46723 The World Bank PREMnotes N O V E M B E R 2 0 0 8 N U M B E R 127 POVERTY A Stocktaking of PRSPs in Fragile States Nora Dudwick and Adam Nelsson What are fragile states? countries as fragile if they receive scores In 1999, the World Bank and the IMF of 3.0 or less on the Country Policy and introduced Poverty Reduction Strategy Institutional Assessment (CPIA), which Papers (PRSPs) as a condition for highly ranks countries according to their eco- indebted countries to receive debt relief nomic management, structural policies, under the HIPC initiative. Since then, policies for social inclusion and equity, PRSPs have become a condition for aid and public sector management and in- to IDA countries, for which they are stitutions. Whatever the specific criteria, considered instrumental in refocusing there is consensus that fragile states lack attention on poverty, democratizing the functional authority, capacity, and/or policy making, and improving donor legitimacy to provide for the basic needs coordination. While PRSPs may play that of their citizens and are highly vulnerable role in many IDA countries, their useful- to conflict, humanitarian crises, political ness in fragile states, including those just fragmentation, and economic collapse. emerging from conflict, has been ques- Conflict-affected states in particular tioned. Increased donor attention to the tend to be subject to breakdown in rule specific problems of such states was the of law, service delivery, and economic impetus for a Poverty Reduction Group activity, due to localized or widespread (PRMPR) stocktaking of PRSPs in fragile military or rebel offensives that affect in- environments. frastructure, transport, agriculture, and Even among the most aid-depen- trade. They also exhibit specific conflict- dent and heavily indebted countries, related forms of poverty, including forced fragile states constitute a subgroup labor, theft of crops and livestock, rapid of the world's poorest and most chal- spread of diseases, and the emergence of lenging countries. Defining "fragility" new vulnerable groups such as the war is not straightforward, and different wounded and traumatized, child com- organizations employ different criteria. batants, internally displaced persons, The World Bank, for example, classifies refugees, and orphans. FROM THE POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK Since the 1990s, an explicit "fragile In conflict states, therefore, every inter- states" agenda has developed in response vention must be weighed for its likely to the threats these countries represent effects on the consolidation of legitimate not only to their own citizens, but also public authority, and care must be taken to neighboring countries in the form to avoid governance reforms that could of huge economic impacts, conflict and endanger stability. After civil war, accord- organized crime, diseases, and refugees. ing to Paul Collier and his colleagues This agenda calls for sustained interna- (see, for example, Chauvet and Collier tional engagement and improved donor 2004, and Collier and Hoeffler 2004), coordination to rebuild the state-soci- less rather than more external assistance ety relationship by promoting govern- may in fact be preferable. Hence, they ment legitimacy and accountability and recommend providing only technical strengthening the capacity of fragile assistance in the first years after conflict states to fulfil core functions. has ceased. Donor behavior can also promote Poverty reduction and or interfere with state building. Govern- state (re)building ments of fragile states, especially those Strong institutions and a functioning, in conflict, can be overwhelmed by the legitimate state are important for pov- range of external actors with their own erty reduction, although some historic missions, objectives, and capacity limi- evidence suggests that good governance tations. Donors have responded to this and effective institutions may more of- problem by pledging greater coherence ten follow than precede growth (Khan among different departments within 2004). Questioning whether institutional country as well as increased harmoniza- reforms in very weak states can acceler- tion of programs across donor countries ate growth sufficiently to reduce poverty, and alignment with country systems. In some analysts argue that interventions practice, domestic political pressures should rather attempt to build the core, to make their aid more visible, the op- or constitutive, capacities of the state. portunity costs of coordination, the These functions, including public admin- need to reach disbursement targets, or istration, security through a legitimate inadequate capacity and incentives to monopoly of violence, and rule of law, take on the demanding state-building appear essential for creating an enabling agenda, have slowed progress on donor environment for growth and delivery of coordination. basic services. In countries just emerging from or PRSPs are not for everyone still embroiled in conflict, however, even As PRSPs are by definition undertaken building state capacity may need to take in very poor and often poorly governed a back seat to reestablishing security. countries, questioning their appropriate- Indeed, establishing physical, political, ness for "fragile states" may appear as economic, and social security is often the hairsplitting. Certainly, many of the les- single most important way for the state to sons presented below apply to nonfragile win legitimacy after prolonged violence. states as well. Yet although there are im- 2 PREMNOTE OCTOBER 2008 portant differences among fragile states, feasible, and where planning horizons as a group they are likelier to combine are very short; (iii) where there is an in- weak commitment with low capacity for terim government