Review of World Bank Conditionality LCR Region

1
Review of World Bank Conditionality LCR Region

• Operation Policies and Country Services
• Country Economics
• November 15, 2005

2
Contents

• Objectives of the Review
• Issues
• Modalities and Legal Requirements
• Trends
• Main Messages
• Good Practice Principles

3
Objectives of the Review

• Document the evolution of the Bank's approach to
  conditionality
• Take stock of how lessons of experience have been
  reflected in recent trends
• Take a fresh look at the Banks own practice of
  conditionality
• Lead to a set of good practice principles for the
  Banks support for policy-based programs
• No operational policy change envisaged

4
Issues

• How to reconcile tensions between
• country ownership vs. donors need for fiduciary
  accountability/development effectiveness?
• predictability of resource flows vs. performance
  orientation?
• flexibility vs. results-focused, transparent
  implementation framework?

5
Modalities

• The Bank applies Conditionality in a variety of
  settings
• Prior actions and tranche-release conditions
  policy actions that a country agrees to take
  before the Board approves a loan, and actions
  which a country agrees to take before a tranche
  is released
• Triggers expected prior actions of the next
  operation in a programmatic series
• Benchmarks describe the contents and results of
  the governments program in areas monitored by
  the Bank.

6
Legal Requirements

• There are three legal requirements for DPL
  operations (Paragraph 13 of OP 8.60)
• Maintenance of an adequate macroeconomic policy
  framework
• Implementation of an overall program in a manner
  satisfactory to the Bank
• Compliance with critical policy and institutional
  actions (prior actions / tranche release
  conditions).

7
Trends Content

• Content of policy-based lending has shifted from
  short-term economic management to complex
  medium-term institutional reforms
• strong emphasis on public sector/governance

8
Complexity of WB Operations
Implementing Bank Programs
Note 8.6 of the respondents in the ECA region
marked Refuse / Do not know on this question.
9
Trends Number of Conditions

• The number of conditions has been steadily
  declining
• but indicative benchmarks have been
  risingexcept in LCR FY05
• mainly because of multi-sector programmatic
  approaches

10
Trends Number of Benchmarks in LCR
11
Five Main Messages

• Conditionality is neither coercion to undertake
  reform, nor prescriptive of policy content
• The importance of balancing the recognition of
  country ownership with responding to changing
  policy environments
• When focusing on critical actions avoid using
  large and complex policy matrices especially in
  multi-sectoral operations
• The flexibility of programmatic approaches needs
  to be exercised cautiously to balance
  predictability with performance
• The goal is to harmonize financial support with
  other development partners while retaining the
  Banks distinct accountability.

12
Good Practice Principles

• Ownership
• Harmonization
• Customization
• Criticality
• Transparency and predictability

13
Ownership
Ownership of policy programs is strong. LCR
clients did not rate Bank programs as highly for
taking political considerations and capacity
constraints into account
There is a strong sense of ownership of World
Bank-supported policy programs in my country.
The WB takes into account my country's capacity
constraints and helps build the capacity
necessary for monitoring and evaluation.
World Bank-supported policy programs take into
consideration political constraints faced by my
Government.
World Bank-supported policy programs are well
aligned with my country's medium and long-term
development strategy.
The WB helps develop my country's medium and
long-term development strategy through policy
dialogue and joint analytical work.
1 Strongly Disagree
6 Strongly Agree
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• Ownership
• Principle 1 Reinforce Country Ownership
• Support only policies and programs for which the
  Bank has some clear evidence of ownership within
  the country (i.e., through the adoption of a PRSP
  in a participatory process)
• Potential for country ownership should be
  assessed through political economy analysis
• For Bank policy dialogue, rely on tailored policy
  analysis by government, Bank, or third parties
  rather than policy prescriptions
• Help strengthen recipient countrys capacity for
  exercising leadership

