52604 FAST TRACKBRIEF August 25, 2008 The IEG report "An Evaluation of Bank Support for Decentralization in Client Countries" was discussed by CODE on May 21, 2008 An Evaluation of Bank Support for Decentralization in Client Countries Developing countries have decentralized functions and responsibilities for service delivery to lower levels of government at an increasing pace in recent years. The main reasons for such reforms are often political, but governments adopt them also as a way to improve service delivery and local governance. Typically, after the political decision is made, a country will turn to its development partners--including the World Bank--for support in implementing the new policies and achieving their development objectives. IEG assessed the effectiveness of Bank support for decentralization between FY90 and FY07 in 20 countries, seeking to inform the design and implementation of future support. Given the difficulties of measuring the results of decentralization, the evaluation used intermediate outcome indicators--such as strengthened legal and regulatory frameworks for intergovernmental relations, improved administrative capacity, and increased accountability of subnational governments and functionaries to higher levels of government and to local citizens--to assess the results of Bank support in these 20 cases. To examine potential lessons at a sectoral level, the evaluation also assessed whether Bank support for decentralization improved intermediate outcomes for service delivery in the education sector in 6 of the 20 countries. Bank support contributed to more effective decentralization--substantially in more than one-third of the 20 cases and modestly in the others. The most successful aspects of Bank support pertained to the legal frameworks for intergovernmental relations, the frameworks for intergovernmental fiscal transfers, and subnational financial management. Bank support was less effective in clarifying the roles and responsibilities of different levels of government and in improving own-source revenue mobilization by subnational governments, often due to lack of political will. Other things equal, Bank support brought better results where there was consensus around the reform within the country prior to Bank engagement and when the support was combined with incentives for institutional reform at the subnational level. Looking forward, the results of Bank support for decentralization can be strengthened with more timely and coordinated analytical work to underpin it, by better coordinating fragmented sector-by-sector interventions, and by accompanying support for policy reform with technical assistance to strengthen local government capacity. Introduction the World Bank to help with their decisions about whether to decentralize, nor has the Bank typically advocated All 20 countries reviewed in this evaluation have devolved decentralization, except in particular sectors. Usually--in significant responsibilities to lower levels of government. 12 of the 20 case-study countries--governments have Politics may be behind this trend, fueled by a desire among decentralized for political reasons and only subsequently constituents for strengthened democracy and improved asked the Bank to help implement the process, make it governance and service delivery. But the emergence of more rational, and improve service delivery and strong urban economies and ethnic tensions that threaten accountability. national identities also motivate governments to move closer to the people. Governments have not usually asked 1 Objectives of the Evaluation decentralization process or the connections between decentralization and service delivery, IEG focused on a set IEG assessed the effectiveness of Bank support for of intermediate outcomes, or results, that are essential for decentralization provided to 20 countries between FY90 good service delivery in decentralized settings. and FY07. These countries were selected to ensure regional representation, and they accounted for 47 percent The key desired result is fiscally responsible, responsive, and of all Bank commitments containing decentralization accountable subnational governments that are likely, under components during the evaluation period. The aim was to the oversight of citizens and higher-level government, to examine what worked and what did not in order to inform improve service delivery and governance. The desired result the design and implementation of future Bank support. has several components: (i) strengthened legal and Decentralization has many meanings, but for this regulatory frameworks for intergovernmental relations; (ii) evaluation it was defined as the transfer of authority and improved administrative capacity; and (iii) increased responsibility for governance and public service delivery from a higher accountability of subnational governments and functionaries to a lower level of government. The characteristic distinguishing to higher levels of government and to local citizens. IEG decentralization from, say, simply shifting resources to local assessed the extent to which Bank support to 20 countries governments is that decentralization seeks to create contributed to progress toward these objectives between relationships of accountability among citizens, service FY90 and FY07. At the sectoral level, the evaluation providers, and subnational governments, and between the assessed in 6 of the 20 focus countries the extent to which latter and central governments. The evaluation does not Bank support in the education sector helped to generate assess community-driven development, which was assessed