World Bank Budget Support to IDA Countries Anjali Kumar Independent Evaluation Group, World Bank

1. World Bank Budget Support to IDA Countries Anjali Kumar Independent Evaluation Group, World Bank Presentation to the Overseas Development Institute London, 24 September 2010

2. PRSCs were introduced in2001, to improve aid effectiveness, and… • Promote country ownership (Killick 1996, Collier et al. 1997, Killick et al. 1998, Dollar and Pritchard 1998, Dollar and Svensson 2000) • Ease conditionality (Gilbert, Powell, Vines 1999) • Increase predictability to permit incorporation in domestic budgets (Koeberle 2003) • Support domestic governance/institutions (Barro and Sala-i-Martin 1997; Barro 1998; Mauro 1995) • Increase efficiency through the fungibility of budget support aid (Devarajan, Swaroop, and Zou 1999) • But concerns remain – Crowding out local initiative (Moyo 2009); potential for leakage (Collier 2007, 2009); or waste (Calderisi 2006) 2

3. From 2001 to September 2009, 99 PRSC operations were approved From 2001-09, 99 PRSC operations were approved …worth $8 billion, in 27 countries • 20 more operations ($1.7billion) under preparation (for FY10) • One-fourth of Bank policy lending but 30-40% of disbursements to PRSC countries • But PRSC share of country budgets is declining (7 % in 2001; 1.5% in 2008) Countries with ongoing PRSCs New PRSCs approved 3

4. Objectives of Budget Support through the PRSC: • Help strong performing IDA countries with responsible fiduciary environments to implement domestically owned Poverty Reduction Strategies • Support poverty-oriented growth and emphasize pro-poor service delivery • Strengthen domestic planning and budgeting with predictable medium-term aid commitments • Provide a framework for aid harmonization • Strengthen the institutional framework for budget and public financial management • Focus on the achievement of results, in a clearly articulated Results framework 4

5. Evaluation Objective and Scope • Assess the extent to which PRSCs were able to meet their core objectives • Examine their relevance and effectiveness as a vehicle to support growth, improve social conditions, and help alleviate poverty • Scope: All PRSC operations from their introduction in 2001 until end June 2008 5

6. Building Blocks: Data Sources • Sources of information: • Desk review: objectives, design, effectiveness, results framework of 88 PRSC projects • Field evaluations: 7 country case studies covering 31 PRSC operations, 8 completed PRSC series, 4 four ongoing series, and 33 percent of PRSC disbursements over FY01-FY08. Available at the IEG website. • Surveys: Task team leaders, Sector specialists, Government stakeholders • Relevant databases, including: • WB evaluative data, ALCID, POVCAL, CPIA, ROSCs, • OECD Aid Aggregates, Monitoring of Paris Declaration, IMF IFS • Extensive literature including other case studies • Quality control: 3 internal peer reviewers; three external experts 6

7. Evaluation Methods • Triangulate data to establish plausible causality • Establish a Results chain • Account for other determinants • Compare ‘before and after’ changes in performance of PRSC beneficiaries • But: ‘before’ and ‘after’ comparisons of outcomes are limited by problems of identification due to the endogeneity of policy responses within each country • Therefore, also compare changes in PRSC countries to changes experienced by IDA countries that have not benefited from PRSCs • “Difference in difference” approach • Add controls for ‘better performing’ IDA countries 7

8. Evaluation Questions and Results Chain • Appropriate program design and analytical underpinning • Aligning resource flow with domestic processes and timetable • Enhancing donor collaboration • Inputs • Implementation of a strategic subset of the PRSP • More predictable resource flows and resource use aligned with PRS • Harmonization of donor programs • Improved domestic accountability • Outputs • Outcomes • Improved climate for growth and improved pro-poor service delivery • More effective public administration • Sustained growth • Reduction of income and non-income poverty • Impact 8

9. Challenges and Caveats • Parallel changes affecting all World Bank Development Policy Lending occurred over the period of analysis • New Bank guidelines in August 2004 for all DPLs; • PRSC Interim Guidelines were not formalized though PRSC operations continued • Analysis adds a filter for two sub-periods, 2001 to 2004 and 2005 to 2008 • PRSC is usually one part of a larger basket of donor funded general budget support • Both the Bank and other donor partners use a range of instruments to support country development programs. • Account for role of other donors and other instruments 9

