RECOMMENDATIONS
UK CONTRIBUTION TO
THE INTERNATIONAL
DEVELOPMENT ASSOCIATION
1. An effective World Bank is a vital component
in the international development system and we welcome DFID's
focus on its effectiveness. We note, however, that effectiveness
can be assessed at many levels, including organisational, development
impact and strategic. We therefore caution the Secretary of State
and his team against making bold statements that the World Bank
is the most effective multilateral development institution without
appropriate qualification. It will only be truly effective from
DFID's point of view if it does what DFID wants it to do—if
it is operationally effective as well as organisationally effective.
In our view, DFID should concentrate its efforts on assessing
the Bank's operational effectiveness in terms of development impact,
rather than just its organisational effectiveness, in order to
justify the large increases in its funding to the World Bank.
We were encouraged to learn about the drive within the World Bank
to monitor and analyse results and to make public this work. We
would urge the Bank to make this work a priority. (Paragraph 22)
2. We welcome DFID's decision to increase its
contribution to the World Bank's International Development Association
but we believe that it did so with insufficient rigour. In developing
its strategic approach to the funding levels, it is right that
during the negotiations DFID assessed both the Bank's effectiveness
and its responsiveness to DFID's own priorities for the Bank.
We look forward to examining the Deputies' Report for evidence
of DFID's influence on the negotiations. An explanation of the
strategic approach is not, however, the same as an explanation
of the mechanics of the decision itself. The Minister's assertion
that a 49% increase in the commitment was in line with the increase
in DFID's overall budget appears to suggest that the increase
was largely mechanical. Without a transparent account of how the
increase was decided, we have no evidence to challenge that suggestion.
We would have liked to have seen a robust analysis showing that
an additional £700 million allocated to IDA would do more
to meet DFID's objectives than using the same amount of money
for funding another multilateral agency or for bilateral development
work. We recommend that DFID publish, alongside the Deputies'
Report in spring 2008, a full account of how the increase of £700
million was calculated. Given the very large sums involved, we
further recommend that DFID ensure that, as well as conducting
a new assessment of the Bank's organisational effectiveness, a
full review of the World Bank's development impact is conducted
and published before the next IDA replenishment round is launched.
(Paragraph 25)
ALIGNMENT OF
POLICY PRIORITIES
3. 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. (Paragraph 33)
4. 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. (Paragraph 42)
5. 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. (Paragraph 46)
6. 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. (Paragraph 48)
7. 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. (Paragraph 52)
STAFFING
8. We support the Secretary of State's decision
to appoint a full-time UK Executive Director to the World Bank.
It is appropriate recognition of the need for UK oversight of
the Bank to be as well-resourced and comprehensive as that of
other delegations, if not more so given the UK's role as the largest
bilateral contributor to the International Development Association.
We are glad that the Secretary of State listened to our representations
about this matter and take some satisfaction from the part that
we appear to have played in changing the policy, especially given
the surprisingly vigorous defence of the shared directorship provided
to us by the UK delegation. We recommend that DFID take up all
adviser slots available to it in Washington—the UK cannot
afford to be under-resourced at a time when its oversight of and
influence over the World Bank must be as strong as possible.
(Paragraph 58)
TRUST FUNDS
9. On current trends, UK funding for World Bank-managed
Trust Funds will soon match UK funding for the International Development
Association. Some of these Funds are largely autonomous institutions
with which DFID will need to engage directly to influence policies.
For those for which the World Bank is both financial agent and
policy lead, DFID is right to provide support if such Funds can
add value to the work done by the Bank's major institutions and
reduce the burden on borrower countries. We are concerned however
that any further proliferation of Funds could distract World Bank
shareholders from the key challenges ahead with regard to its
main institutions, such as ensuring IDA effectiveness and progress
on governance reforms. We recommend DFID resist proposals to set
up any further Funds or where it supports such proposals—for
example on climate change—provide us in advance with the
rationale for its support. (Paragraph 63)
GOVERNANCE AND
ACCOUNTABILITY
10. Adequate representation of developing nations
in World Bank decision-making is not only a question of fairness,
it is one of effectiveness: we believe greater ownership and buy-in
by developing countries will lead to more effective Bank programmes.