resources for local governments to deliver services in a separate IEG evaluation of 2005. (consistent with formal intergovernmental fiscal Framework for Assessing the Results of Bank Support for Decentralization Inputs Outputs Intermediate Outcomes Final Outcomes Lending Fiscal: Rules for Improved legal and Better service revenue and regulatory delivery Economic and expenditure and frameworks for fiscal sector work borrowing relationships and Improved service delivery governance Other nonlending Administrative: support Local control over Improved human resources, administrative budgeting, financial capacity management Better upward and Political: Citizen downward participation accountability Exogenous factors frameworks), strengthened institutions and capacity for The Evaluation Framework improved service delivery, and enhanced accountability of It has yet to be conclusively demonstrated that there is a local governments for service delivery to citizens. causal link between decentralization and improved service delivery, good governance, or macroeconomic stabilization. Evaluation Findings Moreover, decentralization is a long-term agenda-- industrialized countries often took more than a century to Quality of Bank Support reach their current state of decentralization, and one or two To understand the quality of Bank support, the evaluation Bank country strategy periods are simply inadequate to the reviewed all Country Assistance Strategies (CASs) in the 20 purpose. The decentralization process is also typically countries, more than 40 pieces of relevant economic and disjointed and subject to periods of progress and of sector work (ESW), and 203 lending activities with reversal. Therefore, rather than focus on the whole decentralization components. The 203 lending activities in 2 these 20 countries had associated financial commitments of This said, the organizational structure within the Bank has in about US$22 billion, of which about US$7.4 billion was general resulted in less-than-optimum support for specifically for decentralization-related activities. decentralization at the country level. An absence of clear leadership and coordination across sectors persists, except in The quality of Bank ESW on decentralization was mixed a handful of cases where Country Directors and/or Vice during the 1990s. The work was not always timely and in Presidents have broken the sector-silo approach, thereby several countries did not influence the design of Bank enabling more consistent support to client countries. CASs. Of the 20 country cases, the evaluation found decentralization-related diagnostic reports in 16, but only in Results of Bank Support 8 was timely analysis of the implications of decentralization policy undertaken within five years of issuance by the The evaluation divided the review of the results of Bank countries of the relevant laws. The evaluation also found support for decentralization into two parts: (i) support for little evidence that broader analytical work on the development and/or strengthening of decentralization decentralization had substantial influence on Bank frameworks; and (ii) support for improving service delivery operations in the countries studied. Sound analysis, when it in the education sector. was done, tended to affect assistance from the same Bank sector unit that undertook the analysis, but not usually In supporting the development and/or strengthening of beyond. decentralization frameworks, the Bank generated outcomes that were high or substantial in 7 countries, modest in 12 The quality of the Bank's lending portfolio to these 20 and negligible in 1. Bank support for decentralization was countries was also mixed during the 1990s. Weak most successful in helping to strengthen the legal understanding of political economy factors and associated underpinnings of intergovernmental fiscal relations. The risks led to overly ambitious objectives, often limiting Bank contributed to establishing frameworks for prudent development effectiveness. Bank support for borrowing and debt management, generating substantial decentralization was provided by various sector units, with results in half of the countries to which it provided objectives that were not always consistent at the country support. Support for strengthening financial accountability level. Bank support focused on decentralization of subnational governments to higher levels of government frameworks, but did not always provide support in parallel also generated substantial results. The Bank was less to strengthen the technical capacity of the subnational successful in helping to strengthen frameworks for own- governments to whom responsibilities and resources were source revenue or enhancing such revenue, contributing to transferred. Monitoring of the progress of Bank support substantial and sustained results in only five countries. The for decentralization was weak, with the Bank focused on Bank also was not very successful in helping to clarify the output or process-level indicators such as the passage of responsibilities of the various levels of government or in laws or fiscal transfers rather than on the performance of supporting monitoring at the local level. local governments and other institutions in delivering services. The Bank contributed to better results in countries where the political will to decentralize was strong, where there was In the last five years of the evaluation period, the quality of greater clarity on the type of fiscal and administrative Bank support for decentralization improved in 15 out of decentralization to be pursued, and where Bank support the 20 