House of Commons - International Development

Select Committee on International Development Sixth Report

3 ALIGNMENT OF POLICY PRIORITIES

26. DFID's policy priorities are focused on poverty eradication and attainment of the UN Millennium Development Goals (MDGs). In its evidence to our inquiry, DFID noted that "investing substantially in the Bank has a high return in terms of helping developing countries meet the MDGs."[33] In contrast, however, some of the written evidence we received in this inquiry questions the Bank's commitment to the MDGs. Diana Conyers of the Institute of Development Studies at the University of Sussex says:

"Channelling increased amounts of funding through the World Bank will hamper DFID's efforts to […] assist in achieving the Millennium Development Goals. […] The Bank is not sufficiently committed to reducing poverty and inequality […]. The extent of [the Bank's commitment to these priorities] is constrained by two factors:

As a bank, its main role is to lend money and it has to operate on a commercial basis; […]
It remains committed to 'neo-liberal' policies, such as privatisation and free trade, which in many countries have had a negative impact on poverty and, in particular, inequality."[34]

27. The Rainforest Foundation UK said that, in the case of the World Bank's involvement in the forestry sector in the Democratic Republic of Congo, "Bank actions have potentially seriously hindered progress towards achievement of the MDGs, particularly Goals 1, the eradication of extreme poverty and hunger, and 7, ensuring environmental sustainability."[35] UNISON's evidence also asserts that some World Bank policies actually work against some DFID priorities: "DFID funds a World Bank agency called the 'Public Private Infrastructure Advisory Facility'. Despite its name, it is being used in Malawi to actively promote a pro-privatisation agenda in the water utility sector."[36] UNISON suggests that this undermines DFID's own Country Assistance Programme for Malawi: "DFID's own significant efforts to support the development of services providing essential basic needs to the poor majority in Malawi are being undermined by the policies and practice of the World Bank."[37]

28. We received the evidence cited by these organisations in support of their claims about the alignment of DFID and World Bank priorities. While we are not in a position to endorse their claims, we decided that it was important to look at what safeguards were and should be in place in order to ensure and demonstrate a convergence of Bank and DFID priorities.

IMPACT ASSESSMENTS

29. We received written evidence linking impact assessments to a focus on reducing poverty and the MDGs. According to the Bank's own guidelines, Poverty and Social Impact Analysis (PSIA) should be done at an early stage of relevant projects and programmes to look at the impact of policy reforms on the relative wealth of different groups in society but especially on poor people:

"PSIA identifies potential winners and losers of a policy reform. This helps policy-makers to make decisions about the design, sequencing, timing and appropriateness of proposed reforms, and to better define compensatory and complementary measures where appropriate. A public debate about reforms can help identify the most appropriate policy combination to promote growth and reduce poverty."[38]

President Zoellick told the Committee that such analysis was done for all development projects but only on a case-by-case basis for investment projects, which have a longer-term focus.[39]

30. Evidence from Oxfam GB says that the current practice in the World Bank on PSIAs is not sufficiently systematic nor country-led:

"the process as currently carried out is not properly embedded in the client country's own planning processes, and […] there is no systematic approach to the selection of reforms for PSIA. […] We also believe that the UK should push the Bank to present a comprehensive strategy to ensure that country-led PSIA is included in the design of, and carried out prior to, all key structural and economic reforms or projects with a significant distributional impact."[40]

We heard similar views from the Bretton Woods Project who noted that the use of PSIA continued to be a concern and asked:

"Will President Zoellick ensure that impact assessment becomes an integral part of what the Bank does? […] To me, it is the key link with the MDG question: Are we really using development finance to help us reach these internationally agreed goals or are we simply putting things somewhat blind into various projects and proposals which come from our country staff?"[41]

Simon Counsell of Rainforest Foundation UK told us that, because PSIAs were undertaken only selectively, "significant parts of Bank lending […] completely bypass all of the safeguard procedures".[42] As well as concerns about the systematic use of PSIAs, Christian Aid also raised concerns about the scope of these analyses:

