's investment lending to the Region, as well as ments. It has made a special effort to address public a significant share of adjustment lending, is directed to financial management, accountability, and public capacity building activities. Much of this work takes the administration in support of the decentralization of form of training and technical assistance activities em- service delivery. And it has added new diagnostic tools bedded in discrete operations. This fragmented approach for assessing countries' capacities for managing their makes it difficult to capture cross-sectoral issues and op- public financial resources. portunities and to learn lessons across operations. Tech- The public sector in the Africa Region is generally nical assistance and training have not generated sustainable weaker than in other Regions. More than one-quarter of improvements in public sector performance. Public agency W h a t a D i f f e r e n c e a ( N e a r ) C r i s i s B o x 4 . 3 ( S o m e t i m e s ) M a k e s . . . A change in government, or at least a change in govern- all banks had been privatized and the banking system was ment's approach to its investment climate, has often fol- fairly healthy. lowed a financial crisis, near crisis, or widespread insolvency. In Albania, for example, the Bank had supported . . . But not always reforms through two Financial Sector Adjustment Credits Mongolia began its transition to a market-based economy in (FSAC) and one Technical Assistance Credit, neither of which 1991 and experienced banking crises in 1992, 1994, 1996, and addressed underlying governance issues. Only after the pyra- 1998. The fiscal year 1997 FSAC and Technical Assistance mid crisis in 1996­97 and the subsequent civil unrest was the Credit supported liquidation of two banks, the establishment new government ready to engage in real reforms. The Bank of two new public banks, debt recovery mechanisms, and the supported this effort with three Adjustment and two Techni- establishment of a credit information bureau, but no change in cal Assistance Credits that aimed to resolve the pyramid governance. Only in the FSAC and Technical Assistance Credit scheme fallout, liquidate or privatize banks, and establish an of fiscal 2000 did the government agree to divest one state asset management company to handle bad debts. By mid-2004, bank and to put in place a clear exit policy for troubled banks. Source: OED 2005e, p. 34. 3 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S The Bank has broadened staffs are often trained organizational, and human resource changes capacity building to for specific tasks be- needed to improve sector and cross-sector pub- fore they are in posi- lic sector performance in an integrated way. include strengthening tion to use the public institutions and training, or without Public Sector Corruption stimulating public demand measures taken to re- Corruption continues to hamper public sector tain them. Training and performance and reduce private sector invest- for performance technical assistance ment in many countries, resulting in slower improvements. generatesustainedim- growth (Mauro 1995). In the presence of provement only if ap- corruption, businessmen must often pay up- plied within a broad human resource management front bribes before starting an enterprise and framework linked to organizational and institu- continue to pay corrupt officials part of the tional change. proceeds from the investment afterwards, Public sectors are often weak, not just thereby reducing their returns. If there is because of their lack of capacity, but also uncertainty about the number of necessary because their weakness benefits powerful bribes, investment declines further (Shleifer interests that seek to avoid taxation, regulation, and Vishny 1993). Corruption can also affect or other reforms. External assistance can help income inequality through biased tax systems on both the supply and demand sides of the and poor targeting of social programs, as well process--by providing inputs to enhance the as through its impact on asset ownership, functioning of the public sector and by human capital formation, education inequali- strengthening structures of demand and ties, and uncertainty in factor accumulation accountability. But it cannot directly influence (Gupta, Hamid, and Rosa 1998, p. 6). the cultural norms and political economy An examination of the CPIA and the Interna- underpinning the demand for public sector tional Country Risk Guide (ICRG) indexes of performance. Therefore, capacity building corruption reveal that corruption remains a efforts will only succeed where there is existing deeply rooted problem. The degree of corrup- demand and interventions are country-owned tion does not differ significantly among the rather than donor-driven. three groups of countries reviewed in Chapter Country strategies in Africa are gradually adopt- 3 (figure 4.7). The ICRG index of corruption ing a more integrated approach to capacity build- suggests that the average degree of corruption ing. All recent CASs--unlike those of earlier has increased in all three groups in recent years--include at least one sector or cross-sector years, while the CPIA index implies that it has operation with major capacity building aims. decreased somewhat in the good performers Country strategies have also shifted toward sec- and the transition countries since 1999. torwide programs and toward budget support The persistence of high levels of corruption in through Poverty Reduction Support Credits good-performing countries provides additional (PRSCs), which set a broad strategy framework for evidence that countries can achieve rapid rates the identification of long-term capacity building of economic growth for a period of time without needs. These changes are relevant because they high-quality public institutions across the board. recognize that capacity building is a long-term In China, a 2002 World Bank Client Survey found process that requires a systemic approach and at- that corruption was one of the two most tention to demand as well as supply. A few recent frequently considered challenges facing the projects make capacity country (OED 2004g, p. 3). In Vietnam, a weak Country strategies in Africa building their primary enforcement environment and an inadequate are gradually adopting a objective. Like the ex- regulatory regime in its transition to a more ample in Mozambique market-oriented economy have increased the more integrated approach (box 4.4), these ad- opportunities for corruption (OED 2001f, p. 4). to capacity building. dress the institutional, In India, the variable enforcement of laws and 3 6 B U I L D I N G T H E C L I M AT E F O R I N V E S T M E N T, J O B S , A N D S U S TA I N A B L E G R O W T H M o z a m b i q u e T a k e s a n I n t e g r a t e d A p p r o a c h B o x 4 . 4 t o R e f o r m i n g I t s P u b l i c S e c t o r The Bank and other donors are supporting Mozambique's am- structure to encourage the recruitment and retention of staff. bitious 10-year Public Sector Reform Program, which aims to It will also strengthen expenditure management and ac- give the rural poor better access to services by decentraliz- countability. The Bank project features an innovative Perfor- ing the country's highly concentrated government functions. mance Improvement Facility, a dedicated fund that ministries The reform program combines reorganization of individual can tap to pay for restructuring and decentralizing the serv- ministries and units with systemwide reform of the salary ices they manage. Source: OED 2005f. regulations, along with low civil servant salaries, to be done. Rather than across-the-board has contributed to high levels of perceived reforms, it may be better to pursue more corruption in the judicial systems and among the selective, step-by-step reforms that address the police (OED 2001a, p. 6). specific forms of corruption in each country, The Bank has made a concerted effort, since whether motivated primarily by rent extraction the launch of its anti-corruption strategy in by public authorities or by rent-seeking by 1997, to raise the profile of corruption as a private interests. significant governance problem by raising The Bank could also Corruption continues to international awareness, encouraging debate, work with its global de- hamper public sector engaging in research and analysis, and dissemi- velopment partners to performance and reduce nating information about good practices for address corruption reducing corruption. But much work remains through global part- private sector investment. P u b l i c S e c t o r C o r r u p t i o n R e m a i n s D e e p l y F i g u r e 4 . 7 R o o t e d i n A l l T h r e e G r o u p s o f C o u n t r i e s CPIA: Index of transparency, accountability, and corruption ICRG: Index of corruption 6.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 1.0 1.0 1999 2000 2001 2002 2003 1990 1992 1994 1996 1998 2000 2002 2004 Good performers Transition countries Modest and poor performers Source: Country Policies and Institutional Assessment (CPIA): index of transparency, accountability, and corruption in the public sector. International Country Risk Guide (ICRG): index of corruption. Both indices utilize a 6-point scale--the higher the index, the less the corruption. 3 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S The Bank could work with nership programs. The Bank industries--oil, gas, and mining--are at particular its global development has been a founding partner risk of corruption, rent-seeking, and government in three related global pro- ineffectiveness. Collecting and managing revenues partners to address grams--the Global Corpo- in the public interest, enforcing social and environ- corruption through global rate Governance Forum mentalregulations,andformulatingpoliciestouse partnership programs. (GCGF), the Financial Sec- the resource endowments for sustainable growth tor Assessment Program all require greater transparency and good (FSAP), and the Financial Sector Reform and governance (OED 2003e, p. 11). Almost half of Strengthening Initiative (FIRST)--which were es- Bank-supported extractive industries projects tablished following the 1997 Asian crisis. The GCGF approved during 1993­2002 had at least one has supported public-private dialogues in every component that addressed transparency and Region to raise awareness of country-level institu- governance issues such as property rights, tional frameworks and practices of corporate gov- accounting and auditing standards and practices, ernance and build consensus for improving them. disclosure of information, and public consultation. FSAP and FIRST are working to strengthen coun- These components were generally narrow in try-level capacity for macroeconomic management, scope and not linked to the Bank's overall the banking system, and securities, insurance, and assistance strategies or analytical work on other financial markets--FSAP by diagnosing governance. strengths and weaknesses in these financial systems, In Papua New Guinea, though, the Bank and FIRST by providing technical assistance to took a more thorough approach. Key ESW strengthen them. The products (1995 Public Expenditure Review and Economies that depend on GCGF also supports 1999 Country Economic Memorandum) identi- revenues from extractive networks that ex- fied macro-level governance issues (such as change and dissemi- the lack of transparency in government industries pose extra nate information about operations and high levels of corruption) and challenges for the effectivereformstrate- integrated these into the CAS and the lending governance agenda. gies and techniques program. Lending for the mining and gas through toolkits and industries addressed sectoral governance case studies. OED's recent review of the Bank's in- issues such as enhancing affected communi- volvement in global programs found that there is ties' knowledge of sector policies and laws, definitely a role for global advocacy programs in ad- strengthening sector regulations, monitoring vancing the reform agenda. But it is important for and supervision, and encouraging tax audits of such programs to be well constituted and gov- mining and petroleum companies. But the erned, with clearly established objectives that are policy dialogue on the governance issues came agreed upon by both industrial and developing after private investments in the extractive country partners at the outset (OED 2004b). industries had already been made, giving the Bank little leverage. This experience suggests Extractive Industries that the Bank should sequence governance The Bank and the development community have work in the extractive industry sectors ahead long been aware that economies of promoting new investments and coordinate that depend on revenues from extractive them with governance work in other sectors. 3 8 5 Empowering Poor People to Participate in Development and Investing in Them H uman capital development has been at the core of the Bank's strat- egy to reduce poverty for over two decades, both for the intrinsic value of health and education in improving income and other dimensions of well being and for their contribution to empowering the poor. During the 1990s, Bank operations aimed effective delivery of quality education and mainly to expand service delivery by supplying health services and access to well-designed physical facilities and staff training (OED 2000a). safety nets This supply-side approach often neglected · Empowering the poor, which advocates cre- institutional and governance barriers, in- ating opportunities for empowerment and grained inequalities and gender biases, and the building social capital for making the poor ac- factors affecting demand for services. System- tive participants, rather than just passive re- atic attention to monitoring and evaluation was cipients of development, and for making state lacking, which led to knowledge gaps about the institutions more accountable and responsive impact of interventions on the poor. Drawing to their interests. on experience, multidisciplinary research, and consultations with the poor themselves,1 the Increasing the Capabilities of the Poor Bank has revised its strategy to recognize that The Bank has translated its interest in human effective institutions and delivery systems are capital into a focus on the provision of social as important as economic growth for reducing services, supported by large volumes of poverty. This chapter is concerned with the financial assistance as well as analytic work second pillar of the Bank's 2001 strategy, that links investment in human capital with empowering poor people to participate in key correlates of income poverty. The development and investing in them, which has changing composition of the Bank's aggregate two components: portfolio reflects a pattern of lending that is increasingly favoring investments targeting · Increasing the capabilities of the poor, which the access of the poor to basic social services promotes human capital development through (figure 5.1). 3 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E v a l u a t i o n E s s e n t i a l s 5 · Substantial lending has been directed to the provision of social services and to social development activities. · The Bank has conflated increased expenditures in education and health with reducing poverty, but their actual impact on poverty has been inadequate. · The Bank has carried through with its intention to promote empowerment through social development activities, but both the intended and actual poverty impact of this type of intervention remain to be demonstrated. Social Sector Expenditures and Poverty plenishment agreements (IDA 10-12) have re- Reduction quired IDA management to increase the share of Increasing spending on the social sectors is in- investment lending allocated to projects in these tended to expand access to social services and sectors. The IDA 12 report of 1999, for instance, achieve MDG human development targets. The recommended that lending to social sectors rep- Bank has tended to equate increased social sec- resent about 40 percent of investment lending tor expenditures with reducing poverty, and it has (OED 2002c). The IDA 13 replenishment rec- accordingly encouraged borrowing countries to ommendations further advocated the expansion increase and protect their levels of social ex- of social services and outlined specific outcome penditures. Four main targets (World Bank 2002a). Second, adjustment Increased social sector factors underlie this lending, while not governed by donor recom- expenditures are necessary focus on increasing mendations, has also increasingly focused on expenditures in the the social sectors. Adjustment lending for these but not sufficient for social sectors. First, re- sectors rose from 13 percent of total adjustment poverty reduction. cent IDA donor re- lending in fiscal year 1993 to 28 percent in fiscal 2003.2 Third, the HIPC Initiative has required beneficiary countries to allocate the funds "freed B a n k L e n d i n g H a s up" from debt service to public expenditures in I n c r e a s e d the social sectors. An OED review of the HIPC S i g n i f i c a n t l y Initiative found, however, that these additional F i g u r e 5 . 1 f o r E d u c a t i o n , budgetary resources have often been superim- H e a l t h , a n d O t h e r posed on weak institutions and do not address S o c i a l S e r v i c e s the core constraints to improved sector per- formance (such as low efficiency of expendi- 35 tures, poor service quality, and weak capacity) (%) 30 (OED 2003b). And, finally, the commitments to achieving major reductions in poverty and social 25 inequality by 2015, as manifested in the MDGs, have further supported calls for increased pub- commitments 20 lic spending on the social sectors.3 new 15 Reaching and Responding to the Poor total of Increased spending must be combined with 10 measures to ensure that expenditures on Share education and health will reach poor popula- 5 tions. Recent research findings from public 0 expenditure incidence analysis show that 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 spending typically is skewed to services dispro- Source: World Bank data. portionately used by the rich and the middle 4 0 E M P O W E R I N G P O O R P E O P L E T O PA R T I C I PAT E I N D E V E L O P M E N T A N D I N V E S T I N G I N T H E M class, or fails to reach frontline providers. The livery of services and Increasing expenditures share going to the poorest 20 percent is almost neglected needed in- does not ensure that always less than 20 percent (World Bank, stitutional or sectoral services will reach the poor. 2004k). In the Dominican Republic, education reforms, thus putting and health expenditures benefit urban areas at risk the sustainabil- more than rural ones (OED 2003c). In China ity of attained improvements in quality (OED and Vietnam, although services are reaching 2002d). In Croatia and Russia, Bank assistance to the poor, the responsiveness of these services the health sector was primarily focused on phys- to local needs could be improved with more ical infrastructure, but neglected to address in- local input (OED 2005a, 2001f). An OED review centive issues and capacity problems, and gave of the Bank's health, nutrition, and population insufficient attention to improving efficiency and (HNP) portfolio pointed out that institutional retargeting expenditures (OED 2004g, 2002e). analysis, including analysis of borrower At the same time, a balance between "hard- ownership and client demand, had a strong ware" and "software" approaches (focusing influence on project outcomes. Yet assess- on sector reforms, Bank operations to the ments of state, political, and social institutions strengthening of in- were not commonly used to inform either Bank formation manage- social sectors have usually strategy or project design. ment systems, human met their physical and resource develop- quantitative output targets Output Targets and Sustainability of Outcomes ment, and continuous Bank-supported projects in the social sectors results monitoring and but have been less are generally successful in meeting their goals, assessment) has led to successful in improving as measured by evaluation findings (figure 5.2). better outcomes. The human development What impact do these operations have on Bank's experience poverty reduction? Country Assistance Evalua- with health reform in outcomes. tions (CAEs) for the 21 countries reviewed in Chapter 3 provide a country-level perspective on this question. In these 21 countries, 127 S o c i a l S e c t o r education and health projects have closed and P r o j e c t s G e n e r a l l y been assessed. In 19 of the 21 countries, the F i g u r e 5 . 2 D o A s W e l l A s o r projects met their physical objectives, resulting B e t t e r T h a n t h e in such improvements as increased coverage of B a n k A v e r a g e primary education and health care services; 100 training of teachers and health workers; better facilities management; and improved supply of 95 teaching materials, drugs, and medical 90 (%) 84% equipment. 85 In 16 of these countries, however, projects 80 77% 75% were less successful in helping to improve edu- outcomes 75 cation and health outcomes (such as better learn- 70 ing achievement and attainment and improved 65 health status) and in fostering necessary sector and institutional reforms. The projects' impacts Satisfactory 60 were limited by complex and ambitious project 55 designs, lack of grounding in the countries' fis- 50 cal and institutional contexts, and an over- Education Health All other centralized approach to sector management. In Note: Percent satisfactory outcomes (weighted by disbursement) for projects exiting the portfolio dur- Peru, for example, the Bank's primary educa- ing fiscal years 1995 to 2004, as assigned to sector boards. tion project focused on reconstructing the de- Source: World Bank data. 4 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S Outcomes are better when five Eastern European didnottakeaccountofgovernmentownershipand interventions are linked to countries shows that absorptive capacity (OED 2004g). The Bank's in- capital investments volvement in global health programs also demon- institutional reforms and alone are only mod- strates that increased expenditures without support for capacity estly successful in attention to absorptive capacity puts in doubt development. bringing about re- both the achievement of outcomes and their sus- forms or significant tainability (box 5.2). improvements in service quality or efficiency (OED 2002g).4 Outcomes were better when in- Public Expenditure Reforms and Social Sector vestments were carefully linked with institu- Performance tional reforms and complementary support for A common approach for developing institu- capacity development. In Ghana, substantial in- tional capacity and promoting reforms in the vestments in school infrastructure in the context social sectors has been the strengthening and of a government-led sector reform were able to reform of public expenditure management yield significant benefits (box 5.1). systems, which are key to improving a country's Strong institutional, implementation, and ab- ability to use its development resources sorptive capacities at the sectoral ministry level, and efficiently and effectively. These efforts have at the regional and municipal levels in decentral- typically addressed bureaucratic inefficiencies ized systems, have been associated with improved and inputs: reform of tax administration, outcomes and durable impacts. In Brazil, Bank improved budget processes, introduction of programs have helped the state and municipal medium-term expenditure frameworks, and governments to build their capacity to manage integrated financial management systems. But their finances and infrastructure. Bank education these attempts have usually fallen short of projects that reflect this strong emphasis on man- addressing the structural and governance agement and attainment of minimum operational bottlenecks that affect outcomes and impacts. standards have generated gains in management The greatest success has been in technical areas and efficiency that are or areas that receive political support, such as Public expenditure reforms pre-conditions for bet- tax administration (which promises increased ter learning outcomes. government revenue at least in the short term). usually fall short of This is in sharp con- But capacity building efforts have progressed addressing structural and trast to Bank projects slowly in other areas of deeply rooted institu- governance bottlenecks in Brazil initiated in the tional constraints related to governance and early 1990s that led to implementation issues (OED 2005g). OED's that affect social sector unsatisfactory out- evaluation of closed education and health performance. comes because they projects in Sub-Saharan Africa, for instance, I n p u t s D o M a t t e r . . . i n t h e C o n t e x t o f B o x 5 . 