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

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) However, concerns about aid and budget support remain Doubts about aid-growth relationship despite good policy (Rajan and Subramanian 2005 and 2008). Concern over adverse macroeconomic effects, dependency, crowding out of local industry, or waste due to large aid flows (Moyo 2009; Calderisi 2006). Concerns over recipient budget systems (Alexander 2008) Concerns over leakage into patronage or military expenditure (Collier 2007, 2009). 2

From 2001-09, 99 PRSC operations were approved 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 GROWTH PRSC operations initially grew rapidly in number and importance PRSCs accounted for over half of IDA disbursements in many countries More recently, PRSC shares in Bank disbursements have declined, as has their contribution to recipients’ budget support Some Bank operations have PRSC traits but not the label From 21 operations in FY01-04… To 66 operations in FY05-08: From 2 per year in FY01-02 To 10 per year in FY04, and Between 15-19 per year from FY05-08 Number of countries w/ ongoing PRSC operations increased to 20 by FY05, and fluctuated around this level thereafter. TOTALS PRSCs expanded from 21 operations in FY01 to FY04 to 66 in FY05-FY08 (Figure 3, Appendix Table A1.3). Over this period the Bank approved 87 PRSC operations. Total approvals by end FY08 amounted to $ 6.6 billion. Further approvals of $1.3 billion brought the total to 99 operations by end-September 2009. Another 20 operations amounting to $1.7 billion are under preparation From FY01-FY08: 87 PRSC operations approved: $ 6.6 billion By end-September 2009: further approvals of $1.3 billion  total of 99 operations. Currently under preparation: 20 more operations = $1.7 billion. New PRSCs approved each year rose (Figure 3). The Total of 27 countries have received PRSC funding through FY08 Of these, 10 have embarked upon their second or even third Another 9 have had a single PRSC series so far. In 8 countries, PRSC operations were abandoned, and did not mature into a full programmatic series. Some early PRSCs began preparation as Structural Adjustment Credits—Vietnam, Lao PDR, and Nicaragua. Bank also had poverty-focused programmatic loans that did not bear the PRSC label (e.g. Bangladesh Development Credits, Tajikistan Programmatic Development Policy Grants. Esp. b/w 2002 and 2005, several other IDA countries considered or began preparation of PRSCs but did not proceed. PRSCs had other implicit criteria; broad-based support to countries with strong reform commitment. The group of PRSC lookalikes is small. This evaluation does not adjust, through omission or inclusion, for those operations that have PRSC characteristics but do not bear its name. Africa—began using PRSCs early (Uganda FY01, Burkina Faso FY02) Always largest portfolio of PRSCs (13 countries by FY08). Clear vision for the PRSC from 2003, as a reward for high performers with trustworthy public financial management systems. PRSCs there have strongly emphasized building & using country systems / donor harmonization around common medium-term reform framework. East Asia and Pacific Vietnam’s first PRSC largely a continuation of Bank lending in 1990s. Lao PDR budget support provided via the PRSC leveraged government reforms accompanying support for large-scale hydroelectric projects and envisaged Bank investment.   Europe and Central Asia In the 5 ECA countries that had PRSC (Albania, Armenia, Azerbaijan, Georgia, and Moldova), PRSCs generally provided small share of country budget. PRSC policy measures are less focused on building country systems (as in Africa), more on transitions toward market-led growth. Donor harmonization has not been a major element due to limited other budget support. Overall regional role is small. In FY09, Georgia is only country with active PRSC program. Three ECA PRSC countries have graduated from IDA or chosen other instruments. Latin America and Caribbean 3 countries had embarked on PRSCs (Guyana, Honduras, and Nicaragua), but currently no ongoing operations. PRSCs were discontinued largely due to political changes limiting reform sustainability. Middle East and North Africa PRSC has never a part of MNA lending portfolio. Only 3 IDA-eligible countries (Djibouti, Sudan, and Yemen). 2 of these (Djibouti and Yemen) had high Country Policy and Institutional Assessment (CPIA) scores history of adjustment lending/development policy lending and may have been PRSC eligible. Yemen’s Institutional Reform Credit, approved in December 2007, focuses on growth and governance, and did not use the PRSC label. South Asia Nepal, Pakistan, and Sri Lanka initiated PRSCs over 2003-05, but currently no ongoing operations. Nepal and Sri Lanka’s PRSCs terminated after first operation b/c of political instability Pakistan’s PRSC lost relevance-overtaken by domestic events. PRSCs in South Asia supported ongoing reform efforts though the longer-term capacity development approach of Africa was less evident. New PRSCs approved 3