The Government has been better at setting out this argument than
at developing a solution to the problem. As we have stated, the
UK has a responsibility as a leading nation at the Bank to act
decisively on these issues. (Paragraph 70)
11. We believe that double majority voting has
some merit and is worthy of serious study by DFID. We recognise,
however, the difficulties of securing any reform to the voting
arrangements: the Bank is run as a shareholder organisation and
donors are unlikely to wish to cede large amounts of power. While
votes are important, the outcome of any renegotiation is unlikely,
in our view, to deliver more than minor changes. The UK should
therefore prioritise action on practical and immediate changes
which can help to rebalance the Board to give developing countries
a greater voice. In our view, the most critical Board reform issue
is the representation of African countries and the capacity of
these delegations. As a priority region for the World Bank and
the continent facing the biggest challenge in terms of the Millennium
Development Goals, Africa should have at least one more Executive
Director on the Board. We recommend that DFID pursue this objective
as a priority and separately from any broader reform deal. Moreover,
given that the Trust Fund set up to support African Executive
Directors is not delivering the desired results, we recommend
that the UK urgently propose a new method, and consider providing
new and additional money, for developing greater capacity in these
delegations. (Paragraph 71)
12. There is a broad consensus that selection
of the President of the World Bank, one of the most influential
figures in international development, should be transparent and
based on merit, rather than in the gift of the United States.
The Government supports this position and made some effort to
change the system during the selection of President Zoellick.
We recommend that DFID initiate work now towards agreeing an open
and merit-based process for selecting his successor. Such a strategy
would need to include giving up Europe's monopoly on the post
of Managing Director of the International Monetary Fund. The UK
should use its role as the largest contributor to the International
Development Association and its related increased leverage in
Washington to bring about such a 'grand bargain'. DFID should
ensure that, as part of the review of the selection process, systems
are put in place to evaluate the performance of the President
during his or her tenure. (Paragraph 75)
13. The World Bank argues that its founding articles
restrict its ability to engage with political actors beyond governments.
The Bank has, however, made some efforts to engage with and consult
parliaments and civil society on some policy and operational matters
with mixed success. We believe such engagement is particularly
important in borrower nations where it has the potential to bring
about national debate and ownership, which could significantly
enhance World Bank performance as well as strengthening accountability
in those countries. We recommend that DFID encourage the World
Bank to adopt outreach strategies with parliaments and civil society
consistently across its programmes, especially with borrower countries.
(Paragraph 81)
14. Parliaments have a central role in overseeing
government expenditure of national budgets. Those elements of
national budgets which are donations to the Bank or assistance
from it should fall within that oversight. In our view, it follows
that the Bank should make itself available to provide formal evidence
and information directly to parliaments to complement that provided
by governments, as other multilateral organisations such as the
United Nations do. We recommend that DFID ensure that the Bank's
policy of refusing to appear formally before parliamentary bodies
is discussed at the Board of Directors within six months; that
it push for a change in the policy; and that it report back to
us on those discussions. (Paragraph 82)
15. The Parliamentary Network of the World Bank
plays an important role in the Bank's relations with parliamentarians.
It receives help in cash and kind from the World Bank but we believe
that it would be more effective and more independent if it had
a larger secretariat of its own. We ask DFID to consider how it
and other donors could provide funding for a larger PNoWB secretariat
and for its outreach activities with parliamentarians, especially
in developing countries. (Paragraph 83)
16. Given the priority the Prime Minister and
the Secretary of State attach to World Bank reform, it is perplexing
that British advocacy of that agenda in Washington is not more
high-profile. We assume that not all of DFID's work on this issue
is in the public eye—nor should it be. Advocacy does require
some public position-taking, however, and we recommend that the
Government do so more consistently in Washington. (Paragraph 87)
17. We accept the Minister's view that developing
countries must also advance a view on reform issues. We reject,
however, the implication that the UK should wait until they do
so. As a major shareholder and contributor to the World Bank,
the UK has a distinct leadership role. The UK must not only articulate
a vision for reform of the World Bank but it must pursue this
with vigour, building alliances with borrower countries and with
other like-minded donors in and outside the European Union. (Paragraph
88)
THE WORLD
BANK AS
A 'KNOWLEDGE
BANK'
18. The World Bank has come to occupy the role
of foremost source of international development knowledge, advice
and analysis. Development will not succeed through lending alone
and we support the Bank's efforts to ensure that it provides intellectual
added value to its lending. The Bank's analysis influences decisions
across the development community, including DFID's own decisions.
DFID must, therefore, be confident that the Bank's knowledge is
credible in the way it is both created and shared. We recommend
that DFID work closely with the Bank to ensure that its role as
a 'knowledge bank' is demonstrably neutral and flexible, providing
well-argued menus of best practice options for effective development.