1 S e c t o r R e f o r m In Ghana, the Bank has provided close to US$260 million in sup- covery. The Bank's policy conditions, finance, and technical port of school construction and equipment since 1986. This sup- assistance were instrumental in helping maintain the mo- port for inputs has had a substantial impact on educational mentum behind the reforms. Both educational attainment and achievement because it was provided in the context of a achievement have risen, and improved educational perform- sweeping reform program, to which Ghana's government was ances have been clearly and strongly linked to better welfare, strongly committed. The reform focused on the politically dif- as measured by higher income, better nutrition, and reduced ficult issue of enhancing efficiency and increasing cost re- mortality. Source: OED 2004d. 4 2 E M P O W E R I N G P O O R P E O P L E T O PA R T I C I PAT E I N D E V E L O P M E N T A N D I N V E S T I N G I N T H E M G l o b a l D i s e a s e C o n t r o l P r o g r a m s A r e B o x 5 . 2 S t r e t c h i n g H e a l t h D e l i v e r y S y s t e m s Global programs--such as UNAIDS, Stop TB, and Roll Back stretched health delivery system capacities in developing coun- Malaria-- have helped to increase donor funding for combating tries. These pressures strain the absorptive capacity of many de- communicable diseases. The thematic composition of the Bank's veloping countries to use the new funding for communicable health sector lending has followed suit. Since 1992, while over- diseases without complementary investments in their health all health sector commitments have grown by 3.6 percent a year, delivery systems. Indeed, disbursements in communicable dis- lending for communicable diseases has grown by 8.6 percent a ease programs have yet to match the increase in commitments. year, and for HIV/AIDS by 16.7 percent a year. This changing Disease-specific activities can be supported over the long run composition of Bank lending for prevention and treatment of only if complemented by support for building and strengthening communicable diseases has put strong pressures on already systems of surveillance, testing, diagnosis, and prevention. Source: OED 2004b. found that the Bank's technical assistance was central ministry. But in the same country, the largely ineffective because it failed to address Bank's failure to do any formal analysis of systemic public sector weaknesses, including health and nutrition issues made it ill-equipped lack of coordination within and among govern- to support two complex HNP projects that ment agencies, inappropriate organizational eventually failed to meet their objectives (OED structures, and the inability of the civil service 2001b). to attract and retain good people (OED 1999b). These are all public sector governance Empowering the Poor problems that education and health line The increased focus on empowerment rests on ministries need help in addressing. the belief that transferring certain decisions from public bureaucracies and into the hands Quality of Analytic Work of communities or groups of beneficiaries will Appropriate and good quality, sector-specific help services work better and institutions more analytic work, with accurate diagnosis of accountable. Activities with social development service delivery issues, has significantly themes are the principal means by which the contributed to better project designs and Bank is supporting the empowerment of the human development outcomes. In Chile, the poor and the build-up of social capital (box Bank's analytic work and advice were key in 5.3). Social development is defined by the Bank launching institutional reforms that helped as a process that begins with the needs and further decentralize the health system and demands of the poor and works toward trans- establish a complementary public-private forming institutions to make societies more health system. The analytic work also helped inclusive, cohesive, and accountable (World boost the effectiveness of the government's Bank 2004i). food assistance program through better target- More than half of all approved projects dur- ing of the neediest (OED 2002b). Even in ing the past two decades have addressed at least countries where the economic and political one social development theme.5 Bank projects climate is not stable, high-quality economic and that incorporate one sector work can have high returns. In Lesotho, or more social devel- High-quality analytic work, a country with a fragile and unpredictable opment themes have with sound diagnoses of political situation, the Bank's timely analytic had better ratings on and recommendations for work on education was instrumental in outcome, sustainabil- establishing a coherent policy framework for ity, and institutional institutional and sectoral education reform, including reform of the development impact reforms, has a high payoff. 4 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S S o c i a l D e v e l o p m e n t T h e m e s E n c o m p a s s a B o x 5 . 3 W i d e R a n g e o f A c t i v i t i e s The Bank's social development themes are: · Social funds · Community-driven development · Social safeguards · Conflict prevention/reconstruction · Culture These themes are supported through both advocacy activities · Gender and lending operations in a wide variety of sectors such as · Participation/civic engagement agriculture, education, health, and social protection. Source: OED 2004q. than has the Bank's overall portfolio (OED they are often limited to only small parts of 2004q).6 This is because social development projects or are too rushed or superficial. Despite themes are highly complementary, and inte- the substantial amount of lending directed to so- grated approaches to social issues at the project cial development themes in the aggregate, the level can create synergetic effects. However, in- social development components of projects tegration of social development good practice in have often accounted for a small share of total Bank processes has been slow, and good-quality project loans--in 62 percent of the projects, assurance mechanisms have been scarce. the social development component was less than 30 percent of the total.8 The review of 21 Implementation of Social Development CAEs illustrates that the attention given to so- Activities cial development at the project level has been Social development themes have received narrowly focused on individual social themes in- expanded coverage in Bank country strategy stead of holistic social assessments. Gender eq- documents in recent years.7 OED country case uity, the most commonly addressed social studies and project assessments of the Bank's development theme in these countries, tended community development interventions in five to be narrowly focused on reducing the enroll- countries illustrate that there is greater accept- ment gap between boys and girls and on ex- ance at all levels of government of the value of panding access to health care to reduce maternal empowering communities to become involved mortality. While these efforts did reduce en- in participatory approaches to development, rollment gaps in the reviewed countries, in vir- and that the Bank has managed to introduce tually all 14 countries where gender issues were new ideas related to community participation addressed, there was a general lack of broader processes. For example, in Vietnam, 70 percent strategies to address barriers to women's par- of central government officials reported that ticipation in the economy. projects with beneficiary participation can address poverty alleviation better than those The Poverty Impact of Social Development without beneficiary participation (OED 2005c). Interventions The Bank, however, has yet to translate its so- Despite the increased attention given to cial development themes into practical opera- empowerment in Bank strategies, its link to tions on a significant poverty reduction is often not explicitly More needs to be done to scale. Plans for social established. CASs generally do not present an translate social development activities adequate treatment of the role of social development themes from are generally ambi- development themes within the context of a tious during appraisal country's overall poverty setting. For instance, strategy into operational and design, but dur- despite the significant increase in lending for activities. ing implementation social funds and community development, 4 4 E M P O W E R I N G P O O R P E O P L E T O PA R T I C I PAT E I N D E V E L O P M E N T A N D I N V E S T I N G I N T H E M insufficient attention has been given to the and the failure of proj- The poverty impact of poverty impact of these approaches and to ects to create formal social development careful assessments of whether the interven- organizations that can tions are more relevant than alternative instru- sustain themselves. interventions has not been ments in serving the specific sectoral activity There has often been adequately demonstrated. and in achieving the Bank's poverty reduction insufficient attention mission (OED 2002g, 2005c). given to assessing whether the country has the ca- Sector-specific poverty and social analyses pacity to operate and maintain the activities to be are vital for linking policies and programs to a funded (OED 2002g). Governments' recurrent fi- poverty impact. However, there is a critical gap nance constraints have also--as they have in most in such analytic work, which reflects the focus social sector projects--made it difficult to pro- on core diagnostic work such as Country vide for ongoing operation and maintenance. Financial Accountability Assessments and The sustainability of community develop- Country Procurement Assessment Reviews. As ment operations has also been low. The Bank's OED's Poverty Reduction Strategy review subproject cycle at the community level is often shows, the Bank has carried out fewer Poverty too short to provide meaningful capacity for and Social Impact Assessments than sustainability to be built. There is no clear envisioned, despite the increased emphasis on evidence that social fund and community analyzing the impacts of adjustments and development interventions have had success in policy reform on the well-being of the poor and empowering communities and enhancing their the vulnerable (OED 2004s). There is consider- social capital (OED 2005b). As OED's review of able scope for improving the comprehensive- rural water projects found, for community- ness and timeliness of assessment diagnoses based projects to improve outcomes, they need and for better mainstreaming of social themes to carefully adapt interventions to the social into the Bank's analytical work. characteristics of each beneficiary community; The experience with community develop- to be sustainable, these need to provide for a ment shows that despite sophisticated targeting long-term presence in order to leave behind mechanisms, the poorest and most vulnerable local organizations capable of operating and may not always benefit from the projects. The maintaining infrastructure (OED 2002f). Bank has encountered similar difficulties in its social funds activities (box 5.4). OED assess- Decentralization ments have also found cases where the position Social funds activities and community develop- of the poor has worsened in the context of a ment projects have contributed to governments' Bank project. Recent household surveys in three decentralization processes where they have sup- project areas show that community members ported central and local government capacity build- with a higher socioeconomic profile, including ing. These supports have included direct training greater mobilization skills and more connec- or technical assistance as well as direct engage- tions, gained more in terms of social capital ment with central and local governments as eligi- enhancement and empowerment. ble subproject sponsors. They have also affected capacity through demonstration of new approaches Sustainability of Social Development Activities and through additional demands generated for Although project outcomes are rated highly in all the services of government agencies. The contri- social development thematic areas, the sustain- butions to the decentralization process, however, ability of social development activities has been have not always been low. Social funds, which have the best outcomes widespread or positive. Social development among all social development themes, have had Where social funds activities are difficult to the lowest likelihood of sustainability. This is largely have accounted for a sustain unless they provide a function of the absence of social structures that substantial share of can support infrastructure in poor communities public expenditure, as lasting capacity. 4 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S T a r g e t i n g t h e P o o r e s t H o u s e h o l d s I s a B o x 5 . 4 D i f f i c u l t C h a l l e n g e Bank-supported social funds projects have reached the poor--and percent. Between 11 and 18 percent of the beneficiaries came from even the poorest--households, but only proportionally to their the wealthiest quintile. This lack of progressivity is disappointing share in the population as a whole. A significant proportion of so- because social funds aim to reach poor communities and house- cial fund resources have benefited the non-poor. Social funds in holds by using targeting mechanisms such as poverty maps to al- five countries had a neutral or only mildly progressive distribution locate resources, outreach and promotion in poor communities, of beneficiaries at the household level for four of the funds and a and providing goods and services used by the poor. Better ways regressive distribution for the fifth. The share of beneficiaries of targeting the poor and the poorest and of reducing unintended among the poorest 40 percent of the population did not exceed 45 "leakage" to the non-poor are needed. Source: OED 2002g. Social development in Bolivia, Honduras, pacity of client agencies and communities. The activities have strengthened and Nicaragua, they Bank has had the most success with participatory have distorted the effi- activities where it has supported indigenously ma- decentralization where ciency of resource al- tured initiatives or where the borrower has used they have supported location and have Bankassistancetosupplementitsowneffortstoor- capacity building, but negatively affected sec- ganize for collective action. Participatory activities toral and budgetary introduced into circumstances that have not his- weakened it where they planning (OED, torically favored participation and collective action have set up parallel 2002g). And where havehadlittleimpactontheempowermentofthe structures. community develop- poor (box 5.5). ment projects have At the country level, too, the Bank expects the been implemented by setting up parallel struc- authorities to conduct participatory activities in tures for community participation rather than by formulating Poverty Reduction Strategy Papers working through local governments, they have ac- (PRSPs). Extensive consultations conducted tually weakened the capacity of local governments during PRSP formulation have indeed brought and the decentralization process (OED 2005c). new actors into the development dialogue, including in countries with little tradition of direct Participatory Activities in Bank Assistance government-to-civil-society dialogue, such as The Bank promotes participation in project work Albania, Cambodia, and Tajikistan. But in general, to help foster ownership and to make develop- participatory activities waned once PRSPs were ment effective and sus- completed. Barriers to a sustained impact of Participatory activities tainable. The quality, participation at the country level frequently have better outcomes when sustainability, and long- included a lack of clear and shared objectives term impact of partici- among stakeholders for these activities and the they support indigenously patory activities depend limited capacity of civil society and communities matured initiatives. on the institutional ca- toengageindetailedpolicyanalysis(OED2004s). 4 6 E M P O W E R I N G P O O R P E O P L E T O PA R T I C I PAT E I N D E V E L O P M E N T A N D I N V E S T I N G I N T H E M P a r t i c i p a t o r y P r o j e c t s D o N o t N e c e s s a r i l y B o x 5 . 5 E m p o w e r t h e P o o r e s t Some Bank projects have been designed to graft participatory ac- Community planning processes were also designed within tivities onto a deeply rooted social and institutional environment Turkey's successful Eastern Anatolia Watershed Rehabilitation to give the poor greater voice. The India Uttar Pradesh Sodic Project, to allow villagers to help prioritize actions to improve Lands Reclamation project helped to create village institutions for the productivity of steep and degraded lands. As a first learn- managing saline and alkaline farmlands. Although the project ing experience in community participation, the project introduced design assumed that all farm families would have an equal say, new ideas into a conservative social environment. But women, the implementation of the participatory aspect gave little thought as well as the most disadvantaged farmers, remained mostly out- to the social and economic context. Caste plays such an impor- side the process. The Bank could have pushed further toward tant role in village life that higher caste members and better-off challenging the community decision process in the direction of farmers dominated the decisionmaking process. The poorest farm- identifying and targeting the poor and involving women. It is un- ers did not even have time to attend meetings since they were too certain whether these recently introduced processes will take busy trying to make ends meet. The community groups became in- hold as a permanent feature of service delivery. active once project activities were successfully completed, leav- ing little trace of the project's efforts to promote participation. Source: OED 2004h, u. 4 7 6 Conclusions The Bank's 2001 poverty reduction reduction that can have important effects on strategy appropriately highlights both the poverty outcomes. The strategy may be inadver- growth and social aspects of poverty tently downplaying the role of certain sectors-- reduction such as infrastructure, rural and urban Like the previous 1991 strategy, the current development, and environment--whose activi- (2001) strategy regards sustainable and ties cut across and complement economic equitable growth as vital to generating both growth, empowerment, and service delivery. jobs and the resources for public services, and views private sector investment as the primary The Bank faces challenges in effectively engine of poverty-reducing growth. In customizing its 2001 poverty reduction addition, the current strategy broadens the strategy to individual countries view of poverty to include not just income but The Bank needs to apply its strategy based on also human development, security, voice, and detailed country knowledge and an appreciation participation. It advocates an increased focus of the willingness and ability of each country to on public sector governance and institutional implement reforms. In countries that have reforms that support a positive climate for institutionalized good macroeconomic manage- private sector investment, and that empowers ment, the Bank is supporting governance and and fosters the participation of the poor in the institutional reforms to enhance the investment conduct of public institutions and in the climate and improve service delivery. The Bank's delivery of public services. efforts have been more successful in countries that are politically stable, where there is strong The two-pillar model tends to overlook ownership of reform, where the executive, the interactions between the growth and legislature, and the bureaucracy are working for social aspects of poverty reduction common purposes, and where the country has The two pillars of the Bank's 2001 poverty the administrative capacity to implement reduction strategy have provided a workable reforms. The Bank's efforts have been less operational framework for identifying and successful where one or all of these elements categorizing the Bank's actual and potential have been lacking. country-level interventions. But the two-pillar In countries where macroeconomic stability model tends to overlook interactions between and growth remain elusive, the Bank should the growth and social aspects of poverty support reforms to foster growth as well as 4 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S longer-term institutional and social develop- be understood, the rationale for the Bank's ment interventions. To achieve the right lending decisions in post-conflict situations balance between these two is difficult--it needs to be made more transparent. requires a realistic assessment of the political Poverty reduction has not been an explicit environment and the implementation capacity criterion for selection and oversight of Bank for reform. The Bank can use ESW, knowledge involvement in global programs. Although transfers (including peer-to-peer learning), and some global programs, notably the Consultative support to nongovernmental actors to foster Group on International Agricultural Research greater ownership and build capacity. The Bank and the Special Programme for Research and should be particularly prudent in turnaround Training in Tropical Diseases, have generated situations in which countries with a poor track innovations that help the poor, the Bank's record sign onto the reform agenda. criteria for selection and oversight of global programs have not featured poverty reduction Bank country business models and as an explicit criterion. In participating in global global programs are not yet fully aligned programs, the Bank needs to focus on global with poverty reduction policy issues that hinder poverty-reducing The Bank has crafted business models for differ- growth in its client countries. It should ent groups of its client countries that reflect strengthen the links between operations and their varying levels of development. The newer global programs to ensure that global programs business models are grounded in the objective add value to poverty reduction at the country of poverty reduction, but have not yet realized level. And Country Assistance Strategies should their full potential. The Poverty Reduction identify how the Bank's global programs can Strategy Initiative, for instance, has emphasized help support development at the country level. multidimensional income and non-income goals for poverty reduction. Yet most national strate- Linking the Bank's country-level gies produced so far have not considered the interventions to poverty reduction will full range of policy actions needed for poverty require a sharper results focus reduction. The Enhanced Highly Indebted Poor The Bank has yet to specify an operational Countries initiative added poverty reduction as results chain that effectively links its country- an objective of debt relief, but debt relief alone, level interventions with poverty outcomes and as implemented during the first few years of the ensures that its assistance is based on measura- Initiative, has not supported a comprehensive ble poverty results. This incomplete articula- or sustainable approach to poverty reduction. tion of how country-level assistance helps The corporate objective of poverty countries meet specific poverty reduction reduction may appear inconsistent with some objectives hampers an assessment of the client's development needs and priorities. impact of the Bank's assistance on poverty. Most middle-income countries, even though There are gaps in the Bank's understanding they have pockets of poverty and large of the poverty impact of programs and policies. numbers of near poor, have development Poverty assessments constitute the Bank's main goals that do not center on poverty reduction. analytic work on poverty and they have been The Bank should further articulate its mission useful in generating poverty profiles in many of poverty reduction and progress on the countries. But they have tended to focus MDGs in ways that align with these visions. narrowly on the social sectors while neglecting There are also inconsistencies in the Bank's productive sectors and governance issues, and approach to post-conflict clients. Some of the they seldom link analysis with conclusions on Bank's less-poor post-conflict clients have policy alternatives and proposals. The Bank's received per capita IDA allocations up to nine analytical work needs to pay more attention to times as great as those received by the poorest the interaction between the growth and social post-conflict clients. If these allocations are to aspects of poverty reduction. 