35899 GLOBAL MONITORING REPORT 2006 GLOBAL MONITORING REPORT 2006 Millennium Development Goals: Strengthening MutualAccountability, Aid,Trade,and Governance © 2006 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org Cover design: Chris Lester, Rock Creek Creative, Bethesda, Maryland. Cover map: Map design unit of the World Bank, based on data provided by the staff of the Development Data Group of the World Bank's Development Economics Vice Presidency. 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ISBN-10: 0-8213-6477-4 ISBN-13: 978-0-8213-6477-2 eISBN: 0-8213-6483-9 DOI: 10.1596/978-0-8213-6477-2 Contents Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Millennium Development Goals (MDGs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Part I Monitoring Progress . . . . . . . . . . . . . . . . . . . . . . . 19 1 Charting and Sustaining Progress in Income Poverty Reduction . . . . . . . . 21 2 Managing Money for Human Development Results . . . . . . . . . . . . . . . . . 45 3 Delivering on Commitments for Aid, Debt Relief, and Trade . . . . . . . . . . 73 4 Strengthening the Performance of International Financial Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Part II Governance as Part of Global Monitoring. . . . . . 121 5 Monitoring Developing-Country Governance. . . . . . . . . . . . . . . . . . . . . 123 6 Monitoring and Improving Governance Subsystems . . . . . . . . . . . . . . . . 139 7 Strengthening Global Checks and Balances. . . . . . . . . . . . . . . . . . . . . . . 177 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Statistical Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 v C O N T E N T S Boxes Millennium Development Goals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii 1 Global Monitoring Report 2006: six key messages. . . . . . . . . . . . . . . . . . . . 2 1.1 Lagging regions in middle-income countries and progress toward the MDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.2 Beyond improved investment climates and infrastructure. . . . . . . . . . . . . . 29 1.3 Improving the investment climate in South Africa . . . . . . . . . . . . . . . . . . . 31 1.4 The monitoring dilemma: matching the story of suppliers with the story of users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 1.5 Small-scale private service providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 1.6 Building creditworthy borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.1 Education for All Fast-Track Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 2.2 Jump-starting progress on primary completion in Niger. . . . . . . . . . . . . . . 49 2.3 China's slow progress on child mortality . . . . . . . . . . . . . . . . . . . . . . . . . . 50 2.4 Global Alliance for Vaccines and Immunization . . . . . . . . . . . . . . . . . . . . . 51 2.5 A new global partnership for the health of mothers, newborns, and children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 2.6 HIV prevention works when it is intensive and sustained. . . . . . . . . . . . . . 53 2.7 Global Fund to Fight AIDS, Tuberculosis, and Malaria . . . . . . . . . . . . . . . 54 3.1 Africa Action Plan: an opportunity to coordinate aid flows to Africa. . . . . 79 3.2 Measuring the "quality of aid". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 3.3 Macroeconomic management of surges in aid . . . . . . . . . . . . . . . . . . . . . . 86 3.4 The MDRI and "free-riding" risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 3.5 Estimating the impacts of global trade liberalization . . . . . . . . . . . . . . . . . 93 3.6 Africa and trade reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 4.1 The importance of governance in performance-based allocation formulas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 4.2 Conditions for evidence-based policy: lessons from the PRS experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 4.3 Independent quality review of analytical and advisory activities at the World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 4.4 Third roundtable on managing for development results . . . . . . . . . . . . . . 111 4.5 Independent evaluation at the IFIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 4.6 Safeguards assessments by the IMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 5.1 Governance and corruption are not the same thing . . . . . . . . . . . . . . . . . 124 5.2 The 2004 CPIA's 16 criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 5.3 Three aggregate governance Doing Business and Investment Climate Survey indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 6.1 Two IMF tools to support fiscal management and transparency. . . . . . . . 141 6.2 Recent advances in monitoring the quality of procurement . . . . . . . . . . . 144 6.3 Actionable indicators on public administrative quality. . . . . . . . . . . . . . . 149 vi G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C O N T E N T S 6.4 Albania--administrative reform in an unpropitious environment. . . . . . . 152 6.5 Why stand-alone investment projects can be bad for governance . . . . . . . 157 6.6 Linking community-based resource transfers and decentralization in Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 6.7 How media access can influence development outcomes . . . . . . . . . . . . . 162 6.8 The Poverty Reduction Strategy process in Rwanda and Vietnam . . . . . . 162 6.9 The Global Integrity Index as a tool for governance monitoring . . . . . . . 165 6.10 Strengthening justice--three initial lessons . . . . . . . . . . . . . . . . . . . . . . . . 167 6.11 Legislative oversight in Africa--a work in progress . . . . . . . . . . . . . . . . . 168 7.1 Kickbacks under the United Nations Oil-for-Food Program. . . . . . . . . . . 179 7.2 The Dominican Republic--AML in support of anticorruption. . . . . . . . . 180 7.3 Four pillars of the United Nations Convention Against Corruption . . . . . 182 7.4 International asset recovery--a complicated exercise . . . . . . . . . . . . . . . . 182 7.5 Civil versus criminal law pursuits of corruption . . . . . . . . . . . . . . . . . . . . 183 7.6 The African Peer Review Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 7.7 Improving governance in resource-rich countries . . . . . . . . . . . . . . . . . . . 185 Figures 1 Poverty headcount by region, 1990­2002, and forecasts to 2015. . . . . . . . . 3 2 Annual reduction in child mortality, 1997­2004 . . . . . . . . . . . . . . . . . . . . . 5 3 ODA increases concentrated in a few countries . . . . . . . . . . . . . . . . . . . . . . 7 4 National governance system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5 Net change in HIPC indicator tracking scores, 2001­4 . . . . . . . . . . . . . . . 13 6 Measuring statistical capacity in IBRD, IDA, and IDA-Africa, 1999­2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7 Governance turnarounds: three trajectories . . . . . . . . . . . . . . . . . . . . . . . . 16 1.1 Progress toward the Poverty MDG Target, 1990­2002, and a forecast for 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.2 Evolution of investment climate indicators in Europe and Central Asia, 2002 and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1.3 Doing Business reform intensity in 2004 by region . . . . . . . . . . . . . . . . . . 33 1.4 The informal sector and the ease of doing business in 2004 . . . . . . . . . . . . 34 1.5 Progress in household access to infrastructure, 1995­2004 . . . . . . . . . . . . 35 1.6 Access to water, by water source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 1.7 Primary deficit and public infrastructure investment, Latin America, 1980­2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 1.8 Access to various forms of sanitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.1 Development assistance for education and health . . . . . . . . . . . . . . . . . . . 55 2.2 Developing-country spending on education and health. . . . . . . . . . . . . . . . 57 2.3 Share of total government spending for education and health, by region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 vii C O N T E N T S 2.4 Education unit costs in best-performing developing countries, 1999­2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 2.5 Share of bilateral education ODA commitments reported as at least half technical assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 2.6 ODA disbursements for education and health . . . . . . . . . . . . . . . . . . . . . . 62 2.7 Annual reductions in child mortality (number of child deaths per 1,000 live births) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 2.8 Delivery of immunizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2.9 Share of 15­19-year-olds who have completed primary school. . . . . . . . . . 70 3.1 DAC members' net ODA, 1990­2005, and prospects for 2006 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 3.2 ODA increases concentrated in a few countries . . . . . . . . . . . . . . . . . . . . . 76 3.3 Acceleration in ODA needed to meet commitments . . . . . . . . . . . . . . . . . . 77 3.4 Indicators of progress: gaps between baselines (preliminary) and targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3.5 Satisfaction improving with donor practices, 2003­5. . . . . . . . . . . . . . . . . 82 3.6 Strengthening trend in donors' poverty and policy focus . . . . . . . . . . . . . . 83 3.7 Lower debt service, higher poverty-reducing expenditures, 1999­2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 3.8 Impact of MDRI on debt ratios in HIPC . . . . . . . . . . . . . . . . . . . . . . . . . . 90 3.9 High-income countries' OTRI, overall and toward low-income countries, 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 A3.1 OECD restrictiveness remains high for low-income countries, 2005. . . . . 100 A3.2 Changes in OECD OTRI between 2002 and 2005: as tariffs fall, non-tariff policies become more important. . . . . . . . . . . . . . . . . . . . . . . . 100 4.1 Gross disbursements by MDBs, 1999­2005 . . . . . . . . . . . . . . . . . . . . . . . 102 4.2 Trends in IDA investment and development policy lending, 1998­2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 4.3 Policy and poverty selectivity in 2003 and 2004. . . . . . . . . . . . . . . . . . . . 105 4.4 Evaluation and the results chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 II.1 Governance and growth, 1982­2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.1 National governance systems: actors and accountabilities . . . . . . . . . . . . 125 5.3 Corruption in specific sectors in Europe and Central Asia, 2002­5 . . . . . 134 5.2 Administrative corruption in Europe and Central Asia. . . . . . . . . . . . . . . 134 6.1 Public financial management: a performance monitoring framework . . . . 140 6.2 Low-income aid recipient countries with CPIA 13 (quality of budgetary and financial management) scores, 2004 . . . . . . . . . . . . . . . . . 142 6.3 Cambodia: A platform approach to budget management reforms . . . . . . 147 6.4 Low-income aid recipient countries with CPIA 15 (quality of public administration) scores, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 6.5 Perceptions of service delivery performance in nine Bangalore agencies, 1994­2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 viii G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C O N T E N T S 6.6 A constellation of checks and balances institutions. . . . . . . . . . . . . . . . . . 159 6.7 The virtuous circle of transparency: from disclosure to responsiveness. . . 160 6.8 Measuring country statistical capacity: IBRD, IDA, and IDA-Africa, 1999­2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 6.9 Governance turnarounds: three trajectories . . . . . . . . . . . . . . . . . . . . . . . 170 Tables 1.1 Per capita GDP growth in low- and middle-income countries (by region) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1.2 Macroeconomic indicators for low- and middle-income countries (by region) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.3 Quality of macroeconomic policies in low-income countries, 2005 Share of countries falling into each category. . . . . . . . . . . . . . . . . . . . . . . . 25 1.4 Global economic environment and developing countries . . . . . . . . . . . . . . 27 1.5 Percentage of households with access to basic infrastructure services, quintile comparison (2000­4, latest observations available). . . . . . . . . . . . 37 1.6 Percentage of households with access to basic infrastructure services, urban-rural comparison (2000­4, latest observations available). . . . . . . . . 37 2.1 Sharp increases in child survival for some countries . . . . . . . . . . . . . . . . . . 51 2.2 Skilled attendants at delivery, by region, 1990 to 2003 . . . . . . . . . . . . . . . 52 3.1 Composition of net ODA: less reliance by donors on special-purpose grants in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 3.2 Country-level progress on selected harmonization and alignment actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3.3 Key features of the MDRI by institution. . . . . . . . . . . . . . . . . . . . . . . . . . . 88 3.4 Indicative donor commitments to IDA and AfDF over the next decade (Baseline: constant regular donor contributions in real terms--US$ billions). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 3.5 Developing-country OTRI by geographic region and changes, 2002­5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 A3.1 New regional and multilateral trade agreements, 2004­5. . . . . . . . . . . . . 100 A4.1 COMPAS master matrix of categories and indicators. . . . . . . . . . . . . . . . 119 5.1 Nodes of transparency in national governance systems . . . . . . . . . . . . . . 126 5.2 2004 country scores for the CPIA public institutions cluster . . . . . . . . . . 130 5.3 Intermediate outcomes--corruption versus policy . . . . . . . . . . . . . . . . . . 135 5.4 Governance monitoring indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 6.1 Quality of budget management systems in 25 heavily indebted poor countries, 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 6.2 Participation in the PRS, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 6.3 KK voice and accountability 2004, 66 low-income countries . . . . . . . . . . 164 6.4 Global Integrity Index--transparency and civic participation (by group) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 ix C O N T E N T S 6.5 The quality of some attributes of the justice system in 25 countries (by group) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 6.6 The quality of some direct oversight institutions in 25 countries (by group) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 6.7 State capacity and state accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 A7.1 Global checks and balances: international legal initiatives . . . . . . . . . . . . 189 A7.2 Global checks and balances: anticorruption treaties . . . . . . . . . . . . . . . . . 190 A7.3 Global checks and balances: international transparency initiatives. . . . . . 192 x G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Foreword T his third annual Global Monitoring families struggle without access to clean water, Report (GMR) on progress toward or roads that would open access to schools, the Millennium Development Goals health care, and markets. In many cases, the (MDGs) comes with only 10 years remain- governance of countries does not inspire the ing to achieve them. It reports good and bad confidence of investors including, most impor- news. tantly, citizens of those same countries. Growth continues to be favorable and has This must change if we are to achieve the helped cut global poverty, in some cases dra- MDGs. The principle of mutual account- matically. Many countries have stayed the ability--of donors, the international finan- course with sound economic policies, which cial institutions, and recipient governments are delivering results, including some coun- for the quality of external support and for tries in Sub-Saharan Africa. The volume of improved performance--is central to accel- trade has grown worldwide, and private cap- erating performance. ital flows to developing countries continue to This GMR persuasively argues that gover- rise. Evidence is also emerging from some nance is one of the central challenges facing countries of rapid and tangible progress in developing countries and the global develop- improving primary education completion, ment community. Governance has gained raising immunization coverage, and lowering widespread currency, but its often vague def- child mortality. inition has limited its utility as an organizing The bad news is that many countries are concept for development, which is what it off track to meet the human development needs to be. This report offers a framework MDGs. The gains, impressive on a global that defines the parameters of what gover- scale, are unevenly distributed. For every suc- nance is, and gives us tools--drawn from cess story of rapid growth and job creation in various indexes--to assess its quality, across emerging East and South Asian cities, there different countries, sectors, and actors. are disturbing examples of increased poverty The GMR recognizes that there is no sin- in much of Sub-Saharan Africa, and among gle, unique way to effectively improve gover- large groups of people in many other parts of nance to reduce poverty, and acknowledges the world. In too many countries, infrastruc- that each country's path must be of its own ture is crumbling. Urgently needed investment choosing. But national customs cannot be a to modernize water, sanitation, and trans- smokescreen to defend practices that rob the portation facilities has proven unavailable, and poor of better opportunities, and undermine G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 xi F O R E W O R D a society's chance to develop. With this in To enhance aid effectiveness, aid transfers mind, the GMR provides a governance need to be more predictable, less fragmented, framework for monitoring and draws lessons more closely aligned with needs, and tar- from diverse international experience. It pre- geted to where the aid can be productively sents performance benchmarks on, among used. This includes better targeting to coun- others, sound financial management, public tries that are tackling the MDGs, and bring- procurement, settlement of legal disputes, ing greater flexibility to aid, so that it can and openness and transparency so as to cover recurrent costs, such as teachers' or ensure governments' accountability to tax- health workers' salaries, as well as gover- payers and citizens and to check corruption. nance reforms to improve service delivery. The GMR's framework for governance is The promise of increased aid will be realized the first step in establishing a more compre- only if it is used with sufficient rigor and hensive system for monitoring governance. imagination to deliver improved results. More investment is needed in actionable indi- The GMR reports progress in shifting the cators that can help to track progress, gener- emphasis of international financial institu- ate greater accountability, and build demand tions, including the World Bank and the for good governance. They can also help International Monetary Fund, toward results underpin long-term dialogue between coun- management--managing for outcomes rather tries and development partners, which should than managing inputs to the production develop realistic goals and sequencing of gov- process. But more work must be done by all ernance reforms. development partners to establish a longer- As developing countries tackle the chal- term vision, deliver more resources, and lenge of governance, the GMR also reminds increase support for capacity strengthening in us that the rich countries must meet their developing countries. With a decade left to commitments on aid, debt relief, and trade. achieve the MDGs, there is no time to lose. Paul Wolfowitz Rodrigo de Rato President Managing Director World Bank International Monetary Fund xii G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Acknowledgments T his report has been prepared jointly by nificant contributions to the overall report the staff of the World Bank and the through research and coordination.The core International Monetary Fund. In team from the International Monetary Fund preparing the report, staff collaborated was led by Andy Berg and included Anton closely with partner institutions--the Organ- Op de Beke (chapter 7), Peter Fallon, and isation for Economic Co-operation and its Carlos Leite. Development Assistance Committee, the Many others have made valuable contri- United Nations, the African Development butions, including the following from the Bank, Asian Development Bank, European World Bank: Olusoji O. Adeyi, Jim Bank for Reconstruction and Development, Anderson, Amie E. Batson, Gilles Bauche, and the Inter-American Development Bank. Robert Beschel, Amar Bhattacharya, The cooperation and support of staff of these Christina Biebesheimer, Rene Bonnel, Eduard institutions are gratefully acknowledged. R. Bos, Jeanine Braithwaite, Logan Brenzel, Mark Sundberg was the lead author and Cecilia Briceño-Garmendia, Lorelei Buntua, manager of the report. The work was carried Andrew Burns, Flavia Bustreo, William out under the general guidance of François Butterfield, Sarah Cliffe, Rui Coutinho, Bourguignon, Senior Vice-President, and the Stefano Curto, Angelique dePlaa, Adrian Di overall supervision of Alan Gelb, Director, Giovanni, Simeon Djankeov, Bill Dorotinsky, World Bank. The thematic work on gover- Rob Chase, Shaohua Chen, Graham Eele, nance was led by Brian Levy, with supervision Safinaz El Hag El Tahir Ahmed, Janet from Sanjay Pradhan, Sector Director, World Entwhistle, Christine Fallert Kessides, Bank. Paul Gertler provided supervisory sup- Shahrokh Fardoust, Lucia Fort, Luc-Charles port on the human development chapter. The Gacougnolle, Alison Gillies, Jonathan core team from the World Bank included Goldberg, Bee Ean Gooi, Engilbert Halsey Rogers (chapter 1), Barbara Bruns Gudmundsson, Poonam Gupta, Christopher (chapter 2), Punam Chuhan (chapter 3), Ariel Hall, Mary Hallward-Driemeier, Jonathan D. Fiszbein (chapter 4), and Brian Levy (chapters Halpern, Kirk Hamilton, Santiago Herrera, 5 and 6). The Bank core team also included Bernard Hoekman, Tim Irwin, Christianna Manuel Félix, Brendan Fitzpatrick, Ceren Johnnides, Melissa Johns, Erica Jorgensen, Özer, and Sachin Shahria, who provided sig- Ellis Juan, Dani Kaufmann, Phil Keefer, G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 xiii A C K N O W L E D G M E N T S Barbry Keller, Steve Knack, Michael Koch, Boubacar Traore (African Development Peter Kolsky, Sahr Kpundeh, Aart Kraay, Bank); Ernesto Castagnino, Marco Ferroni, Jeffrey D. Lewis, Soe Lin, Saida Mamedova, and Max Puglar-Vidal (Inter-American Julio Mariscal-Pelaez, Susan McAdams, Rick Development Bank); Sam Fankhauser (Euro- Messick, Célestin Monga, Julia Nelson, pean Bank for Reconstruction and Develop- Alessandro Nicita, Christine Zhen-Wei ment); and Brian Hammond (OECD-DAC). Qiang, Shilpa Phadke, Sonia Plaza, Gauresh Guidance received from the Executive Shailesh Rajadhyaksha, Anand Rajaram, Directors of the World Bank and the Interna- Martin Ravallion, Francesca Recanatini, tional Monetary Fund during discussions of Randi Ryterman, Gary Reid, Prem Sangraula, the draft report is gratefully acknowledged. Shunalini Sarkar, Miriam Schneidman, Susan The report has also benefited from many use- Sebastián, Meera Shekhar, Rick Stapenhurst, ful comments and suggestions received from Susan Stout, Mikael Sundberg, Emi Suzuki, the World Bank and International Monetary Joel Turkewitz, Caroline Van Den Berg, Fund management and staff in the course of Dominique van der Mensbrugghe, Sona the preparation and review of the report. Varma, Luisa Sigrid Vivo Guzman, Kavita The World Bank's Office of the Publisher Watsa, Jerome Wolgin, and Roula Yazigi. managed the editorial services, design, pro- Contributors from the International Mon- duction, and printing of the book--in partic- etary Fund included Emmanuel Hife, George ular, Aziz Gökdemir, Susan Graham, Nancy Mubanga Kabwe, Jennifer Lester, Taryn Lammers, Stephen McGroarty, Brenda Mejia, Rounds Parry, Eric Robert, Deborah Siegel, Randi Park, Santiago Pombo-Bejarano, and Tanya Smith, Janet Stotsky, Harry Trines, and Stuart Tucker, along with Jacquie Ciardi of Delia Velculescu. Grammarians, Kirsten Dennison and associ- Contributors from other institutions ates at Precision Graphics, Melissa Edeburn, included Christopher Maccormac and and Chris Lester of Rock Creek Creative pro- Manju Senapaty (Asian Development Bank); vided excellent help with publishing this book Ferdinand Bakoup, Douglas Barnett, and on a very tight schedule. xiv G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Abbreviations and Acronyms AAA Analytical and Advisory Activities DIME Development Impact Evaluation ADB Asian Development Bank DRF Debt Reduction Facility AfDB African Development Bank EAC East African Community AfDF African Development Fund EAP East Asia and Pacific AMC advance market commitment EBRD European Bank for AML anti-money-laundering Reconstruction and Development APRM African Peer Review Mechanism ECA Europe and Central Asia AsDF Asian Development Fund EFA FTI Education for All Fast-Track BEEPS Business Environment and Initiative Enterprise Performance Surveys EFTA European Free Trade Association BIS Baseline Indicator Set EITI Extractive Industries CAE Country Assistance Evaluation Transparency Initiative CAFTA Central American Free Trade ESF Exogenous Shocks Facility Agreement EU European Union CAS country assistance strategy FATF Financial Action Task Force CDD community-driven development FDI foreign direct investment CDI Commitment to Development FMIS financial management Index information systems CFT Combating Financing of G-8 Group of Eight Terrorism GAFTA Greater Arab Free Trade Area CG/RT consultative group and GAVI Global Alliance for Vaccines and roundtable Immunization COMPAS Common Performance GMR Global Monitoring Report Assessment System GNI gross national income CPIA Country Policy and Institutional GII Global Integrity Index Assessment GRECO Group of States Against CPRGS Comprehensive Poverty Corruption Reduction and Growth Strategy HIPC heavily indebted poor CS civil service country/countries CSO civil society organization IADB Inter-American Development CSR civil service reform Bank DAC Development Assistance IBRD International Bank for Committee (OECD) Reconstruction and Development DB Doing Business (surveys) ICS Investment Climate Surveys DFID U.K. Department for IDA International Development International Development Association G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 xv A B B R E V I A T I O N S A N D A C R O N Y M S IDA 14 14th replenishment of IDA OAS Organization of American States resources ODA official development assistance IEG Independent Evaluation Group OECD Organisation for Economic Co- IEO Independent Evaluation Office operation and Development IFC International Finance OED Operations Evaluation Corporation Department IFFIm International Finance Facility for OII Office of Institutional Integrity Immunization OTRI overall trade restrictiveness index IFI international financial institution OVE Office of Evaluation and IMF International Monetary Fund Oversight ISR Implementation Status and PBA performance-based allocation Results PEFA Public Expenditure and Financial ITN insecticide-treated bed net Accountability ITU International PFM public financial management Telecommunications Union PRGF Poverty Reduction and Growth JMP WHO/UNICEF Joint Monitoring Facility Programme for Water Supply and PRS Poverty Reduction Strategy Sanitation PRSP Poverty Reduction Strategy Paper KDP Kecamatan Development Program PSI Policy Support Instrument KK Kaufmann-Kraay PWYP Publish What You Pay KKZ Kaufmann, Kraay, and Zoido- QAG Quality Assurance Group Lobaton ROSC Report on Observance of LAC Latin America and the Caribbean Standards and Codes LDC least developed country RTA regional trade agreement LIC low-income country SA South Asia MAPS Marrakech Action Plan for SDR special drawing right Statistics SPA Strategic Partnership with Africa MDB multilateral development bank SPSP small-scale private service MDG Millennium Development Goal provider MDRI Multilateral Debt Relief Initiative SSA Sub-Saharan Africa MENA Middle East and North Africa SWAP sectorwide program MfDR Managing for Development TC technical cooperation Results TFP total firm productivity MIC middle-income country TI Transparency International MKSS Movement for the Rights of TPID IMF Trade Policy Information Peasants and Workers Database MTEF medium-term expenditure UNDP United Nations Development framework Programme NEPAD New Partnership for Africa's UNITA National Union for Total Development Independence of Angola NGO nongovernmental organization WDR World Development Report NPV net present value WHO World Health Organization NTM nontariff measure WP-EFF Working Party on Aid NURC National Unity and Effectiveness Reconciliation Commission WTO World Trade Organization xvi G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Executive Summary O ne decade remains to meet the Mil- accountability for results that was forged at lennium Development Goals (MDGs) the Monterrey Summit in 2002. that the international community set This Global Monitoring Report (GMR) out in 2000. In 2005 the international commu- reviews the efforts under way to strengthen nity reaffirmed its commitment to mutual mutual accountability. Greater resource flows accountability for achieving results and focused to developing countries must go hand in hand on scaling up resources. In the Paris Declara- with measures to make aid work more effec- tion, donors furthered commitments to raising tively. One key element is improving gover- aid effectiveness through better harmonization nance, both in developing countries and and alignment, and the G-8 Gleneagles Summit globally, to strengthen accountability for brought new aid and debt relief commitments. resource use and for development outcomes. Developing countries, in turn, reaffirmed their Measuring and monitoring governance, in commitment to strengthening governance and support of greater accountability and better pursuing strong development strategies. MDG outcomes, is the primary focus of this Yet the world is still far from achieving report. Monitoring governance can help to the MDGs. Many countries--particularly in clarify options for scaling up assistance and Africa and South Asia--are off track. can support broader efforts to strengthen Examples abound of slow or failing efforts: transparency and accountability, both nation- inadequate resources and weak governance ally and globally. contribute to over 10 million children dying annually of readily preventable diseases; Key Actions to Strengthen only three-fifths of urban and one-quarter Mutual Accountability of rural low-income households in low- income countries have access to improved The report highlights six key actions to sanitation facilities; aid is too often poorly accelerate progress toward the MDGs and directed; and international financial institu- strengthen mutual accountability. tions still emphasize loans and reports Favorable growth has helped reduce rather than development outcomes. In sum, poverty, but more even and accelerated much greater effort is needed to implement progress requires strengthening of infrastruc- the vision of global action and mutual ture and national investment climates. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 xvii E X E C U T I V E S U M M A R Y Growth of both middle- and lower-income need to be better understood, but evidence developing countries has accelerated since points to improving policies and to the impor- 2000, helping to secure further progress in tance of higher quality, more predictable, and reducing poverty. Aggregate income growth better coordinated aid to help finance teacher between 2000 and 2005 suggests a significant and health care worker salaries and other drop in poverty, by perhaps as much as 10 recurrent costs. Sustaining these trends will percent. But progress has been uneven, most require continued support for the aid harmo- of it taking place in East and South Asia. A nization and alignment agenda embodied in few countries in Africa have had some success the Paris Declaration of 2005, and governance in poverty reduction, but most countries in reforms to strengthen the quality of services that continent, and some in Latin America, and accountability of service providers. have seen poverty stagnate or worsen. Major aid and debt relief commitments Accelerating poverty reduction will require were made in 2005, but better aid and vigi- greater emphasis on improving the domestic lant monitoring are needed to guard against growth environment. Aid-recipient countries, risks to their effective implementation. Trade with the help of development partners, need to reform needs new life. improve the investment climate and channel The year 2005 has been a watershed for more resources to increasing household and scaling up aid commitments and deepening business access to basic infrastructure. These debt relief to low-income countries. Over are closely related, since access to infrastructure US$50 billion was pledged in new commit- is a critical element of the investment climate, ments by 2010, including a doubling of aid and both contribute to growth, employment, to Africa. The new multilateral debt relief and productivity. Investment climate surveys initiative will eliminate about $50 billion of show that poor countries place the greatest debt, reducing debt service by around $1 bil- burden on entrepreneurs and have reformed lion annually. business regulations the least--Africa had the But these commitments risk remaining lowest reform intensity in 2004. Moreover, for unfulfilled. Aid commitments may fall victim both the rural and urban poor in many low- to donor-country efforts to cut deficits. Debt income countries, the gap in access to basic relief is intended to be additional but may be infrastructure is widening. counted toward fulfilling aid targets. More- Recent progress in human development out- over, even if aid commitments are met, comes points to the need for more flexible aid, donors may not fulfill pledges to lift the qual- better coordination, and improved governance. ity of aid. Recent history suggests this will be Many countries, particularly in Africa and an uphill struggle--aid remains poorly coor- South Asia, are off track to reach the human dinated, unpredictable, largely locked into development MDGs. Over 10 million chil- "special purpose grants," and often targeted dren under the age of five die each year from to countries and purposes that are not prior- treatable causes. Most of these deaths could ities for the MDGs. Finally, debt relief raises be prevented by simple, known, and low-cost the risk of future unsustainable borrowing treatments. Only 34 of 143 developing coun- from commercial banks. Donors, the World tries are believed to be on track toward halv- Bank and the International Monetary Fund, ing the number of underweight children. and most important, recipient countries need Yet tangible evidence is emerging in some to monitor carefully aid flows and applica- countries of significant progress in human tion of the enhanced debt sustainability development outcomes since the late 1990s. framework to reduce these risks. Surveys reveal that in many countries the poor Following the modest progress with multi- are more than proportionately sharing in this lateral trade liberalization at the sixth minis- progress. The factors behind these successes terial meeting in Hong Kong (China), all xviii G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 E X E C U T I V E S U M M A R Y countries must provide new impetus to rescue progress toward the MDGs. Corruption is a the Doha "development round." Hope is symptom of governance systems failure. The pinned on new negotiating modalities for multidimensionality of governance makes agriculture and industrial products, and com- precise monitoring difficult. The GMR lays prehensive draft schedules for liberalization out a framework that identifies governance to be negotiated by end-July 2006. Develop- indicators for tracking progress, improving ing countries' own liberalization also matters, transparency and accountability, and gener- and could account for half their potential ating greater demand for good governance gains from trade reform. Many poor coun- outcomes. It proposes a core list of 14 moni- tries are unlikely to gain from liberalization toring indicators, including both broad mea- in the short run, particularly in Africa, and sures of governance, as well as more specific, new aid-for-trade pledges have been made to actionable indicators. While both have their assist those that will be hurt. While crucial, uses, the GMR argues for greater investment aid for trade should not be viewed as a sub- in specific, actionable indicators. These include stitute for trade liberalization. the PEFA (public expenditure and financial The focus of the international financial accountability) indicators used to track public institutions (IFIs) must shift from managing financial management, procurement indica- inputs to achieving real results on the ground, tors, and business climate indicators. but this poses major challenges to both the There is no unique path to good gover- IFIs and developing countries. nance. Some countries may be strong in one International financial institutions have, dimension (such as bureaucratic capability) in the past, largely focused on inputs and but weak in others (such as checks and bal- processes rather than on development out- ances). Engagement by the development com- comes. Moving to a results management munity should reinforce positive momentum agenda will require a shift in institutional where it exists, push systematically for practices--which has only just begun with improved transparency, and at the same time the new efforts to develop a common per- enter into dialogue on long-term support for formance measurement system (COMPAS) lagging areas. Monitoring can help to track and integrating Management for Develop- progress across different dimensions, as well ment Results into multilateral development as assess the long-term sustainability of gov- banks' practices. Moving the agenda forward ernance systems overall. Where governance is requires making a long-term management weaker, engagement is much more difficult commitment to shifting institutional culture, and incremental steps are appropriate, focus- deepening efforts to systematically and trans- ing initially on efforts to increase transparency parently monitor performance indicators and and to strengthen local service delivery. to define the set of instruments (rules, incen- The international community must sup- tives, practices) to link behavior to perfor- port efforts to strengthen governance systems mance outcomes. Developing countries need through ratification and support for global to build statistical capacity to measure per- checks and balances. formance and put in place the elements of Good governance is not just the responsi- results management systems; IFIs and donors bility of developing countries. All countries must scale up their support for these efforts. must take responsibility for strengthening Governance should be regularly moni- global checks and balances and implementing tored to help track progress, generate greater strong anticorruption standards. Since the accountability, and build demand for further early 1990s, a framework of global checks and progress. balances has emerged, centered around pro- Governance is an important factor under- grams for international law enforcement (anti- pinning development effectiveness and money laundering, antibribery conventions), G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 xix E X E C U T I V E S U M M A R Y anticorruption treaties (for example, the income countries, which loom ever larger in United Nations Convention Against Cor- commercial dealings with poor countries. ruption), and international transparency ini- More generally, donors need to strengthen tiatives (such as the Extractive Industries their own anticorruption controls (including Transparency Initiative). These systems are through the debarment and cross-debarment still nascent but have made a promising start. of suppliers engaging in bribery and corrup- Donors and the IFIs should assist by pro- tion), increase transparency, and provide aid viding technical assistance and funding to in ways that encourage good governance support countries' participation. They can rather than fragmenting and depleting also encourage the participation of middle- already weak country systems. xx G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Millennium Development Goals (MDGs) Goals and Targets from the Millennium Declaration GOAL 1 ERADICATE EXTREME POVERTY AND HUNGER TARGET 1 Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day TARGET 2 Halve, between 1990 and 2015, the proportion of people who suffer from hunger GOAL 2 ACHIEVE UNIVERSAL PRIMARY EDUCATION TARGET 3 Ensure that by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling GOAL 3 PROMOTE GENDER EQUALITY AND EMPOWER WOMEN TARGET 4 Eliminate gender disparity in primary and secondary education, preferably by 2005, and at all levels of education no later than 2015 GOAL 4 REDUCE CHILD MORTALITY TARGET 5 Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate GOAL 5 IMPROVE MATERNAL HEALTH TARGET 6 Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio GOAL 6 COMBAT HIV/AIDS, MALARIA, AND OTHER DISEASES TARGET 7 Have halted by 2015 and begun to reverse the spread of HIV/AIDS TARGET 8 Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases GOAL 7 ENSURE ENVIRONMENTAL SUSTAINABILITY TARGET 9 Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources TARGET 10 Halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation TARGET 11 Have achieved a significant improvement by 2020 in the lives of at least 100 million slum dwellers GOAL 8 DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT TARGET 12 Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system (including a commitment to good governance, development, and poverty reduction, nationally and internationally) TARGET 13 Address the special needs of the least developed countries (including tariff- and quota-free access for exports of the least developed countries; enhanced debt relief for heavily indebted poor countries and cancellation of official bilateral debt; and more generous official development assistance for countries committed to reducing poverty) TARGET 14 Address the special needs of landlocked countries and small island developing states (through the Programme of Action for the Sustainable Development of Small Island Developing States and the outcome of the 22nd special session of the General Assembly) TARGET 15 Deal comprehensively with the debt problems of developing countries through national and international measures to make debt sustainable in the long term TARGET 16 In cooperation with developing countries, develop and implement strategies for decent and productive work for youth TARGET 17 In cooperation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries TARGET 18 In cooperation with the private sector, make available the benefits of new technologies, especially information and communication Note: The Millennium Development Goals and targets come from the Millennium Declaration signed by 189 countries, including 147 heads of state, in September 2000. The goals and targets are related and should be seen as a whole. They represent a partnership of countries determined, as the Declaration states, "to create an environment--at the national and global levels alike--which is conducive to development and the elimination of poverty." Source: United Nations. 2000 (September 18). Millennium Declaration. A/RES/55/2. New York. United Nations. 2001 (September 6). Road Map towards the Implementation of the United Nations Millennium Declaration. Report of the Secretary General. New York. xxii G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Overview: Strengthening Mutual Accountability--Aid, Trade, and Governance I t has been five years since the Millennium the main MDG targets. As with past Global Declaration was signed by 189 countries, Monitoring Reports (GMRs), it reviews inter- and one decade remains to achieve the national efforts to support the Millennium Millennium Development Goals (MDGs). Declaration, including new commitments by Several events and publications in 2005 donor governments to augment aid flows and marked this milestone: the Paris High Level commitments by the international financial Forum in March, the UN World Summit in institutions (IFIs) to improve their effectiveness. September, the World Trade Organization One element widely recognized as essential meetings in December, and several major to the success of the mutual accountability reports on how to advance the MDG agenda. framework is governance. Measuring and mon- The year brought forth new commitments itoring governance pose major challenges, yet, of resources and actions, and a reaffirmation with interpretive caution, they are feasible. Part of the principle of mutual accountability. II of the report provides a platform for includ- World attention is focused on how to scale up ing governance in the ongoing MDG monitor- resource flows to developing countries--and ing of mutual accountability. It shows how such how to make certain that aid is used effec- monitoring can track progress across both tively toward reaching the MDGs. These two broad and specific (actionable) indicators of issues cannot be separated. Scaling up is about governance. Monitoring can also help to clar- changing the way in which development busi- ify options for scaling-up assistance and can ness is done. Donors and the international support broader efforts to strengthen trans- financial institutions must increase aid flows, parency and accountability, both nationally improve aid quality, and better align their sup- and globally. port with country strategies and systems. Donors also need to open up their markets to the developing world. Developing countries, Part I: Monitoring Progress for their part, must commit to sound develop- Reducing Income Poverty ment strategies and stronger systems of gov- ernance to ensure that resources will be The favorable global growth environment that effectively used. These commitments are the has helped sustain poverty reduction in recent essence of mutual accountability. years continued in 2005. Growth per capita This report examines key developments in for both low- and middle-income countries 2005 and monitors progress toward meeting averaged just under 5 percent in 2005, well G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 1 O V E R V I E W BOX 1 Global Monitoring Report 2006: six key messages Reducing poverty. Growth continues to be favorable, and progress with poverty reduction is accelerating globally. But progress is too slow in improving the business climate (including access to infrastructure) in many poor countries. Meeting human development goals. Many countries are off track to meet the human develop- ment MDGs. But tangible evidence is emerging that there has been significant progress in some countries. Critical to expanding this progress is increasing the ability of aid to cover recurrent costs (such as the salaries of teachers or health service providers) and governance reforms to improve ser- vice delivery. Meeting commitments on aid, debt relief, and trade. In 2005 there were major new commitments for increased aid and debt relief to low-income countries. The risk is that they may not materialize, or that debt relief may simply substitute for aid. Aid transfers need greater predictability, less frag- mentation, better alignment with needs, and targeting to where aid can be productively used. Mul- tilateral trade negotiations need to be accelerated. Strengthening results management. There is progress in shifting the emphasis of IFIs and coun- try programs toward results management--managing for outcomes rather than managing inputs to the production process. However, this shift requires a long-term vision, more resources, and sup- port for capacity strengthening in partner countries. Monitoring governance. Governance should be monitored regularly. To complement existing aggregate indicators, additional effort is needed to monitor specific, actionable indicators, such as quality of public financial management, procurement practices, and checks and balances. This mon- itoring can help to track progress, generate greater accountability, and build demand for good gov- ernance. It can also help underpin long-term dialog between countries and development partners to develop realistic goals and sequencing of governance reforms. Good governance is everyone's responsibility. IFIs and donors should support the emerging global framework for good governance, encourage country participation, strengthen their own anticor- ruption controls, and provide assistance in ways that strengthen transparency and country systems. above historic rates, as buoyant trade, low and financial sectors are sounder. But room interest rates, and strong growth in Organisa- for improvement remains. tion for Economic Co-operation and Devel- The strong expansion in trade volumes opment (OECD) countries helped sustain and higher commodity prices provide addi- performance. More rapid growth is likely to tional evidence of the favorable growth envi- have reduced poverty between 2000 and 2005 ronment. World exports grew by 14 percent significantly--simple projections based on in 2005. Oil exporters reported the fastest aggregate income growth suggest by as much growth, buoyed by the surge in energy prices. as 10 percent, or over 100 million people. Both China and countries in Sub-Saharan Contributing to this growth is the improve- Africa enjoyed a healthy 25 percent increase. ment in macroeconomic policy management. However, while strong overall growth has For low-income countries, macroeconomic helped reduce poverty, the gains remain indicators are now significantly better than in uneven. All regions have, to varying degrees, the 1990s. Middle-income countries, with shared in the recent favorable growth, but higher (and less volatile) growth than low- there are major differences in regional per- income countries, have become more resilient formance in reducing poverty (figure 1), and to economic shocks. Deficits have fallen, more in individual country performance. Much of flexible exchange rate regimes are in place, the improvement occurred in East and South 2 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E FIGURE 1 Poverty headcount by region, 1990­2002, and forecasts to 2015 East Asia & Pacific (EAP) Europe & Central Asia (ECA) Latin America & the Caribbean (LAC) Percent of population living on less than $1 a day 50 50 50 40 40 40 29.6 30 30 30 20 14.8 20 20 11.3 8.9 10 10 10 11.6 6.2 2.1 0.7 0.5 0.9 5.7 0 0 0.3 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 Middle East & North Africa (MENA) South Asia (SA) Sub-Saharan Africa (SSA) Percent of population living on less than $1 a day 50 50 50 44.6 44.0 41.3 38.1 40 40 40 31.2 30 30 30 20.7 22.3 20 20 20 10 10 13.8 10 2.3 1.6 1.2 0 0.7 0 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 2002 2015 Goal Actual Projected Path to goal Source: World Bank staff estimates. Asia, and in Eastern Europe and Central Asia, Near-term prospects for growth and as stronger growth resumed after the Asian income-poverty reduction appear fairly good-- financial crisis, and the transition economies low-income countries are projected to continue adjusted to market systems. In Latin America, to rebound from their contraction of the early growth is up over the past two years, but it is 1990s (growing by nearly 4.5 percent per still too low to make strong inroads into capita in 2005), and middle- income countries poverty reduction. African growth has also are projected to grow by 4.6 percent per capita. improved, outpacing its historical average, by But the global environment also poses risks. accelerating to more than 2 percent per capita High oil prices threaten to slow growth in low- in 2005--but on current trends, few African income, oil-importing countries, particularly if countries will reach the MDG income- non-oil commodity prices weaken; stronger poverty target. However, several countries terms of trade helped offset oil import costs in within Africa have performed well over the 2005. Other continuing risks include abrupt last decade, due to a combination of better adjustment in global current account imbal- policies, enhanced trade performance, and ances, further increases in global interest rates, foreign aid. This demonstrates the potential and the failure of the Doha Round trade talks. for more rapid progress. Of added concern is the potential impact of G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 3 O V E R V I E W avian influenza on global commerce. Singly or All regions are off track on at least some of the in combination, these factors could undermine goals, and the two regions lagging most seri- recent gains in poverty reduction. ously behind--South Asia and Sub-Saharan Strengthening poverty reduction will require Africa--are off track on all of the goals. Chil- greater emphasis on the domestic growth envi- dren's nutrition is worsening in many parts of ronment through improving the investment cli- Africa; a majority of countries are not making mate, strengthening access to infrastructure, sufficient progress to reduce child mortality and enhancing opportunities for the poor. The and maternal mortality; and HIV/AIDS con- quality of the investment climate contributes tinues to spread across the world. In many strongly to growth, employment, and produc- countries much more needs to be done to tivity, all of which are important for sustainable reach the poor. poverty reduction. Tools for monitoring the However, the latest data also provide some investment climate--Investment Climate Sur- encouraging signs of progress: veys and Doing Business Indicators--show that poor countries place the highest burdens on The number of countries that have entrepreneurs, and on reform business regula- achieved or are on track to achieving uni- tions the least. Africa had the lowest reform versal primary completion (MDG 2) has intensity in 2004, and Eastern Europe and Cen- increased significantly since 2000, and the tral Asia had the highest. pace of progress has also increased. Even Basic infrastructure services--transport, faster rates of progress are observed in electricity, water, sanitation, telephones--are countries that have joined the global Edu- key both to a strong investment climate and cation for All Fast Track Initiative (EFA to sustained progress in human development FTI). Gender disparities in primary and outcomes. Half a billion people gained access secondary education (MDG 3) are also to electricity between 1995 and 2004. Tele- narrowing, with girls' enrollment rates phone subscribers quintupled in the 1990s growing faster than boys' in all regions, and are believed to have tripled since. But although the target of achieving gender while East Asia and the Middle East have parity by 2005 was not met. shown marked improvement, other regions While only 20 percent of developing coun- are losing ground for most infrastructure ser- tries are on track to reducing child mortal- vices on a per capita basis. For the rural pop- ity (MDG 4), the most recent survey data ulation, and for the poor in both rural and suggest that rates of progress are acceler- urban areas, access gaps are large and rein- ating in some countries, and very signifi- force their vulnerability. More resources and cant progress is being made to reach the greater innovation in service delivery and poor with key interventions, such as child- easy-to-maintain technologies are needed. hood immunizations. Finally, increasing access and opportunities Access of women to trained birth atten- for poor and vulnerable groups is comple- dants, the best indicator of maternal mor- mentary with improving growth perfor- tality (MDG 5), shows strong improvement mance. Equality of opportunity is at the heart in East Asia, more modest in Latin America, of the MDG agenda, particularly access to but shows little gain in Sub-Saharan Africa. public services and opportunities for human The first signs of decline in HIV/AIDS development--the focus of World Develop- infection rates (MDG 6) are emerging in ment Report 2006. high-prevalence countries such as Haiti, Uganda, and Zimbabwe. Evidence is growing that prevention programs work Meeting the Human Development Goals when they are intensive and sustained. The Regional progress toward the human devel- number of AIDS patients under treatment opment MDGs remains a cause for concern. in the developing world has scaled up 4 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E rapidly, approaching 1 million in 2005, vey evidence on primary school completion from less than 100,000 in 2000. And new yields a similar conclusion. global efforts to combat malaria are Better policies in the social sectors explain improving treatment and rapidly spread- some of the progress. An increasing number ing the use of treated bednets. of countries in all regions are adopting reforms to make education and health sys- Figure 2 shows the annual reductions in tems more effective and responsive to the child mortality between survey years in all 10 people they serve: increasing community countries for which the Demographic and voice in the management of frontline schools Health Survey data are available since 2002. and health facilities; allocating funds more It shows that nine of the countries have made transparently; managing the recruitment and gains, over half at quite rapid rates, ranging deployment of providers more effectively; from Burkina Faso (3.6 percent per annum) to measuring and publicizing student learning Madagascar (5.6 percent per annum). More- outcomes and other key results; and condi- over, the gains are reaching the poor. In four tioning income transfers to families on their of the countries, child mortality fell fastest use of education and health facilities. among the poorest quintile households. This There has also been a substantial increase is helping to reduce, albeit gradually, the gap in external support. Official development in performance of poor households. The sur- assistance (ODA) for primary education FIGURE 2 Annual reductions in child mortality (number of child deaths per 1,000 live births) 5.6 Madagascar, 1997­2003/4 106 4.3 4.7 Indonesia, 1997­2002/3 53 5.5 4.5 Philippines, 1998­2003 42 3.3 4.1 Bolivia, 1998­2003 75 4.8 3.7 Bangladesh, 1999/00­2004 94 3.3 3.6 Burkina Faso, 1998/99­2003 190 3.3 3.4 Morocco, 1992­2003/4 51 2.6 2.6 Mozambique, 1997­2003 178 4.1 0.6 Cameroon, 1998­2004 141 0.9 ­0.8 Kenya, 1998­2003 ­1.9 109 ­2 ­1 0 1 2 3 4 5 6 Percent annual change Poorest quintile Population average Source: World Bank estimates from Demographic and Health Surveys. Note: The boxed numbers show the number of child deaths per 1,000 live births in the most recent survey. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 5 O V E R V I E W nearly tripled between 2000 and 2004. Aid is Meeting Donor Commitments of Aid, also better aligned with MDG priorities, and Debt Relief, and Trade in education, the EFA FTI is producing tangi- Meeting donor commitments is a central ble gains in donor harmonization at both the facet of the mutual accountability frame- country and global level. However, spending work. Major progress was made in this area on health and education in government bud- in 2005: the international community sharp- gets is tracked only by the World Bank and ened its focus on the Millennium Develop- the IMF, and there is a need to improve the ment Goals and reaffirmed commitments to consistency of the data. increase aid, advancing the agenda for donor harmonization and alignment, and to expand Extending and sustaining these gains will debt relief to the poorest countries. But con- require more flexible and predictable aid. cerns over delivery remain. The main financing need in health and edu- In 2005 there were major new commit- cation is recurrent expenditures, yet less than ments to expand aid flows and deepen debt one-third of bilateral aid to low-income relief to the poorest countries. The UN World countries is in non-special-purpose grants Summit in September helped maintain the that can more readily be used for both recur- focus on the MDGs. Along with the Commis- rent costs and investment. The volatility of sion for Africa Report, "Our Common Inter- aid disbursements is another serious con- est," and the Millennium Project Report, straint to expanding social services, which "Investing in Development," the UN report, depend on multi-year financing of recurrent "In Larger Freedom: Toward Development, costs. Finally, there is evidence that transac- Security, and Human Rights for All," helped tions costs in health are increasing, with the focus international attention on development. growth of "vertical" global health initiatives. Several initiatives were launched at the G-8 These are key issues for the development Summit (July 2005) in Gleneagles, including community to resolve in order to accelerate pledges to: MDG progress. Ultimately, however, the achievement of Increase aid to Africa by $25 billion a year the MDGs is in the hands of developing by 2010--more than doubling the current countries. Increased and more flexible aid is assistance to the region--and to all devel- unlikely to materialize unless countries oping countries by about $50 billion. reduce resource leakages and strengthen Extend and deepen debt relief to the poor- accountability of service providers to the est countries. The G-8 proposal, the Multi- public. Cross-country studies show that, on lateral Debt Relief Initiative (MDRI), aims average, one in three health care workers is to cancel the roughly $50 billion of debt missing during unannounced facility visits, owed by Heavily Indebted Poor Countries and one in six teachers is also absent. Funds (HIPC) to the African Development Fund may fail to reach their intended level in the (AfDF), International Development Asso- budget if they are diverted before reaching ciation (IDA), and the International Mon- local clinics and schools. Sound expenditure etary Fund (IMF). management systems are needed to address this issue and to meet the fiduciary concerns However, concerns arise over whether of donors and finance ministries. While these new commitments will be delivered, many developing countries are taking steps and if so, how effectively. Delivering on to generate greater accountability in social commitments will require spelling out the service delivery, in most places deeper and mechanisms for their implementation and broader reforms are still needed, as discussed monitoring their execution against well spec- in Part II of this report. ified benchmarks. It will also require greatly 6 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E improving aid quality, and delivering it where costs. Flexible aid (non-special purpose grants it can be effectively used. and multilateral ODA), which could be used to meet recurrent and capital costs for MDG- I N C R E A S I N G T H E V O L U M E A N D related expenditures, increased by only 8 per- Q U A L I T Y O F A I D cent, from $38 billion to $41 billion. Aid from the Development Assistance Com- mittee (DAC) countries of the OECD totaled Harmonization and alignment. Progress with $80 billion in 2004, and rose further in 2005 the agenda on harmonization and alignment, to an estimated $106 billion, averaging 0.33 as embodied in the "Paris Declaration" of the percent of GNI. Most of the large increase in High Level Forum in March 2005, is a prior- 2005 is due to debt relief to Iraq and Nigeria, ity. The 12 global targets for enhancing aid and total aid has yet to reach relative levels of effectiveness by partner countries, donor assistance in the early 1990s. There is a wide countries, and the multilateral development range in country contributions: five DAC banks are not just symbolic. Implemented, members provide over 0.7 percent of GNI in they will radically transform the way most aid aid, while the United States provided the low- is delivered. A preliminary baseline has been est share (0.17 percent of GNI in 2004). Non- developed, but the gap between the baseline DAC donors also increased their aid and the targets is wide. Donors and the IFIs contributions 9 percent in 2004, which brings face challenges in changing management prac- the total assistance to $3.7 billion, or 0.18 of tices and incentives. Regular monitoring and GNI (of which Arab countries contributed peer pressure, it is hoped, will advance this 0.85 percent of GNI in ODA). agenda. The aid commitments by DAC countries, however, add up to much more than $106 bil- Selectivity. Aid allocation will need to shift if lion. If all aid committed over the 2006­10 support for the MDGs is to be the objective. period were disbursed, it would lift DAC con- Evidence on aid allocation among countries tributions further by $24 billion--to about underscores that aid is often not channeled to $130 billion--in real 2004 dollars. More aid where the impact on the MDGs is likely to be will need to be in non-debt relief forms as greatest. While aid selectivity is increasingly large opportunities for debt relief are based on need (poverty level) and ability to exhausted. Monitoring real aid disburse- effectively use aid (quality of policies and gov- ments by DAC members is important for ernance), there is evidence that other factors holding donors accountable to their interna- still determine a large share of aid disburse- tional commitments. ments. For example, over 60 percent of the Of equal importance for enhancing the increase in ODA between 2001 and 2004 was contribution aid makes to the MDGs is the directed to three countries--Afghanistan, the quality and composition of ODA. Three key Democratic Republic of the Congo, and Iraq, elements warrant attention: aid flexibility, although these three countries collectively harmonization and alignment of support, and account for less than 3 percent of the poor country selectivity. people in developing countries (figure 3). Flexibility. Increasing the share of flexible aid, M A K I N G P R O G R E S S I N D E B T R E L I E F which can be targeted at meeting MDG needs, The Multilateral Debt Relief Initiative (MDRI) is a priority for scaling up. Over 70 percent of that emerged from the G-8 Summit in July bilateral aid from DAC countries between 2005, complements the existing efforts to 2001 and 2004 was in the form of special pur- reduce the debt burden facing HIPCs. The pose grants: debt relief, technical cooperation, existing HIPC initiative has delivered debt food aid, emergency aid, or administrative relief to 28 countries as of end-2005. Debt ser- G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 7 O V E R V I E W FIGURE 3 ODA increases concentrated in a few countries M E E T I N G C O M M I T M E N T S T O L I B E R A L I Z E I N T E R N A T I O N A L T R A D E Top 10 recipients of the increase Advances in multilateral trade reform talks in in net ODA, 2001­4 2005 remained elusive. The roadmap that Iraq emerged from the Hong Kong, China talks Afghanistan still requires concurrence on the most divisive Congo, Dem. Rep. of issues--agriculture and industrial products. Angola This roadmap is scheduled to be agreed on by Madagascar Sudan April 2006, and finalized by October 2006. Zambia Other outcomes of the Hong Kong, China Ghana meetings were modest. Agricultural export Senegal subsidies are to be phased out by 2013, con- Ethiopia ditional on disciplining equivalent programs 0 1 2 3 4 5 such as food aid. Duty-free and quota-free 2004 US$ billions access to developed country markets for prod- ucts from the least-developed countries was Source: OECD DAC database. significantly weakened by the likely exemp- tion of 3 percent of tariff lines in key products. Some success was achieved in support for "aid-for-trade," in recognition that the poten- vice to fiscal-revenue ratios was halved, and tial gains from trade are not evenly distributed expenditures related to poverty reduction are and many countries, particularly in Sub- estimated to have increased from $6 billion to Saharan Africa, lack the requisite infra- nearly $11 billion. The new MDRI initiative structure and skills base to benefit from goes beyond this level to cancel all of the debt multilateral trade liberalization. The United claims of the African Development Fund States, the United Kingdom, Japan, and the (AfDF), IDA, and the IMF for countries that European Commission have all committed to have reached, or will eventually reach, their increasing resources for building trade capac- completion points under the HIPC initiative. ity in low-income countries. There is a criti- The IMF has already fully implemented the ini- cal need to ensure that aid for trade is tiative, while the AfDF and IDA are finalizing effective and is not a substitute for allowing arrangements. As a result, the estimated greater market access. annual debt service flows of these countries will fall by around $1 billion annually over the IFI Performance: Strengthening next decade, and by somewhat higher amounts Results Management after that. To lock in these gains (estimated at about A final key element of the mutual account- $1 billion annually for the first decade) care- ability framework rests with efforts by the ful benchmarking and monitoring are IFIs to support development outcomes. How- needed. With the MDRI a new benchmark in ever, assessing their contribution to actual aid is needed to ensure that there is no count- development outcomes is complex, because ing of debt relief against higher DAC country there are many other determinants and part- aid commitments to the IFIs. Accumulation ners, in particular, country governments. The of new, unsustainable debt is another risk fac- focus here is on evaluating the IFI progress ing MDRI recipients. The debt sustainability with the results orientation of their manage- framework is currently under review to ment practices, their contributions to devel- ensure that it helps guard against this risk and opment finance, the strengthened impact supports HIPC country efforts to improve evaluation, and aspects of institutional expenditure composition. integrity and transparency. 