|Experience, independent evaluation, and operational research tell us that the impact of development assistance can be increased if development agencies support efforts to strengthen the institutions and systems that countries already have in place and work more directly with them. |
Background. To ensure appropriate use of the resources it provides, the World Bank -- like most other development institutions -- has specific and detailed operational requirements for the projects it supports. This has generally meant the creation of special units outside existing government structures solely to implement Bank-funded projects. But isolating projects from the government systems of the client country limits institutional strengthening and capacity building and thus the impact of development assistance (WDR 2004: Making Services Work for Poor People). Further, the parallelism with existing structures has often increased the transaction costs of working with the World Bank (see Toward Country-led Development: A Multi-Partner Evaluation of the Comprehensive Development Framework, Synthesis Report, Operations Evaluation Department, 2003).
Changing Paradigm. Experience, independent evaluation (see Vietnam Country Assistance Evaluation, OED Report No. 23288, November 21, 2001), and operational research tell us that the impact of development assistance can be increased if development agencies support efforts to strengthen the institutions and systems that countries already have in place and work more directly with them since external development assistance accounts for only about 1 percent of annual development spending by developing countries. Using country systems also enhances country ownership and thus the sustainability of development programs. In addition, using country systems can lower transaction costs and increase aid effectiveness by providing a natural focal point for donor efforts to harmonize their processes.
Evolving Practice. In line with this thinking, in recent years the World Bank began using country systems in specific fiduciary areas-financial management (accounting, financial reporting, auditing) and national competitive bidding procurement-for projects in an increasing number of countries where it judged such country systems to be acceptable.
Exploring Further Use of Country Systems
Following a period of consultation and public comment, on March 18, 2005 Executive Directors approved the launch of a pilot program to explore using a country’s own environmental and social safeguard systems (that is, its national, subnational, or sectoral implementing institutions and applicable laws, regulations, rules and procedures), where they are assessed as being equivalent to the Bank’s systems, in Bank-supported operations. This approach will facilitate a move away from the traditional model in which safeguard and fiduciary policies are applied to only Bank-financed activities toward supporting the development and application of effective policies for all government expenditures. Key to the approach will be an increased emphasis by the Bank on capacity-building and human resource development, which can have a major multiplier effect by leading to broad improvements in the quality of government systems.
New Policy. The pilot program is proposed to run for two years and will be governed by the new OP / BP 4.00, Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects. OP/BP 4.00 elaborates on the approach, enumerates the criteria for assessing country systems, and specifies the respective roles of the borrower and the Bank, including responsibility for proposing the use of country systems. It also specifies requirements for the documentation and disclosure of the basis for using country systems. The approach has been developed with input from Executive Directors, Bank staff, and external stakeholders such as representatives of governments, bilateral and multilateral development institutions, civil society organizations, and the private sector. It has also benefited from the Bank’s experience with using country systems in financial management and procurement. As in these areas, it is consistent with commitments made by the development community in the Paris Declaration on Aid Effectiveness. The use of country systems would not alter the role of the Inspection Panel, Operations Evaluation Department, or Quality Assurance Group, or institutional obligations under the Bank’s disclosure policy.