5 0 C O N C L U S I O N S There is an urgent need to assess the development activities, but both the intended impact of the Bank's work on governance and the actual poverty impact of this kind of Differences in the quality of economic institu- intervention remain to be demonstrated. tions--broadly understood as the "rules of the Projects are typically implemented in the game"--have been found to be the most signifi- context of deeply rooted social and institu- cant source of sustained economic growth in tional relationships that affect poverty. Most both cross-country research and case studies. Bank-financed interventions cannot be Within just a few years, the Bank has developed expected to--and do not--affect these and mobilized a variety of tools--at the project, relationships unless sustainable social country, and global levels--that bring the quality structures are created. Even in programs that of public sector institutions into the spotlight. target the poorest households, a progressive So far, there is little evidence that governance is distribution of benefits is difficult to achieve. improving and corruption decreasing. It is Assessing whether beneficiaries will be able to essential for the Bank to establish what it hopes sustain project benefits requires better tools to achieve from its interventions in the area of than the Bank currently has at its disposal. governance, to monitor and measure their Project objectives need to be realistic about the accomplishments, and to assess their relative potential to affect the social relationships that effectiveness in fostering economic growth and underpin poverty at the community level. In reducing poverty. participatory activities, the Bank has had the most success when it has supported existing, The Bank could do more to harness the homegrown initiatives. synergies between private sector In the social sectors, the Bank has conflated development and public sector reform increased expenditures in education and A healthy business environment for private health with reducing poverty, often without sector investment requires an effective and adequate consideration of the actual impact of accountable public sector in order to protect those expenditures. Bank-supported interven- property rights and ensure equitable and consis- tions have been focused on inputs and outputs. tent treatment under the law. The 2001 strategy Although these have frequently met or recognized the overlapping nature of private exceeded their physical and quantitative sector development and public sector reform by targets, they have often fallen short of bringing associating them in a single pillar. These kinds of about qualitative and sustainable improve- reforms entail changes in power and influence ments in human development outcomes such within a country, and therefore require the Bank as better learning achievement and improved to understand the country's domestic political health status. Increasing expenditures alone economy and to make realistic assessments of have not ensured that the poorest are being country ownership. The Bank's organizational reached. There is considerable scope for the arrangements--which place these related issues Bank to improve its interventions for better under the leadership of different vice presiden- human development outcomes with appropri- cies--do not foster the pooling of effort and ate and good-quality, sector-specific analytic knowledge about reform. Combining or linking work and with accurate diagnoses of service the Bank's knowledge about public and private delivery and institutional reforms. sector issues could improve its understanding of what is likely to be effective. The Bank's monitoring and evaluation framework is not sufficiently poverty- The Bank needs to demonstrate the focused poverty impact of its interventions aimed Weak country capacity for monitoring results at empowerment and human development on poverty reduction adds to the challenges The Bank has carried through with its intention the Bank faces in selecting activities with the to promote empowerment through social highest poverty payoff. The monitoring of 5 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S results on poverty reduction remains weak in level with the introduction of results-based PRSPs, with only a few mature PRSP countries CASs and self-evaluation on a pilot basis. At the having enough data to assess whether there project level, development policy lending has been widespread improvement. If poverty guidelines obligate staff to analyze the poverty reduction strategy processes are to maintain and social consequences of policies supported momentum and support from diverse by the operation on the poor and vulnerable. stakeholders, they will need to rapidly improve But guidelines on monitoring and evaluating their ability to demonstrate results on poverty projects are still a work in progress, and the reduction. degree to which monitoring and evaluation has The poverty focus of the Bank's monitoring a poverty focus depends on the objectives and evaluation has improved at the country specified for the project. 5 2 APPENDIXES APPENDIX A: PROJECT PERFORMANCE RESULTS This Appendix presents long-term trends in proj- (PPARs).2,3 This newly evaluated cohort consists ect performance based on OED project evalua- of 60 adjustment operations and 327 invest- tions. Following a brief description of the cohort ment operations, the vintage of which is shown of recent OED project evaluations, analysis of the in figure A.1. The data for fiscal 2004 exits rep- Bank's lending effectiveness is presented along resent a partial cohort of lending exits (177 out OED's three key performance criteria--out- of 320). come, sustainability, and institutional develop- ment impact. Performance Trends Composition of the ARDE 2004 Exiting Outcome4 Cohort Projects in exit year fiscal 2003 registered a slight OED has evaluated 387 closed projects since annual decrease in performance outcome, drop- last year's ARDE, 84 percent of which exited the ping from 78 percent to 75 percent satisfactory Bank's portfolio during fiscal years 2002 and between fiscal years 2002 and 2003, as illustrated 2004.1 These evaluations cover US$24.5 billion in figure A.2. Exit year fiscal 2003 nonetheless in disbursements and consist of 322 Implemen- marks the fourth year in which project per- tation Completion Report (ICR) Reviews and 55 formance has met the Strategic Compact target Project Performance Assessment Reports of 75 percent satisfactory outcomes. A R D E 2 0 0 4 E x i t i n g C o h o r t F i g u r e A . 1 b y A p p r o v a l Y e a r 70 60 50 projects 40 evaluated 30 of 20 Number 10 0 Pre- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* 1991 Approval fiscal year Adjustment Investment Note: 2004 partial. Source:, World Bank data for 2005. 5 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S P r o j e c t P e r f o r m a n c e C o n t i n u e s t o M e e t F i g u r e A . 2 S t r a t e g i c C o m p a c t T a r g e t 100 80 outcome 60 satisfactory 40 Percentage 20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004* Exit fiscal year By project Weighted by disbursement Note: 2004 partial (dashed line). Source:, World Bank 2005 data. OED had evaluated 55 percent of the 320 fis- (partial) cohort, institutional development im- cal year 2004 exits as of February 15, 2005. For pact increased to 58 percent (disbursement this partial fiscal 2004 cohort,5 outcome is rated weighted) substantial or better. Both sustain- satisfactory for 77 percent of projects, and for ability and institutional development impact rat- 85 percent weighted by disbursements. This ings represent a 10 percentage point increase for represents a recovery from the fiscal year 2003 the fiscal year 2004 (partial) over the 2003 cohort. drop. As with outcome ratings, these improvements may be indicative of a resumption of the up- Sustainability and Institutional Development ward trend in project performance. Impact Seventy-four percent (weighted by disbursements) Regional Performance of the fiscal year 2003 exiting cohort are rated Figure A.4 presents the percentage of satisfactory "likely" or "highly likely" to be resilient to future project outcomes, weighted by disbursement, for risks (figure A.3).6 The fiscal 2003 rating for sus- the fiscal year 2000­04 (partial) cohort com- tainability marks a significant decline from the pared with the fiscal year 1995­99 cohort. The fiscal year 2002 cohort rating of 84 percent and East Asia and the Pacific, South Asia, and Middle represents a departure from the upward trend that East and North Africa Regions are the top per- began in 1996. For the fiscal year 2004 (partial) co- formers for the fiscal year 2000-04 (partial) co- hort, sustainability ratings weighted by disburse- hort, exceeding the Bank average of 80 percent. ments significantly improved, increasing to 85 The Latin America and Caribbean Region, which percent. was the best performer for the fiscal 1995­99 co- Forty-eight percent (weighted by disburse- hort, is the only Region that declined in per- ments) of the fiscal year 2003 cohort are rated formance for the fiscal year 2000­04 (partial) to have a substantial or high institutional devel- cohort. The South Asia and Middle East and opment impact.7 The institutional development North Africa Regions made the most progress in impact rating represents a modest decrease over outcome performance, improving by 17 and 15 the fiscal year 2002 cohort. For the fiscal 2004 percentage points, respectively. 5 6 A P P E N D I X A : P R O J E C T P E R F O R M A N C E R E S U LT S Sectoral Performance bounded to their 2002 levels, resuming the up- Compared with fiscal year 1995­99 exits, the out- ward trend that began in 1998. come performance weighted by disbursement for the fiscal 2000­04 (partial) exits improved in 7 of New Lending Instruments 13 sector boards.8 Figure A.5 presents the sector One-hundred and three operations employing boards' outcome performance in order of their the Bank's four new lending instruments--Adapt- improvement. The biggest improvements in out- able Program Loans (APLs), Learning and Inno- come ratings were in the water supply and san- vation Loans (LILs), Private Sector Adjustment itation and financial sectors. The largest declines Loans (PSALs), and Poverty Reduction Support in performance were in the social protection and Credits (PRSCs)--have been evaluated by OED.9 economic policy sectors. Outcomes for economic For these instruments, in the aggregate, out- policy, energy and mining, environment, and come is rated satisfactory for 78 percent of proj- water supply and sanitation were below the ects and 94 percent weighted by disbursements, Bankwide average in both time periods. exceeding the Bankwide average of 76 percent and 80 percent, respectively (figure A.7). PSALs Lending Instrument Performance are the best performers of the group, exceeding Outcomes of adjustment lending operations have the Bank average for projects and disbursement- been volatile in recent years, as figure A.6 illus- weighted, while APLs and LILs are performing trates. Outcomes (disbursement-weighted) have below the Bank average.10 fluctuated from a record high of 91 percent (fis- cal year 2000) to a low of 70 percent (fiscal year Bank-Managed Special Programs 2003). The high disbursement-weighted per- OED has evaluated 89 operations financed under formance of 93 percent for fiscal year 2004 exits four Bank-managed special programs that have (partial) shows that outcome ratings for adjust- exited the Bank's portfolio since fiscal year 1995. ment operations may have rebounded once again. Eighty-two percent of the special operations Outcomes of investment lending declined in had satisfactory outcomes. One of every two fiscal year 2003 exits, dropping from 83 percent projects had substantial or better institutional to 79 percent satisfactory between fiscal years development impact. About 48 percent were 2002 and 2003. Fiscal year 2004 (partial) exits, rated to have likely or highly likely resilience to however, show that outcomes may have re- future risks (table A.1). L o n g - t e r m T r e n d s i n S u s t a i n a b i l i t y a n d F i g u r e A . 3 I n s t i t u t i o n a l D e v e l o p m e n t 100 100 better better or 80 80 or likely 60 60 substantial 40 40 Percentage 20 Percentage 20 1990 1992 1994 1996 1998 2000 2002 2004* 1990 1992 1994 1996 1998 2000 2002 2004* Exit fiscal year Exit fiscal year By project Weighted by disbursement Note: 2004* partial (dashed line) Source: World Bank 2005 data. 5 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S P r o j e c t O u t c o m e s I m p r o v e d i n A l l b u t F i g u r e A . 4 O n e R e g i o n East Asia and Pacific (EAP) South Asia (SAR) Middle East and North Africa (MNA) Bankwide Latin America and Caribbean (LCR) Europe and Central Asia (ECA) Africa (AFR) 40 50 60 70 80 90 100 Percent satisfactory outcome (weighted by disbursement) FY95­99 FY00­04* Distribution of disbursements by region (FY95­04*) AFR SAR 15% 13% MNA 6% EAP 24% LCR 26% ECA 16% Note: 2004* partial. Source: World Bank 2005 data. 5 8 A P P E N D I X A : P R O J E C T P E R F O R M A N C E R E S U LT S F i g u r e A . 5 T r e n d s i n S e c t o r a l P e r f o r m a n c e TR PSG FSP RDV ED Improvers Bankwide EMT WSS 40 50 60 70 80 90 100 Percent satisfactory outcome (weighted by disbursements) PSD Bankwide SP UD HNP Decliners ENV EP 40 50 60 70 80 90 100 Percent satisfactory outcome (weighted by disbursements) FY95­99 FY00­04* Disbursements by Sector Board (FY95­04*) WSS ED UD 4% 8% 4% Note: The sector classification provides a single rat- TR EMT ing for the entire project rather than ratings for in- 11% 14% dividual project components that cover particular sectors or themes. The Sector Board classification SP applies to the whole project and enables outcomes 5% ENV to be matched to it. ED = education; EMT = energy 2% and mining; ENV = environment; EP = economic pol- icy; FSP = financial sector; HNP = health, nutrition, RDV EP and population; PSD = private sector development; 12% 14% PSG = public sector governance; RDV = rural sector; SP = social protection; TR = transport; UD = urban de- PSD velopment; WSS = water supply and sanitation. 3% PSG FSP 6% HNP 5% 12% Note: 2004 partial. Source: World Bank 2005 data. 5 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S L o n g - T e r m T r e n d s i n A d j u s t m e n t a n d F i g u r e A . 6 I n v e s t m e n t L e n d i n g 100 Adjustment 100 Investment outcome outcome 80 80 satisfactory 60 satisfactory 60 40 40 Percentage Percentage 20 20 1990 1992 1994 1996 1998 2000 2002 2004* 1990 1992 1994 1996 1998 2000 2002 2004* Exit fiscal year Exit fiscal year By project Weighted by disbursement Note: 2004 partial. Source: World Bank 2005 data. O u t c o m e P e r f o r m a n c e o f N e w L e n d i n g F i g u r e A . 7 I n s t r u m e n t s 100 outcome 80 60 satisfactory 40 Percentage 20 APL LIL Bankwide PSAL Number of operations (FY00-04) By project Weighted by disbursement 6 0 A P P E N D I X A : P R O J E C T P E R F O R M A N C E R E S U LT S B a n k - M a n a g e d S p e c i a l P r o g r a m s A r e T a b l e A . 1 P e r f o r m i n g a b o v e t h e B a n k A v e r a g e Institutional development impact Number of Outcome Sustainability (% substantial Special program type evaluated programs (% satisfactory) (% likely or better) or better) Global Environment Facility 51 80 63 57 Montreal Protocol Fund 6 100 100 50 Rainforest Initiative 1 100 100 100 Special Financing Grants 31 81 67 48 Overall 89 82 48 53 6 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S O u t c o m e , S u s t a i n a b i l i t y , a n d I n s t i t u t i o n a l T a b l e A . 2 D e v e l o p m e n t ( I D ) I m p a c t b y V a r i o u s D i m e n s i o n s , b y P r o j e c t , F Y 9 5 ­ 0 4 a Exit fiscal years 1995­99 Sustainability ID Impact Number Share Outcome (% likely % substantial of projects (%) (% satisfactory) or better) or better Sector Board Economic Policy 116 9.0 71.3 56.6 28.3 Educaton 113 8.8 73.2 43.8 26.8 Energy and Mining 161 12.5 64.8 51.6 38.4 Environment 36 2.8 75.0 60.0 41.7 Financial Sector 79 6.2 59.2 50.7 38.2 Global Information/Communications Technology 23 1.8 82.6 78.3 47.8 Health, Nutrition, and Population 66 5.1 65.2 53.9 28.8 Poverty Reduction 0 0.0 100.0 0.0 0.0 Private Sector Development 48 3.7 75.0 63.0 29.8 Public Sector Governance 68 5.3 75.8 60.9 39.4 Rural Sector 266 20.7 66.7 42.9 36.2 Social Development 0 0.0 0.0 0.0 0.0 Social Protection 50 3.9 84.0 40.8 44.0 Transport 124 9.7 82.0 59.8 46.7 Urban Development 67 5.2 68.2 42.4 27.3 Water Supply and Sanitation 66 5.1 53.8 35.4 24.6 Overall result 1,283 100.0 69.8 50.3 35.2 Lending Instrument Type Adjustment 210 16.4 77.5 61.2 36.9 Investment 1,072 83.6 68.3 48.1 34.9 Not assigned 1 0.1 100.0 100.0 100.0 Overall result 1,283 100.0 69.8 50.3 35.2 Network Environmentally and Socially Sustainable Development 302 23.5 67.7 44.9 36.8 Financial Sector 79 6.2 59.2 50.7 38.2 Human Development 229 17.8 73.3 46.0 31.1 Infrastructure 441 34.4 69.4 51.5 37.5 Poverty Reduction and Economic Management 184 14.3 72.9 58.2 32.4 Private Sector Development 48 3.7 75.0 62.5 27.1 Overall result 1,283 100.0 69.8 50.3 35.2 Region Africa 395 30.8 57.2 32.6 27.0 East Asia and Pacific 197 15.4 79.4 62.3 40.2 Europe and Central Asia 166 12.9 79.8 66.7 46.3 Latin America and Caribbean 258 20.1 78.6 59.8 44.0 Middle East and North Africa 107 8.3 67.3 49.1 28.0 South Asia 160 12.5 66.7 48.1 28.9 Overall result 1,283 100.0 69.8 50.3 35.2 Notes: Exit fiscal year denotes the year in which the project leaves the World Bank's active portfolio, normally at the end of disbursements. Percents exclude projects not rated. In July 2000, the rating scale for sustainability was changed from a 3-point scale (Likely, Uncertain, Unlikely) to a 4-point scale (Highly Likely, Likely, Unlikely, Highly Unlikely), with the new scale used in rating projects that exited during FY00-02. To monitor the effects of this change, OED continued using the old 3-point scale in parallel with the new till May 2003. a. The data for FY04 exits represent a partial lending sample (177 out of 320) and reflect all OED project evaluations through February 15, 2005. Source: World Bank data, 2005 6 2 A P P E N D I X A : P R O J E C T P E R F O R M A N C E R E S U LT S Exit fiscal years 2000­04a Exit fiscal years 1995­04a Outcome Sustainability ID impact Outcome Sustainability ID impact Number Share (% (% likely (% substantial Number Share (% (% likely (% substantial of projects (%) satisfactory) or better) or better) of projects (%) satisfactory) or better) or better) 66 5.2 77.3 75.0 40.9 182 7.1 73.5 62.7 33.0 128 10.0 81.3 81.4 52.3 241 9.4 77.5 62.7 40.4 113 8.9 70.0 69.6 53.6 274 10.7 66.9 58.6 44.6 75 5.9 70.3 72.9 51.4 111 4.3 71.8 68.6 48.2 63 4.9 79.0 87.5 59.7 142 5.5 68.1 66.4 47.8 13 1.0 100.0 100.0 53.9 36 1.4 88.9 85.7 50.0 107 8.4 70.2 71.0 49.0 173 6.8 68.2 64.2 41.2 2 0.2 100.0 100.0 100.0 2 0.1 100.0 100.0 100.0 71 5.6 62.3 69.5 35.8 119 4.7 67.5 66.7 33.3 105 8.2 77.1 74.2 49.5 173 6.8 76.6 68.9 45.6 200 15.7 73.5 62.5 45.4 466 18.2 69.6 50.8 40.1 7 0.5 71.4 83.3 42.9 7 0.3 71.4 83.3 42.9 86 6.7 83.5 77.8 50.6 136 5.3 83.7 61.6 48.2 125 9.8 89.3 83.6 67.8 249 9.7 85.6 71.1 57.2 60 4.7 71.2 60.0 28.8 127 5.0 69.6 50.4 28.0 55 4.3 74.1 69.4 46.3 121 4.7 63.0 50.0 34.5 1,276 100.0 76.1 73.4 49.6 2,559 100.0 72.9 61.2 42.4 160 12.5 83.1 82.5 48.1 370 14.5 80.0 69.9 41.8 1,115 87.4 75.1 72.0 49.9 2,187 85.5 71.7 59.7 42.5 1 0.1 100.0 100.0 100.0 2 0.1 100.0 100.0 100.0 1,276 100.0 76.1 73.4 49.6 2,559 100.0 72.9 61.2 42.4 282 22.1 72.6 65.9 46.9 584 22.8 70.0 54.6 41.7 63 4.9 79.0 87.5 59.7 142 5.5 68.1 66.4 47.8 321 25.2 78.2 76.8 50.8 550 21.5 76.2 63.0 42.6 366 28.7 78.4 73.8 53.2 807 31.5 73.5 61.1 44.6 173 13.6 77.5 74.8 56.2 357 14.0 75.1 66.0 39.2 71 5.6 62.3 68.4 35.8 119 4.7 67.5 66.8 33.6 1,276 100.0 76.1 73.4 49.6 2,559 100.0 72.9 61.2 42.4 319 25.0 66.4 56.3 40.6 714 27.9 61.3 42.6 33.1 194 15.2 78.1 75.1 55.2 391 15.3 78.8 68.4 47.7 280 21.9 80.6 84.2 56.1 446 17.4 80.3 77.2 52.4 262 20.5 80.1 77.4 55.9 520 20.3 79.3 68.3 50.0 107 8.4 73.3 73.7 37.1 214 8.4 70.3 60.7 32.6 114 8.9 82.5 82.8 47.4 274 10.7 73.3 61.5 36.4 1,276 100.0 76.1 73.4 49.6 2,559 100.0 72.9 61.2 42.4 6 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S O u t c o m e , S u s t a i n a b i l i t y , a n d I n s t i t u t i o n a l T a b l e A . 