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 SHARES OF BANK LENDING (TOTAL, PBL, IDA, etc.) Share of the PRSC in total IDA disbursements (including investment lending) grew from 5 percent in FY02 to a peak of 17 percent in FY05, declining to 11.3 percent in FY08 By FY2005, PRSCs accounted for: 25% of total Bank (IDA + IBRD) policy based lending 60% of IDA policy based loans Over 50% of total (IDA?) Bank lending to many PRSC countries (e.g. Benin, Burkina Faso, Ghana, Rwanda, and Uganda) In some years, over 60 percent of IDA flows (Burkina Faso) and 80 percent (Uganda). PRSC disbursements averaged (over what time period??) a third of total disbursements to PRSC countries in years they had a PRSC operation For all recipient countries, the share of PRSCs in total World Bank disbursements has averaged 30-40 % over the past five years PRSC shares in Bank disbursements have declined recently, as has their contribution to budget support in recipient countries PRSCs have never made up a large part of government budget needs 7 percent for PRSC recipients in 2001 5.4 percent in 2004 Share has declined steadily since then to 1.5 percent in 2008. PRSCs have declined relative to total aid and total budget support aid PRSC countries have received from all sources (despite some proportional decline in aid flows to PRSC countries, relative to their national income, from over 15 % to around 10 %, reflecting an overall increase in budget support aid as a proportion of total aid, at least until 2006. Some Bank operations have PRSC characteristics but not the label 4

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

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

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 40 TTLs in all 27 PRSC countries), 76 sector specialists from six sectors who served as PRSC team members; and senior government officials engaged with PRSCs in 24 out of 27 PRSC countries 7

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 40 TTLs in all 27 PRSC countries), 76 sector specialists from six sectors who served as PRSC team members; and senior government officials engaged with PRSCs in 24 out of 27 PRSC countries Sustained growth Reduction of income and non-income poverty Impact 8

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 40 TTLs in all 27 PRSC countries), 76 sector specialists from six sectors who served as PRSC team members; and senior government officials engaged with PRSCs in 24 out of 27 PRSC countries 9

Evaluating the PRSC aid process

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 40 TTLs in all 27 PRSC countries), 76 sector specialists from six sectors who served as PRSC team members; and senior government officials engaged with PRSCs in 24 out of 27 PRSC countries 11

Eased conditionality - …conditionality declined in all policy lending PRSC legal conditions Non-PRSC legal conditions PRSCs vs. other policy-based lending 1980-2008 PRSCs had fewer legally binding conditions from the outset Conditionality in PRSCs was low from outset, subsequent reductions occurred mostly in program benchmarks, and misperceptions linger re: differences between legal conditions and benchmarks Legally binding conditionality declined in all policy-based adjustment lending, decline began before the PRSC, and non-PRSC conditionality declined faster Conditionality for subsequent operations was more flexible, through the introduction of triggers Conditions in PRSC and non-PRSC loans now the same

Eased conditionality - …conditionality declined in all policy lending PRSC program benchmarks Non-PRSC program benchmarks PRSCs vs. other policy-based lending 1980-2008 PRSCs had fewer legally binding conditions from the outset Conditionality in PRSCs was low from outset, subsequent reductions occurred mostly in program benchmarks, and misperceptions linger re: differences between legal conditions and benchmarks Legally binding conditionality declined in all policy-based adjustment lending, decline began before the PRSC, and non-PRSC conditionality declined faster Conditionality for subsequent operations was more flexible, through the introduction of triggers Conditions in PRSC and non-PRSC loans now the same

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 40 TTLs in all 27 PRSC countries, 76 sector specialists from six sectors who served as PRSC team members; and senior government officials engaged with PRSCs in 24 out of 27 PRSC countries 14

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 Adjustments in Conditionality—Triggers and Subsequent Prior Actions The Bank adopted a very different level of flexibility for PRSCs compared to former adjustment loans Indicative triggers in PRSC operations may be compared with legally binding tranche release conditions in previous adjustment lending Waivers for tranche release conditions were rare, but most PRSCs had modifications in some triggers Some PRSCs included new “prior actions” that had not earlier been anticipated as triggers Over time there was some reduction in the number of triggers modified 15