8 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E Implementing the results agenda. The 2004 orous evaluations are currently under way Marrakech Roundtable on Results called for through DIME, on education projects, condi- a monitoring system to assess the results ori- tional cash transfer programs, and slum- entation of the multilateral development upgrading initiatives. banks (MDBs); that system is COMPAS, the Common Performance Assessment System, Financing flows. In 2005 lending through the which draws on MDB frameworks and concessional and non-concessional windows of action plans to implement managing for the MDBs declined, although the dip in con- development results (MfDR). While it is still cessional lending was due, mainly, to con- too early for robust assessment, the initial straints on IDA-13 resources and to a spike in COMPAS efforts are promising: awareness of IDA disbursements the previous year. In general results is increasing, and frameworks, sys- there is an upward trend in MDB financing to tems, and procedures are being put in place in low-income countries, and the IDA-14 replen- all the institutions. ishment provides for this to continue through The degree and manner in which MDBs 2007. In contrast, disbursements to middle- are carrying out the results agenda varies. A income countries have steadily declined for key challenge will be to establish an institu- some years, and net lending has been negative. tional culture of using the information on Several factors shape the middle-income results to inform decision making. MDBs face country demand for funding: shifting demand trade-offs that complicate implementation. toward sovereign bond financing; prepayment There is tension between alignment with of older, higher-cost loans; greater financial country systems and fiduciary concerns. market access with improvements in credit- There are also significant gaps between insti- worthiness; and slow development on the part tutional harmonization policies and country of MDBs of new, innovative financing mecha- level practices, raising questions about align- nisms for the middle-income countries. Better ing staff incentives with the MfDR frame- alignment of MDB strategies with evolving work. Focusing the MDBs on outcomes, middle-income country needs is necessary. rather than on the more traditional input management, will require a sustained effort. Improving alignment, integrity, and trans- Implementation will require both a strength- parency. An outgrowth of the Paris Declara- ened MfDR capacity in partner country gov- tion is the commitment by donors and IFIs to ernments and long-term MDB commitment. support the development of national systems Impact evaluation is a key component of over parallel donor structures. MDBs are results management. Each IFI has an inde- adopting different approaches to this goal, pendent evaluation unit that conducts both including technical assistance to strengthen institution-wide assessments--for example in country systems and testing country systems support of health sector reforms, pension sys- in select countries. The IMF's experience with tems, or the quality of analytic work. The safeguard assessments of Central Banks pro- MDBs also assess specific country programs vides a positive example in this area. So far and projects. Additional efforts are under there has been limited progress in the use of way to help develop more robust, evidence- country systems, due, in part, to inherent based advice to partner countries that can risks and fiduciary concerns. help define the types of interventions they MDBs' concerns about corruption range should support. Two examples are the Devel- from preventing fraud and corruption in opment Impact Evaluation initiative (DIME) MDB-financed projects, to promoting good at the World Bank, and the program of governance in country programs, and to sup- impact evaluations launched in the Inter- porting international efforts to fight corrup- American Development Bank (IADB)'s Office tion. Efforts are under way to improve their of Evaluation and Oversight. Two dozen rig- ability to reduce corruption in the use of G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 9 O V E R V I E W their own funds, and to empower investiga- dialogue, and notes some indicators that tive departments. However, numerous chal- might be used in going forward, together with lenges remain: ad hoc reactions to instances some additional work to develop them. This of corruption remain the norm while system- framework identifies some patterns of gover- atic management of risks is still being devel- nance across countries and over time, and oped. Moreover, ring-fencing of projects highlights challenges for strengthening gover- cannot substitute for strengthening country nance. The complexity of governance and the systems, which is a much more challenging need to proceed with caution should be borne and lengthy task. in mind. Improving transparency is part of the Improving governance is not simply a mat- effort to strengthen IFI accountability. Evi- ter for aid recipients. The global milieu has dence shows that transparency is improving, powerful influences on governance systems in which makes it easier for country partners to developing countries. Global markets can be scrutinize policies that affect them and to par- a source of virulent, corrosive corruption or ticipate more in the development dialogue. a powerful disciplining device. Donors and Disclosure of country performance ratings by IFIs can impose practices and reporting the IADB, and those planned for 2006 by the requirements that fragment and overwhelm AfDF, Asian Development Fund (AsDF), and already fragile country systems, or they can IDA, are cases in point. The IMF's speedy provide support in ways that help strengthen publication of country reports is another. governance. Global mechanisms can help poor countries strengthen governance to meet Part II: Governance as Part the MDGs, including promoting standards of Global Monitoring and codes to provide sources of good practice for all countries. For this reason, the estab- Governance has emerged as an essential ele- lishment of global checks and balances is ment of the mutual accountability framework. another priority. The UN Millennium Project report cites "gov- ernance failures" as one of four obstacles to A Framework for Monitoring reaching the MDGs. The UK's Commission Country Governance for Africa report recommends improved gov- ernance, together with market opening, as Public sector governance can be defined as the keys for alleviating poverty. Governance is way the state acquires and exercises its also highlighted in new donor approaches, for authority to provide and manage public instance in the European Union's Cotonou goods and services, including regulatory ser- Agreement--effective in 2005, and the United vices. A governance system has both a supply States' Millennium Challenge Account. Devel- side (the capabilities and organizational oping countries, too, have noted the centrality arrangements embodied in its players) and a of governance; for example, in the New Part- demand side (the accountability arrange- nership for Africa's Development (NEPAD)'s ments that link the players to one another). Africa Peer Review Mechanism. Yet, while To monitor governance--and to improve it-- empirical research links governance-related a framework is needed to cut through the institutions and development, there is not yet complexity. The GMR lays out one possible a consensus as to how to approach gover- framework, which identifies the key actors in nance and its measurement. a national governance system and the key This GMR aims to provide a platform for accountability relationships among them (fig- the inclusion of governance as an ongoing ure 4). part of MDG monitoring. To do so, it pro- vides a governance monitoring framework Political leaders are the prime drivers, setting that can enable a more empirically grounded the objectives for the rest of the governance 10 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E FIGURE 4 National governance system Actors Political governance: citizens, leaders, and Accountability political parties Accountability = rules, Public administration Checks and balances information and and financial institutions transparency, management agencies enforcement mechanisms Service provision and regulatory organizations Citizens and firms Citizens and firms Outcomes: policies, services, and regulations Source: Authors. system. Often they work for the general inter- Citizens and firms are central to effective est; other times they cater to special interests accountability. Citizens select political lead- and core supporters. Sometimes these power- ers; as users of services, citizens and firms can ful interests may capture the state. Even a also hold providers accountable for the effi- democratic electoral process does not guar- ciency and effectiveness of service provision. antee that politicians will focus on the general Within such a system, effective accountabil- interest. ity requires clear rules and expectations, trans- parent information to monitor performance, Checks and balances institutions are impor- and incentives and enforcement mechanisms tant for the sustainability of effective gover- that reward success and address failure. Trans- nance. They include parliaments, independent parency is not sufficient, on its own, for good oversight agencies (audit institutions, ombuds- governance, but it is a powerful feature for men, and anticorruption commissions), the improvement, with broad applicability across judicial system, a free press, and accountable an array of public actions. local governments. Corruption is one outcome of a gover- The public bureaucracy is the implement- nance system. It can reflect the failure of any ing arm of government. It includes both cross- number of accountability relationships--for cutting public administration and financial instance, political failure leading to state cap- management control agencies (such as the ture, bureaucratic failure, or a failure of Ministry of Finance) and agencies that directly checks and balances. deliver social and regulatory services to citi- While it may be difficult to get more than zens and firms (for example, education or a subjective measure of political governance, licensing). the capability of the bureaucracy, the strength G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 11 O V E R V I E W of checks and balances, and some aspects of raising awareness, and they can also focus service delivery can be measured more objec- attention on broad areas in which individual tively. The framework thus points to three countries can strengthen their national sys- different ways in which governance can be tems. However, these broad indicators, as monitored, and for each, specific foci for with all governance indicators, are also sub- measurement are suggested: ject to quite wide measurement errors. Ranking countries on the basis of the KK A: Overall governance performance: corruption indicators, for example, only 87 (i) Summary measures of governance out of 203 can be confidently assigned to top, system quality; middle, and bottom thirds. The standard (ii) Control of corruption; measurement error in the CPIA is of a similar (iii) Quality of economic and sectoral relative magnitude. Assessments can there- policies. fore broadly distinguish high-, middle-, and B: Quality of bureaucracy: low-rated countries, but some are likely to be (i) Public financial management and misclassified when ratings are broken down procurement systems; on a much finer scale. Governance indicators (ii) Public administrative systems; also may not be able to pick up with preci- (iii) Front-line service provision and sion the modest, short-run changes in gover- regulatory agencies. nance, although they will do better at C: Performance of checks-and-balances signaling longer-run trends. In sum, broad institutions: governance indicators are useful but have (i) Constraints on the executive; limitations, including their margins of error; (ii) Justice and the rule of law; as a basis for cross-country comparison, they (iii) Transparency and voice. need to be applied with caution. A second approach is to use narrow mea- sures of the quality of specific governance The Challenge of Monitoring Governance subsystems. While these too can have non- Measuring governance is difficult. Formal trivial measurement error, the narrow focus systems can be categorized and rated--but of specific indicators makes them "action- the gap between formal arrangements and able" in the sense that they can help to iden- realities on the ground is often wide. Institu- tify governance weaknesses and to monitor tional processes are difficult to observe and improvements. Specific governance indicators measure systematically. Two complementary are being used in diverse ways: approaches respond to these measurement challenges. The Public Expenditure and Financial One approach is to use broad measures to Accountability (PEFA) program uses 28 monitor aggregate governance. The GMR indicators to track public financial man- highlights as useful several aggregate indica- agement. tors, including the so-called Kaufmann- The Doing Business and Investment Cli- Kraay (KK) indicators compiled by the mate Surveys are creating monitoring base- World Bank Institute on the basis of a large lines for regulatory performance, including number of (mostly external) assessments, a baseline for corruption. Transparency International (TI) indicators, The Center for Global Integrity has applied and the Country Policy and Institutional a detailed set of indicators on the quality of Assessments (CPIAs) compiled by the World checks and balances in 26 countries. Bank (the 2005 ratings are to be released for Detailed indicators have been developed IDA countries in 2006). for monitoring procurement, the quality of These broad governance indicators have statistical systems, and administrative many uses. They can be powerful forces for reform. 12 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E User scorecards and similar surveys pro- FIGURE 5 Net change in HIPC indicator tracking scores, 2001­4 vide an entry point into governance from the perspective of service delivery. Number of countries 8 So far, however, other than in the areas 7 7 related to private sector development and to 6 6 the public financial management for HIPC 6 countries, there has been no focus on refining 5 and applying such indicators systematically. Between them, the broad and narrow 4 approaches to governance monitoring yield 14 governance measures that are currently avail- 3 able, offer comprehensive country coverage, 2 2 and cover each of the diverse facets of national 1 governance systems. These measures can pro- 1 vide a useful baseline for ongoing governance 0 monitoring to move forward. The greatest Decline Decline No Improvement Improvement value-added for governance monitoring will in 3 in 1­2 change in 1­2 in 3 or more categories categories categories categories come from the improvement of specific indica- tors. More sustained use and investment in specific, actionable, governance indicators is a Source: IDA and IMF 2005, update on HIPC tracking. recommendation of this GMR. administration and procurement, where mon- Strengthening Bureaucratic itoring has been piloted in 10 countries. Capability, Checks and Balances, and Service Delivery Checks and balances: the role of trans- Bureaucratic capability. Strengthening public parency. While transparency is alone not suf- financial management (PFM) is an area of ficient for good governance, its role in great importance for scaling up aid, and it is national governance systems is pervasive-- also the area in which most progress has been from the political apex of the system, through made in developing and applying specific, the publication of judicial decisions, to a free actionable indicators. Assessments of the qual- press, and all the way to the service provision ity of budget and financial management sys- front line. Transparency has a supply side and tems conducted in both 2001 and 2004 for 22 a demand side. On the former, quality infor- HIPC countries showed that, while progress is mation built on a platform of robust statisti- uneven, countries that are determined to cal capacity is key, as is assuring that citizens improve their public financial management enjoy a right to information. Over 50 coun- systems can do so quite rapidly. Seven coun- tries had adopted the Freedom of Informa- tries, including Ghana, Mali, Senegal, and tion Laws by end-2004, with efforts under Tanzania, achieved substantial improvements way in an additional 30 countries. However, between 2001 and 2004 (figure 5). Especially assessments done for IDA-14 paint a worri- for countries that receive budget support, some picture of the statistical capacity in IDA improvement in PFM should be monitored. countries (figure 6). Many lack the capacity With political commitment and support, many to produce high quality information, which countries should be able to achieve reasonably leads to a vicious circle of low attention to strong PFM within a 5- to 10-year period. Sim- data and low demand for improvement; ilar approaches can be used to monitor and progress in this area is slow, especially in low- guide reforms in other areas, including public income Africa. Extended support for the G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 13 O V E R V I E W FIGURE 6 Measuring statistical capacity in IBRD, IDA, and IDA-Africa, 1999­2005 Percent 100 90 80 70 60 50 40 30 20 10 0 IBRD IDA IDA-AFR IBRD IDA IDA-AFR IBRD IDA IDA-AFR Practice Collection Availability 1999 Change between 1999­2005 Source: Country Statistical Information Database (www.worldbank.org/data/countrydata/csid.html). Marrakesh Action Plan for Statistics, an options in weak governance settings. Some international response to the challenge of facets of the business environment, such as improving capacity to monitor the MDGs, is levels of unofficial payments for specific ser- an important component of efforts to vices, can be linked to governance and are strengthen transparency. increasingly being monitored through instru- On the demand side, an active civil society ments such as the Doing Business Indicators is key to translating transparent information and Investment Climate Surveys. Surveys for into action. Together with government agen- Europe and Central Asia, for example, found cies, a Philippine citizen monitoring program that corruption was most pervasive in licens- identified losses of more than $3 million that ing, tax administration, and obtaining gov- the Department of Education promised to ernment contracts. rectify. In Tanzania, the Rural Initiatives and In countries where formal "top-down" Relief Agency helped local communities accountability is weaker, sector-wide programs, track government program expenditures and decentralization, and community-based (CDD) ensure that funds were indeed delivered. approaches have become increasingly used to Both cases, with grants of under US$25,000, enhance service delivery. The World Bank alone help to underscore the notion that empower- channeled over US$10 billion directly to poor ment through information can be a low-cost/ communities between 1999 and 2005. All of high-return strategy for improving gover- these approaches have limitations. Donors fail nance. The donor and IFI community should to harmonize; for instance, in 2004 Tanzania design its operations and programs to sys- had 110 education projects on the books with tematically go beyond technocratic dialogue an estimated average size of under $1 million. with officials and actively foster trans- Donor financial projects often bypass line min- parency by bringing information on analysis istries and subnational governments. While a and performance into the public domain. 2005 review concluded that CDD projects Service delivery can be an entry point for have supported participation and helped to better governance, and may be one of the few get services to citizens cost-effectively in var- 14 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E ious administrative settings, the wider impact mix of governance strengths and weaknesses. on governance of such approaches is still Some countries have relatively capable pub- debated. In difficult governance settings, sec- lic bureaucracies, but weaker checks and bal- toral and bottom-up approaches may be the ances institutions; others have the reverse. most feasible entry points for governance Some with weak policies appear to be less reform, although their effects are slow, indi- corrupt; others, who are stronger on the pol- rect, and uncertain. These approaches need to icy front, seem to be less successful in con- be monitored for their impact on both the trolling corruption. Bangladesh is perhaps demand for, and supply of, good governance. the best known example of a country with relatively weak perceived control of corrup- tion but strong performance on policies and Approaching Country Diversity: on poverty reduction. Several other countries The Need for a Long-Term Perspective share this paradoxical pattern. These pat- Even taking margins of error into account, terns reflect many institutional and historical some judgment as to governance quality can factors. be made for about two-thirds of the 66 low- Figure 7 illustrates three possible trajec- income countries. At the upper end of the tories for governance turnarounds. In the spectrum, about one-third of countries gen- first trajectory (Indonesia in the 1970s and erally score well across all or most measures. Uganda in the 1980s are examples), a devel- At the lower end of the spectrum, another opmental political leader takes power and one-third generally are in the bottom two focuses on liberalizing the economy and quintiles on the outcome measures, and gen- strengthening the performance of the public erally do not score well on the measures of sector--with checks and balances a lower subsystem quality either. These latter coun- priority. Poverty reduction gains can be tries are basically stuck in clientelism, or state rapid in this scenario, but if country reform- failure. ers and development partners wait too long But many countries (including some in to put the challenge of strengthening checks these two groups) have a strikingly uneven and balances onto the agenda, the conse- FIGURE 7 Governance turnarounds: three trajectories Trajectory I Trajectory II Trajectory III Quality of bureaucracy high low low high low high low high Quality of checks and balances institutions Initial turnaround Desirable follow-through Source: Authors. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 15 O V E R V I E W quence (as in Indonesia during the latter address corruption, which complements Suharto years) can be rising corruption, regional anti-corruption treaties. It recog- financial crisis, a difficult process of political nizes the recovery of looted assets as a "fun- succession, and a reversal of earlier gains. damental principle." In the second trajectory, a country moves International transparency initiatives: rec- to political pluralism (for example, Albania in ognizing the special challenges posed by the early 1990s and Nigeria more recently). concentrated natural rents, the Extractive Only sometimes does this new political open- Industries Transparency Initiative for ness translate into stronger bureaucratic hydrocarbons and other minerals, and the capability. In the third trajectory, following Kimberley Process Certification Scheme state collapse, international intervention or for raw diamonds, build on broad interna- support helps to provide an umbrella of tional support for transparency. security under which both the bureaucracy and checks and balances institutions are re- The success of these international initia- established (Mozambique offers an example tives is not easy to monitor. Assessments sug- of a country that appears to have followed a gest that a promising start has been made, balanced trajectory). but there is a very long way to go before In the short term, none of these turn- global good governance becomes really effec- arounds is superior to any other, but eventu- tive, and this will require sustained support. ally improvements in governance need to The Kimberley process has been relatively evolve in a balanced way. Development part- successful. Almost all producer countries ners need to take the different governance tra- participate, as do all major rough-diamond jectories into account and to engage, on a importing countries. But recovering looted long-term basis, to strengthen lagging ele- assets is still difficult, with low rates of asset ments of the governance system. It took many recovery. Of the estimated $12 billion to $20 years for durable governance institutions to billion looted by Presidents Mobutu, Abacha, emerge in today's industrial countries. and Marcos, only some $1.5 billion has been recovered. Offenders frequently have to be charged with tax evasion rather than corrup- Strengthening Global Checks tion. Some programs still have noticeable and Balances loopholes, such as the exclusion of transac- Since the early 1990s, a framework of global tions related to the financing of political par- checks and balances has emerged, which is ties. Still, it is worthwhile recalling that only centered around three types of programs: a few years ago foreign bribes were consid- ered a legitimate business expense by many International law enforcement: OECD's OECD counties. anti-foreign bribery convention and the IFIs and donors can assist these checks anti-money laundering activities of the and balances processes by providing techni- Financial Action Task Force complement cal assistance and funding to support coun- each other; they help to tackle interna- tries' participation, and by encouraging the tional corruption and they enable OECD participation of middle-income countries, countries to share in the prosecutorial bur- which loom larger in commercial dealings den. This is valuable for poor countries, with poor countries. More generally, donors which often lack the capacity and reach to can strengthen their own anti-corruption pursue complex cases across international controls (including through the debarment borders. and cross-debarment of suppliers engaging Anti-corruption treaties: the UN Conven- in bribery and corruption), increase trans- tion Against Corruption (effective December parency, and provide aid in ways that 2005), provides a global legal framework to encourage good governance rather than 16 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G M U T U A L A C C O U N T A B I L I T Y -- A I D , T R A D E , A N D G O V E R N A N C E fragment and deplete already weak country ODA to help meet the MDGs? For the one- systems. Implementation of the Paris Decla- third or so of IDA-recipient countries that ration is needed both to improve the quality score well on most governance measures, the of aid and to contribute to good global gov- task is easier. They have in place budget man- ernance. Developing countries have begun agement and administrative systems that are to implement mutual programs to support reasonably capable of targeting spending to good governance, in particular the NEPAD developmental priorities, and executing and African Peer Review Mechanism: donors monitoring expenditures. From a governance can also help to support such programs. perspective scaling-up can proceed with The stakes are high. While worldwide cor- fewer constraints. ruption is difficult to quantify, one estimate In the remaining countries, scaling up may puts the proceeds at $1 trillion annually. For require some alternative approaches. First, a single case, the Iraq Oil-For-Food Program, even where current systems fall short, aid the Volcker report documents kickbacks of might be scaled up based on a clearly improv- $1.5 billion by 2,235 suppliers. How this is ing trend in the quality of budget and admin- settled will provide a strong signal on the seri- istrative management systems. In such settings, ousness with which the OECD countries sup- aid can be seen as an investment in strength- port the fight against corruption. ening country systems. For countries deter- mined to improve their administrative budget systems, achieving a "good enough" standard Scaling Up: Moving the Agenda Forward within 5 to 10 years may be feasible. Scaling up is about much more than aid: it is, A further objective could be to focus on at heart, a question of making mutual account- reforms that foster transparency--in budget ability work. Donor governments, IFIs, and management and more broadly. Trans- partner governments must all work together to parency relies on public information as a reinforce their accountability to deliver on source of pressure for better public sector commitments for enhanced aid, to reform performance--in a less technocratic way than trade, to harmonize and align support with is implied by top-down reforms of bureau- strategies, and to implement sound national cratic capability. Even with continuing weak- development strategies. ness in administrative systems, a case could Governance is a critical part of this agenda. be made for scaling up aid to countries that Donors, IFIs, and developing countries are clearly commit themselves to facilitating broadly accountable for strengthening the transparency in how public resources--and checks and balances that are fundamental for state power more broadly--are used. development and its financing, through both The third approach is to target scaled-up global and national systems. For developing aid more directly toward poverty-reducing ser- countries, well functioning and transparent vices. In countries where bureaucratic capabil- budget, administrative, and procurement sys- ity may be on the upturn but is at an early stage tems; a political process responsive to the of improvement, sector-specific approaches country's citizenry; and strong checks and bal- that focus on improving governance and ser- ance systems are key to a well functioning vice provision in parts of the overall system are governance system--and provide a straight- attractive. In countries where there is little sign forward basis for support. of political commitment to improve gover- Given this set of challenges, how might the nance and capacity, opportunities at the local international community scale up flexible level will need to be identified. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 17 Part I Monitoring Progress 1 Charting and Sustaining Progress in Income Poverty Reduction T he first Millennium Development Goal pain from persistently high oil prices. Weak- (MDG) calls for the development com- nesses in developing-country institutional and munity to reduce the global rate of policy frameworks (such as financial sector extreme income poverty--measured by the vulnerabilities) also pose risks, and high com- share of the population living on less than $1 modity prices have helped make possible per day--by half between 1990 and 2015. delays in needed fiscal adjustment and struc- Current trends suggest that if the developing tural reform. Continued rapid poverty reduc- world can maintain the growth momentum tion will therefore depend on further steps by of the past 15 years, it will meet this MDG. developing countries to consolidate domestic Numerically, the reduction in the global sources of growth, as well as the promotion of poverty rate owes the most to impressive equity. advances in China and India, but it has also This chapter reports on efforts to track been helped by acceleration in income growth progress in two areas related to growth: elsewhere in the developing world in recent improvements in access to and quality of infra- years. The past year has seen strong growth structure, and promotion of an investment cli- and poverty reduction in much of the develop- mate conducive to private sector growth. These ing world as a result of improved developing- policies make sense under any circumstances, country policies and a global environment but they take on special importance when the conducive to growth. global environment is already very favorable Thanks to these improvements, the long- by recent historical standards. term prospects for growth and income- poverty reduction appear good in most regions. Perhaps most notably, low-income Poverty Reduction and Growth: countries are projected to continue their Positive Trends, Significant rebound from their stagnation and contrac- Challenges tion of the early 1990s by growing at an aver- Progress on Poverty Reduction age of well over 3 percent per capita in 2006. There are risks to the forecast, of course: the The developing world as a whole is predicted perennial but very real risks of abrupt adjust- to meet the poverty MDG. The latest projec- ments in global external imbalances and sharp tion is that the share of developing-country increases in interest rates, newer threats like population living on under $1 per day will fall an avian flu pandemic, and a risk of deeper from 27.9 percent in 1990 to 10.2 percent in G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 21 C H A P T E R 1 2015. By 2002, roughly halfway through the 1990s. The most discouraging news on goal period, the share had already fallen to poverty comes from Sub-Saharan Africa 21.7 percent. Although more recent global (SSA), the region with the highest share of its poverty estimates are not yet available (due to population in poverty in 1990. In 2002 the lags in availability of household survey data), share fell slightly to 44.0 percent, which is the relatively robust income growth of recent significantly below the 46.4 percent in 2001 years has increased the likelihood that the tar- but virtually the same as in 1990. And current get will be attained. projections are that in 2015 Africa's poverty But the news on poverty is far from unam- rate will remain over 38 percent--far above biguously positive. While the poverty decline the 22.3 percent target. in the East Asia and Pacific (EAP) region has The estimates in figure 1.1 are updated been extremely rapid, no other region has only through 2002, the last year for which seen such rapid progress (figure 1.1). South household survey data are available for Asia (SA) has made strong improvements too, enough countries to allow regional and placing it roughly on the path to meet the tar- global estimates. However, it is possible to get. But Europe and Central Asia (ECA) saw "project" the evolution of poverty through a sharp increase in its low rate of poverty as 2005 by combining the most recent house- a result of the transition recessions of the hold survey data available with data on FIGURE 1.1 Progress toward the Poverty MDG Target, 1990­2002, and a forecast for 2015 East Asia & Pacific (EAP) Europe & Central Asia (ECA) Latin America & the Caribbean (LAC) Percent of population living on less than $1 a day 50 50 50 40 40 40 29.6 30 30 30 20 14.8 20 20 11.3 8.9 10 10 10 11.6 6.2 2.1 0.7 0.5 0.9 5.7 0 0 0.3 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 Middle East & North Africa (MENA) South Asia (SA) Sub-Saharan Africa (SSA) Percent of population living on less than $1 a day 50 50 50 44.6 44.0 41.3 38.1 40 40 40 31.2 30 30 30 20.7 22.3 20 20 20 10 10 13.8 10 2.3 1.6 1.2 0 0.7 0 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 2002 2015 Goal Actual Projected Path to goal Source: World Bank Staff estimates. 22 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N growth rates of real per capita incomes and tries remains below the level needed for them assumptions about income distribution. to achieve the MDGs. In the low-income These projections should not be regarded as countries of SSA, per capita growth was estimates, but they give some idea of how about 3 percent for the second straight year recent rapid income growth may have trans- in 2005, despite continuing conflicts and peri- lated into lower poverty.1 odic weather shocks. This growth is a marked The projections suggest that poverty rates improvement on the 1995­2004 SSA low- may have fallen in all regions since 2002. In income country growth average of about 1.3 three regions, the rate has probably declined percent, not to mention the income declines by 2 to 4 percentage points--to a projected of the early 1990s. In SA, LICs other than 8.8 percent in EAP, 27.5 percent in SA, and India grew at a strong 4.8 percent, nearly 41.4 percent in SSA. These advances leave matching India's rapid growth. By contrast, unchanged the conclusions above: on current the few LICs in the largely middle-income trends, EAP and SA will likely reach the Latin America and Caribbean (LAC) region MDG for income poverty, while Sub-Saharan and the Middle East and North Africa Africa will not, despite the recent acceleration (MENA) region grew more slowly. in growth in the region. In the other three As noted in Global Monitoring Report regions (Europe and Central Asia, Latin Amer- 2004 and Global Monitoring Report 2005, ica and the Caribbean, and Middle East and macroeconomic policies in low-income coun- North Africa), where initial poverty rates were tries have improved greatly over the past 15 lower, poverty likely dropped by less than 1 years. These improvements were largely sus- percentage point between 2002 and 2005. tained in 2005. High oil prices contributed to an up-tick in inflation in low-income coun- tries, but inflation rates in 2005 remained at Improvements in Long-Term Growth roughly half the level of the early 1990s. Continued poverty reduction depends on sus- Other indicators--fiscal deficits, external tained growth, and here the picture is a posi- debt, and debt-service ratios--remained on tive one. Most regions have good long-term average well below 2000­4 levels, and in fact growth prospects and strong recent perfor- lower than they had since the 1980s.3 Over mance, thanks to improvements in macro- the coming year, improvements in macroeco- economic policies over the past two decades. nomic indicators are expected to continue In general, policies that contribute to macro- (table 1.2). economic stability help sustain growth, International Monetary Fund (IMF) staff whereas those that promote instability, such assessments suggest that in low-income coun- as inflationary monetary policies and fiscal tries, efforts to improve macroeconomic poli- policies that lead to high budget deficits, tend cies and governance have achieved results, to to hurt growth by deterring private invest- a point (table 1.3).4 In the areas of monetary ment. Macroeconomic policy making will policy and exchange-rate regimes, 70 to 80 likely face new challenges as levels of official percent of low-income countries are now development assistance (ODA) to developing rated as having good policies. On macroeco- countries are scaled up. nomic policy consistency and financial sector Per capita GDP growth in low-income governance, too, the news is positive: less countries (LICs) was higher in 2005 than the than a fifth of countries are rated as unsatis- average for any five-year period since the late factory. By contrast, fiscal policy and espe- 1970s, and the strong growth is expected to cially composition of public spending are continue (table 1.1).2 This trend is encourag- viewed with greater concern. ing, particularly when contrasted with the The assessments also confirm that among low per capita growth seen in the early 1990s, low-income countries, those with higher even though economic growth in many coun- growth rates tend to have better macroeco- G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 23 C H A P T E R 1 TABLE 1.1 Per capita GDP growth in low- and middle-income countries (by region) 1985­9 1990­4 1995­9 2000­4 2003 2004e 2005f 2006f 1.9 0.8 1.8 1.6 1.6 2.9 2.0 2.1 Memo item: World (PPP weights) b 3.8 2.3 3.4 3.8 3.9 5.0 4.4 4.4 High income 3.0 1.5 2.2 1.6 1.4 2.7 1.9 2.0 Low-income countries 2.4 1.4 3.3 3.2 5.1 4.5 5.3 4.7 East Asia and Pacific 0.9 4.6 5.0 5.0 4.2 5.5 6.1 5.2 Europe and Central Asia 1.4 ­14.4 ­0.7 4.9 6.3 6.7 3.2 4.5 Latin America and the Caribbean ­4.0 ­4.0 1.7 0.0 ­0.2 1.3 1.5 0.6 Middle East and N. Africa 8.1 ­1.6 3.3 0.6 0.0 ­0.5 0.4 0.3 South Asia 3.6 2.7 4.0 3.7 6.1 5.1 5.4 4.8 Excluding India 2.2 2.1 1.7 2.5 3.0 4.2 4.8 3.8 India 4.0 2.8 4.6 4.1 6.9 5.3 5.5 5.1 Sub-Saharan Africa 0.2 ­1.8 1.1 1.4 2.5 2.9 3.0 3.8 Middle-income countries 1.5 1.2 2.7 4.0 4.5 6.3 4.9 4.6 East Asia and Pacific 6.4 8.1 5.9 7.1 7.9 8.2 7.4 7.1 Excluding China 3.8 5.5 1.0 3.4 3.9 4.6 3.0 3.7 China 8.2 9.6 8.1 8.4 9.3 9.4 8.6 8.0 Europe and Central Asia 1.3 ­5.8 1.8 5.4 6.0 7.3 5.2 5.0 Latin America and the Caribbean 0.2 1.7 0.9 0.8 0.5 4.5 3.1 2.5 Middle East and N. Africa ­1.0 1.8 2.0 2.9 3.3 3.2 3.1 3.7 South Asia 1.5 4.3 3.9 3.0 5.1 4.5 3.5 4.8 Sub-Saharan Africa ­0.4 ­2.4 1.1 2.3 1.8 3.0 3.6 3.3 Developing countries 1.4 0.9 2.5 3.6 4.3 5.7 4.7 4.5 Excluding transition countries 1.7 3.0 2.7 3.4 4.1 5.6 4.7 4.4 Excluding China and India 0.3 ­0.7 0.9 2.1 2.3 4.5 3.4 3.3 Source: World Bank staff estimates. Note: PPP = purchasing power parity; e = estimate; f= forecast. a. GDP in 2000 constant dollars; 2000 prices and market exchange rates. b. GDP measured at 2000 PPP weights. nomic policies, a relationship previously doc- performance outside the East Asia and Pacific umented in Global Monitoring Report 2004. region: ECA's middle-income countries have They also indicate that countries with better made a strong recovery from the transition macroeconomic policy indicators tend to shock of the 1990s, and their growth once have better governance in related areas. In again exceeded 5 percent in 2005, as it did for particular, countries with good public sector the 2000­4 period. Middle-income Latin and monetary governance are more likely to America and Caribbean countries, which have lower inflation and external debt-to- recorded little increase in per capita incomes GDP ratios. over the previous decade, managed growth of In 2005 middle-income countries (MICs) over 3 percent, despite a drop-off from 2004. enjoyed continued rapid income growth, The indicators of macro policy suggest that building on the strong performance of the these improvements were supported by better previous year. Although China pulled the macroeconomic policies in MICs (table 1.2). average up with its per capita growth of over However, this advantage has been blunted by 8 percent, all six regions experienced rapid the risk and frequency of financial crises, average MIC growth, at over 3 percent. which have also made poverty alleviation Europe and Central Asia had the strongest more difficult. And despite the rising incomes 24 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N TABLE 1.2 Macroeconomic indicators for low- and middle-income countries (by region) (Annual averages, except where indicated)a 1985­9 1990­4 1995­9 2000­4 2005 est. 2006 proj. Inflation (median annual %)b Low-income countries 6.7 13.3 8.4 5.0 7.3 5.5 Middle-income countries 9.2 17.7 8.1 4.6 4.2 4.8 Current account balance (% GDP) Low-income countries ­6.4 ­8.0 ­7.6 ­6.0 ­5.7 ­5.0 Middle-income countries ­1.9 ­1.3 ­4.4 ­2.0 ­2.1 ­1.8 External debt (% of GDP) Low-income countries 76.3 98.9 97.2 101.9 90.5 88.2 Middle-income countries 44.8 46.6 43.8 47.8 42.4 40.5 Fiscal balance (% of GDP) Low-income countries ­6.5 ­7.0 ­4.9 ­4.3 ­1.0 ­0.6 Middle-income countries ­3.8 ­2.7 ­3.1 ­3.1 ­1.1 ­1.0 Source: IMF World Economic Outlook (WEO) database (Winter 2006 Board version); staff calculations. a. Averages are calculated as unweighted means of country values b. Median inflation is calculated from the annual medians and then averaged over five-year periods. TABLE 1.3 Quality of macroeconomic policies in low-income countries, 2005 Share of countries falling into each category (percent) Governance/ transparency Composition Consistency in monetary Foreign of public Monetary of macro and financial exchange Rating Fiscal policy spending policy policies institutions regime Unsatisfactory 26 61 11 16 18 7 Adequate 26 28 19 40 25 13 Good 48 11 70 44 57 80 Source: IMF staff assessments. of these countries, poverty reduction in lag- ratios will remain high in many countries and ging regions remains very much a concern will need to be reduced further. Second, there (box 1.1). has also been a clear shift among emerging There has been significant progress in market economies toward more flexible making the middle-income economies, and exchange rate regimes. Such increased flexi- particularly emerging-market economies, more bility in exchange rates can help mitigate the resilient to economic shocks. First, on aver- real impact of crises, to the extent that real age, current account deficits relative to GDP exchange rate depreciation offsets some of have fallen since the late 1990s, and this trend the real effects of falling aggregate demand. is projected to lead to lower external debt-to- Third, financial sectors in middle-income GDP ratios, which should help reduce the countries have become somewhat sounder, in likelihood of debt crises. Nevertheless, debt part because reputable international banks G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 25 C H A P T E R 1 BOX 1.1 Lagging regions in middle-income countries and progress toward the MDGs Extreme poverty and deprivation is not confined to low-income countries. Middle-income coun- tries remain home to a large share of the world's poor people, especially of those who live on less than $2 per day. Much of this poverty lies in subnational regions where income and social indica- tors severely lag national levels. Household incomes in Brazil's northeast remain below half of the national average, in spite of programs to accelerate development there over the past half-century. The Turkish government faces a major challenge in eastern Anatolia, where life expectancy is nearly 10 years below that of the affluent western region, and the rate of underweight children is twice as high. Many other MICs confront similar problems; witness China's western region, Thailand's northeast, and Mexico's southern states. Lagging regions of MICs confront many of the same development issues that low-income coun- tries do. Many struggle with geographic isolation and poor integration with national markets, com- pounded by poor infrastructure. Lagging regions have often depleted their resources, leaving them a weak productive base for traditional activities. Governance is often far weaker than elsewhere, darkening the investment climate and undermining service delivery; social conflict and lack of secu- rity can raise costs and further undermine the capacity to attract investment. For these reasons, regional MDG indicators often reveal a large agenda for action in middle- income countries. Donors and international financial institutions (IFIs) have given increased atten- tion to the special institutional challenges involved in supporting subnational reforms in lagging regions. Subnational policy-based lending was introduced in the 1990s, but more innovative work is needed to address these issues in MICs. One promising development is the recent initiative to intro- duce joint International Finance Corporation (of the World Bank Group)-International Bank for Reconstruction and Development (IFC-IBRD) financing for infrastructure investments by subsover- eign borrowers. Although the World Bank made more than $4.5 billion in loans with sovereign guar- antees for subnational infrastructure projects in fiscal 2005, the Bank Group's only instrument to offer financing to these subnational borrowers without sovereign guarantees is IFC's Municipal Fund. The new approach would combine the strengths of both the IFC and Bank approaches. have taken on an increased role in Eastern 1 percent increase in the real GDP of advanced Europe and Latin America. However, indica- economies was associated with a 0.4 percent tors of financial soundness suggest that room increase in the real GDP of developing coun- for improvement remains in many countries. tries, although the relationship was much weaker for primary commodity exporters (IMF 2001: 80). Policies that encourage Short- to Medium-Term Outlook: developed-country growth can thus improve Sustained Growth, but with Risks prospects for achieving the MDGs. What rates of growth and poverty reduction Developed-country GDP growth is pro- can developing countries expect over the jected to remain robust over the near to short to medium term? The answer depends medium term. After averaging a respectable substantially on the pace of economic expan- 2.7 percent in 2004 and an estimated 1.9 per- sion in the advanced economies. Rapid rich- cent in 2005, growth is projected to increase country growth increases trade and facilitates slightly in 2006. The United States is expected higher aid flows, and it can also affect devel- to remain the main driver of the expansion, oping countries through its impact on private but increased support will come from Europe. financial flows, labor migration, and remit- Average advanced-economy inflation rates (at tance flows. On average, in 1971­2000, a 2.3 percent) and fiscal deficits (at 3.1 percent 26 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N of GDP) are projected to remain moderate. fact that higher prices were mainly due to This outlook is consistent with continued increasing global demand spurred by growth high growth in exports from developing rather than to supply shortfalls. For oil- countries and reasonably constant terms of importing developing countries, increases in trade (table 1.4). aid, together with increased prices on other This forecast incorporates the assumption commodity exports, have helped cushion the that global interest rates will not rise blow, so that their GDP growth dropped only abruptly. Financial markets are relatively slightly in 2005. Nevertheless, gross national calm at present, but a sharp rise in interest income (GNI) growth for those countries fell rates could weaken consumer spending in sharply, from 6.3 percent in 2004 to an esti- developed countries and threaten the most mated 3.7 percent in 2005, and further vulnerable emerging-market economies, such adjustments are likely to come. Moreover, as those with high debt ratios and short debt many large emerging market economies have maturities. The forecast also assumes there not yet allowed domestic gasoline prices to will be no need for a sudden adjustment in rise enough to reflect the price increases; in global current account imbalances--includ- the advanced economies, the consumer may ing the U.S. external current account deficit, only now realize that high oil prices are which has deteriorated from $416 billion in largely permanent and require a cutback in 2000 to $798 billion in 2005. If the demand household budgets. The impact of higher oil for U.S. assets were to decline sharply, the prices on private investment may also take ensuing U.S. contraction could spark a global some time to emerge fully. In addition, the recession. decline in the price of oil in late 2005 was at These risks have received considerable least partly due to the combination of mild attention in macroeconomic forecasts in weather and oil reserve releases; hence the recent years, but the generally positive decline may not be sustainable. medium-term scenario could also be derailed Oil prices are expected to average between by newer risks. First, the recent rise in the $55 and $60 a barrel for the next two years, price of oil and the current tightness of the oil and further increases in oil prices cannot be market pose dangers. By September 2005 oil ruled out, as excess capacity among producers prices had increased by over 50 percent com- of the Organization of Petroleum Exporting pared to end-2004, and they fell only moder- Countries is limited and the market remains ately in the last quarter. Thus far, the impact vulnerable to supply shocks. Disruptions in of higher oil prices on global growth has been oil supply could seriously depress future relatively minor overall, in part reflecting the developing-country growth in much the same TABLE 1.4 Global economic environment and developing countries (Annual percent change unless otherwise indicated) 1995­9 2000­4 2005e 2006f World trade (average) 7.4 6.3 7.4 8.0 Developing countries: Volume of exports of goods and services (average) 8.0 9.7 10.9 10.3 Terms of trade (average) 0.2 1.6 5.4 1.7 Fuel exporters 3.4 8.8 23.4 8.3 Nonfuel exporters ­0.5 ­0.3 ­0.1 ­0.4 Source: WEO, Winter 2006 Board Version. e = estimate, f = forecast. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 27 C H A P T E R 1 manner as the oil supply shocks of the 1970s, of infrastructure. The availability of high especially if prices of other commodities quality infrastructure services in key areas-- weaken. Countries will need to adjust to per- such as water, sanitation, electricity, telecom- manently higher oil prices, most notably by munications, and transport--not only promotes increasing energy efficiency and avoiding growth and poverty reduction but also spurs price controls that drain public finances. progress toward the human development A second major new risk is economic dis- MDGs (see chapter 2). The choice to monitor location caused by avian influenza. In addi- these two areas in depth inevitably means a tion to the terrible toll that it could exact in choice not to focus on other areas; box 1.2 human lives, an influenza pandemic could discusses some important areas related to prove a serious threat to the global economy. poverty reduction that are not otherwise cov- Countries that depend heavily on interna- ered in this chapter. tional tourism and that lack adequate public health and medical facilities, or that are at Improving the Investment some risk of capital flight being triggered by Climate: Contribution an outbreak, are particularly vulnerable. of Better Analysis Therefore, action to neutralize the epidemic's potential for economic dislocation--for The quality of the investment climate con- example, funding for culling birds and com- tributes strongly to growth, productivity, and pensating farmers--is urgently needed. The employment creation--all of which are essen- budgetary cost to low-income countries of tial for sustainable reductions in income programs to prevent or impede the spread of poverty. Data on the quality of the investment the disease and manage the treatment of the climate can thus serve as a leading indicator sick will prove difficult to finance without for poverty reduction. In the past several external assistance. It is in the global interest years, the World Bank and its partners, that the countries at the front line of this dis- including other multilateral development ease be able to react quickly and decisively. At banks, have increased collection of data on the January 2006 ministerial conference in the investment climate quality in many coun- Beijing, the international community took a tries. The new data are translating into con- key step toward making this happen by crete policy recommendations. pledging $1.9 billion to fight avian flu. Analysis to Improve the Business Climate Implications for Developing Countries The World Bank produces quantitative mea- To sustain their progress in accelerating surements of the investment climate using growth and poverty reduction since the 1980s, two major vehicles: the Investment Climate developing countries will need to increase their Surveys (ICS) and the Doing Business (DB) economies' resilience and reduce vulnerability surveys. The two are complementary; the ICS to cyclical downturns. They will also need to draw their data from firms, and the DB sur- make major progress along other dimensions. veys rely on experts. Together, these surveys The remainder of this chapter covers two map out much of the terrain that developing- of those dimensions. First, it reviews devel- country entrepreneurs must navigate as they oping countries' progress on monitoring seek to invest in and expand their businesses. and improving the investment climate for They help countries to identify major bottle- private sector growth and productivity. Sec- necks to private sector growth and to con- ond, it highlights a key component of that centrate their reform efforts on the areas with business climate: the quantity and quality the biggest potential payoffs. 28 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N BOX 1.2 Beyond improved investment climates and infrastructure The investment climate in general and infrastructure in particular are far from the only important areas to monitor for spurring growth and poverty reduction. Investment to raise agricultural pro- ductivity is essential, especially given that the majority of the world's poor still live in rural areas. Better rural infrastructure and investment climates constitute part of the story of improving agri- culture, but there are many other factors--such as freer international trade in agricultural products, greater competition in agricultural input markets, and more research and development in tropical agriculture. Another potentially important mechanism for promoting growth, through increased competitive pressures and reduced production costs, is greater engagement in international trade; progress in this area is discussed in depth in chapter 3. More generally, growth-targeted policies will need to be complemented by measures to promote equity. When people are denied equal opportunities--whether in access to education, health, finan- cial systems, justice, or the political process--their talents and productive capacity are wasted, and society as a whole suffers. Expanding opportunities for those who have the least is thus not only a desirable end in itself, but also an important instrument for achieving growth and poverty reduc- tion. A focus on equal opportunity therefore implies monitoring and acting to remove the factors limiting shared growth, as discussed in detail in World Development Report 2006. What does this mean in terms of actual policies? In finance, a concern for equity may mean bal- ancing the focus on financial stability and performance of well-served clients with approaches to expand financial access to underserved clients. In education and health, it may mean using vouch- ers or conditional cash transfers to boost the effective demand of excluded groups. In private sec- tor development, it requires addressing the constraints on informal and small-scale rural enterprises, not just those on larger-scale formal firms. In power, it may mean complementing efforts to extend the electrical grid with smaller-scale decentralized mechanisms for providing electricity. In all sec- tors, it means monitoring how economic and social trends and policies affect excluded and disad- vantaged groups. Monitoring trends in income poverty is a start--but only a start, in that monitoring of outcomes has to be accompanied by measuring and analyzing processes that lead to those outcomes. Finally, policies should be aimed at promoting growth that is sustainable. If countries meet the poverty MDG target by mining soil fertility and depleting natural resources at excessive rates, improvements may not be sustained. This is a key concern of the MDG on environmental sustain- ability. One way to analyze sustainability is to look at measures of "adjusted net saving"--that is, saving adjusted for consumption of resources. This metric raises real concerns: in low-income coun- tries, adjusted net saving has fallen from 7.6 percent of GNI in 1999 to 6.5 percent in 2004, while in middle-income countries, it has dropped sharply from 14.3 percent to 8.9 percent, owing partly to consumption of oil rents in petroleum-producing states. Beyond this concern, current environ- mental risks also reduce the prospects for meeting MDG targets. For example, low-income coun- tries depend on biomass fuels for nearly 50 percent of their total energy, but the resulting indoor air pollution leads to high rates of death and illness. Low-income countries also faced urban air pollu- tion levels (in terms of particulate matter less than 10 microns, a major health hazard) that are on average 70 percent higher than World Health Organization standards in 2002. Moreover, policies and institutions dealing with the environment and natural resources are generally rated as weak in developing countries, raising particular concerns as countries and donors contemplate major infra- structure investments. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 29 C H A P T E R 1 As discussed in previous Global Monitor- Analysis for Action: Identifying Sources of ing reports, the ICS collect data from firms on Higher Business Productivity and Growth both objective and subjective indicators cov- The new data from the ICS and DB surveys ering a wide range of investment climate have strengthened the analytical basis for dimensions. In the past year, the surveys were action and increasingly make it possible to fielded in over 35 countries, bringing the total assess progress in improving the business to 75 countries. Moreover, a second round of climate. surveys has begun in countries that were first surveyed three years ago, thereby allowing analysis of the effect of changes in the invest- I M P R O V E M E N T S T O T H E I N V E S T M E N T ment climate and specific policies on firm per- C L I M A T E C A N B E S U B S T A N T I A L formance. Research based on the ICS not only reinforces In 2005 the surveys also expanded by the importance of the business environment as including more service-sector firms and more a determinant of competitiveness, but also of the informal enterprises that employ many points to specific areas for reform. It is not poor people. Under a protocol signed in enough for a firm simply to have the right March 2005, the multilateral development technology, or efficient management, or banks (MDBs) will conduct the surveys skilled employees. Certainly productivity on jointly, increasing cost-effectiveness and the factory floor matters, but advantages in potential policy impact. The collaboration this area can be offset, even swamped, by began successfully with the European Bank excessive costs associated with poor access to for Reconstruction and Development and infrastructure and financial services, or weak World Bank surveying all the ECA countries property rights and governance (Hallward- in 2005; now all 27 ECA countries have been Driemeier and Smith 2005). In both low- surveyed more than once. income and middle-income countries, The findings of the DB surveys (analyzed understanding the climate for firm productiv- in the World Bank's annual Doing Business ity and growth is essential. reports) are based on responses to standard- Much of the development community's ized surveys of experts from 155 countries. attention is focused on maintaining and This year the surveys will cover 20 additional accelerating growth in low-income coun- small states. The surveys address 10 areas of tries, located primarily in Africa. One key regulation: starting a business, dealing with question is why productivity is so low in licenses, hiring and firing workers, registering much of Africa compared with that in India property, getting credit, protecting investors, and China. Analysis of ICS data shows that paying taxes, enforcing contracts, trading some of the disparity stems from differences across borders, and closing a business. in labor productivity, but that high indirect Experts answer questions in their area of costs and business-environment­related losses expertise on the basis of their experience also significantly depress the productivity of operating within the regulatory system. Most African firms relative to that of firms in other respondents are from the private sector and countries. are either lawyers or accountants who deal Is it reasonable to expect improvements in frequently with rules and their enforcement. investment climates in low-income African The surveys ask only objective questions--for countries? Consider evidence on the differences example, what steps are necessary to register among African countries. Even as the region as a new company, how many days each step a whole lags behind, some African economies takes, and how much time each step takes-- show evidence of a more productive business producing quantitative indicators for busi- community and better business climate. South ness regulations that can be compared across Africa, a middle-income country, sets a stan- countries and over time. dard for the region; yet as box 1.3 illustrates, 30 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N the ICS identify constraints on firm produc- ers. At the bottom end, firms in Zambia and tivity even in its relatively well-functioning Mozambique--and to a lesser extent those in business environment. Among LICs, Senegal Nigeria and Ethiopia--have relatively weak shows what an African country can achieve factory-floor productivity, and their value- with a strong business community and a rela- added is heavily squeezed by high business- tively good business environment. In Kenya, a environment costs (Eifert, Gelb, and long history of entrepreneurship is reflected in Ramachandran 2005). strong potential factory-floor productivity, Local governance is often as important as but high investment-climate-related costs national governance in determining the impede competitiveness. Uganda and Tanza- investment climate. Some policies are set at nia appear to be middle-of-the-road perform- the local level, and even when policies are BOX 1.3 Improving the investment climate in South Africa Starting from a strong fiscal position, the South African government is aiming for accelerated and shared growth of 6 percent by the end of the decade. Conditions for such rapid growth look favor- able. By comparison with firms in other countries, few South African firms rated investment climate constraints as major obstacles to growth. Most firms believe that the courts are able to protect their property, that losses due to power outages are relatively small, and that tax rates are reasonable and are declining. Although the burden of regulation is not particularly low, it is comparable to that in most middle-income countries: on average, senior managers spend 10 percent of their time dealing with regulatory requirements, much less than in China and Lithuania (25 percent). Yet investment remains low. Reform is still needed in four areas: Wages, particularly for skilled workers, are high by international standards, eroding competi- tiveness. Workers' skills were identified as a serious obstacle by more managers than were any other area of the investment climate. Firms must pay a particularly high premium for skilled and educated workers. The median monthly wage for an unskilled production worker in South Africa in 2002 was about $240 a month compared with $250 a month in Poland and $167 a month in Brazil. Yet the median monthly wage for a manager in South Africa was about $1,850 a month, over twice as high as in Poland ($740 a month) and over three times as high as in Brazil ($540 a month). Rigid labor regulations discourage firms from hiring new workers. Nearly one-third of enter- prise managers said labor regulations were a serious problem. Other indicators support this con- cern, suggesting that labor regulation is more rigid in South Africa than in many other middle-income countries. In Doing Business 2006, South Africa ranked 28th in the world overall on ease of doing business, but only 66th on regulations related to hiring and firing workers. Macroeconomic instability raises uncertainty, particularly for exporters. Macroeconomic insta- bility was rated as a serious obstacle by about 33 percent of South African firms. At first this find- ing seems puzzling, because inflation has been modest and macro fundamentals have been steadily improving. But exchange rates have been volatile, especially against the dollar. Close to three-quar- ters of enterprises that export to the United States, the country whose currency has been most unsta- ble against the rand, rated macroeconomic instability as a serious obstacle. The cost of crime is higher in South Africa than it is in many of its competitors. For the median firm, direct losses due to crime and the cost of security were about 1.1 percent of sales. Although lower than in the countries most affected by crime, this rate is higher than in many middle-income countries: losses from crime were less than 1 percent of sales in China, Poland, Brazil, and even Rus- sia. Security costs accounted for about two-thirds of the cost of crime, while direct losses accounted for the other third. Sources: Clarke and others 2005; Kaplan and Ramachandran 2005. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 31 C H A P T E R 1 national or regional, local officials who to be the large and expanding firms that are implement and enforce them often have con- targets of corruption (World Bank 2005b). siderable discretion. By covering multiple ICS data also help identify potential locations within a country, the ICS make it sources of innovation, a key source of pro- possible to measure just how important the ductivity and income growth. New research local investment climate is in determining shows that greater competitive pressure on a productivity. The answer is often "quite firm is generally associated with higher rates important." Within Morocco, for example, of innovation by the firm, as measured by total firm productivity (TFP) differences rates of introduction of new products and across regions owe much more to the effects processes. There is some guidance for policy of local investment climates than to the com- makers here: the same evidence indicates that bined effects of two other key factors in pro- such benefits are more likely to be realized ductivity: agglomeration economies and through more effective enforcement of com- natural geographic advantages (Mengistae petition laws than through lower tariff barri- and Thompson 2005). And in South Asia ers (Clarke 2005). and China, investment climate measures Finally, ICS data identify labor market reg- explain up to 80 percent of the differences in ulation as an important determinant of firm productivity, even controlling for measures performance and behavior, including deci- of economic geography (Dollar, Hallward- sions to hire and train workers. Evidence Driemeier, and Mengistae 2005; Lall and from Brazil and China shows that greater Mengistae 2005). A similar result was found flexibility can boost productivity, enable with respect to the role of investment cli- more innovative firms to grow, and reduce mate indicators in facilitating greater inter- the incentive to shift employment to informal national integration in Asia and in Latin workers (Almeida and Carneiro 2005; Dollar, America (Dollar, Hallward-Driemeier, and Wang, Xu, and Shi 2005). Mengistae forthcoming). More reliable Thanks to the new repeat surveys for the infrastructure services, access to finance, and 27 ECA countries, it is possible to diagram less onerous regulatory burdens help firms how the investment climate is changing in grow faster and facilitate entry into export that region (figure 1.2). Overall, the picture markets. Workers also benefit: a better suggests progress, with noticeable improve- investment climate is associated with both ments in survey indicators of crime, corrup- higher wages and greater job creation. tion, and especially policy uncertainty. Corruption matters. Uncertainty of regula- tory policies and their enforcement continues D O I N G B U S I N E S S U P D A T E : E A S T E R N to rank as one of the top constraints reported E U R O P E R E F O R M S T H E M O S T , A F R I C A by entrepreneurs. Almost 95 percent of firms T H E L E A S T report that "at least some of the time" there is Data from the Doing Business surveys comple- a gap between formal regulations and the way ment the ICS data in describing the landscape they are enforced. Discretion and frequent for firms by focusing on the regulatory costs of interactions with officials are both associated opening and operating businesses. New busi- with a higher incidence of demands for "addi- nesses are a vital source of economic growth tional payments" (typically a euphemism for and jobs in any country. Yet the DB surveys bribes). In Bangladesh, for example, 85 per- show that poor countries place the highest bur- cent of firms report that tax inspectors expect dens on entrepreneurs, loading them down to receive "gifts" during meetings, and that with administrative hassles that divert energy payments equivalent to 2.5 percent of sales are from running the business. Poor countries also paid to help "get things done." By comparison, reform their business regulations the least. only 10 percent of firms report paying "gifts" In 2004 the DB surveys showed that more in Latvia or Slovenia. In many cases, it appears reform took place in Eastern Europe and 32 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N Central Asia than in any other region; every FIGURE 1.2 Evolution of investment climate indicators in Europe and ECA country took at least one step to make Central Asia, 2002 and 2005 things easier for business (figure 1.3).5 Two ECA countries, Serbia and Montenegro and Percent of firms who report constraints as major or very severe Georgia, topped the global rankings for most Policy uncertainty reforms enacted. At the other end of the scale, Telecommunications Tax rates Sub-Saharan Africa reformed the least as a region. By the Doing Business metric, African countries averaged only around 0.6 reforms Access to land Cost & access per country in 2004, and for every three 50 to finance African countries that improved regulations 25 for business, another country made it more Electricity Corruption burdensome to do business. Some African countries are acting to improve their business environment. Rwanda Crime Legal introduced sweeping reforms over the last few years to make it easier for entrepreneurs Regulation & tax administration to start and run their businesses. Land titling 2002 2005 reform followed new company and labor laws, and the country has benefited from Source: World Bank Investment Climate Surveys. streamlined customs procedures and better Note: The graph does not include every country in the region. Points closer to the center are better. credit information. Nigeria reformed in three areas in 2004--company startup, labor regu- lation, and credit information. These exam- ples need not be isolated. In addition, several African countries are already providing good regulatory environ- FIGURE 1.3 Doing Business reform intensity in 2004 by region ments for business. Mauritius and South Africa both rank in the top 30 economies Reform intensity globally on the ease of doing business; Namibia is not far behind at 33rd. All coun- Sub-Saharan tries need to regulate enterprises to promote Africa worker safety, environmental goals, social Middle East protection, and other goals, but these coun- & North Africa tries do so in ways that are less burdensome East Asia to business. Doing Business in 2007 will fea- & the Pacific ture 50 reform cases, including 9 from Africa that could serve as best-practice examples for South Asia would-be reformers. Latin America The payoff from easing regulation is large. & Caribbean Doing Business in 2005 showed that more OECD complex regulations are associated with lower high-income growth rates. Doing Business in 2006 finds countries they are also associated with higher informal- Europe & Central Asia ity; or, to put it more positively, where regula- tions are simple, jobs are more likely to be 0 20 40 60 80 100 created in the formal sector. Reaching the top Percent of countries with at least one reform in 2004 quartile of performance, as measured by the Doing Business indicators, is associated with Source: Doing Business Database. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 33 C H A P T E R 1 FIGURE 1.4 The informal sector and the ease of doing business in 2004 Informal sector as a share of GDP Potential reduction in the informal sector Percent Percent 50 45 40 Potential 40 35 reduction 30 30 25 20 Informal 20 15 sector after 10 10 reduction 5 0 0 Least difficult Most difficult Least difficult Most difficult Countries ranked by ease of doing business, Countries ranked by ease of doing business, quintiles quartiles Source: World Bank 2006a; Doing Business database; Schneider 2005; WEF 2005. Note: Relationships are significant at the 1% level and remain so when controlling for income per capita. a 9-percentage-point fall in the share of GDP needs, and increased welfare in general. This accounted for by informal activity (figure 1.4). section tracks changes in infrastructure avail- More formal jobs mean that more workers are ability and quality in the developing world, protected by pensions, safety regulations, and and it explores their implications for moni- health benefits. Women, who make up three- toring and spurring improvements in infra- quarters of the workforce in some developing structure services. economies, are big beneficiaries of regulatory reform; so are young people looking for their The State of Infrastructure: first job. Progress, but Not Fast Enough Infrastructure Growth: Despite considerable expansion in the infra- Beyond Treading Water structure critical to meeting the MDGs, rates of household access to infrastructure ser- One key element of the investment climate is vices are not increasing as rapidly as the the quality of infrastructure, which is the numbers would first suggest. First, the good backbone of a functioning economy. As news: infrastructure services are reaching reviewed in Global Monitoring Report 2004, more people in the developing world in the analytical evidence increasingly demon- absolute terms. Between 1990 and 2002, strates the importance of infrastructure for over one billion people gained access to sustaining growth and achieving both poverty improved water supply and sanitation ser- alleviation and development goals. Improving vices.6 Also during the 1990s, the number of infrastructure services to poor households and total telephone subscribers in developing rural areas is central to pro-poor growth agen- countries (expressed in population shares) das. For the economy as a whole, infrastruc- nearly quintupled, from 27 to 129 per 1,000 ture can enhance investment climate and people; it is estimated that between 2000 growth by increasing productivity, bridging and 2005, the number may have tripled markets, and facilitating trade. Beyond that, again to reach almost 400 subscribers per infrastructure services directly benefit house- 1,000 people. Similarly, between 1995 and holds by supplying basic elements necessary to 2004, an estimated 470 million people guarantee quality of life, satisfaction of basic gained access to electricity. 34 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N The situation is less positive than it South Asia is losing ground: improvement in appears from these figures. In many cases, infrastructure and in access to water, electric- access rates have hardly kept pace with pop- ity, and phones has not been quick enough to ulation growth. The failure of infrastructure match the region's 2 percent population to expand on a per capita basis, and to reach growth rate. Figure 1.5 illustrates this by map- a substantially higher share of households, ping infrastructure access rates from 1995­9 could reduce developing economies' growth against those from 2000­4; in three sectors, potential. In countries where infrastructure South Asia languishes below the 45-degree line services are scarce and underdeveloped, the (which represents no change in access rates). potential returns on infrastructure access may As the figure also shows, the Middle East be particularly high.7 region has been a top performer, particularly Among developing regions, infrastructure in telecommunications and electricity, to progress has been most rapid in East and South which more than 15 percent of the population Asia in absolute terms. But in per capita terms, gained access over the last five years. FIGURE 1.5 Progress in household access to infrastructure, 1995­2004 Improved water sources Improved sanitation Percent of population Percent of population with access, 2000­4 with access, 2000­4 LAC UMC 100 100 MENA90% 91% UMC 90 90 LAC EAP85% 83% 80 ECA 77% MENA LIC LMC 80 75% 87% LMC 77% 70 84% ECA SSA 63% 70 SA 71% 60 SA 77% 64% 72% 60 48% 50 50 EAP LIC 40 40 58% 38% 30 30 SSA 20 20 37% 10 10 0 0 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Percent of population with access, 1995­9 Percent of population with access, 1995­9 Electricity Phones Percent of population Percent of population with access, 2000­4 with access, 2000­4 MENA 100 LMC 93% 100 88% 90 ECA 90 LAC 99% 80 84% 80 70 70 ECA UMC 60 EAP 60 MENA 54% 55% LMC 50 LIC 61% 50 LIC 45% 44% 40 35% LAC SSA 40 9% SSA 29% 30 27% 30 EAP 5% 20 SA 20 18% 28% 10 10 SA 2% 0 0 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 Percent of population with access, 1995­9 Percent of population with access, 1995­9 Income categories World Bank regions Source: Staff calculations, based on DHS, LSMS, and various household surveys over the period; see Briceño-Garmendia and Klytchnikova 2006. Note: See figure 1.1 for region codes. LIC = low-income countries; LMC = lower-middle-income countries; UMC = upper-middle-income countries. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 35 C H A P T E R 1 Africa undeniably improved overall access Access Gaps and Vulnerable Groups rates in most infrastructure services, but it still lags behind other regions. Although the Because gains in household access rates have number of telephone subscribers has tripled been modest, large gaps in access persist in African countries, the number of house- between vulnerable and better-off groups. holds with phones remains below 5 percent. These gaps can separate disadvantaged And in other sectors, improvements have groups from the vitality of a growing econ- been modest. From the mid- to late-1990s to omy and prevent them from benefiting and 2002 (latest available data), the average elec- contributing fully. To narrow infrastructure trification rate for the region improved to gaps, it is important to identify vulnerable about 27 percent; this is a significant gain of groups and how to reach them. 5 percentage points, but it still left Africa the Poverty and isolation are twin dilemmas lowest among developing regions. In water that define vulnerability. Information from and sanitation, in absolute terms, Africa has household surveys suggests that in many been the region with the slowest progress, developing countries, modern infrastructure despite some progress in coverage rates. services cater mostly to the highest-income Eastern Europe is losing ground in key quintile of the population. In low-income infrastructure areas. By the early 1990s, countries, access for the rich is significantly Eastern Europe had universal access to most less than universal, and the poor are almost infrastructure services. But since 1995, the entirely excluded from access to modern net- region has suffered a decline of about 5 and work services (table 1.5). 9 percent of the share of population with As for the effects of isolation, a compari- access to improved water and sanitation, son of rural and urban populations suggests respectively, and the quality of the water net- the geographic disparities in infrastructure work has deteriorated significantly (World service provision. Rural populations across Bank 2005b). By contrast, phone access has the developing world tend to have lower rates expanded rapidly, and access to electricity of infrastructure access than urban popula- remains nearly universal. tions do (table 1.6). To take one extreme In Latin America, both coverage and qual- example, 65 percent of urban households in ity of infrastructure have seen sustained low-income countries have access to electric- improvements in the last decade, at least ity, but only 17 percent of rural households according to the usual indicators. And yet as do. Lack of electricity can pose a severe con- with macro reforms in the region, these straint on growth and poverty reduction-- improvements have apparently not yielded the limiting, for example, the growth and expected growth payoff. One reason may be productivity of the off-farm enterprises that that despite the advances, the region has lost are essential to rural development. ground relative to middle-income competitors Policies and investment efforts will need to and peers, particularly in East Asia. Moreover, continue targeting these access gaps and sup- the empirical evidence is now pointing to signs porting vulnerable and isolated groups in of underinvestment--in large part because of rural areas. Yet at the same time, policy mak- public sector cuts to achieve fiscal targets-- ers in the developing world cannot afford to suggesting that Latin America and the ignore the huge infrastructure challenge posed Caribbean may lag further behind competi- by the recent (and forecast) urban expansion tors in infrastructure in years to come (World in the developing world. Over the next 30 Bank 2005a). This region's story has initiated years, the global urban population is forecast discussion about the future growth impact of to increase by almost two billion--and virtu- reductions today in infrastructure invest- ally all of this growth will take place in devel- ments, particularly public sector investments.8 oping countries, particularly in the poorest 36 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N TABLE 1.5 Percentage of households with access to basic infrastructure services, quintile comparison (2000­4, latest observations available) Telephone Electricitya Waterb Sanitationc accessd Country group I V I V I V I V Low-income 9.7 68.7 41.1 78.5 27.2 68.8 3.2 24.5 Lower-middle-income 79.5 99.3 64.5 86.6 48.2 78.7 21.2 66.1 Upper-middle-income 81.4 99.5 76.7 95.0 73.4 96.4 32.0 73.1 Source: World Bank staff analysis; see Briceño-Garmendia and Klytchnikova 2006. a. DHS and HHS--Households reporting access to electricity b. JMP/WHO--Percent of population with access to an improved water source c. JMP/WHO--Percent of population with access to an improved sanitation facility d. DHS/HHS--Households reporting access to a telephone l. poorest quintile V. richest quintile DHS = Demographic and Health Surveys HHS = household surveys JMP/WHO = Joint Monitoring Programme for Water Supply and Sanitation/World Health Organization TABLE 1.6 Percentage of households with access to basic infrastructure services, urban-rural comparison (2000­4, latest observations available) Telephone Electricitya Waterb Sanitationc accessd Country group Urban Rural Urban Rural Urban Rural Urban Rural Low-income 65.1 17.3 82.7 54.9 58.3 27.8 20.9 3.0 Lower-middle-income 90.9 76.6 93.6 73.8 84.3 56.2 57.8 24.4 Upper-middle-income 97.7 76.5 94.1 84.2 88.4 73.7 67.6 41.8 Source: World Bank staff analysis; see Briceño-Garmendia and Klytchnikova 2006. a. DHS and HHS--Households reporting access to electricity b. JMP/WHO--Percent of population with access to an improved water source c. JMP/WHO--Percent of population with access to an improved sanitation facility d. DHS/HHS--Households reporting access to a telephone DHS = Demographic and Health Surveys HHS = household surveys JMP/WHO = Joint Monitoring Programme for Water Supply and Sanitation/World Health Organization regions.9 The economic future of most coun- Caribbean, for example, the roughly 3 percent tries, including those still urbanizing, will of urban population without access to depend on how well their cities function. improved water constitutes about 34 percent Urban expansion is a challenge, but it also of the total unserved population; a similar sit- gives policy makers opportunities with respect uation holds in Eastern Europe.10 to infrastructure bundling and wholesaling, as well as the option of taking advantage of Monitoring Infrastructure Gaps: economies of scope in the production and dis- The Need to Assess Quality tribution of services. Focusing on the unserved urban population may sometimes be the most Where infrastructure services are lacking, efficient approach. In Latin America and the customers often rely on lower quality techno- G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 37 C H A P T E R 1 logical alternatives offered by informal service water services quality. From simple questions providers. Monitoring these alternatives is added to a multipurpose household ques- challenging because of the lack of data. As a tionnaire, a household's water service can be result, monitoring has focused on access, which classified according to its safety--that is, is the easiest aspect of provision to measure. whether the service represents improved But qualitative aspects are crucial for infra- technologies like pit latrines or a piped sewer structure provision. Having access to water for system, or unimproved sources such as an 3 hours a day is not the same as having access unprotected spring or surface water.11 But for 24 hours a day; nor is dung equivalent to many other aspects of quality of service (such kerosene as a main cooking fuel. Other crucial as continuity of flow, predictability of flow, dimensions of quality--such as reliability, and availability of water during the dry sea- safety, and customer orientation--should also son) that also determine the degree of be measured. A quality-adjusted access rate is "access" to water and sanitation have not therefore in order. been captured reliably in general-purpose Assessing quality is time-consuming and surveys. Although "dedicated" water and expensive. Consider the water sector. The sanitation surveys can be conducted in indi- World Health Organization and United vidual project areas, they are too expensive Nations Children's Fund have created a and complex to be a routine form of water "technological" taxonomy of one aspect of and sanitation monitoring. BOX 1.4 The monitoring dilemma: matching the story of suppliers with the story of users Effective results-based monitoring in the infrastructure sectors is difficult. The most basic challenge lies in the discrepancy between the data that service providers collect routinely and the data needed to monitor progress in meeting the MDG targets and household needs more generally. Water sup- ply utilities, for example, routinely collect data on the number of active household connections, which is of crucial technical and financial importance to the utility. But these data tell little about the quality of the water supply to those not connected directly to the network. In sanitation, the problem is even more serious: the standard indicator, the number of sewerage connections, tells nothing about the sanitation used by the vast majority in developing countries who are not served by a sewerage utility. Even in the telecommunications sector, monitoring access is a challenge. The International Telecommunications Union annually carries out surveys of telephone regulators and telephone companies and subsequently reports the most reliable figures on the number of phone lines and subscribers. But these numbers overestimate access rates and probably also progress, because dividing the number of subscribers by total population does not differentiate between households with more than one phone and those with none. As recognized by the World Bank and the Joint Monitoring Program since its landmark report in 2000, the key to getting meaningful data on access and service quality in infrastructure services lays in the use of surveys and census data obtained from households, not from service providers. While such a survey-based approach has its own problems--most notably, the impracticality of conduct- ing household surveys every year to monitor relatively minor changes--it is the most straightforward way to cut through the inevitable biases in data obtained from service providers. Unfortunately, there has been little systematic monitoring through household surveys focused on infrastructure services, in particular information and communications technologies and transport services. Moreover, when infrastructure issues have been monitored in household surveys, the focus has been on measuring access to the service, which means quality and affordability have not been monitored. Fortunately, the development community is now committed to overcoming this problem. 38 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N FIGURE 1.6 Access to water, by water source Low-income countries Lower-middle-income countries Bottled water 0.2% Bottled water Piped water 3.4% 20% Tanker Well water truck 34.6% 0.9% Other 1.1% Piped water Surface water 47.9% Well water 15.9% 59.9% Rainwater Rainwater 1.5% Surface 2.0% water 10.2% Tanker truck 1.6% Other 0.7% Source: Staff analysis of Demographic and Health Surveys; see Briceño-Garmendia and Klytchnikova 2006. Notwithstanding the limitations, the tech- to be open to reaching unserved communities nological taxonomy of services can suggest through innovative approaches, which may quality disparities in general and, globally, involve informal or nongovernmental organi- among country income groups. In the case of zation (NGO) providers. Third, they need to water supply, wells are the main source of help subnational entities develop the capacity water for 60 percent of the population in low- to raise resources and borrow responsibly to income countries. The more sustainable and finance infrastructure. efficient option of piped water covers only about 20 percent of the LIC population. In T H E F I N A N C I N G C O N U N D R U M : the case of lower-middle-income countries, P R O T E C T I N G F I S C A L S P A C E F O R the proportions reverse: about 35 percent of I N F R A S T R U C T U R E I N V E S T M E N T the population relies on wells for water, The demand for infrastructure and other ser- whereas 48 percent receive piped water. vices is huge; even as the private sector pres- These data suggest that quality, not just ence has grown, investments have not matched access, rises with country income levels. needs. It has become evident that, with or without private sector participation, the pub- lic sector plays the key role in guaranteeing Expanding Provision of Infrastructure infrastructure provision, not only as a regula- Quantity and Quality tor but also as a financier. But over the last Expanding provision of infrastructure services two decades many countries' public invest- will require three efforts. First, finding the ment in infrastructure as a share of output has financial resources is essential; when public decreased to levels that many now believe are sector financing for infrastructure investment too low. In some sectors--telecommunications is diminished because of fiscal constraints, especially--private investment has replaced efforts to accelerate growth and meet MDGs public investment. Overall, however, the are potentially hampered. Second, govern- increase in private investment has been too ments and the development community need small to offset the decline in public investment. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 39 C H A P T E R 1 FIGURE 1.7 Primary deficit and public infrastructure investment, expenditure decisions, including measures of Latin America, 1980­2000 net worth. Where appropriate, these long- term indicators can even be included in fiscal Percent of GDP Percent of GDP targets or fiscal rules. Estimates of long-term 7 4 effects are highly uncertain, of course, so 6 governments must guard against self-serving 5 forecasts--for example, by setting conserva- 4 3 tive targets and by being transparent in their forecasts (IMF 2005). 3 Such measures need to be accompanied by 2 other measures to select and maintain good 1 2 investments: (1) mechanisms to improve the 0 techniques and use of cost-benefit analysis (for example, for making decisions about road ­1 investments), (2) commercialization (corpora- ­2 1 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 tization or privatization) of public enterprises Primary deficit, left axis Public investment in that get their revenue from direct user fees infrastructure, right axis (such as ports, airports, railways, and water and power distribution), and (3) creation of competition in services wherever possible and Source: Calderón and Servén 2004; and FITCH. allowing competing private firms to make investment decisions (for example, in telecom- In sectors such as roads and water, private munications and perhaps power generation). investment, even if it has increased, remains a small proportion of total investment. R E A C H I N G T H E U N S E R V E D T H R O U G H In many cases the decline of public invest- I N N O V A T I V E A P P R O A C H E S ment has paralleled attempts to reduce unsus- Private utility operators are generally thought tainable budget deficits. Governments have to provide efficient, sustainable services in found it easier to cut investment (and mainte- urban centers. Yet in practice, particularly in nance) than to reduce the public sector wage poor and rural areas, private utilities are bill and other current expenditures (figure 1.7). often absent or inadequate, and households In the long run, attempts to cut deficits by must meet their water, energy, and sanitation cutting public investment may be partly self- needs through self-provision, or through defeating.12 Public investment can create assets reliance on low-cost, small-scale, and local that later generate user fees (power plants, for private providers. Africa has been at the fore- example) or lead indirectly to higher tax rev- front of innovation in water and sanitation enues by increasing output (well-chosen roads, for the last 20 years by replacing central plan- for example). Yet conventional fiscal targets ning approaches with community-based focus only on the effects of expenditure reduc- management of village water supplies and by tion on the cash deficit and public debt, not on implementing technologies like easy-to-main- the long-term effects of well-targeted public tain hand pumps and low-cost pit latrines investments. They can therefore encourage (figure 1.8). governments to invest too little. What about the vulnerable urban poor? To minimize the problem of underinvest- Many nongovernment projects have sought to ment in needed infrastructure, governments promote electrification in slums. Case studies of must consciously offset these biases. One different approaches have been carried out in way to do so is to examine the usual indica- Brazil, India, the Philippines, and South Africa. tors of liquidity and debt together with indi- One successful program is in Salvador, Brazil, cators of the long-term fiscal effects of where a privatized distribution company 40 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N FIGURE 1.8 Access to various forms of sanitation an important gap in local transport services and provide substantial employment for Sub-Saharan Africa members of poor households (Hine 2005). Other 3.8% B R I N G I N G M O N E Y A N D U S E R S Flush toilet C L O S E R T O G E T H E R : D E C E N T R A L I Z A - 8.5% T I O N A S P A R T O F T H E S O L U T I O N ? No access In recent years, the evolving development 34.8% paradigm has placed new emphasis on the role of subnational entities--local govern- ments, utilities, and development financial institutions--in providing or financing infra- Pit toilet structure and other public services. Subna- latrine tional entities may in theory be in a better 52.8% position than national governments to deliver Share of population many services efficiently, because they can better encourage local participation, assess Source: Staff analysis of Demographic and Health Surveys; see local demand, and prove responsive and Briceño-Garmendia and Klytchnikova 2006. accountable. Chapter 6 discusses some con- ditions under which this is likely to be true in practice, including effective downward changed course after realizing that it was accountability and clear allocation of respon- incurring substantial losses and providing sibilities. Other prerequisites for effective poor service to slum areas. It devised a com- decentralization include robust reporting and munity agent program that uses NGOs to audits, as well as debt limits and clear provi- assist in collection, monitoring, and report- sions on emergency financial support from ing. The result has been improvements in central governments. maintenance, responses to outages, and effi- Effective decentralization would require ciency of energy use. Recent surveys reveal subnational entities to meet new responsibil- that 90 percent of customers are highly satis- ities for providing and financing infrastruc- fied with the program. This experience sug- ture services. But many such entities have gests the benefits of working with NGOs and weak financial and management capabilities informal providers to improve electricity ser- and face thin local capital markets. As a vice to slums (USAID 2004). result, these subnational governments are not It is also increasingly common that low- creditworthy and cannot attract private cost, small-scale, and local private providers financing for infrastructure. Weak subna- help fill a gap that the public network monop- tional entities remain dependent on central olies ignore. In Dar es Salaam, Tanzania, a governments, which have different spending cholera outbreak in 1996 forced the sewerage priorities and are unable to provide sufficient and sanitation department to loosen its financing for infrastructure. Under these con- monopoly on cesspit cleaning. Private ditions, service suffers and decentralization providers entered, and now a market for fails to deliver its potential gains. cesspit cleaning is emerging. Households can Over the longer term, the development of choose a provider on the basis of price and subnational entities and domestic financial easy-to-monitor performance (World Bank markets will help alleviate these problems. As 2004). Appropriate transport services--such stronger domestic financial institutions (banks, as the pedal rickshaws of Dakha and other pension funds, and insurance providers) South Asian cities, and the bicycle and motor- develop, they will be able to mobilize local cycle boda-boda services of East Africa--fill resources more efficiently, and they will have a G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 41 C H A P T E R 1 BOX 1.5 Small-scale private service providers Small-scale private service providers (SPSPs) have emerged to fill the large gaps in electricity and water access and are now beginning to gain acceptance as a viable alternative for delivering services to those most in need. Despite concerns about quality monitoring and enforcement, SPSPs are a sig- nificant force in low-income and remote regions. Indeed, they are estimated to reach as much as half the population in postconflict countries and in weak or failed states. In addition, it is estimated that up to a quarter of the urban population in Latin America and nearly half of urban dwellers in Africa rely on SPSPs for at least a portion of their water supply. These SPSPs are largely single-purpose entities that often operate without any formal legal sta- tus. They provide services through widely varying technologies, ranging in sophistication from water tankers and diesel generator dealers to stand-alone networks and power grids. A majority of SPSPs tap financing through a combination of three sources: their own earnings and savings, loans from friends and family, and money borrowed from formal and informal lenders. The total estab- lishment costs for private water network operators ranged from $100 per connection to $300 per connection, depending mainly on local circumstances and markets, whereas the average investment for a second-hand water tanker was $10,000­15,000. Investment requirements for private elec- tricity networks ranged from $1,000 to a few million dollars. Many communities would go unserved if not for SPSPs. Governments and donors should acknowledge this reality by working with these providers to improve their access to financing, which will help SPSPs expand their coverage while improving the quality, efficiency, and affordability of their services. Establishing a clear policy and regulatory framework for SPSPs will also help them expand their coverage. Source: Based on Kariuki and Schwartz 2005. BOX 1.6 Building creditworthy borrowers Although decentralization is assigning greater responsibility for infrastructure and other public ser- vices to subnational entities--local governments, public utilities, and development financial insti- tutions--those entities often lack the ability to attract the necessary local currency financing. At the same time, as national governments devolve responsibility for infrastructure and other services, they prefer to use their borrowing capacity to finance other activities, and they are increasingly limiting their transfers to subnationals. To make decentralization work, national governments are asking the World Bank and other mul- tilateral agencies to provide financing directly to subnationals, in local currency and without sov- ereign guarantees. Most other multilateral agencies are able to do this, but the World Bank's Articles of Agreement require guarantees. The Bank Group's only instrument to lend to subnationals without sovereign guarantees is IFC's Municipal Fund, which lends to subnationals in local currency and at market-based interest rates. Based on early success, the Bank and IFC are working together to scale up the Municipal Fund and to transform their approach to subnational lending. The goal is to build creditworthy subnational entities using technical assistance and financing so they access commercial financing on the strength of their own credit. 42 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 C H A R T I N G A N D S U S T A I N I N G P R O G R E S S I N I N C O M E P O V E R T Y R E D U C T I O N growing demand for local, medium- and long- dramatically in 2005, leading to a significant fall in term debt. They will be able to assess and to the average value of the fiscal balance-to-GDP ratio price credit risk and will seek opportunities to for the region as a whole. Excluding these countries invest in domestic infrastructure assets that results in an average fiscal balance for Sub-Saharan offer attractive risk/reward profiles. Interna- Africa of ­3.4 percent of GDP, which is nevertheless lower than in earlier years. tional competition among borrowers and 4. Staff assessments are obtained from a sur- among lenders will lead to economic, risk- vey by IMF country teams of the quality of policies adjusted access to credit. These changes have in each area. begun, and multilateral agencies are helping to 5. This section is taken from Doing Business accelerate them with financing and technical in 2006. Unless otherwise specified, data refer to assistance. Box 1.6 describes one way in which 2005, the latest year for which comparable data the World Bank Group is contributing. are available. 6. The global commitment to improving Notes access to drinking water supply and sanitation is reflected in MDG 7: to halve the proportion of 1. These projections come with several caveats. people without sustainable access to safe drink- First, they are based on preliminary 2005 estimates ing water and basic sanitation. Progress toward of population and national-accounts GDP growth, this goal is tracked by the WHO/UNICEF Joint as well as estimates of income distribution, all of Monitoring Programme for Water Supply and which may be subject to considerable revision. Sec- Sanitation (JMP). Monitoring access to water ond, while for some countries (most notably India and sanitation on an annual basis is not practical, and China) preliminary household survey data are so the JMP analyzes household survey data from available for 2004, for other countries the latest around the globe every few years to detect over- available household data are from 2002. Third, the all trends; see below for a discussion of monitor- estimates for India--which loom large in the South ing challenges. Asia estimates--are particularly problematic 7. Returns on infrastructure investment tend because of a change in survey methodology in 2004, to fall, sometimes sharply, as economies reach which results in poverty estimates that are not maturity. For details see Briceño-Garmendia, strictly comparable with those of earlier years. All Estache, and Shafik 2004. of these caveats mean that the actual poverty esti- 8. See the section of infrastructure financing mates for 2005, when they become available, may below for further discussion of this issue. differ substantially from these projections. 9. The (still) predominantly rural African 2. Some country groups in table 1.1 include countries and East Asia and Pacific region are log- only a small number of countries. In the low-income ging urban growth rates of 4.1 percent and 3.3 portion of the table, East Asia and Pacific includes percent, respectively, compared with rates of 1.3 Lao PDR, Myanmar, Mongolia, Papua New percent and ­0.6 percent for rural growth. Guinea, the Solomon Islands, and Vietnam; Europe 10. For details on the goal of improving urban and Central Asia includes the Kyrgyz Republic and slums and preventing the emergence of new slum Moldova; Latin America and the Caribbean areas, see United Nations 2005. includes Haiti and Nicaragua; and Middle East and 11. For detail, see WHO/UNICEF 2005. North Africa includes Yemen. In the middle-income 12. Although there are opportunities for cut- countries' portion of the table, South Asia includes ting waste and corruption costs in some public Sri Lanka, and Middle East and North Africa investment projects, the evidence suggests that includes Algeria, the Arab Republic of Egypt, the public investment in infrastructure in developing Islamic Republic of Iran, Jordan, Morocco, Oman, countries increases output and growth. See the Syrian Arab Republic, and Tunisia. Calderón and Servén (2005) for surveys of the 3. In a small number of oil-producing Sub- recent empirical literature. For a discussion of cor- Saharan African countries, fiscal balances improved ruption issues, see chapter 7 of this report. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 43 2 Managing Money for Human Development Results T he wave of new donor commitments in tal immunization programs in Africa have 2005 comes on top of sustained produced substantial declines in measles cases increases in global funding for educa- since 2000. Girls' enrollments are growing tion and health over the previous five years. faster than boys' in every region, and the num- For the lowest-income countries, especially, ber of women elected to parliaments is increas- the stage is set for resource transfers on an ing in many places. The first evidence that HIV unparalleled scale and the chance to make the prevention programs are beginning to work is Millennium Development Goals (MDGs) a emerging. And the number of AIDS patients reality of better lives for hundreds of millions under treatment in the developing world has of people. The challenge now is to turn increased rapidly: from less than 100,000 five resources into results. This chapter highlights years ago to 1 million in 2005. how some countries are doing just that, and Encouraging trends are also observed in identifies the key constraints to faster and policies and program design. Countries in the more equitable MDG progress elsewhere. global partnership Education for All Fast- Broad regional trends of MDG progress Track Initiative (EFA FTI) are beginning to see have not changed significantly since publica- clear benefits from more harmonized donor tion of Global Monitoring Report 2005. All practices. Insecticide-treated bed nets (ITNs) regions are off track on the child mortality goal are being distributed on a larger scale than and on at least some of the other goals. The ever, and national malaria strategies are get- two regions lagging most seriously behind-- ting funding and visibility. Global partners are South Asia and Sub-Saharan Africa--are off closely monitoring child survival where it is track on all of the goals. Children's nutrition is not improving. Immunization programs are worsening in many parts of Africa, a majority making strides in reaching the poor. And in of countries are not making sufficient progress every region, countries are adopting policies on maternal mortality, and HIV/AIDS contin- to make education and, to some extent, health ues to spread across the world. systems more effective and responsive to the But the latest data on outcomes since adop- people they serve. They are increasing com- tion of the MDGs provide some encouraging munity voice in the management of front-line signs of progress. A large set of countries, schools and health facilities. They are allocat- including many in Sub-Saharan Africa, have ing funds more transparently. They are begin- accelerated their progress on primary school ning to link providers' pay to performance. completion in the past few years. Supplemen- And they are conditioning income transfers to G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 45 C H A P T E R 2 families on the families' use of education and and 2015, the proportion of people suffering health facilities. from hunger, as measured by the percentage of The latest data also confirm that external children under five who are underweight. Only funding to support the health and education 34 of 143 countries are believed to be on track MDGs has increased sharply since 2000, and to meet this goal. Almost all of South Asia and donor support appears better targeted to the much of Africa are off track, and in a number lowest-income countries that have country- of African countries nutrition outcomes are owned poverty reduction strategies and worsening, reflecting the nexus between HIV strong commitment to the MDGs. Recent and undernutrition. studies also suggest that at least some devel- Two countries making notable progress are oping countries have successfully managed to The Gambia in Africa and Bangladesh in scale up immunization and schooling cover- South Asia. While starting from--and still age while carefully managing unit costs. at--a very high level of child malnutrition, Signs of progress are clear. But the world is Bangladesh is the only country in South Asia still far from achieving the human develop- that may achieve the nutrition goal. One fac- ment MDGs; donors and countries must keep tor is the country's successful scale-up of com- working on ways to speed progress. This munity-based nutrition programs that work chapter analyzes five core challenges in ensur- with mothers to improve feeding practices and ing that increased financing translates into promote infant and child growth. Tested in faster and more equitable MDG progress. For the early 1990s by the local nongovernmental donors, there is one overriding challenge: organization (NGO), the Bangladesh Rural increasing the efficiency of aid. For develop- Advancement Committee (BRAC), the pro- ing countries, the key challenges are grams have received strong government back- ing and coordinated donor support since 1995 maintaining efficiency as expenditures and are now mainstreamed into Bangladesh's scale up rapidly; national health, nutrition, and population sec- reducing leakage to ensure that resources tor program. In the next phase nutrition pro- are used for intended purposes; grams will operate with a strong focus on doing more to reach the poor; and results: disbursements are linked to perfor- investing smartly to achieve larger impacts mance, and good performance is rewarded on human development outcomes through with bonus funds from donors, many of which complementary investments in water, san- operate in Bangladesh through a sectorwide itation, roads, and housing. approach (SWAP) funding pool. Nutrition is also one of the six pillars of the Bangladesh Countries Making MDG Progress Poverty Reduction Strategy Paper (PRSP) Comprehensive data on country and regional (Pelletier, Shekar, Du, and Kostermans 2005). progress toward each of the MDGs can be The strong performance of The Gambia found in World Development Indicators over the last five years can be attributed to 2006. This chapter identifies some of the high-level political support (the National countries making exceptionally fast progress Nutrition Council and National Nutrition toward the MDGs, and the success factors Agency are chaired by the country's vice pres- involved, as well as countries where MDG ident); to development of institutional capac- outcomes are worsening. ity at the national, divisional, and local levels for monitoring and addressing malnutrition; and to effective and well-targeted interven- MDG 1: Nutrition tions. Programs focus on the window of Malnutrition is an indicator and perpetuator opportunity between pregnancy and the first of income poverty. The nonincome poverty two years of life, when nutritional interven- target under MDG 1 is to halve, between 1990 tions have maximum impact on infants' brain 46 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S development. The program educates moth- mand of a globally relevant level of skills and ers, provides micronutrient supplements, and knowledge. Countries and donors need to promotes infant and child growth through give more attention to measuring learning improved feeding practices. outcomes, testing teachers for content mas- tery before they are hired, and making sure teachers have the materials and professional MDG 2: Universal Primary School development support they need to be effective Completion in the classroom. The FTI must stay focused Estimates of the primary completion rate in on promoting completion with quality. developing countries show steady progress in most regions. Although about one-third of all MDG 3: Gender Equality developing countries are considered off track, and another 18 percent have inadequate data, The first MDG to fall due was a measure of the number of countries that have achieved progress toward the goal of gender equality universal primary completion increased from and empowering women--the elimination of 37 in 2000 to 50 in 2004, and recent data disparities in primary and secondary educa- suggest that the average pace of progress is tion by 2005. Although it was not met, girls' increasing slightly. In 1990­7, the mean rate enrollments are growing faster than boys' in of improvement in primary completion was all regions, and the prospects for reaching the about 1.5 percent per year; since 1998, it has primary level target by 2015 are good. In been 2.1 percent per year. Analysis by the sec- South Asia and Sub-Saharan Africa, however, retariat of the EFA FTI, the global partner- the primary completion rate for girls is still ship to promote primary education progress, more than 15 percent lower than that for shows that the 17 countries that have joined boys (World Bank 2004a). In 2015, it is pro- the FTI are registering even faster improve- jected that 21 of 133 countries--12 of them ment--about 3 percent per year. In two FTI in Sub-Saharan Africa--will still have girls' to countries, Niger and Guinea, for example, boys' primary enrollment ratios below 0.9 primary completion rates have been increas- (Grown, Gupta, and Kes 2005). ing three times faster than before 2002­3. Achieving the target of gender equality at Countries making the fastest progress--such other educational levels will be more difficult. as FTI countries Ethiopia and Mozambique The challenge of getting and keeping girls in and others such as Cambodia, Benin, and secondary school is particularly severe. In Rwanda--are exceeding the rates of improve- South Asia, only 47 percent of girls go to sec- ment achieved by today's industrialized coun- ondary school, and in Sub-Saharan Africa, tries at a similar point in their history. only 30 percent (Grown, Gupta, and Kes Not all of this progress can be attributed to 2005). In developing regions as a whole, 80 the FTI. But countries become eligible to join girls for every 100 boys are enrolled in ter- FTI by having a "credible" education sector tiary education (United Nations Statistics plan agreed with donors, and donor commit- Division). The widest gaps are in Sub-Saha- ment to harmonization and the mobilization ran Africa, where only 68 girls for every 100 of additional grant funding to reward policy boys are enrolled in university or other ter- and outcome progress are at the core of the tiary-level education, followed by Southern FTI's mutual accountability framework (box Asia, with 71 girls for every 100 boys. As for 2.1). Niger provides an example of the inter- literacy, there was some progress in the 1990s action between policy progress and increased in reducing the gender gap, but at the current and more flexible donor support (box 2.2). rate, southern Asia, western Asia, and north- While the quantitative progress is encour- ern and Sub-Saharan Africa will not achieve aging, universal primary completion is only a the MDG target of parity by 2015 (United meaningful goal if it signals childrens' com- Nations Statistics Division). G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 47 C H A P T E R 2 BOX 2.1 Education for All Fast-Track Initiative Three years after its launch, the EFA FTI appears to have reached cruising altitude. It has an agreed operating framework, an established system of rotating donor leadership, a functioning secretariat, and donor collaboration mechanisms credited with producing tangible gains in harmonization at both the country and global level. Since early 2005, seven countries whose donor partners endorsed their education sector plans have joined the initiative (Djibouti, Kenya, Lesotho, Madagascar, Moldova, Tajikistan, and Timor-Leste), bringing the total to 20. In its third year of operation, the $445 million EFA FTI Catalytic Fund (in 2003­7) has disbursed $75 million to nine countries that meet the criterion of having too few donors to close the financ- ing gap in their agreed education plans. Five new donors made contributions to the Catalytic Fund, joining four earlier donors on its governing board. Total aid for education in the FTI countries over the past three years is estimated at $350 million a year, most of it--under the initial concept of a virtual fund--flowing through existing donor channels. A new support facility--the Education Program Development Fund--was launched in 2005, with $30 million in contributions from five donor countries for 2005­7. The fund finances upstream and downstream technical support for countries with weak capacity to develop or implement sound sector plans--a core requirement for joining the initiative. Key beneficiaries are expected to be frag- ile states, and 25 countries are already benefiting from its support. At the December 2005 EFA FTI meeting in Beijing, it was agreed that the initiative will expand to as many as 40 additional countries over the next two years and that the Catalytic Fund may need to shift to longer-term financing (beyond the current three-year limit). In addition, the steering com- mittee was expanded and specific actions on harmonization were requested of all members. Although the initiative will face challenges during 2006, with a change in the secretariat and a continuing need for additional financing, it has clearly emerged as a key vehicle for financing, tech- nical support, and donor harmonization in education. Source: EFA FTI Secretariat. Progress in increasing women's share of pay low wages (World Bank 2001). Given the nonagricultural wage employment and hold- current trend in gender equality in political ing parliamentary seats is notable. Women's participation, it may be difficult to reach the share of the labor force has risen in almost all MDG 3 target of having 30 percent or more of regions (United Nations Statistics Division), national legislative seats held by women by but women are still at a disadvantage in labor 2015. By January 2005, only 17 countries had markets. Their participation is often restricted met this target, and globally, the proportion by onerous time burdens that result from a was only 15.9 percent, up from 13.5 percent in very unequal division of tasks in the household 2000 (United Nations Statistics Division). and limited infrastructure for child care and Notwithstanding the overall slow progress, other household duties (Blackden and Wooden there are many examples of innovative pro- 2006). The earnings gap between men and grams that are helping countries progress women is shrinking, but in developing coun- toward gender parity, particularly in educa- tries women still earn on average about 30 tion, but also in access to economic resources percent less than men (World Bank 2001). and political participation. Unemployment rates are consistently higher Education. In Bangladesh the emphasis for women workers (ILO). Occupational seg- that government and other actors have placed regation is pervasive; women frequently are on girls' education since the 1990s has confined to traditional female occupations that changed the public discourse and the pattern 48 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S BOX 2.2 Jump-starting progress on primary completion in Niger Five years ago in Niger, only one of every five children completed primary school, one of the low- est completion rates in the world. The government struggled to expand schooling, devoting 80 per- cent of its education budget to primary schooling, but it received little external support and could not afford to hire more than 250 new teachers per year. But by 2005, Niger was one of the world's best performers in terms of progress in bringing children through its primary education system. What changed? A key factor was a politically difficult reform of teacher salary policy: the government froze the recruitment of civil service teachers and promoted system expansion by hiring new "contract teach- ers" on shorter-term, renewable contracts at a lower salary level, on a par with the average teacher salary across low-income countries. Since then, teacher hiring has jumped from 250 to 2,500­3,000 per year. The 16,000 new contract teachers have more than doubled the teaching stock and made the unit costs of primary education more fiscally sustainable. School enrollments have doubled-- from 530,000 to 1.1 million children--representing a 16.6 percent yearly increase. Children in rural areas have been the biggest beneficiaries; in these areas enrollments increased from 38 percent to 51 percent between 2002 and 2005, closing the gap with the national average. The government's courageous reform has increased the primary completion rate from 20 per- cent in 2000 to 36 percent in 2005 and reduced geographic disparities. Official development assis- tance (ODA) to Niger has tripled, from about $10 million to $39 million per year, since it joined the EFA FTI in 2002, and donors have made concrete progress in merging missions and using com- mon performance indicators. The government's education sector plan, agreed with donors under the FTI process, is tackling key issues, such as lagging girls' completion rates, by introducing tar- geted stipends and trying to improve school functioning with local school management committees and a new information tool: performance "monitoring sheets" that compare schools' resources and results are posted in each school. Source: EFA FTI Secretariat. of education. This emphasis, combined with Access to economic resources. In Argentina, large-scale stipend programs to reward girls the female share of nonagricultural wage for going to school and sustained expansion employment rose from 36 percent in 1990 to of schooling supply, which included attention 48 percent in 2003. Much of the change can to latrines, wells, and female teachers, has be attributed to vocational and technical closed the gender gap in both primary and sec- training programs targeted to women, such ondary education. By 2002 girls' enrollment as FORMUJER, and to the 2003 Heads of in primary school was 100 percent, and girls' Households program, which paid female attendance and performance on achievement heads of households with children under 18 tests surpassed those of boys. years old for community work. Mauritania has also made impressive In Mali, the introduction of small-scale, progress--increasing the primary enrollment multifunctional diesel engines that can pro- ratio for girls from 39 percent in 1990 to 85 vide electricity, pump water, and mechanize percent in 2001--by expanding the supply of grain milling and other tasks has improved schooling, recruiting female teachers, and women's economic situation, reduced their offering girls scholarships and school meals. work burden, and promoted development But at both the primary and secondary levels, and poverty reduction in communities. boys still perform better in end-of-cycle exams, Between 1999 and 2004, 400 diesel engines and the repetition rate for girls is higher. were installed, reaching 80,000 women in 10 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 49 C H A P T E R 2 districts. In the first five years of the project, assembly seats for women. But 15 additional the engines saved women 1 to 3.3 hours of women were elected to nonreserved seats, labor per day; the girls-to-boys ratio in grade bringing the total to 39 women in the Lower 5 improved; the proportion of girls entering House (of 80 members). In the Senate a con- secondary school rose from 31 percent to 38 stitutional quota of 30 percent has also been percent; and visits to local clinics for injuries exceeded. caused by burdensome work were reduced. Women's associations own, manage, and MDG 4: Child Mortality maintain the engines and sell energy services. Women have increased their income from an More than 10.5 million children under the average of $68 to $122 per year, and the age of five die each year from preventable and number of women earning at least 150,000 treatable causes--4 million during the first CFAF (West African Francs) increased by a month of life and 3 million during the first factor of 10 (Modi and others 2005). week. Simple, known, and low-cost treat- Political participation. A few years ago ments for childhood respiratory and diarrheal Morocco had the lowest rate of female repre- diseases could keep an estimated two-thirds of sentation in the Arab world: 0.6 percent. these children alive. The MDG for child mor- Today 35 female parliamentarians make up tality calls on countries to put these interven- 11 percent of the parliament. Five years of tions to work to achieve a two-thirds decline research and advocacy by civil society from the 1990 baseline by 2015, a reduction resulted in an implicit 20 percent quota sys- of 4.3 percent a year. tem, applied voluntarily by political parties at A recent study shows that this target rate the last parliamentary elections. of improvement is very ambitious compared Another impressive case is Rwanda, cur- with the average long-term country experi- rently at the top of the world ranking for ence in improving child survival, and indeed, women's political leadership; there, women most low- and middle-income countries comprise 49 percent of the National Assem- today are not making enough progress to bly. Rwanda's new constitution reserves 24 reach the goal (Eifert and Gelb 2005). Some BOX 2.3 China's slow progress on child mortality China, which had one of the world's most spectacular records of sustained child mortality improve- ment before 1990, is now considered at risk of not reaching the child mortality MDG. Between 1960 and 1980, China reduced child mortality from 225 to 64 per 1,000 births, a rate of ­6.3 per- cent per year and well above the MDG target rate. Since 1990, however, progress on under-five mor- tality has slowed substantially--despite a huge increase in economic growth and strong improvements in nutrition, including among children--factors that should greatly improve child survival. Although the most recent estimate of China's child mortality progress (­3.3 percent per year) is better than progress in many other countries, it is far below the progress of top performers, including most other East Asian countries. National data also point to widening gaps in under-five survival between richer and poorer provinces, and between boys and girls. China is one of just seven countries in the world where a girl's risk of dying by age five is higher than a boy's, and it has the largest gender gap by far. New research suggests that infant and under-five mortality rates among girls in China may actually be rising. While improvements in male infant mortality continue to drive China's overall child survival progress, female infant mortality is increasing by nearly half a percent per year. Source: World Bank East Asia Region 2005. 50 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S 117 (79 percent) of the 148 developing coun- The overall picture is highly troubling. tries for which data are available are esti- But there are some encouraging factors. mated to be off track on MDG 4. While the First, some countries are sharply increasing majority of these countries are making some child survival (table 2.1), and there are progress, seven countries have seen no lessons to be learned from their experience. improvement since 1990 (box 2.3), and in 15 Second, post-2000 data provide some evi- countries the share of children who die before dence of accelerating rates of progress. age five has increased. The last group includes Third, led by the Global Alliance on Vaccines conflict-affected countries, such as Cambo- and Immunizations (GAVI) (box 2.4), immu- dia, Central African Republic, Côte d'Ivoire, nization coverage has expanded sharply in Iraq, and Rwanda, and countries hit hard many countries over the past few years, pro- by HIV/AIDS, such as Botswana, Kenya, ducing, for example, a 91 percent drop in Lesotho, South Africa, and Swaziland. measles cases in 19 Sub-Saharan African TABLE 2.1 Sharp increases in child survival for some countries Under-five mortality rate per 1,000 births Annual percent change 1990 1995 2000 2004 1990­2004 Low-income Vietnam 53 44 30 23 ­5.9 Timor-Leste 172 145 102 80 ­5.4 Bhutan 166 133 100 80 ­5.2 Mongolia 108 87 65 52 ­5.2 Lao PDR 163 131 101 83 ­4.8 Sub-Saharan Africa Eritrea 147 122 97 82 ­4.2 Comoros 120 100 82 70 ­3.8 Cape Verde 60 50 42 36 ­3.6 Mozambique 235 212 178 152 ­3.1 Guinea 240 208 175 155 ­3.1 Middle-income Czech Republic 13 10 5 4 ­7.7 Egypt, Arab Rep. of 104 71 49 36 ­7.5 Peru 80 60 42 29 ­7.2 Macedonia, FYR 38 26 18 14 ­7.1 Syrian Arab Republic 44 31 22 16 ­7.0 Source: World Bank 2006. BOX 2.4 Global Alliance for Vaccines and Immunization The Global Alliance for Vaccines and Immunization (GAVI) links private and public sector partners to save children's lives and protect health through the widespread use of vaccines. By the end of 2005 it had made financial commitments totaling $1.4 billion over five years to 72 of the 75 eligible low- income countries. Immunization coverage in these countries has increased from 57 percent in the 1990s to an estimated 65 percent in 2003. GAVI's strong record has helped attract new funds. It is working with partners to develop the new International Financing Facility for Immunization; com- mitments in 2005 will yield an additional $3 billion in disbursements to governments before 2015. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 51 C H A P T E R 2 countries since 2000 and pointing to possible Africa there has been almost no improve- further impacts on child survival rates in the ment, and in South Asia the coverage levels coming years (Otten and others 2005). remain low, despite significant improvement. While the largest declines in child mortality Within South Asia the improvement is heav- since 1990 have occurred in the middle-income ily driven by Bangladesh, which has achieved countries, the experience of many countries a very large and sustained increase in demonstrates that appropriate combinations of women's access to skilled attendants at birth. policies and technologies can produce big gains Trends in coverage rates, for key maternal in child survival, whether the starting level of and child interventions, are important for child deaths is very high, as in Guinea, or very tracking, whether effective interventions are low, as in the Czech Republic. being implemented. The "Countdown to 2015" working group established by the new global Partnership for Maternal, Newborn, MDG 5: Maternal Health and Child Health (PMNCH) is tracking cov- Cross-country data on maternal mortality erage rates for key nutrition, vaccination, and rates are not readily available, so the best other child health interventions in 60 priority indicator is the share of women with access to countries where the under-five mortality rate trained birth attendants at delivery. The latest exceeds 90. These data, measured more fre- data, presented in table 2.2, show strong quently and reliably than the MDG out- progress in East Asia and the Pacific since comes, provide a better indication of whether 1990 and good coverage in Latin America interventions are sufficient and effective. The and the Caribbean. But in Sub-Saharan Countdown working group is also following TABLE 2.2 Skilled attendants at delivery, by region, 1990 to 2003 Percent of births covered Percentage change Region by the data 1990 2003 1990­2003 Sub-Saharan Africa 61 40 41 3 South Asia 97 27 38 42 East Asia and Pacific 80 45 76 68 Latin America and the Caribbean 70 74 86 16 Total developing countries 75 41 57 38 Sources: Data from Demographic and Health Surveys (DHS), Multiple Indicator Cluster Surveys (MICS), and comparable surveys, weighted by num- ber of births. BOX 2.5 A new global partnership for the health of mothers, newborns, and children The new global Partnership for Maternal, Newborn, and Child Health brings together three exist- ing partnerships to strengthen and accelerate the response to MDGs 4 and 5 and to provide a uni- fying framework for action. With more than 80 organizations and partners, it increases resources, supports national planning processes, and promotes donor convergence at the country level. It also provides leadership in interactions with other relevant players, including the Global Alliance for Vaccines and Immunization; the Global Fund to Fight AIDS, Tuberculosis, and Malaria; and the Roll Back Malaria Partnership. 52 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S countries' adoption of key policies that pro- turning a corner: HIV prevalence among vide the basis for effective child health pro- pregnant women there fell from 6.2 percent grams (box 2.5). in 1993 to 3.1 percent in 2003­4; the most pronounced decline was in urban areas. Increased AIDS mortality may explain MDG 6: AIDS, Tuberculosis, and Malaria much of these downward trends. But evidence Both the number of people living with HIV that decreased HIV prevalence also reflects (40.3 million) and deaths from AIDS contin- real successes of HIV prevention programs ued to increase in 2005. Sub-Saharan Africa comes from recent comparisons of prevention remained the most affected region, with 63 activities across regions in Tanzania and percent of all people living with HIV. While across the Uganda-Kenyan border (box 2.6). no region has yet achieved a declining rate of Central to successful programs are inter- new infections, recent data suggest that a few ventions of sufficient intensity, as highlighted countries have begun to do so. These coun- by Zimbabwe. Despite an unfavorable macro- tries provide the first indication that deter- economic and political context, the country mined government action can halt the spread has apparently maintained one of the highest of AIDS. New evidence suggests that preven- levels of condom use in Africa (86 percent tion programs initiated some time ago are among men, and 82 percent among women finally bearing fruit in Zimbabwe, the first for 2000­5). Sales data suggest that high con- documented decline in southern Africa: HIV dom use started in the mid-1990s. With other prevalence appears to have fallen from 26 key behavioral changes, including sharp percent in 2002 to 21 percent in 2004. Haiti's reductions in the number of sexual partners, epidemic, one of the oldest, could also be condom use appears to have lowered the BOX 2.6 HIV prevention works when it is intensive and sustained That HIV prevention can work is illustrated by comparing the Mbeya region in southwest Tanzania to the Rukwa region in the west. Prevalence rates among pregnant women aged 15­24 increased in both regions from 1988 to 1994­5. They then started to decline in Mbeya--from 20.5 percent in 1994 to 14.6 percent in 2000--but continued to increase in Rukwa. A key factor appears to have been com- prehensive prevention programs launched in Mbeya beginning in 1988 with German technical sup- port. These programs led to a steady increase in the use of condoms, treatment of sexually transmitted infections, and observed behavioral changes. Rukwa, with limited resources and no external support, made little effort at prevention--and there has been no documented decline in HIV prevalence there. Surveillance site data from western Kenya and eastern Uganda also suggests that policies matter. In the early 1990s, HIV prevalence was similar along the border: all 11 sentinel sites in the zone had rates above 10 percent. Since then, however, trends have diverged. By 2000 prevalence rates at the Kenyan sites exceeded 10 percent and varied from 10 percent to 35 percent, but in eastern Uganda, all six sites were below 10 percent, and five of the six were in the range of 3­6 percent. Many analysts believe high- level political commitment in Uganda has made the difference: Uganda's National AIDS Commission was established in 1986 within the Office of the President; Kenya took the same step only in 1999. Uganda has also made extensive use of NGOs as well as government health services for compre- hensive prevention programs, including voluntary counseling and testing (VCT). While there is some recent evidence that the broad-based approach to HIV prevention and care launched in Kenya after 1999 is also beginning to produce results, its later start appears to show in the different trends between the otherwise similar border populations of western Kenya and eastern Uganda through 2000. Sources: Jordan-Harder and others 2004; Moore and Hogg 2004. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 53 C H A P T E R 2 BOX 2.7 Global Fund to Fight AIDS, Tuberculosis, and Malaria In 2005 Round 5 of the Global Fund to Fight AIDS, Tuberculosis, and Malaria approved new financing for 20 countries totaling $382 million, the lowest amount so far and substantially below the 2004 Round 4 approvals of more than $1 billion for 52 countries. Round 5 proposals included HIV/AIDS ($128 million); tuberculosis ($146 million); malaria ($67 million); and, for the first time, health-system­strengthening activities in two countries ($41 million). Total approved financing for the Global Fund since Round 1 in 2002 has been $4.9 billion; $1.9 billion was disbursed by December 2005. Global Fund financing has provided funding for the dis- tribution of 7.7 million insecticide-treated bed nets to combat malaria, for the treatment of 1 mil- lion tuberculosis cases under DOTS (recommended tuberculosis treatment regime), and funding for nearly 400,000 people with HIV for antiretroviral treatment (by December 2005). overall prevalence rate (UNAIDS 2005). This and polio immunization and deworming. Pre- finding echoes an earlier analysis that exam- liminary results indicate that the campaign ined condom effectiveness in a general popu- increased possession of ITNs from 6 percent lation with HIV prevalence in rural Rakai, to 62 percent, averaged across all households. Uganda: regular condom use significantly An estimated 98 percent of households with a reduces the incidence of HIV (Ahmed 2001). child under five years of age now have at least The number of people on antiretroviral one ITN, and 95 percent of households treatment more than doubled from 400,000 in received it from the distribution campaign. late 2003 to about 1 million by end-2005. Cov- The combined vaccination/bed net distribu- erage now exceeds 80 percent in Argentina, tion appears to be a promising strategy for Brazil, Chile, and Cuba. As a result of the scale- increasing cost-effectiveness. up in treatment, between 250,000 and 300,000 deaths were averted in 2005, but the full effects MDG 7: Environmental Sustainability will only be seen in later years. (Water and Sanitation Targets) The World Health Organization estimates 350 million to 500 million clinical episodes of Although infrastructure in many regions has malaria per year. Evidence is accumulating expanded rapidly in absolute terms, popula- that ITNs can reduce malaria deaths. The tion growth has increased even faster. Only United Nations Children's Fund's Accelerated two regions--East Asia and Latin America Child Survival and Development Initiative, and the Caribbean--are on track to meet the started in 11 countries in West and Central MDG targets for water and sanitation, which Africa in 2002, and household surveys in are crucial for progress on the health MDGs, 2003 confirmed significant increases in the use as well as being important in their own right. of ITNs. Although it is too early to see impacts Europe and Central Asia has gone backward-- on the under-five mortality rate, the program from nearly universal coverage in 1990 to has focused on the hardest-to-reach districts eroded service and unsafe water quality as a and has proved that progress is possible result of protracted maintenance failures. Sub- against the odds. A similar program in Ghana Saharan Africa has had the slowest progress: sharply increased the use of ITNs from less only an estimated 64 percent of the population than 5 percent to more than 75 percent. has access to safe water and 37 percent to Togo launched a potentially important new improved sanitation. model of intervention in December 2004. The The poorest quintiles in every region have country conducted a major national campaign the least access to water and sanitation, but the of ITN distribution combined with measles biggest divide is geography. Even in the lowest- 54 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S income countries, 83 percent of urban dwellers ity poses for many low-income countries have access to water, compared with only 55 attempting to accelerate MDG progress. It percent of rural dwellers. In lower-middle- concluded that leveraging scarce skills income and upper-middle-income countries, (through contract teachers or community more than 93 percent of the urban population health workers, for example) was helping has water access and more than 84 percent to some countries overcome the provider con- sanitation, whereas coverage in rural areas is straint and allowing them to scale up service at least 20 percentage points lower. delivery. However, managing migration-- Taking advantage of economies of scale and especially of health manpower--dealing with scope in water, sanitation, and housing provi- the impact of HIV/AIDS on provider num- sion in urban areas is key, as is using small- bers, and expanding training systems all scale local providers in rural areas. As noted in remain difficult challenges. chapter 1, Africa has been at the forefront in This report focuses on financing. The latest developing new ways to provide sustainable available data begin to offer an empirical basis services to very poor and isolated populations. for analyzing key questions on the financing It has established community-managed village constraints to MDG progress. How much water supplies and private cleaning services for funding is being mobilized? How efficiently is latrines. Since the government loosened its it being used? And what are the biggest chal- monopoly on cesspit cleaning, households in lenges to improving results for investment? Dar es Salaam, Tanzania, have been able to choose among providers on the basis of price External Financing and performance. The latest data show that ODA commitments Turning Resources for education and health have increased sub- into MDG Results stantially since the MDGs were adopted in 2000 (figure 2.1); 2004 saw the sharpest rise Global Monitoring Report 2005 focused on yet. Total assistance for health in 2004 is esti- the constraint that human resource availabil- mated at $11.4 billion and that for education, FIGURE 2.1 Development assistance for education and health ODA commitments for education ODA commitments for health 2003 US$ billions 2003 US$ billions 10 12 9 10 8 7 37% 8 53% 6 5 11% 6 53% 4 31% 30% 4 3 16% 10% 39% 46% 32% 2 27% 31% 2 14% 19% 1 26% 30% 13% 27% 28% 15% 0 0 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 Education, other Basic education Basic health HIV/AIDS Other health Secondary education Post-secondary education Source: OECD DAC for education and health commitments; HIV/AIDS estimated commitments from Lewis (2005a). Note: Values for HIV/AIDS for the years 2001 and 2003 are interpolated. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 55 C H A P T E R 2 $9.5 billion. Within education, support for subset of low-income countries for which primary education has had the largest comparable data from 2000 and 2003 are increase, and commitments to low-income available, spending on education as a share countries have risen much more than aid to of GDP has increased somewhat since 2000, middle-income countries. In 2000­4, commit- in some cases significantly. Public spending ments for primary education in low-income on health has not, however (figure 2.2). But countries rose 175 percent in constant dollars, public spending on health, especially in low- compared with 87 percent in education ODA income countries, is generally less than half overall. Fifty percent of education support in of total national health spending, most of low-income countries is now for primary edu- which is private, out-of-pocket spending on cation, compared with about 33 percent in the private health services and pharmaceuticals. late 1990s. The realignment toward the MDG For the small sample of middle-income coun- agenda has been clear. tries covered by these data, spending on both ODA for health is increasing greatly as well. sectors increased as a share of GDP, espe- Since 2000 new commitments have grown 83 cially for education. percent in constant dollars. The share for pri- As a share of the central government bud- mary care has declined, however, from about get, education and health expenditures 28 percent of total health assistance in 1999 to increased slightly between 2000 and 2003 in 15 percent in 2004. The fastest-growing seg- every region except the Middle East and ment of health assistance is for HIV/AIDS North Africa, and for education, in Sub- programs, up from about 14 percent of devel- Saharan Africa (figure 2.3). Countries regis- opment assistance for health in 2000 to more tering particularly high increases in the than 30 percent in 2004. There are also impor- budget shares for education and health tant institutional changes: new private financ- include Angola, Bhutan, Botswana, Burkina ing sources, notably the Gates Foundation, Faso, Chile, Guyana, Kenya, Kyrgyz Repub- have become major players. Gates Foundation lic, Madagascar, Malawi, Moldova, Peru, support for health has averaged about $500 Senegal, Sierra Leone, Vietnam, and Zambia. million a year over the past five years. And the Nevertheless, all but a handful of countries launch of some 70 global health partnerships fall short of the Fast-Track Initiative target of over the past 10 years has also changed the 20 percent of the budget for education: shares landscape: in 2004 they delivered more than average around 15 percent. For spending on 20 percent of total health assistance (Gottret health, only three countries in the entire sam- and Schieber 2006). ple--Chile, São Tomé and Principe, and Turkmenistan--even approach the target of 15 percent of the budget set by African min- Developing-Country Spending isters in 2002. While the general trend is up, Fiscal data remain incomplete for 2003. Most a few countries have seen large drops in major countries are missing from Interna- spending shares for education and health: tional Monetary Fund (IMF) data, the only Cameroon, The Gambia, and (to a lesser source of standardized cross-country data on extent) Mozambique. (central) government education and health The incompleteness of the data makes all spending, both in relation to GDP and as a observations tentative. It also poses a real share of the overall budget. Data available for issue for efforts to link resources to results in 2003 cover only 21 of 79 middle-income monitoring MDG progress, at least in the countries and 27 of 57 low-income countries. human development sectors. The current For this small sample, however, the data do data platform is wholly inadequate. show some significant upward trends.1 Both the IMF and the World Bank expend While average spending on education significant resources collecting and analyzing across the sample has not increased, in the government revenue and expenditure data. 56 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S FIGURE 2.2 Developing-country spending on education and health Government spending on education Government spending on health Percent of GDP Percent of GDP 8 4 3.4 5.9 3.0 6 3 4.9 2.6 4.1 4.3 2.2 3.7 4.0 4.1 3.9 2.0 1.9 2.0 4 2 1.6 2 1 0 0 1990 1995 2000 2003 1990 1995 2000 2003 Low-income countries Middle-income countries Source: IMF. Note: Unweighted averages based on corresponding available data for 2000 and 2003. FIGURE 2.3 Share of total government spending for education and health, by region Education Health Percent of government spending Percent of government spending 25 15 20 10 15 10 5 5 0 0 Sub- East South Middle Latin Europe Sub- East South Middle Latin Europe Saharan Asia & Asia East & America & Saharan Asia & Asia East & America & Africa Pacific North & Central Africa Pacific North & Central Africa Caribbean Asia Africa Caribbean Asia 1990 2000 2003 Source: IMF. Note: Unweighted averages based on corresponding available data for 2000 and 2003. The IMF focuses mainly on fiscal aggregates; duced by the IMF, and it has significant coun- the Bank analyzes subsectoral and sub- try gaps and no data on subsectoral or sub- national spending patterns and spending national social spending. It is impossible to effectiveness in the context of its public say today, for example, whether increased expenditure reviews and sector studies. Yet ODA for primary education in Sub-Saharan no systematic, cross-country database unites Africa has been reflected in any increase in these data. The only available series is pro- government spending on primary education G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 57 C H A P T E R 2 across that region. Meaningful efforts to and 1990s in three sectors: primary education, determine whether increased resources are childhood immunization, and road mainte- producing results depend on such data. nance (Roberts 2005). While unit costs for The Development Assistance Committee education rose in six of the eight countries (DAC) of the Organisation for Economic Co- studied, those for road maintenance were con- operation and Development (OECD) has stant or declining, and those for childhood made good progress over the past two years immunization were stable in one country in upgrading the quality and timeliness of (Bangladesh), despite a massive expansion of cross-country data on ODA, in part in recog- program coverage; in another case, Nepal, nition that these data are crucial for monitor- data were inconclusive. ing progress in implementing the Monterrey The study found that Bangladesh had accords and donor commitments related to expanded immunization coverage from virtu- the MDGs. A parallel effort by the Bretton ally zero in the 1980s to 70 percent in the Woods institutions to ensure common stan- 1990s with no increase in unit costs. Although dards and classifications in collecting govern- unit costs did fluctuate annually, with lumpy ment expenditure data and to unify these in a expenditures on equipment and vehicles, the single, standardized cross-country database program gradually penetrated hard-to-reach for use by both institutions--as well as oth- areas over a 12-year period, and the unit cost ers--is sorely needed in a world where not remained virtually the same as the average just results, but the efficient use of resources cost. The explanation appears to be the com- to produce results, is a core policy interest. bination of falling real prices for the vaccines delivered2 as the number of global suppliers increased; reductions in wastage; and improve- Spending Money Effectively-- ments in staff productivity, which exceeded Five Key Challenges increases in salaries over the period. For education, unit costs tended to Maintaining Efficiency as Spending increase as overall spending rose. Not sur- Scales Up prisingly, given that teachers' salaries repre- Evidence from OECD countries shows that sent about 80 percent of education system major increases in public expenditures in sec- costs, the prime driver was rising real salaries. tors such as education often translate mainly Interestingly, however, the increases did not into higher unit costs rather than increases in appear to reflect any short-run rigidities in the output. In the United States, for example, supply of new teachers, but rather the politi- researchers have documented that a tripling cal necessity of reversing extended periods of of real education spending per student since real wage decline. In all six countries where 1960 has all been absorbed by higher teacher unit costs increased throughout the period salaries and lower class sizes and has had no (Bolivia, Ghana, Mozambique, Uganda, measurable impact on either student numbers Yemen, and Vietnam), severe previous wage or average student learning levels (Hanushek compression leading to concerns about the 2003). Given the large increase in spending quality and motivation of teachers was the needed to scale up education, health, and main rationale: wage increases were consid- water and sanitation coverage in many devel- ered essential to protect long-term education oping countries and documented institutional quality and sustained enrollment growth. weaknesses, it is important to track how well Concomitant increases in the per-student increased spending is managed, including its costs of school construction, learning materi- impact on input prices and unit costs. als, and teacher training were observed, but A recent study called for more attention to these increases were much smaller. this issue in the MDG context and analyzed In some phases of the expansion in all of developing-country experience over the 1980s the countries, unit costs declined as a result of 58 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S "one-off" efficiency measures such as the FIGURE 2.4 Education unit costs in best-performing developing introduction of double-shift schools or the countries, 1999­2002 reallocation of excess administrative staff at headquarters to classrooms. Rising pupil- 15 Ethiopia teacher ratios in several cases also kept costs Cambodia 10 stable for some period, as in Uganda after Mozambique 1996--but with a marked deterioration in 5 The Gambia quality, as reflected in declines in student test change) student Morocco Benin performance. Only in two of the six coun- per 0 ­10 ­5 0 5 10 15 20 25 tries--Ethiopia and Mauritania--was the erageva Mali Niger education system able to maintain rapid ual ­5 Madagascar expansion with declining marginal costs over Spending (ann Côte d'Ivoire ­10 a fairly extended period, and in both cases the expansion appeared to be linked to initially ­15 high average teachers' salaries relative to the Total education spending market for skilled workers. Even in these (annual average change) cases, however, erosion of perceived quality eventually became a political concern and led Source: Bruns, Mariscal, and Gacougnolle (forthcoming). to wage policy reversals. A new effort to extend this analysis takes a slightly different approach (Bruns, Mariscal, but enrollments have continued to rise faster. and Gacougnolle forthcoming). Instead of Interestingly, the country with the largest focusing on the countries with the fastest spend- increase in unit costs between 1999 and 2002 ing growth, it examines the countries with the is Ethiopia, which according to the new best outcome performance--the 10 countries analysis and Roberts' study had a long period with the fastest improvement in primary com- of unit cost compression. pletion rates in the period 1997­2003. Primary How long unit costs can decline before completion progress signals not only that edu- major negative effects on quality are observed cation systems are rapidly expanding enroll- is related to the starting level of system effi- ments, but also that they are managing to ciency. In this sample of low-income coun- maintain reasonable internal efficiency and at tries, primary education unit costs around least minimally adequate quality--otherwise 2000 averaged about 12 percent of per capita dropout rates will increase. GDP but ranged widely--from 35 percent in The picture that emerges is consistent with Niger to 4 percent in Cambodia. This dispar- Roberts' (2005) education sector analysis. ity helps to explain why Niger's policy actions For at least some period, most of the 10 coun- to make the costs of primary schooling more tries achieved rapid enrollment expansion sustainable (box 2.1) have been such a key with no increase in real spending per student factor in the country's recent progress in (figure 2.4). Indeed, between 1990 and 2000, increasing enrollments and completion. unit costs declined in all the countries except Conversely, the increases in unit costs in one (The Gambia), as enrollment growth out- Cambodia since 1999 have clearly been nec- stripped budget growth. Since 1999, though, essary to improve quality. For Côte d'Ivoire, several countries have experienced significant Ethiopia, The Gambia, and Mali, despite the real increases in education spending, which sustained period of unit cost compression in has allowed unit costs to rise in four countries the 1990s, the unit cost in primary education and to remain constant in two. In the remain- around 2000 was still slightly above the low- ing four countries, however, unit costs con- income country average. However, cost com- tinued to decline through 2002. Almost all of pression has continued in the past few years in the countries have seen real budget growth, most of these countries--raising the question G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 59 C H A P T E R 2 of long-term sustainability of enrollment and transferred as technical assistance is large. As completion rate progress if budgets do not figure 2.5 shows, bilateral donors' reports to begin to keep pace with system expansion. the DAC indicate that at least 30 percent of Under the EFA FTI and GAVI, data on all education funding is spent on consultants, country expenditures, service delivery, and studies, or training. The 2004 DAC data are unit costs are beginning to be tracked more not complete, but they show a small decline systematically. This tracking should provide in the average share of donor aid transferred a stronger basis for monitoring the efficiency as technical cooperation and suggest that a of spending as aid flows and domestic spend- few donors, such as the United States, may be ing increase--and for learning from the coun- trying to reduce this share. On a growing vol- tries that manage costs and quality best. ume of aid for education, this represents some modest progress. Technical assistance can provide needed Making Aid More Efficient analyses, capacity building, and practical The increased volume of ODA for education experience. But it is also often badly coordi- and health is important. But its impact will be nated among donors and poorly prioritized; blunted unless it can be used for the core expen- rarely do donors compare study proposals to ditures countries incur to scale up service deliv- the alternative that, in some countries, 100 ery in education and health. All MDG costing days of consultancy support could equal the exercises have found the incremental financing annual cost of paying 100 teachers or keep- needs in health and education to be largely ing 5,000 children in school. The EFA FTI's recurrent expenditures, above all recurrent new Education Program Development Fund salary costs for health workers and teachers attempts to tackle this issue by pooling donor (Devarajan, Miller, and Swanson 2002; Bruns, resources for planning support and studies Mingat, and Rakotomalala 2003; United and by ensuring that these resources respond Nations Millennium Project 2005). Although to government priorities. But it is too early to even the poorest countries need eventually to judge whether this effort produces a net sustain their education and health systems reduction in technical cooperation as a share with domestic resources, many can achieve this of donor support to these countries--or clear goal only gradually, as their economies grow increases in coherence and quality. and fiscal capacities deepen. A second issue is predictability. In scaling up The first issue is the flexibility of external health and education services, developing- financing. A high share of today's ODA for country governments must take calculated risks health and education is transferred in forms that donor promises of future aid will materi- that cannot be applied to core budgetary out- alize to help fund long-term recurrent spending lays. A recent study of 14 countries receiving obligations. Yet studies of overall aid flows poverty reduction support credits found that show that commitments are highly volatile and only 20 percent of donor commitments were that disbursements are poorly correlated with provided as either general or sectoral budget commitments, generally lower than commit- support (Foster 2004). Fully 50 percent of ments, and no less volatile. Worse, volatility assistance ran outside the budget, and 30 per- tends to be procyclical, making it even harder cent escaped government reporting altogether. for countries facing other revenue shocks to If only 20 cents on each dollar of aid can be smooth recurrent expenditures, and volatility used to fill core financing gaps, true MDG rises with aid dependence (Eifert and Gelb financing needs might be five times those esti- 2005; Bulir and Hamann 2002, 2005). mated to date. Figure 2.6 shows the substantial annual With respect to education, the disconnect fluctuations in ODA disbursements for edu- between countries' need for flexible budget cation and health for a sample of low-income support and the high share of bilateral aid countries between 1998 and 2004. Although 60 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S FIGURE 2.5 Share of bilateral education ODA commitments reported as at least half technical assistance Germany Austria Greece Belgium Portugal France Switzerland Australia Canada Japan United States United Kingdom Finland Norway Denmark Sweden Bilateral donors 0 10 20 30 40 50 60 70 80 90 100 Percent 2001­3 2004 Source: OECD DAC database. there is a clear upward trend in almost all of tality (Bokhari, Gottret, and Gai 2005). More the cases, volatility around the trend line is research is needed, but the study suggests an substantial. The issue is that volatility is par- important possible reason that previous stud- ticularly crippling in the social sectors ies have typically found little correlation because of the high share of spending on per- between government health spending and key sonnel--80 percent in education and 60 per- health outcomes--the constraint on efficient cent in health. Unstable resources impede expenditure imposed by aid volatility. More new hiring, necessary salary adjustments to work is needed to develop systems of aid allo- retain skilled providers, and regular flows of cation that respond to performance on ser- salary payments to frontline workers, under- vice delivery yet ensure stable, long-term mining service delivery. flows of support (Eifert and Gelb 2005). A recent econometric analysis of child Finally, the transactions costs of access- mortality outcomes from 1995­2000 in 75 ing aid are high. Donors have made some developing countries found that both low lev- inroads on this issue with the 2005 Paris els and high volatility of donor funding for Declaration on Aid Harmonization and the health explained the relatively slow progress recent establishment of explicit targets for of some countries in reducing under-five mor- progress. In education, the EFA FTI is G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 61 C H A P T E R 2 FIGURE 2.6 ODA disbursements for education and health gets as well: 100 percent of donors use shared progress indicators, 100 percent conduct ODA disbursements for education joint evaluation studies, and 60 percent have US$ millions aligned their financing with the country bud- 70 get cycle (European Commission 2005). 60 In health, however, the consensus is 50 increasing that the situation has worsened in 40 recent years. The most difficult issue is the 30 large number of global health programs, which have introduced "vertical" streams of 20 assistance for specific health goals into coun- 10 tries' "horizontal" health systems. These pro- 0 1998 1999 2000 2001 2002 2003 2004 grams get high marks for raising global awareness of major health issues; attracting Bolivia Cambodia Ethiopia Nepal new funding for health; and getting countries, ODA disbursements for health donor agencies, private donors, and the for- US$ millions profit sector in health (notably the big phar- 60 maceutical companies) to collaborate on new 50 solutions to global health challenges. The spread of HIV/AIDS treatments, increased 40 immunizations, research on new vaccines, 30 and increased funding for diseases that dis- 20 proportionately afflict low-income countries 10 (malaria, riverblindness, Chagas disease, and dengue fever) can all be attributed to the 0 1998 1999 2000 2001 2002 2003 2004 advocacy and funding efforts of specific global partnerships. Bolivia Cambodia Ethiopia Nepal But these programs' success factors have a downside. Countries and their donor part- Source: World Bank estimates from OECD DAC database. ners are increasingly concerned that the increase in global health partnerships is also explicitly supporting achievement of the increasing transactions costs, duplicating and Paris targets among education donors and fragmenting health delivery services, distort- beginning to track progress. ing some countries' health priorities, and A recent report for the EFA FTI Secretariat undermining holistic fiscal and sectorwide examined donor practices in three African planning, when significant NGO activities countries. Although these countries are not supported by global funders are unknown to necessarily representative of FTI countries, public officials. the data paint an encouraging picture. Edu- The planning cycles, coordinating mecha- cation donors in these countries are well nisms, appraisal processes, financing channels, ahead of donors in general on the Paris tar- surveillance metrics, procurement require- gets. In all three countries 100 percent of ments, and audit and reporting requirements donor support is "on plan," aligned to the of global health programs can differ from pro- FTI-endorsed national education sector strat- gram to program and from governments' egy, 100 percent of commitments are multi- health systems. Although weak expenditure year, and 100 percent of donors participate in management in some countries may justify an annual government-led review of sector ring-fenced donor funding channels, it does performance. In Burkina Faso education not justify a plethora of channels and proce- donors have reached several other Paris tar- dures. Nor does it justify multiple coordina- 62 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S tion mechanisms: Angola and the Democratic back" on global health partnerships and Republic of Congo have each been required to bilateral funders to insist on harmonized indi- establish four HIV/AIDS coordinating bodies. cators, joint monitoring, and pooled funding. Nor does it justify the high cost of multiple A proposal currently being developed reports: hosting missions and writing reports would commit donors and countries to a for different health programs is estimated to shared set of principles and establish a small absorb 50­70 percent of the time of a district global secretariat to monitor and support medical officer in Tanzania (McKinsey and adherence to these principles at the country Company 2005). Multiple parallel procure- level. The "good practice" principles being ment requirements have not only increased discussed are joint commitment by countries countries' administrative costs, but also re- and their donor partners to duced their bulk purchasing power. Initiatives such as the "three ones" and the Global Task one unified, country-led health sector plan Team on HIV/AIDS aim at improving coordi- aligned with the PRSP, covering all nation, but there is clearly room for progress. actors--the national health system, the Concerns are also being raised about the private sector, and NGOs; long-term fiscal sustainability of donor- reliance on country systems, budget frame- induced shifts in health spending, particularly works (such as the medium-term expendi- in connection with HIV/AIDS programs. ture frameworks), reporting arrangements, Although developing countries have increased and aid coordination mechanisms; domestic funding for these programs since support for strengthening health system 2000, this increased funding is dwarfed by the capacity; 300 percent rise in external support, largely a results focus; and from multilateral sources such as the Global a medium-term to long-term (10-year) Fund. About 60 percent of total AIDS pro- horizon for aid commitments and greater gram spending in developing countries is now predictability. externally financed, and this share is much higher in many African countries. In Ethiopia Since the forum, at least three global in 2003­4, external funding for HIV/AIDS health partnerships have discussed the best equaled the overall public health budget. And practice principles at their board meetings. in both Uganda and Zambia, AIDS funds Given the limited consensus on the same exceeded public health spending by almost issues among donors for health just one year 185 percent (Lewis 2005b). earlier, the current climate is promising. At the December 2005 High-Level Forum on the Health Millennium Development Reducing Leakage Goals, health ministers from a range of devel- oping countries agreed with bilateral and Donor support for increased and more flexi- multilateral donor representatives that action ble aid hangs crucially on countries' ability to is urgently needed to address transactions demonstrate effective use of that support. Yet costs and sustainability issues in health. Par- leakage--or the failure of resources to be ticipants noted that countries with strong uni- used effectively for intended purposes--is an fied health sector plans--such as Bangladesh, acknowledged issue in developing countries China, Ghana, the Kyrgyz Republic, Tanza- where governance systems and accountability nia, and Vietnam--had been more successful pressures are often weak. Even where the pri- than others in using support from global vate sector plays a key role in health, educa- health partnerships without distorting their tion, or water and sanitation service delivery, own health sector priorities. Countries with achieving the MDGs will depend fundamen- strong leadership on HIV/AIDS, such as tally on developing countries' ability to Rwanda, also report success in "pushing strengthen public sector performance. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 63 C H A P T E R 2 Not all leakage is corruption. Poor man- required in kickbacks to public officials agement can lead to the wrong choice of tech- (World Bank 2000). In Venezuela and Costa nologies, suboptimal allocations of resources, Rica, over two-thirds of medical staff and other inefficiencies that benefit no one in reported knowledge of stolen materials, particular: badly designed subsidy programs equipment, or drugs, and in Uganda or unbalanced education budgets that leave researchers estimated the average leakage rate teachers with no books, new construction for drugs across public facilities at 73 percent inaccessible to people with disabilities, and (McPake and others 1999). Parallel issues inappropriate drug purchases. exist in education--procurement fraud in But health and education systems have fea- construction and theft and misprocurement tures that create special opportunities for pri- of textbooks--but the market value of school vate gain at public expense. Asymmetric books is lower than for drugs, and construc- information between providers (doctors, tion is often less equipment intensive. teachers) and their patients or students give Leakage of funds allocated to front-line the providers heightened power to extract facilities. More systematic information is private payments for public services that emerging from public expenditure tracking should be free. The inherent decentralization studies (PETS) on the extent to which funds of school and health systems makes it hard to budgeted for schools, clinics, or specific pro- monitor performance on the front line and as grams fail to reach intended levels. Surveys in a result gives rise to absenteeism, theft, and more than a dozen countries have consis- shirking of duties. Large-scale procurement tently found discrepancies, although the scale and payment systems, especially in health, varies considerably. In Ghana, for example, create scope for graft and theft, as seen in only 20 percent of budgeted nonwage trans- developed countries as well. Finally, rapid fers to health clinics were actually received, increases in external funding, particularly for and only 51 percent of transfers to primary HIV/AIDS programs, can pressure govern- schools. Clinics in Tanzania received only 59 ments to disburse large amounts of funding percent of nonwage transfers. Very com- quickly, sometimes through wholly new insti- monly, funds are received only with substan- tutional channels. Recent studies provide tial delays. growing evidence of three different types of Front-line service failures. Their aggregate leakage. size may or may not be as large as losses at the Central losses. Very little systematic infor- center, but the most widespread losses and mation exists on "losses at the top" of devel- abuses in health and education systems occur oping-country education and health systems. on the front lines--providers absent from Although the scale of such losses cannot be duty and providers demanding informal pay- estimated, they are clearly the point at which ments for services that are legally free. Cross- the most concentrated leakage of government country studies show, on average, that one and donor funds occurs. health worker in three is missing during In health, the hospital sector typically rep- unannounced facility visits, although there is resents 30­50 percent of public health spend- a range. Absentee rates in education average ing and its large-scale, often centralized about half that. Provider absence seriously procurement presents clear opportunities. In disrupts service delivery, lowers system pro- Colombia procurement overpayments were ductivity, and depresses the demand for ser- estimated at $2 million a year, enough for vices. Researchers in India found that facility health insurance coverage for 24,000 people closures followed no pattern, meaning that a (Di Tella and Savedoff 2000). In Ghana sur- patient's likelihood of finding a provider was vey respondents estimated that 21 percent of unpredictable (Bannerjee, Deaton, and Duflo hospital procurement was corrupt and that 2004). The deterrent to seeking services is 18 percent of a contract's value was typically thus high. 64 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S Many reasons for absence are legitimate, accountable for resource use and if incentives including rural workers' need to travel to dis- exist for performance. tant towns for paychecks or supplies. Low Corruption at the top levels of health and salaries and payment arrears, which force education systems is harder to root out, and many competent and committed providers to additional resources can simply increase the work second and third jobs to survive, are opportunities. The recent mismanagement of clearly root causes of much absenteeism. But funding for HIV/AIDS programs in Kenya, weak accountability pressures also contribute; Uganda, and the Ukraine provides glaring absentee workers rarely face sanctions. examples (Transparency International 2006). Equally pervasive are informal payments. Weak management systems can be In health, patients can be impelled to pay to improved, however, and corruption can be be seen by a physician, to be admitted to hos- curbed; later chapters of this report examine pital, to move up in the queue, to get an the cross-country experience with strategies to exemption from official fees, or to ensure bet- strengthen governance. Health and education ter-quality treatment, as well as for basic sup- systems typically need to strengthen account- plies and services, such as blood supplies, ability relationships along two axes of the drugs, food, or bed sheets. Informal pay- "accountability triangle" presented in World ments are also seen in education--for tutor- Development Report 2004: (1) strengthening ing, for graduation, for passing grades, and system management--that is, policy makers' even for university access. The wedge ability to contract with providers--and (2) between public sector pay scales and what strengthening "client power" or users' ability providers can command in the market con- to demand better service from providers tribute to the demand for informal payments. (World Bank 2004b). In both areas, many So does the absolute insufficiency and irregu- developing countries are making progress in larity of recurrent budget transfers to the putting transparency and new accountability facility level in many countries. Without relationships to work. informal payments, service delivery would be The following are some of the most impossible in many places. promising strategies for improving system Informal payments disproportionately hurt management: the poorest. In about half of the 29 countries with data, the average informal payment for Use transparent allocation rules, proce- publicly provided health care was more than dures, and the power of information to one-quarter of monthly per capita income-- reduce leakage. Clear rules and procedures clearly imposing a hardship on low-income concerning the basic package of services to families (Lewis 2005b). In such environments, which people are entitled, fee scales, major illnesses pose a deep threat to families, resources a school or clinic should receive, forcing them to sell assets or incur debt to and effective basic accounting and record obtain needed medical care (Lewis 2000; keeping can have immediate impacts. Tbil- Falkingham 2002, 2004; Killingsworth and isi Children's Hospital began posting lists others 1999). Evidence from Kazakhstan of fees, and informal payments fell. Cash showed poor households spending more than registers were installed in Kenyan hospitals twice their monthly income for health care in to collect user fees and revenues rose 400 acute cases (Lewis 2005b). percent in three years, with no change in Although increased aid could ease the con- utilization rates (Vian 2006) . Transfers to ditions that spawn poor service delivery and schools in Uganda went up when the gov- corruption on the front lines--the low and ernment openly publicized allocations in irregular pay, the ill-maintained facilities, the the press and on each school's door. shortages of books, supplies, or medicines-- Measure results, performance, and impact. it can do so only if system managers are Clear measures of output and performance G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 65 C H A P T E R 2 are fundamental for systems improvement. Accountability will be strongest if educa- Parents are ill-equipped to evaluate the tion and health systems need to answer to quality of local schools without data on stakeholders on the performance of public how well their students are learning com- services. Reforms that are increasing "client pared to students at similar schools. Basic power" in different countries include: data on education and health system per- formance is fragmented and two or more Involve communities in monitoring and years out of date in most developing coun- management. An increasing number of tries. Both to better manage the resources countries in all regions are devolving some they have as well as to make the case for control over schools and health clinics to more support, countries need robust, real- local communities. In Rwanda community time information on systemwide outcomes councils are being given the power to hire and intermediate results (primary comple- and fire health clinic personnel and deter- tion rates, immunizations and other services mine bonus pay. In Brazil, El Salvador, delivered, morbidity and mortality data). Guatemala, Honduras, India, Mexico, and Implement a credible and effective audit Nicaragua, among other countries, village function. In Brazil and Chile, the capacity education committees and parent-teacher of the federal government to conduct ran- associations have a voice in hiring teachers dom audits of enrollment records and bud- and managing school accounts. Creating gets was crucial for the implementation of formal oversight bodies at the community large-scale financing reforms that pay level can place strong accountability pres- schools on the basis of attendance, creat- sures on local providers. ing powerful new incentives for schools But unleashing this client power often and mayors to get hard-to-reach children requires significant efforts to inform com- into school. munities of their responsibilities and to Focus on provider quality, deployment, build their skills to shoulder them. In and incentives. Skilled providers are the India, two years after village education most expensive resources in health and committees were mandated to receive education systems; recruiting, deploying, direct school funding, only 12 percent of equipping, and supervising them carefully rural households surveyed in northern are key for the productivity of spending. India knew about it, and only 26 percent Average salaries may need adjustment in of the committees had met in the previous many contexts, but research also shows six months (Pandey 2005). In Brazil, in that nonsalary inducements (such as hous- the poor rural municipalities where audi- ing, training, research opportunities, and tors found irregularities in the use of fed- public recognition) are as important as erally transferred funds, the community salary incentives for providers' motivation councils created to supervise the transfers and development. Systems also need the admitted they lacked the skills and power authority to reward performance, and dis- to challenge local mayors (Transparency cipline, transfer, or terminate employees International 2004). who engage in abuses. Technology may help; a program in India that provided dig- Efforts to equip communities with better ital cameras (with a tamper-proof time and information, such as the "report cards" on date function) to remote rural primary schools' performance being developed in schools and rewarded teachers who sup- Cambodia and the training journalists in plied one picture per day of the class in ses- Benin receive to report on local school com- sion found teacher absence went down to mittee meetings, are important steps to shift 22 percent compared with 42 percent in what is often an imbalance in status, knowl- control schools (Duflo and Hanna 2005). edge, and power between providers and 66 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S beneficiaries, especially the poor. Letting where child mortality increased between clients provide feedback on the quality of 1999 and 2003. public services--for example, through "cit- Seven of 10 countries are making strong izen report cards"--is also empowering, as progress in child immunizations, and in a signal from the public sector that citizens' almost all of these the poor are benefiting views are valued. most. Donors are legitimately concerned about the Better quality antenatal care is also reach- risks of providing flexible aid where public sec- ing the poor. tor performance is weak. But, as noted above, Several countries--including Bangladesh, the core financing need in most low-income Kenya, Morocco, and Mozambique (where countries for increasing health and education outcomes for the poor have improved, while services remains recurrent personnel costs. the average has not)--are reducing child Stronger capacity across mainstream ministry malnutrition faster for the lowest income functions--planning, budgeting, and expendi- quintile than for the population average. ture management--is clearly needed. Better Eight of the 10 countries have improved pri- quality and more timely administrative data on mary completion rates, and in five of these, system performance are also needed, because the poorest quintile has improved most. they provide the platform to track results for money spent. And donors' support must be Child mortality declined in 9 of the 10 guided by credible sector strategies that address countries between 1998­9 and 2003­4, and key constraints, clarify accountability, and in Indonesia, Madagascar, and the Philip- improve incentives for performance. pines the current pace of decline (more than 4.3 percent a year) is sufficient to reach the MDG (figure 2.7). In Madagascar the annual Doing More to Reach the Poor rate of improvement since the MDG baseline The MDGs aim to extend human welfare year, 1990 (­2.3 percent per year), puts it off improvements to all countries. But some of the track to meet the MDG in global estimates, goals--especially in health--can be achieved but the new data show that progress has through investments that primarily benefit the accelerated sharply over the last several years. better-off, while largely bypassing the poor Among Indonesia, Madagascar, and the (Gwatkin and others 2000). Last year's report Philippines, however, only Indonesia has seen showed that two-thirds of the countries that the improvement for the poorest quintile keep had reduced child mortality from 1990 to pace with that for the population average. 2001 saw a widening gap in outcomes for In Bolivia, Cameroon, and Mozambique, families in the lowest income quintile. And on the other hand, outcomes for the poor are although education progress has been more improving faster than the mean, but the over- pro-poor, in one-third of the countries that all rate of improvement is not fast enough to improved primary enrollments from 1990 to reach the MDG. In Bangladesh, Burkina 2002, the poorest have lagged behind. Faso, and Morocco, the poorest quintiles are Since 2002 a new wave of demographic lagging, but the gaps are not wide. and health survey data has become available, Immunization coverage is also improving shedding light on countries' more recent in many of these countries, with impressive strategies and progress--and capturing expe- progress in reaching families in the poorest rience since the MDGs were adopted. Analy- quintile. Except in Bangladesh (which already sis of the 10 developing countries with survey had a very high level of immunizations) and data for 2003 and 2004 shows the following: Madagascar (where there is a slight gap), the poorest groups have experienced much Nine of 10 are making rapid progress on greater improvement in access to immuniza- child mortality. The exception was Kenya, tions than the population as a whole. In three G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 67 C H A P T E R 2 FIGURE 2.7 Annual reductions in child mortality (number of child deaths per 1,000 live births) 5.6 Madagascar, 1997­2003/4 106 4.3 4.7 Indonesia, 1997­2002/3 53 5.5 4.5 Philippines, 1998­2003 42 3.3 4.1 Bolivia, 1998­2003 75 4.8 3.7 Bangladesh, 1999/00­2004 94 3.3 3.6 Burkina Faso, 1998/99­2003 190 3.3 3.4 Morocco, 1992­2003/4 51 2.6 2.6 Mozambique, 1997­2003 178 4.1 0.6 Cameroon, 1998­2004 141 0.9 ­0.8 Kenya, 1998­2003 ­1.9 109 ­2 ­1 0 1 2 3 4 5 6 Percent annual change Poorest quintile Population average Source: World Bank estimates from Demographic and Health Surveys. Note: The boxed numbers show the number of child deaths per 1,000 live births in the most recent survey. of the countries, however, no improvement was would respond in the affirmative. Although registered. While in the Philippines the average these survey data permit no clear answers, level of immunization coverage is quite high, they do provide some encouraging evidence in Kenya and Indonesia, it is not. It should be that key health interventions, such as immu- recalled, however, that this period was a time nizations and access to trained providers for of economic crisis in Indonesia, which makes antenatal care, are spreading quickly and the country's continued progress in addressing increasingly reaching the poorest groups, at child mortality all the more impressive. least in this sample of countries. What explains these different patterns? In education the picture is also one of Progress on child mortality reflects complex progress; primary completion increased sub- determinants (such as mothers' education, stantially in three countries and more modestly household income, and household access to in five others. Two countries, however, (Kenya water and sanitation), many of which can be and Bolivia) experienced declines, especially slow to change. Is there a trade-off between among the poorest quintile (figure 2.9). When faster aggregate progress toward key goals, considering these data, it is important to such as child mortality, and progress for the remember that they reflect changes in the edu- poor? Given the higher marginal costs of cation system and participation rates from extending basic services to rural areas, where roughly a decade ago, as they are based on a high share of the poor live, many observers reported schooling attainment for the 15­19- 68 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S FIGURE 2.8 Delivery of immunizations 12.0 Burkina Faso, 1998/99­2003 13.9 44% 7.4 Bolivia, 1998­2003 8.2 50% 7.3 Madagascar, 1997­2003/4 53% 7.0 5.8 Cameroon, 1998­2004 48% 9.1 5.3 Bangladesh, 1999/00­2004 73% 3.5 4.7 Mozambique, 1997­2003 64% 18.1 1.5 Morocco, 1992­2003/4 4.3 89% ­0.8 Philippines, 1998­2003 ­1.4 70% ­0.9 Kenya, 1998­2003 ­3.4 57% ­1.0 Indonesia, 1997­2003/4 ­1.3 51% ­6 ­4 ­2 0 2 4 6 8 10 12 14 16 18 20 Percent annual change Poorest quintile Population average Source: World Bank estimates from Demographic and Health Surveys. Note: The boxed numbers show the immunization coverage (for children 12­24 months) in the most recent survey. year-old cohort of the population. The five women had heard of AIDS) to 2004 (29 per- countries with modest annual improvements cent), but there is clearly a long way to go. And are, with the exception of Cameroon, coun- in both Indonesia and Bolivia, awareness did tries that have already achieved close to uni- not increase over the period. versal primary enrollments and relatively high primary completion, so it is logical that mar- Investing Smartly across Sectors ginal changes should be lower. In half of the countries, the poorest quintile improved more Water supply and sanitation investments have than the average. Mozambique and Burkina important effects on health, especially child Faso were exceptionally progressive in reach- health. Nearby water and school latrines can ing the poorest children over this period. dramatically change mothers' ability to care Finally, the recent surveys provide clear evi- for their children and girls' school attendance. dence that awareness of HIV/AIDS has become Roads improve school attendance and use of almost universal in Sub-Saharan Africa, but far health facilities. And health and education less so in other regions. In Bolivia, Indonesia, investments have clear complementary effects: and Bangladesh, less than 33 percent of women mothers' education is a strong correlate of child in the lowest-income quintile have "heard of" survival, and school attainment is affected by HIV/AIDS. In Bangladesh there was improve- family illness, especially HIV/AIDS. There is no ment from 1999 (only 8 percent of low-income single route to MDG progress. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 69 C H A P T E R 2 FIGURE 2.9 Share of 15­19-year-olds who have completed primary school 9.7 Mozambique, 1997­2003 4.1 7.9 Madagascar, 1997­2002/3 8.1 7.8 Burkina Faso, 1998/99­2004 10.4 2.7 Morocco, 1992­2003/4 3.3 1.9 Bangladesh, 1999/00­2004 7.3 1.3 Cameroon, 1998­2004 0.3 1.0 Indonesia, 1997­2002/3 0.1 0.0 Philippines, 1998­2003 0.5 ­1.0 Kenya, 1998­2003 ­8.1 ­2.1 Bolivia, 1998­2003 ­5.4 ­8 ­6 ­4 ­2 0 2 4 6 8 10 12 Percent annual change Poorest quintile Population average Source: World Bank estimates from Demographic and Health Surveys. Research on what infrastructure invest- tion found clear health benefits for children ment means for human development out- under age five: 20 percent less diarrhea and comes shows that effects can be large. In anemia and 12 percent less infection with Zimbabwe a carefully controlled study of parasites. The improved health also trans- preschool children found that those living in lated into better brain development (children households that used wood-burning stoves in the treatment homes scored 8 percent for cooking were more than twice as likely higher on cognitive tests), and older children to suffer from acute respiratory infections missed fewer days of school. (ARIs) as children in homes with natural gas Donors and governments concerned about or electrification (Mishra 2003). ARIs are one making money work need to give priority to of the leading causes of childhood illness and establishing careful baseline studies and robust death in Africa, and it is not clear that any control groups wherever possible before direct health intervention could produce a 50 launching innovative programs. Donors also percent drop in their incidence. need to recognize that the knowledge that In Coahuila, Mexico, the "piso firme" pro- comes from rigorous impact evaluation is a gram has upgraded dirt floors to cement global public good and needs to be heavily floors in slum housing, benefiting more than supported, especially in low-income countries. 34,000 people since 2000. An impact evalua- Developing-country policy makers can provide 70 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M A N A G I N G M O N E Y F O R H U M A N D E V E L O P M E N T R E S U L T S a demand-side stimulus to good impact evalu- cies are sound, fiduciary conditions are ation by asking, "Where's the evidence?" when adequate, and the capacity to measure sec- considering new policies and programs. tor outcomes and intermediate indicators is in place, donors should shift assistance Priorities for Global Action as much as possible to budget support. This shift will permit countries to scale up Evidence of tangible progress toward the health and education coverage most effi- MDGs is greater today than one year ago. ciently and lower the costs of attaining the Many low-income countries have acceler- MDGs. Donors and countries should plan ated progress on primary completion. Child- multiyear expenditure programs on a dis- hood immunizations have increased greatly bursements rather than a commitments and are reducing needless child deaths. basis, and the schedule for donor dis- National malaria campaigns are getting vis- bursements should be clear over at least a ibility and distributing bed nets and treat- three-year horizon, extended annually. ment on a larger scale than ever before. HIV Improve measurement of results, perfor- prevention programs are beginning to work, mance, and impact. Developing countries and the extension of effective drug therapies seeking flexible aid need to demonstrate to AIDS victims in the developing world has adequate public expenditure management. been rapid. But they also need the ability to track edu- Development assistance for the MDGs cation, health, water and sanitation sector has increased sharply, and donor support performance on a timely and reliable basis, appears to be more targeted than ever to the so that donors can have real-time data lowest-income countries with country-owned comparing spending and results. These poverty reduction strategies and commitment data include data on key outcomes, as well to these goals. Countries have made progress as intermediate indicators, and accurate in expanding service coverage while manag- financial reporting at all levels of the sys- ing unit costs. But the world is still far from tem. Countries should insist on rigorous achieving the human development MDGs; evaluation of pilot programs to guide deci- donors and countries must keep working on sions on where to increase spending. ways to speed the pace of progress. The Because such evaluations can be expensive analysis in this chapter points to six priority and have a high element of global public areas for global action: good, donors need to increase their sup- port for them. Accelerate harmonization in health. Monitor outcomes of the poorest groups. Global health partners need mechanisms Extending basic health, education, water for aligning policies and programs and for and sanitation to the poorest segments of harmonizing procurement, disbursement, the population can be difficult and costly. and reporting at the country level, as well Donors should support country policy as a mechanism for coordination and choices that make investments more pro- intermediation at the global level. The edu- poor, even at the risk of slowing overall cation sector through the EFA FTI has progress on reaching the MDGs. These made notable progress in developing both choices will hinge on countries' ability to global and country coordination mecha- track outcomes by income group, gender, nisms that are improving donor alignment ethnicity, and region. Regular household and lowering transaction costs. A parallel surveys are essential. mechanism is urgently needed in health. Strengthen the accountability of health, Increase the flexibility and predictability of education, and water and sanitation sys- ODA for social sectors. Where sector poli- tems. Achieving the MDGs depends above G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 71 C H A P T E R 2 all on more effective delivery of basic the MDGs. Sorely needed is a parallel effort health, education, water and sanitation by the Bretton Woods institutions to ensure services in many countries. Countries will shared standards and classifications in the make the most progress if they find ways collection of government expenditure data to strengthen sector management, the and to unify these in a single, standardized incentives for providers, and the voice of cross-country database. clients at the point of service delivery. Develop a systematic cross-country data- Notes base of public expenditures on social sec- tors. The OECD DAC has made good 1. Note that the data for 1990, 1995, and 2000 are not comparable to those presented in progress over the past two years in upgrad- Global Monitoring Report 2005 because of a ing the quality and timeliness of cross- change in the series. country data on ODA, in part in recognition 2. The WHO Expanded Program of Immu- that these data are crucial for monitoring nization (EPI), which Bangladesh followed, vacci- progress in implementing the Monterrey nated children against six diseases: diphtheria, accords and donor commitments related to measles, pertussis, polio, tetanus, and tuberculosis. 