This ARDE brings together evaluative evidence from recent work of the Independent Evaluation Group of the World Bank around three questions central for poverty reduction and finds that several factors can further strengthen the Bank's effectiveness in helping countries reduce poverty.
Some Growth Patterns Reduce Poverty More Effectively than Others
Economic growth over the past decade has led to substantial poverty reduction in many East and South Asian countries, and more recently in the transition economies of Eastern Europe and Central Asia. Impressive advances in the world's most populous countries, China and India, have been at the forefront of the reduction in global poverty. This progress notwithstanding, poverty reduction remains a formidable challenge for many Bank borrowers.
The growth performance of World Bank borrowers has strengthened over the past five years, but achieving sustained income growth, essential to poverty reduction, still remains a challenge for a considerable number of them. Only two in five borrowing countries have recorded continuous per capita income growth over the 5 years ending in 2005, and just one in five did so for a full 10 years. Countries that have posted strong growth have exhibited better policies and institutions than slow growers. The strongest growers have better economic management, as well as better policies for social inclusion than do moderate or slow growers. This indicates that high growth can be achieved alongside policies for social inclusion.
High and sometimes worsening income inequality has dampened the poverty-reducing effect of growth in a number of countries. This was particularly the case where growth was concentrated in sectors that generated little employment and where the poor lacked the basic skills or mobility to take advantage of opportunities arising from growth.
Growth delivers poverty reduction more effectively when it occurs in sectors and regions where most of the poor live and derive their incomes and when it results in strong job creation.
Strategies aimed only at boosting overall growth may miss opportunities to reduce poverty more effectively. In the countries IEG reviewed where growth did not result in poverty reduction, growth was concentrated in subsectors with low labor intensity and where few of the poor could earn their incomes. The Bank's assistance in these countries often effectively contributed to bringing the countries back on a growth path through improved economic management, but it was less successful in bringing about job-creating growth. In Madagascar, for example, the Bank's assistance strategy included putting the overextended public sector on firmer ground and establishing the preconditions for private sector growth. It focused on sectors with high growth potential that would allow for relatively quick payoffs, but their impact on poverty was limited. In Georgia, the oil transport sector was a major driver of growth, but it created little employment. The Bank Group's assistance helped reestablish macroeconomic stability and contributed to growth in the oil transport sector, but was less successful in helping to remove obstacles to more broad-based growth.
The Bank has found it challenging to help countries formulate and implement strategies that effectively reduce rural poverty. Half of the Country Assistance Strategy reviews completed by IEG over the past four fiscal years concluded that the Bank's assistance in rural areas had either not led to satisfactory outcomes or that rural poverty reduction required increased attention.
To support growth strategies that more consistently translate into poverty reduction, the Bank and its partners will need to further strengthen their understanding of what keeps the poor from participating in growth in each country, what prevents growth from reaching particular regions and sectors where the poor are concentrated and how urban-rural linkages and intersectoral mobility can be enhanced.
[return to top] Achieving Results Requires the Setting of Realistic Objectives
The Bank's assistance has been effective when it has taken a realistic view of borrowers' political and institutional capacity and has focused on well-specified objectives. But almost half of all Bank Country Assistance Strategies reviewed by IEG in the past four fiscal years were found to be overly ambitious in two distinct ways. They either lacked selectivity or they were founded on unrealistic expectations for a reform program that was not commensurate with the country's institutional capacity and political situation. Strategies that lacked selectivity caused the Bank's programs to spread their resources too thinly across too many sectors, thus diminishing the impact of individual operations. Strategies based on unrealistic expectations for reforms led the Bank to proceed with policy-based lending even when country conditions were not fully ready for the targeted reforms. Country Assistance Evaluations suggest that several factors can help determine ex-ante whether an assistance strategy is realistic or not, including the country's record with reform implementation and realization of the Bank's assistance program, judicious analysis of the country's political economy and implementation capacity, and clear identification of country risks.
Unrealistic objectives can also occur in individual lending operations. For instance, many financial sector loans in crisis countries have had unduly ambitious objectives driven by an overestimation of the government's commitment to reform and a need to justify large loan amounts. Realistic and well-defined objectives, on the other hand, can produce results when stakeholders focus on them. The Bank's support for Bolivia's health sector, for example, focused for a decade on infant and maternal health service and resulted in marked improvements in health outcomes for poor mothers and children.