3 D e v e l o p m e n t ( I D ) I m p a c t b y V a r i o u s D i m e n s i o n s , b y D i s b u r s e m e n t , F Y 9 5 ­ 0 4 a Exit fiscal years 1995­99 Sustainability ID Impact Disburse- Share Outcome (% likely % substantial ment (%) (% satisfactory) or better) or better Sector Board Economic Policy 16,271 15.6 69.8 72.8 32.2 Educaton 6,465 6.2 74.3 48.9 29.0 Energy and Mining 16,897 16.2 68.0 59.4 42.3 Environment 1,029 1.0 71.7 62.9 41.7 Financial Sector 14,896 14.3 78.6 72.2 45.4 Global Information / Communications Technology 1,047 1.0 91.7 93.7 76.2 Health, Nutrition, and Population 3,687 3.5 82.5 71.1 38.3 Poverty Reduction 0 0.0 0.0 0.0 0.0 Private Sector Development 3,164 3.0 87.0 69.8 38.7 Public Sector Governance 3,919 3.8 80.3 70.2 42.1 Rural Sector 13,281 12.8 76.1 51.7 42.3 Social Development 0 0.0 0.0 0.0 0.0 Social Protection 4,377 4.2 97.2 70.9 42.1 Transport 9,759 9.4 88.6 62.4 48.7 Urban Development 4,815 4.6 84.3 58.6 26.4 Water Supply and Sanitation 4,473 4.3 57.2 26.3 18.8 Overall result 104,081 100.0 76.3 62.4 39.1 Lending Instrument Type Adjustment 39,216 37.7 79.5 74.4 39.2 Investment 64,808 62.3 74.3 55.3 39.1 Not assigned 57 0.1 100.0 100.0 100.0 Overall Result 104,081 100.0 76.3 62.4 39.1 Network Environmentally & Socially Sustainable Development 14,310 13.7 75.7 52.5 42.3 Financial Sector 14,896 14.3 78.6 72.2 45.4 Human Development 14,530 14.0 83.3 61.1 35.3 Infrastructure 36,991 35.5 74.2 57.1 40.0 Poverty Reduction & Economic Management 20,190 19.4 71.8 72.3 34.2 Private Sector Development 3,164 3.0 87.0 76.7 42.0 Overall result 104,081 100.0 76.3 62.4 39.1 Region Africa 14,650 14.1 64.9 35.9 27.5 East Asia and Pacific 27,791 26.7 82.6 77.7 44.4 Europe and Central Asia 14,853 14.3 73.7 74.6 43.1 Latin America and Caribbean 23,589 22.7 85.4 64.2 50.7 Middle East and North Africa 7,071 6.8 67.5 45.9 27.4 South Asia 16,127 15.5 68.5 54.8 26.0 Overall result 104,081 100.0 76.3 62.4 39.1 Note: Exit fiscal year denotes the year in which the project leaves the World Bank's active portfolio, normally at the end of disbursements. Percents exclude projects not rated. In July 2000, the rating scale for sustainability was changed from a 3-point scale (Likely, Uncertain, Unlikely) to a 4-point scale (Highly Likely, Likely, Unlikely, Highly Unlikely), with the new scale used in rating projects that exited during FY00-02. To monitor the effects of this change, OED continued using the old 3-point scale in parallel with the new till May 2003. a. The data for FY04 exits represent a partial lending sample (177 out of 320) and reflect all OED project evaluations through February 15, 2005. Source: World Bank data, 2005 6 4 A P P E N D I X A : P R O J E C T P E R F O R M A N C E R E S U LT S Exit fiscal years 2000­04a Exit fiscal years 1995­04a Outcome Sustainability ID impact Outcome Sustainability ID impact Disburse- Share (% (% likely (% substantial Disburse- Share (% (% likely (% substantial ment (%) satisfactory) or better) or better) ment (%) satisfactory) or better) or better) 10,349 11.2 59.2 52.5 19.8 26,620 13.6 65.6 65.2 27.3 8,191 8.9 80.6 91.1 58.9 14,657 7.5 77.9 71.4 45.7 12,717 13.8 74.4 67.6 54.2 29,614 15.1 70.7 62.9 47.4 2,179 2.4 62.6 72.8 37.0 3,208 1.6 65.5 69.6 38.5 7,705 8.4 90.4 95.5 70.7 22,601 11.5 82.6 78.7 55.3 1,087 1.2 100.0 100.0 50.8 2,134 1.1 95.9 96.9 63.2 5,683 6.2 75.6 80.3 61.6 9,370 4.8 78.3 76.6 52.4 234 0.3 100.0 100.0 45.6 234 0.1 100.0 100.0 45.6 3,298 3.6 80.4 88.2 63.4 6,462 3.3 83.7 78.6 50.7 7,914 8.6 90.5 90.5 52.4 11,833 6.0 87.2 84.1 49.0 10,051 10.9 83.9 77.3 53.9 23,332 11.9 79.4 62.4 47.3 319 0.3 18.9 99.4 11.0 319 0.2 18.9 99.4 11.0 4,382 4.7 78.7 85.4 49.0 8,760 4.5 88.0 77.5 45.5 11,666 12.6 92.6 90.9 63.5 21,425 10.9 90.8 77.0 56.7 3,201 3.5 77.5 69.3 24.4 8,017 4.1 81.5 62.7 25.6 3,285 3.6 73.5 71.1 42.0 7,758 4.0 61.0 44.9 28.7 92,263 100.0 79.8 79.2 51.5 196,344 100.0 77.9 69.9 45.0 30,417 33.0 79.8 78.5 48.9 69,633 35.5 79.6 76.1 43.6 61,846 67.0 79.8 79.5 52.8 126,654 64.5 77.0 66.7 45.8 0 0.0 0.0 0.0 0.0 57 0.0 100.0 100.0 100.0 92,263 100.0 79.8 79.2 51.5 196,344 100.0 77.9 69.9 45.0 12,548 13.6 78.6 77.1 49.9 26,858 13.7 77.1 63.7 45.8 7,705 8.4 90.4 95.5 70.7 22,601 11.5 82.6 78.7 55.3 18,257 19.8 78.6 86.3 57.4 32,787 16.7 80.7 74.5 47.6 31,957 34.6 82.2 77.2 53.2 68,948 35.1 77.9 66.1 46.1 18,497 20.0 73.1 69.9 34.1 38,687 19.7 72.4 71.2 34.1 3,298 3.6 80.4 81.8 58.4 6,462 3.3 93.7 80.4 54.1 92,263 100.0 79.8 79.2 51.5 196,344 100.0 77.9 69.9 45.0 10,834 11.7 69.4 60.0 38.0 25,484 13.0 66.8 45.8 32.0 18,855 20.4 87.7 83.5 66.3 46,646 23.8 84.7 80.0 53.9 17,340 18.8 76.5 84.2 56.0 32,193 16.4 75.2 79.4 50.0 28,200 30.6 77.4 75.7 49.8 51,790 26.4 81.0 70.2 50.2 4,619 5.0 82.9 83.5 37.6 11,690 6.0 73.6 60.2 31.4 12,414 13.5 85.5 89.9 43.8 28,541 14.5 75.9 68.9 33.7 92,263 100.0 77.9 79.2 51.5 196,344 100.0 77.9 69.9 45.0 6 5 APPENDIX B: ECONOMIC GROWTH AND INCOME POVERTY That economic growth is associated, on average, to the lowest 1 percent of the population, and with reductions in income poverty is now well es- changes in poverty rates in some low-income tablished. For a given country, changes in the countries (by the $2 a day standard) based upon degree of income poverty are basically a function what happens to the lowest 60 percent of the of changes in the mean of the income distribu- population. tion--economic growth per capita--and changes The results of 3 regressions for 205 spells in in its spread--the distribution of income per 80 countries are presented in table B.1. The es- capita. But economic growth per se does not, on timated growth elasticity of poverty for the sim- average across countries, systematically affect ple regression of the change in income poverty the distribution of income, for the latter changes on the change in mean income or consumption very slowly, if at all, in most countries over time. expenditure per capita is ­2.62. This result is de- Therefore, economic growth generally leads to picted in figure B.1 (which is the same as figure poverty reduction. Based upon an analysis of 1.2). Holding the degree of inequality constant, household surveys conducted in 47 countries in the growth elasticity of poverty increases to ­2.87. the 1980s and 1990s, Ravallion (2001) found that Although the change in inequality has a signifi- a 1 percent increase in per capita income re- cant impact on poverty, the initial level of in- duced the proportion of people living on less than equality (as measured by the Gini coefficient) US$1 a day by an average of 2 percent. does not in this particular regression. OED has updated this analysis for the period An analysis of what happened to poverty in from 1990 to 2001 for 80 developing and transi- each of the 205 spells confirms that changes in tion economies for which there exist poverty the average household income have a greater im- data based on household surveys.1 Rather than pact on poverty than changes in the degree of use an absolute measure of poverty such as US$1 inequality (table B.2). The Gini coefficient per day (typically used in low-income countries) changed by an annualized rate of less than 1 or US$2 per day (typically used in middle- percent in almost half the spells. Even when in- income countries), OED used a relative measure come inequality was rising, poverty decreased by of poverty--proposed by Atkinson and Bour- an average of 7.1 percent yearly when average guigon (1999) and Chen and Ravallion (2001 household income was also rising. and 2004)--in which people are deemed poor The degree in equality varies considerably if they do not attain either the $1 a day con- across countries (figure B.2). Of the 13 countries sumption level (loosely interpreted as "physical with Gini coefficients greater than 0.50, 11 are needs") or one-third of the mean consumption in Latin America and the Caribbean and 2 are in in each country (loosely interpreted as "social Sub-Saharan Africa. Of the 9 countries with Gini needs"). This measure of relative poverty better coefficients less than 0.30, all are in Central or facilitates comparisons across both low- and Eastern Europe. middle-income countries together. Otherwise, OED also used the same measure of relative one ends up analyzing changes in poverty rates poverty--per capita consumption of less than $1 in some middle-income countries (by the $1 a a day or one-third of the mean consumption day standard) that are based on what happens level in each country--in figure 3.1, which com- 6 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S C h a n g e s i n B o t h t h e A v e r a g e L e v e l o f T a b l e B . 1 I n c o m e a n d t h e D e g r e e o f I n e q u a l i t y H a v e a S i g n i f i c a n t I m p a c t o n P o v e r t y Change in mean Change in the income/consumption degree of inequality Initial level Equation expenditure per capita (Gini coefficient) of inequality R2 (1) ­2.63 0.527 (­15.04) (2) ­2.87 3.29 0.762 (­22.96) (14.18) (3) ­2.88 3.30 ­0.00011 0.762 (­22.71) (13.54) (­0.11) Note: Regression analysis based on 205 spells in 80 countries for which at least 2 household surveys have been conducted since 1990 inclusive. T-statistics are in parentheses. A "spell" is a time period of at least one year between sequential household surveys in one country. E c o n o m i c G r o w t h H a s a S t r o n g b u t F i g u r e B . 1 V a r i a b l e I m p a c t o n P o v e r t y 100 80 60 population line 40 the in 20 poverty the 0 change ­20 below percent ­40 living ­60 Annualized ­80 ­100 ­40 ­30 ­20 ­10 0 10 20 30 40 Annualized percent change in mean income/consumption expenditure per capita in 1999 purchasing power parity pares the performance of the 21 CAE countries closest available survey and applied the con- in Chapter 3. Where the years in which house- sumption growth rate from the national ac- hold surveys were conducted in each country do counts.2 The proportion of the population below not coincide with the years in the figure--1990, the poverty line in figure 3.1 is the simple (un- 1993, 1996, 1999, and 2001--the PovcalNet pro- weighted) average of the countries in each of the gram adjusted the poverty estimates using the three groups. 6 8 A P P E N D I X B : E C O N O M I C G R O W T H A N D I N C O M E P O V E R T Y I m p r o v e m e n t s i n t h e A v e r a g e L e v e l o f I n c o m e H a v e a G r e a t e r I m p a c t o n P o v e r t y T a b l e B . 2 L e v e l s ; t h e D e g r e e o f I n e q u a l i t y C h a n g e s M u c h L e s s O v e r T i m e What happened to average household income between the surveys? Rising Falling Total Falling 21 out of 205 spells (10%) 27 out of 205 spells (13%) 23% Poverty decreased at a mean Poverty increased at a mean What happened rate of 29.6% per year rate of 3.3% per year to inequality No significant changea 57 out of 205 spells (28%) 39 out of 205 spells (19%) 47% between the Poverty decreased at a mean Poverty increased at mean surveys? rate of 9.0% per year rate of 18.0% per year Rising 35 out of 205 spells (17%) 26 out 205 spells (13%) 30% Poverty decreased at a mean Poverty increased at a mean rate of 7.1% per year rate of 57.1% per year Total 55% 45% 100% a. The Gini coefficient changed by an annualized rate of less than 1 percent between sequential household surveys. T h e D e g r e e o f I n e q u a l i t y V a r i e s F i g u r e B . 2 C o n s i d e r a b l y A c r o s s D e v e l o p i n g a n d T r a n s i t i o n C o u n t r i e s Gini coefficient Greater than .60 .55 ­ .60 .50 ­ .55 .45 ­ .50 .40 ­ .45 inequality .35 ­ .40 .30 ­ .35 Increasing .25 ­ .30 Less than .25 0 2 4 6 8 10 12 14 16 18 Number of countries 6 9 APPENDIX C: STATISTICAL TABLES 7 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E c o n o m i c G r o w t h a n d B a n k A s s i s t a n c e T a b l e C . 1 O u t c o m e s i n 2 1 C A E C o u n t r i e s (Sorted alphabetically within each of the three groups) Current income GDP growth per capita, Country classification 1990­2003 (%)1 OED review period Good Growth and Poverty Reduction Chile Upper-middle income 4.0 1985­1999 China Lower-middle income 8.1 FY1993­2002 Dominican Republic Lower-middle income 3.9 1985­2002 India Low income 3.9 1990­2000 Tunisia Lower-middle income 3.1 1990­2001 Vietnam Low income 5.7 FY 1994­20013 Transition Countries Armenia Lower-middle income 1990­03: ­24.9 1993­03: 7.1 1993­20024 1990­03: 2.6 Bulgaria Lower-middle income 1990­97: ­2.5 1997­03: 5.2 1991­20005 1990­03: 0.6 Croatia Upper-middle income 1990­93: ­13,6 1993­03: 4.5 1993­20036 1993­03: 2.0 Lithuania Upper-middle income 1990­94: ­15.4 1994­03: 5.4 1992­20027 1990­03: 0.6 Moldova Low income 1990­99: ­9.8 1999­03: 5.9 1993­20038 1990­03: ­5.1 Mongolia Low income 1990­93: ­9.4 1993­03: 2.0 1991­20009 1990­03: 0.4 Russian Federation Lower-middle income 1990­98: ­7.1 1998­03: 6.9 1992­200110 1990­93: ­1.5 7 2 A P P E N D I X C : S TAT I S T I C A L TA B L E S CAE ratings for Bank assistance Institutional Overall outcome2 development impact Sustainability Highly satisfactory Substantial Highly likely Satisfactory Substantial Likely Moderately satisfactory Not rated Likely Moderately satisfactory Modest Uncertain Satisfactory Substantial Likely Satisfactory Modest Likely Satisfactory Substantial Likely 1991­97: Unsatisfactory Modest Unlikely 1997­00: Satisfactory Modest Likely 1993­2001: Unsatisfactory Modest Not rated 2001­03: Satisfactory Substantial Likely Satisfactory Substantial Likely Unsatisfactory Modest Unlikely Partially satisfactory Modest Unlikely FY1992­98: Unsatisfactory11 Modest Highly unlikely Mid 1998­2001: Satisfactory Substantial Likely (Continued on the following page.) 7 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S E c o n o m i c G r o w t h a n d B a n k A s s i s t a n c e T a b l e C . 1 O u t c o m e s i n 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) (Sorted alphabetically within each of the three groups) Current income GDP growth per capita, Country classification 1990­2003 (%)1 OED review period Modest or Poor Growth and Poverty Reduction Brazil Lower-middle income 1.2 1990­2002 Guatemala Lower-middle income 1.1 1985­2001 Jordan Lower-middle income 0.6 1990­2002 Lesotho Low income 2.0 1990­2000 Morocco Lower-middle income 1.0 1997­200012 Peru Lower-middle income 1990­97: 3.6 1997­03: 0.5 1990­2000 1993­03: 2.1 Zambia Low income ­0.9 1996­200113 Zimbabwe Low income ­0.9 1990­2000 1. For the seven countries that experienced transition recessions after 1990 and for Peru, the overall period has also been split into two time periods during which the country experienced distinguishably different growth rates. In these cases, the overall outcomes of Bank assistance shown in figure 3.2 are the average of that for the two periods, weighted by the length of each period. 2. CAEs evaluate the outcomes of the Bank's assistance programs, not the clients' overall development progress. They assess the extent to which the major strategic objectives of the assistance program were relevant and achieved, without shortcomings. The outcomes of each assistance program are determined by the joint impact of four agents: (1) the client, (2) the Bank, (3) partners and other stakeholders, and (4) exogenous forces such as events of nature, international economic shocks, etc. See OED, Country Assistance Evaluation (CAE) Retrospective: OED Self-Evaluation (December 2004), Annex A, on the CAE Methodology. 3. While the Bank carried out a wide-ranging program of nonlending services between fiscal years 1988 and 1994, lending to Vietnam re-started in fiscal year 1994. 4. Armenia joined the World Bank on September 16, 1992. 5. Bulgaria joined the World Bank on September 25, 1990. 6. Croatia joined the World Bank on February 25, 1993. 7. Lithuania joined the World Bank on July 6, 1992. 8. Moldova joined the World Bank on August 12, 1992. 9. Mongolia joined the World Bank on February 14, 1991. 10. The Russian Federation joined the World Bank on June 16, 1992. 11. Bank management disagrees with this unsatisfactory outcome rating for Russia from fiscal 1992-98, noting that many reforms implemented after 1998 reflected Bank advice provided during 1992-98 and built on reforms of that period. 12. The previous Country Assistance Review (January 21, 1998) covered the period from 1983-95. 13. The previous Country Assistance Review (June 3, 1996) covered the period from 1983-95. 7 4 A P P E N D I X C : S TAT I S T I C A L TA B L E S CAE ratings for Bank assistance Institutional Overall outcome2 development impact Sustainability Satisfactory Not rated Non-evaluable 1985­90: Unsatisfactory Modest Likely 1991­2000: Satisfactory Moderately satisfactory Modest Not rated Moderately unsatisfactory Modest Uncertain Marginally unsatisfactory Modest Likely 1990­96: Satisfactory Substantial Unlikely 1997­2000: Unsatisfactory Negligible Highly unlikely Unsatisfactory Modest Likely Unsatisfactory Negligible Unlikely 7 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S O u t c o m e s o f B a n k A s s i s t a n c e , P o v e r t y T a b l e C . 2 F o c u s , a n d A n a l y t i c a l a n d A d v i s o r y S e r v i c e s t o t h e 2 1 C A E C o u n t r i e s Overall outcome Good-Performing Countries Chile: 1985-1999 Highly satisfactory outcome. The government was ready to adopt the Bank's suggestions for policies that would improve growth and lower poverty. There were dramatic improvements in governance and better financial accountability and financial management. The Bank identified the problems correctly and attempted to mitigate bottlenecks in infrastructure. China: FY1993-2002 Satisfactory outcome. The emphasis on system reform and macro management first, followed subsequently by a gradual shift towards poverty reduction and environmental protection has been successful. The Bank was slow to recognize important growing problems like inequality, vul- nerability, growing fiscal problems and the need for better environmental policy. Dominican Republic: 1985-2002 Moderately satisfactory outcome. The New Economic Program in the early 1990s stabilized the economy, after which successive adminis- trations have broadened the reforms. The Bank's interventions in education have had a large impact. Agriculture and rural development remain critical gaps. The relevance of the program is limited because of the Bank's absence during key times and the Bank was not pro-active with key issues like privatization. The efficacy of the program has been limited. India: 1990-2000 Moderately satisfactory outcome. The Bank provided timely support for structural adjustment for the resumption of economic growth in the early 1990s, which was the most pressing priority. There has been a strong focus on the social sector and on state-level decentralization and par- ticipation, but very little impact of ESW and mediocre performance of projects. Rural poverty was neglected in the first half of the 1990s. The large fiscal deficit in 1997 posed risks to the economy. Tunisia: 1990-2001 Satisfactory outcome. There has been an improvement in the social indicators, which are among the best in the MNA region, and a commit- ment to rural development. Vietnam: FY1994-2001 Satisfactory outcome. Vietnam has achieved one of the best records on the score of growth and poverty. Good macroeconomic management has achieved and sustained stability. 7 6 A P P E N D I X C : S TAT I S T I C A L TA B L E S Poverty focus in CAS AAA and poverty CEMs in 1986 and 1989, and a forestry and mining study focused AAA emphasized the elements that became the foundation of the Bank's strat- on alleviating poverty. The initial objectives of Bank assistance were egy for Chile: stabilizing, adjusting and reforming the economy, consolidating to support the government's stabilization policies and structural re- growth (CEMs and financial sector report), building the infrastructure necessary forms so as to restore Chile's access to international capital mar- for rapid and sustained growth (electricity, roads, ports), alleviating poverty, de- kets and create the conditions for faster growth and sustained veloping natural resources (forestry and mining, 1986 and 1989), and setting poli- reduction in poverty. cies and investment priorities for agriculture (1985, 1990). The overarching objective during the 1980s and 1990s was to pro- The Bank has made a substantial contribution to China's evolving poverty reduction mote economic system reform. System reform was seen by the Bank strategy through its AAA, poverty monitoring, and projects. Two studies of rural and the Chinese as the key to long-term growth, modernization and poverty (1992 and 2000) provided an overview of poverty issues and proposed poverty reduction. The emphasis on poverty appeared in the first sensible strategies with respect to targeting and the need for a multi-sector ap- stand-alone CAS in 1995. proach to rural development through integrated rural development projects. There is a gap between the Bank's rhetoric on the importance of ESW in coun- try assistance strategy and ESW budget allocations. The Bank has been a small player in terms of financial flows and A 1995 Economic Report focused on trade policy and a 2000 Social and Struc- influencing policy in the Dominican Republic. The 2000 CAS adopted tural Policy Review had large impacts. During the 1990s the Bank emphasized an- a poverty focus and had two main objectives: (1) help the people alytic work to contribute to the policy dialogue. The impact of the Bank's sector of the Dominican Republic strengthen their consensus around the work and dialogue has been mixed--with some influence in energy and in some steps required for implementing the unfinished reform agenda, social sectors, but a negligible impact in other areas. The 1994 work on agricul- and (2) support the country to maintain a firm direction toward the ture--a very important area--was not successful in moving reform forward. long-term goal of reducing poverty. The strategy for reducing poverty was focused on (a) sustaining growth, (b) increasing the ac- cess of the poor to the benefits of growth, and (c) implementing environmental policies for sustainable development. Eradicating poverty was the overarching development strategy in Most Bank reports appeared to have little direct impact due to their limited scope India. However, the relevance of Bank assistance to poverty reduction and dissemination, the variety and richness of intellectual contributions within India, improved in the second half of the 1990s, and even more so after and the drawn-out internal consensus-building and decision-making processes. One 1997. The 1997 CAS contained monitorable indicators, one of exceptions to this was the Bank's report on trade and investment liberalization in which was reducing poverty by 15% by 2010. the 1980s. The new state economic reports, which were undertaken in close part- nership with local policy institutes, have had a significant impact through their rel- evant analyses of fiscal structural, policy and institutional deficiencies. The overarching strategy in the 1990s and early 2000s was growth ESW was relevant and of high quality, conformed to the Bank's assistance strat- with equity. The Bank emphasized support for stability, growth, egy, and provided a solid basis for policy dialogue with the government. The poverty boosting competitiveness, human development, and rural devel- alleviation report ­ which covered macro, social, and sectoral issues ­ informed opment Bank strategy. Strategies from 1993 focused on poverty as one of the five areas. The work on poverty served to orient the thrust of the lending program. A combina- The goal was to bring about poverty alleviation through promoting tion of broad-based growth, investments in rural infrastructure, and better target- economic growth and support for social sectors. The strategy was ing of social services have contributed to alleviating poverty. Between 1988 and 1993, broadened in 1998 to include governance and transparency is- while the Bank was waiting for approval to resume lending, the Bank built its knowl- sues. edge base and provided a wide-range of non-lending services to Vietnam. This early sector work effectively fed into the selection of projects and project design. (Continued on the following page.) 7 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S O u t c o m e s o f B a n k A s s i s t a n c e , P o v e r t y T a b l e C . 2 F o c u s , a n d A n a l y t i c a l a n d A d v i s o r y S e r v i c e s t o t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Overall outcome Transition Countries Armenia: 1993-2002 Satisfactory outcome. There has been a large contribution to maintaining macro-stability, although the resulting poverty reduction has so far been small. AAA contributed to establishing the new social benefit system with better targeting. There have been improvements in the efficiency in the education sector, energy sector and aspects of PSD. The agriculture and transport sectors remain with unaddressed problems, and the Bank's efforts to strengthen public sector efficiency have been ineffective. Bulgaria: 1991-2000 Unsatisfactory outcome from 1991 to 1997 and satisfactory from mid-1997 to 2000. The Bank rightly focused on stabilization and debt re- duction. The reforms stalled in the 1990s until a new strategy, which was implemented after 1997, led to some reform. Bulgaria after 1997 still had very poor PSD, poor targeting of poverty, and very little reform in the public sector. Croatia: 1993-2003 Unsatisfactory outcome from 1993 to 2001 and satisfactory from 2001 to 2003. The Bank's strategies were relevant overall, but there was a disconnect between the proposed and implemented assistance programs. Prior to FY02 the government rejected proposals for adjustment and sector reforms in public administration, judicial, health, and other sectors. The actual lending program was more focused on infrastructure than indicated by the CAS and less on growth, public expenditure, and governance. After FY01 the outcome was satisfactory based on higher relevance and efficacy, and on restraining and retargeting the public investment program. Lithuania: 1992-2002 Satisfactory outcome. Focus on growth and transition helped stabilize the economy. The Bank's CEMs and sector work highlighted key areas for reform. Lending was relevant except in the areas of PSD and agriculture where there were unaddressed problems. The Bank's major contri- butions occurred in the areas of fiscal, financial, energy and transport sectors for Lithuania. Moldova: 1993-2003 Unsatisfactory outcome. The country remains highly indebted. Governance remains weak and social institutions fiscally challenged. The gov- ernment is reluctant to turn to market-friendly solutions. The poverty has led to emigration. 