Memorandum submitted by the Department
of International Development
EXECUTIVE SUMMARY
The World Bank shares DFID's overarching ambition
of eradicating poverty and thanks to its extensive funding, expertise
and influence is at the heart of the international development
system. Evidence suggests that investing substantially in the
Bank has a high return in terms of helping developing countries
meet the MDGs.
The World Bank Group needs to improve some aspects
of its performance and needs to examine how the different parts
of the Group can best work together. But overall the Bank is a
leading development institution whose success and effectiveness
are essential for global efforts, including those of the UK, to
make progress towards the MDGs and to tackle specific development
challenges such as climate change.
DFID has substantial influence at the Bank.
We exercise this through top level attendance at the Bank's Spring
and Annual meetings and regular high level contact throughout
the year. DFID country offices work closely with the Bank and
in some countries, we have developed joint assistance strategies.
We use IDA funding negotiations and our contribution to IDA to
help secure changes in Bank policy and practice.
Negotiations on the 15th replenishment of the
funds of the IDA began in March 2007 and are expected to conclude
later this year or in early 2008. The UK is pressing IDA and the
Bank as a whole to become more effective at the country level,
including through improved co-ordination with other multilateral
organisations. We form strategic alliances with EU and other colleagues
to help achieve these objectives.
Both DFID and the Bank emphasise that good governance
is crucial to successful development and poverty reduction, and
to achieving the MDGs. The principal objectives of both organisations
are to help develop capable and accountable states to deliver
services to the poor, promote private sector-led growth and tackle
corruption effectively.
On conditionality there remain some differences.
But the Bank has made significant improvements in its use of conditionality
in recent years and overall DFID's and the Bank's approach is
converging. We expect the Bank to implement effectively the Good
Practice Principles on Conditionality agreed in 2005 and the additional
recommendations made as part of the 2006 review of their use.
The Bank's transparency has improved substantially
over the years, thanks in part to the work of Parliaments. DFID
believes that while the World Bank can improve some aspects of
its governance, including helping developing countries voices
to be heard more effectively, overall it is a highly credible
and effective organisation.
THE WORLD
BANK'S
RELATIONSHIP WITH
DFID, OTHER DONORS
AND STAKEHOLDERS
Is funding through the Bank an effective mechanism
for advancing DFID's overriding priority of progress towards the
MDGs?
1. The Bank shares DFID's overarching ambition
of eradicating poverty. Last year the Bank committed nearly $25
billion in aid to low and middle-income countries and is a major
donor in sectors such as education, water and sanitation, health
and infrastructure. It is at the heart of the international development
system and wields great influence. The MDGs are central to the
Bank's work. This is reflected in the Bank's two-pillar strategy
which focuses on building the climate for investment, jobs, and
sustainable growth, and investing in poor people and empowering
them to participate in development. The strategy was agreed in
2001 and discussions are underway to update it.
2. Evidence suggests that investing substantially
in the Bank—both in terms of our financial resources and
our time—has a high return, for five main reasons:
(i) Bank programmes have a strong track record
of poverty reduction, reflecting the quality of its staff, the
strength of its internal processes and its commitment to continual
improvement;
(ii) the Bank's advice and analysis help
shape the policies and programmes of poor developing countries,
as well as those of donor governments;
(iii) a combination of funding from DFID
and the Bank can leverage finance and technical inputs from the
private sector on issues such as water and sanitation and clean
energy;
(iv) channelling aid through the Bank and
encouraging other bilateral donors to do the same may reduce the
number of aid projects, and so the burden on recipient countries;
(v) funding for the Bank increases our influence
within the Bank and so helps ensure that overall Bank spending—nearly
$25 billion last year—will help deliver the MDGs.
3. There are multiple examples of how the
Bank has helped developing countries to meet the MDGs. $126 million
(1998-2007) funded the construction of 130 water source points
that are providing clean drinking water to 62,000 people in urban
and rural areas in Mozambique. $185 million (93-05) helped increase
female enrollment in Bangladeshi secondary schools from 1.1 million
in 1991 to 3.9 million in 2005. In Afghanistan, half a million
microcredit loans worth $120 million have been made since 2003
helping to stimulate income, employment and economic growth for
hundreds of thousands of people, many of them women.
