Toolkit

World Bank Management Response

Introduction
This year’s Annual Review of Development Effectiveness (ARDE) looks at issues around growth strategies and sustainable results. In the review, the Bank’s Independent Evaluation Group (IEG) discusses the Bank’s recent record on growth and poverty reduction, using evaluation findings to comment on the effectiveness of World Bank assistance in contributing to povertyreducing growth. The review groups lessons around poverty-reducing strategies, achieving results at the sector level, and strengthening public sector governance through government commitment, accountability, and transparency. This note provides a brief response to IEG’s findings and suggestions. It is organized around two main issues: (a) developing countries’ recent record on growth and poverty reduction; and (b) management’s views on IEG’s analysis of measures that could increase the effectiveness of Bank-supported programs. In general, management finds many of IEG’s suggestions to be useful as the Bank refines its efforts to support countries in improving their development effectiveness, but believes that the report could have presented a more balanced picture of Bank contributions.

Record on Growth and Poverty Reduction
The ARDE paints a relatively bleak picture on growth and poverty reduction. Management would like to note that for several years developing countries have enjoyed very positive growth rates. Figure F.1 illustrates the point, noting the recent narrowing of the gap between developing and industrial countries. Developing countries grew at 5–6 percent in 2004–06, even excluding fast-growing India and China (although, given the population of these two countries, their inclusion is important). This year developing country growth is expected to be 6.8 percent for the fifth consecutive year of strong growth. The outlook for 2007 is one of continued strong developing country growth, in spite of higher oil prices. Sub-Saharan Africa deserves particular mention: it has had a full decade of growth, and annual growth in 17 Sub- Saharan Africa countries exceeded 4 percent over the entire decade. These higher growth rates reflect sustained improvement in the quality of developing country policies and institutions (confirmed by the 2003 ARDE and continuing since then).

Convergence: Narrowing Gap Between OECD and Developing Countries

man chart

Poverty Reduction. On poverty, an important conclusion is that the developing world as a whole is predicted to meet the poverty Millennium Development Goal (MDG). The latest projections indicate that the share of the developing country population living on less than $1 per day will fall from 27.9 percent in 1990 to 10.2 percent in 2015. Even in Sub-Saharan Africa, where conflict and HIV/AIDs have affected poverty-reduction efforts, poverty fell from 46.4 percent in 2001 to 44.0 percent in 2002. It is likely that the substantially positive per capita income growth discussed in the previous paragraph has reduced poverty further.

Challenges of Building on This Progress. Notwithstanding this overall positive record, management recognizes that many countries— particularly in Africa and South Asia—are far from achieving many of the MDGs. However, it is much less of a stretch now for Sub-Saharan African countries, for example, to make the jump from the recent rates of growth to the 7 percent rate estimated as necessary for them to meet the poverty MDG. To help countries achieve these higher rates of growth and poverty reduction, the development community needs a better understanding of what works well under what circumstances and how we can better customize support to clients to create jobs and opportunities (the theme of this year’s ARDE). In this context, the President has appointed a Commission on Growth and Development, supported by the Bank and other donors,1 and comprising leading practitioners from government, business, and the policy-making arena. Over a two-year period, the Commission is expected to shed light on the long-run forces underlying growth experiences and highlight the actions—at the national and international levels—most likely to improve developing countries’ growth prospects. In addition, the Poverty Reduction and Economic Management Network (PREM) has been developing and implementing a multipronged work program on growth: flagship analytic work (World Bank 2005c, 2005f); capacity building within the Bank (training, dissemination of good practices, and support to country teams, including “growth diagnostics” pilots); and efforts to bring outsiders’ views and analytic work into the Bank (PREM conferences and lecture series).

Increasing the Effectiveness of Bank- Supported Programs
The ARDE makes a series of observations on Bank programs, at the level of the Country Assistance Strategy (CAS) and at the level of individual operations. Management would like to comment on country strategies, sectoral support and cross-sectoral synergies, and governance and transparency.

Successful CASs
The ARDE notes that Bank assistance has been effective when it has taken a realistic view of borrowers’ political and institutional capacity and has focused on well-specified objectives. In recent years, these issues have been at the center of Bank support. An overview of borrower capacity is now a key element in the design of CASs and lending operations. The CAS sets out the Bank’s diagnosis of the country’s development situation (political and institutional) and outlines a selective program of planned Bank Group support that is tailored to the country’s needs, supporting the government’s own development objectives and strategy, and against the backdrop of the Bank’s ongoing portfolio and the activities of other development partners.

