IFI governance

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UK report on its activities at the World Bank

Weak, unaccountable, and late

14 December 2007

In late November, the UK’s Department for International Development (DFID) released its third report on its relationship with the World Bank (on the previous report, see Update 50). Once again the report disappoints in the coverage and depth of its analysis, especially in wake of DFID’s decision on 14 December to give its biggest ever package of support to the Bank’s International Development Association.

The 58-page report, covering the period October 2005 to June 2007, comes 20 months after the last ‘annual’ report. DFID claims the delay in publication brings it “in to line with World Bank’s fiscal year and covers the period running up to the appointment of a new president”.

In financial terms, during the period the UK was the second largest contributor to the Bank’s unit for low-income countries (the International Development Association, or IDA), and the largest contributor to World Bank trust funds. In 2007, the UK placed £721 million into Bank-managed trust funds. While details are given of the specific amounts put into some of the larger trust funds such as the Global Environment Facility, a detailed breakdown has not been available since requested by the Bretton Woods Project in 2004 (see Update 47).

the agreement to provide the Bank with over £2 billion was done without a review

DFID’s relationship with the Bank is guided by an institutional strategy paper. The last paper, intended as a three-year plan, was published in autumn 2004. Commitments to review and make public DFID assessments of the Bank’s progress against selected indicators have been left unfulfilled. This latest report says only that there is a “plan to develop a new strategy in 2008 based on a review of the current strategy”. This means that the agreement to provide the Bank with over £2 billion in funding was done without a publicly-disclosed review.

The current report starts with what are for the most part anodyne descriptions of the Bank’s activities during the period covering: debt relief, governance and anti-corruption, climate change, fragile states, IDA replenishment, middle-income countries, trade and investment.

On debt relief: DFID praises the debt relief delivered under the Heavily Indebted Poor Country initiative and the Multilateral Debt Relief Initiative (see Update 49), and the World Bank’s debt sustainability framework. Sarah Williams, of UK NGO Jubilee Debt Campaign points out that many countries which desperately need debt relief were not eligible for the MDRI: “what is the UK doing to influence the World Bank and other donors that all the poorest countries should receive debt cancellation?”. Williams also points out that the debt sustainability framework is defined in terms of repayment capacity “rather than the needs-based approach, which is essential”.

On climate change: DFID accepts without question Bank claims of significantly increased support for renewables (see Update 58) and makes no mention of the Bank’s increasing support for fossil fuels. This is particularly problematic in light of the fact that ‘new renewables’ accounted for only 5 per cent of the World Bank’s energy lending portfolio. The report disregards former Secretary of State Hilary Benn’s demands in May 2007 that the Bank must set “bold” new targets for renewable energy investments.

On fragile states: In line with a critical evaluation by the Bank’s own Independent Evaluation Group (IEG) (see Update 53), DFID called for more staff in the field, reform of incentives and changes to the way the Bank allocates resources to fragile states.

On middle-income countries: The UK “strongly endorsed” the new middle-income country strategy, saying that the IEG had found that the Bank “performed reasonably well” (although the IEG evaluation fell outside of the period under review). No reference to the IEG’s admonishments for the Bank to work harder to combat corruption, reduce inequality and protect the environment in these countries (see Update 57).

On trade: DFID outlines the Bank’s work to promote the latest round of WTO negotiations and its efforts to increase ‘aid for trade’. No mention of the IEG evaluation which found the Bank “over-optimistic” about trade liberalisation (see Update 50) or the review of the Bank’s research work led by Princeton professor Angus Deaton which questioned the objectivity of many of the Bank’s research efforts underpinning its position on issues such as trade liberalisation (see Update 54).

On the IFC: The report is at its most revealing here. The UK, in uncharacteristically bold terms, abstained from supporting five projects of the International Finance Corporation (IFC) which they considered had “insufficient development impact”. The list includes IFC investments in a private boarding school in Kenya, a media conglomerate in Russia and an auto parts firm in Brazil. This echoes an IEG report questioning the development impact of the IFC (see Update 57) and Bretton Woods Project analysis (see Update 58, 52). According to DFID, the IFC has made progress on working more in poorer countries, but “slower than [they] would wish”.

The reform of IFC environmental and social safeguards “reflected the major concerns raised by the government”, though more progress would have been welcomed on broad community support and release of action plans to affected communities. NGOs were broadly critical of the reforms which were seen as passing responsibility for adherence on to the borrowers (see Update 51), and for the failure to meaningfully incorporate international standards on environment, labour and human rights.

On development effectiveness, the DFID report critically discusses the Bank’s struggle to reduce its use of conditionality (see Update 58) and improve its harmonisation with other donors. DFID calls for more work on joint analytical work and country visits, and avoiding the creation of parallel implementation units.

DFID appears satisfied with the Bank’s progress on measuring the results of its work despite the findings of two recent IEG evaluations (see Update 54): the review of operational effectiveness found that improvements in implementing systems for achieving results have not yet resulted in changes at the operational level, and the review of development effectiveness found that the Bank is failing to understand the distributional impacts of its proposed policy reforms.

Sections reporting on the Bank’s country programmes are standard ‘highlights of our work’ type. The only exception is brief discussion of debates over corruption in Cambodia, Uzbekistan and India. For Iraq, DFID says controversially that it “will support the Bank to further increase its engagement” (see Update 54).

Once again absent from the DFID report is any discussion of failed projects, or lessons learned from Inspection Panel or CAO complaints. This silence is unacceptable for a period which included:

  • Panel reports in Cambodia (see Update 51) and the DRC (see Update 57) which undermined the Bank’s entire approach to forestry;
  • An investigation which found that World Bank-funded water projects in Pakistan have led to widespread environmental harm and suffering among local communities (see Update 53).
  • A Compliance Advisor Ombudsman report on the MIGA-backed Dikulushi silver-copper mine in the DRC which found systemic problems in the way the Bank’s political risk insurer does business (see Update 50).

Finally, the report discusses the Bank’s organisational effectiveness. Senior staff changes precipitated by the Wolfowitz crisis (see Update 56) are described without making any comments about the need to reform the leadership selection process or the failure to evaluate the performance of the president or the board. More progress is called for on the decentralisation of staff. On budget reform, DFID says the Bank “still lacks a clear strategy to prioritise budget resources”.

DFID describes the failure to make progress on increasing developing country voice at the Bank as disappointing. The impact to date of the Analytical Trust Fund – a DFID-sponsored fund to support the research capacity of African executive directors (see Update 51) – has also been disappointing. On transparency, DFID says the Bank took important steps (on disclosure of CPIA scores, see Update 52) but “more needs to be done” – “more systematic disclosure is warranted, as well as more openness in the development of Bank policy”.