W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T OED REACH SEPTEMBER 17, 2002 ZAMBIA: Country Assistance Evaluation · Zambia experienced modest growth during 1996-01, but it was insufficient to reverse a 25-year decline in per capita income or reduce the high incidence of poverty (above 70 percent). Coupled with high HIV/AIDS prevalence, this led to a dramatic decline in life expectancy and other measures of social welfare. · The Bank was instrumental in supporting liberalization in the early 1990s that helped restore private sector growth. But during 1996-01, the relevance of IDA strategies to support external debt management was weak, and the response to HIV/AIDS belated. Poor implementation undermined IDA-supported programs for privatization, private sector development, and public sector reform. Overall, these weaknesses did little to promote the nascent economic recovery in the 1996-01 period. · Future Bank assistance should focus on reviewing the HIPC program to ensure return to a sustainable external position. It should also focus on adjustment lending linked to measurable improvements in governance and public expenditure management, development of implementation capacity for sector-wide approaches, enhancing the multi-sectoral response to HIV/AIDS and providing analytic leadership in the area of social protection policy. Background in the depth and severity of rural poverty, although urban Landlocked and historically dependent on copper mining poverty rose sharply. However, overall growth was to fuel its economy, Zambia has been extremely insufficient to increase average per capita income or vulnerable to exogenous factors such as regional conflict reduce the high incidence of poverty. With a HIV/AIDS and world copper prices. In the mid-1970s, copper prices prevalence rate of 20 percent, most social welfare plunged by 65 percent in real terms, and have never indicators deteriorated, with life expectancy falling from recovered. Coupled with mismanagement of the state- 51 years in 1980 to 38 years in 2000. owned mines, this led to a 25-year decline of the mining Bank Assistance industry into insolvency, dragging an undiversified The current evaluation focuses on the development economy with it. GNP per capita fell from $630 in 1980, effectiveness of the Bank's program in Zambia from to $450 in 1990, and to $300 in 2000. FY96 on, as a follow-up to an OED Country Assistance A change in regime in 1991 initiated a transition from Review through FY95. The recommendations of the a socialist to a market-oriented economy. With enhanced earlier CAR were only partially implemented, but many support from the international community, a committed remain relevant. For example, progress was significant in group of reformers launched a policy agenda aimed at privatization and increasing investment in physical and stabilization, liberalization, privatization, and social infrastructure, as suggested, but limited in diversification. Bank support was instrumental in developing entrepreneurs and building public sector supporting liberalization and legal reforms that helped institutions to support the private sector. Some restore modest, private-sector led growth in the second recommendations were insufficiently heeded--including half of the decade. Non-mining GDP grew at 3.2 percent avoiding a one-scenario country assistance strategy and annually, the fastest since independence, and agriculture relying on adjustment lending to persuade an indecisive grew at 4 percent, which contributed to a modest decline client. In the FY96-01 period, OED found that Bank did accrue--progress in transition to a market economy strategies for privatization and private sector and very modest diversification--are likely to be sustained. development, as well as public sector reform, were Recommendations substantially relevant. But the emphasis on exceptional Evaluation of the FY96-01 period leads to the following levels of adjustment lending to finance an unsustainable recommendations: debt overhang, combined with a delayed response to the · Revise Zambia's debt sustainability analysis based on HIV/AIDS pandemic (first addressed in 2000), were significant weaknesses in the relevance of the Bank's realistic assumptions for growth and exports. Outline strategy. Implementation of IDA-supported programs the implications for enhanced HIPC debt relief also faced difficulties. Creditor pressure for balance of accordingly, to ensure a sustainable external position. payments support weakened the design and supervision · Enhance the impact of structural adjustment lending of a series of adjustment operations. Exceptional through operational designs that focus on results, adjustment lending cushioned the country from with a clearer link between objectives and conditions. enormous mining losses, contributing to a delay of nearly · In line with Zambia's PRSP, give priority to public three years in privatizing the copper mines--a delay that expenditure management and improving governance, had significant consequences for both short-term growth enhancing the investment climate to promote and long-term investment decisions in the sector. diversification (including infrastructure and energy Insufficient attention was paid to the climate for private reform and regional trade issues), and scaling-up the sector development, and progress in public sector reform response to HIV/AIDS. was negligible. Overall, outcomes of the Bank program · Improve the effectiveness of Bank support for in the FY96-01 period are rated as unsatisfactory. SWAPs through greater emphasis on (a) institutional The institutional development impact of the Bank's development and capacity building to strengthen work in Zambia is rated as modest--a laudable implementation; (b) improved expenditure achievement considering the impact of HIV/AIDS on frameworks and accountability; and (c) timely institutional continuity. Significant progress was made in development of monitoring and evaluation systems. transformation of ownership, legal reform, and district- level management, but these areas were constrained by a Government and Management Response marked lack of institutional development related to public sector reform, decentralization, and public expenditure The Bank's Regional management broadly agreed with management. Participation in sector-wide approaches the recommendations for future assistance, but objected (SWAPs) led to closer adherence to the principles of the to the unsatisfactory outcome rating for assistance in the Comprehensive Development Framework, but this has 1996-01 period. The report was discussed with the not produced better outcomes within this timeframe. The Zambian authorities, who also provided written institutional capacity required to implement the SWAPs comments (attached to the report). In them, was severely underestimated, implementation and Government described the report as "comprehensive," expenditure management were poor, and monitoring and disagreeing only with the conclusion that the Bank should evaluation systems were too weak to assess performance reduce lending if the pre-conditions for high-case IDA lending are not met. Apart from this, Government and guide adaptation. Net benefits of the Bank's accepted the ratings and recommendations of the report. program in terms of growth and social welfare were quite limited and below expectations. However, benefits that Task Manager: Ellen Goldstein (202) 473-8169 Group Acting Manager, OEDCR: René Vandendries (202) 473-1668 · Director: Gregory K. Ingram (202) 473-1052 OED Reach available @ http://worldbank.org/oed