The Ambition of CASs. According to the ARDE, IEG finds that when CASs overlook capacity, they tend to be too ambitious. Designing strategies and supporting reform programs is not an exact science. CASs support countryowned programs. Projecting the success of strategies requires balancing elements of institutional and political capacity and commitment. A very circumscribed program can end up missing opportunities for reform, as IEG’s own evaluations point out. Even in an uncertain political climate, a country that has strong and broadbased commitment across stakeholders may be able to undertake major reforms successfully.

Attribution. The review rightly points out that successful poverty reduction in a country cannot be attributed to Bank assistance alone. The same is true when poverty-reduction efforts are not successful. In management’s view, the ARDE analysis of the Bank’s impact on poverty does not fully capture the effectiveness of Bank assistance in helping countries achieve pro-poor growth. This is so because the ARDE analysis uses IEG’s ratings of outcomes of Banksupported country assistance programs drawn from its Country Assistance Evaluations or outcome ratings in undisclosed CAS Completion Report reviews. Outcomes at the country level depend on more than Bank performance. They depend on the performance of other donors, luck—good or bad—and, most important (as the ARDE notes), the quality of the country’s own policies, notably economic management. The subjective rating of outcomes is also a difficult task.

Distributional Impacts. The ARDE argues that the Bank has not paid sufficient attention to the distributional effects of growth-enhancing reforms. Management would note that issues around income distribution are not new to the Bank: there is a tradition of work on these issues, and that work has accelerated over the last five years and is perhaps not yet reflected in IEG findings. A notable example is Bank support for Poverty and Social Impact Assessments in countries in all six Bank Regions, with particular focus on Africa. These analyses have covered issues in infrastructure, the public sector, social sectors, macroeconomic reform, and the agricultural sector (World Bank 2006i).2 Another major change is tied to the updated policy on development policy lending (OP 8.60). Since it was adopted in September 2004, the vast majority of development policy operations have included a review of possible negative poverty and social impacts and, where necessary, mitigation measures (World Bank 2006d). Beyond operations, the Bank has produced major analytic and research work on income distribution and growth, notably the 2006 World Development Report (WDR), Equity and Development (World Bank 2003b, 2005k, 2006h). On July 11, 2006, management reported to the Bank’s executive directors on the activities with which the Bank is operationalizing the messages of the 2006 WDR: support to Regions on operations and analysis, larger-scale pilot programs in support of several countries, and a three-year programmatic research agenda.

The Challenge of Rural Poverty in CASs. The ARDE notes that in most countries examined by IEG evaluations, poverty reduction has been greater in urban than in rural areas, and it links that finding to Bank support being skewed in favor of urban areas. Again, recent information shows progress, notably since the adoption of the Bank’s new rural strategy in 2003 (World Bank 2003a). First, countries are taking rural poverty seriously. A review by Bank rural staff shows that of the 17 country-owned Poverty Reduction Strategies prepared in fiscal 2004–05, all included detailed rural poverty diagnoses and 13 mentioned national rural development plans. Within the Bank, 88 percent of CASs prepared in fiscal 2005 had a satisfactory rating for rural poverty diagnosis. Lending is up; lending for rural development was 14 percent of total lending commitments in fiscal 2006. Finally, operational quality is now strong. Recent IEG data show that 84 percent of rural lending operations recently exiting the portfolio were rated satisfactory in terms of development objectives. The latest Quality Assurance Group (QAG) quality-at-entry study shows 87 percent of rural operations as satisfactory at entry—a good predictor of operational success. The 2007 WDR currently under preparation will help hone further our knowledge on how best to support rural and agricultural development. It will provide more clarity on customizing agricultural strategies to specific country conditions and dealing with the risks posed by heavy and often unpredictable government intervention in agricultural export markets.

Strategies in Support of Fragile States. The ARDE notes that in state building, which is now a central focus of the Bank in low-income countries under stress (LICUS), the Bank needs to demonstrate how past weaknesses will be avoided. Regarding state building, management notes that we are learning from the experience of the past, when the international community was too ready to ignore the task of making state institutions more effective and accountable to their people, focusing instead on delivering quick fixes through parallel and unsustainable structures. Management also notes that incountry harmonization among donors in fragile states—although it remains a challenging task— is making significant progress. There are several good examples, such as the use of shared transitional results frameworks in the Central African Republic, Haiti, and Liberia, and joint country strategies completed or under way in gradual reform environments such as Cambodia and Nigeria, as well as in countries with more severe issues, such as the Central African Republic, the Democratic Republic of Congo, Somalia, and Togo. In general, the ARDE does not recognize the significant progress the international community has made in the last three years in its support to fragile states.