72 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 3 Delivering on Commitments for Aid, Debt Relief, and Trade T he "year of development" sharpened the more of the increment is available for pursu- international community's focus on aid ing the MDGs make it particularly important and trade, providing an unprecedented to strengthen monitoring of donor commit- opportunity to accelerate achievement of the ments and flows. Scaling up will also require Millennium Development Goals (MDGs). more coordination among aid delivery chan- Reaffirming the Monterrey Consensus (United nels--bilateral funds, multilateral funds, Nations 2002), donors promised a major global funds, and private funds. expansion in official development assistance At the country level, a strengthened poverty (ODA) and strongly backed efforts to enhance reduction strategy (PRS) process and enhanced the quality of aid. They also agreed to provide consultative group and roundtable (CG/RT) wider and deeper debt relief to the poorest coordination mechanisms will be central to countries. While trade liberalization through implementing the scaling up and results agenda. unilateral reforms and regional agreements Drawing on the PRSs, enhanced CG/RT moved ahead, multilateral negotiations under processes can provide a practical, mutual the Doha process made only modest progress. accountability framework for linking resources By contrast, considerable momentum was built to results. on aid for trade. The Paris Declaration in March 2005 gave Donors are delivering more assistance, and a boost to the aid effectiveness agenda. Build- the prospects for scaling up aid have bright- ing on the principles of ownership, alignment, ened. At their summit in Gleneagles, the harmonization, managing for results, and Group of Eight (G-8) leaders pledged to mutual accountability, the Paris Agenda speci- increase aid to Africa by $25 billion a year by fies monitorable actions to improve aid quality. 2010--more than doubling assistance to the Broad-based support for this agenda has trans- region--and Development Assistance Com- lated into progress at the global level, such as mittee (DAC) members have agreed to adoption of global targets (for 2010) for the 12 expand aid to all developing countries by indicators in the Paris Declaration, and at the about $50 billion. These commitments call country level, such as customizing several indi- for a much faster pace of ODA growth (when cators and targets to the country context. public budgets could be under pressure), Much remains to be done, however, and vigor- introducing some uncertainty for future ous implementation of the agenda is needed to flows. Scaling up assistance and ensuring that deliver more effective development assistance. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 73 C H A P T E R 3 Major progress was made in 2005 in gled, bilateral and regional trade agreements extending and deepening debt relief to the (RTAs) continued to mushroom during 2004­5, poorest countries. The G-8 Proposal (now and unilateral reform continued at a steady called the Multilateral Debt Relief Initiative) pace in several regions, reflecting reductions in to cancel 100 percent of the debt that heavily tariffs for agricultural products entering high- indebted poor countries (HIPC) owe to the and middle-income countries and liberalization African Development Fund (AfDF), Interna- by developing countries in manufacturing and tional Development Association (IDA), and agriculture. The level of protection in least the International Monetary Fund (IMF) will developed countries (LDCs) remained essen- cut the external debt of these countries by tially unchanged. Barriers to products originat- another $50 billion. Nineteen countries have ing in high- and middle-income countries already received $3.4 billion in debt relief experienced the greatest reduction. from the IMF under the Multilateral Debt Following high-level political endorsement Relief Initiative (MDRI); IDA's Board of Exec- at the G-8 meeting in Gleneagles, proposals for utive Directors has approved MDRI financing significantly increasing aid for trade were and implementation modalities for IDA, and endorsed by the governors of the World Bank those for AfDF are due for consideration and Group and the IMF at their annual meetings. approval by the AfDF Board of Executive The Hong Kong ministerial created a task Directors in April. The MDRI initiative will force to operationalize aid for trade and a con- greatly reduce the debt burden indicators in sultation process to identify ways of increasing HIPC and create fiscal space for growth and resources. Meanwhile, donors are substan- human development objectives. To realize the tially increasing the resources for aid for trade, potential benefits of debt relief, recipient continuing a trend over the last few years. The countries need to strengthen their public next year promises to be critical, as initiatives expenditure management. They also need to launched in 2005 begin to bear fruit, but chal- manage postrelief borrowing so as not to lenges remain in ensuring that the increased undermine long-term debt sustainability. aid is both additional and effective. The MDRI commits donor countries to providing additional resources to ensure that the proposed debt forgiveness does not Aid Volumes and Quality undermine the ability of the three multilater- Rising Aid Levels als to continue to provide financial support to low-income countries--or the institutions' Assistance from DAC countries was nearly overall financial integrity. IDA and the AfDF $80 billion in 2004, up from $69 billion in have established baselines for assessing the 2003, and it rose to an estimated $106 billion additionality of donor financing. Monitoring in 2005, boosted by $19 billion in debt relief against these baselines is needed to avoid sub- to Iraq and Nigeria (OECD 2006a, 2006c). stitution between regular donor contribu- While nominal net ODA has risen by more tions and debt relief compensation and to than 50 percent from 2001 to 2004, the improve mutual accountability. increase measured in real terms (at constant The Doha Development Agenda has great exchange rates and prices) is more modest at potential to help reduce global poverty, but 18 percent--an average annual growth rate of progress was modest at the Hong Kong minis- 5.6 percent. But 2004 did see a strengthening terial meeting in December 2005. World Trade in the pace of the ODA trend that continued Organization (WTO) members face a challenge in 2005 (ODA increased by 31.4 percent in in concluding the Doha Round by the end of real terms in 2005), partly in response to spe- 2006: all must raise their sights to avoid losing cial factors.1 Higher aid flows mirror an a good opportunity to harness trade for increase in DAC countries' aid effort; ODA as growth. While multilateral liberalization strug- a share of gross national income (GNI) 74 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E FIGURE 3.1 DAC members' net ODA, 1990­2005, and prospects for 2006 and 2010 2004 US$ billions Percent 140 0.35 120 0.30 100 0.25 80 0.20 60 0.15 40 0.10 20 0.05 0 0.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 ODA projections ODA ODA/GNI Projected ODA/GNI Source: OECD 2006a, 2006c. Note: The data for 2005 are preliminary. climbed from 0.22 percent to 0.26 percent in surged in 2005 in response to a string of cat- 2001­4 and to 0.33 percent in 2005 (figure astrophic natural disasters such as the Indian 3.1). Only five donors have ODA/GNI ratios Ocean tsunami of December 2004 and the at or above 0.7 percent. South Asia earthquake of October 2005. ODA from non-DAC donors that report Global private giving for tsunami-related flows to the DAC rose by 9 percent (in nominal humanitarian relief was $5.1 billion or 38 terms) to $3.7 billion in 2004.2 Saudi Arabia percent of the $13.4 billion of total amounts continued to account for the largest share of pledged (Inderfurth and others 2005). assistance by this group. Other donors are Rising ODA volumes offset the overall beginning to emerge in importance, including decline in official nonconcessional lending. Net Korea, Kuwait, Taiwan (China), and Turkey. nonconcessional lending by multilaterals slid New European Union (EU) members that are further in 2004 because of less borrowing from not DAC members are also beginning to pro- the IMF and other multilaterals and because of vide larger volumes of aid.3 Elsewhere, major prepayments (see chapter 4); large prepayments emerging market countries, such as China pulled down multilateral net lending in 2005. and the Russian Federation, are playing an Nondebt private flows, by contrast, have increasing role in development assistance. shown a rising trend in recent years: foreign Data on so-called South-South assistance are direct investment (FDI) flows rebounded in incomplete, however, making it difficult to 2004 and continued to rise in 2005; inward obtain comprehensive information on South- remittances to developing countries continued South aid volumes and prospects.4,5 to surge. However, for poor countries, espe- Private giving is increasing. Grants from cially in Sub-Saharan Africa, ODA continues to nongovernmental organizations (NGOs) grew be the largest source of external financing. at a brisk pace in 2004, providing over $11 Nearly half the increase in net ODA from billion in assistance in 2004. Private giving 2001 to 2004 has been in the form of debt G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 75 C H A P T E R 3 FIGURE 3.2 ODA increases concentrated in a few countries Much of the increment in ODA (from all donors) reflects global and regional security Top 10 recipients of the increase concerns, with Iraq and Afghanistan account- in net ODA, 2001­4 ing for over half of the increase in net ODA Iraq from 2001 to 2004 (figure 3.2). Among other Afghanistan large recipients are the Democratic Republic Congo, Dem. Rep. of of Congo and Madagascar, with additional Angola aid mostly reflecting debt relief. Madagascar Sudan Zambia Brighter Prospects for ODA? Ghana Senegal At their summit in Gleneagles, G-8 leaders Ethiopia committed to increase aid to Africa by $25 bil- 0 1 2 3 4 5 lion a year by 2010, more than doubling assis- 2004 US$ billions tance to the region. Coupled with pledges by the EU, DAC members have also agreed to Source: OECD DAC database. expand aid to all developing countries by about $50 billion. These promises would relief and technical cooperation, a quarter raise the average share of ODA to GNI to was for emergency assistance, and a tenth for 0.36 percent in 2010. In May 2005, the 15 flexible bilateral forms of financing (table DAC EU members set an intermediate target 3.1).6,7 Although there was a shift toward for their collective ODA/GNI of 0.56 percent flexible forms of financing in 2004, the broad for 2010 and revised upward their target for pattern observed over the past few years is 2006 to 0.42 percent from 0.39 percent.8 likely to continue in the near term as debt for- They also reaffirmed their commitment to giveness for Iraq and Nigeria are reflected in reach an ODA to GNI ratio of 0.7 percent by ODA flows and as humanitarian relief efforts 2015. These pledges represent a $38 billion remain high. increase (in 2004 U.S. dollars) in ODA by TABLE 3.1 Composition of net ODA: less reliance by donors on special-purpose grants in 2004 (all levels are in constant 2004 US$ billions) Distribution of the ODA level ODA level ODA level Increase in Increase in ODA increase in ODA from 2001 2003 2004 ODA in 2004 from 2001 to 2004 2001 to 2004 (in %) DAC ODA 67.4 75.1 79.5 4.4 12.1 DAC ODA by type Special-purpose grants 29.6 40.6 38.4 ­2.2 8.8 73 Debt forgiveness 3.5 9.1 7.1 ­2.0 3.6 30 Technical cooperation 17.0 19.7 18.8 ­0.9 1.9 15 Food aid + emergency relief 5.5 8.0 8.5 0.5 3.0 25 Administrative costs 3.7 3.8 4.0 0.2 0.3 2 Flexible bilateral ODA 14.8 13.2 16.0 2.8 1.2 10 Contributions to multilaterals 23.0 21.4 25.1 3.8 2.1 17 Non-DAC ODA 1.6 3.7 3.7 0.0 2.2 Grants by NGOs 8.7 10.9 11.4 0.5 2.6 Source: OECD DAC database. Note: Flexible ODA is DAC members' ODA less special-purpose grants and contributions to multilaterals. 76 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E 2010 for EU members that are DAC coun- the growth of ODA required to meet commit- tries, a near doubling of assistance for this ments will be much greater. A faster pace of donor group. Several DAC members have also growth of aid (when public budgets are under announced a timetable for achieving an ODA pressure) could introduce some uncertainty in target of 0.7 percent of national income. If medium-term aid volumes. DAC countries' commitments are delivered, Although much of the expansion in ODA ODA measured in 2004 prices will be around has been delivered in the form of special pur- $100 billion in 2006 and will rise to about pose grants (table 3.1), beyond the near term, $128 billion by 2010. the proposed doubling of aid to Africa by To achieve these targets, ODA will need to 2010 and the completion of major debt grow at an accelerated pace. Overall, real workouts are expected to shift the pattern of ODA will need to grow 50 percent faster from aid delivery. Moreover, if donors deliver on 2004 to 2010 compared with the average commitments, the pattern of distribution of annual growth rate from 2001 to 2004 (figure aid to poor countries could change as well. 3.3); for EU members that are DAC countries, the pace of growth will need to triple. Imple- Funding Development Assistance through mentation of Paris Club debt agreements for Innovative Mechanisms Iraq and Nigeria boosted aid volumes in 2005, and debt forgiveness grants will remain Innovative financing mechanisms could aug- high in 2006. Beyond the near term, more of ment aid flows and development investment the increase in ODA will represent a transfer and improve the predictability and flexibility of resources; perhaps raising difficulties for of aid. Several of these mechanisms are in donors that deliver a large share of aid early stages of implementation: the Interna- through debt relief. For several countries-- tional Finance Facility for Immunization such as Italy and Greece--the acceleration in (IFFIm) is being established as a pilot IFF; a FIGURE 3.3 Acceleration in ODA needed to meet commitments a. Increase in actual and projected b. Corresponding average ODA levels, 2001­10 annual growth in ODA 2004 US$ billions Percent 14 70 12.1 12 60 50 10 28 40 8 6.4 5.6 30 6 21 20 4 10 2 12 0 0 DAC countries DAC countries Increase, 2001­4 Growth rate, 2001­4 Increase needed between 2004 and 2006 Growth rate needed between 2004 and 2006 Increase needed between 2006 and 2010 Growth rate needed between 2006 and 2010 Source: OECD DAC database. Note: Prospects for ODA in 2006 and 2010 are based on DAC members' announced commitments. Not all DAC members have made commitments beyond 2006. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 77 C H A P T E R 3 pilot advance market commitment (AMC) Blending arrangements. The World Bank proposal is being developed; and an increasing has reached out to the multilateral develop- number of countries are moving forward with ment banks and development partners to airline departure tax legislation--one possible develop more specific proposals for the use of use for resulting revenues is the International blending arrangements in gap and middle- Drug Purchase Facility (IDPF) proposed by income countries as part of a larger work pro- France. These efforts will test key aspects of gram. In IDA countries, an ongoing pilot the proposed innovative mechanisms. program provides for the use of blended International Finance Facility and IFF for grants (from trust funds) and IDA credits to Immunization. The pilot IFFIm will channel achieve global or regional public goods in funds pledged by France, Italy, Norway, health projects. Spain, Sweden, and the United Kingdom through the existing governance structure Enhanced Monitoring of Donor and country programs of the Global Alliance Commitments for Vaccines and Immunization (GAVI). Work to implement the IFFIm structure is Prospects of significant additional amounts of ongoing, and a first bond issuance is expected aid raise the importance of better monitoring in mid-2006. In addition, France and the of commitments and flows. The purpose of United Kingdom plan to establish a joint monitoring will be to assess progress in working group to consider the implementa- implementing promises and to build momen- tion of a full IFF for health and education and tum for emulating best practice. Equally partly funded by the airline departure tax. importantly, monitoring can be a useful tool Advance Market Commitments for vac- to better understand the scale of resources cines. AMCs for vaccines could complement that will become available over the medium the IFFIm program to strengthen global term, and how this scaling up will translate immunization efforts. Under an AMC, into availability of resources at the country donors would guarantee a set envelope of level. By providing reliable information on funding at a given price for a new vaccine that resource availability at the country level over meets specified target requirements. G-8 the next few years, monitoring can facilitate finance ministers have agreed to consider a improvements in transparency and coordina- specific AMC pilot proposal in April. tion of aid and can help improve its pre- Airline departure taxes. The proposed air- dictability. While recognizing the challenge of line departure tax has gained steady support. providing three-year forward projections on France has passed legislation enabling collec- aid at the country level, donors have agreed tion of an airline departure levy, with rev- that the DAC undertake an effort to collect enues estimated at 200 million a year. Over such information.9,10 a dozen countries have said they will imple- Scaling up will also require better coordina- ment the tax, and others plan to follow suit. tion among aid delivery channels--bilateral The United Kingdom indicated its intention funds, multilateral funds, global funds, and to use part of the revenue from its existing Air private funds. The growth of global programs Passenger Duty to provide a long-term stream and funds and the emergence of new bilateral of finance to the IFFIm and the IFF. Many and private donors are increasing aid delivery countries have welcomed France's proposal channels. Better coordination among donors to use departure tax revenues and other con- will be essential to delivering aid effectively tributions to fund the IDPF, which would (box 3.1). For example, global funds need to provide long-term, predictable finance to pur- support country-led strategies and priorities chase drugs used to treat the big pandemics and not undermine the capacity of national affecting the poorest countries and to lower authorities for coherent planning, financing, the prices for these drugs. and service delivery. Likewise, bilateral donors 78 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E need to shift toward delegated cooperation so get set for this indicator, and only 9 percent as to make use of the comparative advantages of partner countries undertake mutual assess- of individual donors. The first step to achiev- ments of progress in implementing agreed ing better coordination will be sharing of commitments and more broadly their devel- information on planned donor activities. opment partnerships, against a target of 100 percent (figure 3.4). Delivering Aid More Effectively A distinct feature of the Paris Declaration is a mutual commitment undertaken by part- Higher aid volumes need to be matched by ner and donor countries to an international improvements in the quality of aid. Several monitoring process. To advance this process, factors influence aid quality and, hence, its the WP-EFF has created a subgroup dedi- effectiveness. Chief among them are the har- cated to work on developing technical guid- monization and alignment of aid, the modal- ance, survey instruments, and a methodology ity through which assistance is delivered, the for collecting and reporting data. This work allocation of aid, and the volatility and pre- will draw on and be supplemented with avail- dictability of aid flows. able information from the DAC peer review mechanism, the New Partnership for Africa's Development (NEPAD), Strategic Partnership Progress on Harmonization, Alignment, with Africa (SPA) surveys, and WP-EFF sub- and Managing for Results groups for public financial management and Following the Paris High Level Forum last procurement.13 year, intensive work undertaken by the Work- Progress in implementing the Paris Frame- ing Party on Aid Effectiveness (WP-EFF)11 work at the country level has been mixed. In resulted in an agreement and adoption of a few countries, such as Mozambique, Tan- global targets (for 2010) for 11 of the 12 indi- zania, Uganda, and Vietnam, governments cators in the Paris Declaration.12 The prelim- and development partners have made solid inary baseline data suggest that the gaps to be progress; this progress did not happen bridged to reach the agreed global targets are overnight but has been evolving over a num- quite large, indicating considerable scope for ber of years. Evidence of this progress can be progress. For example, only 15 percent of seen in government-led efforts to address har- donor missions are undertaken jointly with monization and alignment issues in program- other donors, well below the 40 percent tar- based approaches (table 3.2). Four factors BOX 3.1 Africa Action Plan: an opportunity to coordinate aid flows to Africa The implementation of the World Bank's Africa Action Plan will create opportunities to coordinate aid flows in Africa, ensuring that donor allocations reflect country priorities. Building on the IDA 14 base, the Bank will partner with others to increase both the volume and effectiveness of resources directed at Africa's development. One example of this enhanced coordination is the Africa Catalytic Growth Fund, which will pro- vide a new pilot mechanism to complement IDA resources while maintaining country ownership and integrated expenditure management systems supported by IDA. The UK government has pledged £ 200 million in funds. The first call for proposals under this fund was launched in March 2006. The Bank is also collaborating with other partners, including the EU, the U.K. Department for International Development, France, the African Development Bank, and the government of Japan. In meetings with the Japan Bank for International Cooperation, a number of projects in transport, power, water, and urban sector were singled out for collaboration and potential cofinancing. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 79 C H A P T E R 3 FIGURE 3.4 Indicators of progress: gaps between baselines (preliminary) and targets Selected indicators of progress from the Paris Declaration: Global baseline and target Operational development 9 75 strategies by partner countries Partner countries undertaking 9 100 mutual assessments of progress Joint country analytic work by donors 30 66 Joint donor missions 15 40 Use of common arrangements 43 66 or procedures by donors 0 20 40 60 80 100 Percent of total Baseline Target Source: OECD 2005. Note: Comprehensive baselines will be established in 2006. TABLE 3.2 Country-level progress on selected harmonization and alignment actions Country-specific efforts to Joint/ Coordinated harmonize collaborative country-level Coordinated Joint procurement Independent Harmonization assistance monitoring budget Sectorwide analytic and financial monitoring road map strategies and evaluation support approaches work management process Substantive progressa Mozambique Tanzania Uganda Vietnam Moderate progressb Bangladesh Burkina Faso Cambodia Ethiopia Ghana Nicaragua Rwanda Progress, but limitedc Cameroon Kyrgyz Rep. Malawi Senegal Zambia Source: World Bank desk surveys. a. Countries showing substantive progress (at least 4 black dots). b. Countries where there is progress but not across a broad front (at least two black dots). c. Countries where actions are being taken but progress is limited. Note: denotes substantive action; denotes moderate action; denotes little or no action. 80 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E that appear common to this group of coun- SPA survey also suggest an improving tries are strong government leadership in set- trend in recipients' perception of donor ting out priorities on development assistance, behavior (figure 3.5). The survey responses an effective implementation process for show, for the second year in a row, an poverty reduction strategy, a mature govern- increase in satisfaction overall and in all ment-donor aid relationship, and a well- the areas of donor practice. The survey functioning aid coordination mechanism responses indicate that in 2004­5, donor focused on concretely addressing difficult practices with lower scores tended to operational issues. In other countries, such as improve more. Bangladesh, Burkino Faso, Cambodia, Sectorwide approaches. Sectorwide Ethiopia, and Ghana, there has been accel- approaches (SWAPs), which initially erating moderate and concrete progress, focused on the health and education sec- while in countries such as the Kyrgyz Repub- tors, are now used in the areas of infra- lic, Malawi, and Senegal, there is progress, structure, roads, water, agriculture/rural but it is still limited and does not yet cover a development, and justice in some coun- broad front. In countries not reflected in the tries. Recent SWAPs increasingly involve table, harmonization and alignment actions multidonor pooling, use of common pro- are generally less advanced. cedures, and reliance on country systems. Over the past year countries and donors Joint analytic work. Increasingly, donors have made the most notable progress in five are undertaking analytic work jointly; for areas: example, 2005 calendar year data from the World Bank indicate that 22 percent of its Customizing Paris indicators. Examples are major economic and sector work was con- Ghana, Nicaragua, Uganda, and Vietnam. ducted with other partners (see chapter 4).15 Collaborative or joint assistance strategies. In Nigeria the assistance strategy was The encouraging developments at the undertaken jointly by DFID and the World country, regional, and global levels do not Bank. In Cambodia, the Asian Develop- provide grounds for complacency as there ment Bank, the U.K. Department for Inter- remain many obstacles to further broadening national Development (DFID), UN and deepening implementation. In donor agencies, and the World Bank collaborated countries, political factors as well as incentive on the assistance strategy. In Uganda, a structures within donor agencies are critical to strategy was developed jointly with about progress. Politicians and civil society--espe- 10 bilateral and multilateral partners. cially NGOs and private groups, who could Budget support. The 2005 budget support be affected by changes in aid modalities-- survey by the SPA found that 28 percent of might not attach the same commitment to total aid to 14 countries is being provided harmonization and alignment as senior man- as budget support, compared with 26 per- agers of aid agencies (de Renzio 2006). Thus, cent in 2004; 61 percent of these programs senior managers of donor agencies need to have made a multiyear commitment, with work with politicians and civil society to build an average of 3.1 years; and 87 percent of broad and effective support for moving for- such aid committed in 2005 was disbursed ward on the Paris framework. At the same during the fiscal year when it was sched- time, the internal incentive systems--both at uled, compared with 75 percent in previ- the institutional and individual level--need to ous years.14 Moreover, the surveyed be compatible with a sharpened focus on har- governments were of the view that memo- monization, alignment, and results (ODI randums of understanding underpinning 2004).16 Although aid agencies are making budget support operations have served to progress on improving their internal incentive reduce transaction costs. Results from the systems, more work is needed. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 81 C H A P T E R 3 FIGURE 3.5 Satisfaction improving with donor practices, 2003­5 Coordinated support to strengthen statistical system Coordinated support on public financial reforms Reporting requirements minimized and coordinated Joint missions or reviews Number of conditions minimized Conditionality coordinated Conditionalities are useful in implementing PRSs Average 1 2 3 4 5 Lowest Highest 2003 2004 2005 Source: SPA Budget Support Survey 2005. Enhancing Aid Quality: Aid Modality, To better support sustainable capacity Allocation, and Predictability development, technical cooperation needs to Improving aid modalities. The modality be aligned with the newer paradigm for (instrument) through which donors deliver aid capacity building (World Bank 2005a). This matters. Donors tend to use a range of modal- will require recipients to have more owner- ities; the choice of modality typically is influ- ship and control over TC, so that assistance enced by political and other constraints on the can be provided where it is really needed. In donor side and by partner country circum- addition, the focus of technical assistance stances. One issue that arises is whether the should be on building capacity at the level of effectiveness of aid can be enhanced within institutions, organizations, and individuals. current aid modalities. This is particularly so Mainstreaming technical assistance in pro- for technical cooperation (TC), which contin- grams and projects can also enhance its effec- ues to be a key donor tool for supporting tiveness. Finally, untying TC and providing it capacity building, although there are issues as budget support could yield savings surrounding its effectiveness.17 The DAC esti- through the competitive hiring of experts.18 mates "free-standing" TC (that is, coopera- Although bilateral food aid is a small com- tion aimed at capacity building and not ponent of total aid (about 5 percent), it con- related to investment) to be nearly $20 billion, tinues to be an important tool for providing or about a quarter of total net ODA. TC to emergency assistance and for addressing Africa was around $4.5 billion in 2004, nearly hunger and malnutrition.19 Most food aid is a fifth of total assistance to the region. tied, which raises the issue of whether untying 82 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E can lower the cost of providing assistance for recipients' policies and institutions. Results food. A recent Organisation for Economic from the selectivity model of Dollar and Levin Co-operation and Development (OECD) (2004) indicate that in 2004 over two-thirds study finds that providing direct transfers in of bilateral donors had a significant relation- kind are at least 30 percent more costly for ship between aid and poverty and that the donors than unrestricted financial assistance poverty elasticity of aid had strengthened for (OECD 2005c). Nor is tied food aid cost- most of these donors. The results for policy effective for the recipient country: transfer of elasticity of aid likewise show a strengthening food in kind was found to be about 50 percent of the relationship between aid and the qual- more costly than locally procured food and 33 ity of policies and institutions (World Bank's percent more costly than food imports from a Country Policy and Institutional Assessment); third country.20 It appears that financial assis- although some large bilateral donors are still tance or more flexible sourcing is preferable, not very selective (figure 3.6). Overall, these except where local procurement might not elasticities are much higher for multilaterals always be an option, especially in areas with than bilaterals. Donors favor other criteria in food shortages, or where well-functioning aid allocation as well, including geostrategic internal markets are lacking, and where weak considerations, vulnerability to shocks, and trade linkages could hamper imports from former colonial ties (Amprou, Guillaumont, third countries (also see box 3.2). and Guillaumont-Jeanneney 2005). Improving allocations. Although the causal Fragile states. Fragile states present a special mechanisms through which aid has an impact challenge for the donor community: Global on poverty reduction are not settled in the lit- Monitoring Report 2005 highlighted the issue erature, it would appear that to achieve the of "aid orphans" receiving much less aid and MDGs, aid should be targeted to countries "aid darlings" receiving much more aid than with poorer populations and governments can be explained by policy and poverty criteria. committed to poverty reduction. Aid alloca- A set of principles for international engage- tion patterns suggest that donors are paying ment in fragile states gained broad support more attention to poverty and to quality of among donors in 2005. These principles are FIGURE 3.6 Strengthening trend in donors' poverty and policy focus a. Policy focus b. Poverty focus Policy selectivity index Poverty selectivity index 4.0 0 3.5 ­0.2 3.0 ­0.4 2.5 2.0 ­0.6 1.5 ­0.8 1.0 ­1.0 0.5 0 ­1.2 1999 2003 2004 1999 2003 2004 Bilateral donors Multilateral donors All donors Source: Staff estimates. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 83 C H A P T E R 3 BOX 3.2 Measuring the "quality of aid" Aid "quality" refers to the form and modalities of aid that make it more effective as a resource for advancing development objectives. One approach is that of the Center for Global Development, which aims to measure aid quality of donors in its Commitment to Development Index (CDI). The CDI adjusts for "selectivity" of aid flows to poorer and better-governed countries, for tax incen- tives that encourage charitable giving, and for discounts tied to aid and small average project size (Roodman 2005). The CDI methodology is under review for improvement. From the recipients' perspective, important aspects of aid quality include fragmentation across donor programs and aid volatility. Some of these aspects are to be monitored under the Paris Declaration on Aid Effective- ness, which may contribute to strengthening the future monitoring of aid quality. now being piloted in nine countries.21 Early develop best practices, and help ensure pre- reports suggest that the principles strongly dictable financing for early recovery work.24 complement the Paris Declaration, reinforcing Improving the predictability of aid. The messages on coordination--and, by extending prospect of higher volumes and a shift from the framework to include nonaid actors such projects to general budget support could as security and diplomatic actors--the pilots increase the volatility of aid (Bulir and are helping to focus attention on some of the Hamann 2005), even as ramping up and most difficult coordination challenges in frag- maintaining scaled up service delivery call for ile states. The pilots are also helping to focus greater predictability in resource flows. A attention on some of the more complex con- recent study (Gelb and Eifert 2005) shows cepts identified in the principles, including the that although predictability poses a special operational implications of the state-building challenge for budget support, there are prac- objective. Experience from these pilots will be tical ways of addressing this issue. For exam- used to illuminate areas for further policy and ple, applying performance-based allocation operations work.22 rules with a flexible precommitment rule, Emerging experience points to the such that aid levels adjust sharply only in dynamic nature of fragile state environments, response to major performance changes, can implying that strategies should aim to look allow for precommitment of aid in a multi- ahead at the direction of reform dynamics, year framework while avoiding drawn-out avoiding an oversimplistic design of assis- periods of misallocations. In addition, donors tance based on past performance.23 Experi- could fund a country's reserve holdings--that ence has also shown that careful attention to is, a buffer reserve fund of two to four prioritization, harmonization, and results is months of imports--so that the reserves critical in fragile states, particularly in situa- could cushion a shortfall in disbursements tions of fast transition, which often suffer arising from exogenous factors unrelated to from fragmentation and a multiplicity of country performance. actors. The newly created UN Peacebuilding Commission will bring together key interna- Issues in Managing a tional actors to marshal resources and advise Scaling Up of Aid on postconflict peace-building and recovery strategies, focus attention on reconstruction With donors planning to boost aid to poor and institution-building efforts to help lay a countries, the economic impact on recipients solid foundation for sustained development, of substantially higher flows needs to be improve coordination among actors (both addressed. Some of the issues that need to be within and outside the United Nations), considered are the macroeconomic impact of 84 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E higher aid in terms of appreciation of the real Progress on Debt Relief for exchange rate and consequences for external the Poorest Countries competitiveness; management of monetary and fiscal policy; budgetary management The past year saw major progress in extending issues of higher and possibly more volatile aid and deepening debt relief to the poorest coun- flows; the implications of scaled-up aid for tries. In June 2005, the G-8 proposed that medium-term expenditure frameworks and three multilateral institutions--the AfDF, IDA, the composition of public investment; and and the IMF--cancel 100 percent of their debt identification and management of the institu- claims on countries that have reached, or will tional, organizational, and skills constraints eventually reach, the completion point under to scaling up aid (Heller 2005). Several of the HIPC Initiative, thereby freeing up addi- these issues, particularly absorptive capacity tional resources to help these countries reach constraints and the need for appropriate the MDGs. The G-8 Proposal, now called the sequencing of investment, were dealt with in Multilateral Debt Relief Initiative, will deepen detail in Global Monitoring Report 2005.25 A the debt relief provided under the HIPC Initia- discussion of macroeconomic management tive by further cutting the debt of poor coun- issues is presented in box 3.3. tries by about $50 billion (in nominal terms). At the country level, scaling up must be anchored in a strengthened Poverty Reduc- Progress on the HIPC Initiative tion Strategy process: ambitious country- owned and -led development plans linked to Overall, substantial progress has been made in medium-term expenditure frameworks and the implementation of the HIPC Initiative. As focused on results. Drawing on the PRSs, the of March 2006, 29 HIPC have reached the consultative group and roundtable processes decision point and are receiving debt relief; can be used to identify the scope of scaling these countries account for about two-thirds of up on a country-by-country basis. The DAC the initiative's total expected debt relief in net and the World Bank are collaborating to present value terms. Progress toward reaching enhance the CG-RT processes to provide a the completion point--when creditors provide practical, mutual accountability-based frame- the full amount of debt relief committed at the work for linking resources to results (OECD decision point on an irrevocable basis--con- 2006b). The Bank's Africa Action Plan, as tinued in 2005; three additional countries well as the recently approved Catalytic Fund, reached the completion point, bringing the will promote the formation of results and total number of countries to have done so to resources consultative group meetings so as 18. Most of the 11 countries in the interim sharpen the results focus of alignment and period between their decision point and com- harmonization efforts at the country level, pletion point are on track with respect to their and to improve the predictability of aid macroeconomic programs; others that experi- (World Bank 2005c). The framework for enced difficulties in program implementation enhancing the CG-RT processes would entail are pursuing the necessary policy measures to various tasks, including specifying MDG- bring their economic programs back on track based results that are to be targeted and the (IMF-World Bank 2005). actions by partner governments to achieve In addition, a list of countries meeting the these results, identifying capacity constraints enhanced HIPC Initiative's income and indebt- and the resources needed to build capacity, edness criteria at end-2004 was approved in obtaining donor commitments for pre- April 2006. The Boards of the IDA and the dictable and flexible financing consistent with IMF had decided, in September 2004, to the Paris Declaration targets, and monitoring extend the sunset clause of the HIPC Initiative progress on results and commitments of aid to end-2006 and to ring fence its application to donors and partners. countries satisfying the enhanced HIPC Initia- G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 85 C H A P T E R 3 BOX 3.3 Macroeconomic management of surges in aid Meeting the MDGs would require a substantial increase in resource inflows to low-income countries, implying the need for careful attention to macroeconomic management, particularly coordination of fiscal, monetary, and exchange rate policy in response to an aid surge. Two related but distinct responses to aid increases--absorption and spending--help to analyze macro manage- ment options (IMF 2005). Absorption refers to the increase in net imports associated with an increase in aid, whereas spending refers to the widening of the fiscal deficit (net of aid) associated with that increase. To absorb and spend is the textbook response to aid; the government increases investment, and aid finances the resulting rise in net imports. Even if the government spending is on domestic goods, the aid allows the resulting higher aggregate demand and spending to increase net imports without creating a balance-of-payments problem. Some real exchange rate appreciation may be necessary to enable this reallocation of resources. In general, spending and absorbing aid is the only sensible long-run alternative to forgoing aid altogether. How- ever, other responses to incremental aid may be justified under some circumstances and for a limited period. To save incremental aid--that is, to neither absorb nor spend--may be a good way to build up international reserves from a low level or smooth volatile aid flows. To absorb, but not spend, substitutes aid for domestic financing of the government deficit. Where the initial level of domestically financed deficit spending is too high, this can help stabilize the economy. Alternatively, it can reduce the level of public debt outstanding, crowding in the private sector. To spend and not absorb is a common but prob- lematic response and usually reflects inadequate coordination of monetary and fiscal policies. This response is simi- lar to a fiscal stimulus in the absence of aid. The aid goes to reserves, so the increase in government spending must be financed by the printing of money (which generates inflationary pressures) or by government borrowing from the private sector (which crowds out private investment). There is no real resource transfer from abroad, given the absence of an increase in net imports. Dutch disease--the crowding out of exports through real exchange rate appreciation--is often seen as an unfor- tunate byproduct of aid. A permanent increase in the level of aid to a country may lead to some degree of real appre- ciation of the exchange rate. This appreciation draws domestic resources from the production of traded goods to the production of schools, hospitals, and other infrastructure deemed crucial to development. However, if aid-financed spending generates a strong supply response--for example, eases critical infrastructure bottlenecks to agriculture and manufacturing--and stimulates dynamic externalities, Dutch disease may be avoided. In both cases, aid finances the rise in net imports that comprise the counterpart to the reallocation of resources. In essence, this is the spend-and- absorb case discussed above. In the long run, therefore, aid surges may well lead to some degree of real appreciation. Recent work suggests that this may have a significant adverse impact on labor-intensive and exportable manufacturing industries (Rajan and Subramanian 2005a and 2005b). It is therefore crucial that aid-financed investments be targeted so that the result- ing gains in productivity more than outweigh any loss of export competitiveness. Moreover, the pace of aid absorp- tion and spending could be adjusted if Dutch disease concerns are important and aid-generated increases in productivity are slow to materialize. In the short run, a country's circumstances should dictate the macroeconomic responses to a surge in aid inflows: weak investment opportunities or very low international reserves could indicate that aid should be temporarily saved, but over the long term aid should be both spent and absorbed. tive income and indebtedness criteria using Debt relief under the HIPC Initiative is end-2004 debt data. The list of countries that projected to substantially lower debt and debt meet these two criteria and might wish to be service ratios for most HIPC that have considered for debt relief under the Initiative reached the decision point. Net present value includes seven countries previously identified (NPV) of debt stocks in the 29 HIPC that as HIPC plus four new countries. Three addi- reached the decision point by March 2006 tional countries that meet the required criteria are projected to decline by about two-thirds indicated that they do not wish to avail them- once they reach their respective completion selves of the Initiative. points. The ratio of debt service to exports 86 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E and fiscal revenues for these countries is esti- FIGURE 3.7 Lower debt service, higher poverty-reducing expenditures, mated to have declined from an average of 1999­2006 about 16 and 24 percent in 1998­9 to 7 and 12 percent in 2005, respectively. These ratios Percent are projected to decline further to less than 10 half of the 1998­9 average by 2006. 8 For these 29 countries, poverty-reducing expenditures on average have risen from 6 about 6 percent of GDP in 1999 to 9 percent 4 of GDP in 2005, a level more than four times 2 that spent on debt service (figure 3.7).26 In 0 absolute terms, poverty-reducing spending is 1998­9 2000 2001 2002 2003 2004 2005 2006 estimated to have increased from about $6 bil- lion in 1999 to $13 billion in 2005, and is pro- Debt service/GDP Poverty-reducing expenditure/GDP jected to increase to $15 billion in 2006.27 Creditor participation under the HIPC Initiative remains an issue, in particular with Source: IMF-World Bank 2005 and staff estimates. Note: Data for 2005 are preliminary; data for 2006 are projections. respect to non­Paris Club bilateral and commercial creditors. Although commercial creditors account for less than 4 percent of annual debt flow relief of over $1 billion over the total debt relief due under the initiative, the next decade and close to $2 billion per most have not provided their share. More- year in the following decade. over, the share of relief by non­Paris Club Key features of the MDRI. The MDRI creditors has declined, as a number of them cancels 100 percent of the debt claims of the have withdrawn their participation from the AfDF, IDA, and the IMF on countries that initiative because of restrictive legislation, have reached, or will eventually reach, the weak debt and asset management, limited completion point under the HIPC Initiative. understanding of the HIPC methodology, or Unlike the HIPC Initiative, the MDRI does lack of communication with debtors. In not propose any parallel debt relief on the addition, the number of lawsuits initiated by part of official bilateral or private creditors, commercial creditors against HIPC has or of multilateral institutions beyond the increased. Moral suasion remains the prin- AfDF, IDA, and the IMF. Although the MDRI cipal measure for encouraging participation is an initiative common to three international and discouraging litigation by remaining financial institutions, the decision to grant commercial creditors. The Debt Reduction debt relief is ultimately the separate responsi- Facility (DRF) for IDA-only countries has bility of each institution, and the approach to been an important instrument in reducing coverage and implementation varies. There are commercial debt owed by HIPC.28 three major variables when determining eligi- bility for debt relief under the MDRI. These variables include the cutoff date of eligible debt Augmenting Debt Relief: The MDRI stock, the credit coverage of the debt to be can- The MDRI deepens the debt relief provided celled, and the group of countries to be cov- by the HIPC Initiative by canceling the debts ered under the MDRI (table 3.3). of HIPC to the AfDF, IDA, and the IMF, and The MDRI implementation date is the it provides dollar-for-dollar compensation beginning of 2006 for the AfDF and the IMF for the costs of the MDRI debt relief for the and mid-2006 for IDA; the actual delivery of AfDF and IDA. Through the MDRI, these debt relief occurs only when countries have countries will receive a further reduction in been confirmed to qualify for such relief. Qual- debt of around $50 billion--an average ification for MDRI relief by HIPC that have G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 87 C H A P T E R 3 TABLE 3.3 Key features of the MDRI by institution IMF IDA AfDF Implementation date January 1, 2006 July 1, 2006 January 1, 2006 Cutoff date for debt relief End-2004 End-2003 End-2004 Country coverage All HIPC plus all non-HIPC All HIPC All HIPC in Africa with per-capita income of US$380 a year or less-- Cambodia and Tajikistan Timing of delivery of For postcompletion point For postcompletion point For postcompletion point debt relief HIPC (plus eligible non- HIPC, once they meet the HIPC, once they meet the HIPC), once they meet the qualification criteria qualification criteria qualification criteria For precompletion point For precompletion point For precompletion point HIPC, once they reach HIPC, once they reach the HIPC, once they reach the completion point, at the completion point completion point beginning of a quarter following confirmation of eligibility by the Board of Executive Directors Modality of debt relief Stock cancellation Stock cancellation and Stock cancellation and adjustment of gross adjustment of gross assistance flows by assistance flows by amount forgiven amount forgiven Source: AfDF, IMF, and World Bank staff. already reached the completion point is con- Additionality of donor financing--estab- tingent on satisfactory performance since the lishing baselines for donor contributions. The completion point in three key areas: macro- MDRI also commits to providing additional economic performance, implementation of a resources to ensure that the proposed debt for- poverty reduction strategy detailed in a giveness does not undermine the institutions' Poverty Reduction Strategy Paper (PRSP) or overall financial integrity or ability to continue a similar framework, and public expenditure to provide financial support to low-income management systems.29 HIPC that have not countries. The AfDF's estimated cost from debt reached the completion point will automati- cancellation is $9.06 billion (UA 5.84 billion) cally qualify for MDRI relief once they reach in nominal terms; the costs to IDA from the the completion point.30 MDRI are about $37 billion (SDR 24.8 billion) Twenty countries were assessed in 2005 and in nominal terms;34 and the estimated cost of 19 were found to satisfy all the criteria and full debt relief for the Fund is around $5 billion hence qualify for debt relief under the MDRI (SDR 3.5 billion) in end-2005 NPV terms, of from the IMF.31 Debt relief amounting to spe- which about SDR 1.3 billion is already being cial drawing right (SDR) 2.3 billion (about financed through the HIPC Initiative.35,36 US$3.4 billion) was delivered to these 19 coun- Actual additionality of donor financing is tries in early January 2006.32 Debt relief from required to ensure that IDA countries will IDA is expected beginning this July for 17 com- benefit from the MDRI. There will be no addi- pletion point countries.33 Debt relief from tionality if donors' replacement resources to AfDF is expected once donors finalize the cover forgone reflows of IDA and AfDF were MDRI implementation modalities for the AfDF. merely deducted from the regular financial 88 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E support of these institutions' donors. Thus, special financing items, namely, compen- IDA and AfDF have established baselines on sation for IDA's HIPC-related costs and which the additionality of donor financing can financing of forgone principal reflows due be assessed: to IDA grants. The agreed contribution baseline would be Baseline for IDA contributions indicative in nature and intended to demon- The contribution baseline has been set strate transparently the additionality of debt with reference to IDA14 regular contribu- relief financing. The level of contributions, tions and assuming an inflation rate of 2 and therefore the size of successive IDA percent per year for the SDR basket of cur- replenishments, will, as now, remain the sov- rencies, regular contributions in IDA15 ereign decision of each government in the would increase by 6.12 percent over each IDA donor community.39 The agreed base- donor's regular contribution to IDA14 in line for additionality will provide a basis for SDR terms.37 This would lead to an aggre- mutual accountability among donors, and gate contribution baseline for regular con- an important public signal of the commit- tributions of around $16.3 billion (SDR ment to avoid substitution of regular donor 10.817 billion) in IDA15 (table 3.4).38 contributions for debt relief compensation. Compensatory financing of IDA's forgone credit reflows due to the MDRI will be Baseline for AfDF contributions. To estab- additional to this contribution baseline. In lish the additionality of donor replacement addition, the financing framework of funds beyond AfDF-X, an inflation rate of 2 future replenishments will also include percent per year is assumed such that the TABLE 3.4 Indicative donor commitments to IDA and AfDF over the next decade (Baseline: constant regular donor contributions in real terms--US$ billions) IDA AfDF IDA 14 IDA 15 IDA 16 AfDF-X AfDF-XI AfDF-XII (FY06­08) (FY09­11) (FY12­14) (CY05­07) (CY08­10) (CY11­13) Regular donor contributions In current replenishment (net of supplemental, incentive, accelerated funds) 14.9 3.59 In future replenishments (constant in real terms)a 16.3 17.8 3.81 4.04 Special financing commitments of donors 2.6 4.4 5.6 of which: Financing of MDRI costsb 0.8 1.9 2.9 0.12 0.31 0.52 Total indicative financing commitments of donors 17.5 20.7 23.4 3.71 4.12 4.57 Source: AfDF and IDA staff estimates. a. For IDA, based on regular donor contributions in IDA14, at the IDA14 foreign exchange reference rates, using a 3% per year USD deflator (equiv- alent to a 2% per year deflator in SDR terms). For AfDF, based on regular donor contributions in AfDF-X, at the AfDF-X foreign exchange reference rates, using a 3% per year USD deflator (equivalent to a 2% per year deflator in UA=SDR terms). b. For IDA, based on disbursed and outstanding credits; cut-off date of 12/31/2003 and implementation date of 07/01/2006; includes 38 HIPC and 4 countries potentially eligible under the HIPC Sunset Clause. For AfDF, based on disbursed and outstanding credits at end-December 2004 as cut-off date, and implementation date of 01/01/2006; includes 32 HIPC and one country potentially eligible under the HIPC Sunset Clause. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 89 C H A P T E R 3 aggregate nominal donor contributions of at least intact for all beneficiary countries. UA 2.454 billion in AfDF-X would increase Therefore, in terms of net resource transfers, no at the compound rate of 6.12 percent to UA MDRI-recipient country would be expected to 2.604 billion in AfDF-XI.40 be worse off following debt relief. However, Impact on IDA/AfDF assistance. The new IDA commitments may decline over time MDRI will affect gross assistance flows from for some countries receiving debt relief, IDA and AfDF through a two-step process. depending on the difference between future First, 100 percent stock cancellation will be annual performance-based allocations they delivered by relieving eligible countries of receive from IDA and forgone debt service at repayment obligations and by adjusting their each period. Longer-term projections of future gross assistance flows by an equivalent performance-based allocations are, however, amount. This feature helps allay moral haz- subject to a considerable degree of uncertainty. ard and equity concerns associated with debt A country's allocation in any given year will cancellation. Second, additional resources depend on a number of factors, including its provided to these institutions by the donors performance relative to other countries; (to compensate for the forgone debt service whether it is eligible for IDA grants and, con- from the country) will be reallocated to IDA- sequently, subject to a volume discount under only and AfDF-only countries through the IDA's grant allocation system; the size of IDA's existing performance-based allocation sys- overall available resource envelope; and the tems of IDA and AfDF. This feature helps extent of country graduations from IDA and strengthen the link between resource trans- reverse graduations back into IDA. Many alter- fers and country performance levels. native scenarios could therefore be devised, As a result of debt relief, total IDA assistance leading to diverse outcomes. flows--the sum of new IDA commitments and The challenge for countries receiving debt forgone reflows--would be expected to remain relief is to ensure that financial resources freed up by debt reduction are used for reach- ing the MDGs. Here, sound public financial FIGURE 3.8 Impact of MDRI on debt ratios in HIPC management is key to achieving results; chap- ter 6 discusses the quality of public financial NPV of debt management in HIPC and suggests ways of to exports, percent improving performance. It is also critical that 160 debt reduction does not undermine recipient 140 countries' capacity to mobilize domestic resources for development. 120 Lower debt burdens and debt sustainability. 100 The MDRI will significantly reduce debt bur- den indicators in HIPC. Debt cancellation, 80 once implemented, would cause debt ratios in 60 HIPC to be significantly lower than those for grant-eligible non-HIPC. For the 18 postcom- 40 pletion point HIPC, about 80 percent of the 20 debt outstanding after HIPC relief is owed to 0 multilateral creditors; in these countries the 18 completion-point African Latin American average NPV debt/exports ratio would fall countries completion-point completion-point from over approximately 140 percent after countries countries HIPC relief to a projected 59 percent after After HIPC relief After MDRI implementation of the initiative (figure 3.8). This would put debt ratios in these countries at Source: Staff estimates. less than half the average in non-HIPC that are 90 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E currently eligible for grant assistance from IDA tion point HIPC, the average debt/exports due to elevated debt ratios. ratio would be about 45 percent, whereas The MDRI would leave African and Latin among the LAC completion point HIPC it American and Caribbean (LAC) HIPC with would be 92 percent. This is largely due to the different debt ratios. Among African comple- fact that LAC HIPC would receive debt relief BOX 3.4 The MDRI and "free-riding" risks The MDRI provides for post-HIPC irrevocable debt stock cancellation and hence will significantly lower debt stock burdens for the debt relief recipient countries. This relief comes on top of HIPC debt relief already committed. After this debt relief, the debt stock ratios in most of the recipient countries will be significantly below that of many mid- dle-income countries, which primarily borrow on nonconcessional terms. As a result there is an increased risk of "free-riding"--situations in which nonconcessional lenders may indirectly obtain financial gain from debt forgive- ness, grants, and concessional financing activities of IFIs.a This situation could lead to an excessive buildup of debt if nonconcessional borrowing is not carefully managed. The figure below displays the new debt burden indicators for the 18 completion point HIPC after MDRI. Post-MDRI debt relief: HIPC versus selected lower-middle-income countries Post-MDRI debt relief: 18 completion-point HIPCs versus selected lower-middle-income countries NPV of debt to exports 300 Peru 250 Syria Ecuador 200 Brazil Jordan 150 Bolivia Nicaragua Philippines 100 Guatemala Mauritania Honduras Guyana 50 Thailand China 0 0 10 20 30 40 50 60 70 80 90 100 NPV of debt to GDP 18 completion-point HIPCs Lower-middle-income countries Source: Global Development Finance database and staff estimates. Note: Debt data are public and publicly guaranteed debt and IMF credits at end-2003. The debt burden indicators for middle-income countries would be even higher than those for HIPC if the indicators were based on total external debt, because private debt is much larger in middle-income countries than in HIPC. Lower debt ratios alone would not necessarily lead to changes in commercial risk ratings for these countries as other factors such as political risk would also be considered. However, credit rating agencies have been paying atten- tion to this new reality, and Standard and Poors (S&P) announced its plans to assign sovereign debt ratings for many (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 91 C H A P T E R 3 BOX 3.4 The MDRI and "free-riding" risks (continued) post-MDRI countries. Following a 2002 initiative by the United States to encourage African countries to apply for sov- ereign debt credit ratings so as to boost African participation in capital markets, several Sub-Saharan African countries obtained ratings: Burkina Faso, Cameroon, Madagascar, Mali, and Mozambique were issued ratings by S&P in 2004 (other than Botswana, which has an S&P rating of A, the ratings for other sovereigns are less than BB and hence specu- lative). Ratings represent a move toward transparency, help markets evaluate risk, and can help attract private investors. Although increased FDI would be welcome in MDRI countries, lower debt stock ratios may result in a higher risk in the next few years that the fiscal space freed up by debt relief could be filled with new nonconcessional sovereign borrowing. This raises concern for the long-term development of the MDRI recipient countries, as excessive amounts of nonconcessional borrowing could potentially erode the benefits of the debt relief provided by multilateral credi- tors, namely sustainable debt burdens and additional fiscal space to support achievement of the MDGs. Most MDRI recipients, especially the postcompletion point HIPC, have had low and infrequent nonconcessional borrowing, most notably since the original HIPC Initiative was announced. In addition to the discipline imposed by the IMF arrange- ment itself, a condition of HIPC assistance, continued high debt burdens, and the likelihood of countries benefiting from HIPC and future debt relief initiatives may have been strong deterrents for commercial creditors to extend non- concessional loans.b This may no longer be the case after MDRI. a. While the similarity to the classical "free rider problem" in public economics is not perfect, the "free riding" debate in the present context reflects a concern that nonconcessional lenders may be willing to finance even unproductive investments knowing that, as a result of MDRI and the potential for future grants, the country will be able to make its debt service payments. b. The universal creditor coverage under the HIPC Initiative and the common reduction factor that applied to all creditors were meant to address some of the potential free-rider problems. Without such features, there is inherently a higher risk of free-rider problems from the MDRI. only from IDA and the IMF (currently there reached $10.2 trillion in 2005, growing 14 is no agreement for LAC HIPC to receive debt percent. While this rate is lower than the 2004 cancellation from other regional development growth rate of 21 percent, it is still above the banks), while African HIPC would benefit average of 8 percent over 1995­2004. Fuel from debt relief from IDA, IMF, and the AfDF, exporters experienced a 37 percent increase in which together hold, on average, 80 percent exports in 2005, but global nonoil exports also of debt outstanding in these countries. performed well, with 121 percent growth. Continued measures are needed by HIPC Developing-country export growth, at 24 and by creditors to ensure that debt sustainabil- percent, continued to outpace the global aver- ity is maintained after HIPC and MDRI relief, age. Middle Eastern and North African coun- just as similar measures are needed for other tries reported the highest level of export growth low-income countries (box 3.4). A review of the at 37 percent, up markedly from 28 percent in framework for assessing debt sustainability in 2004, reflecting higher energy prices. China low-income countries is currently under way to continued to accelerate its exports, with a 28 address the issue of how to apply the frame- percent increase in 2005. Merchandise exports work to MDRI recipients to ensure that they do from Sub-Saharan Africa slowed slightly from not rebuild unsustainable debt burdens while 2004, but still experienced a 27 percent not unnecessarily constraining access to increase overall. Least developed countries resources for development. experienced a remarkable 32 percent growth, while industrialized countries expanded their Trade exports at a more modest 9 percent. In addition to cyclical factors, the trade World trade, though strong in 2005, slowed performance reflects continuing unilateral slightly from 2004. Exports of merchandise trade reforms. Average tariffs in developing 92 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E BOX 3.5 Estimating the impacts of global trade liberalization The global welfare gains from full liberalization of merchandise trade are estimated at $280 billion a year by 2015, of which $86 billion would accrue to developing countries. This is an underestimate as it does not take into account the gains from services liberalization, trade facilitation (each day that goods are delayed in ports and customs imposes a cost on consumers equivalent to 1 percent of the value of the shipment), or possible dynamic productivity gains. The size of global gains also depends on actions by governments to both liberalize trade and implement comple- mentary measures to facilitate adjustment and job creation. Although developing countries and LDCs as a group stand to benefit, much depends on the depth and content of the associated reforms. Recent analysis (see Hertel and Winters 2006, as well as Global Monitoring Report 2005) demonstrates that some countries, such as Brazil and China, would make immediate gains from an ambitious Doha Round, while others could experience losses in the short run. Contrary to popular belief, global trade reforms would improve the income distribution in countries such as Brazil and reduce poverty, because households in many of the poorest areas in such countries rely heavily on low-skilled labor employed in agricultural activities or related sectors. But poorer house- holds in richer parts of the country could lose because of higher food prices. That some poor countries may experience short-term poverty increases points to the need for assistance to address adjustment costs and to implement measures to stimulate growth and reduce poverty. The answer is not to preclude trade reforms from occurring, but to complement them by actions to reduce transactions costs and improve the investment cli- mate. Without improved transport and market infrastructure, along with increased investments in training, extension ser- vices, new seeds, and the like, the gains from trade reform for the poorest countries will be reduced. Aid for trade is critical to enhance the overall gains from trade and manage the costs and downside risks in vulnerable countries. Sources: Hertel and Winters 2006; Anderson and Martin 2006; Djankov, Freund, and Pham 2006. countries have fallen from 16.3 percent in collapse, but leaving little time to achieve an 1997 to 12.2 percent in 2005. Additionally, ambitious outcome. China's WTO accession-related reforms, The road map agreed at Hong Kong along with the impact of the elimination of requires agreement on divisive issues in the quotas on world trade in textiles and clothing first half of 2006 to enable the round to be on January 1, 2005, imply that some of the finalized before the expiration of U.S. Trade potential gains from global trade reforms Promotion Authority in July 2007. Negotiat- identified at the launch of the Doha Round in ing modalities for agriculture and industrial 2001 have already been realized.41 But multi- products are to be agreed by April 30, 2006, lateral trade liberalization can still bring sig- and comprehensive draft schedules for liber- nificant gains to the world economy (box 3.5). alization, by July 31. A new round of revised services offers is to be submitted by the end of July and final draft schedules of commit- Multilateral Negotiations ments, by October 31, 2006. After the failure of Cancun in 2003, the July Aside from the road map, the ministerial 2004 framework put the Doha Round nego- produced fairly modest outcomes.42 First, tiations back on track, but progress remained agricultural export subsidies (modest in dol- difficult. The 6th WTO ministerial meeting in lar terms, but highly distorting) will be Hong Kong in December 2005 was originally phased out by 2013.43 Parallel disciplines are expected to agree on negotiating modalities to be developed on equivalent programs, for agriculture and nonagricultural products, including food aid.44 but it became clear that agreement would not Second, developed-country members will be reached. Expectations for the meeting (and those developing countries who can were recalibrated, avoiding an acrimonious should) provide duty-free and quota-free G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 93 C H A P T E R 3 market access for products originating from the United States on reducing agricultural LDCs by 2008 or no later than the start of the domestic support, and key developing coun- implementation period of the Doha Round. tries on further market opening in manufac- But because of sensitivities regarding clothing, tures and services--to conclude an ambitious leather, and rice, commitments may be limited Doha Round. Failure to do so risks either a to 97 percent of tariff lines, significantly modest Doha Round outcome that results in undermining the value for LDCs. For exam- little new liberalization, or that the Round ple, more than 70 percent of Bangladesh's enters a period of drift. As the first trade nego- exports to the United States are covered by tiation with development explicitly at its core, only 70 tariff lines, or less than 1 percent of all it is vital that the Doha Round deliver reforms U.S. tariff lines.45 Only 39 tariff lines account with concrete benefits for developing countries. for 76 percent of Cambodia's exports to the Developing countries' own reform could United States. Moreover, the value of any account for half of their potential gains preferential access will depend on the restric- from global liberalization. Such reforms are tiveness of the rules of origin. particularly important for countries con- WTO members now face a considerable fronting possible preference erosion or higher challenge in concluding the negotiations this food import prices from OECD agricultural year. All members need to galvanize the politi- reform (box 3.6). Countries should be sup- cal will to undertake necessary reforms--the ported in addressing the short-term adjust- EU on expanding agricultural market access, ment costs of reforms with long-term benefits, BOX 3.6 Africa and trade reform Sub-Saharan Africa would see an increase in real incomes of $4.8 billion from deep global reform of merchandise trade, or 1.1 percent of GDP. Although small in absolute terms, this increase is sig- nificant relative to initial incomes and trade flows. Two-thirds of the gains come from reforms by other countries (including other countries in Sub-Saharan Africa) and one-third from countries' own liberalization. Agriculture accounts for 78 percent of the total gain for Sub-Saharan Africa, of which 12 per- cent (if southern Africa is excluded) comes from cotton. Cotton contributes a negligible amount (0.5 percent) to the global gains of trade reform but is very important to Africa. Global cotton trade reform would boost Sub-Saharan Africa's cotton output by $2.2 billion per year by 2015, and cot- ton exports by $1.9 billion. Sub-Saharan Africa (especially non-LDCs without preferences) gains from increased agricultural market access and from higher prices for crop exports. But while Sub-Saharan Africa as a whole gains, some countries lose from preference erosion or, in the case of net food importers, from higher food prices. Losses from preferences, as with bene- fits, are less than expected due to strict rules of origin and are highly concentrated among relatively few countries and products (mostly those with quota rents, such as sugar). But even relatively small losses can pose significant adjustment problems for some countries, underlining the need for increased aid for trade to support and complement trade reform. There is a large domestic agenda to address the competitiveness problems that underlie Sub-Saha- ran Africa's poor trade performance. Aid for trade can help by supporting policy reform and infra- structure investments. A typical import transaction in Africa takes 58 days (versus 14 days in the OECD), and each day of delay reduces export volumes by 1 percent on average. Poor roads and ports, and poorly performing customs, mean that trade facilitation measures in Sub-Saharan Africa will have significant payoffs. Services liberalization, coupled with aid for regulatory capacity, could help to improve access to new technologies, finance, and other services and could strengthen trade performance. Sources: Anderson, Martin, and van der Mensbrugghe 2006; Djankov, Freund, and Pham 2006. 