Conditionality

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Night and day: reviews highlight contrary views on World Bank use of conditionality

11 September 2006


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Internal reviews find that the World Bank is “broadly following” new good practice principles on the use of conditionality in adjustment lending, and support the continued “judicious use” of conditions in investment lending. Meanwhile critics grow increasingly frustrated with the conditionality status quo, leading NGO Christian Aid to call for an end to UK financial support for the Bank and Fund.

Responding to intense pressure, the Bank undertook an evaluation of its use of conditionality in adjustment lending in 2005. The resulting paper committed the Bank to five ‘good practice principles’ of ownership, harmonisation, customisation, criticality, and transparency and predictability (see Update 47) in its ‘development policy lending’ (the Bank’s new term for structural adjustment lending).

the Bank does not have an adequate plan for implementing the conditionality good practice guidelines

The need for a new approach to conditionality is critical at the current juncture. As aid volumes rise, conditionality is cited as one of the major causes of aid volatility. This renders government planning – and hence scaling-up social programmes to meet the Millennium Development Goals – fiendishly difficult. Moreover, the current zeal to combat corruption threatens an increase in governance-related conditions. All of this poses a particular threat to low-income countries, where Bank data reveal that the number of conditions still poses a heavy burden.

The Bank committed to reviewing implementation of the principles one year-on from their introduction. The review, released in August as part of a retrospective on the development policy lending (DPL) policy adopted in 2004, highlights a number of useful findings:

  • Macroeconomic analysis underpinning DPL “tends to neglect the long-term”;
  • eighty per cent of loans lack documentation of participatory processes;
  • analytic work “could be more strategically incorporated upstream with governments in the lead”, and available analytic work “could be more fully utilised”; and
  • significant environmental effects should similarly be screened further upstream.

However, the review’s findings that the principles have been “fully integrated” across the Bank’s work with glowing results, contrasts sharply with the findings of NGO shadow reports:

On ownership: the Bank concludes that it uses conditionality “in such a way that it does not interfere with internal consensus-building processes.” ActionAid finds that Bank staff continue to work with an “extremely narrow definition of country ownership”, which in Pakistan has “led to a large dam-building programme being driven forward in the face of public opposition”.

On customisation: according to the Bank review, sensitive policy reforms, such as privatisation and trade liberalisation, “respect government preferences and take into account government constraints”. Research by Brussels-based network Eurodad found that in Mozambique, Uganda, Zambia and Benin, World Bank loans were conditional on privatisation of certain public services – “even though these privatisations were not called for in the government’s national development strategies”.

On criticality: The Bank says that programmes give “clear indications of the actions considered critical by the Bank”. The principle of criticality, counters ActionAid, “is regularly being flouted”. So-called ‘non-binding’ conditions are being used to push policies which are not high priorities on governments’ agendas. A study by Debt and Development Coalition Ireland of 13 Poverty Reduction Support Credits (Bank support for national development strategies) found that in Mozambique, Benin, and Burkina Faso, the Bank was concerned about dwindling commitment to privatisation, so included benchmark conditions to keep up the pressure.

Contrary to the internal review findings, ActionAid concludes that the Bank does not have an adequate plan for implementing the good practice guidelines. They call on the Bank to develop the “right procedures, incentives and monitoring mechanisms” to fully implement the principles.

A second internal Bank review looked at the use of policy conditions in investment lending which comprises 70 per cent of total lending. The review concludes that the Bank’s use of conditions “has declined across all sectors” although “there is scope for further improvement.” The review advocates the use of analytic and advisory activities “to build ownership and consensus for reform”, and continues to support sector reform through the use of “judicious use of sector policy conditions in investment operations”.

The continued use of “damaging conditions, including forcing poor countries to privatise key services” is a central reason why UK NGO Christian Aid is calling for an end to UK funding of the World Bank and IMF, and will be taking this message to the UK Treasury on 14 September.