The World Bank has produced a draft Private Sector Development Strategy. It contains a number of new proposals and ways of working. They include controversial proposals to involve the Bank’s lending for the poorest countries in private sector operations.
During the 1990s the World Bank increased the volume of its Private Sector Development Operations by 60 per cent. The Bank has stopped lending to state sector infrastructure and other projects where it believes that the private sector can do the job. The Strategy argues that poorer people are often badly served by public sector providers and often choose to buy privately where the choice exists.
The Strategy points out that shifting risks of project or enterprise performance to the private sector reduces the exposure of poor country taxpayers to public sector debt. Yet it recognises that “most PSD work has focused on supporting growth and thus hoped to support poverty reduction indirectly. More work may be required to assess the scope for more direct, effective pro-poor interventions.” The Bank also concedes that “privatization has been abused by powerful groups. Deregulation of financial markets has increased risks to poor citizens in a number of countries without necessarily delivering sustained growth. Over a decade of market reforms in Latin America has yet to show major positive results in many countries.”
The Bank Group proposes providing basic infrastructure alongside deregulation, more work on property rights, scaling up microfinance and supporting small-scale entrepreneurs. It also plans “more aggressive incorporation of service obligations for the poor in private infrastructure schemes”. The Bank’s main proposed change, however, is to target subsidies so that they actually reach the poor. This would be done by making subsidy payments to companies only when services are delivered, not when infrastructure is constructed. This would lead to new forms of collaboration between the Bank’s IDA and IFC arms. The IFC has already begun to encroach on IDA‘s territory, for example by approving some 44 projects to support private health and education.
Some risks are discussed, for example the need to measure service outputs in an unbiased fashion, and the need to “prevent private providers from shifting risk back to domestic taxpayers”. Yet it argues that all these risks can be managed and overcome and that more private providers, including NGOs should be allowed to provide services, including health and education.
Nancy Alexander of the Globalization Challenge Initiative comments “projects financed in this new manner could ultimately reduce access by the poor to essential health, education and water services. We challenge proposals which would transfer responsibility for certain services from the public sector to the private sector, including foreign and multinational corporations”.
The World Bank’s Executive Board will consider the strategy in December.