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In December the World Bank’s evaluation body released a report which found that the Bank’s growth strategies have not done enough to help the poor, and that the Bank has failed to sufficiently assess the distributional impacts of its policy recommendations.

The Annual Review of Development Effectiveness (ARDE) conducted by the Independent Evaluation Group (IEG) examines the effectiveness of Bank support in helping countries to reduce poverty. The report’s authors noted continued improvement in the ratings of Bank-funded operations with over three-quarters of Bank operations evaluated by the IEG between 2001 and 2005 rated moderately satisfactory or better and project outcomes improved in 8 of 14 sectors. Sectors which have lagged behind include: health, nutrition and population; private sector development and social development. Africa’s performance was relatively poor, with only 63 per cent satisfactory outcomes, compared with nearly 80 per cent in Eastern Europe, Latin America and Asia.

often failed to conduct sufficient analysis to inform its policy advice

However, for an institution whose mandate is poverty reduction, the main message of the report should be sobering: “Bank assistance has helped many countries get onto a growth path through improved economic management, but the growth strategies have not always helped enough to improve job opportunities and living conditions of the poor.” The IEG urges the Bank to strengthen its understanding of what keeps the poor from participating in growth, and what prevents growth from reaching regions and sectors where the poor are concentrated.

Particularly problematic is the Bank’s approach in resource-rich countries. In Georgia, for example, the Bank’s assistance “contributed to growth in the oil transport sector, but it was less successful in helping to remove obstacles to more broad-based growth.”

Another problem area is the Bank’s assistance in rural areas. In half of the countries evaluated by the IEG over the past four years, the Bank’s assistance in rural areas had not led to satisfactory outcomes. Instead the IEG says that the Bank strategy has been “based on the premise that the engine of growth needs to be jump-started in urban areas”. In its response to the report, Bank management pointed to an increase in lending to rural development and the designation of next year’s World Development Report on agriculture as evidence that it shared IEG concerns over rural poverty.

The report’s authors take the Bank to task for failing to analyse the impact of proposed reforms on the most vulnerable:

• in trade, the Bank “often failed to conduct sufficient analysis to inform its policy advice and lending about the employment and poverty effects of reforms”;
• In many transition economies, “price and exchange rate liberalisations were not accompanied by the necessary offsetting measures to protect food security and provide social safety nets”;
• in pension reform, the Bank “often failed to sufficiently address the pension system’s primary goal of reducing poverty”; and
• promotion of private sector participation in the power sector required “more focus on how the poor can be assured of access to energy”.

These findings echo those of a report by Brussels-based NGO Eurodad which found that “poverty and social impact assessment to date has been wrongly focused, inadequately disseminated and without clear effects on decision-making”. In response to these criticisms, Bank management vowed that it was taking distributional impacts “seriously”, increasing work on poverty and social impact assessment, and implementing the recommendations of the World Development Report 2006 on equity (see Update 48).

The IEG found that almost half of all Bank Country Assistance Strategies reviewed in the past four years were “overly ambitious”. Either they took the form of a wish list of reforms or they were unrealistic based on a country’s institutional capacity and political situation. Prominent examples include Malawi, where “the Bank’s programme covered more areas and institutions than could be handled effectively by either the Bank or the country”.

The Bank is also found to have granted loans “under external pressure to help prevent default”, perpetuating unsustainable fiscal situations, without addressing the underlying causes. In Pakistan, the IEG points the finger at two policy-based loans that “had little sustainable impact on structural reforms, despite the large amounts of funding advanced to avoid default.” Unrealistic objectives can also be found in individual lending operations. For instance, many financial sector loans in crisis countries had “unduly ambitious objectives, driven by an overestimate of the government’s commitment to reform and a need to justify large loans”.

Anti-corruption efforts must understand political economy

The evaluation finds that Bank-funded public sector reform initiatives, including anti-corruption efforts: have not been aligned with political realities, have emphasised legal and regulatory frameworks at the expense of enforcement capacity, and have not addressed the intersection between public and private sector. In Malawi, the Bank has supported the establishment of the government’s Anti-corruption Bureau, but there have been few convictions because the cooperation of “a highly politicised office” is needed for cases to proceed. In most countries where Bank programmes included public sector reforms, governance perception indicators have changed little since the mid-1990s.

The IEG praises Bank support for greater transparency and community control. However, it notes that community-driven development can “strengthen or undermine the capacity of local institutions”. In some instances, Bank programmes have established parallel structures, diluting efforts to foster decentralisation and increase accountability.

The IEG recommends:

• country-wide and industry-wide disclosure of government revenues from extractive industries and related contractual arrangements;
• systematic use of sector-specific regulatory reform; and
• an incremental approach which allows momentum for reforms where broad-based political support is missing, and efforts to foster local demand for accountability.

In its response, Bank management stated that its recent support has moved in the direction of the IEG’s recommendations, focusing on “service-oriented approaches to improving governance” such as public expenditure reviews, decentralisation and community-based approaches to infrastructure development.