IFI governance


Reviews fail to erase doubts over World Bank conditionality

10 July 2009

Reviews of World Bank development policy lending and poverty and social impact analysis leave questions as to the extent to which the Bank’s budget support in developing countries targets pro-poor initiatives.

The Bank is currently conducting a review of its development policy operations (DPOs) approved between March 2006 and June 2008 (see Update 47). Formerly known as ‘structural adjustment lending’, development policy loans (DPLs) are budget support loans given by the Bank. They finance DPOs.

The retrospective, a follow up to the 2005 review (see Update 47) will assess the effectiveness of DPOs in supporting the design and implementation of a borrower’s medium-term development policy agenda. Though conducting global consultations, the Bank has not heeded calls to conduct an independent review.

According to the Bank, the number of prior actions, conditions which must be fulfilled before a government has access to Bank lending, has decreased. Conditionality related to public sector reform has increased while conditionality focused on “trade and economic management”, and on “financial and private sector development” has declined.

However, past reviews by the Bank of its conditionality have shown that their assessment of what counts as a condition and how they categorise conditions is controversial (see Update 47). Critics also complain that the exercise fails to assess the content of the conditionality in terms of ownership, effectiveness and appropriateness.

In the reports from the country level consultations, civil society made it clear that they felt alienated from the DPL process and negotiations among the Bank, donors and governments. Civil society representatives argued that they should be engaged in policy dialogue at the earliest stage of the policy cycle.

Participants from the Tanzanian consultation were particularly critical, concluding that DPO lending may not deliver sufficient value added beyond individual projects. The government of Tanzania also admitted being too quick in agreeing conditions and timeframes – raising questions over ownership.

PSIA reviews

Two reports have also been released covering Poverty and Social Impact Analysis (PSIA) by the Bank, one of which explores the link between PSIA and development policy loans (DPLs). A classification of 652 prior actions from 56 DPLs approved in 2007, found an incredible majority (90 per cent) of prior actions to be neutral in their impact on poverty. Only 41 prior actions had a potentially adverse distributional effect but, of these, only half had PSIAs. By the Banks own admission, the classification relied “to some degree on subjective judgment.”

The report has no quantitative assessment of how many DPL’s design was influenced by a PSIA or any indication as to whether these analyses were carried out before the DPL was approved.

An in depth PSIA takes between 12-18 months to prepare while DPLs take between 6-12 months. Therefore, the PSIA process should begin at least 6 months prior to the commencement of DPL preparations. From 2006 to 2008, 85 PSIAs were completed whilst over 166 DPOs took place. Lack of capacity is cited as a constraint on the amount and depth of PSIA conducted – in particular in terms of PSIA budget, staffing, time constraints and prioritisation.

A second report on the effectiveness of PSIA at country level find them to be influential. Amongst its recommendations is that governments be given more discretion over the use of PSIA funds, opening up the possibility that PSIAs could be conducted independent of the Bank.