World Bank Conditionality Review: Conditionality and Policy Based Lending --Trends Paris, February 4, 2005
Content 1. How much does the World Bank lend for policy-based programs? 2. How has the quality of policy-based lending changed? 3. How selective is policy-based lending? 4. Are there too many conditions? 5. How has the content of conditionality changed? 6. Issues arising in the Review 2
1. How much does the World Bank lend for policy-based programs?
Policy-based Lending accounts for 10-20% of all Bank lending operations Number of World Bank Lending Operations, FY80-04 300 Investment Lending Adjustment Lending 250 Number of Operations 200 150 100 50 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: Source: Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. BW database, World Bank 4
and represents around one third of World Bank lending commitments. World Bank Lending Commitments in US$ billion, FY80-04 30 25 Investment Lending Adjustment Lending 20 US$ billion 15 10 5 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: Source: Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. BW database, World Bank 5
Policy-based operations are almost evenly split between IBRD and IDA countries Number of World Bank Adjustment Operations, FY80-04 350 ID A N o. IB R D N o. 300 250 Number of Operations 200 150 100 50 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: Source: Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. BW database, World Bank 6
with a much larger share of commitments going to IBRD countries. 16 14 IDA World Bank Adjustment Lending Commitments in US$ billion, FY80-04 IB RD 12 10 US$ billion 8 6 4 2 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: Source: Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. BW database, World Bank 7
The Africa region accounts for 34% of adjustment operations but only 16% of commitments. Regional Share of Adjustment Lending by Number of Operations, FY80-04 MNA 6% LCR 25% AFR 34% Regional Share of Adjustment Lending by Volume, FY80-04 LCR 35% AFR 16% EAP 14% ECA 22% SAR 6% EAP 7% MNA 5% ECA 24% SAR 6% Note: Source: Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. LCR Latin America and the Caribbean, AFR Sub-Saharan Africa, EAP East Asia and Pacific, SAR South Asia, ECA Europe and Central Asia, MNA Middle East and North Africa. BW database, World Bank 8
2. How has the quality of policybased lending changed?
The average quality of adjustment operations has improved since the 80s. Percent of satisfactory operations according to OED ratings Average OED Ratings of WB Adjustment Lending Operations Weighted by Operation, Exit FY80-03 90 80 70 60 50 40 30 20 10 0 60 68 79 80 80 33 53 59 FY80-89 FY95-98 Outcome Sustainability Institutional Development Impact 21 35 37 FY90-94 FY99-03 48 Note: Source: Operations exiting in Fiscal Years 1980 2003. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. Operations Evaluation Department (OED), World Bank 10
Adjustment operations tend to have better OED outcome ratings than investment operations. Percent of satisfactory operations according to OED outcome ratings OED Quality-at-Exit Ratings of WB Investment and Adjustment Lending Operations, Exit FY90-03 100 90 80 70 60 50 40 30 20 10 0 70 69 72 68 67 66 63 64 64 64 64 66 81 86 84 76 72 74 72 75 70 70 Adjustment Lending Investment Lending 82 83 81 78 74 73 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Note: Source: Operations exiting in Fiscal Years 1990 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. Operations Evaluation Department (OED), World Bank 11
The average quality of single tranche adjustment operations is traditionally higher Percent of satisfactory operations according to OED ratings OED Ratings of WB Adjustment Lending Operations by Number of Tranches, Exit FY90-03 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 88% 79% 69% 61% Single tranche Multiple tranche 37% 44% Outcome Sustainability Institutional Development Impact Note: Source: Operations exiting in Fiscal Years 1980 2003. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. Operations Evaluation Department (OED), World Bank 12
The share of single tranche adjustment operations Single Tranche WB Adjustment Operations as a Share of Total WB increased significantly. Share of Single Tranche Operations 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% No. Loans $ Vol. 21% 28% Adjustment Operations, FY90-04 34% 37% 51% 46% 0% FY90-94 FY95-99 FY00-04 Note: Source: Operations approved in Fiscal Years 1990 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. ALCID database, World Bank 13
3. How selective is policy-based lending?
Above average performance countries received 65% of World Bank s policy-based operations 25% Shareof Countries and of WB Adjustment Lending Operations by Country Average CPIA Rating FY95-03 Share of Adjustment Operations Share of Countries 20% Overall Average CPIA % of Total 15% 10% Average CPIA 5% 0% 1.7-1.8 2.3-2.4 2.5-2.6 2.7-2.8 2.9-3.0 3.1-3.2 3.3-3.4 3.5-3.6 CPIA Rating 3.7-3.8 3.9-4.0 4.1-4.2 4.3-4.4 4.5-4.6 4.8-5.1 5.5 15
and 76% of the World Bank s overall commitments for policy-based lending. 25% 20% Share of Countries and of WB Adjustment Lending Commitments by Country Average CPIA FY95-03 Overall Average CPIA Share of Adjustment Lending Share of Countries Percent of Total 15% 10% Average CPIA 5% 0% 1.7-1.8 2.3-2.4 2.5-2.6 2.7-2.8 2.9-3.0 3.1-3.2 3.3-3.4 3.5-3.6 3.7-3.8 3.9-4.0 4.1-4.2 4.3-4.4 4.5-4.6 4.8-5.1 5.5 CPIA Rating 16