94 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E and in building capacity to expand their trade. FIGURE 3.9 High-income countries' OTRI, overall and toward low- More attention also needs to be paid to the income countries, 2005 distributional consequences of liberalization. Percent 25 Regional Trade Agreements Bilateral and regional trade agreements con- 20 tinued to mushroom during 2004­5 (annex table 3.1). As of January 2005, approxi- 15 mately 170 still active RTAs, up from 24 RTAs in 1990, had been notified to the Gen- 10 eral Agreement on Tariffs and Trade/WTO. Many more have not been notified: an esti- 5 mated 250-plus RTAs cover one-third of world trade; 20 more await ratification, and 0 another 70 are under negotiation. Although High-income Canada European Japan United RTAs can include opportunities or issues not countries Union States available multilaterally, from a development All countries Low-income countries perspective, they are collectively inferior to nondiscriminatory liberalization. The bene- Source: Staff estimates. fits are often less than expected because of restrictive rules of origin (commonly a prob- lem in North-South RTAs) or wide product countries). An ambitious Doha agreement exclusion (particularly prevalent in South- would help to reduce discriminatory prefer- South agreements). As many as half of all ence margins in all markets. RTAs may divert more trade than they create, according to Global Economic Prospects Unilateral Policy Reforms 2005, and bilateral "hub and spoke" RTAs benefit the hub (the rich country) dispropor- Tariff liberalization by OECD and developing tionately more than the spokes (developing countries caused a two-percentage point TABLE 3.5 Developing-country OTRI by geographic region and changes, 2002­5 OTRI for OTRI for OTRI for least all countriesa low-income countries developed countries Importing income group/country 2005 change 2005 change 2005 change East Asia and Pacific 16 ­5.3 23 ­3.0 24 ­1.3 Europe and Central Asia 11 ­1.2 13 ­3.1 12 ­3.0 Latin America and the Caribbean 17 ­1.1 20 ­0.8 20 ­0.1 Middle East and North Africa 27 ­4.3 38 ­9.6 34 ­13.0 South Asia 19 ­4.0 27 ­2.2 24 ­2.6 Sub-Saharan Africa 23 0.0 24 ­1.0 24 ­0.8 Developing countries 18 ­2.5 23 ­2.6 22 ­2.5 Least developed countries 20 ­0.1 22 ­0.1 22 0.0 Low-income countries 20 ­1.6 24 ­1.2 24 ­1.1 Middle-income countries 17 ­2.9 22 ­3.5 21 ­3.3 Source: Staff estimates. a. High-income countries account for most of the OTRI for the "all countries" group. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 95 C H A P T E R 3 reduction in the overall trade restrictiveness national financial institutions, which were index (OTRI) for the world as a whole, to 14 agreed at the September Annual Meetings. percent on average.46 The OTRI of high- The main recommendation,48 to enhance the income countries is 11 percent, down from 12 Integrated Framework for Trade-related percent for 2002; much of this decrease is due Technical Assistance for LDCs,49 was subse- to a reduction in agricultural tariffs under- quently taken forward by a task force of pinning market price supports (annex figure donors and LDCs in the WTO. The task force 3.1). These reductions mostly affected mid- will report by April 2006; the enhanced Inte- dle- and high-income country exporters; the grated Framework is to become operational trade restrictiveness confronting exports by end-2006. The WTO Hong Kong ministe- from low-income countries continues to be rial also created an additional task force to above the world average (figure 3.9), prefer- provide recommendations by July 2006 on ences notwithstanding. In part this trend operationalizing aid for trade and asked the reflects the importance of nontariff measures WTO Director-General to consult on appro- (NTMs) as a source of trade restrictiveness priate mechanisms to secure additional (annex figures 3.1 and 3.2). For low-income resources for aid for trade. countries as a group, agricultural NTMs are Aid for trade has been steadily increasing. as important as tariffs. Between 2002 and 2003 trade-related assis- Agriculture is still much more protected tance increased from 3.6 percent to 4.4 per- than manufacturing, particularly in middle- cent of total aid commitments; infrastructure and low-income countries. While LDC and accounted for a further 25 percent.50 Assis- Sub-Saharan exports face low barriers in tance consolidated in 2004: commitments in manufacturing, their agricultural exports face trade policy and regulations declined from a level of restrictiveness similar to, or higher $934 million to $811 million, but assistance than, that of products originating in high- to trade facilitation and trade development income countries. rose sharply. Aid for infrastructure remained The changes in the OTRI between 2002 at $9.3 billion; Asia was the largest recipient, and 2005 (table 3.5) indicate that while but Africa's share increased by 60 percent world markets are now less restricted, the over 2002 to $3 billion in 2003. Assistance to OTRI for LDCs has changed very little. The Africa for cotton increased fivefold over OTRI is still highest in the Middle East and 2002­3 to $63.5 million in 2004. North Africa, followed by Sub-Saharan In July 2005 the European Commission Africa, South Asia, Latin America, and East announced an increase in trade-related assis- Asia and the Pacific. Most of the decrease in tance of 300 million a year to a total of 1 the overall OTRI for developing countries is billion a year, which EU member states sub- due to liberalization in middle-income coun- sequently undertook to match by 2010. The tries. High-income countries are more open United Kingdom alone will treble its aid for for Sub-Saharan Africa relative to low- trade to £100m a year by 2010. Japan has income countries. But, this relative preference promised $10 billion on aid for trade over is lower now than in 2002, especially for three years, and the United States has Japan, where the OTRI against low-income promised a doubling of aid for trade to $2.7 countries has decreased substantially more billion a year by 2010. than the OTRI against Sub-Saharan Africa. The Bank's trade-related lending has almost trebled over the last three years, rebounding to $1.2 billion in 2004 from Aid for Trade about $300 million in 2002, to account for 6 The G-8 Summit in Gleneagles in July percent of portfolio, thanks largely to the endorsed additional aid for trade47 and resumption of lending for trade-related infra- requested detailed proposals from the inter- structure. Africa is the priority target; it has 96 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E received some 60 projects and 30 percent of forum was to improve coordination and cooper- trade component lending. ation among the entire donor community-- Financial support from the IMF for poten- particularly through better information and tial adjustment costs of trade reform is gener- knowledge sharing. ally met in the context of regular Fund 5. The World Bank is partnering with OECD- DAC and the United Nations Development Pro- arrangements. In 2004 the Trade Integration gramme to gather information on South-South aid. Mechanism was specifically designed to help 6. Both debt relief and technical cooperation members cope with the possible balance-of- declined in 2004. Contributions to multilaterals payments impact of liberalization by trading rose sharply, in part due to the increasing amounts partners. Up to $185 million (including of resources provided to the European Commission. potential augmentations under existing 7. Debt relief represents additional financial arrangements) has been made available thus resources if debt is being serviced, but amounts to far. Discussions are under way with selected an accounting exercise if it is not. members on incorporating floating tranches 8. According to the Council of the European into Fund arrangements to provide flexibility Union (2005), the individual objective for 2010 for on the timing of trade reforms associated the member states that are part of DAC is 0.51 percent and that for the 10 newest members of the with potential transitory balance-of-pay- EU is 0.17 percent. ments shortfalls. 9. Similar information on resources from non- There is a critical need to ensure that aid DAC donors will not be collected. for trade is effective and that it is not viewed 10. DAC-World Bank­sponsored meeting on as a substitute for liberalization under the scaling up, December 6, 2005. Doha Round, or as a bargaining chip as this 11. An international partnership hosted by the is unlikely to result in decisions based on OECD DAC. sound assessment of need. To ensure its effec- 12. For the indicator on untying of aid, it was tiveness, aid for trade should be an integral agreed in Paris that the target should be "contin- part of national development programs. ued progress." Developing countries have a better under- 13. The survey instruments were field tested in five partner countries in February and March standing of their needs and internal con- 2006. Data collection is expected to begin in May straints, so local initiative and control over to determine initial baselines. Early progress implementation is vital to the success of aid against the baseline will be measured, aggregated, for trade projects. Aid for trade must be and reported. A second survey to solidify these accompanied by necessary policy reforms to results will be undertaken in 2008, ahead of the create a supportive investment climate and be next High Level Forum in Ghana later that year. additional, rather than a reallocation or rede- 14. Budget support provided to survey coun- finition of existing funds. tries increased 30 percent in 2005 to $3.3 billion. Bilaterals accounted for 29 percent of this increase. Notes The United Kingdom disbursed 40.9 percent of its assistance in the survey countries as general bud- 1. Not all ODA represents resources that can get support, and the Netherlands, 31.9 percent. be used for long-term development. 15. To promote collaboration, the World Bank, 2. In real terms non-DAC ODA was un- on behalf of an international partnership, hosts changed. the Country Analytic Work Web site at www. 3. AspartoftheEU,thesedonorshavealsocom- countryanalyticwork.net, which carries major mitted to meeting country-level targets of ODA/GNI reports of more than 25 multilateral and bilateral collectively agreed to by the EU (see note 7). donor agencies. 4. The Forum on Partnerships for More Effec- 16. The OECD-DAC's Working Party on Aid tive Development Co-operation (Feb 1­2, 2005) Effectiveness is examining this issue with a view to brought together DAC members and a number of identifying and disseminating best practice. non-OECD countries involved in furthering devel- 17. Technical cooperation is often criticized as opment in developing countries. The aim of the being excessively costly because of the high cost of G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 97 C H A P T E R 3 international experts, as exacerbating the problem 27. Country authorities are implementing pub- of brain drain by training the best and brightest lic expenditure management systems that would but not being able to retain them, and as being too ensure the efficiency of poverty-reducing expendi- fragmented and uncoordinated (Berg 1993 and tures. See IMF-World Bank (2005). OECD 2006a). 28. Since 1989 the DRF has assisted in retiring 18. An issue here is whether budget support is $4.1 billion in principal and $3.4 billion of associ- the appropriate way to provide technical assis- ated interest owed to commercial creditors. tance. In providing technical assistance as budget 29. To receive MDRI relief from a participating support, designated funds might need to be ring international financial institution, countries must fenced so as to ensure their availability to support also be current on their obligations to the institu- technical assistance activities. tion and must be compliant with existing report- 19. Food aid is provided during emergency sit- ing requirements on external borrowing to qualify uations in which food supply has been disrupted for relief from IDA. If the boards find that these or the local food market has been destroyed; for conditions have not been met, remedial measures humanitarian purposes to prevent hunger in poor would need to be implemented and qualification households; and sold in local markets with the for MDRI relief would be reassessed. proceeds providing budget support. 30. In addition, to fulfill the principle of uni- 20. Timmer (2006) argues that during extreme formity of treatment in the use of IMF resources, emergency situations, such as immediately follow- the Fund board decided that all members with per- ing an earthquake, tsunami, or hurricane, using the capita income of $380 a year or less (HIPC and nearest supply source is usually faster and cheaper non-HIPC) will receive MDRI debt relief financed than procuring food supplies from far away and by the institution's own resources. Accordingly, that it is likely to result in more timely relief. Cambodia and Tajikistan are also eligible for 21. The nine pilot countries and the convening MDRI relief from the IMF. donors are the Democratic Republic of Congo 31. In the case of Mauritania, the board deter- (Belgium), Guinea Bissau (Portugal), Haiti mined that it could qualify for MDRI relief only (Canada), Nepal (United Kingdom), Somalia after certain remedial actions were taken. (United Kingdom and World Bank), Solomon 32. Benin, Bolivia, Burkina Faso, Cambodia, Islands (Australia and New Zealand), Sudan (Nor- Ethiopia, Ghana, Guyana, Honduras, Nicaragua, way), Yemen (United Nations and United King- Madagascar, Mali, Mozambique, Niger, Rwanda, dom), and Zimbabwe (European Commission). Senegal, Tajikistan, Tanzania, Uganda, and Zambia. 22. Heads of agency will consider a synthesis 33. Mauritania will qualify for relief after report and refine the Principles at the end of 2006. implementing key public expenditure reforms. 23. For instance, the LICUS Implementation Cambodia and Tajikistan will only get debt relief Trust Fund provides small grants to support early from the IMF--see previous footnote. reform, development service delivery, and harmo- 34. The above cost estimate will be updated nize approaches. annually to take into account the expected time 24. This will compliment the common results profile when HIPC would reach their completion framework for governments and donors alike--the points and become eligible for debt cancellation transitional results matrix--that brings together under the MDRI, the volume of debt relief to be the political, security, economic, and social spheres provided under the current HIPC Initiative, and into one simple planning tool. The transitional the foreign exchange rates to be used for valuing results matrix, which was developed by the Bank the USD-denominated HIPC relief in SDR terms and other partners (notably the United Nations), (IDA's base currency). has been used to guide transitions and as a precur- 35. This estimate excludes the potential sunset sor to a full PRSP in the Central African Republic, clause HIPC, and the protracted arrears cases Liberia, and Sudan, among other countries. (Liberia, Somalia, and Sudan). Additional contri- 25. Also see Agenor and others 2005 and Bour- butions will be needed to cover the cost of debt guignon, Sundberg, and Lofgren 2005. relief for these countries. 26. The definition of poverty-reducing expen- 36. Staff estimates that additional subsidy con- ditures varies across countries. Commonly tributions of over SDR 200 million (over US$285 included are primary education, basic health, and million) would be needed to allow the IMF to lend rural development. all remaining Poverty Reduction and Growth 98 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 D E L I V E R I N G O N C O M M I T M E N T S F O R A I D , D E B T R E L I E F , A N D T R A D E Facility (PRGF) loan resources to low-income 2013 for LDCs to implement the agreement countries at the PRGF concessional interest rate. (November 29). 37. In their letter of September 23, 2005, G-8 43. Although 2010 was proposed, the EU governments proposed that donor compensation sought 2013 to coincide with the end of its forth- for debt relief be additional to a contribution base- coming budget cycle. line for future IDA replenishments, set at the level 44. The Ministerial Declaration introduces the of IDA14 contributions in real terms. concept of a "safe box" to ensure that bona fide 38. That amount would continue to increase by food aid for emergency situations will not be the SDR inflation rate for subsequent replenish- impeded. Beyond that, commercial displacement is ments. The actual SDR inflation rate over the pre- to be eliminated. ceding three years would be used to determine the 45. The total number of tariff lines at the eight- baseline volume of regular contributions in each digit level is 10,500. The calculation was done at future replenishment. the eight-digit level. 39. In the same vein, in their letter of Septem- 46. While the tariff database has been updated ber 23, 2005, G-8 governments state "that fund- to 2005, data on nontariff measures is essentially ing for IDA will continue to depend on donors' the same as for Global Monitoring Report 2005, conviction of IDA's effectiveness in delivering reflecting the limited resources for tracking such development assistance; IDA reflows; and the per- policies. The OTRI measures overall restrictive- formance, financing needs and absorptive capacity ness, not just protectionism (for a detailed discus- of poor countries." sion see Global Monitoring Report 2005). 40. To maintain donor contributions in real 47. Aid for trade refers to technical and finan- terms, that amount would continue to increase by cial assistance to help countries address supply-side the UA inflation rate for subsequent replenish- constraints to trade and transitional adjustment ments, using the actual average UA inflation rate costs from liberalization (for a detailed discussion, per year over the preceding three years to deter- see Global Monitoring Report 2005). mine the baseline volume of regular contributions 48. Others were that the Bank and the IMF will in each future replenishment. report by September 2006 on the adequacy of 41. This is the major explanation why more existing mechanisms to address regional or cross- recent estimates of the potential global gains from country aid for trade and that they will strengthen merchandise trade liberalization are lower than the framework for assessing adjustment needs. earlier analyses; see van der Mensbrugghe (2006). The Bank will also better integrate trade-related 42. Immediately before the ministerial, agree- needs into its country programs. ment had been reached on an amendment of the 49. Information on the Integrated Framework Agreement on Trade-Related Aspects of Intellec- is available at www.integratedframework. org. tual Property Rights regarding the use of compul- 50. Definitions and figures are taken from the sory licensing of pharmaceuticals for public health WTO/OECD DAC Trade Capacity Building Data- reasons (December 6) and an extension until July base. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 99 C H A P T E R 3 ANNEX TABLE 3.1 New regional and multilateral trade agreements, 2004­5 Agreement Year Agreement Year Regional Bilateral (continued) Central American Free Trade Agreement (CAFTA) 2005 China/Hong Kong (China) 2004 East African Community (EAC)a 2005 China/Macao SAR 2004 European Union Enlargementb 2004 European Union/Chile 2005 Greater Arab Free Trade Area (GAFTA)c 2005 European Union/Egypt 2004 India/Thailand 2005 Bilateral Japan/Mexico 2005 Albania/Moldova 2004 Japan/Thailand 2005 Australia/Thailand 2005 Romania/Serbia and Montenegro 2004 Australia/United States 2004 Singapore/United States 2004 Bulgaria/Moldova 2004 Turkey/Tunisia 2005 Chile/Korea, Rep. of 2005 Turkey/European Free Trade Association (EFTA) 2005 Chile/United States 2004 Source: IMF Trade Policy Information Database (TPID) and the World Trade Organization (WTO). a. Introduced a common external tariff on January 1, 2005. b. The European Union expanded by 10 Eastern European countries on May 1, 2004. c. The free trade area came into effect January 1, 2005 among 17 Arab states. ANNEX FIGURE 3.1 OECD restrictiveness remains high for ANNEX FIGURE 3.2 Changes in OECD OTRI between 2002 low-income countries, 2005 and 2005: as tariffs fall, non-tariff policies become more important Percent 45 Percent 40 2 35 1 30 0 25 ­1 20 ­2 15 ­3 10 ­4 5 ­5 0 OTRI OTRI OTRI OTRI OTRI OTRI OTRI OTRI agriculture manufacturing agriculture, manufacturing, agriculture manufacturing agriculture, manufacturing, low-income low-income low-income low-income countries countries countries countries Tariff Non-tariff measures Agricultural subsidies Tariff Non-tariff measures Agricultural subsidies Source: Staff estimates. Source: Staff estimates. 100 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 4 Strengthening the Performance of International Financial Institutions 1 T his chapter examines the performance most important source of external financing of the international financial institu- in developing countries--was unprecedented. tions (IFIs) in taking action to fulfill In 2003 the financial support provided by their responsibilities and accountabilities multilateral development institutions was within the Monterrey compact and in pro- about 10 percent of total lending and grants viding financial and technical support to from both private and public institutions. developing countries. Last year's report Financial support (loans and grants) from the examined the mandate of individual IFIs; dis- five largest multilateral development banks cussed their instruments of support to devel- (MDBs) represented almost half of the finan- oping countries; and considered their cial support provided by bilateral donors. In performance in terms of standard indicators 2005 total lending disbursements by IFIs--the of lending shares and trends, support to five MDBs and the International Monetary regional and global programs, and progress Fund (IMF)--amounted to $32 billion. with transparency and management for Recent trends in these financial flows, their development results. This year's report selec- composition, and their selectivity are ana- tively deepens this analysis by considering lyzed below. information specifically collected for it and by updating information drawn from standard MDB Lending to Low-Income Countries indicators and evaluation reports. On the basis of this information, the chapter not only Global Monitoring Report 2005 noted a assesses the performance of IFIs but also iden- sharp increase in concessional lending (com- tifies remaining challenges. mitments) to low-income countries over the period 1999­2004. This increase was driven IFI Financial Resources by volumes from the International Develop- in Support of the ment Association (IDA) of the World Bank Development Agenda Group. However, in 2005 total MDB com- mitments to low-income countries fell from In the past 15 years, external financing the high levels observed in 2004. In the case directed to developing countries underwent a of IDA, this reduction in commitments was fundamental shift. During that time the on the order of one-third (after a 50 percent increase in private sector flows--now the increase the previous year) and was in part G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 101 C H A P T E R 4 associated with resource constrains at the end This slowdown in disbursements is com- of the IDA13 (13th replenishment of IDA) mon across MDBs. In the case of IDA, it is period. associated with a spike in disbursements for To better reflect the trends in the flow of policy lending in 2004; in 2005 these dis- resources to low-income countries, this sec- bursements returned to 2003 levels. On the tion focuses on actual disbursements rather other hand, disbursements under investment than on lending commitments alone. Figure lending continue a clear upward trend, as 4.1 shows a clear upward trend in disburse- illustrated in figure 4.2. ments by MDBs to low-income countries, A striking trend in development financing and to Africa in particular, in the period is the increase in lending to fragile states by 1999­2004. It also shows a drop in disburse- IDA. This trend is explained by lending to ments on the order of 2 percent (close to 4 Afghanistan, the Democratic Republic of percent for Africa) during 2005--a reduction Congo, and Nigeria, to which total disburse- much smaller than that observed in commit- ments rose from around $27 million in 2001 ments, but a reduction nonetheless. to more than $950 million in 2005. FIGURE 4.1 Gross disbursements by MDBs, 1999­2005 a. Concessional aid US$ billions 14 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 Concessional aid to Africa (IDA+AfDF) Concessional aid to all developing countries b. Nonconcessional aid US$ billions 35 30 25 20 15 1999 2000 2001 2002 2003 2004 2005 Nonconcessional aid to all developing countries Source: Staff of the big five multilateral development banks. Note: Data are for calendar years. 102 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S FIGURE 4.2 Trends in IDA investment and Composition of MDB Lending development policy lending, 1998­2005 The shares of investment and policy lending change significantly on a year-to-year basis-- US$ billions mostly because of sharp fluctuations in policy 10 lending, as noted above. For the period 9 2003­5, policy lending, on average, repre- 8 sented approximately one-third of MDB dis- 7 bursements. This share is the highest for Latin 6 American and Caribbean countries and the 5 lowest for countries in Asia. On the other 4 hand, the sectoral composition of lending in 3 2005 does not show significant changes with 2 respect to the overall trends noted in Global 1 Monitoring Report 2005. 0 1998 1999 2000 2001 2002 2003 2004 2005 IMF Lending Policy lending Investment lending IMF financial support to member countries Total IDA experiencing protracted balance-of-payments difficulties is given on nonconcessional terms from IMF's General Resources Account (GRA) Source: World Bank financial information. and through concessional loans to low-income countries under the Poverty Reduction and Growth Facility (PRGF). In general, GRA net flows are mainly dependent on the needs of MDB Lending to Middle-Income Countries large middle-income countries in the context The disbursement volumes in figure 4.1 also of economic crises and are consequently erratic confirm what appears to be a long-term trend on a year-to-year basis. Net PRGF lending is toward contracting demand in middle- less erratic but also substantially affected by income countries (MICs). As a result, net dis- the needs of larger low-income recipients. bursements to middle-income countries by Although net GRA flows were negative over- MDBs continue to be negative, although less all in the period 1999­2005, positive net loans so than in 2003 and 2004.2 Factors underly- totaling $28.5 billion were made in the period ing this trend include improved middle- 2001­3. These loans mainly reflected new bor- income-country creditworthiness and the rowing by Argentina, Brazil, and Turkey. associated reduction in interest rate differen- PRGF net lending in the period 1999­2005 tials with commercial lenders, as well as amounted to negative $150 million, though strong fiscal positions in several large MICs. disbursements in the period 2002­4 peaked The trend may also reflect the "cost of doing with initiation of arrangements with Pakistan business" with multilateral institutions, for and Bangladesh and refinancing of the arrears example, increased compliance (safeguard) of the Democratic Republic of Congo. costs for borrowers.3 This overall trend does The IMF is continuing to refine and not apply equally to all MICs. In the case of strengthen its support of low-income mem- the International Bank for Reconstruction bers in their efforts to achieve macroeco- and Development (IBRD), for example, nomic stability, growth, poverty reduction, reduced demand by countries that have and the MDGs. In this context, the Fund has achieved investment grade accounts for an recently taken steps to adapt its instruments important part of the decline. and facilities: G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 103 C H A P T E R 4 To improve the effectiveness of PRGF Development Fund (AsDF), and IDA--an arrangements, the Fund is striving to additional governance factor derived from the ensure that design is consistent with the same index of quality of policies and institu- objectives laid out in Poverty Reduction tions. Each MDB combines factors somewhat Strategy Papers (PRSPs). Strong links differently in its performance allocation for- among the PRGF, PRSPs, and the MDGs mula and uses different methods to accom- should make the Fund's low-income-coun- modate exceptional circumstances, such as try assistance more effective. postconflict problems.7 The Exogenous Shocks Facility (ESF) was Global Monitoring Report 2005 examined established within the PRGF to help low- the policy and poverty selectivity of conces- income countries deal with temporary sional assistance by MDBs. Although other cri- balance-of-payments needs that arise from teria have been suggested, as noted in chapter sudden exogenous shocks such as natural 4, these criteria are two of the most widely disasters or export shocks.4 used by donors to determine where aid will be As discussed in chapter 3, the IMF partic- most effective. Figure 4.3 updates those esti- ipates in the Multilateral Debt Relief Ini- mates8 for 2004. It shows that MDBs continue tiative (MDRI), which provides additional to exhibit higher policy and poverty selectivity debt relief to low-income countries. than bilateral aid agencies. Poverty selectivity The Policy Support Instrument (PSI) was remains at levels similar to those in 2003. established to address the needs of low- Some convergence across MDBs in the extent income countries that may not need Fund of policy selectivity is evidenced. Naturally, financial assistance, but seek the Fund's measures of selectivity would be affected if dif- advice, monitoring, and endorsement of ferent criteria (for example, vulnerability) or their economic policies. The PSI will help indicators (for example, nonincome dimen- countries develop policy frameworks sions of poverty) were to be used. Neverthe- focused on consolidating macroeconomic less, these estimates reflect that, according to stability and debt sustainability while deep- the criteria currently recognized as dominant ening structural reforms in key areas that for aid effectiveness, MDBs are being selective. constrain growth and poverty reduction.5 Among the various measures of quality of policies and institutions considered for allo- cation of resources, governance currently has Selectivity in MDB Lending a preeminent role. As shown in box 4.1, the The concessional arms of the MDBs commit- allocation of aid resources is very sensitive to ted themselves to using more transparent and changes in the indicators of governance. Part incentive-improving resource allocation sys- II of this report analyzes both issues of mea- tems. The goal of these commitments has been surement of governance and its influence on to maximize aid effectiveness and improve the overall quality of policies. policies and institutions in recipient countries. In the past year MDBs have taken signifi- At present the foundation of each of these sys- cant steps to harmonize their performance- tems is a formula that calculates the share of based allocation (PBA) systems. IDA, African the resources that will be allocated to individ- Development Bank (AfDB), and Asian Devel- ual countries on the basis of their financial opment Bank (ADB) now use nearly identical need (proxied by population, with a small cor- country performance and institutional assess- rection for per capita income)6 and perfor- ments (CPIA) questionnaires. Harmonization mance. The performance factors include of methods for calculating and using portfolio measures of the quality of policies and institu- performance measures and standards to deter- tions, portfolio performance, and--at the mine the grant versus loans composition of African Development Fund (AfDF), Asian allocated resources is now under discussion. 104 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S FIGURE 4.3 Policy and poverty selectivity in 2003 and 2004 Policy Selectivity Index Poverty Selectivity Index 10 0 8 ­1 6 ­2 4 ­3 2 ­4 0 ­5 IADB FSO AsDF IDA AfDF Bilateral IADB FSO AsDF IDA AfDF Bilateral 2003 2004 Source: Dollar and Levin 2004 and World Bank staff estimates. BOX 4.1 The importance of governance in performance-based allocation formulas A relatively recent innovation in the performance-based allocation (PBA) formula is the increased weight of governance in MDB allocations. Until 1998 the MDBs accorded governance nearly the same importance as performance factors measuring structural policies, economic management, equity and social inclusiveness, and portfolio performance. Several MDBs now give more impor- tance to governance than to all other factors combined. Governance and MDBs Effective weight of governance in the performance factor African Development Fund 59% Asian Development Fund 53% IADB (FSO/IFF) 21% World Bank, IDA 66% (IDA 14) Sources: Information note from Multilateral Development Bank Technical Meeting on Performance Based Allocation Methods, ADB Headquarters, January 24-25, 2005; MDB staff. IDA and the African and Asian Development Funds have placed such importance on governance because they understand that its quality has a very positive correlation with the effectiveness of aid. Moreover, it is hoped that PBA systems are generating the proper incentives for client governments to improve the quality of their governance. A simple sensitivity analysis helps illustrate the importance of the governance factor. Using val- ues for an average IDA-eligible country, a change in governance performance equivalent to half a standard deviation from the median score results in a 25 percent change in the allocation of resources to a country. Similar changes in indicators for economic management or social inclusion policies result in only a 3­4 percent change in resources. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 105 C H A P T E R 4 Assessing MDB COMPAS exercise will be available later in Results Orientation 2006. Given the system's importance as a baseline to assess the performance orienta- The contribution of MDBs to the achieve- tion of MDBs, initial findings from the exer- ment of development results at the country cise are presented below. level is heavily dependent on how they con- duct their business. As discussed above, one The Common Performance aspect of this business is the size, composi- Assessment System tion, and selectivity of financial flows. Another aspect is the actions MDBs are tak- The purpose of the COMPAS is to provide a ing to improve the results orientation of their common source of information on the results own management practices and programs. orientation of the MDBs as manifested by The importance of adopting a managing for their internal practices and operational rela- development results (MfDR)9 approach has tions with country and development partners. been recognized among MDBs for several The COMPAS is not designed to cover (and years. Since the first joint progress report for certainly not to substitute for) the entire per- the Marrakech Roundtable on Results, the formance system of each MDB. Rather, it World Bank's global monitoring reports have focuses on those processes and results that are analyzed important initiatives in this area. within the control of each institution and for Global Monitoring Report 2005, for exam- which they are accountable. The focus is on ple, reviewed experience with the interim emerging synergies as a group rather than on results measurement system for IDA13 and individual comparisons among institutions. noted the introduction of a refined system for The expectation is that a joint system will IDA14, which was developed through exten- provide a basis for information exchange and sive consultations with IDA donors. The lesson learning and that it will respond to IDA14 Results Measurement System (or MDBs' international commitments on per- RMS) uses a two-tiered approach, in which formance and accountability. tier I monitors progress across 14 country- The COMPAS draws on the MDBs' frame- level and MDG-related outcomes and tier II works and action plans for implementing uses existing internal indicators of IDA deliv- MfDR (see World Bank 2004; IADB 2004; ery and effectiveness to gauge IDA's contri- ADB 2004; AfDB 2004). These frameworks bution to those outcomes. The RMS includes and plans vary slightly among institutions, a special focus on building statistical capac- but in most cases they include three pillars ity, particularly in four sectors related to the that provide the structure for the COMPAS: tier I outcomes, and is now being imple- actions to build MfDR capacity in developing mented for all IDA countries. A Web site countries (country pillar), actions to improve monitoring progress against all of the indica- the results focus of MDBs' internal systems tors has been launched. and instruments (agency pillar), and actions The MDBs and global monitoring reports to improve cooperation among MDBs and have not had the benefit of a shared frame- with other development partners in attending work for gathering information on initiatives to the "results agenda" (interagency pillar). in this area. The MDB Working Group on For each category, the COMPAS contem- MfDR identified, and the MDB Heads plates both process and results indicators.10 endorsed, the need for a common source of Process indicators are largely descriptive and information on MDB performance and devel- qualitative and refer to the institutional prac- oped the Common Performance Assessment tices that are needed for an enhanced focus on System (COMPAS), which was identified as a results. Results indicators seek to provide a key action for MDBs in Global Monitoring quantitative measure of the implementation Report 2005. The full report from the first of a common set of performance actions by 106 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S all MDBs. The recent introduction of the vide technical assistance to improve capacity COMPAS implies that in its initial report for MfDR embedded in projects, although there is a preponderance of process indica- the absence of a systematic monitoring of tors. This preponderance reflects the fact that such activities does not allow measurement of changes in institutional practices need to be the magnitude or quality of the support introduced and implemented before results offered. The Inter-American Development indicators become fully available. This initial Bank (IADB) has been particularly active in phase of the COMPAS will also be helpful in its efforts to sensitize countries to the need for identifying difficulties arising from varying capacity building for MfDR and, through its definitions and practices across institutions. PRODEV initiative, has reached most of its This information should be instrumental in client countries that now qualify to receive facilitating further alignment of indicators. financial support for capacity-building initia- Analysis of data in the first COMPAS tives. report suggests overall progress in the imple- Weak statistical systems constitute a key mentation of the MfDR agenda. Awareness bottleneck to the implementation of MfDR of results is increasing, and frameworks, sys- approaches. Many countries lack basic demo- tems, and procedures are being implemented graphic data--for example, about 53 percent in all the institutions. The degree of institu- of the population in Sub-Saharan Africa live tionalization of the MfDR agenda, however, in countries that have not undertaken a pop- varies across its dimensions and among ulation census in the last 10 years. Similarly, MDBs. Although the design, approval, and 62 percent live in countries that have not con- implementation of new procedures and sys- ducted a poverty survey in the last five years, tems at the institutional level is likely to take and no country in Sub-Saharan Africa has a time, a key challenge for all MDBs will be to functioning vital registration system. The go beyond the introduction of such systems international development community has and procedures and to establish an institu- agreed on a specific plan to help improve sta- tional culture of using the information on tistical systems and remedy such gaps: the results to inform decision making. Below is a Marrakesh Action Plan for Statistics.11 Esti- summary of the progress and challenges in mates of the level of resources needed to close each of the three pillars of the COMPAS. these gaps are relatively modest (on the order of $120 million per year above current levels A C T I O N S T O S U P P O R T C O U N T R Y of official development assistance). C A P A C I T Y T O M F D R ( C O U N T R Y P I L L A R ) The MDBs have a series of ongoing initia- The COMPAS seeks to measure implementa- tives to help build statistical capacity in part- tion of actions by MDBs oriented to helping ner countries. The AfDB, for example, has country partners develop the will and institu- provided support through a $22 million pro- tional capacity needed to manage for results. gram to build statistical capacity for country- MDBs have developed and begun to apply level results and economic statistics reporting. various tools and approaches to help coun- The AfDB is also playing an important role in tries assess their capacity to manage for helping its regional member countries improve results. The Asian Development Bank, for the quality of their poverty-related statistics example, recently developed a toolkit entitled within the framework of the International "Tool for Conducting a Rapid Assessment of Comparison Program (ICP) providing finan- Country-level Capacity for Results-based cial and technical assistance. The Trust Fund Management" for that purpose. A source- for Statistical Capacity Building (TFSCB)--a book on the principles and emerging best multidonor trust fund established at the World practices in MfDR has been produced and Bank in 2000--has invested over $20 million discussed in international workshops and will in more than 80 statistical capacity-building be available online in 2006. All MDBs pro- projects across the world. The World Bank has G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 107 C H A P T E R 4 also developed an umbrella lending program, vicious circle into a virtuous one, whereby the Statistical Capacity Building Program citizens demand evidence of results and gov- (STATCAP), which promotes a sectorwide ernments have the systems to provide it, will approach to statistical capacity building. most likely require a combination of changes Yet experience shows that governments of at various levels (see box 4.2). As indicated many developing countries are often reluc- above, additional aid resources will be tant to borrow for statistical and manage- required to support national efforts: MDBs ment capacity. A vicious circle appears to be and bilateral donors also have a critical role in operation: when policies and programs are to play in providing financial aid to support developed and implemented without evidence the statistical capacity without which evi- of their effectiveness, decision makers find it dence-based policy is not feasible. difficult to appreciate the value of "buying" tools, including those for producing statistics A C T I O N S T O I M P R O V E T H E R E S U L T S that would enable them to improve the effec- O R I E N T A T I O N O F I N T E R N A L S Y S T E M S 2 tiveness of policies and programs. Breaking ( A G E N C Y P I L L A R ) 1 this vicious circle will require growing The ability of MDBs to support the develop- demand (including by citizens) for evidence- ment of capacity to manage for results at the based policy making and, consequently, the country level depends strongly on how well the production and dissemination of better data. banks' own internal systems and instruments A recent review of experience with Poverty are adapted to achieve results. The COMPAS Reduction Strategies (PRSs), along with considers many systems, including those for assessment of institutional arrangements for country programming, project design and man- poverty monitoring in 10 countries, reveals agement, and staff training and incentives. the large extent to which this agenda remains All MDBs are in the process of strengthen- unfinished. Neither the donor community ing their performance orientation by moving nor partner countries have fully internalized to a more strategic approach to country pro- the importance of governments' accountabil- gramming. MDBs have issued guidelines for ity for results to their own citizens, and not preparing country assistance strategies (CASs) only (or mainly) to donors. Transforming the with a results focus (that is, identifying specific BOX 4.2 Conditions for evidence-based policy: lessons from the PRS experience High-level leadership. Monitoring systems need to be placed close to the center of government and have strong links to the budget process. Demand for information on results. Resource allocation systems must require information on results; otherwise, there is no incentive to collect or use such information. The PRS experience shows the important role of political and legislative bodies in expressing a demand for infor- mation that promotes accountability for results in the policy process. Some countries are in the early stages of developing systems for and approaches to increasing transparency and public accessibility of information on results. Line ministry capability. Effective use of information requires the availability of sufficient ana- lytic capacities, within government or the local academic community, to ensure that raw data are collated, subjected to quality review, analyzed, and interpreted. Source: Bedi and others forthcoming. 108 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S outcomes to be influenced). These new guide- that disbursement ratios have increased since lines have been used for most country strate- introduction of these changes. Similarly, World gies approved during 2005. Mechanisms are Bank data on project processing time show an also being implemented to assess the result almost 40 percent improvement in fiscal 2005 frameworks of these strategies. compared with fiscal 2004. Although there is Nevertheless, many challenges and ten- no evidence so far that faster delivery of finan- sions remain. For example, the experience cial support to clients has come at the expense with results-based CASs in the World Bank of quality, internal reviews at the World Bank revealed difficulties in linking the results of find that the results orientation of projects may individual projects and knowledge services to be negatively affected. For example, some staff the CAS results framework; a lack of baselines members have encountered difficulties in and targeted performance measures (most developing satisfactory baselines at the time of often reflecting lack of capacity and systems at project appraisal. the country level) that limit the effectiveness of All MDBs now have monitoring systems the results matrix as a monitoring, manage- through regular project supervision of all ment, and evaluation tool; the need to cus- active projects. These systems are periodically tomize the results framework to country improved. The World Bank, for example, circumstances; and the need for further behav- recently upgraded its monitoring system (the ioral and incentive changes on part of the staff Implementation Status and Results, or ISR), and management.13 Furthermore, although all which now has a special focus on results MDBs have a system of independent ex-post frameworks, including the reporting of base- review of country programs, they will need to line, target, and result data. All MDBs have or change the nature of these reviews as they are developing an arms-length review of self- move to results-based country strategies. As assessed reporting. EBRD's system, for exam- the new results-based strategies will take ple, includes an arms-length review at all stages many years to mature, MDBs will face the for all of its projects. The World Bank's inde- challenge of evaluating older country strate- pendent quality review system covers both gies, which were not designed to be evaluated, projects--at entry and during supervision-- during the transition period. The implication is and analytical and advisory services (see box that even as MDBs move aggressively to base 4.3). IADB has a system in place for quality at their country strategies on results, they will entry review for projects and is developing one continue struggling with the transition from for supervision. AfDB has established a system traditional, input-oriented country strategies to review projects at entry and is planning to over the next few years. launch one for supervision.15 The ADB has an The information collected under COMPAS established procedure for review of projects at offers clear signs that MDBs are making sub- entry, as well as an improved project perfor- stantial progress in adopting results frame- mance monitoring system. works for individual projects. For example, The challenge of establishing and strength- information about relevant project-level base- ening information and monitoring systems is line data is available for all projects in EBRD, compounded by the need to help staff using for most projects in IADB, and for projects in those systems. MDBs have begun to provide IDA. Similarly, recognition that speed of pro- training to their staff in the use of MfDR ject delivery is important (because delays can approaches. But they have not yet established generate transactions costs for country part- clear and comprehensive training plans that ners and slow realization of project or pro- clarify definitions and concepts as well as gram outputs and outcomes) has led MDBs to explain how the many elements of the results simplify disbursement procedures and other agenda fit together and how they relate to the operational policies.14 There is some evidence roles of various staff. Furthermore, although G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 109 C H A P T E R 4 BOX 4.3 Independent quality review of analytical and advisory activities at the World Bank A recent report by the World Bank's Quality Assurance Group (QAG) reviewed the effectiveness of the Bank's Analytical and Advisory Activities (AAA). It found that although the quality of individ- ual activities is good, a stronger focus on the strategic relevance of the overall program of country AAA is necessary, and that this calls for strengthening its links with the strategic assessments embed- ded in the Country Assistance Strategies. The report emphasizes the critical importance of stronger outreach and dissemination efforts within countries. Practice in this area, including translation into local languages, is found to be variable across countries. To increase transparency and raise the qual- ity of policy discussion, reports should be accessible, not only to government agencies but also to academics, civil society, and the private sector. Source: Quality Assurance Group, Country AAA Assessment. MDBs apply MfDR dimensions in annual Cooperation among MDBs has moved performance reviews of all staff, they are still from ad-hoc consultation to cooperation creating a results culture in which the incen- across a broad field of issues, and the MDB tive and rewards structure is aligned with the heads have articulated and published joint results agenda. positions on most major global development Developing learning organizations is a challenges. Key ongoing collaborative efforts complex process. A key challenge is to estab- related to the results agenda include develop- lish the systems and work practices that allow ment of the Sourcebook on Managing for learning from practice to improve the quality Results, continuing development and imple- and relevance of programs. The systems dis- mentation of the COMPAS, support of the cussed here provide information that MDBs new Mutual Learning Initiative (which will are, increasingly, distilling and making avail- identify practical lessons in managing for able to staff as "best practice" material. results in "early mover" countries and share Many of these systems are limited in their them with countries just beginning to imple- capacity to provide, independently of one ment the MfDR principles), and fostering of another, robust evaluations to inform MDBs development of regional MfDR communities and their country partners of the effectiveness of practice. The Third Roundtable on Man- of alternative approaches to development aging for Development Results (see box 4.4) interventions. Progress in the area of evalua- is expected to be the major result of these col- tion is reviewed below. laborative endeavors. The challenge is to translate these activities A C T I O N S T O I M P R O V E I N T E R A G E N C Y into concrete implementation at the country C O O P E R A T I O N F O R R E S U L T S level through country action plans, joint ( I N T E R - A G E N C Y P I L L A R ) strategies, and joint work (operational mis- The COMPAS seeks to monitor how the sions, analytical work, and so on). Progress is MDBs are working with one another and being made. Coordinated country strategies with other donors to support the MfDR and analytical work have now seriously agenda. Given the extent of MDBs' opera- entered MDB cooperation, after a slow tional presence, these cooperative ventures start,16 and inter-MDB cofinancing makes up could heavily influence implementation of the majority of development cofinancing.17 the Paris Declaration framework. Continued progress will require proactive 110 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S BOX 4.4 Third roundtable on managing for development results As part of their mutual commitment to joint work and cooperation on the MfDR agenda, all MDBs participate in the Joint Venture on Managing for Development Results and the MDB Working Group. A key product of these collaborative arrangements is the Third Roundtable on Managing for Development Results. Roundtable participants will Assess progress since the Second Roundtable (in 2004) and the Second High-Level Forum (in Paris in 2005). Discuss the capacities needed to manage for results and ways to assess these capacities and fos- ter their development, as well as follow up on the recommendations of the Marrakech Action Plan for Statistics and Paris 21 efforts by identifying ways to accelerate investments in statisti- cal capacity at the country level. Develop a common capacity assessment tool to be used by both partner countries and develop- ment agencies. Commit to specific actions for the year ahead with a view to the Third High-Level Forum (in 2008). Because the Third Roundtable will promote establishment of effective institutional and coun- trywide systems and processes to manage for results, its expected outcome is a broader, accelerated, and more rigorous implementation of the results agenda in partner countries and development agen- cies. Achievement of this outcome will be assessed through the Paris Declaration monitoring mech- anism (specifically, indicators 1, 5, and 11). measures in each MDB. For example, the lat- will help Bank management track implemen- est MDB Roundtable on Harmonization, tation and results.18 Alignment, and Results (held at EBRD Head- Establishment of the COMPAS is a major quarters in London in June 2005) identified step in MDBs' effort to coordinate imple- the need for further changes in the way MDBs mentation of the MfDR agenda. Indicators attempt to make greater use of joint missions, may need to be added or changed over time. joint analyses, and common approaches as As noted above, the initial results are heavily required for adequate implementation of the biased toward process indicators. However, Paris Declaration. the mere existence of this innovative instru- Those changes may prove complex to the ment and the lessons learned in its develop- extent that they ultimately require strong man- ment should, with continued effort, lead to a agerial and staff incentives, as well as work solid system of collective performance moni- practices in which collaboration is not merely toring for MDBs. a corporate mandate but an effective device for helping staff achieve results. The adoption of Evaluation: A Critical monitoring systems that track the extent of Component of MfDR MDB harmonization should help call attention to this challenge and create incentives for Achieving results (improvements in outcomes) implementation of the necessary changes. The at the country level depends on actions by World Bank, for example, has already adopted many actors, including service providers, citi- two central Paris indicators as "key perfor- zens, donors, and different levels of govern- mance indicators" of joint economic and sec- ment. Disentangling the contributions of these tor work and lending using programmatic actors and attributing results to actions of ("harmonized") approaches. These indicators individual actors is often difficult, if not G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 111 C H A P T E R 4 FIGURE 4.4 Evaluation and the results chain Department, and trade and pension reforms by the World Bank's Independent Evaluation Group (IEG). Since publication of Global Monitoring Report 2005, the IMFs Indepen- IFI/donor Government policies Development dent Evaluation Office has produced two actions and interventions outcomes reports: Evaluation of the IMF's Approach to Capital Account Liberalization (May 2005) and Evaluation of IMF Support to Jordan, Source: Authors. 