UK cuts through World Bank spin on conditionality

11 August 2005

The business-as-usual findings emerging from a Bank review of conditionality released late July have been challenged by the British government and are contradicted by the findings of a study by Irish NGO Debt and Development Coalition.

The big question: Is the number of conditions up or down?

The Bank’s review finds that “the average number of conditions fell from 35 in the late 80s to about 12 in FY05”, conceding however that “benchmarks have increased from about 15 in the early 90s to 24 in the last two years”. This requires some explanation. The World Bank’s conditionality zoo includes three different animals. ‘Prior actions’ are reforms which must be completed before any money is handed over. ‘Triggers’ include reforms which must be undertaken during the course of a lending programme to qualify for a subsequent programme. The Bank only considers these two as ‘conditions’. However, ‘benchmarks’, while not directly tied to the release of funds, can lead to a suspension of payments if ‘satisfactory progress’ is not being made in implementing them. In practice, even the Bank admits that its “distinction in the role of conditions and benchmarks is sometimes lost on borrowers”. Seventy-five per cent of authorities responding to a Bank survey on conditionality did not make any distinction between the different types of conditions.

A study by Debt and Development Coalition Ireland (DDCI) on the World Bank’s loans to low-income countries finds that the distinction between these different conditions is further blurred by the process by which governments move from ‘base-case’ to ‘high-case’ lending scenarios. The World Bank links completion of all types of conditions – including benchmarks – to access to increased grants or loans, “giving additional incentive to the government to implement the conditions”.

37 per cent said that negotiations with the Bank significantly modified their original policy programme

DDCI argues that the vagueness of the Bank’s distinction between different conditions has made a mockery of the notion of ‘criticality’ – a recent commitment on the part of the Bank that “conditions should be confined to those actions that are critical for implementing the country’s programme to achieve the expected results.” The more benchmarks that are applied argues DDCI, “the less clarity there is and the more subjective become disbursement decisions”, adding that “the continued use of a large number of benchmarks suggests that the Bank is keen to continue micromanaging the reform process.”

This critique is reinforced by the British government in its response to the conditionality review. UK secretary of state for international development, Hilary Benn, calls on the Bank to “clarify how it intends to reverse the trend of increasingly large and complex sets of policy actions”, adding that there should be a “clear statement setting out the strict limited circumstances when the Bank might use sensitive policy actions as triggers or benchmarks”. The statement “should expand on how actions deemed ‘critical’ to achieving the objectives of the programme are to be determined in practice.”

We are the ‘owners’, you are the ‘ship’

In its review, the Bank defines ownership as “a high probability that the policy will be adopted and implemented, even if there is internal opposition.” The UK response to this circumscribed definition is worth quoting at length: “it is not enough for there to be a high probability of the policy reform being implemented to warrant ownership. That is necessary, but it is not sufficient. Countries need space to formulate policy, consider the options, and build broad-based support for the path they will take. We should seek to understand the choices that governments make in the light of the political economy they face. We must ensure that in our discussions with countries, we do not crowd out space for domestic stakeholders, especially elected representatives, and support processes that strengthen accountability.”

Bank survey results confirm the UK’s conclusion that the Bank’s definition of ownership is insufficient: “50 per cent of respondents felt that the Bank introduced elements that were not part of the country’s programme”; “37 per cent said that negotiations with the World Bank significantly modified their original policy programme.”

The Bank review argues that the content of conditions have “shifted from short-term economic adjustment (including privatisation) and trade to medium-term public sector governance and social sectors reforms.” The study by DDCI is less sanguine about this shift. It finds that only two out of thirteen Bank programmes studied did not include conditionality requiring privatisation of government enterprises or public-private partnerships. In several cases, this was despite the fact that “there was no explicit mention of privatisation or public-private partnerships” in the national development strategy.

Both DDCI and the British government argue that the Bank needs to greatly improve its use of ‘poverty and social impact assessments’ (PSIA). Repeating what has been found in earlier studies by the Bank’s Operations Evaluation Department, the DDCI study finds that “in most cases, PSIA is being conducted once a reform has been decided upon, rather than facilitating debate and decision-making between various reforms.” Hilary Benn has asked for the Bank to ensure that reforms “have been informed by analysis of the political, economic, social and poverty impact of these policy changes”.

The conditionality review will go to the Bank board for discussion 1 September. If accepted, it will be presented to the board of governors at the annual meetings at the end of the month. Brussels-based NGO Eurodad is planning a detailed analysis of the entire set of Bank background papers which informed the review, and a workshop on conditionality and aid at the annual meetings in Washington.