4. DFID has recently assessed the effectiveness
of a range of multilateral development organisations in contributing
towards the achievement of the MDGs. Four dimensions of effectiveness
were measured:
— managing relationships;
— country/global results; and
— building for the future.
5. Overall the World Bank scored better
than other multilateral organisations. Strengths identified included
its analytical skills; influence; the robustness of the evaluations
of its work; the breadth of issues that it covers; and its internal
systems. The Bank needs to improve its performance on some aspects.
For example, increasing the number, seniority and authority of
staff based in-country would increase the quality of the Bank's
work at country level. But overall the Bank is a leading development
institution whose success and effectiveness are essential for
global efforts, including those of the UK, to make progress towards
the MDGs.
Can DFID's priorities in specific policy areas,
particularly climate change, be pursued effectively through World
Bank funding?
6. The Bank has an important role in taking
forward the policy priorities set out in the Government's 2006
White Paper on International Development. Its expertise and convening
power make it critical for the success of many initiatives. In
recent years, it has played an important part in shaping and implementing
global initiatives, such as finding a solution to the problem
of unpayable debt through the Heavily Indebted Poor Countries
and Multilateral Debt Relief Initiatives. The Bank makes available
its technical expertise and resources, for example to enable a
successful launch in 2005 of the International Financial Facility
for Immunisation. It manages donor resources for several major
international funds, such as the Fast Track Initiative for Education
and the Global Fund for AIDS, TB and Malaria. And it continues
to argue for a new global trade deal which benefits poor countries
while providing significant levels of financial and technical
support to help developing countries realise the potential gains
of increased trade.
7. On climate change the Bank has a key
role to play in terms of financing, analytical work and its convening
power. It has taken up the call of the G8, made at Gleneagles
in 2005, to develop a Clean Energy Investment Framework, working
with other multilateral development banks, and drawing in the
private sector. The Bank is uniquely placed to challenge the richer
countries to act, including on financing, and to help developing
countries to play their part in designing an international agreement
that helps them both grow and tackle climate change.
8. The UK's £800m Environmental Transformation
Fund (ETF) is an example of how we can work with the World Bank
to ensure our money has more impact than if we work alone. The
aim is to use our funds to leverage funds which potentially are
available from other multilateral sources but are not currently
accessed by developing countries because the terms are not sufficiently
attractive. Together with the World Bank we are discussing how
to encourage countries to get onto a cleaner development path.
We are also working to leverage billions of dollars which are
potentially available on the balance sheets of the International
Financial Institutions, but which currently are not being accessed
and so cannot be used to tackle climate change and other development
challenges.
What are the levers of change and influence that
are available to donor states and is DFID is taking full advantage
of these?
9. The UK is an influential development
player in the Bank. This is thanks to our commitment to poverty
reduction, the size of our financial contribution and shareholding,
and because we provide valued policy inputs.
10. The Secretary of State usually attends
the Bank's Spring and Annual meetings, and stays in regular contact
with the President throughout the year. Senior DFID staff have
frequent contact with Bank staff, and also other government and
non-governmental partners involved in shaping Bank policies. Our
Delegation in Washington—comprising Treasury and DFID staff-
has strong working relationships with many Bank staff. We have
secondees working in the Bank at headquarters and field level.
DFID country offices work closely with the Bank and in some cases,
we have developed joint assistance strategies.
11. We use IDA negotiations to help secure
changes in Bank policy on issues such as country level effectiveness.
In 2005 we increased the size of our IDA contribution by 43% to
£1.43 billion. This has arguably strengthened our overall
leverage within the Bank and helped us to work more closely with
the Bank to secure international progress on issues such as debt,
health and climate change. Last year we were the second largest
contributor to Bank managed Trust Funds, providing around £361
million.
