Mainstreaming Governance and Anti-Corruption in the CAS and Operations: A Guide for Country Teams with Country Applications By: Vinay Bhargava Senior Advisor, PRMPS and EXT Presentation at the Core Course on Public Sector Governance and Anti-corruption April 23-27, 2007 The World Bank 2/16/2006 Vinay Bhargava

Outline of presentation GAC practices in CASs: A retrospective (FY99-06) What will be done differently in CASs: Expectations under the new strategy How To Mainstream GAC in CASs: A Suggested Five Step Approach 2/16/2006 Vinay Bhargava

FY99-06: Main Findings and Conclusions Explicit discussion of GAC issues in CASs , as required under the guidelines, has become mainstream. Increasingly the discussion of GAC issues in CASs is grounded in the Bank’s AAA. Helping countries with governance and anticorruption has become a regular feature of the Bank’s assistance. About 90% CASs (FY99-06) GAC related triggers used in about 80 % of the CASs. Increasingly CASs are discussing risks from corruption to the Bank financed projects. Coordination with other donors in GAC has become a regular feature of CASs. 2/16/2006 Vinay Bhargava

FY06 CASs: Current Practices and Areas for Improvement FY06 CASs were better than earlier years. Several potential areas for lifting the game. DIAGNOSIS: In FY06 CASs CFAA,CPAR and PER main sources. Rare to see See Governance assessment/survey as the source See Relationship between GAC and growth discussed Find non-government checks and balances institutions discussed See an explicit connection between diagnosis and prescription 2/16/2006 Vinay Bhargava

FY06 CASs: Current Practices and Areas for Improvement ( Continued) Entry Points: Building capable and accountable states dominates Half the CASs supported demand side of governance (transparency, CSOs , private sector) Assessment and Mitigations of Risks: Only half of the CASs assessed risks to Bank operations and only 30% discussed reputational risks. Majority did not assess risk of deterioration but 75% specified GAC related triggers Main mitigation strategy: Fiduciary controls and social accountability mechanisms 2/16/2006 Vinay Bhargava

Moving Forward: What Will the World Bank do Differently? Scale up multistakeholder engagement – with civil society, media, parliaments, local communities in policy making & service delivery Scale up governance work where it matters most for development – alleviate governance constraints to poverty reduction Strengthen country systems while enhancing anticorruption measures in WB operations – a/c action plans; enhanced disclosure, participation & monitoring Systematically integrate governance in sectoral projects & programs – in extractive industries, infrastructure, forestry, health, education Systematically scale up engagement with private sector & industrialized countries – to tackle the supply side of corruption Work with donors & other int’l actors to ensure a harmonized approach & collective action – based on respective mandates & comparative advantage 2/16/2006 Vinay Bhargava

What will be done differently in CASs What will be done differently in CASs ? Expectations under the new GAC strategy. Explicit consideration of (based on improved diagnostics): GAC challenges and adequacy of government’s program Risks posed by GAC challenges to the development and the Bank Ways to involve private sector and accountability mechanisms Stay engaged but tailor each CAS to Country Circumstances: Weak governance but strong government GAC program Weak governance but uneven government commitment Most poorly governed settings Course corrections during the CAS implementation with the Board’s involvement. Source: guiding principles 3-6 and pages 11-17 of the GAC Strategy. 2/16/2006 Vinay Bhargava

How To Mainstream GAC in CASs? A Suggested Five Step Approach Take stock of GAC landscape and legacy including the constraints GAC poses to growth and poverty reduction. Formulate C-GAC strategy and entry points suitable for the country GAC challenges and government commitment. Assess and mitigate risks (fiduciary and reputational) to the Bank’s proposed engagement. Formulate partnership (including coalitions), consultations and communication plan. Develop results framework including the M and E arrangements and GAC related triggers (as applicable). 2/16/2006 Vinay Bhargava

Step 1: Stock taking: Objectives Determine adequacy of diagnostics (commission more?) DPR, ICA, IGR, GAC diagnostic surveys, Doing business PEFA, PER, CPAR, CFAA, ROSC, Country GAC Assessment DFID Driver of Change, TI- National Integrity Surveys, TI- Global Corruption Barometer, Global Integrity country report, OECD-DAC-MDB Joint survey, External intelligence sources Determine GAC as constraint to growth and poverty reduction Assess country circumstances faced. Weak governance but strong government GAC program Weak governance but uneven government commitment Most poorly governed country setting. 2/16/2006 Vinay Bhargava

Step 1–Stock Taking : A check list Aggregate and disaggregate governance indicators (e.g., KKZ, CPIA, TI, Global Integrity, Doing Business, ICA, Country client survey) Political economy of GAC reforms and degrees of freedom for action GAC as constraint to growth and poverty reduction: Summary findings of diagnostics and evaluations (AAA), Government strategy and commitment—current and historical Inventory and efficacy of key check and balances institutions in the government (executive/non-executive branches) and NGOs. Key anti-corruption champions/partners (in and out of government) Legacy issues: donor assistance; media monitoring; corruption scandals On-going and recent Bank anti-corruption activities (last CAS) Relatively high risk ministries/public enterprises 2/16/2006 Vinay Bhargava