countries. Bank analytical work provided a better was aligned with the client's decentralization strategy. This understanding of the broader implications of was the case notably in two post-conflict countries, where decentralization for service delivery and governance, and in consensus on the need to minimize the potential for turn influenced the design of country strategies. Country- conflict was compelling. In countries where there was less level assistance was therefore internally more consistent. In consensus on the approach to implementing fiscal or several countries, support for policy reform was combined administrative decentralization, the results of Bank support with technical assistance to strengthen different levels of were weaker, often because the Bank supported approaches government, and the Bank increasingly supported country that were inconsistent with client country objectives. efforts to assess the results of decentralization in terms of strengthened local government performance. Donor The evaluation reviewed Bank support for decentralization collaboration also improved during this period, and in in the education sector in greater depth in 6 of the 20 several of the 20 countries joint diagnostic and analytical countries of focus (there are ongoing IEG evaluations in work, including at subnational levels, led to joint support health, water, and municipal management). The evaluation for decentralization. found that sector-level efforts to decentralize education services were not usually sustained and effective unless they 3 were designed and implemented within a broad participation, and improved service delivery) rather than decentralization framework at the country level. only on the process of decentralization. The evaluation did not attempt to aggregate ratings of the · Ensure that Bank support at the country level is (inter quality of Bank support and ratings of the results of Bank alia): support for decentralization frameworks into a single rating for each of the 20 countries of focus. However, a founded upon a clear analytical framework based on an comparison of the ratings for quality and results indicates integrative understanding of economic, political, and that when the quality of Bank support improves, the results institutional factors at different levels of government also get better. This suggests that closer monitoring of the and across sectors affected by decentralization; and quality of Bank support for decentralization will likely accompanied by support (from the Bank or others) to improve the Bank's contribution to overall results in the develop and maintain local government capacity to the country. extent feasible. Recommendations · Strengthen institutional arrangements within the Bank In many of its country programs, the Bank has made a de to ensure that an integrative view underpins Bank facto strategic decision to support decentralization and interventions, particularly those based on sector-specific subnational government capacity development. In a few entry points. cases, notably where the client country has made decentralization a cornerstone of its development strategy and has demonstrated political commitment to decentralizing, Bank support has been built upon an The views expressed here are those of IEG and should not be explicitly cross-cutting approach. In most cases, however, attributed to the World Bank Group. The findings do not support Bank support has taken a sector-specific route, targeting any general inferences beyond the scope of the evaluation, decentralization and/or subnational government capacity including any references about the World Bank Group's past, development as a logical way of supporting more effective current or prospective overall performance. and responsive service delivery in the sector in question. In these latter cases, the various Bank sector units have not always provided consistent and coherent support for The Fast Track Brief, which summarizes major IEG evaluations, decentralization. will be distributed to World Bank Group staff. If you would like to Looking forward, IEG offers the following be added to the subscription list, please email us at recommendations, applicable to every client country that ieg@worldbank.org, with "FTB subscription" in the subject line has transferred at least some responsibility for service and your mail-stop number. If you would like to stop receiving delivery to subnational governments, where the Bank FTBs, please email us at IEG@Worldbank.org, with "FTB makes a de facto strategic decision to provide support for unsubscribe" in the subject line. decentralization through either a cross-cutting or a sector- specific approach: · Ensure that Bank support, particularly lending, is Contact IEG: underpinned by genuine client commitment to decentralized service delivery, given its importance to the Director-General, Evaluation: Vinod Thomas success of Bank interventions. Occasionally, a role for the Director: Cheryl Gray (IEG-WB) Bank may be justified in the absence of client commitment Senior Manager: Ali M. Khadr (IEGCR) (e.g., to forestall potentially adverse measures), although the Task Manager: Gita Gopal (IEGCR) evaluation finds that Bank interventions under such circumstances are not usually effective. · Encourage the adoption of a more results-based Copies of the report are available at: approach to decentralization by helping to develop in- http://www.worldbank.org/ieg/decentralization country and Bank capacity for M&E that focuses on local IEG Help Desk: (202) 458-4497 outcomes (such as enhanced accountability, greater citizen E-mail: ieg@worldbank.org 4