4. Are there too many conditions?
The average number of conditions has been decreasing since the early 90s. 50 Average Number of Conditions per WB Adjustment Loan/Credit, FY80-04 45 Number of Conditions per Loan/Credit 40 35 30 25 20 15 10 5 0 Average Num ber of Conditions Trendline FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 Note: Source: Legally binding conditions listed in the legal agreement signed by the borrowing government and the World Bank. Does not include desired actions or triggers. Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. ALCID database, World Bank 18
The trends are similar and declining in both IBRD and IDA countries. 40 Average Number of Legally-binding Conditions by Agreement, FY95004 35 IBRD IDA 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 19
With multi-sector operations & PRSCs, the share of non-binding desired policy actions is increasing. Average Number of Conditions and Desired Actions pe WB Adjustment Loan/Credit, FY80-04 70 60 Desired Actions Conditions 50 Num ber of Conditions per Loan/Credit 40 30 20 10 0 FY80 FY82 FY84 FY86 FY88 FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 Note: Source: Conditions legally binding conditions listed in the legal agreement signed by the borrowing government and the World Bank. Does not include desired actions or triggers. Desired actions actions listed in the loan documentation but not included in the legal agreement. Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. ALCID database, World Bank 20
The average quality of adjustment lending decreases with a larger number of conditions. Percent of satisfactory operations according to OED outcome ratings Number of operations Note: Source: Average OED Quality-at-Exit Ratings of WB Adjustment Lending Operations by Number of Conditions, Weighted by Operations, Exit FY80-03 100 80 60 40 20 0 82 90 Legally binding conditions listed in the legal agreement signed by the borrowing government and the World Bank. Does not include desired actions or triggers. Operations exiting in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. Operations Evaluation Department (OED), World Bank 77 78 1-15 16-44 45 or more Number of Conditions FY95-98 22 41 91 95 44 24 77 FY99-03 67 21
5. How has the content of conditionality changed?
The focus of WB conditionality shifted from short-term economic distortions to a medium-term institutional and social agenda. Share of Conditions Associated with WB Adjustment Loans/Credit by Themes, FY80-04 Share of Conditions by Theme in % 50 45 40 35 30 25 20 15 10 5 0 27 FY80-89 FY95-98 20 17 10 Trade & Economic Management FY90-94 FY99-04 21 11 5 3 Agriculture & Infras tructure 6 16 27 27 24 22 19 17 Social Sector & Environment Public Sector Management 22 30 42 33 Finance & Private Sector Note: Source: Legally binding conditions listed in the legal agreement signed by the borrowing government and the World Bank. Does not include desired actions or triggers. Operations approved in Fiscal Years 1980 2004. World Bank fiscal years start on July 1 of the previous calendar year, i.e., FY00 started on July 1, 1999 and lasted through June 30, 2000. For the definition of themes see next slide ALCID database, World Bank 23
with less of an emphasis on public enterprise restructuring and privatization conditionality. Loans with State enterprise/bank Restructuring and Privatization Conditionality FY80-03 100 75 Share of loans Share of conditions 87% 50 51 25 0 28% (10 conditions) 10 (2 conditions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 24
Conditionality in better performers focuses on structural policies, while in poor performers the emphasis is on basic public sector functions The Share of Conditions Concentrating on Specific CPIA Clusters, by Average Country CPIA Rating FY97-03 High Performing Countries 8% Good Performing Countries 8% Poor Performing Countries 11% 45% 30% 40% 22% 35% 17% 17% 30% 37% CPIA Cluster Economic Management Policies for Social Inclusion/Equity Public Sector Management & Institutions Structural Policies 25
WB and IMF conditionality declined in aggregate and shifted towards core mandates (LICs) IMF Structural Conditions (number of measures per review) World Bank Structural Conditions (number of conditions per loan) Other (social safety net, rule of law, regulatory reforms, trade) Sector policies (agriculture, health, education, environment) Tax policy and administration 4 2 0 Economic management Financial Sector Other (social safety net, rule of law, regulatory reforms, trade) Sector policies (agriculture, health, education, environment) Tax policy and administration 10 5 0 Economic management Financial Sector Public Enterprise Reform (including privatization) Fiscal Management (including exp. level and composition) ESAF PRGF (all) Civil Service Reforms Public Enterprise Reform (including privatization) Fiscal Management (including exp. level and composition) Civil Service Reforms With streamlining, both WB and IMF conditionality focused increasingly on respective core areas: macro issues (IMF), growth and social issues (World Bank). Only one area of increased conditionality: Fiscal Management which includes fiduciary issues, debt management, public expenditure management, and decentralization and local governments. 26
6. Issues arising in the Review
Emerging good practice principles: Ownership: commitment and readiness for policy implementation and sustainability unanimity ideal, but not necessary. Criticality: place conditionality on policy actions that are critical for the success of the overall policy program. Additionality: what is right is right, no need to leverage additional policy actions. Medium-term framework: a longer perspective is needed for growth and institutional improvements, and to stay the course of the program without policy reversals. 28
with a nuanced approach: each country is different. In these dimensions, countries fall within a wide array: Implementation capacity and aid dependency. Degree of commitment and reform readiness. Effectiveness of resource use. Fiduciary framework. Macroeconomic and financial vulnerability to crisis. 29
Other issues that need further consideration: Improving predictability. Donor harmonization and support for country owned strategies for poverty reduction. Operationalizing a results framework. Scope and content of conditionality. Appropriate level for application of conditionality. Conditionality in fragile states. 30