likely to be replaced poverty reduction. It cannot be assumed by a government unwilling to accept the that they offer even basic conditions PRSP; and/or (iv) where it is likely that exist for forming country partnerships, donor financing will allow a country to collecting poverty data, or formulating divert funds to maintain military conflicts and implementing policies. Such coun- with neighbors. In these cases, instru- tries may not be able to produce even a ments such as the Multi-donor Needs limited policy agenda that addresses the Assessments and Transitional Results population's needs. It is also evident that Matrices may be better suited than the without strong internal political leader- PRSP for coordinating immediate assis- ship and ownership of elites and the tance; they can also lay the groundwork broader society, donor efforts are unlikely for a PRSP. to endure. The point to be stressed is that the Adapting the PRSP to PRSP should not be seen as the "default fragile states: Some option" for all poor countries. Rather, it lessons from experience should be undertaken only if an explicit PRSPs are intended to help countries case can be made that doing so will con- plan and prioritize, build a national tribute to greater state capacity, along consensus around poverty reduction with or as a precondition for poverty programs and policies, improve poverty reduction. Where the government's com- diagnostics, and establish a framework mitment, legitimacy, and functionality for external assistance. These tasks, how- are in serious question, and when the ever, may demand greater commitment government appears motivated mainly and capacity than the government of a by access to international assistance fragile state can provide. Even when the rather than development, conflict resolu- decision is made to go ahead, thought tion, or poverty reduction, donors should must be given about balancing poverty consider temporary or partial strategic reduction with the need to (re)build the disengagement in preference to being state's core competencies to as a founda- seen as rewarding illegitimate govern- tion for reducing poverty. The following ments or reducing domestic pressures lessons have been derived from a review for change. of PRSP preparation and implementa- In countries engaged in or emerg- tion in fragile states; PRSPs suggested as ing from conflict, the PRSP may be exemplifying good practice are referred contraindicated (i) where international to in parentheses: engagement may legitimize one of several warring parties or groups of 1. PRSPs are likely to require many elites and "freeze" rather than facilitate iterations before they adequately resolution of conflict; (ii) where the se- address medium-term challenges in curity situation is so volatile that basic a well-prioritized and costed man- data collection and consultation are not ner (as in Madagascar, Rwanda, and OCTOBER 2008 PREMNOTE 3 Uganda). And even where donors alienate key constituencies. While take a leadership role, they should corruption is undoubtedly a scourge, not assume there are no substan- prosperity often coexists with signifi- tial national processes and systems cant corruption. Moreover, attacking around which to align. Otherwise, corruption directly can destabilize governments may perceive donor fragile states. Thus, donors should insistence on a perfect PRSP as in- concentrate on targeting the kinds of terference that contradicts the prin- corruption that hinder development, ciples of national ownership. avoid overwhelming reformers with 2. Although participation is a hall- too many demands, and accept some mark of the ideal PRSP, recognition role for local patronage networks to of risks must temper expectations avoid threatening political stability of participation in volatile or frag- in volatile environments. mented environments. The goal of 4. Macroeconomic reforms in fragile showing governments the benefits of states should balance attention to public inputs into the policy process macro stability with a stronger focus must be balanced by recognizing onincreasingemployment.Theyalso the dangers of sidelining nascent need to address the heightened vul- political institutions such as parlia- nerability of such countries to shocks. ments or parties, exacerbating social One way of dealing with the latter is tensions through the airing of unre- through safety net programs that can solved grievances, or endangering be rapidly expanded in response to participants in repressive environ- natural disasters or shocks. ments where demands for change 5. Public financial management (PFM) are interpreted as threats to the gov- reforms should be prioritized where ernment. But even where extensive severe deficits in accounting and public debate is not feasible, donors financial management systems re- working in difficult environments strict a government's capacity to al- can help build the capacity of civil locate and use resources effectively society to analyze policy and lobby (as in Afghanistan, Cambodia, and for change. Liberia). In difficult environments, 3. In supporting reforms, donors the reforms should build on existing should aim for "good enough" gov- systems and concentrate on achiev- ernance, whereby states can fulfill ing budget credibility. Where PFM basic functions such as protecting systems cannot meet basic standards people from harm and providing for direct budget support, donors the economic framework that allows should concentrate on reforms to them to support themselves. Since strengthen budget formulation and nonessential institutional reform en- reporting to lay the foundation for tails opportunity costs for weak states, future budget support. Where pos- governments should concentrate on sible, reforms should support the de- reforms that are feasible, have a quick