7 8 A P P E N D I X C : S TAT I S T I C A L TA B L E S Poverty focus in CAS AAA and poverty One of the elements of the 1995 CAS was poverty alleviation and The resulting reduction in poverty has thus far been limited, but, through AAA better targeting of social protection. Poverty alleviation through the and lending, the Bank has helped establish a new social benefit system, well strengthening of social safety nets and health and educational re- targeted to the poor. Poverty alleviation was addressed early through analytic form were elements of the 1997 CAS. The 2001 CAS focused on work and adjustment lending. private sector development, governance, and human capital development. The Bank's main strategic objective in Bulgaria has remained un- The social assessment and participatory research came too late to inform the changed over the last decade. The objective has been to facilitate 1997 Poverty Assessment (PA). The timeliness and relevance of the PAS was also Bulgaria's transition to a market-based economy, by (1) supporting modest. First, the 1997 survey on which the PA drew was not representative of macroeconomic stabilization and sustainable growth, (2) facilitat- the poverty situation since it was done at the peak of the crisis during which con- ing the expansion of private sector activity, and (3) addressing ditions of hyperinflation had a large and immediate impact on poverty. Second, poverty by establishing a financially viable and effective social pro- the PA came too late to fully benefit the preparation of the SPAL (FY99). Even if tection system and other social sector programs. it had been in time for the SPAL, it would not have been useful because of its inaccurate picture of poverty and lack of guidance on the scope for improved tar- geting. Third, the Bank did not build domestic capacity to carry out living stan- dard measurement surveys (LSMS). The 1995 CAS sought to help Croatia with the transition from Throughout the 1990s, effective components of the ESW program could not be im- transformation to stabilization with sustained growth. The 1999 CAS plemented because of the lack of government agreement. Therefore, the impact of adopted containing poverty as one of the main objectives. work completed was low even through it was of good quality. Not until 2001 was the outcome of the Bank's assistance program satisfactory. The Bank was less ac- tive in poverty alleviation and social development, because the government did not welcome Bank assistance in these areas until 2000. The Vulnerability Study was long- delayed having been on the agenda since the 1995 CAS. While the Bank supported reforms in pensions and a few social sectors, clients perceived that the Bank did not have either a strong involvement or a strong impact on poverty. The Bank's overall objectives during the past ten years were to as- The Bank's focus on key adjustment issues in the lending program also guided sist in the transition and to address poverty reduction by helping its AAA with the CEMs playing a role in defining issues and proposing reforms. restore overall growth. Sector reports as well as activities supported by the Institutional Development Fund opportunistically addressed important issues and provided relevant guid- ance to the CEMs. The Bank's strategy in the mid-1990s supported the Government's The Bank's AAA was usually relevant and had an impact on government and donor reform agenda to establish self-sustaining growth based on (1) in- decisions. The Bank's poverty work was deemed useful by donors and govern- creased competitiveness, particularly in agriculture, (2) improved ment, and had a direct impact on social reforms. energy efficiency, (3) emergence of a service sector, and (4) improving the country's human resources. The 1999 CAS noted that Moldova was one of the poorest countries of Europe and had among the low- est levels of foreign direct investment. Poverty-linked lending was a specific "focus" of the 1999 CAS, which proposed lending for so- cial protection, a social investment fund, and health reform. (Continued on the following page.) 7 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S O u t c o m e s o f B a n k A s s i s t a n c e , P o v e r t y T a b l e C . 2 F o c u s , a n d A n a l y t i c a l a n d A d v i s o r y S e r v i c e s t o t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Overall outcome Transition Countries (cont.) Mongolia: 1991-2000 Partially satisfactory outcome. The Bank helped overcome the initial crisis and restored growth but was not able to advance key institutional and policy objectives needed to support broad-based growth. The lending program, ESW, donor coordination, and policy advice achieved good results but with clear limitations. The impact of the lending program in particular was constrained by unsatisfactory projects in banking and en- ergy and the declining relevance of its emergency transition. The Bank also made contributions to overcome the initial crisis and restore growth and protect the vulnerable during transition. Russian Federation: 1992-2001 Unsatisfactory outcome from 1992 to 1998 and satisfactory from mid-1998 to 2001. The macro-environment was volatile and unsustain- able before 1998. Public sector management and private sector development remain at the core of the development challenge. Since 1998, there has been an overall improvement in the macro-situation and broader ownership, suggesting that the reform program is likely to be sustained. However, the economy remains vulnerable to shocks. Modest- and Poor-Performing Countries Brazil: 1990-2002 Satisfactory outcome. The Bank made major contributions to human resources and education, and played a critical role in building up institu- tional capacity in the environment area since the early 1990s. There have been with some gains in poverty due to macroeconomic stabilization. Guatemala: 1985-2001 Unsatisfactory outcome from 1985 to 1990, and satisfactory from 1991-2000. The government distrusted the Bank in the 1980s. The out- comes of the Bank's assistance (in terms of policy reform and growth) improved after the start of stabilization by Serrano in 1990 and the peace agreement in the early 1990s. The Bank's assistance supported programs agreed to in the peace accord, finally coming to grips with the prob- lems of poverty, inequality, and social exclusion. Jordan: 1990-2002 Moderately satisfactory outcome. The Bank helped Jordan stabilize its economy after the debt crisis and disruption caused by the 1991 Gulf War. But there was slow growth until 2000 despite wide-ranging sectoral reforms. Lesotho: 1990-2000 Moderately unsatisfactory outcome. Half the population lives below the poverty line and income inequality is among the highest in the world. Despite macroeconomic success, the economy has had problems with governance that have constrained progress. 8 0 A P P E N D I X C : S TAT I S T I C A L TA B L E S Poverty focus in CAS AAA and poverty An explicit poverty focus was adopted in 1996 in the second CAS. The Bank's prospective lending program drove the sectoral focus of its analytical The aim was to promote development through direct poverty alle- reports. Eight formal ESW reports were prepared during the 1990s, including viation efforts. three CEMs; sector reports in agriculture (FY95), energy (FY96), and transportation (FY99); a poverty assessment (FY96); and a public enterprise review (FY97). The Bank also produced a financial sector review, helped the government prepare its National Environmental Action Plan in 1995, and supported a Participatory Livings Standards Assessment carried out by the National Statistics Office in 2000. Throughout this period, the Bank's main objective was to ease Until 1995, the Bank gave only secondary priority to ESW and did not dissemi- Russia's transition from a planned to a market economy and to help nate findings to a wider audience. Between 1997 and 2000, reports were pro- avoid the human costs and geopolitical consequences of a policy duced in a number of areas including poverty and inequality. The study "Making reversal by facilitating the restructuring of old enterprises, creat- Transition Work for Everyone" updated and supplemented various studies on ing new enterprises, improving the environment for investment, and poverty and highlighted the negative consequences of Russia's transition for reforming social protection. poverty and inequality. Poverty alleviation was a central objective of the Bank's assistance Overall, ESW was of good quality and relevance. The greater importance attached throughout the 1990s and early 2000s. Growth was usually defined to non-lending services was due to the Bank's capacity to contribute to sectoral re- as a means (or an intermediate objective) to achieve final objective. forms and its awareness of its declining importance as a source of finance. Some ESW had a significant impact on the formulation of sectoral policies and Bank projects. In the 1980s, the government showed little commitment to ad- dressing problems that exacerbated poverty and inequality. It was only in the 1990s that the Bank began to focus on poverty reduc- tion, stabilization, and economic reform In 1999, Jordan reiterated the objectives of the 1995 strategy The two poverty assessments helped resolve the controversies that had arisen be- which focused on accelerating economic growth, fostering private cause of the differences in the range of poverty estimates. These reviewed the investment and export development, promoting human development, numbers produced by the Bank and justified that they were defensible. The Bank's and improving water resource management. The objectives of the AAA has been sound and has had an impact on the views of the government. 2002 CAS were the same as 1999--sustained growth to create jobs and reduce poverty. The 1994 CAS had three-pronged growth strategy--to help the gov- The sector analysis that was carried out during the 1980s and 1990s was gen- ernment deepen structural reforms, to improve its capacity to im- erally sound and satisfactory, but with some shortcomings. AAA in education was plement the program, and to capture the benefits of the Lesotho particularly effective. There was no broad economic work that followed the ac- Highlands Water Project (LHWP). The CAS recognized the serious tion plan of the 1995 Poverty Assessment. Three areas--agriculture, finance, poverty situation and identified the lack of economic growth as the and education--were covered, but health and population were ignored. major cause. Not until the 1996 CAS was there a serious shift in focus towards poverty reduction. Its main aims were to foster labor- intensive growth, invest in human resources, maximize the poverty- reducing impact of the LHWP, and enhance institutional capacity. (Continued on the following page.) 8 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S O u t c o m e s o f B a n k A s s i s t a n c e , P o v e r t y T a b l e C . 2 F o c u s , a n d A n a l y t i c a l a n d A d v i s o r y S e r v i c e s t o t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Overall outcome Modest- and Poor-Performing Countries (cont.) Morocco: 1997-2000 Marginally unsatisfactory outcome. The results in terms of growth and poverty have been very weak. There has been an increase in the budget deficit and reallocations have not been as expected. PSM has been very weak and growth has not been broad-based. The government has reached an agreement with the EU to liberalize trade. Peru: 1990-2000 Satisfactory outcome from 1990 to 1996 and unsatisfactory from 1997 to 2000. The first part of the 1990s was a period of much progress, including macroeconomic stabilization, a reduction in poverty between 1991 and 1997, and improvements in social indicators and infrastructure. After 1997, during a period of economic crisis and stagnation, the assistance program was not efficacious in achieving its development goals. The government implemented policies that directly undermined institutional strengthening and investments in human capital. The Bank provided budget support without addressing the policy reversals and the eroding tax base. Zambia: 1996-2001 Unsatisfactory outcome. The Bank's role in shaping the policy agenda was significant, reflecting the Bank's high degree financial leverage and diversified portfolio. The Bank encouraged macro-stabilization. The Bank could have fostered more rapid economic growth, reversed trends in per capita income, and reduced poverty if relevance and efficacy had been higher. Although the Bank's portfolio was more diversified, including an emphasis on economic infrastructure and social services, investment lending was heavily oriented towards infrastructure rehabilitation and with little emphasis on or success in promoting relevant sector reforms. Zimbabwe: 1990-2000 Unsatisfactory outcome. The Bank showed very little commitment to macroeconomic stability. Liberalizing economic reforms in the early 1990s were not sequenced appropriately. An overall policy framework that could sustain project and sector achievements was lacking. The Bank had a poor understanding of country ownership and consensus among decision makers. 8 2 A P P E N D I X C : S TAT I S T I C A L TA B L E S Poverty focus in CAS AAA and poverty The 1997 CAS aimed to accelerate growth and alleviate poverty by AAA in Morocco is generally of high quality, but relatively expensive, well above (1) reducing the public deficit and reallocating expenditures, (2) broad the average for MNA and for the Bank as a whole in recent years. The 1997 CAR public sector reform and continued private sector development, (3) found that much of the Bank's excellent economic and sector work on Morocco implementation of social and rural development programs to reduce had not been well used and recommended that relatively more resources be spent the gender gap and to improve environmental management. on dissemination and consensus-building. The CASs before 1994 focused on stabilization of the economy. It The quality of the AAA program since the 1997 CAS was satisfactory overall be- was in 1997 that poverty reduction and extreme poverty became cause of the concerted focus on poverty reduction. Policy makers viewed ESW the focus of the Bank. The Bank also recognized that investment was one of the most valued Bank products. The Bank also played a catalytic role in human and physical capital could help improve the poverty sit- in broadening the dialogue and consultation for poverty reduction through a Poverty uation. Dialogue, which brought together the government, other donors, civil society, and the private sector. The Bank's program was guided by three country strategies which A participatory PER was completed in mid-FY02, six years after the previous PER. had a consistent objective of promoting sustainable growth to re- Improved public expenditure management was important to enhance the effi- duce poverty. The four main themes consistent through the CASs ciency of the state, channel HIPC resources appropriately and implement the up- were to promote (1) a stable macro-environment, (2) privatization coming PRS. The PER was of substantial relevance. It highlighted, in particular, of state-owned enterprises, (3) targeting assistance directly to the the links between public expenditures, growth and poverty, as well as the fis- poor, (4) improving public sector efficiency and governance. cal deficits that remained a barrier to macroeconomic stabilization. However, the inadequacy of the enhanced HIPC initiative in alleviating the discretionary budget constraint was not sufficiently addressed. The twin objectives of reducing fiscal deficits and fostering equi- The 1991 agricultural sector memorandum, apart from mentioning the need for table growth have remained unchanged for almost two decades. a more equitable distribution of assets and food insecurity, made no reference These objectives were first set out in the 1980 country economic to poverty in rural areas. This omission was noteworthy considering that it fol- memorandum (CEM) and repeated with a few modifications in the lowed on the 1990 WDR on poverty. Attention to poverty and social protection FY92, FY94 and the FY97 country strategies. Private sector devel- was weak in 1991-96, and a full poverty assessment has never been completed. opment, poverty alleviation, human capital, and rural development The 1995 CEM was labeled as a poverty assessment but contained only a slim were added to the country strategies in the 1990s. poverty profile with no proposed plan or strategy for reducing poverty. The Bank's 1997 strategy stated that poverty was not as prevalent as in many other Sub-Saharan countries, but was likely to have increased in 1990-95. A poverty situation analysis was published in 1996 and work on geographical targeting in 1997 formed the basis of the Community Action Project in FY98. 8 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Good-Performing Countries Chile FY1986-88 Structural adjustment FY1988-93 Financial sector adjustment Social sector adjustment FY1993-95 and Transport Education & health FY96-98 China 1980s & early Macro management 1990s and system reform 1995 CAS Macroeconomic and Infrastructure bottlenecks Poverty reduction Environmental protection structural reforms 1997 CAS Macroeconomic growth Infrastructure Human development Environmental protection & stability & poverty reduction 2002 CAS Accelerating the transition Investment climate Rural/agricultural to Accelerating the transition urban migration Environmental sustainability Dominican Republic CAS 1988 (1) Establish dialogue and rebuild the Bank's image, (2) have positive net transfers, and (3) use the Bank's analytic work and lending operations to support the government's efforts to stabilize and reactivate the economy 1994-96 The draft country strategy never became an official country strategy, since the Bank had misgivings about the country and the direction in which it was heading. 1996-99 Sustaining growth Privatizing the power sector Investing in human capital Natural resource management 2000-02 Liberalization of trade Improving the business Social security Reforming the agricultural environment Improving health, sector Reforming the financial education, and Rural development sector social services Improving the environment Improving the justice system Basic safety nets for Tourism the poor India 1990-mid 1990s Reforms for sustainable Human development Environmental protection growth, improved (for broad-based macroeconomic improvement of management, and primary social liberalization of the services) trade and investment regime Second half Studying state finances Increased attention to Poverty reduction of 1990s sector reforms Restructuring social Assistance in establishing programs and providing a framework conducive the poor with skills to efficient private to participate in the investment in new, more competitive infrastructure market economy 8 4 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Substantial relevance. In the majority of cases, the Bank diagnosed the problems correctly and identified objectives that would increase the country's growth prospects and the welfare of Chileans. In the 1990s it became clear that to alleviate poverty and to improve human welfare the quality and quantity of health and education services needed to improve. The Bank also helped improve transport infrastructure to assist growth. Substantial relevance. The four main Bank objectives--promoting system reform and better macro-management, poverty reduction, infra- structure development, and environmental protection--have helped address China's most pressing development issues. The gradual shift of emphasis toward poverty reduction and environmental protection has also been in the right direction, though the Bank was sometimes slow to recognize the importance of issues such as growing inequality and vulnerability, intergovernmental fiscal problems, and the need for better co- ordination of environmental policy and WRM. In some areas, such as financial sector and enterprise reform, the relevance of Bank advice waned during the mid-to-late 1990s. Since the Bank ended China's eligibility for IDA in FY00, Bank lending for social sectors and poor regions has be- come increasingly constrained. Modest relevance. The Bank had limited influence immediately after the New Economic Program in the Dominican Republic, but began to re- cover in the late 1990s. The Bank's program has supported improvements, especially in education, where it had an important influence. Progress on infrastructure has been mixed due to inadequate attention to institutional and regulatory issues. Agriculture and rural development were critical gaps in the country's reform program and the Bank's assistance strategy. The relevance of the Bank's assistance program was limited, due to the lack of continuity in the dialogue and the absence of Bank lending during critical times, and because the Bank was not pro-active in some key structural areas like privatization where it had a comparative advantage. Substantial relevance. Although the Bank neglected rural poverty in the first half of the 1990s, it provided timely support to structural ad- justment for the resumption of economic growth, which was the most pressing priority. It also showed increased concern for the adequacy of the policy and institutional framework in the energy sector and human development. The relevance of Bank assistance became more substan- tial in the second half of the 1990s, as its concern for the adequacy of the policy and institutional framework expanded to other sectors (espe- cially water resources) and to the states, and thanks to its in-depth study of India's rural development strategy and to the heightened attention in its lending program to social development and rural poverty. Creditworthiness, stabilization, and faster growth on the heels of the fiscal and structural reforms of the early 1990s were already in hand by the mid-1990s. From a closed and controlled economy, India has indeed moved far toward integration in the global economy. However, macroeconomic stability has been at risk since 1997 because of the fiscal deficit. Poverty reduction has been limited, with severe poverty in rural areas associated with inadequate social and infrastructural services. A large reform agenda still remains a decade after breaking away from the old development model. (Continued on the following page.) 8 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Good-Performing Countries (cont.) Tunisia Mid-1990 Economic integration Social stability Environmental sustainability (based on 1995 CEM) 2000 CAS Growth with equity, Rejuvenating private Human development Rural Development with emphasis on investment stability and growth through boosting competitiveness and enhancing outward orientation Vietnam 1993,1994, Maintaining macro- Private sector Poverty alleviation and Land reform 1995 stability development support for social Environmental protection Supporting rapid Financial sector sectors transition to a reform market economy Infrastructure (transport, power, irrigation, water supply) 1998 Maintaining macro- Private sector Poverty alleviation and Land reform stability development support for social Environmental protection Supporting rapid Financial sector sectors transition reform Participation Infrastructure Public sector reform Transparency Decentralization Transition Countries Armenia 1993 Economic stabilization Institution building Poverty alleviation and Structural reforms to Infrastructure support for better complete the rehabilitation targeting of social transition to a Promoting private sector protection market economy development and growth Mid-1990s Consolidation of Fostering rapid private macroeconomic sector development stability through further structural reforms; strengthening the financial system and the legal and judicial framework; and alleviation of key bottlenecks in energy, transport, and water 8 6 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Substantial relevance The Bank's assistance, in tandem with that of the IMF and other donors, made a contribution to maintaining macroeconomic stabilization and structural reforms, which in turn facilitated growth. The Bank's assistance contributed to improving the overall soundness of the banking system and to significant progress in the rural and social sectors. Remarkable progress was made towards achieving the MDGs. However, efforts to facilitate rural credit and land consolidation were less effective. The Bank did not pay sufficient attention to the country's expanding social programs and did not undertake public expenditure reviews periodically. High relevance. The Bank maintained its focus on structural reforms, even in the face of limited progress, as well as on infrastructure rehabilitation and poverty alleviation, both of which were priorities for the government. In addition, the Bank has done a good job orienting investments toward those areas identified by sector work and research as benefiting the poor. In many respects, the Bank's performance has been exemplary in its appropriate risk-taking in activities affected by safeguards, priority on partnership, focus on inclusiveness of ethnic minorities as beneficiaries of Bank projects, and its efforts to foster participation of the private sector and local NGOs in donor conferences and strategy sessions. The quality of the services, both lending and non-lending, has been