GAC As Constraint on Economic Growth and Poverty Reduction Indicator Ratings (%) Inadequate Adequate Not at all Low/ Some Middle/ adequate High How well does the CAS 1. Discuss the relationship between weak governance and corruption, and poverty reduction and economic growth. 25 38 31 6 2. Assess weaknesses concentrated in certain sectors or institutions. 50 3. Assess the government’s commitment to strengthening governance and tackling corruption. 56 13 4. Discuss the government’s track record of progress with strengthening governance. 2/16/2006 Vinay Bhargava

Diagnostic Sources/Instruments Main Sources of Governance Diagnostics in 16 FY06 CASs* Diagnostic Sources/Instruments Frequency Country Financial Accountability Assessment (CFAA) 9 Public Expenditure Review (PER) 7 Country Policy and Institutional Assessment (CPIA) Doing Business Report 6 Country Procurement Assessment Report (CPAR) Investment Climate Assessment (ICA) 5 Implementation Review (by INT) 4 Report on Standards and Codes (ROSC) Country Economic Memorandum (CEM) Public Expenditure Financial Accountability (PEFA) 2 Governance and Anticorruption Diagnostic Survey 1 2/16/2006 * Table 2 shows the number of CASs supporting their governance and corruption diagnostics by referring to AAAs. AAAs used in other contexts than governance and corruption diagnostics will not be included in the table. Vinay Bhargava

Step 2: Formulate Country specific GAC strategy, entry points and assistance instruments A typical C-GAC program should include the following elements: Objectives and approach to assistance Proposed entry points Proposed mix of lending and non-lending instruments Risk assessment and mitigation Results framework and triggers 2/16/2006 Vinay Bhargava

Step 2-Objectives and Assistance Approach: Key Trade-Offs depending upon situation Supporting development vs. managing risks to the Bank Balancing help to executive branch with help to non-government institutions of accountability Selectivity in entry points for results and credibility vs. comprehensive ( cover the water front) approaches Balancing lending vs. non-lending mix and sequence of assistance. Prerequisites and Selectivity in When, Where, How and How Much to lend in high risk situations 2/16/2006 Vinay Bhargava

Step 2: Practical tips for choosing entry points Whether and how effectively the proposed entry point is likely to: Reduce opportunities for corruption Increase risk of exposure and punishment Increase severity of punishment Reduce incentives for corruption Increase public demand/pressure for reducing corruption Strengthen accountability of public sector programs Be feasible under the political landscape, institutional setting, and administrative capacity 2/16/2006 Vinay Bhargava

Step 2: Helping Countries- Various ‘Entry-Points’ Private Sector Competitive investment climate Responsible private sector Public Management Public financial management & procurement, monitored by PEFA Administrative & civil service reform Civil Society, Media & Oversight Institutions State oversight institutions (parliament, judiciary, SAI) Transparency & participation (FOI, asset declaration, user participation & oversight) Civil society & media Local Governance Community-driven development Local government transparency Downward accountability Governance in Sectors Transparency & participation Competition in service provision Sector-level corruption issues (EITI, forestry) 2/16/2006 Vinay Bhargava

Step 2: Involve institutions to limit corruption Judiciary Legislature Decentralization with accountability Constitutionally independent accountability institutions Anti-corruption agency Election Commission Ombudsman Supreme audit institutions Media NGOs 2/16/2006 Vinay Bhargava

Beware: Sectors and Institutions Most Affected By Corruption 2/16/2006 Vinay Bhargava Source: Transparency International Global Corruption Barometer 2005, http://www.transparency.org/policy_and_research/surveys_indices/gcb/2005

Step 2: Choosing the mix of assistance instruments for an entry point Undertaking and disseminating ESW Grants for institutional capacity building WBI capacity building programs Sponsoring in-country dialogue events Fitting lending operations with anti-corruption plans Free standing lending/TA operations in support of governance improvement 2/16/2006 Vinay Bhargava

Step 2: How to be selective in entry points/ assistance instruments Whether and how effectively the CAS interventions in the selected entry points likely to : Reduce opportunities for corruption Increase risk of exposure and punishment Increase severity of punishment Reduce incentives for corruption Increase public demand/pressure for reducing corruption Strengthen accountability of public sector programs 2/16/2006 Vinay Bhargava

Entry Point Categories Number of Modalities of CAS Interventions Entry Points and Modalities of FY06 CAS Interventions Entry Point Categories Number of Modalities of CAS Interventions AAA TA LEN 1. Capable and Accountable States. 9 5 14 2. Increasing Transparency. 2 8 3. Participation and Oversight by Civil Society, Media, Communities. 4 4. Competitive and Responsible Private Sectors. 11 5. Financial Sector Governance. 15 6. Supporting Champions and Leaders of Reform. 1 3 2/16/2006 Vinay Bhargava

