World Bank to push for more adjustment lending

6 February 2001

A draft World Bank report outlining experience with structural adjustment lending proposes that such lending should be increased. The Bank’s operational directive on structural adjustment currently suggests it should not comprise more than 25 per cent of total lending, although it has in fact been over 60 per cent in recent years after the Asia crisis.

Many NGOs, and the US government, oppose an increase in adjustment lending because unlike project loans, adjustment/programme loans do not require social and environmental impact assessments. Some NGOs would, however, support a shift to more adjustment lending if ex ante social and environmental impact assessments were made a requirement. The Bank is under pressure from middle income borrowers, in particular, to reduce the costs associated with project preparation by diluting its safeguard policies. Switching to adjustment lending would be an easy way to do so. The draft report suggests that “…as adjustment lending consists of policy support for country programs based on the CAS [Country Assistance Strategy], use of the finely articulated safeguard and fiduciary rules that govern investment lending would likely not be appropriate.”

The draft paper makes little mention of the need for impact assessments before adjustment loans are agreed. It does note, however, that a recent Bank study “finds that less than twenty per cent of a sample of recent loans clearly [targeted] vulnerable groups and linked the adjustment program to efforts to directly reduce or mitigate poverty”. Another review found that “only seven per cent of the adjustment loans surveyed included specific indicators for monitoring social and environmental impacts”. The draft report thus argues that “there is significant room for improvement in the treatment of social and environmental issues in adjustment lending”. The retrospective is expected to go to the Board in February after further redrafting.

Some NGOs are critical that the paper does not address any of the many criticisms of adjustment programmes, even those made by Bank staff, such as the Easterly report (see p.3). No mechanisms are proposed for improving the poverty focus of adjustment lending nor how this will be monitored.

The paper is intended to feed into the stalled process for redrafting the Bank’s Structural Adjustment Operational Directive (OD8.6). External consultation on the redraft could start in April at the Kampala meeting of participants in the Structural Adjustment and Participatory Review Initiative (SAPRI), and finish by the Annual meetings in late September. NGOs are keen to know how this process will address changes to the Bank’s operational procedures needed to implement the rhetoric around the new Poverty Reduction Strategy process and the commitment to achieve the 2015 International Development Targets.

Ulrich Zachau, World Bank contact on adjustment review