DFID's position on and involvement in the negotiations
on the 15th replenishment of the funds of the IDA
12. The International Development Association
(IDA) has provided over $170 billion in assistance to the world's
poorest countries since its creation in 1960. In the Bank's Fiscal
Year 2007 (1 July 2006-30 June 2007), IDA committed $11.9 billion,
a 25% increase on the previous year. DFID strongly supports IDA's
focus on low-income countries and the financial and technical
support that it provides to them. The UK is the second largest
contributor to IDA 14 (2005-08) providing £1.43 billion or
13.18% of total contributions, a 43% increase over IDA 13.
13. Negotiations on the 15th replenishment
of the funds of the IDA (IDA 15) began in March 2007 and are expected
to conclude later this year or in early 2008. There are approximately
40 donors. The main themes for the replenishment negotiations
are IDA's country-level effectiveness, fragile states and IDA's
role in the international architecture. The UK is pressing the
Bank to better implement the 2005 Paris Declaration on Aid Effectiveness
and so ensure IDA becomes more effective at the country level.
14. DFID will not take any funding decisions
related to IDA 15 until the implications of its Comprehensive
Spending Review Settlement have been worked through. The UK is
committed to reaching the 0.7% target by 2013. We will use a variety
of bilateral and multilateral channels to do so, including IDA.
What support is DFID providing for making the
multilateral system more effective through better World Bank coordination
with other multilateral institutions, especially UN agencies and
the IMF?
15. DFID attaches great importance to improved
coordination between multilateral institutions and has pressed
the Bank to do better. For example, the UK Ministerial statement
to the Development Committee at the 2007 Spring Meetings stressed
the importance of the Bank working with other agencies, particularly
the UN. We have pressed on specific issues, including successfully
lobbying the Bank and the United Nations to overcome differences
that were delaying the delivery of aid in Southern Sudan. However,
more needs to be done and at DFID's request, the Bank has agreed
to report back on its cooperation with the UN and other agencies
in fragile states at the IDA 15 Mid-term review in 2009.
16. In the health sector the World Bank
is a key partner in the International Health Partnership that
was launched in September. The Bank will be working closely with
the World Health Organisation in particular to help implement
the Partnership. Earlier in the year, DFID lobbying helped ensure
that the World Bank's new Health, Nutrition and Population strategy
included a strong emphasis on coordination with the WHO and other
relevant agencies.
17. The Government has consistently encouraged
the World Bank and the IMF to work more closely together in both
low-income and middle-income countries, and we contributed to
the 2006-07 examination of Bank-IMF collaboration chaired by Pedro
Malan.
Co-ordination on development policy between EU
member states and its impact on World Bank policies and practices
18. The Treaty on the European Union and
the 2005 European Consensus on Development set out EU Member States'
views about the importance of close coordination on development
policy. There are clear benefits to coordination through both
leveraging influence at the policy level and in promoting a better
use of scarce donor resources and reducing the burdens on recipient
countries at the operational level.
19. EU Member States can have a powerful
influence at the Bank and the Government welcomes informal co-ordination
among Member States. Weekly coordination meetings in Washington
enable a sharing of information and scope for identifying shared
objectives. Member States provided around 55% of total funding
to IDA 14. The UK has therefore sought to form alliances with
EU colleagues, and others, in pursuit of our strategic objectives,
including during the IDA 15 negotiations.
The role of developing countries in World Bank
decision-making
20. The voices of developing countries should
be heard more effectively in the work of the World Bank. This
is important both on principle—developing countries should
have a greater voice in the decisions that affect them—and
to improve the effectiveness of Bank programmes.
21. Developing countries could play a more
influential role at three levels. At a country level the Bank
must ensure that there is broad consultation and strong country
ownership of the programmes that they finance. Developing countries
could have a stronger voice within the Board of Executive Directors
through strengthened participation in existing Board constituencies
or alterations to the current model. DFID is funding an Analytical
Trust Fund to help African representatives of the Board obtain
analysis to inform their positions on Bank proposals. Finally,
the UK has long argued that the President of the World Bank should
be selected on merit, regardless of nationality.