[return to top] Achieving Sector-Level Impact Requires More than Satisfactory Project Outcomes
The performance of the Bank's portfolio has improved over the past five fiscal years, with over three-quarters of completed operations rated moderately satisfactory or better. However, Country Assistance Evaluations show that satisfactory project outcomes alone do not ensure country sector impact. Careful selection and phasing of interventions, long-term engagement, and the complementarities of lending, analytical work, and policy dialogue are factors that lead to impact on the sector as a whole. Bank-financed operations have yielded good results when they have supported a country-formulated, broadly owned sector strategy with clear objectives, and when they have followed a distinct pathway designed to reach milestones that contributed to the achievement of the country's objectives for the sector.
[return to top] Balancing Long-Term and Short-Term Objectives Improves Results
Achieving high-quality development results takes time, but pressure to show results quickly can divert attention from the quality of results. For instance, the Millennium Development Goal of ensuring universal completion of primary education by 2015 has spurred massive efforts to increase enrollments. These rapid increases are welcome, but in many countries they have come at the expense of attention to learning outcomes. In Uganda, for example, access to education has improved greatly, but there are now 94 children per classroom and three students have to share a single textbook. Yet, the experience of India, Ghana and Uruguay has shown that it is possible to combine increased access with gradual gains in learning outcomes. This requires careful strategic planning and strong commitment to focus on learning outcomes from the outset. However, only about one-third of primary education sector operations assessed by IEG explicitly aimed to improve learning outcomes.
In post-conflict countries, the pressure to show quick results is especially intense, but haste may lead to the neglect of the institution-building that is vital for recovery. In Timor-Leste, for example, three Community Empowerment projects supported by the Bank financed impressive amounts of local infrastructure, but too little attention was given to the development of durable local institutions.
A judicious combination of longer-term objectives and interventions that yield quick and visible results has been found effective. For example, Bank assistance to the education sector in Ghana has combined support for policy reforms with funding for school buildings, furnishings, and teaching materials over 15 years. This sustained approach has helped produce a stream of physical improvements that have helped garner support for reforms needed to expand access, while gradually improving learning outcomes.
The long time required to achieve many of the intended results underlines the importance of continuity of donor engagement and of defining what is feasible for a single operation to achieve. Frequent shifts in emphasis of Bank assistance risk reducing its effectiveness.
[return to top] Strong Results Demand Attention to Cross-Sectoral Synergies
Achieving results in a given sector often requires identifying and removing constraints in other sectors as well. In Bangladesh, for example, Bank support for female secondary schooling and rural electrification significantly contributed to reductions in child mortality, alongside health sector interventions.
The countries and the Bank need to pay more attention to such complementary effects. The impact of infrastructure investments financed by community development projects, for example, has often been diminished by lack of attention to inputs like teachers, doctors, and medicines. Similarly, Bank-supported pension reforms have at times not achieved the desired results because insufficient attention was paid to ensuring that the complementary macroeconomic, financial, and institutional conditions were in place.
The way the Bank's matrix management structure works, does not provide staff with enough incentives to work across sectoral boundaries and address cross-sectoral issues.
More attention is also needed to the impact of reforms on different income groups because not all pro-growth policies are distributionally neutral. In the area of trade reform, for example, the Bank often failed to conduct sufficient analysis to inform its policy advice and lending about the employment and poverty effects of reforms. A full assessment of the distributional impact of proposed reforms in a country often requires analysis that reaches beyond the sector in which the reforms are carried out.
Even though achieving a particular sector goal may require a multisectoral approach, large multisector operations are not always an effective vehicle to achieve sectoral results. The sectoral impact of multisector operations has tended to be weaker than that of sector-specific operations, partly because multisector operations allow for less intensive engagement of Bank sector teams with country line agencies. In the financial sector, for example, the outcome of loans under the oversight of Bank financial sector departments was substantially better than that of financial sector components of multisector loans. A combination of policy-based lending (which is often multisectoral) and sector-specific operations can deliver good results. In Armenia and Ghana, for example, the Bank effectively used development policy lending to support reforms in the education sector, while parallel investment projects helped build the systems and capacity to implement the reforms.