Sectoral Support and Cross-Sectoral Synergies and Complementarities
The ARDE notes that the overall performance of the Bank portfolio has increased over the last few years but does not highlight how important that is. While country focus (doing the right things) is key, there is no substitute for quality operations (doing things right). There has been a substantial improvement in the quality at entry of operations: 92 percent of the projects reviewed received a moderately satisfactory rating or better in the latest quality-at-entry assessment (World Bank 2006j). IEG’s project ratings at completion show a continuation of the longer-term improvement in project results (for example, of the fiscal 2005 cohort of operations rated so far, outcomes are rated satisfactory for 82 percent of projects by number and 87 percent weighted by disbursements). The ARDE does not note the substantial improvements in LICUS operations. In 2005, projects in LICUS actually achieved higher levels of performance than projects in non-LICUS low-income countries. While this record may not be sustainable in these difficult environments, the situation is a vast improvement over the 50 percent satisfactory ratings of LICUS operations in fiscal 2002, before the LICUS Initiative began.

Bank Lending Support. Management notes that this strong operational quality performance has been achieved with higher lending from the International Bank for Reconstruction and Development (IBRD) and increased credits and grants from the International Development Association (IDA). In fiscal 2006, IDA provided $9.5 billion in support to poor countries, more than ever before, with more than half going to Sub-Saharan Africa. Because of IDA’s performance- based allocation system, those funds are likely to be used effectively by the recipient countries for development and poverty reduction. One of IDA’s successes has been to channel funds to better-performing countries and, perhaps even more important, to help align overall donor support behind country-owned growth and poverty-reduction programs. IDA remains central to support for the development process in low-income countries. At the same time, the IBRD’s fiscal 2006 lending to middleincome countries—home to two-thirds of the world’s poor people—was at its highest level in seven years at $14.2 billion. The new strategy for a stronger Bank Group engagement in IBRD countries is designed to help the Bank engage even more productively with these countries.

Sectoral Synergies. IEG’s analysis suggests that in sectoral work the Bank has not paid sufficient attention to the inputs required from other sectors to achieve the outcomes of its interventions. There have been several advances in recent years with regard to crosssectoral synergies. The IEG review points out examples of operations that successfully achieved these synergies: In Bangladesh, Bank support for female secondary education has contributed to reductions in child mortality; rural electrification operations in general have contributed to improved health outcomes; and rural roads in Morocco have led to increases in agricultural activity and increases in enrollment in primary education. Sector groups have been working to increase the set of operations that achieve these synergies. In fiscal 2005 the Water Supply and Sanitation Sector Board developed a toolkit jointly with PREM to improve the integration of water supply and sanitation policy reforms and implementation arrangements into poverty-reduction support credits. Then, in recognition of the fact that water supply and sanitation services are key to achieving improved health outcomes (for example, in reducing child mortality), in fiscal 2005 the health and infrastructure sectors also launched an important initiative to assess the burden of disease and develop tools for setting priorities. The approach paper Strategy for Health, Nutrition, and Population, discussed by CODE in June 2006 (World Bank 2006o), proposed a diagnostic tool—the Binding Constraints on Outcome Improvement (to be piloted) that would highlight the possible gains from enhanced coordination between sectors to achieve health goals. More generally, the Bank’s Results Secretariat has worked with networks in the development of over a dozen resultsoriented sector strategies. The Secretariat seeks to strengthen the results chains in these strategies in several ways: (a) ensuring that objectives are realistic; (b) identifying important synergies between the Bank’s interventions in the sector and in other sectors to achieve the objectives, and designing a strategy to exploit these synergies; and (c) ensuring that the results chain is based on solid evidence about what gets results. The challenge, as IEG correctly points out, is to adapt the results chains to country strategies; and the Results-Based CAS is the tool for meeting that challenge.