POLICIES ON
GOVERNANCE AND
CONDITIONALITY
Comparative analysis of DFID's policies on conditionality
and governance and those of the World Bank
22. There is much common ground on governance.
Both DFID and the Bank emphasise that good governance is crucial
to successful development and poverty reduction, and to achieving
the MDGs. The principal objectives of both organisations are to
help develop capable and accountable states to deliver services
to the poor, promote private sector-led growth and tackle corruption
effectively.
23. DFID's understanding of governance has
broadened and deepened significantly over the past decade. It
has gone beyond the management of the economy and reforming public
sector, and now recognises the importance of the relationship
between states and society and the role of informal institutions.
To a large extent this is shared by the World Bank. However its
mandate and role as a multilateral lending institution limits
its ability to engage beyond the Executive and formal institutions.
The Bank is however actively exploring ways in which it could
work with a wider range of stakeholders.
24. Since 2004 the Bank has made significant
progress towards improving its conditionality policy and practice.
The principles underlying its current policy on conditionality
are consistent with those framing the UK policy Partnerships
for Poverty Reduction: Rethinking Conditionality published
in March 2005.
| World Bank: |
DFID: |
| 2005 Good Practice Principles for the Application of Conditionality
| Five principles guiding UK aid relationships
|
| Ownership | Developing country ownership
|
| Harmonisation | Participatory and evidence-based policy making
|
| Customisation | Predictability
|
| Criticality | Harmonisation
|
| Transparency and Predictability | Transparency and accountability
|
25. Both DFID and the World Bank:
— recognise the importance of policy in development
and the importance of conditionality in ensuring accountability;
— centre policies on the principle of country
ownership of conditions and ensure conditionality is not used
to impose policies on governments;
— ensure only critical policies are chosen
as conditions to avoid micro-managing countries;
— have committed to limiting the overall burden
of conditionality, by ensuring harmonisation and a reduced number
of conditions and benchmarks.
26. The use of economic conditionality has been contentious,
especially privatisation and trade liberalisation. However economic
conditionality covers broader issues such as fiscal and monetary
policy including for example spending choices on basic services
and controlling inflation, which are critical for growth and poverty
reduction. DFID and Bank practice is converging. In 2006 the Bank
committed to avoid conditions on sensitive policy areas (including
privatisation and trade liberalisation) if ownership is uncertain
or the political environment is fragile.
27. 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.
The focus is on prior actions which are set out in legal agreements
that are in the partner government's control. 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.
DFID's capacity to effect political change in corrupt or weak
administrations through World Bank funding
28. The Bank's mandate does not include effecting political
change. The policies of partner countries and the underlying institutional
arrangements will have a much stronger influence on political
change than donor policies. But the political impact of Bank-funded
activity and the social transformation it entails can be significant.
For example, work to reform public administration and the management
of public expenditure can reduce incentives and opportunities
for corrupt practice and embezzlement.
29. The principal purpose of the World Bank's engagement
on governance and anticorruption is to support poverty reduction.
It does this through work to help develop capable and accountable
states and institutions that can devise and implement sound policies,
provide public services, set the rules governing markets, and
combat corruption, thereby helping to reduce poverty.
30. Governments are the Bank's key partners in governance
and anticorruption programs, while, within its mandate, the Bank
is also open to involvement with a broad range of institutions
taking into account the specificities of each country.
The impact of World Bank conditionality on governments and
on the poor
31. The Paris Declaration commits both DFID and the Bank
to supporting country led strategies to strengthen capacity for
development, based on a sound technical analysis, and responsiveness
to the broader social, political and economic environment. Experience
has taught us that reforms are unlikely to work unless they are
based on a good understanding of the country context and have
domestic political support. This is supported by economic evidence
which suggests that in the past, imposed conditionality often
failed to generate enduring reforms.
32. The Bank in the past used prescriptive conditionality
and paid insufficient attention to the impact of policy changes
on the poor. Following encouragement by the UK and others, the
Bank now makes much wider use of Poverty and Social Impact Analysis
(PSIA) when considering supporting policies that may have significant
impacts. This allows governments to mitigate short-term negative
impacts of policy changes. We will continue to encourage the Bank
to make full use of PSIAs.
