World Bank’s handling of fragile states “unsatisfactory”

10 October 2006

In September the Independent Evaluation Group (IEG) released its review of World Bank support to ‘fragile states’. The report gave the Bank a mixed review on its effectiveness, but raised serious questions about both the way the Bank is organised internally to deal with fragile states and the system it uses to allocate resources. Researchers and Bank-watchers question whether the review has gone far enough to examine what causes state ‘fragility’ and what role Bank-led reforms and projects may play in fostering it.

In 2005, the Bank classified 25 countries as low-income countries under stress (LICUS), often referred to as ‘fragile’ states. The Bank uses two criteria to define LICUS: per-capita income below $1025 per year (within the IDA eligibility threshold), and poor performance on the Bank’s scorecard for policies and institutions (a score of 3.0 or less on both the overall Country Policy and Institutional Assessment, or CPIA, and on the specific indicator for public sector management – for more on CPIA, see Analysis casts doubt on Bank scorecard). According to the Bank, LICUS are home to almost 500 million people, half of whom earn less than a dollar a day. They have infant mortality rates a third higher than other low-income countries, a life expectancy that is 12 years lower, and a maternal mortality rate that is 20 per cent higher.

Effective or part of the problem?

On the question of the Bank’s effectiveness in fragile states, the IEG praised the Bank’s increased engagement in LICUS (lending volumes have doubled over the past five years), its international policy coordination efforts, and a drastic improvement in the percentage of projects with satisfactory outcomes.

However it says that effectiveness is being held back by a lack of well-sequenced follow-up and a failure to integrate country-specific understanding into “strategy design and implementation”. Better coordination is needed at the national level with other donors. Perhaps most importantly, the IEG says more needs to be done to address the root causes of conflict – one of the main factors behind state fragility – “and address ethnic, sociological and political factors”.

Missing from the list is economic factors in which the Bank may have had a hand. Some analysts, such as Amy Chua of Yale Law School, have linked war with the imposition of free market measures. Chris Cramer and John Weeks from the School of Oriental and African Studies make an important distinction: IFI policies might not directly create conflict, but conditionality in sub-saharan Africa has been statistically associated with lower growth over decades and this is one of the variables linked with conflict.

Simon Counsell, of UK NGO Rainforest Foundation, believes the pressure to lend for projects may further aggravate the situation in fragile states. Counsell argues that LICUS are ideal places for junior World Bank staff to seek career advancement due to “huge unmet needs, lots of quick-disbursing funds, not too many government checks and controls, and the benefit of applying policy 8.50 [on emergency recovery assistance] and thereby not having to deal with the inconvenience of complying with all the safeguard policies”. “This is probably about the worst thing”, says Counsell, “that the Bank could be doing, especially if it means pouring money into extractive industries.”

Buried in appendices, the IEG report briefly discusses accountability in the management of natural resources and safeguard compliance in LICUS. While it credits the Bank for emphasising this in recent years, it charges that it is unclear how required actions to increase transparency in extractive industries will be implemented or what happens if they are not implemented.

The strategy for IFC investment in the mining sector in Papua New Guinea, for example, lacks details on “benchmarks, milestones or other monitoring indicators against which progress could be measured”. Provisions to protect the misuse of funds from the Chad-Cameroon oil pipeline project “proved to be insufficient”. In a separate note on the Bank’s anti-corruption framework, the IEG urged the Bank to make the IFC require their private sector clients to publish their payments to governments “and encourage the publish what you pay initiative”. While compliance with environmental and social safeguards “at entry” is satisfactory, the IEG chastises the Bank that “compliance during implementation warrants much greater attention”.

Hardship post

Damning for the Bank are the IEG’s assertions that the Bank’s internal support for work in fragile states has “progressed little”, remaining “unsatisfactory” on staffing numbers, staffing quality, incentive structures and monitoring and evaluation. Backed up by a survey of Bank staff, the IEG says there is “significant duplication and confusion” surrounding the roles of different units which deal with fragile states.

While the management response committed the Bank to reviewing staff numbers, training and incentives to work in LICUS, it rejected the call for a change in organisational structure. A paper on strengthening the Bank response to fragile states is “expected to be ready later in 2006”.

Allocation headaches

On the question of the usefulness of the Bank’s aid allocation system for LICUS, there was stark disagreement between the IEG and management. IEG believes that Country Policy and Institutional Assessments (CPIA) “fail to capture some key aspects of state fragility and conflict . and may need to be supplemented”.

It remains “far from clear” whether LICUS countries are under- or over-funded. The Bank’s own statistics show that lending in 2003-2005 to LICUS ranges from a high of $25 per capita in Sao Tomé and Principe down to nothing in countries such as Somalia, Sudan and the Central African Republic.

The IEG points to research which questions the Bank’s assumed positive link between policies and aid effectiveness. They recommend that allocation criteria should be based on “factors other than policy performance (such as levels of other donor assistance, assessment of potential risks and rewards, and regional and global spillovers)”. No mention however is given to needs required to reach Millennium Development Goals.

In its response to the evaluation, Bank management brushed aside the IEG’s recommendation saying there was “broad support for the current approach” and re-opening basic allocation questions “would not be helpful”. It’s unclear on what Bank management is basing its claims of “broad support” for the current system. The summary of the board Committee on Development Effectiveness’ discussion of the issue states that “many speakers” thought the current system “could be adjusted or fine-tuned.”