Support for Education. IEG notes that in many low-income countries, the objective of ensuring by 2015 that every child completes primary school education has led to massive efforts to build more schools and provide more educational materials, but that rapid expansion in coverage has often been at the expense of attention to learning outcomes. While the importance of expanding enrollment was critical and should not be underestimated, it is true that improvements in learning outcomes have lagged, and countries now need to put as much effort into improving learning outcomes as has gone into getting children into school. The Bank is scaling up its work in this area to help countries improve learning outcomes, as is the overall donor community. Improvement of education quality is now a central part of the endorsement for Fast Track Initiative support, and countries have taken this on board, as noted at the recent Special Ministerial Roundtable on Education at the Annual Meetings in Singapore (World Bank 2006l). Additional activities include programs to increase incentives to focus on learning outcomes and strengthening capacity to measure outcomes and to benchmark them internationally.

Governance and Transparency
IEG concludes that public sector reform initiatives have not always been aligned with political realities and that the progress of Bank-supported reform programs in public administration and public financial management has been slow because of lack of political support. IEG also finds that the Bank has focused excessively on passage of laws and has given insufficient attention to enforcement. Management notes that much has changed in recent years.

Transparency and Related Reforms. In the past decade, the Bank has recognized that reform of the civil service administration can take a long time and that it is not enough merely to ask for passage of laws. Thus, more recent operational support has focused on service-oriented approaches to improving governance and service provision: (a) using public expenditure reviews to highlight sectoral spending priorities; (b) engaging via sectorwide programs; (c) using information to improve accountability for service provision on the ground; (d) decentralizing to shift responsibility for service provision to the entities that provide services; and (e) adopting community-based approaches to local infrastructure investments. Management has also worked with development partners to put together and implement a public financial management performance measurement framework3 that is more objective than previous perception measures. Early experience with the tool is encouraging.

Doing Business. Regulatory red tape is associated with poor governance and corruption. A thriving, open, and competitive private sector can be a strong source of demand for better governance. The Bank’s Doing Business Report (World Bank 2006g) benchmarks business regulation in 175 economies. Follow-up work generated by country discussions has led to policy reform, for example, in Bangladesh.

Community-Driven Development. Even when opportunities for governance reform at the national level are limited, the Bank has taken advantage of entry points at the local level through community-driven development, especially when such an approach also supports the development of local government capacity and accountability. The ARDE cites two Bank operations, one in Zambia and the other in Honduras, as good examples. In a related area, management would dispute what the ARDE says about the role of municipal councils in Brazil (page 42). There is substantial evidence that these municipal councils have contributed to (a) engaging local officials in decision making; (b) enhancing local governments’ capacities to identify, appraise, and supervise subprojects; and, most important, (c) strengthening local governments’ ability to effectively engage local communities and increase government accountability to them.

Engagement in Supporting Good Governance and Anticorruption. There is a general consensus that better governance and stronger anticorruption efforts are central to meeting the MDGs. The Development Committee noted that the principal objective of the Bank’s governance work should be to develop capable and accountable states to deliver services to the poor, promote private sector–led growth, and tackle corruption effectively (Development Committee 2006). They supported the Bank’s engagement in governance and anticorruption work. The strategy set out in the Bank’s paper Strengthening Bank Group Engagement on Governance and Anticorruption (World Bank 2006m), building on a decade of global experience and evidence, implies a change in how the Bank Group does business: providing incentives to managers and staff to engage proactively on the ground on governance issues; addressing staffing, skills, and resource needs to operate effectively in challenging governance settings; and developing a stronger results framework. The Bank will now further refine and implement the strategy and report periodically on results.

Conclusions
As noted in the introduction, management finds many of the suggestions by IEG to be constructive. Its recommendations are intuitive: focus on the nature of growth, better articulate results chains to achieve sector outcomes, and provide a realistic assessment of the political economy of governance-related reforms. The Bank is addressing all three as it continues the process of improving Results-Based CASs. With regard to the pattern of growth, the work designed to operationalize the WDR on poverty and inequality is feeding into the CAS process, which often already benefited from Poverty and Social Impact Analysis. IEG suggests a blend of Bank-supported activities across sectors to support CAS objectives, and management agrees, while at the same time noting, as IEG also suggests, being selective in the activities the Bank supports, given budget constraints, and for IDA, a constrained financing capacity. With regard to governance, IEG suggests ensuring that partner countries own the reform approach and pace supported by the Bank, and management agrees. CAS preparation and consultations are key in making these assessments, and this process will be reinforced with the implementation of the governance and anticorruption strategy. The upcoming review of sectoral and country strategies in fiscal 2007 will address progress across these three important dimensions for getting results from Bank assistance.

Permanent URL for this page: http://go.worldbank.org/YRE11OQJG0