high. The main weakness in the assistance has been its wide-ranging character, covering many sectors and sub-sectors. As in many countries, the lack of selectivity is linked to the internal and external pressures on the Bank to be present in most sectors. High relevance. The emphasis placed on infrastructure renewal, and on dismantling the remnants of a centrally planned economy was highly appropriate for the country--especially during the first half of the decade. Poverty alleviation was addressed early through analytical work and adjustment lending. Investment and adjustment lending were generally well-synchronized. The increased importance accorded to the social sectors was highly relevant. However, two important areas received insufficient attention until 2001--additional measures to support private sector development and modernization of the public sector. The 2001 CAS redirected the reform effort, emphasizing that additional measures were needed to support private sector and to help modernizing the public sector. (Continued on the following page.) 8 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Transition Countries (cont.) Armenia (continued) 2001 Creating jobs through Rebuilding human capital private sector Strengthening the social development safety net and reforming Improving governance the health and education and public sector services systems Bulgaria FY91-93 The first strategy focused on policy advice, the large external debt problem and assisting Bulgaria to reschedule it. The FY93 strategy proposed a five-year program of US$300 million per year with roughly 40 percent in adjustment lending, including an enterprise and financial sector reform loan. 1996 Social sectors Environment 1998 Support for SOE reforms, Social protection Agriculture banking, and energy Support for compliance with sector reforms EU environmental standards Reforms in state adminis- tration, civil service, and judiciary Croatia 1995 Reforming public finance Private-sector led growth Upgrading infrastructure 1999 Contain poverty Reducing size of and improving the efficiency of the public sector Improving governance Creating conditions for real sector development Lithuania 1994 Maintaining macro Liberalization and private Providing targeted and financial stability sector development social protection Strengthen the financial Reorienting the sector, including energy sector privatization of banks Maintaining and developing physical infrastructure 1999 Enhancing competitiveness Raising rural productivity by addressing corporate Upgrading the environment governance, bankruptcy laws, the judicial system, infrastructure and energy regulation Strengthening public adminis- tration at the central and sub-national levels Upgrading infrastructure 8 8 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Substantial relevance. The strategies were relevant to addressing Bulgaria's constraints. In the early years, the priority was on establishing the foundations for macroeconomic stability, on helping Bulgaria transition to a market economy with particular emphasis on enterprise reform, financial reform, and energy sector. The focus on debt restructuring was also appropriate. The cautious approach to lending in the FY96 CAS, the warning of an impending crisis unless reforms in the financial and enterprise sectors were decisively tackled, and the continuation of ESW were the right strategy for Bulgaria at that time. After 1997, the increased focus in the FY98 CAS on reforms was also relevant both for sustainable growth and poverty alleviation. However, the strategy would have been stronger if it had linked the strengthening of public administration to private sector development and to helping Bulgaria accede to the EU. Substantial relevance. The strategies presented in the two CASs were generally well designed, but were not fully implemented. These strategies assumed that the end of open hostilities presaged government support for a broad structural adjustment program. Intentions to reform public administration and investment, and the judiciary, were difficult to operationalize. The FY99 CAS recognized shortcomings in privatization and education but did not propose solutions. The client survey conducted in 1998 revealed that poverty reduction was not perceived as a Bank priority. As adjustment lending failed to materialize, the Bank allowed infrastructure lending to expand and supported a larger public investment program with limited retargeting at a time when Croatia needed to reduce and retarget public expenditures. Substantial relevance. The strategies were relevant to addressing Lithuania's constraints. The early priority on restoring macroeconomic stability and growth while assisting in the transformation of the Lithuanian economy was appropriate, as were the sectoral emphases on energy, infrastructure, and targeting social protection. The expanded scope of the Bank's assistance strategy in the FY99 CAS was also appropriate, in particular, addressing selected social issues not specifically addressed by the EU accession agenda while also supporting the EU accession agenda explicitly. The "external shock" scenario included as a high case alternative was also appropriate. The country assistance strategy was highly relevant in addressing critical constraints to transitioning to a market economy where the Bank had a subsequent role. The CEMs contained generally sound analysis and offered practical recommendations on reform, which were used as a basis for the design of adjustment lending that addressed macroeconomic stability, the consolidated fiscal deficit, and related issues. (Continued on the following page.) 8 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Transition Countries (cont.) Moldova Mid-1990s Establishing self- Improved energy efficiency Supporting the emergence Increased competitiveness, sustaining growth of a service sector particularly in agriculture Supporting the Improving the country's implementation of human resources the government's reform agenda 1999 Supporting macro- Private sector development Social protection, a social economic stability and public sector reform investment fund, and and growth health reform A specific "focus" on poverty-linked lending Mongolia Pre-1996 Emergency transition Supporting essential support between public services and 1991 and 1996 industries through Supporting short-term import financing and macroeconomic technical assistance stability through Building public capacity balance of payments to manage a market lending economy by financing, training, and external advisors 1996 Improve macroeconomic Develop the private Promote equity in Protect the environment management and support sector and financial development through medium-term stabilization institutions direct poverty alleviation Remove infrastructure efforts bottlenecks Russian Federation 1990 (Approach The Bank approved a $30 million grant in March 1991 to finance a trust fund TA and project preparation. Then, the Bank Phase) reached a new agreement in December 1991 with what was now the Russian Federation with respect to a share ($13.5 million) of the original grant. However, the advisory services financed by this trust fund came too late to help in the preparation of the Gaidar reform program and its initial implementation in early 1992. 1992-1995 Structural reforms Privatization Employment services Land, agriculture, (Learning and Tax administration Private and financial Pension payment environment Investing sector development administration Phase) Infrastructure Housing rehabilitation Mid-1995-1996 This phase was marked by an intensification of supervision efforts, the start of annual Country Portfolio Performance (Consolidation Reviews (CPPRs), and major project restructurings. Phase) 9 0 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Modest relevance. The failure of successive governments to implement reforms as well as exogenous events (Moldova's extremely difficult initial conditions, climatic factors, and the Russia crisis of 1998) were major factors in the unsatisfactory outcome of the Bank's assistance program in Moldova. But the Bank's program also had some shortcomings. While the Bank supported an appropriate reform agenda in most sectors throughout the period and made efforts to support reformist governments, the Bank's assistance program was based on optimistic macroeconomic projections that did not adequately take into account Moldova's complex political situation and ignored corruption problems until too late. The optimism reduced the pressure for immediate and major reforms. Cognizant of the difficulties newly democratic institutions faced, Bank managers often rewarded partial or deferred results with lending. Bank strategies, especially the 1994­97 strategy, should have emphasized Moldova's extremely difficult transition more strongly, stressed concessionary support, lent less IBRD, and insisted that reform commitments be implemented rather than delayed or partially completed. Substantial relevance. The Bank pursued relevant objectives in the 1990s except that emergency transition support could have been phased out earlier than it was. The Bank's objectives and strategy were consistent with the principles of the CDF, aiming to reduce poverty and improve living standards by enabling sustainable growth. The Bank practiced selectivity and did not finance investments in areas where other donors were fully involved. The early rehabilitation loans were appropriate in the light of the strong commitment shown by the government to implementing market reforms, the magnitude of the immediate problems faced--collapsing industries, termination of Soviet aid, lower commodity prices--and the prospects of severe hardships among the population. The rehabilitation loans were well coordinated with other donors. The financing of advisors, training, and producing analytical reports in various sectors were appropriate responses to the severe shortage in the knowledge and skills needed to implement reforms. Close attention to the financial sector was relevant given a succession of crises in the sector. Appropriate attention was paid to safety net programs for the poor to mitigate the short-term impact of the transition. Selective attention to redressing poor infrastructure, which continued to impede private sector activity, and to greater participation of the rural population in the market economy was also relevant. Substantial relevance. The Bank reiterated in all its CASs the end goals of promoting an environment conducive to economic growth while protecting the poor and vulnerable. Through 1998, the relevance of the Bank's operational objectives was substantial when set against the complex challenges of the transition, the fast-changing domestic and international situation, and the Bank's institutional priorities, but the efficacy of its assistance was modest. In the 3.5 years since the 1998 crisis, the relevance and design of Bank assistance have improved significantly, although delays in new project effectiveness and the slow pace of loan disbursements continued. Important reform legislation was successfully adopted. The implementation of the reform program has started in only a few areas, but its efficacy--that is, its contribution to economic performance--has been substantial and aided by the cumulative impact of earlier Bank efforts. By the end of 2001, Bank assistance had helped improve the incentive regime for sustained economic growth, pension benefits, the targeting of social assistance programs, and the restructuring of the coal sector. Most importantly, the dialogue between the Bank and senior Russian policymakers on structural reform, which has intensified since late 1998, played a major role in helping the current government formulate its program of market-oriented reform, good governance, and social responsibility. These are solid achievements. (Continued on the following page.) 9 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Transition Countries (cont.) Russian Federation (continued) 1996-1998 Supporting macro- Enterprise housing Social protection reform (Renewed economic stabilization, divestment Lending) tax reform, and Capital market (CAS 1997) elimination of budget development arrears Legal reform Medical equipment Pricing reforms Privatization Competitive restruc- turings in power, natural gas, and railways Banking reform. Coal sector reform The 1997 CAS also placed great emphasis on regional infrastructure projects CAS 1999; Supporting macro- Public administration Rehabilitation of the 1998 (Crisis economic management reform and reducing education and and Recovery through adjustment corruption health systems Phase) loans during the crisis Improving the business Addressing health crises, Budget management, environment such as tuberculosis tax collection, and Promoting private and AIDS federal-regional sector investment fiscal relations Modest- and Poor-Performing Countries Brazil 1990-94 Poverty reduction Reallocation of infra- Investments in health, structure resources to education, and environment water and transportation, with a focus on decentralization 1995-1998 Initial support for Reducing infrastructure Focus on CDD Focus on rural poverty stabilization bottlenecks through PSD Provision of basic services, especially to the rural poor 1999-2002 Macroeconomic Fiscal and public Social security reform Focus on rural poverty stabilization and administration and preserving social prevention of Financial sector reform expenditures economic stagnation Energy reform Focus on education and health 9 2 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Substantial relevance. The Bank's strategy to reduce poverty comprised a set of elements expected to address the roots of poverty, and another set to foster growth. Emphasis was on the first set, which essentially included assistance to human resource development (education, health) and expansion of basic services to the poor. The second set comprised financial and technical assistance to the buildup of infra- structure and the removal of structural inefficiencies. The decision to provide more intensive assistance to human resource development, especially education, was appropriate. The decision to pursue a diversified strategy of poverty reduction was also justified by the finding that growth reduces poverty in Brazil, but with an elasticity less than 1. The consistency of the assistance program with the government's own development agenda also improved during the 1990s, along with increasing government participation in the CASs, macroeconomic stability, and the formulation of clear sectoral programs. The focus on the Northeastern states was appropriate, given the region's high levels of poverty and the strategy to provide assistance to these states was also reasonable and cost-effective. Rural poverty alleviation projects were prepared and implemented in every Northeastern state, an appropriate decision given the high levels of rural poverty in the region. Assistance to education and health was provided in part through federal projects covering all Northeastern and other poor states. The shift to adjustment lending at the end of the decade was also justified and consistent with the Bank's central objectives of poverty reduction and growth. (Continued on the following page.) 9 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Modest- and Poor-Performing Countries (cont.) Guatemala 1990s Economic reform and Support for peace stabilization Poverty reduction 1995 Economic reform and Financial management Education and basic Agricultural services and stabilization services for rural lending for land rights communities, secondary roads 1998 Economic reform and Low-income urban Rural roads and rural stabilization neighborhoods and financial markets war-torn reconstruction Land Administration Jordan 1993 Sustainable growth Create an enabling Reducing poverty Protecting the environment in productive sectors environment for private Slowing population Mobilizing external investment in industry, growth financing trade services, and Outward oriented, infrastructure private-sector led Improvements in energy, strategy water, and transportation 1995 Trade, financial, regulatory, Human resource and public enterprise development. reform to build a better Family planning investment climate and reduce unemployment Private participation in infrastructure 1999 and 2002 Accelerating growth Private investment and Promoting human Improving water resource export development development management Public sector reform Lesotho 1994 Macroeconomic and Privatization Capturing the benefits structural reforms Fostering the growth of of LWHP the indigenous private sector 1996 and 1998 Labor-intensive growth Enhancing institutional Investing in human capital Maximizing poverty capacity reduction impact of LWHP 9 4 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Substantial relevance. Bank assistance benefited Guatemala during the 1990s because it supported better economic policies and better targeting and management of public resources. Both the 1995 and 1998 CASs dealt with relevant problems in the country and adopted the proper interventions to deal with them. The Bank adopted the right targets and sequencing of interventions. Although the Bank adopted better strategies in the 1990s, it could have placed greater emphasis on the education sooner and could have made more explicit how the strategies could affect rural development. The Bank could have been more forceful in supporting education programs with loans and sector work, and in working with civil society (political parties, think tanks, NGOs) when vested interests threatened the existence of education programs. Some of the loans helped deal with rural poverty, but if the strategies had tried to link the proposed program to rural development, the need for an agricultural development strategy would have become more evident. Substantial relevance. Bank strategies were relevant and consonant with Jordan's development priorities as outlined in a series of five-year economic and social development plans. Reforms in trade, banking, and public enterprises were the main thrust of the Bank's 1995 country strategy. The Bank's 1999 country strategy coincided with the 1999­2003 five-year development plan that sought to raise the rate of economic growth. The plan articulated the goals more clearly than it articulated how the government would achieve them. The increased focus on the social sectors in the Bank's strategies has been appropriate and is reasonably aligned with the MDGs. Bank strategies during the 1990s were silent on reducing the level of government expenditures, despite sufficient analytical work on identifying how these might be reduced and better targeted. Health spending could have been reduced if the government had not built hospitals but, instead, reimbursed the poor for using private hospitals with excess capacity. Educational costs could have been contained if existing capacity had been used more efficiently, class sizes increased, and double-shift schools maintained. A significant part of public spending stemmed from large public employment which had risen throughout the region following the 1970s oil boom. While this is sometimes described as the "social contract" to distribute the wealth, there are more effective ways of doing so. The reforms that the Bank's strategies supported did not significantly reduce government expenditures or improve their allocation. Modest relevance. Bank assistance strategies in the 1990s overreached in their objectives, given weak government ownership and insufficient implementation capacity. The strategies did not take into account Bank and client resources and strengths, and misjudged Lesotho's political instability, limited resources, and weak institutions. The relevance of the World Bank's increasing focus on poverty reduction was undermined until late in the 1990s by inadequate attention to poverty monitoring and weak performance benchmarks. Where perfo- rmance indicators existed (for example, in the social sectors), they often exhibited such weaknesses as vague wording, input orientation, no baseline data, or unrealistic targets. There was a dearth of information required to evaluate progress toward poverty reduction. Most Bank projects in Lesotho do not have a poverty monitoring and evaluation mechanism; nor were the CASs used to raise consciousness in Lesotho regarding the need for monitoring poverty and setting targets. (Continued on the following page.) 9 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Modest- and Poor-Performing Countries (cont.) Morocco 1997-2000 Reducing the budget Developing a business Speeding up implementation Rural development deficit, reallocating environment conducive of social programs Environmental management, expenditures to economic and Reducing the gender gap especially in establishing export growth river basin authorities and Initiating and implementing a in water pricing broad public sector reform and maintaining the momentum of private sector development Peru 1993-1994 Macroeconomic Institution building Poverty reduction sustainability Infrastructure Development of social sectors Debt service reduction development Poverty reduction and re- 1997 Institutional reform duction of extreme poverty Investment in human and physical capital Zambia Macroeconomic Privatizing state-owned Targeting assistance directly stabilization. enterprises and creating an to poor and vulnerable Providing balance of enabling environment for groups payments support to private sector development. overcome severe Improving public sector external imbalances efficiency and governance. Zimbabwe 1992 Fostering equitable Private sector Poverty reduction Agriculture and rural growth development Human capital development Reducing fiscal Reforms in the development deficits parastatal sector Trade and exchange Civil service reform rate 9 6 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications Substantial relevance. The program proposed in the 1997 CAS was highly relevant to Morocco's development needs. However, the program as implemented was much less so. In particular, the shifting of a substantial portion of the lending program from investment to adjustment operations, along with the loose focus of the biggest adjustment loan, the PRSL, reduced the potential for the program to contribute measurably to increasing the productive capacity of the economy and to reducing poverty. With some exceptions, the outcome of the program has been disappointing. In comparison both to the CAS projections and to other countries in the Region, the results in terms of growth and poverty reduction have been weak. Substantial relevance The 1997 CAS identified the crucial obstacles to further progress as institutional reform and resource availability. However, the Bank faced a difficult conundrum, since there were indications that the Peruvian government's commitment to reform was weakening, making the holistic modernization of the state and the needed fiscal effort unlikely. Given these constraints, the decision to attempt an incremental approach to public sector modernization by building in institutional reform components into individual loans was reasonable. The proposed attempt at wholesale reform of the judicial sector, on the other hand, seemed overly ambitious and out of line with the more realistic overall Bank strategy. Modest relevance. Bank strategies were devoid of response to the HIV/AIDS. Adult HIV prevalence in Zambia rose to 20 percent by the mid-1990s, reducing life expectancy dramatically and creating a cumulative 650,000 orphans. The pandemic had a devastating impact on household welfare, labor force productivity, and economic growth. Although the Bank was aware of the devastating impact of AIDS, this analysis was not fully integrated into subsequent economic work. Efforts to target the poor through lending to expand basic social services in rural and peri-urban areas through a related effort for a social fund had increasing success in targeting poorer rural communities and improvements in social infrastructure. However, the Bank paid little attention to financial barriers to social services. Bank strategy to support extensive privatization and the supporting legal and regulatory framework for private sector development in the FY96­2001 period was substantially relevant, despite implementation problems. The Bank initially used adjustment lending to provide incentives to downsize civil service, to restructure the civil service, and to reform human resources policies related to remuneration, performance evaluation, and promotions. The relevance of this strategy to strengthen the public sector to facilitate private-sector led growth was also substantial. Although civil service downsizing did occur, negligible progress was made on the broader agenda. Later reform efforts in the public sector through adjustment lending were overshadowed by the privatization of the copper mines. A success in the 1990s was helping promote periodic poverty monitoring and analysis in Zambia, so that the level, depth, and nature of poverty are now well known. However, the Bank failed to fund safety net programs and did not provide the intellectual leadership to stimulate a national debate on redistributive programs. Modest relevance. The relevance of the strategy throughout the 1990s was modest with respect to reducing poverty and inequality, mainly because there was no strategy for land reform. The FY92 and FY98 strategies also placed little emphasis on infrastructure in communal lands where rural poverty was concentrated. No plan was in place to monitor the impact of economic policies on poverty and income distribution, and the FY94 strategy did not propose a strategy to strengthen safety nets although it noted that the Social Development Fund had not been effective in protecting the poor. Relevance was high with respect to stimulating private sector development, growth, and maintaining macro- economic stability by focusing on reducing unsustainable levels of public sector deficits and parastatal losses, and mitigating the negative social impact of adjustment on the poor through the Social Development Fund. The emphasis on Sexually Transmitted Infections for reducing AIDS in the FY94 Bank strategy was relevant at that time, although more recent research suggests that it would have had only a modest impact on HIV transmission. Population issues were absent in the strategies, even though a Bank report in 1989 had highlighted the need to develop a national population policy and program. The Bank strategy in FY97 for PSD correctly focused on the provision of efficient and cost- effective infrastructure, and continuing tariff reduction. But the Bank underestimated the concerns of the top political leadership about the impact of parastatal and civil service reforms, privatization, and changes to investment policies on the distribution of income and assets. (Continued on the following page.) 9 7 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S R e l e v a n c e o f B a n k A s s i s t a n c e S t r a t e g i e s T a b l e C . 