How has the Bank supported downsizing? Erika Jorgensen, OPCCE May 3, 2004 “Public Administration Retrenchment: Challenges and Options” PREM Knowledge and Learning Week 2004
Overview • History of Severance Policy • Current Policy • Processing Operations with Severance Pay • Emerging Questions and Issues • Recent Operations Financing Severance Pay
History of Severance Policy • Since mid-1980s, Bank supported retrenchment and severance payments through Adjustment Lending, but severance in Investment Lending was less uniform • The 1996 OpMemo allowed funding under Investment Lending for severance to make public enterprises or sectors more productive • April 2002 OpMemo extended scope to other categories of public employment
Current Policy • OpMemo (April 5, 2002) • Guidance to Staff “Financing Severance Pay in Public Sector Reform Operations” • Replaced OpMemo (March 5, 1996) on Public Enterprise Reform Operations • To be rolled into new OP/BP 6.00 on Expenditure Eligibility but MDO retains oversight
Current Policy • 8 Key Considerations • Basic Facts (Size of severance component compared to loan/credit) • Description of Severance Packages (formula, voluntary, average payment size, pensions and other benefits separate, regional/international comparisons)
Current Policy • 8 Key Considerations (cont.) • Impact and Sustainability of Public Sector Reform (link to operation’s objectives, broader institutional reform, impact on productivity, competitive environment, contribution to poverty reduction) • Sector Policy Framework (adequate, redeployment of resources) • Economic Analysis (costs: pay + other compensation + lost production, versus benefits: savings + efficiency gains)
Current Policy • 8 Key Considerations (cont.) • Sustainability of Retrenchment Component (adverse selection, overpayment, moral hazard) • Legal Aspects and Political Economy Considerations (legal minimum and augmentations, labor laws, labor market, precedents and the future) • Social Impact (beneficiaries: all versus target groups, age, gender, social costs assessment, mitigating measures)
Emerging Questions and Issues • Can severance packages be measured in a standard way to allow cross-country and inter-regional comparisons? • What are the correct comparators to judge the size of packages? • Are redundancy packages preferable to voluntary retirement schemes? • How should fairness to retrenched employees be weighed against general poverty reduction and income distribution concerns?
Emerging Questions and Issues (cont.) • Does calculation of an economic rate of return contribute to assessment of a severance component? • Is sizable retroactive financing a desirable feature of operations supporting severance? • Why have adjustment operations not supported severance in recent years?
Processing Operations with Severance Pay • Summarize assessment in PAD/PD • Keep MDO/PRMPS/OPCS informed • Project Documentation • Memo to MDO on severance covering 8 Key Considerations • Early version to OPCS with PCN • Issue generally with PAD/PD • MDO Review completed before appraisal • OPCS Website: http://opcs/PS/pas-sp.html