"There is plenty of evidence from the Bank's own reviews that [PSIAs] are not always conducted, and when they are they do not consider the range of available options. A poverty and social impact assessment [is done] on one option, when probably they should be considering a range of options […]. There are some very good examples of where […] there are poverty and social impact assessments done about the potential for private sector participation, but not public community sector participation, for instance, which might offer other co-benefits."[43]

31. We were told that problems around PSIAs were not simply a question of strategy but also of the Bank's resources and systems. In its evidence, WaterAid stressed the need for the UK Government to push for greater capacity within the Bank to undertake these analyses.[44] Bretton Woods Project claimed that there was a "lack of incentives for Bank staff to deliver proper PSIA".[45]

32. In a 2005 policy paper, the Government said that it was committed to pressing for systematic and rigorous use of impact assessments in policy-design:

"The World Bank and IMF have agreed to increase the use of PSIA […]. Progress is being made, but considerably more needs to be done to increase the number and to improve the quality of PSIAs, to promote their ownership by country governments, and to ensure that the results of the PSIA are used effectively in the policy process."[46]

DFID's 2007 report on the UK and the World Bank makes no mention of PSIA, although during the evidence session with DFID it appeared that this was an oversight.[47] In her evidence to the inquiry, the Minister said that, as well as "mainstreaming" PSIA, the Bank needed to integrate this analysis with borrower country systems more actively:

"What I think is an interesting step to take is ensuring that the PSIAs are done not just by the Bank but they are done by the country, that they are involved, and there is capacity in the country to make an assessment of the impact of the Bank's policy. We found, for example, I think in Tanzania that the country was more involved and there were research organisations and I think that makes a radical difference because they do understand the context better."[48]

Given the importance we attach to developing countries' ownership of their own development, this approach seems to us to be worthy of support.

33. It is crucial that each of DFID's spending decisions is linked to the eradication of poverty and attainment of the Millennium Development Goals, irrespective of the way in which the money is channelled. Early and robust assessments of the impact of any proposed course of action on poverty is an effective safeguard against bad spending decisions. We believe strongly that more consistent and transparent use of impact assessments by the World Bank across all of its lending is the single most important change in Bank practice that DFID should be pursuing. We were therefore disappointed to learn that this matter had disappeared from DFID's annual publication on the World Bank as the result of an apparent oversight. We recommend that DFID renew its commitment to this safeguard and press for impact assessments by the World Bank which: are rigorous and systematic; enhance borrower country capacity to assess the World Bank's impact; and examine a range of alternative courses of action to find the option that has most benefit for the poor. Such assessments should be published and circulated within civil society in the borrower countries. We recommend that DFID also encourage greater World Bank focus on the issue of incentives for staff to integrate such full impact assessments into their work. Given the strength of our view on this issue, we further recommend that this position is reflected in all DFID's budget discussions with the World Bank and that consideration should be given to taking any lack of progress into account in future funding rounds.

CONDITIONALITY

34. A frequent criticism of the World Bank relates to the policy conditions it imposes on borrower countries. Some of the evidence received from non-governmental organisations (NGOs) in this inquiry comments that the World Bank attaches conditions to loans based on what is known as the 'Washington Consensus': grants are released on the condition that borrower governments follow Bank guidance on certain sensitive reforms such as liberalisation of trade, investment and the financial sector, and deregulation and privatisation of nationalised industries.[49] According to this analysis, conditions are attached without regard for the borrower countries' individual circumstances and the prescriptive recommendations by the World Bank fail to resolve borrower countries' economic or development problems.

35. There is a range of different types of conditions available to, and used by, the World Bank. Policy conditions, especially economic ones, are generally most heavily criticised. There are also, however, conditions on process, which relate to the transparency, participation and accountability of policy-making and implementation. The Bank also attaches outcome conditions, though less frequently, which require the borrower country to reach a specified outcome, such as universal primary education.