3 i n t h e 2 1 C A E C o u n t r i e s ( c o n t i n u e d ) Economic Private sector Human and Urban and rural management development and public social development development and and trade sector governance and protection environment Modest- and Poor-Performing Countries (cont.) Zimbabwe (continued) 1994 SME development Reducing poverty and Communal farming Infrastructure inequality Preventing spread of HIV 1997 Macroeconomic reforms Private sector development Human capital development Rural development and natural resource management 9 8 A P P E N D I X C : S TAT I S T I C A L TA B L E S Ratings, comments, and qualifications 9 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S K a u f m a n - K r a a y I n d i c a t o r s o f t h e Q u a l i t y T a b l e C . 4 o f P u b l i c S e c t o r I n s t i t u t i o n s i n t h e 2 1 C A E C o u n t r i e s Good-Performing Dominican Countries Chile China Republic India Tunisia Vietnam Average Voice and accountability 1996 0.89 ­1.22 0.02 0.27 ­0.50 ­1.24 ­0.30 2002 1.12 ­1.38 0.19 0.38 ­0.83 ­1.36 ­0.31 Change 0.22 ­0.16 0.17 0.11 ­0.33 ­0.11 ­0.02 Political stability 1996 0.72 0.23 ­0.08 ­0.55 0.28 0.38 0.16 2002 1.04 0.22 0.18 ­0.84 0.24 0.49 0.22 Change 0.32 ­0.01 0.26 ­0.29 ­0.04 0.11 0.06 Government efficiency 1996 0.95 0.11 ­0.31 ­0.16 0.39 ­0.18 0.13 2002 1.19 0.18 ­0.41 ­0.13 0.65 ­0.27 0.20 Change 0.25 0.07 ­0.10 0.03 0.26 ­0.08 0.07 Regulatory quality 1996 1.28 ­0.10 0.07 ­0.13 ­0.01 ­0.54 0.09 2002 1.50 ­0.41 ­0.17 ­0.34 ­0.02 ­0.69 ­0.02 Change 0.22 ­0.31 ­0.23 ­0.20 ­0.01 ­0.15 ­0.11 Rule of law 1996 1.19 ­0.43 ­0.49 ­0.01 0.06 ­0.47 ­0.02 2002 1.30 ­0.22 ­0.43 0.07 0.27 ­0.39 0.10 Change 0.11 0.21 0.06 0.08 0.21 0.08 0.13 Corruption 1996 1.19 ­0.01 ­0.31 ­0.29 ­0.04 ­0.60 ­0.01 2002 1.55 ­0.41 ­0.39 ­0.25 0.35 ­0.68 0.03 Change 0.36 ­0.39 ­0.08 0.04 0.39 ­0.08 0.04 Overall average 1996 1.04 ­0.24 ­0.18 ­0.14 0.03 ­0.44 0.01 2002 1.28 ­0.34 ­0.17 ­0.18 0.11 ­0.48 0.04 Change 0.25 ­0.10 0.01 ­0.04 0.08 ­0.04 0.03 1 0 0 A P P E N D I X C : S TAT I S T I C A L TA B L E S T a b l e C . 4 C o n t i n u e d Transition Russian Countries Armenia Bulgaria Croatia Lithuania Moldova Mongolia Federation Average Voice and accountability 1996 ­0.54 0.16 ­0.47 0.72 ­0.19 0.36 ­0.34 ­0.04 2002 ­0.42 0.56 0.46 0.89 ­0.30 0.44 ­0.52 0.16 Change 0.11 0.40 0.93 0.16 ­0.11 0.07 ­0.18 0.20 Political stability 1996 0.39 0.20 0.38 0.57 ­0.25 0.68 ­0.76 0.17 2002 ­0.53 0.56 0.56 0.93 ­0.12 0.95 ­0.40 0.28 Change ­0.92 0.36 0.18 0.36 0.12 0.28 0.36 0.11 Government efficiency 1996 ­0.34 ­0.44 ­0.22 0.05 ­0.49 ­0.27 ­0.48 ­0.31 2002 ­0.42 ­0.06 0.19 0.61 ­0.63 ­0.18 ­0.40 ­0.13 Change ­0.08 0.38 0.41 0.56 ­0.14 0.08 0.08 0.19 Regulatory quality 1996 ­0.70 ­0.12 ­0.12 0.27 0.01 ­0.55 ­0.41 ­0.23 2002 0.13 0.62 0.19 0.98 ­0.17 ­0.18 ­0.30 0.18 Change 0.83 0.74 0.31 0.71 ­0.17 0.37 0.11 0.41 Rule of law 1996 ­0.44 ­0.09 ­0.50 ­0.14 ­0.19 0.45 ­0.80 ­0.24 2002 ­0.44 0.05 0.11 0.48 ­0.49 0.36 ­0.78 ­0.10 Change 0.00 0.14 0.61 0.62 ­0.30 ­0.09 0.02 0.14 Corruption 1996 ­0.60 ­0.62 ­0.45 ­0.12 ­0.19 0.34 ­0.69 ­0.33 2002 ­0.72 ­0.17 0.23 0.25 ­0.89 ­0.14 ­0.90 ­0.33 Change ­0.11 0.45 0.68 0.37 ­0.70 ­0.49 ­0.21 0.00 Overall average 1996 ­0.37 ­0.15 ­0.23 0.23 ­0.22 0.17 ­0.58 ­0.16 2002 ­0.40 0.26 0.29 0.69 ­0.43 0.21 ­0.55 0.01 Change ­0.03 0.41 0.52 0.46 ­0.22 0.04 0.03 0.17 (Continued on the following page.) 1 0 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S T a b l e C . 4 C o n t i n u e d Modest- and Poor-Performing Countries Brazil Guatemala Jordan Lesotho Morocco Peru Zambia Zimbabwe Average Voice and accountability 1996 0.22 ­0.60 ­0.14 0.02 ­0.60 ­0.69 ­0.15 ­0.28 ­0.28 2002 0.28 ­0.48 ­0.41 ­0.16 ­0.30 0.22 ­0.40 ­1.50 ­0.34 Change 0.06 0.12 ­0.27 ­0.18 0.29 0.91 ­0.24 ­1.22 ­0.07 Political stability 1996 ­0.01 ­0.91 0.36 0.96 ­0.36 ­0.72 ­0.39 ­0.03 ­0.14 2002 0.17 ­0.43 ­0.44 ­0.06 ­0.14 ­0.67 ­0.02 ­1.62 ­0.40 Change 0.17 0.49 ­0.80 ­1.02 0.22 0.04 0.37 ­1.58 ­0.26 Government efficiency 1996 ­0.19 ­0.56 0.09 0.19 ­0.10 ­0.24 ­0.81 ­0.23 ­0.23 2002 ­0.22 ­0.61 0.36 ­0.26 0.07 ­0.47 ­0.93 ­0.80 ­0.36 Change ­0.03 ­0.05 0.27 ­0.44 0.17 ­0.23 ­0.12 ­0.57 ­0.12 Regulatory quality 1996 0.13 ­0.03 0.00 ­0.67 ­0.06 0.51 0.18 ­0.81 ­0.09 2002 0.26 ­0.09 0.10 ­0.48 0.02 0.24 ­0.60 ­1.61 ­0.27 Change 0.13 ­0.06 0.10 0.19 0.09 ­0.28 ­0.78 ­0.79 ­0.17 Rule of law 1996 ­0.24 ­0.61 0.19 ­0.29 0.18 ­0.33 ­0.33 ­0.22 ­0.21 2002 ­0.30 ­0.84 0.33 ­0.01 0.11 ­0.44 ­0.52 ­1.33 ­0.38 Change ­0.05 ­0.23 0.14 0.28 ­0.07 ­0.11 ­0.19 ­1.11 ­0.17 Corruption 1996 ­0.10 ­0.90 ­0.09 0.21 ­0.09 ­0.91 ­0.11 ­0.28 2002 ­0.05 ­0.71 0.00 ­0.28 ­0.04 ­0.20 ­0.97 ­1.17 ­0.43 Change 0.06 0.19 0.08 ­0.25 ­0.11 ­0.06 ­1.05 ­0.16 Overall average 1996 ­0.03 ­0.60 0.07 0.04 ­0.12 ­0.26 ­0.40 ­0.28 ­0.20 2002 0.02 ­0.53 ­0.01 ­0.21 ­0.05 ­0.22 ­0.57 ­1.34 ­0.36 Change 0.06 0.08 ­0.08 ­0.24 0.08 0.04 ­0.17 ­1.05 ­0.16 1 0 2 A P P E N D I X C : S TAT I S T I C A L TA B L E S D i a g n o s t i c T o o l s a n d I n d i c a t o r s i n T a b l e C . 5 R e l a t i o n t o I n v e s t m e n t C l i m a t e a n d P u b l i c S e c t o r G o v e r n a n c e Investment climate issues Sub-topics Tools Infrastructure for private sector development Data on services and analysis of infrastructure ICA Quality of physical infrastructure ICA, WBES/BEEPs, and Private Participation in Infrastructure Advisory Services Financial sector Private sector audit and accounting CFAA, ROSC, WBES/BEEPs Access to credit DB Efficiency ICA, FSAP, WBES/BEEPs Sources of financing ICA, WBES/BEEPs Sector development and regulations FSAP Corporate governance Investor protection DB Business environment, influence/lobbying, information flows WBES/BEEPs Corporate governance ROSC Property rights Property registration and rights DB, WBES/BEEPs Legal and regulatory environment Quality of regulation WBI governance indicators Regulatory burden, intervention and obstacles to business development, information and interpretation of regulations WBES/BEEPs, ICA, GAC-BES Legal environment WBES/BEEPs, ICA, GAC-BES Use of technology in customs, registration of businesses and taxation E-Government Starting/closing business, contract enforcement ICA Labor regulation DB Creditor rights and insolvency ROSC Corruption, public sector transparency Perceptions on bribery, corruption WBES/BEEPs, GAC-BES, WBI and accountability governance indicators, ICA Public sector efficiency, quality of government agencies WBES/BEEPs Fiscal transparency ROSC (IMF) Public sector service delivery and cost effectiveness Citizen/community report cards Public sector accountability CFAA, WBI governance indicators Political stability, law and order Macro and political stability and law and order GAC­BES, ICA, WBI governance indicators Predictability of public policy WBES/BEEPs CFAA ­ Country Financial Accountability Assessment. DB ­ Doing Business Survey. GAC-BES: Governance Anti-Corruption ­ Business Enterprise Survey. ICA ­ Investment Climate Assessments. ROSC ­ Report on Standards and Codes. WBES/BEEPs ­ World Business Enterprise Survey/Business Enforcement and Enterprise Performance Survey. 1 0 3 APPENDIX D: MANAGEMENT COMMENTS This year's Annual Review of Development Ef- countries (OECD 2005). In addition, the Transi- fectiveness (ARDE) examines the Bank's contri- tional Results Matrix,1 a planning tool that the bution to poverty reduction. This note provides Bank helped develop, integrates political, eco- brief management comments on the ARDE. nomic, security, and social dimensions of re- covery, and allows for close donor coordination ARDE Analysis behind government-agreed priorities, permits This section examines some of the analysis pre- flexibility, and supports the monitoring of sented by the Operations Evaluation Depart- progress; it is also in use. ment (OED) in the ARDE and provides MICs. The recent update on the Bank's MIC management's comments on that analysis. Over- support strategy (World Bank 2005e) lays out a all, management finds the analysis useful for its set of actions either completed or in progress to work on improving the poverty focus of all of the enhance the ability of the Bank to work more ef- Bank's work. However, there are a few areas fectively with these countries. As the ARDE notes, where management would like to comment. the MIC strategy aims to help countries pro- mote sustainable, equitable, and job-creating Country Business Model growth, raise living standards, and reduce The report notes the relatively good under- poverty. The update emphasizes that recent standing of the business model for Bank support Country Assistance Strategy (CAS) documents for to low-income countries, based on country- MICs have customized support to country cir- owned Poverty Reduction Strategies (PRSs). It cumstances and facilitated a more rapid response states that more needs to be done on the busi- to lending demand, notably those for El Sal- ness model for supporting low- income countries vador, India, Kazakhstan, Mexico, and Slovakia, under stress (LICUS) and middle-income coun- and all welcomed by executive directors. tries (MICs). LICUS. With regard to LICUS, the ARDE states Measuring the Impact of Bank Support that there is no consensus within the Bank or on Poverty among its potential partners on what kinds of ac- Management would note that it is difficult for any tions are needed, notably in conflict-affected development institution to truly measure its im- countries. Management would like to note the pact on poverty reduction in a client country, Bank's leadership recently in this area in bring- given all the elements that affect poverty levels. ing donors together around a common platform Perhaps the most important measure is the fol- for support. Specifically, at the Senior Level lowing. As pointed out in last year's ARDE (OED Forum for Development Effectiveness in Fragile 2003a), the Bank has done well in directing its States, held in London on January 13-14, 2005, financial support to countries with better poli- it was agreed that a set of principles for support cies, where these resources contribute the most be drafted and field tested. The Bank has been to growth and poverty reduction. At the same instrumental in producing these draft princi- time, support to LICUS countries has been ples. They are now available and are being ap- stepped up, with the goal of helping them plied in LICUS, notably in conflict-affected achieve consensus on policy direction and over 1 0 5 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S time improve policy and institutional perform- A Sharper Results Focus ance and gain greater access to financing from Management agrees on the need for a better re- the International Development Association and sults focus in its country programs, including from other sources. on support for improvements in governance, and better monitoring and evaluation. The re- ARDE Conclusions and Implications sults-based CAS pilot has made a start in this di- OED draws a series of conclusions and implica- rection, but it will take time to better articulate tions for future Bank activities from its analysis. the results chain between Bank outputs and the While it broadly embraces the two-pillar ap- country outcomes the Bank supports. The recent proach (support for sustainable and equitable review of the results-based CAS pilot (World growth and empowering and investing in poor Bank 2005c) lays out the architecture for these people), it highlights several ways that the im- results chains but also emphasizes the difficul- plementation of the strategy could be strength- ties and learning that must take place along the ened. This section provides Management views way. Both growth diagnostic work led by the on OED's observations. Poverty Reduction and Economic Management Network and research by the Development Eco- Interactions between the Two Pillars nomics Vice Presidency are aimed at improving Management agrees that these interactions are the development community's understanding important and deserve further emphasis. To bet- of these links. However, Management has some ter make these links, the Infrastructure Action difficulty with OED's suggestion to add more Plan currently under implementation highlights elements to the Bank's poverty assessments, both the growth and the social service delivery notably growth and governance issues. That aspects of infrastructure development (World would tend to overburden the already complex Bank 2004n). Additionally, the upcoming World poverty assessment tool. Development Report on equity and develop- ment will closely examine these links. Synergies between Private Sector Development and Public Sector Reform Customizing Bank Strategies and the Country These synergies are clear, and Management rec- Business Model ognizes the risks of a lack of coordination on As noted above, Management agrees and is work- these issues. However, there is no ideal organi- ing to align its country assistance strategies in all zational structure to achieve the synergies. Com- groups of countries with a relevant poverty focus. bining responsibilities in one unit (as was Management notes OED's observation that early considered at the time of the 1997 reorganiza- PRSs in low-income countries were less focused tion) also has risks, as one of the topics could be on broader growth issues than on social services neglected relative to the other. (although better social services do contribute to growth, as emphasized by OED); however, more Support for Empowerment and Human recently low-income countries have insisted on Development a greater emphasis on sustainable growth in de- The review notes that the Bank has sometimes veloping their country-owned PRSs. supported increases in expenditures for health and education without adequate consideration Poverty Focus of Global Programs of their actual impact. Recently this issue has re- Management concurs with the importance of a ceived greater attention. For example, the poverty focus in making choices with regard to Bank's public expenditure work addresses three Bank support for global programs. Management levels of public performance--the soundness has prepared a strategic framework for the Bank's and sustainability of budget expenditures, the global programs and partnerships for discus- quality of budget formulation and allocation, sion with Executive Directors. That framework and, notably, service delivery, especially in so- emphasizes this poverty dimension. cial services. One of the tools the Bank has ef- 1 0 6 A P P E N D I X D : M A N A G E M E N T C O M M E N T S fectively used in support to many countries then show how they support the achievement with regard to service delivery is the public ex- of these CAS targets. penditure tracking survey, which helps deter- mine if budgeted expenditures are reaching Conclusion the targeted beneficiaries. Beyond this, results- Management finds the 2004 ARDE useful in re- based CASs are starting to set out the country viewing the poverty focus of Bank support. As in past outcomes the Bank is supporting and the in- years, it is a timely and important input into Man- termediate indicators of progress. Any health or agement's work on strategy and policy, the budget education operations within the CAS program process, and improving the Bank's results focus. 1 0 7 APPENDIX E: CHAIRMAN'S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) On April 27, 2005, the Committee on Develop- Social Development Interventions and Analytical Work. ment Effectiveness met to discuss the 2004 Members agreed with the report's conclusion Annual Review of Development Effectiveness-- regarding the need to demonstrate more clearly The World Bank's Contributions to Poverty the poverty reduction impact of its social service Reduction (ARDE) prepared by OED. delivery and social development assistance. Re- garding OED's conclusion that the Bank's efforts Poverty Reduction and Growth. Members agreed have been more successful in countries where, with the report's emphasis on the importance of among other reasons, the executive, the legisla- a holistic approach to poverty reduction, inclu- ture, and the bureaucracy are working for a com- sive of both social and productive sectors, as mon purpose, a member questioned the capacity well as growth. They noted that the links be- of both the Bank and OED to make a value judg- tween the specific interventions and poverty ment on this matter. A speaker expressed con- outcomes need to be better articulated and more cerns about governments' recurrent cost measurable. A member highlighted the need for financing constraints, which tend to impede sus- clear policy guidance on how to balance Bank tainability when the Bank's financing phases out. lending for social development and physical in- Management noted that new improved policies frastructure. Management agreed with the im- on recurrent financing will allow focusing more portance of growth for development and noted appropriately on the issue of sustainability at the that there has long been a recognition of the cen- project level. A speaker concurred that increased trality of the growth agenda in the Regions, with expenditures cannot be equated with poverty a rapidly growing body of analytic work to sup- reduction and stressed the need for a well-defined port that agenda, as well as enormous demand mix of capacity building measures and invest- from the clients in this regard. Several speakers ment in that area. They expressed their support felt that the report could have been more spe- for instruments designed for use by countries to cific in its recommendations on how to maximize analyze the distributional impact of policy re- the impact on poverty reduction, and a member forms on the poor (PSIAs) and urged to widen felt that the report could have been clearer in de- their scope and improve their timeliness. A mem- livering its main message which he interpreted ber noted that the Bank's poverty assessments to be that the Bank was essentially on the right should focus more on the links to economic path and only some improvements on the mar- growth, without necessarily overburdening the gin were needed. OED responded that the main already complex instrument with more elements. message was that while the Bank has been con- Management concurred that PSIAs are a useful siderably successful in redefining its mission, tool, but cautioned about their further expansion, developing strategy and requisite instruments at given the possible budgetary constraints from the corporate level, more work still remains to the Bank side and the issue of their ownership be done to link particular interventions at the by the clients--ideally all PSIAs should be done country level to the broader strategic objective by client countries. OED explained that the report of poverty reduction. did not actually say that poverty assessments 1 0 9 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S should be extended to include productive sectors performance. OED clarified that poor outcomes and governance, but suggested improving the in risky environments do not necessarily imply links between the two pillars in the overall con- poor Bank performance. text of analytical work (e.g., CEMs). Global Programs. A member noted that he ex- Country Business Models. Several members high- pects the Bank's approach to global programs to lighted the ARDE's finding of a need to better be clarified in the context of strategic frame- align the Bank's country business models, in- work (currently under preparation), including cluding those for MICs and LICUS countries, their relation to poverty reduction and interac- with the goal of poverty reduction. Members tion with other MDBs. noted that although the Bank needs a certain de- gree of flexibility to respond to various needs of Governance and Synergies with Private Sector Agenda. client countries (especially MICs), it should also Speakers underlined the role of governance as be mindful of the impact of its interventions on an important factor to enhance development growth and poverty reduction. Several mem- impact and a crucial element of performance bers emphasized that there is no single policy based allocation, and urged giving serious con- framework or uniform set of policies that could sideration to the OED lessons for improving the be applied universally, and underlined the need way the Bank addresses and monitors gover- to tailor poverty reduction measures to country- nance. Management agreed that governance re- specific contexts, taking better stock of in-coun- mains a critical issue to be tackled, but, given its try experience. A speaker felt that the Bank's extreme complexity, stressed the need to ap- business model should give priority to the poorer proach it with a long term view, rather than look client countries, such as LICUS and conflict-af- for quick fixes. OED concurred that the gover- fected countries. Several speakers noted that nance issue needs a more careful look and there are issues to be addressed in respect to per- stressed the need to focus more on the country- formance in high-risk environments, and in par- specific binding constraints for poverty reduction ticular LICUS, such as allocation of lending and and growth in this regard. Some speakers noted transparency of lending decisions, distribution that despite its importance, good governance is of administrative costs across regions, etc. Man- neither a sufficient nor a prerequisite for sus- agement noted that the record of continued tained economic growth and rapid poverty re- below-average performance in LICUS countries duction. Members urged articulating synergies does not speak for increased lending in these between the public and private sector develop- countries. Management added that there is a ment agendas, including those with IFC. potential contradiction between the demands for taking more risks and simultaneously improving Pietro Veglio, Acting Chairman 