10. Evaluating the PRSC aid process

11. Evaluating Conditionality • Did conditionality ease with PRSCs? Was conditionality more flexibly applied? • Compare numbers of prior actions (legally binding) and program benchmarks (not legally binding) in PRSCs compared to non-PRSC policy based loans • during FY80-00 period – prior adjustment lending • during the PRSC period FY01-08 • during PRSC subperiods FY01-04 and FY05-08 • Triangulate with Client Perceptions of Conditionality • Nature and numbers of Conditions • Program Implementation and Political Change • Recognition of Implementation Constraints 11

12. Eased conditionality - …conditionality declined in all policy lending Non-PRSC legal conditions PRSC legal conditions

13. Non-PRSC program benchmarks Eased conditionality - PRSC program benchmarks …conditionality declined in all policy lending

14. Evaluating Flexibility– Modification of Conditions • Numbers of adjustments made to proposed future prior actions (triggers): • Modifying content • Modifying timing or • Dropping conditions if they proved unrealistic. • Comparisons with numbers of waivers of tranche release conditionalities across pre-PRSC adjustment operations • Triangulation: survey of task team leaders; government stakeholders 14

15. More flexibility in interpreting conditionality… • PRSCs introduced ‘triggers’ - indicative prior actions in place of legally binding tranche release conditions • Triggers between FY01 and FY08: • 59% met • 15% downgraded • 9% amended • 8% dropped • 9% replaced/postponed • Sometimes new prior actions were included 15

16. Evaluating the Predictability of PRSCs • Predictability measured by: • Likelihood, based on past frequencies, of a PRSC recipient country receiving a PRSC in a given year, compared to previous adjustment loans. • Likelihood, based on observed past frequencies, of a PRSC country receiving any policy-based budget support, compared to previous adjustment lending. • Stability of volumes of budget support received via PRSCs compared to previous adjustment lending, in absolute terms and as a proportion of total IDA/IBRD flows received • Comparison of PRSC lending projections envisaged in country strategy documents vs. actual disbursements • Other studies measured predictability by comparing: • Actual budget vs. predicted budget support disbursements • Commitments vs. disbursements 16

17. Evaluating the regularity and timing of PRSC disbursements • Alignment of budget support relative to the budget needs: • Timing of disbursements relative to country budget year: • Percentage of operations that disbursed in last quarter of the preceding fiscal year • Or in the first quarter of the current fiscal year • Regularity of disbursements measured by: • Percentage of operations in a series that disbursed in the same quarter, in each successive year 17

18. More predictable resources … A steady volume of disbursements, in the same quarter per series… Burkina Faso is a good example…

19. Evaluating Alignment, Ownership and Operationalization of National Plans • Country Case Studies and Client and Team leader interviews were the main instruments. They suggest that: • PRSCs are well aligned with national development strategies and enjoy greater ownership than preceding adjustment lending, at least in core ministries • PRSC countries improved their operationalization of national development strategies better than other IDA-eligible countries • PRSC countries have been more successful at operationalizing national development strategies, but gap is closing • PRSCs are effective in raising the importance of the budget as a tool for policy formulation • Inter-ministerial dialogue improved, but the quality of sector dialogue may have lost some depth 19

20. Evaluating sector support through PRSCs: Increased spending on education, health, PFM as in other DPLs 20

21. Evaluating Budget support through PRSCs compared to sector lending… • PRSCs were initially perceived a potential vehicle for all lending, including sector lending • But ultimately, PRSC support complemented sector lending; replacement was rare • IEG’s comparison of PRSC operations with the Country Assistance Strategies for PRSC countries shows that: • Many countries tried to channel sector lending through the PRSC: • Of 15 CASs in health & education, only 2 achieved sustained results • Of 6 CASs in nutrition, water supply, agriculture or environmental management, 1 on a sustained basis

22. Evaluating PRSC Results Frameworks: Evaluative questions - examples • How well defined were PRSC results frameworks, in particular regarding the definition of measurable end-of-series, intermediate, and baseline targets and indicators? • Was the PRSC results framework well adapted to the implementation of the PRSC? • How consistent was the reporting of results? • To what extent did the PRSC draw on national M&E systems used for domestic accountability outside the framework of aid flows? • Was capacity building for developing national M&E addressed?