1989­2004 (December 2005). The key find- ings of some of these evaluations are summa- rized in box 4.5. impossible. Figure 4.4 shows a simplified Within the multiple evaluation approaches results chain linking actions by external actors available and effectively used by IFIs, impact that influence government policies and inter- evaluations play an important role. Their goal ventions, which in turn affect development is to assess the specific outcomes attributable to outcomes. Establishing the links along this a particular intervention by using a counterfac- results chain is complex, but understanding tual that represents the hypothetical state the the relationship between specific government beneficiaries would have experienced without interventions and policies on the one hand the intervention. From that perspective, impact and outcomes on the other is often possible. evaluations are an important instrument to test Although attributing changes in outcomes to the validity of specific approaches to addressing specific actions by external actors may remain development challenges, such as reducing an elusive goal, evaluating the impact of spe- infant mortality or increasing productivity of cific government interventions is not only poor farmers. They are a powerful instrument important but often also feasible from a for determining what works and what does not methodological point of view. work and thus constitute a fundamental means Efforts to manage for development results of identifying effective development interven- depend crucially on the strength of the under- tions. At the same time, impact evaluations-- standing of the relationship between interven- particularly when conducted in comparable tions (policies and programs) and outcomes and consistent ways across countries--can pro- (for example, MDGs). In those areas in which vide the necessary benchmarks for program that evidence base is strong, a system that design and monitoring. focuses on monitoring implementation and The development community is increas- tracking outcomes often may be sufficient. By ingly recognizing the value of impact evalua- providing empirical evidence on the effective- tions, and MDBs are positioning themselves ness of specific policies and programs to to play a more active role in this area. The achieve development outcomes, evaluation World Bank launched the Development efforts enhance IFIs' ability to provide robust Impact Evaluation (DIME) initiative to pro- evidence-based advice to partner countries mote and coordinate its impact evaluation and to define the type of interventions or activities. In its first year, DIME started two approaches they should support. Global dozen evaluations of education interventions Monitoring Report 2005 reviewed the critical (focused on alternative arrangements for ser- role played in that regard by the evaluation vice delivery using the conceptual framework offices at the IFIs. Special studies released dur- described in World Development Report ing 2005 include evaluations of health and 2004), conditional cash transfers in low- nutrition interventions by ADB's Operations income countries, and slum upgrading initia- Evaluation Department, on trade facilitation tives. Regional units, with support from and delivery mechanisms for small- and DIME, are building on the growing number medium-size financing by EBRD's Evaluation of opportunities for useful evaluations in the 112 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S BOX 4.5 Independent evaluation at the IFIs The shift to a more results-oriented focus in development has led to greater emphasis on evaluation of and learning from experience. Sector/thematic reports by the evaluation offices at the IFIs play an important role in this area. The following are examples of reports produced in 2005: ADB's Operations Evaluation Department prepared a study on the Bank's policy for the health sector. The study found positive trends associated with the 1999 health policy, such as increased attention to supporting governance through health sector reforms and institutional capacity building and more systematic use of economic sustainabil- ity analysis in all projects. The study identified, among other challenges, the need for more coordination within ADB to integrate different aspects of the health agenda (for example, communicable and noncommunicable diseases, water, and sanitation) and for a strategy for good governance and prevention of corruption in the health, nutrition, and population sector. AfDB's Evaluation Department (OPEV) carried out several sector reviews for its 2005 Country Assistance Eval- uations (CAEs) for Ghana, Mali, Mauritania, and Tanzania. These country evaluations focused mainly on the devel- opment effectiveness of the Bank Group's assistance over the period covered by the previous three country strategy papers (1996­2004) and provided lessons for the next round of the papers' preparation. OPEV found that AfDB's strategies in all four countries were relevant, focusing on areas that were priorities for the governments. The CAE identified the need for more quantifiable, time-bound, and realistic performance indicators to better track the per- formance of Bank actions, as well as country-level progress in meeting agreed development goals and targets. Because of the centrality of country strategies to the evolving work of the IADB, in 2005 the Office of Evaluation and Oversight (OVE) conducted a review of the extent to which country strategies prepared in 2004 and 2005 could be evaluated. The review found evidence of improvements over time in the results focus of country strategies but noted the persistence of several major shortcomings. In particular, country strategies generally provided a weak treat- ment of risk, paid insufficient attention to issues of institutional quality, and tended to define goals for the program in broad and largely unmeasurable terms. EBRD's Evaluation Department conducted a study to synthesize the lessons learned from the Bank's experience with operations targeting micro, small-, and medium-size enterprises. The study identified the need for more atten- tion to institutional aspects in project design and the importance of selecting intermediaries with sufficient institu- tional capacity. It found that financing projects should be embedded in a broad framework that addresses legal and supervisory issues. The IMF's Independent Evaluation Office (IEO) produced an evaluation of the Fund's approach to capital account liberalization. IEO concluded that there is a need for more clarity on this approach. It suggested that the IMF could sharpen its advice on liberalization issues on the basis of solid analysis of the particular situation and risks facing specific countries. It also recommended that IMF surveillance should give greater attention to the supply side of inter- national capital flows and to ways of minimizing the volatility of capital movements. IEG reviewed the World Bank's experience in supporting a wide variety of pension reforms through lending oper- ations and analytical and advisory activities in 68 countries over the past two decades. The World Bank's basic approach was to recommend the establishment of a multipillar pension system, provided sound macroeconomic con- ditions and an adequate financial sector were in place. A major finding of this evaluation is that Bank reforms often contributed to fiscal sustainability but that in many countries with multipillar systems, pension funds are poorly diversified and coverage has not increased. Secondary objectives of funded pillars--to increase savings, develop cap- ital markets, and improve labor flexibility--remain largely unrealized. There is increasing demand for looking across individual development organizations to evaluate and learn from the results of the development system. For the past decade the major multilateral development banks, recently joined by the IMF, have been working together through the Evaluation Cooperation Group (ECG) to harmonize their eval- uation standards, in part to permit such cross-cutting analyses. This work is beginning to pay off. ECG is launching an effort to synthesize lessons on the interactions of infrastructure and environment and on the effect of their cross linkages on overall development and poverty alleviation. This effort is intended to be the first of a series that will address major development issues. Source: Staff from the IFIs. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 113 C H A P T E R 4 context of Bank-supported operations. The development through increased reliance on Bank's Africa Region Office, for example, has national systems, and reduced reliance on par- started work on 20 impact evaluations of allel structures (such as project implementa- projects in the areas of early childhood devel- tion units) when national systems have been opment, education, health, infrastructure, deemed to have satisfied high standards of social protection, agriculture and environ- quality. Strengthening of fiduciary systems is ment, and private sector development. integral to the development mission of MDBs, The OVE at the IADB has also begun a which are adopting various approaches to program of ex-post program impact evalua- meet these goals. For example, the ADB and tions, typically through the use of nonexper- the AfDB will apply their technical assistance imental methods.19 In 2005 OVE initiated to enhance country systems and, with the activities to generate ex-post evaluations in World Bank, will test use of country systems three areas: youth training, rural roads, and in selected countries. Both these institutions science and technology. This new exercise intend to strengthen efforts to fully integrate will lead to production of individual working project implementation units (PIUs) with papers for each evaluation, less technical ex- national executing agencies and to encourage post project reports that address process and use of joint or common PIUs with other institutional aspects of a project in addition donors. The IADB sees reliance on country to the impact evaluation, meta-evaluations systems as a consequence of its work to assist (in the three areas mentioned above), and an borrowing countries to enhance the effective- annual ex-post report. ness and transparency of their procurement, The success of initiatives such as the ones public expenditure, and financial manage- described above is closely linked to efforts to ment systems. The IADB is working with the strengthen developing countries' statistical and World Bank to develop a fiduciary capacity evaluation capacity. The effectiveness of these assessment and monitoring tool based on gen- initiatives would be greatly enhanced through erally accepted practices and on baseline and close coordination of MDB and donor efforts performance indicators. This tool will be and regular sharing of information. tested in selected countries. The monitoring process to measure progress Alignment, Integrity, toward meeting these and other commitments and Transparency: (described in chapter 3) is at an early stage. The Progress and Challenges World Bank has identified the use of country systems as one of three key performance indi- IFIs are increasingly adapting their policy and cators to be tracked but has not yet established operational practices to respond to the chal- an internal process for data generation or for lenges of a new aid architecture that requires quality control of this indicator. Analysis of stronger alignment with country systems in project appraisal reports for the World Bank the context of strong fiduciary integrity, as indicates that use of public financial manage- well as expanded transparency concerning ment systems (which are associated with devel- their actions. This section reviews progress in opment policy operations in IDA countries and these important areas. with sectorwide approaches in both low- income and middle-income countries) is more frequent than use of national procurement Alignment with Country Systems systems. Use of environment management sys- The Paris Declaration places considerable tems is only at the testing stage and therefore importance on the use of country systems for cannot be reported on until next year. A good aid delivery and management. It calls for example of alignment under firm fiduciary increased coordination of donor capacity- controls is the IMF's system of safeguard building support, support of national system assessments (see box 4.6). 114 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S BOX 4.6 Safeguards assessments by the IMF When the IMF lends to a member country, it does so exclusively for general balance-of-payments support, and the funds are transferred to the central bank. Thus, the Fund does not have the same procurement concerns as the MDBs; its procurement is limited to its administrative expenses. How- ever, in 2000 the IMF introduced safeguards assessments of central banks that borrow from it. These assessments somewhat resemble the MDB practice of ascertaining the capacity of a domestic pro- curement agency. The safeguards were a reaction to misreporting and allegations of misuse of IMF resources involving the Russian Federation and Ukraine in the late 1990s. The primary purpose of the assessments is to provide assurance to the IMF Board that central banks have adequate finan- cial control systems to manage their resources, including IMF disbursements. An important sec- ondary purpose is to promote international good practices in accounting, auditing, transparency, and governance. By the end of 2005, the IMF had completed 120 assessments of some 70 central banks, most of them in low-income countries, as reflects the orientation of the Fund's lending. The assessments, which are not published, contained, on average, seven recommendations for improvements. When the recommendations are serious, their implementation may become a condition for the IMF loan being considered. Central banks generally act on the recommendations; the overall implementation rate is about 80 percent. Source: IMF staff. There has been limited progress in use of fraud and corruption in MDB-financed pro- country systems, in spite of the broad con- jects, to promoting better governance through- sensus on the significant role such use plays out country programs, to helping client in improving aid effectiveness and develop- countries fight corruption and money launder- ment impact. This lack of progress is heav- ing (see chapter 7), to supporting international ily influenced by fiduciary concerns and the efforts to reduce corruption (such as conven- consequent risks associated with the use of tions against bribery or the Extractive Indus- country systems. Management processes for tries Transparency Initiative). Preventing abuse these risks are evolving, and as a result tensions of funds in MDB-financed projects is the focus and concerns remain. Indeed, mounting inter- of many rules and procedures aimed at ensur- national attention on fraud and corruption--as ing high standards of integrity, transparency, reflected in the international legal initiatives and accountability. Concern about governance and conventions described in chapter 7--is also and corruption are incorporated into normal producing intensified scrutiny of MBDs' anti- safeguards on lending--the MDBs' fiduciary, corruption efforts, both in-house and in their procurement, and disbursement procedures. country operations. Sharpening of donor MDBs are taking decisive actions to requirements (such as those under IDA14), the strengthen their ability to fight corruption in Sarbanes-Oxley Act of 2002, and the UN Oil- the use of institutional funds: for-Food scandal (see box 7.1) have heightened pressure on MDBs to demonstrate progress in AfDB reorganized its Internal Audit anticorruption efforts. Department (AUDT) and created the Anti- corruption and Fraud Investigation Divi- sion (ACFD). Institutional Integrity ADB clarified the 1998 Anticorruption MDBs' concerns about corruption range from Policy, an important extension of the controlling their own resources and preventing bank's governance policy. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 115 C H A P T E R 4 EBRD's office of the Chief Compliance One of the most substantial changes over Officer, responsible for integrity matters, the last two years has been approval of release will publish in 2006 a report of its anti- of country performance assessments. In the corruption activities. case of IDA, CPIA quintile rankings had been IADB created the Office of Institutional disclosed but not the actual scores for each cri- Integrity (OII) as an independent unit terion. In 2006 the Asian Development Bank, within the Office of the President. the African Development Bank, and the World The World Bank launched its Voluntary Bank will join the IADB in disclosing country Disclosure Program to encourage compa- performance assessment ratings, which largely nies to volunteer information about their determine the allocation of those banks' con- involvement with fraud and corruption on cessional funds. Additionally, the banks are Bank-financed projects in exchange for working to maximize understanding of the reduced sanctions and assurances of confi- country ratings by disseminating knowledge dentiality. about how scores are determined and by releasing country ratings on the criteria that Despite progress, numerous challenges determine the overall score. remain in fully tackling the corruption issue. In 2005 the same MDBs introduced poli- The risk of corruption can never be entirely cies mandating much broader disclosure of eliminated. In some instances there may be a the information on which they base decisions trade-off between tightly containing corrup- that have major consequences for stakehold- tion risks through projects and increasing use ers. In April the Asian Development Bank of country systems, but since ring fencing of approved a new public communications pol- projects can only constitute a temporary sub- icy that provides easier access to board min- stitute for strengthening the overall country utes and meeting summaries, country strategy environment, this more challenging and documents, economic and sectoral studies, lengthy task cannot be avoided. In addition, and project evaluation reports throughout the increasing flexible forms of lending in weaker life of the project, from preproject environ- governance environments may lead to a corre- mental impact studies to postproject impact sponding increase in allegations of corruption, evaluations. The World Bank and the African sharply augmenting risk to MDBs' reputation. Development Bank substantially amended A proactive and systematic management of previously approved disclosure policies in risks has yet to be developed to avoid ad hoc 2005. The World Bank is testing disclosure of reactions to instances of corruption. draft operation policies when they are first cir- culated to the board. If such disclosure is adopted as a regular practice, the World Bank Transparency would be the first MDB to release such docu- Although solving the above challenges will ments. The Bank will also now disclose min- remain difficult, improving transparency in utes from formal board meetings. The African MDBs is within the banks' control and Development Bank publishes summaries of widely recognized as a must. New trans- board discussions. In early 2006 EBRD will parency initiatives are making it easier for introduce new elements to its public informa- MDB partners to scrutinize the policies that tion policy, such as disclosure of Board min- affect them and to participate more mean- utes and draft country strategies. ingfully in the development process. These In 2005 the IMF conducted a review of its new initiatives include more open policies 2001 transparency policy. The report noted, regarding country performance assessment in particular, that publication rates for coun- ratings, records of MDB board meetings, try reports had increased markedly since the country strategies, policy papers, and pro- last review; 77 percent of all Article IV and ject evaluations. Use of Fund Resources staff reports are made 116 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S public (up from 67 percent in the previous and incentives, build statistical capacity, review). Regional differences in publication increase harmonization, and so on. rates also declined sharply. But the review The complexities of the next steps should also highlighted a lengthening in the lag not be underestimated, not only because they between board discussion and publication of may be technically hard, but because they country documents (from one month to one will, by their own nature, create tensions. and a half months). The review explored var- Achieving results at the country level will ious operational aspects of the publication most likely require changes in resource allo- policy, including the use of corrections and cation and internal decision making, and deletions, implementation costs, impacts on even stronger incentives to staff and man- candor, and the timeliness of publication. The agers. Furthermore, progress in the imple- IMF Board agreed to staff recommendations mentation of the results agenda depends to address those concerns. crucially on efforts to strengthen partner gov- ernments' MfDR capacity. But capacity is at Conclusions a nascent stage in many countries, and MfDR is likely to be a long-term endeavor, requiring A key theme of this chapter is that the contri- an enhanced MDB focus on actions over a bution of MDBs to development results at the period longer than that traditional in the country level depends crucially on how the institutions' programs. Similarly, harmoniza- banks manage themselves. The evidence tion and alignment--two key dimensions of reviewed clearly indicates that the MDBs the MfDR agenda--will create tensions--for have recognized this challenge and are imple- example, fiduciary concerns associated with menting a variety of monitoring and assess- use of country systems. ment systems--a trend that should continue. The implication is not that pursuit of the The question, however, is how and agenda should be abandoned or that "undue whether those systems are being used. This realism" should lead to conformism. Instead, chapter provides some indication that the the implication is that strong leadership will efforts have not sufficiently permeated the be needed to continue moving forward. In fabric of MDBs. Early assessment suggests other words, the message of this chapter is the difficulty of switching from input-driven that doing a little bit more of the same thing to outcome-focused practices (for example, will not be sufficient. The good news is that difficulty in linking individual project results all MDBs have begun valuable initiatives-- and CAS results frameworks, a strong culture many of which this chapter reviewed. In par- of focusing on deliverables rather than on ticular, the COMPAS is a valuable exercise measurable results, and slow feedback from that needs to be improved and deepened. Its monitoring and evaluation systems to man- usefulness will remain limited unless perfor- agerial decisions). Not surprisingly, it is still mance indicators are regularly updated and much easier to systematically report on the assessed. Moreover, new dimensions--for number of projects approved or moneys dis- example, impact evaluation and trans- bursed than on achievements at the country parency--may need to be added. Each MDB level. Moreover, application of these new is likely to face different bottlenecks in imple- results-focused management systems is menting the MfDR agenda. A common unequal within each institution. assessment system will not, per se, address Time may be part of the answer: some them. Each institution will need to define the processes will require more time to be fully set of instruments (incentives, rules, practices) developed and implemented. But as this chap- best suited to its own characteristics. But a ter suggests, MDBs will need to make further systematic, transparent, and clear monitoring efforts: apply result frameworks at the coun- of performance indicators should help all try and project level, provide staff training MDBs continue moving in the right direction. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 117 C H A P T E R 4 Notes other than IDA, the regression includes only the clients of the relevant IFI. For IDA the regression 1. This chapter is the result of a collective includes all ODA recipients. effort by staff from the African Development 9. MfDR is an adaptation of the terms "perfor- Bank, Asian Development Bank, European Bank mance management" or "results-based manage- for Reconstruction and Development, Inter-Amer- ment" (RBM) with emphasis on managing for rather ican Development Bank, International Monetary than by results, and on contribution to outcomes Fund, and the World Bank. rather than attribution from them. Thus, managing 2. This trend is in part explained by repay- for development results implies a results focus on all ment of large and fast-disbursing loans issued dur- aspects of management, not just monitoring, and ing the late 1990s in the context of the Asian includes accountability and learning lessons. financial crisis. 10. The current set of indicators in the COM- 3. The Inter-American Development Bank, PAS results matrix is presented in an annex to this the African Development Bank, the Asian Devel- chapter. opment Bank, and the World Bank have responded 11. Better Data for Better Results: An Action to this trend by developing action plans to engage Plan for Improving Development Statistics, Second more effectively with middle-income countries. International Roundtable for Managing for Devel- 4. The ESF is available to PRGF-eligible mem- opment Results, Marrakesh, February 4­5, 2004. bers that have no PRGF arrangement in place. The 12. Pillar II of the COMPAS includes the use of ESF provides the same degree of concessionality as performance-based resource allocation mecha- a PRGF arrangement, but policy adjustments are nisms for low-income countries as its first category. only those needed to adapt to the shock, rather This use was reviewed in the first section of this than the broader structural measures required by chapter. the PRGF. 13. See "Results Focus in Country Assistance 5. Countries with a PSI should have a Poverty Strategies: A Stocktaking of Results-Based CASs," Reduction Strategy (PRS) in place. The PSI is World Bank, February 24, 2005. intended to be a complement to, and not a substi- 14. ADB, for example, has adopted an innova- tute for, the PRGF. To date, PSI programs have tion and efficiency initiative that is focusing on been approved for Nigeria and Uganda, and dis- several areas including consulting, procurement, cussions with other countries are ongoing. safeguards, cost-sharing, business processes, and 6. Progressivity is largely achieved outside the new financial investments. The IADB's New Lend- performance-based allocation formulas by making ing Framework calls for increased reliance on only the poorest countries eligible for concessional national systems and greater harmonization with funds. For example, IDA provides resources only other donors working in a country, which will to countries with annual per-capita incomes of less simplify disbursement procedures. The World than $965. Exceptions include small island Bank has adopted changes that include increased economies and Iraq. scope of coverage for expenditures eligible for 7. For example, AfDF introduced its Post- financing from Bank loans (including recurrent Conflict Enhancement Factor, as a result of which operating costs and taxes). the six postconflict countries received an average 15. AfDB revised its field supervision report of 35 percent more funding than under the normal formats to enhance the focus on progress in PBA formula. In the case of IDA, the adjustments achieving outputs and outcomes, risk mitigation, result in a doubling of the allocation to postcon- and quality of monitoring. flict countries. 16. Recent examples of joint strategies include 8. The selectivity results in the figure are based Bangladesh, Cambodia, Ecuador, Ethiopia, Hon- on log regressions with the log of aid (gross ODA- duras, Malawi, Tanzania, Timor-Leste, and Uganda. emergency aid) on the left side and the logs of pop- 17. Recent examples include AfDB-WB aids ulation, GNP per capita (PPP), and country operations in Democratic Republic of Congo, performance and institutional assessments (CPIA) Malawi, and Mali; financial sector in Mozambique; on the right side. The numbers shown are the coef- agriculture and roads in Zambia; water and sanita- ficients on the latter two variables. For MDBs tion in Ethiopia; post and telecoms in Algeria; and 118 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G T H E P E R F O R M A N C E O F I N T E R N A T I O N A L F I N A N C I A L I N S T I T U T I O N S adjustment lending in Morocco. ADB-WB: educa- for data generation and quality control of this lat- tion in Bangladesh, hydropower in Laos, poverty ter indicator is in development. reduction support in Laos and Vietnam. IADB-WB: 19. Ex-Post Evaluation of Operations, GN education in Honduras and roads in Peru. 2254-5, and Background Policy Document Ex- 18. The World Bank has adopted a third indi- Post Evaluation of Operations, GN 2254-6, Inter- cator: use of country systems. The internal process American Development Bank, September 2003. ANNEX TABLE 4.1 COMPAS master matrix of categories and indicators Performance category Subcategories to be monitored Process indicators Results indicators 1. Capacity 1a Public and private sector CB CB needs assessment tools % of countries with needs building (CB) needs assessment available assessments completed % country strategies with analysis of capacity for MfDR 1b MfDR sensitization and MfDR knowledge-sharing % target audience in developing knowledge sharing mechanisms established countries covered (workshops, networks, etc.) 1c MfDR CB programs CB programs launched where % of target countries with CB relevant programs under way or completed 2. Financing 2a Performance-based resource Country performance % concessional resources allocated to allocation for low-income indicators in place for eligible countries with high scores according countries countries to each MDB's PBA formula 3. Strategies (country, 3a Outcome focus, evaluability Revised guidelines issued to % of borrowers with MDB strategies sector, regional) enhance results focus of based on revised guidelines strategies % of country strategies with Mechanisms in place for independently reviewed evaluability reviewing the results focus of strategies 4. Projects and programs 4a Outcome focus, evaluability Project results frameworks % with satisfactory results reviewed and improved where frameworks as defined by each MDB necessary % with satisfactory baseline data % of projects whose evaluability is independently reviewed 4b Project and program delivery Simplification of disbursement Actual annual disbursement as % of (speed of disbursement and procedures amount available for disbursement implementation) Simplification of operational at beginning of the year procedures % of projects under implementation whose implementation is delayed beyond their original date of completion 4c Quality of design and Increased arms-length scrutiny QAE % satisfactory or better supervision of project quality at entry Quality of supervision satisfactory or Quality of supervision reviews better in place or under development 4d Management of project risk Early warning system in place % projects at risk or on alert status Proactive management of % projects at risk actively managed projects at risk (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 119 C H A P T E R 4 ANNEX TABLE 4.1 COMPAS master matrix of categories and indicators (continued) Performance category Subcategories to be monitored Process indicators Results indicators 5. Monitoring and 5a Monitoring instruments, Active project monitoring system Monitoring/supervision compliance evaluation procedures, practices in place with appropriate levels rates of information 5b Quality assurance systems Arms-length review of self- Arms-length review reports assessed reporting 5c Independent evaluation Ex-post evaluation of country % active borrowers that have a programs country program evaluation Ex-post evaluations of projects % projects and programs with and programs satisfactory outcomes 5d Results reporting system Adequate resourcing of M&E % admin budget allocated to internal activities M&E Regular and extensive reporting of M&E data 6. Learning and 6a Capturing and using good Good practice materials Management uptake of evaluation incentives practice collected, field tested, and recommendations as reported to made available online executive boards 6b Staff training and guidance MfDR training packages % operational staff participating in developed and field tested MfDR training On-the-job help lines established 6c Staff incentives Formal and transparent use of % operational staff covered by MfDR dimensions in annual results-focused incentive system personal performance reviews 7. Working with other 7a Information sharing Participation in MDB MfDR MfDR Sourcebook put online and donors on the MfDR working group updated regularly agenda DAC JV on MfDR 7b Harmonization Areas for MfDR harmonization Number of MfDR products and identified by working group processes for which common principles are agreed 7c Cooperative/joint ventures Procedures developed for joint Number of joint MfDR country, sectoral, and regional activities/programs programming Annual COMPAS reporting COMPAS developed Source: COMPAS. 120 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 Part II Governance as Part of Global Monitoring T he emerging global architecture to sup- as, for example, in the thousand-year evolution port poverty reduction rests on the prin- of governance systems that underpin today's ciple of mutual accountability. Donor developed countries--and across countries, countries are to be accountable for providing though some debate persists as to causality. aid in ways that support country develop- Statistical evidence suggests that the ment strategies. Developing countries are to be causality between growth and governance is accountable for using aid and other resources two-way--implying that gains in either can effectively. But, as this Global Monitoring give momentum to a virtuous spiral of devel- Report (GMR) will detail, accountability with opment improvement. Figure II.1 provides regard to aid resources is only a small part of evidence of the causality from governance to the governance agenda. Both donor and devel- growth: it illustrates the statistically robust oping countries are to be accountable more partial relationship (controlling for initial broadly for enhancing the checks and balances income and schooling levels) between the fundamental for development. quality of governance across developing Part II of this GMR will spotlight these countries in 1982 and income growth over governance facets of the new architecture. the subsequent two decades.1 The objective is to consider how to approach Econometric studies show that the benefits a satisfactory monitoring framework in the of public health spending on child and infant field of governance that is relevant for the mortality rates are greater in countries with scaling up of aid. This requires some analysis better governance--and that, as countries of relevant aspects of governance, a review of improve their governance, public spending on available data, and the use of some simple primary education becomes more effective in typology to allow for the wide differences in increasing primary education attainment country situations. (Swaroop and Rajkumar 2002). There is strong evidence of a link between The scale of corruption has also posed the quality of a country's governance system extraordinary costs on some countries. A and itsdevelopmentperformance:Empiricalevi- conservative estimate is that the former pres- dence links governance to growth, over time-- ident of Zaire looted the treasury of some G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 121 FIGURE II.1 Governance and growth, 1982­2002 they have the institutional capacity to execute them? Is there adequate information and Per capita income growth, 1982­2002 (residual) transparency in government to foster the 0.06 active civil society to build greater account- ability? Are the incentives and accountabili- 0.04 ties of teachers and health care workers adequate to ensure low absenteeism and 0.02 shirking? Does the rule of law protect the rights of citizens? The answer to these ques- 0 tions depends on the quality of national gov- ernance systems. ­0.02 Getting governance of a quality needed to meet the Millennium Development Goals ­0.04 (MDGs) is not simply a matter for aid recipi- ents. The global milieu has powerful influ- ­0.06 ences on the governance system in developing ­0.08 countries. Global markets can be the source of ­20 ­10 0 10 20 30 virulent, corrosive corruption--or a powerful Initial governance, 1982 disciplining device, helping to strengthen developing-country governance. Donors and Source: Steve Knack, 2005. international institutions can provide aid in Note: Governance measure is an index from the International Country Risk guide (ICRG). ways that can impose practices and reporting The growth estimates are the unexplained residuals after controlling for the impact of initial levels of income and education. requirements that fragment and overwhelm already fragile governance systems, or in ways that help strengthen governance. Many of the US$5 billion--an amount equal to the coun- areas noted in chapter 3 and addressed in the try's entire external debt at the time he was Paris Declaration are relevant for the gover- ousted in 1997. The funds allegedly embez- nance agenda. Beyond aid, global check and zled by former presidents of Indonesia and balance mechanisms can provide new gover- Philippines are estimated to be two and seven nance instruments for helping poor countries times as high, respectively.2 Micro-level stud- meet the MDGs. Recent work on standards ies reveal the ubiquitous daily impact of cor- and codes provides sources of good practice ruption--and the benefits of scaling it back. for all countries, and is increasingly being used In health care, for example, during the first to benchmark performance. Part II of the nine months of a 1996­7 crackdown on cor- GMR therefore considers both national gov- ruption in Buenos Aires, Argentina, the prices ernance systems and the emerging global paid for basic inputs at public hospitals fell by framework to support good governance. 15 percent. In customs, the use of private international firms to conduct preshipment Notes inspection of imports has been associated with increases in the growth rate of import 1. The relationship remains robust with and duties of 6 to 8 points annually.3 without the inclusion of developed countries in the Many elements of the "development sample. It remains statistically significant, though somewhat weakened, when nations in the East checklist" are governance related. Are there Asia and Pacific region also are excluded from the mechanisms in place to ensure that public sample. resources reach their intended purpose with 2. Svensson (2005), quoting Transparency little leakage? Is the investment climate sup- International's 2004 report. portive of growth and reductions in income 3. Svensson (2005), reporting results from Di poverty? Can countries develop plans and do Tella and Schargrodsky (2003); Yang (2005). 122 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 5 Monitoring Developing-Country Governance G overnance is central in development, around" countries making serious efforts to so it is natural that many stakehold- transform their governance systems. Moni- ers want to monitor it. Also natural is toring trends can signal whether these turn- that these stakeholders use governance mea- arounds are on track--or have stalled or gone sures in different ways: into reverse. This chapter addresses the challenge of mon- Citizens in developing countries can use itoring developing-country governance. First, it measures of governance to hold govern- presents a framework for monitoring. Second, ments accountable for their actions--at it identifies indicators that are useful for moni- the micro level for the quality of service toring the different parts of the framework. provision, at the aggregate level for the Third, it highlights some of the opportunities-- responsiveness of government action to and perils--that confront the governance mon- the public interest, at all levels for the pro- itoring exercise. Together, the framework, the bity of using resources. indicators, and the overview of governance Governments in developing countries (and monitoring set the stage for more disaggre- development partners seeking to provide gated analysis in chapter 6. technical support) can use governance mea- sures to improve the design of policy--for A Framework for Monitoring example, by providing "actionable" guide- Governance posts for operational efforts to improve governance. Monitoring developing-country governance Donors in their role as funders can use has become a growth industry. A recent publi- governance measures for cross-country cation of the United Nations Development comparisons (focusing on "levels" at a Programme (UNDP 2004), Governance Indi- point in time) or to monitor the trends cators: A Users' Guide, details 33 data sources within individual countries over time. and lists a further 33 that did not meet UNDP standards for inclusion. This focus on mea- Cross-country comparisons of the level of surement has led to some important advances, governance are useful if the intent is to cali- but it has also underscored some difficulties. brate donor support according to the quality Governance is more complex than it seems. of a country's governance. Measures of trends While the word is often used as a euphemism are useful if the intent is to support "turn- for corruption, a country's governance system G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 123 C H A P T E R 5 BOX 5.1 Governance and corruption are not the same thing Governance and corruption often are used synonymously. But they are quite different concepts-- and conflating them can be very damaging. Public sector governance refers to the way the state acquires and exercises the authority to pro- vide and manage public goods and services--including both public capacities and public account- abilities. Viewed from the perspective of this report, the relevant aspects of governance are those for achieving the Millennium Development Goals (MDGs). This narrows the terrain somewhat, but perhaps less than it might seem at first sight, given the relationships between transparency, partici- pation, and accountability on the one hand and performance in reducing poverty on the other. Corruption is an outcome. It is a consequence of the failure of any of a number of accountability relationships that characterize a national governance system--from a failure of the citizen-politician relationship (which can lead to state capture) to a failure of bureaucratic and checks and balances institutions (which can lead to administrative corruption). Aggregate measures of corruption thus offer a useful overview of the degree to which the national governance system as a whole--rather than any part--is dysfunctional. Perceptions of corruption can have a profound impact on a country's prospects. At home, they can break (or make) the reputation of political leaders--and affect civic perceptions of the legiti- macy and trustworthiness of the state. Globally, these perceptions influence decisions on private capital flows and aid. Estimates of corruption raise awareness and attention, including through media focus on rankings. Even if these estimates have a high margin of error, with movements of a few points in one or another direction too small for any robust implication, they can still be useful. Yet, an exclusive focus on this outcome of a governance system has caused some countries to empha- size simple-minded (and largely failed) anticorruption initiatives--to the neglect of the complex challenge of strengthening national governance systems themselves. comprises the full array of state institutions To monitor governance--and to improve and the arrangements that shape the relations it--a framework is needed to cut through between state and society (box 5.1). Mea- the complexity. Figure 5.1 illustrates one surement can explore the broad consequences approach. It shows the key actors in a national of how the governance system functions governance system, and the key accountabil- (with corruption as a major example). It can ity relationships that align the incentives of the also focus more narrowly on the quality of principals at each level with those of the the different institutions that make up a coun- agents delegated to act for them. As the figure try's governance system. Conceptual clarity is suggests, transparency is an essential cross- needed to draw the distinctions among these cutting aspect of the governance system, con- different types of measures. tributing to the efficacy of both the actors and A national governance system includes the accountability relationships. many institutions and actors, including For each actor the relevant capacities judges, legislators, tax inspectors, teachers, comprise the skills adequate to the task at and accountants. Each needs the capacity to hand, the organizational management sys- perform his or her function effectively. Effec- tems capable of deploying human and other tive governance also calls for the players to be resources, transparent provision of the infor- accountable, often in complex ways. A school, mation needed for action, and the leadership for example, is potentially accountable to par- to organize the various parts of the system ents, to officials in departments of education and motivate its participants from the inside. (at local and central levels), to courts, and to Each accountability relationship rests on the politicians (again, both national and local). following: 124 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E FIGURE 5.1 National governance systems: actors and accountabilities Actors Political governance: citizens, leaders, and Accountability political parties Accountability = rules, Public administration Checks and balances information and and financial institutions transparency, management agencies enforcement mechanisms Service provision and regulatory organizations Citizens and firms Citizens and firms Outcomes: policies, services, and regulations Source: Authors. Rules to delegate authority and indicate Turning to the five sets of actors identified constraints and expected results. in figure 5.1, the first comprises citizens, lead- Information flows to enable principals to ers, and political parties in the political gov- monitor how well agents are performing. ernance subsystem--that is, the mechanisms Transparency of information flows increas- for citizens to select their political leaders at ingly is becoming the norm--on the princi- national and subnational levels and the ways ple that citizens always are the ultimate organized groups of citizens influence politics principals--even where the immediate prin- and government. cipal-agent relationship might be among Politics is the prime influence on gover- different parts of the state. As table 5.1 nance. Political leaders set the objectives for highlights, transparency's role potentially is the rest of the governance system. Sometimes pervasive--from the political apex of a politicians work to address the general inter- national governance system, all the way to est. Other times, their behavior is clientelistic, the service provision front line--creating in the sense that "even though the average cit- plentiful opportunities for engagement. izen is poor, politicians . . . shift public spend- Enforcement mechanisms that reward suc- ing to cater to special interests, to core cessful performance and sanction those supporters, or to `swing' voters" (World Bank who fail to perform well. (2004a: 80). What shapes whether politicians behave in developmental rather than clien- Development outcomes depend on the telistic ways? Only rarely can they decide operation of the national governance system themselves--usually they are constrained by as a whole. Sustained good results imply that having to maintain their support base. Skill- the capacities of the players and the account- ful, farsighted politicians, especially those at abilities among them are strong. the head of political movements rooted in a G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 125 C H A P T E R 5 TABLE 5.1 Nodes of transparency in national governance systems Transparency node Specific examples of transparency Node 1: Transparency in political governance Disclosure by political candidates and public officials of assets, education, and criminal record Widely available public information on the performance of government Node 2: Transparency in public administration and Open competitive system of public procurement financial management Meritocratic recruitment of public sector employees Transparent in-year financial reporting Node 3: Transparent oversight of public administration Participatory budget formulation process, including by checks and balances institutions cabinet-level and parliamentary discussions Timely, comprehensive, high quality, and publicly available audit of budget by independent institutions Node 4: Checks and balances institutions ensure open Free press flow of information Freedom of information act Publication of judicial and administrative decisions Open decision-making processes Publication of parliamentary debates Node 5: Transparency in relationship between Independent service delivery scorecards/surveys citizens/firms and service providers Public information on results by provider organizations (monitoring and evaluation data, annual reports, and so on) Service charters issued by provider organizations Publicly posted information on financial and other resources provided to provider organizations Source: Authors. broad social vision, may be able to shape the civil society and for the operation of the private objectives for their supporters. But the process market economy. And they limit the influence is often driven more by responding to the of politicians on the bureaucracy. Checks and interests of key allies, and sometimes these balances institutions are a ubiquitous feature powerful interests may capture the state. Note of polities--not only of liberal democracies-- that a democratic electoral process does not though their specific forms can vary with the guarantee that politicians will focus on the mode of political organization. general interest, and that the general interest The third set of actors comprises the cross- can also guide the action of some politicians cutting control agencies responsible for pub- in nondemocratic societies. lic administration and financial management, A second set of actors consists of checks and including those responsible for budget for- balances institutions, including parliaments, mulation, execution, and reporting systems; independent oversight agencies (supreme audit procurement systems; monitoring and evalu- institutions, ombudsmen, anticorruption com- ation systems; intergovernmental systems; missions), the judicial system, a free press, and and civil service management systems. The democratically accountable local institutions. fourth set includes service provision and reg- These institutions have at least three distinct ulatory organizations, including sectoral line functions. They establish the rules of the game ministries, autonomous public or private for political competition. They provide the frontline providers, and regulatory agencies. rules of the game for the broader working of These two sets of players make up the public 126 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E bureaucracy, which follows objectives set by authority work at cross-purposes, and the lat- political leaders within a framework set by ter dominates the former.2 Political leaders use checks and balances institutions. The justice their control over patronage resources to system plays a dual role, as a checks and bal- maintain their power base; at the limit, they ances institution and a provider of dispute are captured by powerful private interests. resolution services to society. Leaders can bypass or override checks and bal- Within the bureaucracy, cross-cutting ances institutions and the public administra- bureaucratic control agencies oversee service tion when these get in the way of their political provision and regulatory agencies. This is goals. Systems are not transparent. Levels of where options for prioritization and resource corruption are generally high. Informal norms allocation are developed--and where the are, of course, also a reality in better-governed responsibility lies for establishing and enforc- settings; however, they do not conflict as egre- ing the rules and accountabilities (for exam- giously with the formal arrangements. ple, the financial management and personnel Clientelist systems may limit development, rules) within which service provider and reg- but they can be stable if political leaders ulatory agencies operate. choose to exercise sufficient restraint to enable The fifth set of actors comprises citizens and the formal system to operate, however imper- firms--as users of public services, including fectly. This is more likely when they take a regulatory services and service providers. Citi- long-term view and recognize the importance zens and firms can be depicted as principals, of sustaining the institutional capacity to gov- holding providers (agents) accountable for the ern. The result--as observed in Africa in the efficiency and effectiveness of service provision. 1970s and 1980s, for example--may be a The extent to which they can do this depends seemingly long-term clientelist equilibrium. on the quality and transparency of information But this equilibrium can turn into an acceler- flows. In markets with both public and private ating downward spiral if the time horizon of providers, competition can be a powerful disci- leaders is short. Bureaucratic decay deepens as plining influence on all providers--including organizations lose resources and competent those in the public sector. staff. Economic decay deepens as public ser- To illustrate the relevance of the frame- vices weaken and policy becomes more capri- work, one might consider two very different cious. Investor confidence evaporates and configurations along a spectrum of gover- political decay deepens as the leadership finds nance quality. The first pattern--sometimes itself trying to buy off constituencies with termed good enough governance--summa- fewer and fewer resources. At the limit (as in rizes the attributes of consistently stronger Sierra Leone) the endpoint of this downward governance.1 For governance to be good spiral of decay can be the collapse of the state. enough, the public bureaucracy need not per- For many low-income countries, improving form at the highest levels of efficiency. More governance means breaking out of the trap of important is that the accountability arrange- clientelism. Because clientelism (as is the case ments built into the national governance sys- with all governance arrangements) is deeply tem be mutually reinforcing, so that the intertwined with the structure and exercise of system can self-correct. Failure in one part of political power, this can be enormously diffi- the system (such as corruption in the use of cult. Different societies find different ways to public funds) generates pressures from other break free. As a result, their trajectories of gov- parts (parliament, courts, or citizen groups) ernance reform vary--with corresponding dif- to refocus on the public purpose. ferences across countries as to which actors and The contrasting pattern--clientelist gover- accountabilities improve rapidly, and which nance--characterizes countries with much lag. As will become evident, these variations weaker governance performance. In clientelist have important implications for both gover- countries, formal and informal systems of nance monitoring and reform. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 127 C H A P T E R 5 Indicators of Governance of the level of aggregation, few governance data sets are objectively measurable indicators: Even with greater clarity about the relevant multiple attempts reveal how difficult it is to institutions, measuring their quality is diffi- construct them.3 The data mostly reflect sub- cult. Formal systems can be categorized and jective perceptions--sometimes expert assess- rated--but the gap between formal arrange- ments, other times survey-based measures of ments and realities on the ground is often the perception of citizens or firms. Some sur- very wide. Institutional processes are difficult veys, however, do ask questions that produce to observe and measure systematically. Some "objective" data--for example, the share of outcomes can be measured, but these can household income or sales revenues used to have multiple causes and are often remote pay bribes. While the use of expert assessments from the quality of governance. There are and perception-based data is ubiquitous in the ways of responding to these measurement dif- social sciences, caution--and careful attention ficulties, but all are imperfect--and often sub- to the likely margins of uncertainty--is needed ject to large margins of error. in the interpretation of results. Indeed, as the The framework suggests two distinct next sections will illustrate, some measurement approaches to monitoring the quality of gov- error is inevitable, regardless of the type of ernance. The first is to monitor at a disaggre- governance measure used. gated level, using specific measures of the quality of key governance subsystems--and to use the results as "actionable indicators" The Variety to identify specific strengths and weaknesses Few of the 33 data sources listed in Gover- in individual countries, and thus to guide nance Indicators: A Users' Guide (UNDP reforms and track progress. The second is to 2004), can be used straightforwardly in this monitor governance at more aggregate levels, report. Some fall short of the requisite com- using broad measures. Broad measures have prehensiveness of country coverage--particu- different uses from their specific counterparts. larly that of low-income countries. Others They can help reveal some systematic pat- are collected irregularly, weakening their terns underlying the complexity and diversity ability to measure trends. This report focuses across individual subsystems. And they can on a subset of 14 measures that offer com- provide some basis for monitoring overall prehensive country coverage and, among trends across countries and over time. them, cover each of the diverse facets of Broad measures of governance can be national governance systems in the frame- derived in two ways. First, they can be com- work. (See table 5.4 at the end of this chap- posite measures built up from disaggregated ter.) Three sets of indicators--the World Bank's indicators. Sometimes, such measures are Country Policy and Institutional Assessments constructed in a way that makes it possible (CPIAs), which account for 5 of the 14 indi- to drill down from aggregate to disaggre- cators; the Kaufmann-Kraay aggregate gover- gated levels, and thereby identify strengths nance indicators, which account for 3 and weaknesses in an action-oriented way. additional indicators; and 3 selected indica- In practice, governance measurement has tors from the Doing Business database and the not yet advanced to the point that this is Investment Climate Surveys--are examined routinely feasible--despite some advances in this chapter. Other indicators are exam- in this direction. Second, broad indicators ined in chapter 6. could be derived by focusing on the out- comes produced by national governance The CPIA systems. This report reviews and applies both broad In the late 1970s the World Bank began and specific governance indicators. Irrespective using systematic country assessments to 128 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E guide the allocation of International Devel- BOX 5.2 The 2004 CPIA's 16 criteria opment Association (IDA) resources. By the late 1990s the CPIA had evolved to some- thing close to its current format. A further A. Economic management round of fine-tuning came in 2004, to imple- 1. Macroeconomic management ment suggestions by an independent panel of 2. Fiscal policy outside experts. The 2005 CPIAs will be the 3. Debt policy first publicly available detailed scores for B. Structural policies IDA countries. 4. Trade 5. Financial sector CPIAs examine policies and institutions, 6. Business regulatory environment not development outcomes, which can C. Policies for social inclusion/equity depend on forces outside a country's control. 7. Gender equality The CPIA looks at 16 distinct areas grouped 8. Equity of public resource use into four clusters (box 5.2). For each crite- 9. Building human resources rion, very detailed guidelines are provided to 10. Social protection and labor help Bank staff score individual countries 11. Policies and institutions for environmental along an absolute 1­6 scale. sustainability For monitoring governance systems, the D. Public sector management and institutions CPIA indicators can be used in three ways: 12. Property rights and rule-based governance 13. Quality of budgetary and financial management At the most disaggregate level, scores for 14. Efficiency of revenue mobilization 15. Quality of public administration individual criteria in the public sector man- 16. Transparency, accountability, and corruption in the agement and institutions cluster can be public sector quite specific, and actionable. The analysis of public budget and administrative man- agement systems in the next chapter will draw on CPIA criteria 13 and 15. The average score for the public sector ity--even though "the criteria were devel- management and institutions cluster (clus- oped to ensure that, to the extent possible, ter D) can be an aggregate indicator of the their contents are developmental neutral, that quality of a country's governance system. the higher scores do not set unduly demand- Table 5.2 places 66 low-income, potential ing standards, and can be attained by a coun- IDA-recipient countries into five groups, try that, given its stage of development, has a according to their CPIA cluster D scores policy and institutional framework that for 2004.4 strongly fosters growth and poverty reduc- The average score for clusters A, B, and C tion" (World Bank (2004b: 5). Policy expec- can be an aggregate measure of the quality tations in some areas, such as social of a country's economic and sectoral poli- protection, are different for low- and higher- cies--viewed as an outcome measure of the income countries. Staff assessments can be quality of a country's governance system. affected by the fact that the CPIA forms the basis for allocating IDA resources. There are As with all indicators, the CPIA has its lim- risks of ideological bias--for example, on the itations. The assessments are made by World merits of low tariffs versus an export-neutral Bank staff. Even if expert in their field and combination of tariffs and subsidies. To well informed about individual countries, address these limitations and ensure consis- staff sometimes may not be aware of the inti- tency across countries, the World Bank goes mate details as to how things really work in a through an elaborate multistage process for country. Some of the criteria do not lend scoring the CPIAs. The process includes an themselves readily to an ordinal scale of qual- initial round of benchmarking by a global G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 129 C H A P T E R 5 TABLE 5.2 2004 country scores for the CPIA public institutions cluster CPIA institutions cluster score Countries Above 3.5 Armenia, Bhutan, Ghana, India, Mali, Senegal, Tanzania 3.3­3.5 Benin, Bosnia and Herzegovina, Burkina Faso, Ethiopia, Georgia, Honduras, Indonesia, Kenya, Lesotho, Madagascar, Malawi, Nicaragua, Pakistan, Rwanda, Serbia and Montenegro, Sri Lanka, Uganda, Vietnam 3.0­3.2 Albania, Azerbaijan, Bangladesh, Bolivia, Cameroon, Eritrea, Guyana, Moldova, Mauritania, Mongolia, Mozambique, Nepal, Niger, Papua New Guinea, São Tomé and Principe, Zambia 2.6­2.9 Burundi, Chad, Rep. of Congo, Côte d'Ivoire, Djibouti, The Gambia, Guinea, Kyrgyz Republic, Nigeria, Sierra Leone, Solomon Islands, Tajikistan, Uzbekistan, Republic of Yemen 2.5 or below Angola, Comoros, Central African Republic, Dem. Rep. of Congo, Guinea-Bissau, Lao PDR, Sudan, Togo Source: World Bank. team drawn from across the World Bank, Kaufmann-Kraay subsequent rounds within operating regions The Kaufmann-Kraay (KK) indicators, pub- using the benchmarked countries as guide- lished on the Web site of the World Bank Insti- posts, and a further round of validation by tute, are the product of research conducted by central units. The results are discussed with World Bank staff. But unlike the CPIAs, they national governments, but final scoring rests are not a formal World Bank product, and with the Bank. they are not used in any systematic way in Given the above, it is appropriate to inter- World Bank decisions. They are one response pret CPIA scores as estimates, with some to the problem of aggregation. They generate margin of error. Estimates place the standard a set of six composite aggregate indicators error at about 0.24 for aggregate measures on from a proliferation of loosely connected dis- the 1­6 scale (see Gelb, Ngo, and Ye 2004). aggregated measures by using a technique for High-, middle-, and low-performing coun- statistical aggregation, the unobserved com- tries can thus be distinguished, but attempts ponents model. The six aggregate governance to position countries on a fine scale will likely indicators are as follows: result in some being misclassified. Small annual changes may not be easy to assess Voice and accountability with confidence but CPIA-type estimates are Political stability and absence of violence able to distinguish trends--for 1999­2004 Government effectiveness the correlation between the CPIA and the Regulatory quality similar index produced by the African Devel- Rule of law opment Bank is 0.8, with changes moving in Control of corruption the same direction for 43 out of 51 countries. Ultimately open debate offers the best way of These indicators, available for every sec- uncovering and addressing remaining weak- ond year from 1996 to 2004, are an amalgam nesses in the CPIA. The decision to make of 352 variables, culled from 37 data sources public the detailed 2005 CPIA scores for produced by 31 organizations. Three of these IDA-recipient countries is an important step indicators--voice and accountability, rule of in the ongoing process of enhancing the law, and control of corruption--will be used transparency of this potentially important as part of governance monitoring in this and indicator. the next chapter. 