36. In March 2005, the Government introduced a new policy specifying which conditions should be attached to UK aid.[50] This policy recognised that, while it is right for donors to insist on transparency and accountability for aid funds, it is usually inappropriate and ineffective to use conditions to dictate economic policy to recipient countries. At the same time, the UK also encouraged the World Bank to conduct a review of its use of conditionality. This review agreed a set of 'Good Practice Principles' (GPPs) to guide the way the Bank's conditions were applied: ownership, harmonisation, customisation, criticality, and transparency and predictability.[51] The principles aimed to reduce the overall number of conditions, and to ensure that those attached were respected and that conditions were closely linked to national poverty reduction plans.

37. In September 2006, the then Secretary of State Rt Hon Hilary Benn MP announced that Britain would withhold £50 million from the World Bank, dependent upon the implementation of the conditionality review and of the GPPs. Commenting on this decision, Nuria Molina of EURODAD said:

"I definitely think that the strategy of withholding funds by DFID […] has been influential in other progressive governments in Europe and it has definitely put the pressure on the World Bank. […] It is a successful strategy and it should be potentially considered to be used again."[52]

In 2007, the Government announced that it was satisfied with the Bank's progress on conditionality and released the £50 million. In its evidence to us, DFID said that "the principles underlying [the World Bank's] current policy on conditionality are consistent with those framing the UK policy".[53] DFID's evidence goes on:

"There are two main differences between the two organisations' policies on conditionality. First, the Bank has an explicit focus on policies as conditions, given that Bank Development Policy Lending—as the name indicates—is about supporting policy change. […] DFID on the other hand focuses more on the results achieved than the policies implemented. Second, unlike DFID the Bank does not have the mandate to explicitly use human rights in its conditionality framework."[54]

Some commentators argue that changes in the Bank's conditionality policy have not been sufficiently substantial to converge with DFID's own policy. ActionAid told us in its evidence:

"The World Bank's policy on conditionality […] falls short of that of DFID. […] The Bank's interpretation of these [Good Practice] Principles is ambiguous, and their implementation has fallen short of expectations. Under the principle of 'ownership', for example, the Bank's emphasis is on a country's acceptance of a given set of policies, rather than its ability to choose its own development path."[55]

38. The issue of 'ownership' emerges in some of the evidence from NGOs as a fundamental concern. They argue that capacity needs to be built in developing countries for their own safeguards and systems, agreed in advance with the Bank, to function as the checks and balances needed to monitor expenditure. They assert that the model of imposing Bank conditions is simply ineffective and invites borrowers to agree to conditions that are poorly monitored and therefore easy to ignore. For example, World Vision's evidence says:

"There has been a failure to shift from donor use of conditionality for poverty reduction to effective domestic accountability mechanisms that sufficiently draw on citizen engagement. World Vision is concerned that this failure undermines […] the achievement of poverty reduction results. This would perpetuate voice without influence and weakens citizens' ownership of the development agenda, resulting in donors aligning and harmonising around a weak or even illegitimate development agenda with the potential for poor development results."[56]

39. During our meeting with President Zoellick he told us that the current trend in World Bank conditionality was to build on what both common sense and experience had shown: that development does not work without borrower country buy-in. He said that conditions had a particular bridging role where country systems were not yet sufficiently robust. The default position, however, was that conditions were developed in tandem with developing countries, and often at their behest to support domestic reforms. However, in one of our evidence sessions EURODAD and Bretton Woods Project questioned such use of conditionality to strengthen a borrower country government's hand in pursuing domestic reforms:[57]

"I think there is this fundamental divide, where civil society says that if this is the reform agenda of a government by democratic principles, it should have to win the argument of the day. It should not be able to use, rightly or wrongly, the pressure of an international lender to achieve that reform. If they cannot achieve that reform that means the domestic political economy is not yet prepared for that reform."[58]

40. There is clearly divergence of view between what many civil society organisations view as what the Bank's role should be and the Bank's, and some of its shareholders', own views. Greater clarity would reduce unproductive misunderstandings and focus the debate on how effective the Bank is at helping reduce poverty and achieve the Millennium Development Goals. We agree that the Bank should seek agreement with the governments of developing countries about their macroeconomic policies because the macroeconomic framework has a significant impact on the government's ability to reduce poverty. We also agree that the Bank should consult parliaments, civil society and other key stakeholders about its lending policy rather than imposing conditions unilaterally.

