Conditionality in
Development Policy
Lending: Recent
Progress
Conference on World Bank and
IMF Conditionality
Oslo, Norway
November 28-29
Conditionality Review
 In October 2004, the Development Committee
requested a review of the Bank’s “policy and
practice on conditionality” and a “report on the
continued efforts by the Bank and the Fund to
streamline their aggregate conditionality”
 The resulting Review of World Bank
Conditionality discussed the rationale for and
modalities of conditionality in policy-based
lending (now known as development policy
lending), and looked at trends and key
challenges in the application of conditionality
Conditionality Review—Findings
In September 2005 the Development Committee endorsed
the review’s findings and the related good practice principles
for the application of conditionality:
 Ownership: Reinforce country ownership
 Harmonization: Agree up front with the government
and other financial partners on a coordinated
accountability framework
 Customization: Customize the accountability
framework and modalities of Bank support to country
circumstances.
 Criticality: Choose only actions critical for achieving
results as conditions for disbursement.
 Transparency and predictability: Conduct
transparent progress reviews conducive to
predictable and performance-based financial support.
Progress Report November 2006
 Covers all DPOs that:
 Went through a complete processing cycle
since the Development Committee in
September 2005 endorsed the good
practice principles
 Were adopted by the Board before
September 30, 2006
 Total of 19 operations, 63 percent from IDA
only countries
DPO Shares in Bank Lending
FY01-06
70%
64%
60%
IBRD Pol. Based Lend.
IDA Pol. Based Lend.
50%
50%
Pol. Based Lend. % T otal
40%
40%
30%
38%
37%
33%
27%
30%
33%
31%
25%
19%
20%
34%
32%
30%
31%
27%
26%
10%
0%
2001
2002
2003
2004
2005
2006
Recent Conditionality Trends in
Bank DPOs
40
38
35
35
35
31
32
33
33
32
IBRD
30
IDA
28
27
26
25
22
21
20
19
20
19
18
17
16
15
12
12
11
10
13
12
13
11
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 preGPP
GPP = good practice principles adopted in September 2005
postGPP
Recent Use of Benchmarks in
DPOs
40
37
35
IBRD
32
IDA
30
30
27
25
19
20
23
16
17
17
16
15
15
12
12
10
11
10
10
8
6
5
5
5
5
8
7
4
2
0
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 preGPP
postGPP
GPP = good practice principles adopted in September 2005
Thematic Content of Conditions:
Shift to Public Sector Governance
16.0
1990-94
13.7
14.0
Avg. Number of Conditions by Theme
post-GPP
2005-06 pre-GPP
2000-04
1995-99
12.0
11.0
10.0
8.8
8.0
7.7
7.3
6.4
6.0
5.7
5.1
4.8
4.4
5.4
5.6
5.8
4.4
4.0
2.0
2.3
1.9
1.9
1.4
0.8
1.2
2.2 2.1
1.7
1.5
0.9
0.0
T rade and economic
management
Environment, rural,
and urban
development
Social sectors
Public sector
governance
Financial and private
sector development
GPP1: Reinforce Ownership
 Realistic assessment of ownership relies on a
government’s expressed policy intentions and track record
of reform
 All of the operations reviewed relied explicitly on
government strategy documents (e.g., PRSPs) in defining
Bank support
 In most cases, the Bank was able to rely on a country’s
broader track record of reforms to gauge ownership (e.g.,
PRSC series)
 There is some evidence for respecting policy space (e.g.
design of Guyana operation)
 Analytic work has played an important role in underpinning
policy choices, however early and more systematic
disclosure of analytic work would strengthen its inclusion in
countries’ policy dialogue and strategy development and
better reinforce ownership
GPP2: Harmonization
 Under the lead of country authorities, Bank staff should
reach understandings with the government and other
partners on a single and internally coherent framework
for measuring progress
 All the operations set out such accountability
frameworks in the form of policy matrices
 Matrices can be joint frameworks (i.e., Ghana,
Indonesia) or can serve to coordinate broader donor
support, including technical assistance (e.g., Lao PDR)
 Responding to country circumstances, matrices are
being used flexibly to achieve different levels of
coordination – depending on the availability of other
budget support donors and government preferences
GPP3: Customization
 Agreed accountability frameworks should be fully
consistent with the government’s expressed policy
intentions and internal accountability mechanisms and not
be used to add policy actions to the government’s agenda
 Bank documents explicitly refer to the government
program as the primary source of policy actions used to
gauge progress
 Several operations support reforms that are considered
politically sensitive and where governments may need to
make hard choices about reform, such as privatization,
trade reform, price liberalization, and user fee adjustments
GPP3: Customization – Sensitive Reforms
 In all of the operations that involved privatization (such as
in Orissa), the privatization measures derived from a
government-led process
 In other countries—for example, Vietnam—the Bank
supported the government in reforming public enterprises
or explicitly excluded privatization (Brazil)
 Three operations used price liberalization/subsidy reform,
one of which had a very weak justification and overlapped
with IMF conditions in a fragile policy environment
(Burundi)
 Trade reform measures in reviewed operations were
largely linked to WTO accession (Vietnam, Armenia), and
were uniformly presented as important objectives in the
government’s own aspirations
 User fee conditions (Burkina Faso, Niger) focused on
reducing or removing user fees to increase access to
health care, particularly for poor and vulnerable groups
GPP4: Criticality
 Choose policy and institutional actions that are
critical for achieving the results of the program
 Most actions identified as conditions in Bank
programs reviewed were clearly critical to
program objectives
 Further progress can be made in reducing or
better explaining conditions related to processing
steps (action plans)
 Managing the size of program matrices (notably
benchmarks) remains a challenge, especially in
harmonized donor settings and multi-sector
interventions
GPP5: Transparency and Predictability
 Progress should be reviewed regularly and in line with a
country’s monitoring and evaluation cycle, drawing to the
extent possible on internal accountability processes
 All operations spelled out conditions, triggers, and
expected results but with at times vague triggers and
some weaknesses results baselines
 When countries have voiced a clear preference for a
review cycle aligned with government budget cycles, the
Bank has generally responded – average time period
between Board dates of PRSCs in 16 countries that have
moved to at least a second PRSC is 13 months
 In some countries further progress in aligning joint donor
reviews with budget cycles can be made
Overall Implementation of the
Good Practice Principles
 The Bank’s recent practice in the use of conditionality is
broadly consistent with the 2005 good practice principles
 Most Bank programs are well aligned with government
priorities and customized to country circumstances
 Programs clearly spell out expectations
 Programs frequently use of opportunities for
harmonization
 Most programs highlight critical actions as conditions, and
respond to government needs for predictability of
financing decisions
Areas for Further Attention
 Disclosing analytic work upstream
 Avoiding conditions on sensitive policy areas if ownership
cannot be ascertained or the political environment is fragile
 Avoiding duplication of IMF conditions
 Avoiding process conditionality (“adoption of action plan”)
unless criticality is clearly established
 Reducing benchmarks in multi-sector programs
 Further aligning harmonized program review cycles with
financing needs
 Providing baselines for results