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

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

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

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

Evaluating sector support through PRSCs: Increased spending on education, health, PFM Which countries received PRSCs? Better (institutional) performers Past performance & stability less important Screening for reform commitment improved over time Which sectors were emphasized? Broader, less macro, more PFMP and pro-poor services Reinforced but did not replace sectoral lending Loss of depth, predictability in sectoral dialogue? Less focus on macro adjustment than earlier policy-based lending More public financial management and pro-poor social service delivery: health, education, and water supply and sanitation (increased over time) Wider sectoral coverage than previous adjustment lending, especially in program benchmarks All adjustment lending evolved in same direction Despite expectations, PRSCs rarely replaced freestanding sector lending, rarely able to fully incorporate sectoral lending PRSCs support sectoral objectives by reinforcing crosscutting and overarching issues Some views that PRSCs lead to a loss of depth in sector dialogue and has not helped resource predictability to line agencies as in other DPLs 20

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

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? Baseline, intermediate, and end-of-series indicators have improved, but shortcomings remain in defining baselines, intermediate milestones, and indicators for tracking pro-poor outcomes IEG findings are corroborated by information from other Bank studies

Results Frameworks – Findings: Weak but improving 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 Baseline, intermediate, and end-of-series indicators have improved, but shortcomings remain in defining baselines, intermediate milestones, and indicators for tracking pro-poor outcomes IEG findings are corroborated by information from other Bank studies

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’ Harmonization without jointly negotiated PAF (e.g. Vietnam) Bank’s PRSC merged with the national development strategy over time, and Bank led donor process) Harmonization with other budget support donors—the joint matrix Multi-donor budget support groups most common for PRSCs, especially in Africa

Donor harmonization through PRSCs had notable 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 Contributions to Aid Flows : PRSCs are the sole source of budget support aid in some countries with short PRSC series and a limited donor process Progress has been made in achieving harmonized matrices, but conditionality may initially increase to accommodate all donors Progress is limited in harmonizing reviews of the PRS and integrating it with the joint matrix, harmonized results indicators, or reporting arrangements In a large Budget Support Group, the Bank may lose the ability to incorporate substantive issues in the agenda The Bank’s processing calendar may limit its voice in a joint process Individual small donors can sometimes unduly influence the agenda Recipients may prefer to leave major items off the agenda Sector working groups have contributed little to harmonization Reconciliation of Bank policy-based versus EU outcome-based aid is desirable Harmonization has high transactions costs for Bank PRSC staff Despite stagnant shares in budget support, PRSCs made effective contributions to donor harmonization Achievements of PRSCs in a Multi-Donor Environment Bank played pivotal role (and led the process) in donor harmonization in Lao PDR, Vietnam Bank a reliable team member with deep technical ability in countries w/ large budget support Common donor matrix process usually aligned with the national plans but not with process of review and reporting on the national plans Variable performance of multi-donor sector groups, with limited support to PRSC process Donors have begun to support separate sector funds Harmonization toward a joint matrix may initially increase number of conditions Sometimes, donor process limits Bank’s ability to bring substantive issues to PRSC agenda Donor coordination has reduced transaction costs for recipients, but transaction costs for Bank has increased, with some loss in relevance Better harmonized disbursements limited by differences between Bank and other donors Coordination of capacity building? Joint Missions and Joint Analytic Work Bank harmonized more missions than other donors in PRSC and non- PRSC countries, especially weaker IDA countries Much of analytic work was donor coordinated, especially by the Bank, but coordination was not higher in PRSC countries Aid to PRSC countries was clearly channeled more through in-country systems Views on Harmonization: Clients, Staff and Donors Clients acknowledge Bank efforts in donor coordination Clients believe that harmonization initially increased conditionality but improved predictability Bank staff feel that the transaction costs of donor harmonization for Bank staff are not adequately recognized Other donors also feel burdened by the high transaction costs of harmonization 25