41. The World Bank produced reviews of the application of the GPPs in both 2006 and 2007. These concluded that "Bank support remains broadly consistent with the Good Practice Principles on conditionality".[59] Evidence from EURODAD said that independent monitoring of the Bank's progress on conditionality against independently set targets would "provide objective and independent evidence for governments".[60]

42. Conditionality remains a contentious issue for many civil society commentators. We have not been persuaded that the World Bank is pursuing an aggressive policy of imposing burdensome, sensitive policy reform conditions on borrower countries, although we accept that there are some cases where this has happened in the past. We do however share some of the concerns expressed to us about ownership of the development process by developing countries. There are no short-cuts in development. World Bank diktat is no substitute for thorough debate and engagement of parliaments and other stakeholders by the borrower country government. It is only by this latter means that a resilient development programme with broad domestic support can be achieved. We recommend that the UK Government develop, with like-minded countries including borrower nations, a proposal for independent monitoring of World Bank conditionality to ensure that all the Good Practice Principles, especially ownership, and dialogue with parliaments are fully reflected in World Bank practice.

GENDER

43. DFID's Gender Equality Action Plan, published in March 2007, declared progress on gender equality to be a critical factor in achieving all the Millennium Development Goals.[61] The Secretary of State reinforced this view in a speech in Washington on 12 July:

"I am particularly conscious that the face of poverty in developing countries is overwhelmingly female […]. The economic, social and political position of women in many countries is actively preventing us from reducing child and maternal mortality and stopping the spread of HIV/AIDS. Empowering women must be a priority for all of us."[62]

44. The Bank's first Gender Action Plan (2007-2010), Gender Equality as Smart Economics, focuses on employment-led growth and aims to promote women's economic advancement in land, labour, and financial and product markets.[63] The Plan is at an early stage of implementation and builds on a previous World Bank 'gender mainstreaming' plan. Its emphasis is on "producing demonstrable results in a reasonable timeframe" and its impact will be assessed at the end of the four-year period.[64] The Minister told us that the UK supports the Bank's focus on "what the Bank believes is its comparative advantage, which is around the economic empowerment of women" and that the UK will "push for the mainstreaming of gender in social policies".[65]

45. ActionAid was critical in its evidence to us of what it perceives as a policy which is too restrictive:

"Poverty has a female face, and therefore any efforts to fight poverty need to place women's rights front and centre. However, the World Bank's Gender Action Plan fails to sufficiently address the need to empower women. Instead the policy is based solely upon the fact that it makes 'economic sense' to promote women working in selected industrial sectors […]. Moreover, the World Bank gender policy does not cover policy-based lending […] thus operational policies are the only Bank policies to which civil society can hold the Bank to account on gender issues."[66]

46. We believe that the Millennium Development Goals will never be achieved if women's empowerment is not central to development efforts. The World Bank's action plan on gender, launched last year, was overdue. Strategic commitments and associated actions on economic empowerment of women may, if based around the clear principles of women's rights, provide sufficient scope to hold the Bank to account across the range of its activities. We recommend that the Government assess now how it can best support and improve the plan, and contribute to its mid-term and final assessments, and that it share with us a timed outline of this UK strategy.