Likely trends in World Bank conditionality
33. Over the past two decades World Bank conditionality
in policy-based lending has shifted away from economic policy
conditions towards the use of governance, public financial management
and investment climate related conditions. The Bank's conditionality
practice is expected to continue to adhere with the 2005 Good
Practice Principles. In particular, the limiting of conditions
to those critical to achieving objectives is likely to improve
as the Bank phases out the use of process conditions eg action
plans.
34. The average number of conditions per policy-based
operation declined from around 30 in the mid-1990s to about 12-13
in 2006. We do not expect any further significant fall in this
number. In contrast, the average number of benchmarks (steps in
reform process) have increased from 5-10 in the mid-1990s to around
25 in recent operations. We expect a reduction in this number
following commitments made by the Bank in 2006.
35. We expect the Bank to make further progress towards
the recommendations made as part of the 2006 review which include:
— Early disclosure of analytical work that
underpins programme design in order to open up discussions with
governments and other stakeholders in country on policy decisions.
— Avoiding conditions on sensitive policy areas
(such as privatisation and trade liberalisation) if ownership
is uncertain or the political environment is fragile and avoiding
duplication of IMF conditions.
— Avoiding process conditionality and reducing
benchmarks.
— Working with other partners to define joint
frameworks which are harmonised with country budget needs and
timing.
— More systematic use of baselines for results
frameworks.
WORLD BANK
INTERNAL GOVERNANCE
The relationship between the World Bank's internal governance
and transparency and its credibility and effectiveness
36. The credibility and effectiveness of any organization
depends on the effectiveness of its internal governance and its
transparency. DFID believes that while the World Bank can improve
some aspects of its governance, overall it is a highly credible
and effective organization.
37. The Bank's transparency has improved substantially
over the years. Nearly all World Bank documents are publicly disclosed,
and the Bank has established about 100 Public Information Centres
(PICs) around the world, which provide the general public with
copies of Bank publications and access to the Bank's website.
Bank management has also embarked on an extensive programme to
enhance information dissemination and outreach, including upgrading
some 70 PICs and developing a policy framework for translating
documents into different languages. The World Bank scored well
in One World Trust's 2006 Global Accountability Index. Out of
ten intergovernmental organizations it ranked second in terms
of transparency capabilities -although much lower on quality of
disclosure- and top for its complaint and response capabilities.
38. A sub-committee of the Bank's Committee on Governance
and Administrative Matters is examining internal governance issues
in the wake of the resignation of Paul Wolfowitz.
The make-up of the board and the selection of the President
39. The UK has a long-standing commitment to support
developing country calls for a stronger say at the World Bank.
The 2006 UK White Paper on International Development reaffirmed
our view that the practice of picking the heads of the World Bank
and the IMF based on nationality should end and both Presidents
should be chosen on merit.
40. The make-up of the Board continues to be the subject
of debate among the Bank's membership. 24 Board Members currently
represent the interests of 185 countries. The UK has its own Executive
Director on the Board. But some EDs represent dozens of countries.
The Board is considering options to increase the voice of the
poorest countries in particular.
The relationship between the World Bank and parliaments, both
in donor and developing countries
41. Good governance is at the heart of development. To
achieve good governance, states must be capable, accountable and
responsive to the needs and rights of citizens. Parliaments have
a crucial role to play in promoting and ensuring accountability.
The relationship between the World Bank and parliaments will vary
from country to country.
42. The Parliamentary Network on the World Bank (PNoWB),
an informal network of over 800 parliamentarians from 110 countries,
mobilises parliamentarians in the fight against global poverty,
promotes transparency and accountability in international development,
and offers a platform for policy dialogue between the World Bank
and parliamentarians. PNoWB has unique access to the World Bank
and many of its activities are undertaken in partnership with
the Bank, including the Annual Conference and the Field Visits
programme.
43. We support the Parliamentary Network's aims of strengthening
accountability and transparency in international financial institutions,
in particular the World Bank, and advocating for development.
The Network's Board has recently been considering a report recommending
a number of reforms to increase PNoWB's effectiveness. The UK
has provided support to PNoWB for the development of networks
of Parliamentarians in Africa.
October 2007
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