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 Contributions to Aid Flows : PRSCs are the sole source of budget support aid in some countries with short PRSC series and a limited donor process Progress has been made in achieving harmonized matrices, but conditionality may initially increase to accommodate all donors Progress is limited in harmonizing reviews of the PRS and integrating it with the joint matrix, harmonized results indicators, or reporting arrangements In a large Budget Support Group, the Bank may lose the ability to incorporate substantive issues in the agenda The Bank’s processing calendar may limit its voice in a joint process Individual small donors can sometimes unduly influence the agenda Recipients may prefer to leave major items off the agenda Sector working groups have contributed little to harmonization Reconciliation of Bank policy-based versus EU outcome-based aid is desirable Harmonization has high transactions costs for Bank PRSC staff Despite stagnant shares in budget support, PRSCs made effective contributions to donor harmonization Achievements of PRSCs in a Multi-Donor Environment Bank played pivotal role (and led the process) in donor harmonization in Lao PDR, Vietnam Bank a reliable team member with deep technical ability in countries w/ large budget support Common donor matrix process usually aligned with the national plans but not with process of review and reporting on the national plans Variable performance of multi-donor sector groups, with limited support to PRSC process Donors have begun to support separate sector funds Harmonization toward a joint matrix may initially increase number of conditions Sometimes, donor process limits Bank’s ability to bring substantive issues to PRSC agenda Donor coordination has reduced transaction costs for recipients, but transaction costs for Bank has increased, with some loss in relevance Better harmonized disbursements limited by differences between Bank and other donors Coordination of capacity building? Joint Missions and Joint Analytic Work Bank harmonized more missions than other donors in PRSC and non- PRSC countries, especially weaker IDA countries Much of analytic work was donor coordinated, especially by the Bank, but coordination was not higher in PRSC countries Aid to PRSC countries was clearly channeled more through in-country systems Views on Harmonization: Clients, Staff and Donors Clients acknowledge Bank efforts in donor coordination Clients believe that harmonization initially increased conditionality but improved predictability Bank staff feel that the transaction costs of donor harmonization for Bank staff are not adequately recognized Other donors also feel burdened by the high transaction costs of harmonization Concrete examples of increased transactions costs from country case studies Mozambique 3.21 It is not clear whether the harmonized framework has reduced overall transaction costs for government. Government officials repeatedly pointed out that the working group set up and semi-annual reviews require substantial time commitments, even if the overall processes are relatively well aligned with the government’s internal reporting and budget preparation processes. Similarly, the set up requires substantial time commitments on behalf of general budget support donors, including Bank staff. Bank staff feel that these efforts are not well recognized within the Bank and that the Bank provides little incentives to ensure close coordination with general budget support donors. Ghana 3.14 As far as the Bank is concerned, there is undoubtedly an increase in transaction costs relative to carrying out the PRSC alone. There are monthly meetings of the donor coordination group and often time-consuming negotiations to achieve consensus. Donor representatives complain of the endless series of meetings needed to coordinate aid and the substantial added burden that this imposes. For some donors (as for the Bank) the Multi-Donor Budget Support may also represent a saving of the costs of going it alone with some of their project assistance. 26

PRSC Outcomes – Public Financial Management Easier objectives accomplished

Methodology of PFMP Evaluation of PRSCs 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? 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 PFPM Reforms: Diagnostic Work Diagnostic tools used by PRSCs included a range of Bank instruments, such as Country Financial Accountability Assessments and Country Procurement Assessment Reports HIPC indicators, PEFA assessments, and IMF Fiscal Transparency ROSCs have also been used Minimum levels of PFMP quality at entry Evaluative findings suggest generally adequate recent diagnostic work Existence and quality of PFMP diagnostics Links between the PRSC reform agenda and diagnostic work PRSCs drew upon recent diagnostics and adequately acknowledged fiduciary risks Most PRSCs also incorporated plans to further develop domestic financial management systems, beyond the minimal requirements for taking care of fiduciary risk PFMP: Results frameworks were a weak link in the design of PFMP components of PRSCs Most PRSCs had an integrated action plan for PFMP with adequate donor support Implementation delays occurred sometimes due to capacity or political economy factors Capacity building needs PFM Programs—Results Achieved PFMP performance measured relative to benchmarks in four broad areas: budget formulation, execution, reporting, and procurement Seven thematic indicators for budget formulation (e.g. standardized definitions, classifiers, inclusion of funds on-budget, integration of medium-term expenditures in budget cycle) Yet improvement in reform indicators not clearly linked to PRSC reform conditions ICRs show that most PRSCs achieved their PFMP objectives with only minor shortcomings Improvement in performance as measured by Bank’s CPIA indicators Bank’s task team leaders agree that PRSCs were broadly effective in improving PFM Less success in some areas of public expenditure processes (e.g. timely transfer to sectoral ministries) Seven country case studies show good progress in PFM reforms, but it less in procurement reform 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.)