COUNTRY-LEVEL EFFECTIVENESS

47. DFID told us that improving the Bank's 'country-level effectiveness' had been one of its key priorities in the IDA negotiations.[67] Country-level effectiveness has implications for how the World Bank delivers assistance, for how well co-ordinated and aligned its own programmes as well as those supported by other donors are, and for its presence and operations in-country. During the fourth negotiating meeting on IDA 15, participants urged the Bank to develop a strategy on this issue in time for a high-level conference on aid effectiveness in Accra in September 2008.[68]

48. Decentralisation, or the relocation of staff from Washington to the field, is a central part of the country-level effectiveness agenda. The Minister said that DFID had secured a good outcome on this issue, for Africa in particular:

"We secured, for example, a commitment that they would increase the number of staff, internationally recruited staff that were going to be based in Africa by 50% and that really has a very serious impact because it has an impact of course on conditionality and doing impact assessments and understanding the local context and being able to speed up the disbursement […] and it helps in harmonisation."[69]

The Minister also told us that DFID had prepared a paper for the Bank's new Managing Director with responsibility for Africa on providing incentives to encourage staff to take up posts there.[70] We endorse DFID's practical support for the Bank's decentralisation initiatives, especially in Africa, and recommend that DFID continue to build up its advisory and knowledge-sharing role in this area.

49. Achieving a high degree of country-level effectiveness is particularly critical in fragile states, themselves another theme of the IDA 15 negotiations.[71] DFID's publication The UK and the World Bank 2006/2007, notes that "fragile states are home to more than 500 million of the world's poorest and most disadvantaged people".[72] Addressing the needs of these populations is therefore central to the World Bank fulfilling its remit on global poverty. President Zoellick told us that building a better analytical understanding of fragile states was a priority for him.[73]

50. International Alert conducted a review of the Bank's work in this area in 2007.[74] It accepts that the Bank has been making progress on its strategic and intellectual handling of this policy area, generating knowledge and analysis and working to adapt procedures and policies.[75] However, International Alert's evidence to us goes on to say:

"Despite these efforts, the practice of the Bank, institution-wide, still trails behind. The direction and country-level decision-making of the Bank is dominated by economists who have insufficient incentives to take account of political and social issues. A high premium is placed on quantitative data (whose collection is often flawed) and technical statistical 'results', while much less attention is paid to power dynamics, relations between civil society and the state, and the spatial, gender or identity group distribution of the aid provided."[76]

51. Given the stated DFID priority for the World Bank to focus on fragile states, we asked Edward Bell of International Alert to comment on the interaction between DFID and the Bank in terms of these states. Co-operation was good in some areas, he said, but the ability of DFID to ensure that "progressive thinking" percolated across the whole of the Bank was limited, not least due to staffing constraints:

"It is clear that DFID has made a very strong political commitment to reducing the incidence of violent conflict but that has not come with the requisite levels of staffing […]. I would not say there has been a decision to cut staff but given the recognition of how important it is, there is not the same attention to the amount of expert labour and skills that are needed. […] Too often, with country strategy papers, very large development programmes are waved through the Board of Directors without sufficient input from either DFID staff in the field or DFID staff in London."[77]

We welcome the priority that DFID has given to securing greater focus by the World Bank on country-level effectiveness and fragile states. As a result of the prominence of these themes in the International Development Association negotiations, we look forward to more intensive World Bank activity in both these areas of work. DFID must recognise, however, that changes in the focus of the World Bank may need to have a consequent impact on DFID's own resources. We recommend that DFID reassess its staffing arrangements and analytical capacity in both these areas of work to ensure that it can carry out satisfactory oversight of the Bank.

33 Ev 53 Back

34 Ev 85 Back

35 Ev 102 Back

36 Ev 128 Back

37 Ev 127 Back

38 World Bank, Good Practice Note: PSIAs (Consultation Draft), December 2007, paragraph 3 Back

39 The Bank has two basic types of lending instruments: investment loans and development policy loans. Investment loans have a long-term focus (five to 10 years), and finance goods, works and services in support of economic and social development projects in a broad range of sectors. Development policy loans have a shorter-term focus (one to three years), and provide financing to support policy and institutional reforms. Back

40 Ev 98 Back

41 Q 55 Back

42 Q 85 [Mr Counsell] Back

43 Q 84 [Mr Pendleton] Back

44 Ev 120 Back