velopment of the budget as a policy and visible payoff, and that don't tool. 4 PREMNOTE NOVEMBER 2008 6. In response to the tradeoff between recovery programs that may include restoring urgent services as quickly security sector interventions. Inte- aspossibleandthelonger-termneed grating defense spending into PFM to rebuild state capacity to provide reforms also allows the Bank to use its them, donors should try build up comparative advantages in this area the role of the state as coordina- without overstepping its mandate. tor of services and downplay their own role. In countries that have lost Questions for future research their educated population through Although good case studies exist of PRSP war and migration, investing in hu- preparation, sufficient time has elapsed man capital through secondary and to investigate the effects of PRSP imple- tertiary education may be pro-poor mentation in fragile states in some of the in the longer run and potentially following areas: more effective than donor funding Capacity building: Has implemen- of technical assistance. tation improved country capacity to 7. In conflict-affected countries, prep- gather and analyze poverty data and aration for the PRSP must include use it to formulate policy? a careful analysis of the drivers Participation:Whatkind,andtowhat and triggers of conflict (as in Sierra extent, is participation feasible and Leone). In some cases, the PRSP productive in fragile states? Did it re- may need to start by prioritizing duce or exacerbate social and political short-term peace, security, and re- tensions? Has it been institutionalized construction needs. Using a conflict to any extent? lens may alter priorities by shifting Effectiveness: How effective was the emphasis from macroeconomic PRSP implementation? Are there les- policy to social policies, for example, sons for how instruments developed or from growth-enhancing policies explicitly for fragile and post-conflict that focus on developed regions to contexts, such as the Multi-Donor restoration of livelihoods in under- Needs Assessments and Transitional developed peripheries where conflict Results Matrices, could be used to lay broke out because of economic mar- the foundation for PRSPs? ginalization. Outcomes:Ifthereweredirectand/or 8. The security issue cannot be mini- indirect benefits associated with pre- mized. Failure to consider security paring and implementing the PRSP, needs in conflict-affected states were they worth the resources (in time can result in underfunding critical and money) invested? Were there interventions in the political and negative outcomes associated with security spheres. While the World the preparation and/or implementa- Bank does not have a comparative tion? advantage in the security sector, the Reforms: Are there lessons to be new policy framework (OP 8.0) does derived regarding the prioritization clarify Bank support for compre- and/or sequencing of reforms? And hensive and integrated multidonor what can be learned about balanc- NOVEMBER 2008 PREMNOTE 5 ing short-, medium-, and long-term Gottschalk, Ricardo. 2005. "The Macro objectives? Content of PRSPs: Assessing the Need Disengagement: Are there lessons for a More Flexible Macroeconomic regarding the positive/negative ef- Policy Framework." Development Policy fects of engaging/disengaging with Review 23(4): 419­42. the PRSP process in highly fragile Grindle, Merilee S. 2004. "Good Enough environments? Governance: Poverty Reduction and Reform in Developing Countries." Sources Governance: An International Journal This Note is adapted from a longer paper by of Policy, Administration, and Institutions Nora Dudwick and Adam Nelsson: Dudwick, 17(4): 525­48. Nora, and Adam Nelsson. 2008. "Poverty Re- Hilker, Lyndsay McLean, A. Evans, duction Strategies in Fragile States: A Stock- and A. Norton, with L. Piron and E. taking of What We Know." Draft. PRMPR. Coyle. 2003. "Strategic Framework World Bank, Washington, DC. for Engagement in National PRSP in Conflict-Affected Countries." Attach- See also: ment to Briefing Note 6. U.K. Depart- ment for International Development Cammack, Diana, D. McLeod, A. Meno- (DFID). cal, and K. Christiansen. 2006. "Do- Khan, Mushtaq. 2004. "State Failure in nors and the `Fragile States' Agenda: Developing Countries and Institu- A Survey of Current Thinking and tional Reform Strategies." Annual Practice." Technical report, Overseas World Bank Conference on Develop- Development Institute, London. ment Economics, Europe 2003. Chauvet, Lisa, and P. Collier. 2004. "De- Putzel, James. 2004. The Politics of Par- velopment Effectiveness in Fragile ticipation: Civil Society, the State and States: Spillovers and Turnarounds." Development Assistance (online). LSE Centre for the Study of African Econo- Research Online. mies, Oxford. World Bank Independent Evaluation Collier, Paul, and A. Hoeffler. 2004. Group (IEG). 2006. Engaging with "Greed and Grievance in Civil War." Fragile States: An IEG Review of World Oxford Economic Papers 56: 563­95. Bank Support to Low-Income Countries Fritz, Verena, and A. Menocal. 2007. under Stress. IEG study series. Wash- "Understanding State-Building from a ington, DC: World Bank. Political Economy Perspective." Over- seas Development Institute, London. This note series is intended to summarize good practices and key policy findings on PREM-related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank. PREMnotes are widely distributed to Bank staff and are also available on the PREM Web site (http://www.worldbank.org/prem). If you are interested in writing a PREMnote, email your idea to Madjiguene Seck at mseck@worldbank.org. For additional copies of this PREMnote please contact the PREM Advisory Service at x87736. PREMnotes are edited and laid out by Grammarians, Inc. Prepared for World Bank staff