Most PRSCs achieved their PFMP reform objectives, with minor shortcomings 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) PFPM Reforms: Diagnostic Work Diagnostic tools used by PRSCs included a range of Bank instruments, such as Country Financial Accountability Assessments and Country Procurement Assessment Reports HIPC indicators, PEFA assessments, and IMF Fiscal Transparency ROSCs have also been used Minimum levels of PFMP quality at entry Evaluative findings suggest generally adequate recent diagnostic work Existence and quality of PFMP diagnostics Links between the PRSC reform agenda and diagnostic work PRSCs drew upon recent diagnostics and adequately acknowledged fiduciary risks Most PRSCs also incorporated plans to further develop domestic financial management systems, beyond the minimal requirements for taking care of fiduciary risk PFMP: Results frameworks were a weak link in the design of PFMP components of PRSCs Most PRSCs had an integrated action plan for PFMP with adequate donor support Implementation delays occurred sometimes due to capacity or political economy factors Capacity building needs PFM Programs—Results Achieved PFMP performance measured relative to benchmarks in four broad areas: budget formulation, execution, reporting, and procurement Seven thematic indicators for budget formulation (e.g. standardized definitions, classifiers, inclusion of funds on-budget, integration of medium-term expenditures in budget cycle) Yet improvement in reform indicators not clearly linked to PRSC reform conditions ICRs show that most PRSCs achieved their PFMP objectives with only minor shortcomings Improvement in performance as measured by Bank’s CPIA indicators Bank’s task team leaders agree that PRSCs were broadly effective in improving PFM Less success in some areas of public expenditure processes (e.g. timely transfer to sectoral ministries) Seven country case studies show good progress in PFM reforms, but it less in procurement reform

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

Attribution to the PRSC is difficult PRSC countries grew faster in the PRSC period… but so did other countries   1985-1999 2000-2007 Per Capita GDP growth PRSC countries 0.8 4.2 Better Performing Non-PRSC 0.5 3.3 All IDA countries 0.2 3.0 Notes: Data for individual PRSC countries’ growth rates are provided in Appendix Table A6.2 Non-PRSC countries are those which have never had a PRSC or not had one before 2005. “Better Performing Non-PRSC countries” are those non PRSC countries with a CPIA of 3.0 or greater in 2007. This reduces the non-PRSC sample from 52 to 37 countries. Countries eliminated are: Angola, CAR, Chad, Comoros, Congo DR, Congo Rep., Cote d’Ivoire, Eritrea, Guinea-Bissau, Haiti, Liberia, Solomon Is., Sudan, Togo, Zimbabwe Source: IEG estimates based on data from the World Development Indicators Attribution to the PRSC is difficult 31

Better performing non-PRSC (24)* PRSC countries had more income poverty reduction… but the decline began before the PRSC was introduced Poverty Rates for PRSC and Non-PRSC Countries (% of population below $38 per month) PRSC countries (20) Better performing non-PRSC (24)* Non-PRSC counties (36) All IDA countries (56) % change (1984-99) -16.2 -12.6 -2.1 -7.8 % change (1999- 2005)  -19.3 -13.0 -10.8 -14.1 Evaluation Essentials/highlights PRSC countries have better growth and macro indicators, but this began before PRSCs; non-PRSC countries have also improved Most PRSCs lacked comprehensive growth strategies PRSC countries had a better record in poverty reduction, but PRSCs paralleled sector projects in pro-poor service areas. PRSC health and education components focused on better budget allocation, yet large proportions of resources remain off-budget Objectives were fully met a third to a half of the time; a high proportion of service delivery components had modest achievements Overall, PRSCs performed more satisfactorily than prior adjustment lending, but differences compared to all adjustment loans in the PRSC period are negligible Tracking poverty outcomes is difficult due to limited indicators Poverty Reduction: Creating a Growth Enabling Environment PRSCs had better macroeconomic results than others—both in the PRSC period and before Other countries improved their performance too, sometimes more than PRSC countries PRSC countries were superior performers, but non-PRSC countries also improved their performance PRSC countries improved their institutional environment, but others increased about as much PRSC growth measures were not usually based on a comprehensive growth diagnostic Economic Performance and Growth in PRSC Countries PRSC countries show a marked reduction in income poverty even compared to control groups PRSC countries do better on non-income measures of poverty as defined by the Millennium Development Goals Most PRSCs included health and education but usually as a complement to other Bank lending A high proportion of PRSC sectoral objectives pertained to budget and public finance issues Measuring outcomes in pro- poor service delivery is hampered by a poor monitoring and evaluation framework About 1/3 to 1/2 of monitorable indicators for health and education fully met; targets were somewhat met in another 30-40 percent of projects PRSC social sector objectives usually ancillary to core objectives; translation of objectives into specific measures was mixed Helping Poverty Alleviation Case studies find: Overall results are modest Efforts made to incorporate pro- poor focus into health components Attribution of results difficult due to parallel sector projects—large shares of expenditures off-budget Education not a substantial area of focus in any PRSC Budget processes improved and funding increased, but less evidence of better outcomes IEG Ratings and IEG Surveys Overall outcomes of PRSCs better than previous adjustment lending but not noticeably different from other adjustment lending (today??) PRSC countries had reasonably good CAS outcomes, which generally coincided with PRSC outcomes, despite some instances of disconnect Overall findings suggest mixed achievements on outcomes, not better than parallel sector projects and not distinguishable from other adjustment lending 33