23. On average PRSC countries score better than others on results frameworks, but this is not obviously linked to the PRSC Need for: More clearly defined indicators Better baseline data, intermediate and end-of-series indicators, milestones Consistency over time Shortcomings due to: Weak upstream PRSPs/ CASs Multi-donor process differences Modest M&E frameworks, often reflecting weak country statistical capacity Results Frameworks – Findings: Weak but improving

24. Evaluating PRSC’s role in improving donor harmonization • Did PRSCs serve as a focal point? Sometimes • e.g., Vietnam, where the Bank-led PRSC matrix was adopted by the government • Often as member of a multi-donor group • e.g., in many countries in Africa, notably Mozambique and Ghana, via a joint ‘PAF’

25. Donor harmonization through PRSCs had notable achievements… Achievements • Did the PRSC process help to harmonize donor matrices and align them with the national plans? Yes, PRSCs played a supporting role • Were transaction costs for recipients reduced? Yes, to some extent • Did other donors benefit? Yes, Bank expertise was made available to recipients and other donors • Based on OECD data, the Bank harmonized more missions than other donors - in PRSC as well as non-PRSC countries, especially in weaker IDA countries 25

26. Donor harmonization: challenges remain • Limited integration of PRS reviews with the joint matrix (PAF) • Initial perception of increased conditionality • Increased transaction costs for Bank (e.g. Mozambique, Ghana) • Some loss in Bank relevance alongside undue influence of small donors 26

27. PRSC Outcomes – Public Financial ManagementEasier objectives accomplished

28. Diagnostics • Were diagnostics comprehensive? • Extend of coverage • Treatment of fiduciary risk • Were weaknesses addressed by PRSC program? • Was PRSC reform program consistent with action plans from diagnostics? Methodology of PFMP Evaluation of PRSCs • Design & Implementation • How well designed was results framework for PFMP? • Integrated action plan supported by key donors? • Significant delays in reforms? • Extent and quality of capacity building • Results • Before/After reform improvement in PFMP performance where PRSC reforms focused • Achievement of PFMP objectives in PRSCs • General improvement in PFMP systems (CPIA etc.)

29. Reforms well grounded in diagnostics led to well sequenced strategy agreed with donors Program achievements were in easier areas (e.g., budget classification reform) More difficult reforms show less success (e.g. bringing extra-budgetary funds and donor funds on budget; timely resource transfer to sector ministries) Most PRSCs achieved their PFMP reform objectives, with minor shortcomings

30. PRSC Outcomes in Growth and Poverty Alleviation… are difficult to establish

31. PRSC countries grew faster in the PRSC period… but so did other countries Attribution to the PRSC is difficult 31

32. PRSC countries had more income poverty reduction… but the decline began before the PRSC was introduced 33

33. PRSC Countries had greater progress with Millennium Development Goals… …and progress was faster than before the PRSC period …and faster than all other IDA countries in the PRSC period 34

34. Income poverty rates fell faster in PRSC countries, in the PRSC period, but also fell faster prior to the PRSC In non-income measures of poverty PRSC countries did better, and improvement in the PRSC period was faster Most PRSC programs do not trace links between actions and poverty outcomes Parallel sector projects increase the difficulty of attribution Attribution of declining poverty rates to the PRSC remains difficult 32

35. 1. PRSCs improved aid processes Enhanced country ownership Eased, flexible, conditionality Better predictability - volume, frequency and budget alignment More pro-poor service delivery 2. Growth and poverty outcomes are unclear Weak Results frameworks Partial Support to Sectors 3. Other Policy Based Lending converged to a similar design Evaluation Findings - Three Key Messages

36. Evaluation Recommendations • Strengthen results frameworks, link with underlying PRS; increase poverty focus • Focus sector content on high-level or crosscutting issues • Further simplify the language of conditionality and eliminate the term ‘triggers’ • Synchronize Bank’s internal processing with country and donor processes to enable greater ‘voice’ for Bank in multi-donor budget framework • Underpin PRSCs/DPLs with comprehensive pro-poor growth diagnostics • Phase out PRSC “brand name” or clarify when it is to be used • a 36

37. IEGINDEPENDENT EVALUATION GROUP Thank you www.worldbank.org/ieg/prsc