This is long-term work and we look forward to a detailed explanation
of it in DFID's next and subsequent annual reports on the UK and
the World Bank. (Paragraph 93)
19. The World Bank's historical financing model
whereby interest on loans is a means of compensating the Bank
for its advice is sustainable as long as developing countries
are willing to accept the arrangement. We see some merit, however,
in the World Bank assessing other, more flexible options for financing
its services as a knowledge bank. Separating loans from advice
might be a more practical way forward than reliance on an old
financing model. We believe a plan which allows different income
groups to pay for services according to a sliding scale of discounts
is one which deserves further feasibility study and we urge DFID
to pursue with the Bank's management strategic work on this and
other alternatives for unbundling loans and advice. (Paragraph
95)
20. DFID has little or no bilateral reach in
middle-income countries. It relies almost entirely on multilateral
organisations, including to a large degree the World Bank, to
extend its reach into these regions. We believe that it is important,
therefore, that DFID and the Executive Director's office are fully
engaged with World Bank policy in these regions as well as where
the UK is a natural partner, such as Africa. This will become
even more crucial as the Bank's relationship with these countries
continues to evolve away from traditional lending. We recommend
that, in allocating the new adviser portfolios that we have recommended
should be taken up, DFID ensure that sufficient resources are
available in Washington to make good on its promises to influence
and monitor as well as finance Bank operations in middle-income
countries. (Paragraph 101)
THE WORLD
BANK AS
A "BANK
FOR THE
ENVIRONMENT"
21. Climate change is a global challenge but
there is convincing evidence that it is a particularly acute one
for developing countries. We believe that it is right that the
World Bank, a leader in international development, integrates
action on climate change into its overall programme of work. However,
we would caution against too literal an interpretation of the
Prime Minister's assertion that the Bank should become an 'environment
bank' as this could compromise its overriding poverty reduction
objectives. The urgency of climate change does not lessen the
blight of poverty. The Bank is central to international efforts
to meet the Millennium Development Goals. This becomes increasingly
urgent as the 2015 deadline for the Goals approaches and the Bank
and its current resources which were provided for combating poverty
must not be diverted from that task. Moreover, fulfilment of this
development remit would have a positive impact on environmental
objectives because developed countries are less vulnerable to
climate change. We recommend that the UK ensure that the World
Bank Board monitor and, where necessary, correct the Bank's strategic
direction to ensure that its core development and poverty mandate
is not overshadowed. If the Bank is to adopt an additional role
as an environment bank it must raise additional funds for this
purpose. (Paragraph 106)
22. Funding for climate change work introduces
two key problems: raising the huge sums of money needed; and ensuring
that mechanisms are streamlined and funding is well-coordinated.
The World Bank has a role to play in developing solutions to
both problems. As a bank, it should help to leverage the money
needed and, as a leader in development, it should help to marshal
funds and stakeholders. The urgency of the challenge of climate
change has triggered a proliferation of bilateral and multilateral
funds. We believe that building on the mechanisms already in place
is crucial, particularly the Global Environment Facility which
operates under the joint aegis of the World Bank and the UN. We
would urge the Bank to make this a priority to ensure effective
and efficient co-ordinated action. (Paragraph 113)
23. We welcome the UK's commitment of £800
million to international work on climate change through the Environmental
Transformation Fund. Although preparatory work is well-advanced,
we are sceptical that creating a new Trust Fund in addition to
the dozen or so that already exist within the Bank for such work
is the best way forward for this money. It may be that new arrangements
are needed but we have not seen evidence which makes explicit
the case for them. We recommend that DFID conduct an audit of
the current bilateral and multilateral funds available for international
climate change work and share this with us before final decisions
are taken. (Paragraph 114)
24. Emissions from extractive industries are
major contributors to climate change which, as we have set out,
has a disproportionate impact on developing countries. The Bank
is right to take a pragmatic line, supporting energy investments
which provide essential services to poor people. But, given the
urgency of the climate change challenge, such investments should
examine all viable options and favour where practicable the environmentally
cleanest option. This will entail a greater weight of subsidies
for clean, renewable energy and less for extractive industries
and this rebalancing should be happening at a faster rate than
is currently the case. We recommend DFID lead the Board towards
using the Bank's substantial resources and leverage to make investment
in renewables more financially viable. (Paragraph 117)
CONCLUSION
25. DFID's clarity of purpose and effectiveness
have set the standard for many bilateral development agencies.
It must now aim to do the same for multilateral organisations,
particularly the World Bank. In this inquiry, we have seen that
DFID's influence is already being felt. Given the urgency of the
effort on poverty and the scale of the sums entrusted to the Bank
to contribute to that effort, DFID must demonstrate not only excellent
partnership skills but equally good leadership skills in its future
relationship with the World Bank. (Paragraph 119)
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