PRSC and Other Countries: Millennium Development Goal Achievement 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 PRSC and Other Countries: Millennium Development Goal Achievement Difference (%) (% of population) (1990/1–2000/1) (2001–06) Primary enrollment, net PRSC 9.7 14.8 All IDA countries 11.6 9.1 Infant mortality (per 1000) -19.0 -13.3 -14.5 -9.6 Access to safe water 20.2 7.3 12.6 4.8 34

Attribution of declining poverty rates to the PRSC remains difficult 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 32

Evaluation Findings - Three Key Messages 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 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 The evaluation recommends: 1 .Phase out PRSC as a separate brand name -- or clearly spell out these differences Convergence in the design and content of PRSCs and other development policy lending in terms of conditionality and sector focus suggests limited rationale for separate existence of PRSC today. But implicit criteria backing the use of the PRSC label exists. If PRSC brandname’ still important, clear guidelines (which are currently lacking) and criteria for eligibility should be spelled out and applied. 2. Further simplifying the language of conditionality Eliminate term “triggers” and transfer program benchmarks to monitoring framework In line with its use of the term “prior actions,” the Bank could further simplify its lending framework by dispensing with the term “triggers” and substituting this with the term “indicative actions for future lending.” Lending then based simply on prior actions already achieved and indicative actions for future lending. This would exhibit greater flexibility and ease understanding. To clearly delineate legally binding conditions from program benchmarks, which are still alluded to as binding and non-binding conditions by clients and others in the aid community, program benchmarks should be removed from the policy matrix/PAF and instead combined with program monitoring framework. 3. Synchronize Bank’s internal processing with country and donor processes to enable more effective participation of the Bank in a multi-donor budget support lending framework At present, Bank commitments in a multi-donor framework must sometimes made before the Bank’s internal review of the PRSC. This can limit the Bank’s substantive contributions and comments on program content. Synchronizing the Bank’s internal processing timetable with country and donor group processes would ensure Bank input in PRSC/DPL formulation. 4. Underpin PRSCs/DPLs with comprehensive pro-poor growth diagnostics PRSCs (and DPLs) should reflect country-specific growth diagnostics, which are undertaken based on analytic underpinnings that identify an overall growth strategy that reflects the linkages between growth, poverty reduction, and broader social development. 5. Strengthen PRSC/ DPL results frameworks, link them with the underlying PRS/national development strategy, and increase their poverty focus. Results frameworks of PRSCs should be consistently linked to those in the PRS or national development strategy and its Annual Reviews and should be simplified to a small set of core outcomes. Adequate baseline and intermediate indicators and pro-poor results indicators should be required, built on country monitoring systems to the extent feasible. 6. Focus sector policy content in multi-sector policy based loans to high-level or cross-cutting issues, complemented with parallel sector lending. PRSC/DPL sector content should focus on areas where it has been consistently effective: cross-sectoral or central ministry issues critical to facilitating key sectoral reforms and for strengthening sector budget processes. Complementary parallel sector lending, linked to PRSCs/DPLs, remains necessary to address detailed technical issues and facilitate program ownership by line ministries. 36

IEG INDEPENDENT EVALUATION GROUP Thank you www.worldbank.org/ieg/prsc