Author: Ben Cormier

Earlier this month, the World Bank agreed to give Morocco $200m USD in support of its effort to improve public transportation. The program was deemed important by the Moroccan government as a response to domestic demographic changes. The money will build on preexisting loans and the Bank’s role is explicitly focused on sharing knowledge, expertise, and strengthening Morocco’s institutional ability to deliver results to the Moroccan people.

More than 500 CSO representatives from around the world attended the 2015 Spring Meetings of the World Bank/IMF.
More than 500 CSO representatives from around the world attended the 2015 Spring Meetings of the World Bank/IMF.

These roles and processes are not traditional in the Bank’s practices. They reflect the a new type of loan, called Program-for-Results (PforR). PforR is meant to support borrower-led programs and projects. This can be contrasted with the Bank’s more traditional program and project loans that are often criticized for a-contextually imposed loans and conditions. PforR can thus be seen as the Bank’s effort to make their development finance more “bottom-up” than “top-down.” Why does it matter?

 

Why did the Bank develop PforR?

PforR is most usefully seen as a response to donor fragmentation and persistent ineffectiveness. Donor fragmentation, as the OECD puts it, “occurs when there are too many donors giving too little aid to too many countries.” Bank researchers have been concerned with the increasing impact of fragmentation on efficiency and effectiveness in recent years.. Among many problems, fragmentation strains borrowing governments beyond their capacity, increases the likelihood that donors tie their aid to strict use of their national companies, and leaves projects too small to matter. Importantly, it is unlikely donors will coordinate despite this ineffectiveness.

If donors can’t solve these problems, borrower governments become particularly crucial focal points for organizations that want to increase aid effectiveness. PforR can be seen in this vein, intending to build borrowers’ voice and capacity as a way to increase alignment and coordination in development finance.

It is important to note that some advocates see this effort to empower borrowers as necessary if the Bank is to remain a viable option in an increasingly competitive aid market. Donor competition allows borrowers to push back on what traditional lenders like the Bank tend to impose. In Cambodia, for example, researchers suggest the increased number of donors allows the Cambodian governement to shop around for aid. To satisfy such newly empowered borrowers, the Bank had to design a loan like PforR to accommodate borrowers’ interests.

But whether PforR is primarily a benign attempt to increase effectiveness or a reaction to demand in a competitive market is a secondary issue. More important is the general idea that PforR aims to get Bank lending in line with borrower circumstances by having borrowers central to aid policy design and implementation processes.

If PforR is a response to a perceived need to increase borrower ownership, will PforR change anything in practice?

In other words, will PforR substantively improve on the ineffective outcomes coming from overwhelmed bureaucracies and uncoordinated donors? Or will PforR lead to more of the same: similar terms of lending across countries and uncoordinated efforts leading to inefficient and ineffective aid?

 

Will it matter?

PforR is new and it would be premature to assess its practical implications at this stage. Yet it is important to note that PforR is being used. Moreover, Bank staff and borrower governments have encouraged removal of various limitations imposed during the rollout phase. The question then becomes not if PforR is used, but how. Paying attention to PforR will allow practitioners and analysts alike to learn what borrower ownership in development finance can achieve.

Looking ahead, it is possible that PforR exhibits an important shift in favor of borrowers in development finance. Borrowers may increasingly dictate policy conditions, financial terms, and the general purposes of loans. For example, in Medellin, Colombia, development successes have been attributed to subnational and local ownership over the planning and use of development funds. Such local ownership in Medellin, and such national ownership as discussed in reference to Cambodia above, could indeed increase effectiveness.

However, it is also possible that PforR ultimately differs little in substance from the more traditional top-down loans available from the Bank. The nature of international banking, finance, and power may not have changed as much as an emphasis on borrower ownership might seem to suggest. Liberalization, often associated with supposedly now-bygone Washington Consensus or related policies, may remain central to Bank and other Western lending. Conditions, terms, and purposes may be more similar to Structural Adjustment than the World Bank observers and staff realize or admit.

In other words, it is entirely possible that the ostensibly “bottom-up” PforR provides little change from more familiar lending practices and goals. This could happen because there are no other clear ideas. It could happen because borrower-country elites are insulated from domestic accountability and thus borrower ownership does not change their incentives enough to increase effectiveness. Relatedly, PforR lacks the stringent environmental and social safeguards lenders have traditionally been able to impose on borrowers. Local elites have no incentive to push for such costly mechanisms to have an increased role in PforR loans.

In other words, it is entirely possible that the ostensibly “bottom-up” PforR provides little change from more familiar lending practices and goals.

In sum, there may be value in increased borrower ownership and attention to improving borrower capacity. However, borrower ownership may do more harm than good by underestimating the set of interests borrower ownership can solidify. The answer is likely somewhere in the middle. Odds are that borrower ownership will be effective under some conditions or through a set of more precisely conceived institutional arrangements. Explaining the likely variance of PforR outcomes will be useful for practitioners and scholars interested in effective development finance.

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