FY06 CASs: Checks and Balances Institutions Indicator Discuss Support B. Does the CAS discuss any of the following checks and balances institution Freedom of information 31 13 Media 38 Civic Society Organizations 44 25 Competitive Private Sector 75 69 Community Participation 56 Supreme Audit Institution 63 Chambers of Commerce Judiciary 50 Legislature Anti-corruption agencies Ombudsman 2/16/2006 Vinay Bhargava

Step 3: Risk assessment and mitigation Bank shareholders, partners, and other stakeholders expect highest standard of integrity and accountability. INT investigations show that the Bank needs to do more to ensure the proper use of funds. New GAC strategy calls for: Regular risk reviews of project pipeline and lending portfolio to identify the subset most at risk. Elevate review of riskier projects to senior levels and focus resources on them. Supporting actions by government’s investigation and prosecution systems/institutions. Use of special risk mitigation tools for high risk environments 2/16/2006 Vinay Bhargava

Step 3 : Risk Analysis and Mitigation Upstream-assess risks to the Bank CPIA ,governance indicators, country knowledge assessment, red flags tools Country team self assessment validated by selected external interviews Commonly used mitigation measures to reduce risks to the World Bank: Fiduciary controls (procurement and financial) and INT review Integrating social accounting mechanisms Integrating strong results monitoring framework Screening of new projects for corruption risks; preventive measures Increasing transparency (disclosure, hotline) Strategic communications and partnerships Proactive sanctions enforcement 2/16/2006 Vinay Bhargava

FY06 CASs: Assessing and Mitigating Risks Indicator Ratings (%) Inadequate Adequate Not at all Low/ Some Middle/ adequate High A. How well does the CAS 1. Assess the reputational risk to the World Bank 87 13 2. Discussed the risk that the governance environment will deteriorate during the CAS period 69 19 3. Assess the risk of fraud and corruption in Bank-financed projects 31 25 4. Include a result based framework suitable for independent monitoring 6 38 50 2/16/2006 Vinay Bhargava

Risk Mitigation Measures proposed in 16 FY06 CASs Detection and deterrence Use of CSOs Corruption risks as part of CPR Anti-corruption plans for projects Disclosure and transparency 2/16/2006 Vinay Bhargava

Step 4 : Develop partnership, consultation and communication plan Expectation for cooperation among donors Partnerships and Coalitions effective tools for improving governance Instruments: joint or parallel (coordinated) activities with domestic and/or external partners for: **Studies **Funding **Joint statements **TA projects **Coordination group **Public dialogue events **Mass communications **Dialogues with gov’t. Regular consultations and communication with and for results 2/16/2006 Vinay Bhargava

Step 5: Monitor progress and evaluate results Set clear and monitorable results and set up M and E systems Push beyond Disclosure Policy to supply information to public that make activities transparent Set reporting and independent auditing systems Put in place social accountability mechanisms Encourage beneficiary participation in planning/evaluation Propose GAC related triggers for lending scenarios. 2/16/2006 Vinay Bhargava

Step 5: Course Corrections During CAS Implementation In more volatile country settings be prepared for mid-course corrections adjusting program in response to improvements or deterioration during implementation. In case of new information (e.g. from INT) about confirmed instances of corruption in Bank-financed projects the appropriate response may be to: curtail operations and agree on risk mitigation measures switch scenarios within the existing CAS propose a revision in the CAS Progress Report, or move to an ISN. In the event of demonstrated improvements in governance and anticorruption be prepared to scale assistance. If changes in country circumstances warrant a shift in the WBG’s approach, an appropriate document will be presented to the Board for discussion. 2/16/2006 Vinay Bhargava

Indonesia Diagnosis: Chapter on the Special problem of corruption. Money politics. Risks: very high both to the Bank and country. Political will risk. High risk to the Bank’s credibility/reputation. Country Vision: part of government’s package of policy actions. Weak program . CAS Objective: Address the key issue of governance improvement thru all CAS activities- set standard for the Bank to address corruption and governance issues. Public Sector Management Finance and procurement reforms Tax, customs. Public expenditures reforms Effective Implementation of Decentralization Local government governance improvement Institutional Checks & Balances Judiciary and legal reforms Anti-corruption institutions Disclosure by public officials Corruption perception survey Entry points Civil Society Voice & Participation Public participation and monitoring Full collaboration to promote governance Competitive Private Sector *Corporate governance *Anti money laundering Assistance Approach: Four principles applied to promote good governance thru all activities. Lending Instruments: CDD programs; tax, customs, financial; media/CSOs components; loans to districts AAA Instruments: Investment climate surveys; WBI; expenditure tracking; governance surveys; TA grants for judiciary; parliament . Results and Performance Indicators: Many -See Hand Out. Partnerships: Joint AAA and funding; CDF; Partnership for Governance Reform Triggers: To Stay in the Base Case: Improvements in government fiduciary management and anti-corruption institutions. To Move to the High Case: Improvements in fiscal accountability, governance in the justice sector, and fiduciary management. 2/16/2006 Vinay Bhargava

That is all – Thank You Very much for your attention. 2/16/2006 Vinay Bhargava