15
Harmonization
LCR clients see more value in terms of internal
coherence and results orientation of DPLs. They
have seen a concurrent reduction in costs or
reporting.
WB multi-sector operations bring additional value
because the feedback between the sectors improves
the overall qual. of the program.
Harmonization and alignment have reduced the
reporting requirements for receiving World Bank
disbursements.
The World Bank helps develop systems to monitor
the results of my country's policy programs.
Harmonization and alignment have reduced the
transaction costs of negotiating with donors.
Harmonization and alignment have significantly
increased the number of policy actions my Gov't
must deliver to obtain WB support.
1 Strongly Disagree
6 Strongly Agree
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• Harmonization
• Principle 2 - Agree up-front on a coordinated
  framework
• to evaluate performance under the program.
• Reach mutual understanding with the government
  and other donors on a single and internally
  coherent performance assessment framework for the
  governments overall program, comprising policy
  and institutional actions, outputs, and outcome
  indicators
• Agree on a division of labor with other donors
  and seek to reduce transaction costs
• Where appropriate, follow the lead of other
  donors in specific areas

17
Customization
LCR clients see the Bank as helping them to build
on past experiences, but see less benefits from
additional policy reforms.
Additional program elements introduced by the
World Bank improved overall program outcome.
The World Bank helps incorporate lessons learned
from my country's past policies.
My government's original policy program was
significantly modified in negotiations with the
World Bank.
World Bank multi-sector operations bring about
better outcomes than single sector operations.
1 Strongly Disagree
6 Strongly Agree
18

• Customization
• Principle 3 - Customize the accountability
  framework
• to country circumstances.
• Ensure that the accountability framework builds
  on and is fully consistent with the countrys
  expressed policy intentions (i.e., government
  program, PRSP priority action plan, sector
  programs, budget)
• Do not use the accountability framework as
  instrument to add policy actions beyond the
  countrys own intentions
• Customize the detail, size, and frequency of
  review of the framework to specific country
  circumstances (capacity, aid dependency,
  vulnerability, reform readiness)
• Align modalities and timing of support to
  country- and program-specific needs

19
Criticality
Across the board, clients do not perceive a real
distinction between conditions and benchmarks.
The World Bank policy matrix includes only those
policy actions that are critical to the program's
outcomes.
WB multi-sector operations significantly increase
the number of policy actions my country must
deliver to obtain financial support..
To receive World Bank's financial support, my
government needs to meet all policy actions
described in the policy matrix.
The WB policy matrix also includes actions that
are complementary to those necessary for
achieving the program's outcomes.
Some key policy actions necessary to achieve the
program's outcomes are not included in the policy
matrix negotiated with the WB.
1 Strongly Disagree
6 Strongly Agree
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• Criticality
• Principle 4 - Choose only actions critical for
  achieving results
• as conditions for disbursements.
• Choose policy actions from the performance
  assessment framework that are critical for the
  achievement of key program objectives as
  condition for disbursement or expected prior
  action (trigger) for future financial support
• Align conditions with CAS results framework
• Base conditions preferably on actions already
  taken rather than promised future actions
• Monitor output and outcome indicators closely,
  but be cautious in using them as annual
  disbursement conditions or triggers

21
Transparency and Predictability
There is a lack of understanding of the
flexibility embedded in programmatic
approachestriggers are not being interpreted
consistently.
The World Bank helps assess the results of my
country's past policies.
The policy actions described in the policy matrix
can affect the amount and timing of World Bank's
financial support.
The World Bank helps develop monitorable results
for my country's policy programs.
WB is flex. in using triggers in the programmatic
operations, which allows my government to move to
the next program.
WB is flex. in granting waivers on its condit.
for multi-tranche pol.-based ops so my gov't can
plan sched. amount of disburse.
1 Strongly Disagree
6 Strongly Agree
22

• Transparency and Predictability
• Principle 5 - Agree on a transparent review
  cycle conducive
• to predictable and performance-based financial
  support.
• Review performance under the program in line with
  the countrys own ME cycles (budget, PRSP
  review)
• Harmonize performance reviews with other donors
  and minimize transaction costs for the government
• Rely on and strengthen the countrys own
  accountability frameworks (parliaments),
  reporting systems, and arrangements for
  monitoring results
• Based on the Banks evaluation of performance,
  modulate the volume of financial support with a
  gradual response
• Announce financial support volumes early enough
  to be taken into account in making budget
  allocation choices for the next fiscal year

23
Good Practice Principles

• Ownership - Reinforce country ownership.
• Harmonization - Agree up-front on a coordinated
  framework to evaluate performance under the
  program.
• Customization - Customize the accountability
  framework to country circumstances.
• Criticality - Choose only actions critical for
  achieving results as conditions for
  disbursements.
• Transparency and predictability - Agree on a
  transparent review cycle conducive to predictable
  and performance-based financial support.