1 1 0 ENDNOTES Chapter 1 the achievement of the MDGs is being measured 1. The strategy was formalized in Operational Di- against 1990 benchmarks. rective 4.15, Poverty Reduction (December 1991), and was based on both the 1990 WDR on Poverty Chapter 2 and World Bank 1991b, Assistance Strategies to Reduce 1. The Enhanced HIPC Initiative expanded the Poverty. The strategy became known informally within group of countries expected to qualify for debt relief the Bank as the "two-and-a-half leg" strategy. to 36 (from 29 under the 1996 Original HIPC Initia- 2. World Bank 2001a, p. 7; 2001b, pp. 7­8. When tive). the Bank updated its formal poverty reduction strat- 2. Examples include macro-related areas such as egy in August 2004, replacing Operational Directive tax/revenue policies and exchange rate management, 4.15 (December 1991) with Operational Policy 1.00, plus the role of the private sector, trade, price poli- the latter emphasized the three themes of opportu- cies, and privatization. nity, empowerment, and security in the 2000/2001 3. The expansion of HIPC's objectives to include WDR. However, most of the Bank's other strategic poverty reduction was brought about largely under po- statements since 2001, the conceptual framework for litical pressure from advocacy nongovernmental or- the Scaling Up Poverty Reduction Conference in ganizations (NGOs), organized under the umbrella of Shanghai in May 2004, and the 2004 and 2005 WDRs the Jubilee 2000 campaign, who successfully lobbied have been based on the two pillars of sustainable creditors in Organization for Economic Cooperation growth and empowerment. and Development capitals to strengthen the link be- 3. OED assesses the outcomes of Bank assistance tween debt relief and poverty reduction (OED 2003b). and the Bank's contribution to these outcomes at the The influence of NGOs and the fact that debtor states project, sector, thematic, country, and corporate lev- were not a major driving force behind the link with els. It uses an objectives-based approach that as- poverty reduction helps to explain how the Enhanced sesses the results of development interventions HIPC Initiative became focused almost exclusively on against their own stated objectives. This evaluation a particular approach to poverty reduction. approach enhances accountability by focusing at- 4. The Post-Conflict Fund was created in July 1997 tention on the extent to which objectives have been to position the Bank through constructive engagement achieved, promotes efficiency by relating the use of in conflict-affected areas. scarce resources to the accomplishment of specific 5. The annual average per capita commitment to outcomes, and allows comparisons by applying a IDA countries between fiscal years 2000 and 2002 was common metric across the wide array of sectors and $5.70. countries for which the Bank provides financing. It 6. The Bank's global public goods priorities are becomes increasingly challenging to attribute par- communicable diseases, environmental commons, ticular development outcomes to Bank project in- information and knowledge, trade and integration, and terventions as time passes or as the observation point international financial architecture. shifts from the micro (project) level to the macro 7. The CAS Retrospective used the following crite- (country) level. ria to evaluate the poverty content of CASs (World 4. The year 1990 was chosen as the benchmark, Bank 2003a): Does the CAS reflect existing, adequate since the WDR on poverty was published in 1990 and poverty diagnoses for the country? If there is a gap, 1 1 1 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S does the CAS propose actions to fill it? Does the CAS Chapter 3 describe and assess the country's poverty reduction 1. This includes the 19 CAEs that have been com- strategy and its goals? Does the CAS explain how the pleted since fiscal year 2002 inclusive, and for which proposed Bank assistance strategy supports the coun- there have been at least two national-level household try's poverty reduction strategy? Does the CAS in- surveys measuring the incidence of poverty since clude monitorable indicators for Bank actions? Does 1990, as well as 2 CAEs (India and Morocco) that were it discuss the adequacy of existing arrangements for completed in fiscal year 2001 in order to include at monitoring and propose actions to put a good mon- least one country from South Asia and a third coun- itoring system in place if one does not exist? Did the try (in addition to Jordan and Tunisia) from the Mid- CAS preparation process draw on consultations with dle East and North Africa Region. OED selects CAE a wide range of stakeholders, beyond central gov- countries based on several factors, the most impor- ernment officials? tant being the timing of the Bank's next CAS in order 8. Further, the guidelines specify that the CAS for the CAE to provide input into the preparation of must be based on a sound diagnosis of poverty, in- the CAS. Other factors OED considers are Regional bal- cluding obstacles to poverty reduction, actions nec- ance, whether previous CAEs have already covered par- essary to reduce poverty, linkages between poverty and ticular countries, and the potential for collaboration growth, and an assessment of the country's capacity with other international financial institutions in their to measure poverty indicators. The program itself preparation. While this sample of 21 CAE countries is should support the country's poverty reduction strat- neither representative nor random, it includes 5 large egy (World Bank 2004d). countries (China, Brazil, India, Russia, and Vietnam), 9. In 2004, the Bank introduced a major change in 6 medium-size countries (Chile, Guatemala, Morocco, its adjustment lending instruments, which it consol- Peru, Zambia, and Zimbabwe), and 11 countries of idated and renamed as one development policy lend- fewer than 10 million people (Armenia, Bulgaria, ing instrument in a revised Operating Policy 8.60 on Croatia, Dominican Republic, Jordan, Lesotho, Lithua- Development Policy Lending. The innovation was in- nia, Mongolia, Moldova, and Tunisia). fluenced by lessons from the past failures of adjust- 2. These seven countries had a similar pattern of ment lending and was designed to support the economic growth and poverty reduction during the Compreshensive Development Framework/Poverty period from 1990 to 2003, which is markedly differ- Reduction Strategy Paper principles of Bank engage- ent from the other 14 countries in the sample. Such ment. The new operational policy drew on results of a grouping will not necessarily remain relevant from the Structural Adjustment Participatory Review Ini- 2004 onward. tiative, the Extractive Industries Review, and consul- 3. OED rates the outcomes of the Bank's country tations with governments, NGOs, and others. assistance programs by assessing the extent to which 10. In addition to rural and urban development and the major strategic objectives of the assistance pro- environment, this particular way of associating the 2 grams were relevant and achieved, without major pillars with the Bank's 11 themes also does not ade- shortcomings. The Bank's contribution to the out- quately capture the role of infrastructure in fostering come of its assistance program is only part of the story, both economic growth and service delivery. Outcome since the overall outcome of the assistance program ratings by sectors are presented in Appendix 1. See also is determined by the joint impact of four agents: (1) endnote 1 in Chapter 4. the client, (2) the Bank, (3) partners and other stake- 11. The exceptionally high rate of growth calculated holders, and (4) exogenous forces such as events of for human development lending is attributed in part nature and international economic shocks. As a check to the high level of lending in 2003, equal to US$3.37 upon the subjective component of evaluation, OED ex- billion (18 percent of total new commitments), which amines each country assistance program across three was something of an outlier. dimensions: (1) a products and services dimension, in- 12. In addition to these sectors, which account volving a "bottom-up" analysis of major program inputs- for 75 percent of the poverty and social impact analy- loans, AAA, and aid coordination; (2) a development sis undertaken, analysis has been conducted on social impact dimension, involving a "top-down" analysis of sectors, land reform, industry, and infrastructure. the principal program objectives for relevance, efficacy, 1 1 2 E N D N O T E S outcome, sustainability, and institutional impact; and leveraging in a complementary way both public and (3) an attribution dimension, in which the evaluator private infrastructure resources. The provision of in- assigns responsibility for the program outcome to the frastructure can also make an important contribution four categories of actors listed above. to the delivery of services to the poor--the second pil- 4. The Europe and Central Asia Region believes that lar of the Bank's poverty reduction strategy and the the Bank was correct in not regarding poverty as a cen- subject of the next chapter. tral issue when these countries first embarked on 2. The increase in infrastructure lending is less their economic transitions, given the other priorities dramatic when measured on a sectoral basis. New in handling the crisis. The general view was that any commitments for the four infrastructure sectors com- increase in poverty would be transitory, and that bined (information and communications; energy and growth would come quickly and would reduce the in- mines; transportation; and water, sanitation, and flood cidence of poverty rapidly. Poverty was believed to be protection) grew by an average of 3.3 percent a year best addressed through the provision of pension pro- between 2000 and 2004. tection for the elderly and safety nets for those affected 3. These outcome averages are not comparable by downsizing (World Bank 2004k, p. 70). to those in Appendix 1, since they are for different time 5. In China, the Bank's overall lending allocations periods--1993­2003 rather than 1990­2004--and be- across provinces were regressive during most of the cause they are derived from the detailed review of the past decade, and therefore at odds with the stated ob- investment climate and financial sector reform port- jective of targeting. Per capita Bank lending was pos- folios that were conducted in the two recent OED stud- itively and significantly correlated with provincial ies (OED 2005d, e). income per capita during 1993­97, and still positively, 4. Better outcomes may also derive from factors on although not significantly, correlated during 1997­2002 the borrower's side, such as having specialist coun- (OED 2004g, p. 37). terparts from central banks or Ministries of Finance, 6. The Bank provided the Poverty Reform Sup- who may also focus more intently on financial sector port Loan in the late 1990s as a way of rewarding the issues than in situations where reforms cover many country's movement toward a more open political sectors and ministries. system. But the loan was too unfocussed to have a major impact on the areas identified in the country Chapter 5 strategy as in critical need of reform. Many of the ac- 1. The Voices of the Poor series (World Bank, 1999 tions taken prior to Board approval were only first a-c) was a participatory research initiative launched by steps, sometimes in the form of studies or plans, and the World Bank in 1999 to chronicle the struggles many others did not show concrete results (OED and aspirations of poor people around the world. 2001c, p. 13). The immediate impetus for the Voices of the Poor 7. As noted in endnote 4, the Europe and Central study was to help prepare the WDR 2000/01. The re- Asia Region expected that any increase in poverty in search findings have been published in a three-volume the early 1990s would be transitional and that an em- series--Can Anyone Hear Us, Crying Out for Change, phasis on poverty alleviation at the time would have From Many Lands-- and highlight the multidimen- been misplaced in the light of other priorities. sionality and complexity of poverty as encompass- ing, among other things, voicelessness, powerlessness, Chapter 4 insecurity, and humiliation. 1. The Bank's 2001 strategy, and therefore this re- 2. World Bank data--lending analysis by sector. view, uses the term "investment climate" broadly to 3. As an example, according to the Bank's 2004 encompass not just improving the business environ- Global Monitoring Report, the amount of additional aid ment, but also privatization and enterprise restruc- needed to support adequate progress toward the MDGs turing, infrastructure services for private sector is expected to be approximately $50 billion a year. development, and financial sector reform. The con- 4. The five Eastern European countries are Albania, tribution of infrastructure services to the investment Croatia, Estonia, Hungary, and Romania. climate includes both public and private investments-- 5. Lending commitments to the social develop- not just mobilizing private participation, but also ment themes, on the basis of the Bank's thematic 1 1 3 2 0 0 4 A N N U A L R E V I E W O F D E V E L O P M E N T E F F E C T I V E N E S S breakdown (conflict prevention, gender, indigenous data and analysis to substantiate these assessments, and peoples, participation/civic engagement, social analy- it identifies the lessons learned from implementation. sis/monitoring), totaled US$13 billion between 1990 The borrower prepares and provides the Bank and 2002. OED's review of social funds estimated that with its own evaluation report on the project's exe- Bank lending for social funds stood at US$3.5 billion cution and initial operation, its cost and benefits, the as of May 2001, while OED's review of community de- Bank's and borrower's performance, and the extent velopment (forthcoming) estimates that lending com- to which the purposes of the loan were achieved. mitment for community development amounted to The borrower's report is attached unedited to the ICR. US$4 billion by end of fiscal 2003. Once sent to the Board of Executive Directors, 6. The review is a meta-evaluation of 10 OED eval- each ICR is evaluated by OED, which validates or ad- uations addressing the following social development justs the ratings based on the information provided themes: gender, post-conflict reconstruction, non- in the ICR and other operational documents. OED governmental organizations, participation, rural water, summarizes its findings in an ICR Review (formerly resettlement, cultural heritage, community-driven de- called "Evaluation Summary"). This review con- velopment in the Sahel, and forestry. veys the OED ratings, comments on the lessons to be 7. OED's review of social development examined drawn and on the quality of the ICR, and suggests the most recent CASs of 109 countries for information whether the project is a candidate for a Project Per- on Bank and borrower assessment of social develop- formance Assessment Report (PPAR). Bank re- ment needs. The average number of social develop- gional staff have an opportunity to review this ment themes mentioned per CAS was 2.7. Social summary before it is completed. development themes that were mentioned often in PPAR ­ The purpose of a PPAR is to validate the CASs were participation (74 percent), gender (67 findings and augment the information in the ICR, percent), NGO/civil society (55 percent), commu- and to examine issues and lessons of broad applica- nity-driven development (19 percent), and culture (13 bility. Some PPARs are intended to serve as building percent). blocks for broad sector studies or Country Assistance 8. Data based on the World Bank thematic break- Evaluations. They provide independent, field-based down of the social development theme (conflict pre- post-completion verification of a project's imple- vention, gender, indigenous peoples, participation/ mentation and results. They incorporate the views civic engagement, social analysis/monitoring). of the borrower and main stakeholders, and analyze the operation in its sectoral and country context. The Appendix A operational staff and borrower representatives have 1. Data for this Appendix include project evalua- an opportunity to comment on the draft report. The tions conducted through February 15, 2005. Four final report is submitted to the Bank's Board and is evaluated projects that exited the Bank's portfolio of widely distributed within the Bank and the borrow- active projects in fiscal year 2005 have been excluded ing country. from the trend analysis given the extremely low cov- 3. Four projects had both an ICR Review and a erage of this fiscal year. PPAR completed during this time period. 2. The Bank prepares an Implementation Com- 4. OED's measure of outcome considers three fac- pletion Report (ICR) for each lending operation it tors: relevance, efficacy, and efficiency. Relevance finances. The ICR is prepared at the time of project measures the expected development impact of a proj- completion by the staff of the responsible Regional of- ect design by weighing the continuing relevance a fice (within six months of the final disbursement of the project's objectives. Efficacy refers the extent to which Bank loan). It assesses: (a) the degree to which the proj- each objective was achieved, or expected to be ect achieved its development objectives and outputs achieved. Efficiency measures the cost-effectiveness as set out in the project documents; (b) other signif- of a project, based mainly on sector-wide best prac- icant outcomes and impacts; (c) prospects for the tices and indicators where available. Combining these project's sustainability; and (d) Bank and borrower per- three factors, overall outcome is rated on a 6-point formance, including compliance with relevant Bank scale, ranging from highly satisfactory to highly un- safeguard and business policies. It also provides the satisfactory. 1 1 4 E N D N O T E S 5. This partial coverage is noted with dashed lines in has evaluated very few projects managed by these allthefiguresinthisappendix.LendingincludesIBRD/IDA, sector boards. GEF, Montreal Protocol, and Special Financing. 9. These operations exited the Bank's portfolio 6. OED's sustainability measure assesses the during the fiscal years 2000­04 (partial) period, resilience of risk of net benefit flows over time by amounted to US$9.0 billion in disbursements, and answering the following questions: At the time accounted for 8.1 percent of all the projects and 9.8 of evaluation, what is the resilience to risks of future percent of all the disbursements that exited during the net benefit flows? How sensitive is the intervention same time period. to changes in the operating environment? Will the 10. PRSCs are excluded from the analysis because intervention continue to produce net benefits as OED has evaluated only 5 projects since fiscal year 2000. long as intended, or even longer? How well will the intervention weather shocks and changing cir- Appendix B cumstances? 1. The data were downloaded from PovcalNet 7. OED's institutional development impact . This is an interactive computational improves the ability of a country or region to make tool maintained by DECRG that allows researchers to more efficient, equitable, and sustainable use of its estimate the extent of poverty in countries for which human, financial, and natural resources. Such im- reliable household survey data exist, to calculate dif- provements can derive from changes in values, cus- ferent poverty measures under different assumptions, toms, laws and regulations, and organizational and to assemble the estimates using alternative coun- mandates. Accountability, good governance, the rule try groupings of one's choosing. of law, and the participation of the civil society and the 2. See Chen and Ravallion (2001 and 2004) for private sector are prominent characteristics of an ef- more details regarding the data and the methodology. fective institutional environment. 8. The analysis excludes the global information Appendix D and communications technology, poverty reduction, 1. Available at http://www.oecd.org/dataoecd/29/18/ and social development sector boards because OED 34245/39.pdf 1 1 5 REFERENCES Acemoglu, Daron, and James Robinson. 2000. ------. 2001. "How did the world's poorest fare "Political losers as a barrier to economic de- in the 1990s?" Review of Income and Wealth velopment." American Economic Review, 47(3). May: 126-130. Chong, Alberto, and Cesar Calderon. 2000a. Acemoglu, Daron, Simon Johnson, and James "Institutional quality and income distribu- Robinson. 2004. "Institutions as the Funda- tion." 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Wash- Washington, D.C. ington, D.C.: World Bank. 1 2 1 OED PUBLICATIONS Study Series 2003 Annual Review of Development Effectiveness: The Effectiveness of Bank Support for Policy Reform Agricultural Extension: The Kenya Experience Assisting Russia's Transition: An Unprecedented Challenge Bangladesh: Progress Through Partnership Bridging Troubled Waters: Assessing the World Bank Water Resources Strategy The CGIAR: An Independent Meta-Evaluation of the Consultative Group on International Agricultural Research Debt Relief for the Poorest: An OED Review of the HIPC Initiative Developing Towns and Cities: Lessons from Brazil and the Philippines The Drive to Partnership: Aid Coordination and the World Bank Financial Sector Reform: A Review of World Bank Assistance Financing the Global Benefits of Forests: The Bank's GEF Portfolio and the 1991 Forest Strategy and Its Implementation Fiscal Management in Adjustment Lending IDA's Partnership for Poverty Reduction Improving the Lives of the Poor Through Investment in Cities India: The Dairy Revolution Information Infrastructure: The World Bank Group's Experience Investing in Health: Development Effectiveness in the Health, Nutrition, and Population Sector Jordan: Supporting Stable Development in a Challenging Region Lesotho: Development in a Challenging Environment Mainstreaming Gender in World Bank Lending: An Update The Next Ascent: An Evaluation of the Aga Khan Rural Support Program, Pakistan Nongovernmental Organizations in World Bank­Supported Projects: A Review Poland Country Assistance Review: Partnership in a Transition Economy Poverty Reduction in the 1990s: An Evaluation of Strategy and Performance Power for Development: A Review of the World Bank Group's Experience with Private Participation in the Electricity Sector Promoting Environmental Sustainability in Development Reforming Agriculture: The World Bank Goes to Market Sharing Knowledge: Innovations and Remaining Challenges Social Funds: Assessing Effectiveness Uganda: Policy, Participation, People The World Bank's Experience with Post-Conflict Reconstruction The World Bank's Forest Strategy: Striking the Right Balance Zambia Country Assistance Review: Turning an Economy Around Evaluation Country Case Series Bosnia and Herzegovina: Post-Conflict Reconstruction Brazil: Forests in the Balance: Challenges of Conservation with Development Cameroon: Forest Sector Development in a Difficult Political Economy China: From Afforestation to Poverty Alleviation and Natural Forest Management Costa Rica: Forest Strategy and the Evolution of Land Use El Salvador: Post-Conflict Reconstruction India: Alleviating Poverty through Forest Development Indonesia: The Challenges of World Bank Involvement in Forests Uganda: Post-Conflict Reconstruction Proceedings Global Public Policies and Programs: Implications for Financing and Evaluation Lessons of Fiscal Adjustment Lesson from Urban Transport Evaluating the Gender Impact of World Bank Assistance Evaluation and Development: The Institutional Dimension (Transaction Publishers) Evaluation and Poverty Reduction Monitoring & Evaluation Capacity Development in Africa Public Sector Performance--The Critical Role of Evaluation Multilingual Editions Allègement de la dette pour les plus pauvres : Examen OED de l'initiative PPTE Appréciation de l'efficacité du développement : L'évaluation à la Banque mondiale et à la Société financière internationale Determinar la eficacia de las actividades de desarrollo : La evaluación en el Banco Mundial y la Corporación Financiera Internacional Côte d'Ivoire : Revue de l'aide de la Banque mondiale au pays Filipinas: Crisis y oportunidades Reconstruir a Economia de Moçambique : http://www.worldbank.org/oed TMxHSKIMBy363034zv":':.:+:$ THE WORLD BANK ISBN 0-8213-6303-4