[return to top] Perceived Governance Quality Has Not Yet Responded to Large-Scale Public Sector Reforms
Achieving and maintaining results requires public sector institutions that are accountable to stakeholders. Bank Country Assistance Strategies accordingly put substantial emphasis on strengthening performance and accountability in the public sector. The bulk of the Bank's support has taken the form of reform programs in public administration and public financial management.
This assistance has led to improvements in the quality of public sector management processes in some countries, but has not yet translated into improvements in the perceived quality of governance in most of these countries. Yet, recent progress in perceived governance quality in some countries in Eastern and Central Europe shows that it is possible to make progress in a limited time when there is strong country commitment to do so.
Evaluation suggests that public sector reform initiatives have not always been aligned with political circumstances. They have focused on new legislation and institutions, while overlooking the enforcement dimension. They have also tended to overlook the interface between the public and the private sector, even though regulatory reforms have often been found effective against corruption.
[return to top] Civil Service Reforms Require Political Commitment
Public sector reforms of a technocratic nature, like modernizing personnel practices, can succeed when they build upon political commitment. Bulgaria's achievement in professionalizing its civil service, for instance, has been the product of both donor-supported reforms in pay and recruitment, and broad political interest in meeting conditions for EU accession. But many reform programs have been undermined by lack of political support. The extent of political opposition is often underestimated at the time of design. In Yemen and Bolivia, Bank-supported reforms in civil service management achieved little, because there was no commitment to ending the traditional role of the public service as a vehicle for patronage appointments on a large scale. When political conditions are not ripe for wholesale reforms, it is advisable to proceed gradually, identifying opportunities for less contentious reforms in order to build coalitions across affected interests and to gradually gain momentum.
[return to top] Anticorruption Measures Need Enforcement Mechanisms
The Bank's anticorruption efforts have helped support new laws and institutions in many countries. But once established these have often proved ineffective because they lack enforcement capacity. Anticorruption agencies, while important, have only a limited impact on the prevalence of corruption when they and their staffs are not fully independent of those whose behavior they monitor.
The need for enforcement capacity to properly implement legislation aimed at improving transparency and accountability reaches beyond anticorruption efforts. The implementation of prudential regulations and supervision in the banking sector has also suffered from low enforcement capacity. Typically, Bank assistance programs have emphasized legal and regulatory frameworks for the financial sector, but they have underestimated the time and human capacity required to enforce them. [return to top] Regulatory Reform Helps Beat Corruption
The interface between the private and public sector offers fertile ground both for corruption and for combating it. Reforms to regulatory regimes have made headway against corruption even when they have not been part of comprehensive anticorruption programs. In Turkey, for example, a Bank program for the energy sector supported the establishment of an independent regulatory agency that enabled sellers and buyers of electricity to make contracts directly, without involving government officials. It thereby sharply limited the opportunities for officials to seek kick-backs. Such sector-specific opportunities to combat corruption need to be more systematically exploited in Bank operations. [return to top]
Transparency and Local Control Encourage the Public Sector to Deliver
Transparency is the foundation of good governance because access to information reduces the incidence of corruption and transparent institutions earn the public's trust. Bank operations have helped bring more transparency to a variety of public management processes, including budget formulation and execution, procurement, and customs administration. In the Philippines and Uganda, for example, the Bank has worked with governments to make the public procurement process more transparent. Civil society representatives have a mandate to observe the tendering process in the Philippines, while Uganda makes its final contract awards and related tendering information available on public web sites.
Local control and community participation can make public sector institutions more accountable. Bank operations support such local control in two main ways: by up- grading local government agencies, and by channeling resources directly to communities through community-driven development projects. Such projects have often established structures parallel to those of local government, thereby diluting efforts to foster decentralization. In Jamaica, for instance, roads were built under community development operations without adequate involvement of the local councils that would have to maintain them. There is now growing recognition in the Bank of the importance of strengthening the use of local systems in the course of also promoting community development.
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