130 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E Kaufmann and Kraay explain the aggrega- The cost, though, is to introduce a different tion approach as follows:5 type of uncertainty. KK's gain in precision is offset by a loss of specificity. The KK compos- The premise [is that] each of the indi- ite variables combine sources that measure vidual data sources provides an imper- similar, but not identical, phenomena. A coun- fect signal of some deep underlying try's poor score on one of the aggregate indi- notion of governance that is difficult to cators might reflect divergent performance observe directly . . . that, within each among the underlying sources, making the cluster, each of these indicators mea- indicators less useful as actionable tools. Fur- sures a similar underlying basic concept ther, the KK methodology both presumes that of governance . . . [The challenge is to] each of its sources is independently generated, isolate the informative signal about and weights converging sources more heavily. governance from each data source, and But if in fact the converging sources draw on to optimally combine the many data a shared underlying model, the methodology sources to get the best possible signal of risks marginalizing sources that offer a view governance in a country based on all the that is different--but not necessarily wrong.6 available data . . . The unobserved com- The example of corruption illustrates the ponents model expresses the observed use and limitations of aggregate indicators. data in each cluster as a linear function Two sets of aggregate indicators--the KK of the unobserved common component "control of corruption" aggregate indicator of governance, plus a disturbance term and Transparency International's (TI) Corrup- capturing perception errors and/or sam- tions Perceptions Index7--provide "best prac- pling variation in each indicator. tice" broad measures, and so have dominated cross-country ratings of corruption. Both rank The aggregation procedure used by KK countries according to their perceived perfor- has some important strengths for empirical mance in controlling corruption, and both work on governance. The methodology report margins of error of their estimates; the enables very broad country and territory cov- country estimates for both are included in the erage--209 in the most recent version. The statistical annex. Each indicator draws on mul- aggregation procedure generates, for each tiple primary indicators to produce country country, both point estimates and standard rankings. The KK indicator description indi- errors of these estimates. cates what is being measured, namely: By making explicit the standard errors of their estimates, the KK measures highlight how . . . perceptions of corruption, conven- challenging it is to measure precisely the qual- tionally defined as the exercise of public ity of governance--for both broad and specific power for private gain. The particular measures. Specific measures often are based on aspect of corruption ranges from the fre- sample surveys or on expert assessments-- quency of "additional payments to get with the risk of sampling error in the former things done" to the effects of corruption (although robust sampling and statistical on the business environment, to mea- methodologies can reduce the range of error), suring "grand corruption" in the politi- and of informant error in the latter (although cal arena or in the tendency of elites to robust peer review can limit this risk). By com- engage in "state capture . . . bining multiple sources into a single measure, KK helps reduce uncertainty of this type; their Although the KK and TI methodologies approach takes advantage of the well-known differ,8 in practice their results are very similar, statistical property that the margin of error of with a correlation coefficient of 0.97. Either a measure declines as the number of indepen- indicator can be used for comparisons across dently generated estimates increases. countries and over time. Two conclusions: G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 131 C H A P T E R 5 High-income Organisation for Economic tions affecting private business across 10 topic Co-operation and Development (OECD) areas--the number of procedures required to countries are usually in the least corrupt accomplish the task in question, the number third of countries. The distribution of mid- of days necessary to accomplish the task, and dle-income countries is mixed; at least 8, the monetary cost in required fees. Input and and (depending on the confidence interval verification is provided by government offi- used) up to 17 middle-income countries are cials, lawyers, business consultants, accoun- in the bottom third. The majority of low- tants, and other professionals administering income, IDA-recipient countries are in the or advising on regulatory requirements. most corrupt third, though 20 countries in Both the DB and ICS data are, of course, this group are in the middle third. This dis- subject to measurement error. Also, differ- tribution reflects the well-known inverse ences in their methodologies generate differ- correlation between per capita income and ent strengths and weaknesses, making them levels of corruption. But even within the usefully complementary to one another: general pattern, levels of corruption vary widely for countries at similar levels of per De jure versus de facto: The DB product capita income--implying that corruption is measures the de jure business environment not wholly tied to income. whereas the ICS product measures the de It is possible to position countries on a facto business environment. Both mea- global corruption spectrum only in broad sures are useful, though it is important not terms. Even if countries are organized into to confuse changes in the de jure environ- three broad categories--top, middle, and ment with actual changes on the ground.9 bottom thirds--only for about 40 percent In-depth versus holistic perspective: The of countries, and only for half of those in DB product zeroes in on a narrow set of the bottom third, can one have at least 95 transactions, which it presumes to be illus- percent confidence that they belong in the trative of the business environment more third in which they have been placed. broadly, whereas the ICS product provides a holistic view of the business environment from the perspective of firms themselves. Doing Business and the Investment Cost and coverage: DB covers 155 coun- Climate Surveys tries, and all country scores are updated The World Bank-sponsored Doing Business annually. The ICS is a more effort-inten- (DB) and Investment Climate Surveys and sive product than the DB product. Its data- Assessments (ICS) were introduced in chapter 1. base contains information on about 60 These surveys are designed to monitor the busi- countries; it aims to cover 20­30 countries ness environment, not governance. Some of the each year and resurvey each country every business environment measures can nonethe- three years or so. High costs somewhat less be directly linked to governance, and there- limit the ICS' usefulness as a tool for ongo- fore are useful for governance monitoring. ing governance measurement across a The DB and ICS methodologies are very large number of countries. different. The ICS captures business percep- tions on the biggest obstacles to enterprise A first potential use of these business growth, the relative importance of various environment indicators for governance constraints to increasing employment and monitoring is as overall outcome measures, productivity, and the effects of a country's complementing the CPIA and KK. Box 5.3 investment climate on its international com- highlights three specific measures which can petitiveness. DB indicators comprise detailed, play this role: the ICS measures of corrup- objective measures of the time and cost of tion, plus two measures of transactions strict compliance with government regula- costs associated with bureaucratic red-tape. 132 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E BOX 5.3 Three aggregate governance Doing Business and Investment Climate Survey indicators Unofficial payments for firms to get things done (percentage of sales) (ICS) Average value of gifts or informal payments to public officials to "get things done" with regard to customs, taxes, licenses, regulations, services, and the like. The values shown indicate a percentage of annual sales. Dealing with licenses (DB) The number of procedures, average time spent during each procedure, and official cost of each pro- cedure involved in obtaining necessary licenses and permits, completing required notifications and inspections, and obtaining utility connections (using construction of a warehouse as a benchmark example). Senior management time spent dealing with requirements of regulations (percent) (ICS) Average percentage of senior management's time that is spent in a typical week dealing with require- ments imposed by government regulations (such as taxes, customs, labor regulations, licensing, and registration), including dealings with officials, completing forms, and the like. Irrespective of how much business regulation and weaker checks and balances. Administra- a country judges to be appropriate, it always tive corruption refers to the provision of illicit is developmentally desirable to minimize the and nontransparent benefits to influence how time and hassle spent in complying. In gen- these established rules are implemented. eral, high transactions costs signal some com- Administrative corruption flourishes in states bination of an unresponsive bureaucracy, or with weaker bureaucratic capacity and a clientelistic environment geared to provide accountability. The ICS surveys conducted in opportunities for informal rent-extraction by Eastern and Southeastern Europe and the for- public officials. mer Soviet Union (known as the BEEPS sur- A second potential use of the ICS data in veys)10 framed their questions in a way that particular is to distinguish among different made it possible to distinguish among the dif- types of corruption. Corruption sometimes is ferent types of corruption. The surveys found disaggregated into two basic forms--state cap- that the relative balance between state capture ture and administrative corruption. State cap- and administrative corruption can vary widely ture refers to the actions of individuals, groups, from country to country. or firms in either the public or private sectors A third use of the DB and ICS data is to to influence the formulation of laws, regula- measure trends over time for specific features tions, decrees, and other government policies of the governance environment within indi- to their own advantage as a result of the illicit vidual countries. Where survey variables are and nontransparent provision of benefits to narrowly defined, and the sampling and sta- public officials. State capture is commonly tistical work are careful, the resulting mea- found in states that control important national sures can have small margins of error, and so assets, either through ownership (for instance, detect incremental changes over time. Figure mineral rights, state-owned enterprises) or reg- 5.2 draws on the 1999, 2002, and 2005 ulation (for instance, economic or environ- BEEPS surveys to report trends in administra- mental), but have limited political competition tive corruption for the 26 surveyed countries. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 133 C H A P T E R 5 FIGURE 5.2 Administrative corruption in Europe and Central Asia a. Bribe frequency b. Bribe tax c. Corruption as an obstacle to doing business Index Index Index 100 100 100 100 100 100 95 90 92 90 80 90 87 86 70 64 80 60 80 1999 2002 2005 1999 2002 2005 1999 2002 2005 Source: The World Bank and the EBRD Business Environment and Enterprise Surveys (BEEPS) 1999, 2002, 2005. Notes: The charts depict 2002 and 2005 values relative to 1999, except in the case of bribe tax, where the 2005 value is shown relative to 2002. Due to a change in word- ing, the bribe tax is not comparable between 1999 and 2002. Values are based on the simple average of country means over all countries that were present in all years. FIGURE 5.3 Corruption in specific sectors in Europe and Central The figure points to broad declines in admin- Asia, 2002­5 istrative corruption--an important success, and one that needs careful and sustained sur- vey analysis to become evident.11 Utilities Finally, the DB and ICS data also are use- Business ful as specific, disaggregated measures of the licenses performance of individual public service pro- Government vision or regulatory agencies or sectors. The contracts annex table in chapter 6 highlights four cate- Occupational gories of specific measures that are useful for health and safety governance monitoring: measures of corrup- inspections tion; measures of transactions costs associ- Fire and building ated with red tape; measures of the quality of inspections provision of education, water, and telecom- Environmental munications services; and measures of the inspections quality of justice and the rule of law. Figure 5.3 illustrates the products' usefulness with Taxes data (again for the 26 BEEPS survey coun- tries) on variations across sectors in the inci- Customs dence of corruption. Courts Governance Monitoring--From Broad to Specific Influence laws Ten years ago, none of the Transparency Inter- 0 5 10 15 20 national, KK, and Doing Business indexes Percent claiming bribes are frequent existed; the CPIA was still quite rudimentary, and none of it was public; and ICS were not 2002 2005 being done on a systematic basis globally. Over the past decade, there have thus been Source: The World Bank and the EBRD Business Environment and Enterprise Surveys (BEEPS) 2002 and 2005. major advances in the development of broad Notes: The chart depicts the simple mean of the country averages of the percent of firms that indicators for monitoring developing-country said bribes were frequent. governance. 134 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E Combining different indexes yields some IDA-eligible countries. But (even making sub- striking patterns, additional to those described stantial allowance for the margins of error in above. Table 5.3 combines the country results measurement) in 17 countries the quality of for two sets of broad outcome indicators--the policy and institutions is better than perfor- KK control of corruption measure, and the mance on corruption, and 15 countries show quality of a country's economic and sectoral the opposite pattern. Bangladesh currently is policies (as measured by the average score for perhaps the best known example of a country CPIA clusters A, B, and C).12 Three key lessons with relatively weak perceived control of cor- emerge. ruption but strong performance on policies First, the broad indicators offer a first and on poverty reduction--though, as table approximation of the patterns of variation in 5.3 suggests, many other countries evince a governance performance among 66 IDA recip- similar pattern. ient countries. About one-third of countries Countries can thus differ. Some with weak generally are in the higher "good enough" policies appear to be less corrupt. And others, quintiles of both broad governance outcome stronger on the policy front, seem less suc- indicators. Another third are lodged firmly in cessful in controlling corruption. This diver- the lower "clientelistic" quintiles of the indi- gence raises some questions, both for cator sets.13 governance monitoring and more broadly: Second, these consistent clusters aside, what is especially striking is the uneven mix If the divergence is not simply the result of of strengths and weaknesses for individual measurement error (and the allowance for countries. Country performance is broadly large margins of error in the construction similar on both dimensions for 34 of the 66 of table 5.3 suggests that it mostly is not), TABLE 5.3 Intermediate outcomes--corruption versus policy CPIA 2004 policy quintiles (cluster (a)­(c) average) Relative performance across governance outcomes Bottom quintile 4th quintile 3rd quintile 2nd quintile Top quintile Control of Angola, Central Burundi, Cameroon, Benin, Bosnia Burkina Faso, corruption and African Republic, Cambodia, Rep. of Ethiopia, Kenya, and Herzegovina, Nicaragua, Senegal policy performance Comoros, Dem. Congo, Djibouti, Malawi, Moldova, Mali, Serbia and are broadly Rep. of Congo, Côte Papua New Nepal, Rwanda, Montenegro, similara d'Ivoire, Lao PDR, Guinea, Sierra Mozambique, Sri Lanka Nigeria, Solomon Leone, Zambia Niger, Yemen Islands, Sudan Better policies, Chad, Haiti, Tajikistan Bangladesh, Albania, Armenia, weaker control Uzbekistan Georgia, Azerbaijan, Bolivia, of corruptionb Kyrgyz Republic, Honduras, Pakistan, Indonesia, Vietnam Tanzania, Uganda Better corruption Eritrea, Guinea- The Gambia, Mongolia, Lesotho Bhutan, Ghana, control, less Bissau, São Tomé Guinea, Mauritania Guyana, India, effective policiesc and Principe, Togo, Madagascar Zimbabwe Source: World Bank CPIA Database. a. Country percentile rank for the CPIA Policy Outcome and the Kaufmann, Kraay, and Zoido-Lobaton (KKZ) Control of Corruption indicator are less than 20 percentile points apart. b. Country percentile rank for Policy Outcome is better than Control of Corruption by percentile rank of at least 20 points. c. Country percentile rank for Control of Corruption is better than Policy Outcome by percentile rank of at least 20 points. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 135 C H A P T E R 5 is it pointing to some underlying struc- broad governance indicators we have are tural or social features, or to differences what we will have to work with--no break- across countries in the relative importance through capable of providing an overarch- ascribed to good policy on the one hand, ing, yet precise measure of governance is on and the fight against corruption on the the horizon. This signals the limitations of other? efforts to classify countries according to their How do differences in the relative impor- broad governance performance. Further, tance ascribed to these different dimen- country-specific operational work also needs sions affect country performance on indicators that are specific, and identify poverty reduction? "actionable" entry points for reform. How should donors respond to this diver- Governance monitoring thus needs to gence? Should they differentiate their make balanced use of both broad and more support as between countries that fight specific indicators. The Global Monitoring corruption determinedly but have rela- Report (GMR) identifies 14 indicators-- tively weak policy, and countries stronger both broad and specific, all of which are ital- on the policy front than on reining in icized in table 5.4--as core for governance corruption? monitoring. (The CPIA, KK, DB, and ICS How do such differences reflect the per- indicators have already been introduced; the formance of specific governance sub- others will be introduced in chapter 6.) Most systems? Which are most relevant for come from sources that are updated every containing corruption? year or two, such as the CPIA, KK, and TI. Country coverage already is comprehensive The third lesson on indicators (broad and for these and for Doing Business and Polity specific) follows from the fact that they gen- IV; many countries are also being included erally have large errors. Quantifying these in periodic ICS. The exception is the PEFA margins of error has been an important indicator set, developed by the Public advance over the past decade. The consensus Expenditure and Financial Accountability among researchers is that, by and large, the global program. Effective monitoring of the TABLE 5.4 Governance monitoring indicators Indicators with comprehensive country coverage Other key indicators Overall governance 1, 2, 3. Control of corruption (KK, TI, ICS) performance 4. Policy outcome (CPIA cluster a­c average) 5. Aggregate public institutions (CPIA cluster d) 6, 7. Business transactions costs (DB, ICS) Bureaucratic capability 8. Budget/financial management (CPIA-budget) 14. PEFA indicators 9. Public administration (CPIA-admin) Procurement Doing Business indicators "Actionable" public administration Investment Climate Surveys Service-provision-specific Statistical Capacity Checks and balances 10. Voice and accountability (KK) Global Integrity Index institutions 11, 12. Justice and rule of law (KK, CPIA-rules) 13. Executive constraints (Polity IV) Source: Authors. Note: Each indicator set is described in the text; the 14 italicized indicators are considered key by the GMR. 136 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G D E V E L O P I N G - C O U N T R Y G O V E R N A N C E quality of public financial management is actionable--in the sense that they can help central to the new approach for scaling-up identify specific governance weaknesses and aid. The GMR thus recommends that prior- monitor progress of reform efforts. The next ity attention be given to more systematically chapter will focus on the monitoring of spe- applying the PEFA indicators in aid recipi- cific governance subsystems, highlighting the ent countries. potential uses, both for monitoring and for Along with the 14 core indicators, table 5.4 governance reform, of actionable indicators. also identifies a variety of other (nonitalicized) indicators that are useful for global monitor- ing. All of these are specific "actionable" indi- Notes cators. Of the specific indicators, the DB, ICS, and Statistical Capacity indexes already are 1. For a detailed development of the term, good enough governance, see Grindle (2004). available comprehensively. Using the others 2. For some theoretical and applied analyses of for monitoring remains a work in progress. clientelism, see Bratton and Van Der Walle (1998); The Global Integrity Index has been measured Carothers (2002); Levy and Kpundeh (2004); in 25 countries. The procurement index--the Lewis (1996); Migdal (1988); North (1990); Olson OECD-DAC [Development Assistance Com- (1991); World Bank (2004a). mittee] Baseline Indicator Set (BIS) for Pro- 3. The Public Expenditure and Financial curement--has been proposed to be piloted in Accountability (PEFA) indicators incorporate a 10 countries. Specific "actionable" indicators few objective measures of the quality of budget measuring key aspects of public administra- performance. tion have been piloted in three countries. The 4. There are a total of 81 countries eligible for number of service-provision-specific indicators IDA in FY06 (excluding Iraq and Kosovo). Ten "small island economy exception" countries are potentially is large, though so far only one that excluded from the sample. Afghanistan and Timor- is clearly governance related--teacher absen- Leste do not have CPIA scores and are excluded teeism--has been collected systematically, and from this sample. Liberia, Somalia, and Myanmar so far for fewer than a dozen countries. are inactive IDA countries, and do not have recent Though the cost of developing and applying CPIA scores. these indicators across a large number of coun- 5. Kaufmann, Kraay, and Mastruzzi (2005: 7); tries is high, the PEFA and DB experiences sug- Kaufmann, Kraay, and Zoido-Lobaton (1999: 9). gest that the benefits can be higher still. The 6. Note that, on average, composite variables GMR thus recommends that support be given do not change much with different weighting for the further development of actionable indi- schemes. cators. Once the PEFA indicators have been 7. For details about this index and annual results for 1995­2005, see www.transparency.org/ rolled out systematically, priority attention policy_and_research/surveys_indices/cpi. could be given to the expansion of coverage of 8. See, for example, Kaufmann, Kraay, and the BIS procurement measures and the Global Mastruzzi (2005), which contrasts the methodolo- Integrity Index. gies used by the two indexes for calculating stan- Work on these specific indicators is emerg- dard errors. ing as the frontier challenge for governance 9. For an interesting analysis of the relation monitoring. They focus on a narrow target between de jure and de facto measures of the busi- for measurement, so--if the indicators are ness environment see Kaufmann, Kraay, and Mas- carefully defined, and the methodologies for truzzi (2005). The authors find the correlation measurement robust--specific measures can between de jure and de facto measures to be about provide quite tight margins of error, even if 0.4. The gap is larger in countries with higher per- ceptions of corruption, signaling the power of they cannot easily be used as proxies for informality in working around de jure constraints. broader governance outcomes. The narrow 10. These surveys were conducted jointly by focus of specific measures also makes them the World Bank and the European Bank for G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 137 C H A P T E R 5 Reconstruction and Development; they are known for the overall quality of public institutions. The as the Business Environment and Enterprise Per- correlation coefficient between CPIA cluster D and formance Surveys (BEEPS). the KK control of corruption measure is 0.76, sug- 11. This forthcoming analysis is tentatively gesting that it is indeed quite a good proxy. Consis- titled "Anticorruption in Transition 3." The second tent with the substantial dispersion evident in table installment of the monitoring exercise, focusing on 5.3, the correlation coefficient between KK corrup- the period between 1999 and 2002, was presented tion and the CPIA clusters A­C average is 0.53. in Gray, Hellman, and Ryterman (2004). 13. The location of countries in higher and 12. An alternative approach might have been to lower quintiles is broadly similar to the patterns view corruption not as an outcome but as a proxy for CPIA cluster D, in table 5.2. 138 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 6 Monitoring and Improving Governance Subsystems Bureaucratic Capability, Front-Line Provision, Checks and Balances G overnance being multidimensional, of action. It manages the implementation of both reform and monitoring to sup- these policies. And it reports on progress. port reform are best tackled through Helping to build bureaucratic capability specific subsystems. The framework laid out has long been a focus of development assis- in the previous chapter distinguished among tance. Before 2000 it was viewed as principally three broad subsystems: cross-cutting public technocratic, with a gradual accumulation of financial management and administrative lessons and advice on good practice. Even as control agencies that underpin bureaucratic these lessons crystallized, the profile of the capabilities; front-line service provision and work remained low, because its focus on regulatory agencies; and checks and balances building country systems was at odds with the institutions. This chapter deepens the focus on dominant approaches to providing aid and developing-country governance by considering technical support through self-standing pro- for each of these subsystems some options for jects, hermetically sealed off from often dys- monitoring and improving performance--and functional public sectors. But with the new links these to different approaches to scaling up approach to aid placing increasing emphasis aid. (The developed-country, multilateral, and on mutual accountability, the profile of efforts global dimensions of the governance challenge to build bureaucratic capability has risen are considered in depth in chapters 3, 4, and 7, dramatically. respectively.) Inevitably, countries reforming Better public finance and administration in governance differ from one another in the pace developing countries is essential for the new at which these different subsystems improve. A approach, introduced in December 1999 with final section of the chapter examines some of the Poverty Reduction Strategy (PRS) process. the dilemmas this poses for the country and for The PRS builds on a hard-learned lesson of its development partners. development experience--that externally imposed conditionality generally fails to Monitoring and Improving achieve its intended results (World Bank and Bureaucratic Capability IMF 2005: 1, 10). The national budget and the public bureaucracy that prepares and An effective bureaucracy facilitates the scal- implements the budget and is accountable to ing-up of aid. The bureaucracy formulates its citizens are critical vehicles for ensuring detailed policies that translate the goals of country ownership and leadership (World society and its political leaders into programs Bank and IMF 2005: 12, 15, 19). G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 139 C H A P T E R 6 Budget support is the natural way to This section considers some aspects of transfer resources to support a country's PRS country progress in moving from general objectives without undermining country assertions of development goals to the specific ownership through excessive external over- articulation, costing, and implementation of sight. But where governments focus less on strategies for poverty reduction. It first poverty reduction and participation, are less reports on progress in monitoring the quality constrained to be accountable to their citi- of public expenditure management and high- zens, and have less capacity, the combination lights some patterns across countries revealed of a PRS process and budget support does by monitoring. It also highlights emerging not offer a ready way of resolving the tension lessons about how to strengthen public between country ownership and donor fidu- expenditure management systems in different ciary obligations. country settings. The section then reports on Countries are making progress in develop- efforts to monitor public administration, ing a long-term holistic vision for poverty drawing on experience to offer practical guid- reduction and translating that vision into a ance on how to improve administrative capa- coherent, medium-term, sequenced strategy. bility, both for developing countries on a path But most have a long way to go. The PRS of improving governance and for their devel- Review of 2005, reporting survey data cover- opment partners seeking to monitor progress. ing 59 countries, concluded that only 7 had well-developed strategic programs (World Monitoring and Improving Public Bank and IMF 2005; and World Bank 2005). Financial Management The majority of the remaining countries had activity under way--though not yet advanced Public financial management is particularly to the point that long-term visions could serve relevant to the new aid architecture. It is key as a reference point for policy makers. for getting results on the ground and for assur- ing donors that aid resources are being used prudently. Setting the stage for the analysis FIGURE 6.1 Public financial management: a performance here is a framework based on the 2005 report monitoring framework of the multiagency Public Expenditure and Financial Accountability (PEFA) partnership The budget cycle program (figure 6.1). That report synthesized the results of more than a half-dozen years of work by PEFA partners to develop a common Policy- based platform for assessing the quality of public budgeting finance systems, including those in aid-recipient countries. The framework depicts four facets of the budget cycle: External Predictability Comprehensiveness Policy-based budgeting--the formulating scrutiny & & control in Transparency process for translating public policies, in- audit budget Budget execution cluding policies that emerge from a PRS Credibility process, into specific budgeted expenditures Arrangements for predictability, control, Accounting, and stewardship in the use of public funds recording, & (for example, payroll and procurement reporting systems) Systems of accounting and recordkeeping to provide information for proper man- Source: www.pefa.org. agement and accountability 140 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S External audit and other mechanisms criterion 13 (see box 5.2)--abbreviated here that ensure external scrutiny of the oper- as CPIA-budget--can be used to assess over- ations of the executive (for example, by all patterns in the quality of budget manage- parliament) ment systems across countries. As a country improves its budget management system, its Comprehensiveness of budget coverage CPIA-budget score moves from weakest (1) to and transparency of fiscal and budget infor- strongest (6). The scale is built from four mation cut across these four facets. The dimensions of budget management, which framework also identifies credibility--that broadly correspond to the facets of the PEFA the budget is realistic and implemented as performance management framework in fig- intended--as a key intermediate outcome, a ure 6.1.2 A CPIA-budget score at or above 4 result of the operation of the whole cycle. is consistent with the "good enough gover- There are many ways of measuring the nance" pattern described in chapter 5. quality of a country's public financial man- As of 2004 only 10 of 66 low-income aid- agement system. As box 6.1 highlights, the recipient countries had the "good enough" International Monetary Fund (IMF) has (though imperfect) budget system implied by developed some useful tools.1 This section a CPIA-budget score of 4 (figure 6.2). These focuses on two measures at two different lev- higher-performing countries are Azerbaijan, els--an overall measure of the quality of pub- Benin, Burkina Faso, India, Indonesia, Mali, lic expenditure management, and measures of Serbia and Montenegro, Sri Lanka, Tanzania, specific expenditure management subsystems. and Uganda. Almost half the countries scored An overall assessment. The results of Coun- at or below 3. Of the 10 better-performing try Policy and Institutional Assessment (CPIA) countries, Azerbaijan, Mali, and Tanzania BOX 6.1 Two IMF tools to support fiscal management and transparency The Code of Good Practices on Fiscal Transparency was developed in response to concerns that a lack of comprehensive information on fiscal activity made it difficult to properly assess the objec- tives of fiscal policy. Greater fiscal transparency was also believed to be linked to improved gover- nance and fiscal outcomes more generally. The code contains 37 good practices that are organized according to four main principles of fiscal transparency: clarity of roles and responsibilities; public availability of information; open budget preparation, execution, and reporting; and assurances of integrity. These practices, when observed, are critical not only for holding leaders accountable, but also for preventing any mishandling of finances during budget execution. The IMF regularly undertakes assessments of fiscal transparency called fiscal Reports on Obser- vance of Standards and Codes (ROSCs) in its member countries. Participation in an ROSC is vol- untary and the authorities retain the right not to publish the final report, although most have agreed to publish fiscal ROSCs.a As of the end of 2005, fiscal ROSCs have been completed for 80 coun- tries, and 76 of these have been published. ROSC participation is distributed unevenly across regions, with most countries in Europe and the continental Western Hemisphere having completed ROSCs, while a much smaller share of countries in Africa, the Middle East, and Asia have agreed to participate. A number of countries, especially in Europe, have been working on improving fiscal transparency and have opted to undertake one or more ROSC updates to reflect this progress. In addition, a growing number of countries are undertaking full reassessments. Both reassessments and updates are published on the IMF Web site with the original ROSC. Source: International Monetary Fund, Fiscal Affairs Department, Fiscal Transparency Unit. a. All the published reports are available on the IMF ROSC Web site at http://www.imf.org/external/np/ rosc/rosc.asp. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 141 C H A P T E R 6 FIGURE 6.2 Low-income aid recipient countries with CPIA 13 (quality assessments of the quality of the public man- of budgetary and financial management) scores, 2004 agement systems of aid-recipient countries around the PEFA framework. Number of countries scored The HIPC tracking indicators score each 30 question on an A­C scale, with detailed 24 countries 25 descriptions of how to score each question and an explicit benchmark of "good enough" 20 16 countries 16 countries performance for each question.4 Table 6.1 15 aggregates the HIPC tracking results for 2004 10 countries 10 for the 16 indicators into five categories 5 aligned with the public financial management 0 (PFM) framework laid out in figure 6.1. Average = 2.4 Average = 3 Average = 3.5 Average = 4.1 Control of procurement and payroll was Low Lower middle Middle High not part of the 2001 HIPC tracking indicators. Weaker Stronger In practice, procurement and payroll--plus cash transfers--make up the overwhelming CPIA-budget score majority of public spending, so strong controls in these areas are vital for good financial man- Source: World Bank CPIA Database. Note: CPIA 13 measures the quality of budgetary and financial management. The 66 IDA agement. Recent advances in monitoring the countries are divided into groups based on a CPIA 13 score. quality of procurement highlight some emerg- ing lessons (box 6.2). Consider first the cross-country patterns raised their CPIA-budget scores by at least for policy-based budgeting. Done well, pol- one point between 2001 and 2004. icy-based budgeting can sharpen the focus on Disaggregated public financial manage- longer-term priorities, enable phasing in shifts ment indicators. The heavily indebted poor in priority expenditures over time, and poten- countries (HIPC) debt reduction initiative tially reconcile capital costs and their recur- spurred a sustained effort to develop action- rent cost implications (if capital and recurrent able indicators of budget quality. A first set of budgets are integrated). The HIPC tracking 16 indicators was developed jointly by the indicator reported in the third column of World Bank and the IMF and applied in 2001 table 6.1, labeled "policy-based budgeting," in 23 HIPC through a joint assessment with focuses on medium-term projections. A score recipient-country governments, with a follow- of A signals that medium-term projections up assessment in 2004. exist and are integrated into the budget for- Building directly on the HIPC tracking mulation cycle; a score of B that they exist but process, seven donors (the World Bank, the are not integrated; a score of C that they exist IMF, the European Commission, the U.K. for only a few sectors or not at all. In 2004 Department for International Development only 7 of the 25 countries tracked had inte- (DFID), France, Norway, and Switzerland) grated medium-term projections into their plus the Strategic Partnership with Africa budget cycles, but 13 of the remaining coun- embarked on a joint PEFA program to sup- tries made projections (but did not integrate port "integrated and harmonized approaches them into the cycle). to assessment and reform in the field of pub- Now consider the cross-country patterns lic expenditure, procurement, and financial for budget implementation in the fourth, accountability."3 In 2005 PEFA issued its fifth, and sixth columns in table 6.1: public financial management performance measurement framework, including 28 high- The fourth column reports on measures level monitoring indicators. PEFA partici- of whether the budget is comprehensive, pants have committed to harmonize their with no significant extrabudgetary funds 142 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S TABLE 6.1 Quality of budget management systems in 25 heavily indebted poor countries, 2004 Policy-based Budget Budget Budget External budgeting comprehensiveness credibility Execution budget scrutiny (1 measurea: (4 measuresb: (2 measuresc: (5 measuresd: (2 measurese: CPIA-budget rating Country A­C ranking) # met) # met) # met) # met) Best-performing Mali A 2 2 4 1 group (both CPIA Tanzania A 2 2 4 1 and HIPC) Burkina Faso A 2 2 3 1 Benin A 2 1 4 0 Uganda A 1 0 3 2 Middling group 1 Guyana B 3 2 2 2 Chad B 3 0 2 2 Rwanda A 1 1 2 2 Senegal B 2 2 3 0 Ghana B 1 1 3 1 Honduras B 2 1 2 1 Middling group 2 Cameroon C 1 1 3 1 Ethiopia B 3 1 1 1 Sierra Leone C 2 1 2 1 Bolivia B 4 0 0 0 Niger B 2 0 2 0 Guinea B 2 0 2 1 Malawi B 2 0 2 0 Madagascar A 2 0 1 0 Mozambique B 1 2 0 1 Zambia B 0 0 1 2 Weaker-performing São Tomé and Principe C 2 0 1 1 group Congo, Dem. Rep. of C 2 0 0 0 Gambia, The B 2 0 0 0 Guinea-Bissau C 0 0 0 0 Source: IDA and IMF (2005). For details of the individual HIPC indicators, see www1.worldbank.org/publicsector/pe/FinalHIPCAAPGuidance2003-04.pdf. a. The measure is HIPC indicator 7. b. The measures are HIPC indicators 1, 2, 4, and 5. c. The measures are HIPC indicators 3 and 8. d. The measures are HIPC indicators 9­13. e. The measures are HIPC indicators 14­15. (including unfunded contingent liabilities), the extent of arrears. Six countries have and with donor funds also reported on fully credible budgets (meet both indica- budget. Only Bolivia, Chad, Ethiopia, and tors), but 12 countries met neither of the Guyana can be said to have comprehensive credibility benchmarks. budgets in the sense that they met at least The sixth column reports on whether coun- three of the four benchmarks. Seven coun- tries have a well functioning expenditure tries met no more than one benchmark. execution system, including an internal The fifth column reports on budget credi- audit mechanism, and other in-budget-year bility, as measured by the closeness of controls. Only 8 of the 25 countries met actual expenditure out-turns (both aggre- three or more of the five budget execution gate and sectorally) compared with the indicators tracked in the HIPC process-- original approved budget, and limits on and 9 countries met only one or none. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 143 C H A P T E R 6 BOX 6.2 Recent advances in monitoring the quality of procurement More governments and advisers have recognized that the mechanisms for the government to pur- chase goods, works, and services and the effectiveness of these practices influence the financial well- being of nations, the ability of citizens to access public services, and the competitiveness of domestic firms. Spending on procurement is at the core of discretionary government spending; even minor improvements in efficiency can yield substantial cost savings. With greater visibility has come a profusion of efforts to monitor the quality of public procure- ment systems and enhance their functioning. Consider the Philippines, where in 2005 the govern- ment initiated work to measure public procurement performance in 10 of its largest agencies. The work complemented other procurement monitoring efforts in the country, which included the appli- cation of the Organisation for Economic Co-operation and Development­Development Assistance Committee (OECD-DAC) Baseline Indicator Set for Procurement (BIS) tool; the observance of pro- curement proceedings by civil society representatives; and the publishing of information on the award of procurement contracts and other relevant statistics on the government's e-bulletin Web site. A robust approach to monitoring procurement and linking monitoring to improved perfor- mance is beginning to emerge. The simplest form is physical observation of procurement practices and outcomes. A second form of procurement monitoring focuses on transparency: the publication of procure- ment opportunities and outcomes. In many countries electronic procurement systems have tremen- dously increased the visibility of public contracting and allowed government and nongovernment bodies alike the opportunity to review the distribution of contract awards as well as the price the government pays for its goods, works, and services. A third form of procurement monitoring is assessing performance of public procurement sys- tems using defined performance indicators. Work on developing tools suitable for monitoring pub- lic procurement has been undertaken jointly by donors and partner countries over a two-year time period. A procurement-specific indicator has been included in the PEFA Performance Indicators, and an entire tool, the BIS, has been developed as part of the OECD-DAC Working Party on Improving Aid Effectiveness. The BIS has been applied in more than 10 countries in the first six months after it was finalized. The recommended action here is for the BIS to be used as a regular monitoring tool. Source: World Bank. Note: The BIS tool is available at www.oecd.org/dataoecd/12/14/34336126.pdf. Overall, seven countries (Benin, Burkina The seventh column of table 6.1 reports on Faso, Ethiopia, Honduras, Mali, Senegal, and the quality of budget reporting and external Tanzania) can be said to implement their bud- scrutiny. Adequate accounts are a precondi- gets reasonably effectively, in the sense that tion for effective scrutiny. As of 2004, 14 they met the benchmarks for half or more of countries met one of the two benchmarks-- the criteria in each of columns 4­6. Another closing annual accounts within two months of seven countries (Bolivia, Democratic Repub- the end of the fiscal year. Formal oversight of lic of Congo, The Gambia, Guinea-Bissau, the budget is the responsibility of parliament, Mozambique, Uganda, and Zambia) met based on independent audits of the accounts, fewer than half of the benchmarks in at least and is measured by the second benchmark. two of the three categories, and so appear to But not one of the HIPC-monitored countries have significant weaknesses in budget imple- submitted audited reports to its legislature mentation. within 6 months of the end of the fiscal year-- 144 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S and only 7 countries submitted an audit comparison between the 2001 and 2004 within the benchmark of 12 months. HIPC tracking assessments of 25 countries The results confirm that the quality of bud- identifies 6 (Cameroon, Ghana, Mali, Niger, get management systems of the 25 HIPC- Senegal, and Tanzania) that improved their tracked countries remains uneven. Only scores in a net of at least three categories. Burkina Faso, Mali, and Tanzania score in Even in a brief three-year time span, there the top half of possible (absolute) scores in all were some countries that made substantial five categories. Ethiopia, Ghana, Guyana, improvements for each of the five budget Honduras, and Rwanda avoid the bottom subsystems. For budget execution Senegal rung in all four categories. The remaining 17 went from meeting none of the benchmarks countries had budget systems with at least in 2001 to meeting three in 2004, Ghana one deep flaw. from one to three. Cameroon improved its This unevenness raises concern. The bud- score on both "external scrutiny" bench- get process is like a chain in the sense that it marks (though in 2004 it still took more than is only as strong as its weakest link. Even two months to close its annual accounts). well-formulated budgets add modest value if Guinea's score on policy-based budgeting there is little relation between the budget on went from C to A. And Bolivia and Guyana paper and the way money is actually spent. increased by two the number of "budget And the impact of a well-prioritized and well- comprehensiveness" benchmarks met. executed formal budget is undercut if much As the sustained improvements in Ghana, of the public spending is off budget. Mali, Senegal, and Tanzania suggest, Strengthening public financial manage- countries with stronger starting capacity ment. Why is performance on public financial (measured, say, by having more bench- management so uneven? In some countries marks met in 2001) may be better able to poor performance may be a consequence of achieve rapid gains in the short run than clientelism, extended civil conflict, and the countries with weaker starting points (see evasion of formal rules and external scrutiny. Dorotinsky, Kisunko, and Pradhan 2005). Serious improvement is unlikely without But Niger--which improved its ranking in changes in a country's political dynamics. a net of five categories5--suggests that sig- This is more likely for one-third or so of the nificant gains also are possible where the low-income aid-recipient countries that have starting point is weak. consistently been stuck in the fourth and fifth quintiles of all governance performance mea- These patterns suggest that heightened sures, with no improvement over the past five attention to budget management and strong years, most of them with capabilities under- incentives for better performance can result in mined by conflict. quite rapid gains. For countries determined to But many countries have shown the capac- improve their public financial management ity for quite rapid improvement in their pub- systems, achieving a "good enough" standard lic financial management systems: within, say, a 5- to 10-year period may be fea- sible. How budget reform is designed and The CPIA and HIPC tracking assessments implemented will be key. reveal that many countries strengthened The HIPC tracking results suggest that a their budget systems in just three years-- few countries--those with committed devel- some by significantly more than any plausi- opmental leadership, plus a preexisting base- ble margin of error. Of the 66 International line of capacity--appear able to adopt and Development Association (IDA) recipient rapidly implement a comprehensive program countries included here, 19 improved their of budget reform, to the point that country CPIA-budget score between 2001 and systems can provide a robust platform for 2004--7 of them by one or more points. A ensuring effectiveness in the use of resources. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 145 C H A P T E R 6 But where capacity is weaker, there is a need that large and therefore more spectacular to set realistic goals for what is achievable projects are often preferred because they can and implement them in a realistic sequence. be easily communicated as evidence of polit- A first lesson for strengthening public finan- ical action, but they are more volatile and cial management systems is that in most coun- subject to greater likelihood of failure than tries, the approach should be incremental. The are smaller, more focused interventions (IMF reforms proposed for specific budget manage- 2005; Heidenhof and others 2002). ment subsystems have sometimes been very A useful guide to sequencing public finan- ambitious. Recent reviews by both the IMF cial management reform in low-capacity set- and the World Bank have examined the expe- tings is suggested by DFID. The new rience with medium-term expenditure frame- "platform approach" for Cambodia involves works (MTEFs). The IMF review captures a cumulative sequence of budget reforms that the shared conclusion, namely that "develop- focuses each round on achieving specific bud- ing comprehensive medium-term expenditure get functionalities, building on these func- frameworks can be effective when circum- tionalities in the subsequent round (DFID stances and capacities permit. Otherwise, it 2005). The sequence that emerges is almost can be a great consumer of time and resources the reverse of that often associated with PRS and might distract attention from the imme- implementation (figure 6.3). Efforts to imple- diate needs for improving the annual budget ment PRSs have focused on their costing and and budget execution processes." translation into medium-term budget frame- The IMF review also offers some useful works and on strengthening countries' statis- guidance in noting that tical capacities to monitor results.6 By contrast, the Cambodian platform sequence . . . the MTEF, as a feasible means of focuses first on the basics: budget credibility, improving budgeting, requires the fol- then predictability and control in budget lowing: reliable macroeconomic projec- execution. (Achieving these basics depends tions, linked to fiscal targets in a stable also on achieving predictability in the year- economic environment; a satisfactory to-year flows of aid, a serious problem as budget classification and accurate and noted in part 1.) Only after these first two timely accounting; technical capacity . . . platforms are locked in will they move on to and disciplined policy decision-making, medium-term budget planning--and only [including] budgetary discipline . . . and once that is in place will they foster public political discipline for fiscal manage- management reforms to support a results ment. Before introducing an MTEF, one culture throughout the public bureaucracy. should raise a question: is the country Country leadership has been an important ready for such an exercise in the sense of feature of Cambodia's public financial man- having adequate support for the above agement program, ensuring that the design preconditions? When this support was of reforms reflects domestic priorities, rather not adequate in a number of African than those of donors. countries, the MTEF was introduced A second emerging lesson for budget man- prematurely, and is turning out to be agement is to complement the technocratic merely a paper exercise. (IMF 2005) reforms with greater transparency. Although the PRS approach highlights inclusiveness, its Efforts to install computerized financial implicit route to effectiveness tends to be management information systems (FMIS) technocratic: design a robust poverty-reduc- also are often overambitious and invariably ing budget, execute it effectively, monitor encounter significant delays. Reviews by both results, and recalibrate policy and budgeting the World Bank and the IMF of efforts to on the basis of what is learned. The lesson install FMIS in African countries concluded emerging from experience is that, in develop- 146 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S FIGURE 6.3 Cambodia: A platform approach to budget management reforms Enables more accountability for performance Platform 4 management Integration of accountability Enables focus and review processes for both on what is done finance and performance Platform 3 with money management Improved linkage of priorities and service targets to budget Enables a basis planning and implementation Platform 2 Broad Activities for accountability Improved internal control to · Full design of FMIS hold managers accountable · Develop IT Platform 1 Broad Activities management A credible budget delivering a · Redesign budget strategy reliable and predictable cycle (e.g. MTEF) resource to budget managers · Initial design of Broad Activities · Pilot program- asset register · Redesign based budgeting & budgeting budget analysis Broad Activities classification · Further fiscal system · Integration of decentralization budget (recurrent · Initial design of & capital budgets) FMIS for core business processes · Strengthen macro and revenue · Define internal forecasting audit function · Streamline spending processes Source: DFID 2005. ing countries with weaker capacity, this For any organization, public or private, deliv- process may be better viewed as a long-run ery depends on the quality not only of the trajectory than as a feasible path to better financial side of its balance sheet, but also of results in the short to medium term. That its real side--the quality of its people, and explains interest in a more demand-side how effectively they are deployed and led. approach, complementing the technocratic As the framework in chapter 5 highlighted, route: along with participatory priority-set- public administration comprises both down- ting in PRSs, foster transparency in budget stream service provision and regulatory agen- management--and emphasize the potential cies (schools and ministries of education, of public information to improve the devel- customs agencies, roads authorities, and the opmental discourse among citizens, their gov- like) and upstream cross-cutting control ernments, and development partners. agencies within the bureaucracy (pay, human resource, and performance management con- trol agencies, for example). Public adminis- Monitoring and Improving tration reforms generally combine a focus on Administrative Quality improving upstream systems--to have a broad Getting development results depends on impact across multiple systems--with targeted much more than good financial management. efforts to improve the performance of specific, G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 147 C H A P T E R 6 high priority agencies. This section focuses admin describes the gradations for a country on upstream reforms; later sections consider to move through as it works to improve the sector-specific approaches. quality of its public administration. In the 1980s and early 1990s a first gener- The track record of efforts to close the gaps ation of administrative reform focused prin- between the desired and actual quality of pub- cipally on scaling back the bloated apparatus lic administration is (to put it gently) uneven of government. In the late 1990s attention in both developed and developing countries. shifted toward improving administrative A landmark review of public administrative capability. Some consensus has been gener- reform in 10 OECD countries--including ated on the characteristics of an effective pub- such noted public management reformers as lic administration. As the CPIA subcategories Australia, New Zealand, Sweden, the United used to score the "quality of public adminis- States, and the United Kingdom--concluded: tration" suggest, the standard prescription typically includes the following: Reform-watching in public manage- ment can be a sobering pastime. The Well-functioning mechanisms for policy gaps between rhetoric and actions . . . coordination, which ensure policy consis- are frequently so wide as to provoke tency across departmental boundaries and skepticism. The pace of underlying, facilitate clear decisions on policy and embedded achievement tends to be spending priorities. To be effective, these much slower than the helter-skelter cas- coordinating mechanisms need to be at the cade of new announcements and initia- apex of government, supported by top tives. Incremental analysis and partisan political leadership. mutual adjustment seem to have been Well-designed administrative structures very frequent features of public man- for individual line ministries and semi- agement reform, even if more-than- autonomous executive agencies, with little incremental changes were frequently duplication of responsibility, and with hoped for. (Pollitt and Bouckaert 2000: clear lines of authority--plus streamlined 184, 188­89) business processes and a focus on results. Human resource management under- The CPIA-admin scores provide a snap- pinned by the principle of meritocracy-- shot of administrative system performance including for recruitment, promotion, and and reform for the 66 IDA countries. The major disciplinary actions. This includes ability to measure is less well developed for insulation from undue political or per- administrative quality than for budget man- sonal interests, as well as practices that agement. No disaggregated actionable mea- reward good performance (for example, sures paralleling the HIPC tracking and through career advancement and financial PEFA indicators are available--although an rewards) and penalize poor performance. initiative to fill the gap is at an early stage of Pay and benefits adequate to attract and piloting (box 6.3). The 2004 CPIA-admin retain competent staff, including at senior results and a composite Kaufmann-Kraay and technical levels. (KK)-style measure of administrative qual- Establishment and wage bill control suffi- ity produce a correlation coefficient of only ciently robust to ensure that the public sec- 0.56--a reminder of the large margins of tor wage bill is sustainable under overall error all in governance measures.7 fiscal constraints. Public administrative systems are weaker than their budget management counterparts Monitoring administrative capability. As (figure 6.4). Of the 66 IDA countries, only 2 with CPIA-budget, the 1­6 scale of CPIA- score 4 or higher on CPIA-admin (versus 10 148 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S BOX 6.3 Actionable indicators on public administrative quality World Bank­supported operational work in Albania, FYR Macedonia, and Romania has yielded some actionable indicators to monitor the extent to which the immediate objectives of civil service management are being furthered. The table below identifies specific subobjectives for civil service management, and indicators to monitor each subobjective. Civil service management actionable indicators Objective Indicator Merit-based civil service (CS) management Competition in recruitment and selection Percentage of CS vacancies filled through advertised, competitive procedures Turnover unrelated to changes in political leadership Quarterly CS turnover rates plotted against changes in political leadership Effective performance evaluation practices Percentage of CS staff for whom annual performance evaluations were completed Percentage of CS performance evaluations falling in each rating category Attracting and retaining qualified staff Competitive remuneration Average CS total remuneration as a percentage of average economic sector wages Ratios of average CS to private sector total remuneration by title Vertical decompression Ratio of average Secretary General total remuneration to average Junior Officer total remuneration Attracting qualified staff Average number of qualified (long-listed) candidates per advertised CS opening Continuously weeding out poor performing staff Percentage of civil servants receiving the lowest performance rating in two successive years who have left the CS within the following year Fiscally sustainable wage bill Budget-financed wage bill is fiscally sustainable Actual budget-financed overall wage bill as a percentage of GDP Albania was first to begin using these indicators (in early 2000). Three examples illustrate their impact on reform implementation. First, reformers documented a significant increase in requests from ministers for exemptions from the competitive recruitment procedures mandated by the CS Law, and used the data to successfully make a case for imposing regulations that would make it more difficult to justify such exemptions. Second, a survey of public and private sector salaries was used to develop a new CS salary structure, which would ensure consistency in the competitiveness of CS salaries across types of CS positions. Third, evidence on a rising incidence of qualified appli- cants per advertised CS position in Albania has helped to convince doubters about the efficacy of Albania's competitive recruitment and selection procedures. Source: World Bank. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 149 C H A P T E R 6 FIGURE 6.4 Low-income aid recipient countries with CPIA 15 (quality ment. Even so, the result highlights an acute of public administration) scores, 2004 dilemma for approaches to aid that give special prominence to improving budget systems to Number of countries scored monitor the use of donor resources. The strong 30 focus on strengthening budget management 25 25 may help in underpinning good resource allo- 22 cation and related policies--but not prove a 20 17 panacea in the fight against corruption. Greater 15 clarity is needed in the global dialogue on gov- 10 ernance, corruption, and development impact 5 as to what is achievable--and how it can real- 2 0 istically be achieved. Average = 2.4 Average = 3 Average = 3.5 Average = 4 Strengthening administrative capability. Low Lower middle Middle High Building effective public administrative sys- Weaker Stronger tems in developing countries is difficult. A CPIA-admin score 1999 review of 102 World Bank operations to support civil service reform (CSR) between Source: World Bank CPIA Database. 1987 and 1997 found that only 33 percent of Note: CPIA 15 measures the quality of public administration. closed CSR interventions and 38 percent of ongoing efforts achieved satisfactory out- comes.8 Useful lessons are emerging as to both the reasons for the disappointing track record on CPIA-budget), and only 17 score 3.5 (ver- of efforts to improve administrative systems, sus 24 on CPIA-budget). Trends in CPIA- and constructive options for proceeding.9 admin suggest that, though change generally Much of the administrative reform agenda comes slowly, committed countries can aims to improve processes, and process reforms achieve quite rapid improvement in their sys- tend to be soft, with progress difficult to tems of public administration: Between 2001 observe or measure. Even when these reforms and 2004 Armenia, Azerbaijan, Cameroon, work, their impact is evident only over the long Georgia, and Vietnam lifted their CPIA- term. From the start, though, they threaten the admin scores by one or more points, more authority of established interests throughout than any plausible margin of error. the bureaucracy. Resistance to reform within A comparison of the results among low- the bureaucracy--either overt, or through half- income aid-recipient countries for CPIA-admin hearted implementation--is therefore likely to and CPIA-budget--and the relation between be endemic. each and the corruption and policy-quality out- Then there is the political logic of reform. comes--again suggests some unevenness across Political leaders need to balance a techno- governance subsystems. While the overall cor- cratic view of good reform practice with the relation between CPIA-budget and CPIA- political imperatives of building and sustain- admin is quite high (0.73), the quality of budget ing alliances with powerful patrons, avoiding management and of public administration can conflict with powerful social groups, and vary greatly from one country to another. maintaining electoral support. Such a calcu- The correlation between budget systems and lus is not favorable for serious administrative control over corruption is low at 0.46. This reform: the upfront political costs are sub- result is not as surprising as it may appear at stantial, and the time horizon long before first--corruption is an outcome of the quality benefits are evident in the form of improved of national governance systems as a whole, not public performance. It is, however, much simply budget management (chapter 5) and can more favorable for more cynical politicians be unrelated to public expenditure manage- with a short time horizon to promise bold 150 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S reforms to clean up government and get gov- ical interests have made both pay reform and ernment working, in full knowledge that the agency restructuring an uphill struggle. Tanza- seriousness--or otherwise--of the reform nia, too, has had to scale back the ambition of effort will be invisible to the average citizen. some of its more far-reaching initiatives. In Administrative reforms therefore need to countries with less favorable environments, the seek a good fit--one that aligns the agenda agenda of administrative reform needs to be with a country's political realities on the more modest. However, as box 6.4 illustrates ground. Rapid, comprehensive administra- for Albania, even in these more difficult set- tive reform is appropriate only in those rare tings, carefully designed incremental reforms cases where there is a strong enough baseline can achieve quite significant results. of capacity for sustained administrative reform--plus political leadership with the Improving the Governance commitment, mandate, and time horizon of Service Provision--Some needed to see the effort through. Targeted Approaches Latvia and Tanzania are two countries where the environment for administrative In most countries top-down reforms of cross- reform was propitious. Between 2000 and cutting public financial management and 2003, Latvia promulgated an ambitious, and administrative systems will take a long time generally well-regarded agenda of administra- before they help improve service provision. tive reform including a new civil service law So it is natural to complement them with which guaranteed meritocratic recruitment, approaches that work closer to the service and introduced performance appraisal; a new provision front-line. This section will high- control framework for the large number of light five service-centric approaches to semiautonomous state agencies; and a new improving governance and service provision: framework for coordinating policy making and administrative reform from the Prime Using public expenditure reviews to high- Minister's Office. It also made ongoing efforts light sectoral spending priorities as part of to reform the public sector salary structure. In an integrated dialogue on strengthening Tanzania, the momentum of administrative country systems reform built incrementally, sustaining a con- Engaging via sectorwide programs sensus as the program unfolded. An eight-year Using information to improve account- (1991­9) civil service program first brought ability at the service-provision front-line employment and the wage bill under control, Decentralizing to shift responsibility for and then clarified the appropriate roles--and service provision closer to the front-line rightsized--across a wide range of govern- Adopting community-based approaches to ment ministries, departments, and agencies. In local infrastructure investments 2000 a new phase--an ambitious 11-year program--began. The program incorporates The discussion focuses first on approaches both a phased approach to pay reform, and a that are relatively more helpful in institution- performance improvement model that gives ally stronger settings, working its way down individual agencies incentives to clarify their to the difficult challenges posed by countries role and mission, develop strategic plans where governance is weak. Some of the (including well-defined results and a well-pub- approaches presented are relevant regardless licized service delivery charter), and identify of whether a country's governance is strong and address capacity development needs. or weak. Even in these favorable environments, Identifying sectoral spending priorities. implementation has been quite challenging. In Cross-cutting public management systems Latvia, the passage of reformist legislation pro- aim to ensure that scarce public resources are ceeded straightforwardly, but entrenched polit- targeted toward activities with high social G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 151 C H A P T E R 6 BOX 6.4 Albania--administrative reform in an unpropitious environment In the wake of communism, skepticism was pervasive among Albanians about the value of state authority and collective action. Politics was fiercely competitive, factionalized, and patronage based. There was no appetite or capacity for far-reaching administrative reform. Even so Albania's admin- istrative system made important gains between 1998 and 2005. The gains came through the skillful exploitation, by both domestic reformers and their interna- tional champions, of a window of opportunity that opened between 1998 and 2002: the appoint- ment (by the political leaders of an electorally victorious political party) of a reformist prime minister willing to champion an administrative reform agenda. Backstopped by strong condition- ality from the World Bank, the agenda was carefully calibrated to be feasible in a setting with lim- ited commitment to reform. Albania's administrative reform focused narrowly on introducing meritocracy, plus market-competitive pay, for the country's top 1,300 civil servants. Targeting only this top tier is not enough for systemwide improvements, but it can yield important gains in the quality of policy making and in the management of public resources. It can also establish a prece- dent of new ways of doing business, with the scope of application broadening over time. In 2002 the reformist prime minister was replaced, and momentum shifted away from reform and toward Albanian politics as usual. Yet the reforms, which had been widely publicized and enjoyed both the support of donors and broad approval among Albania's citizens, had crowded in a powerful constituency for their continuation--the senior civil servants. The arrangements for a meritocracy have largely been sustained. Indeed in 2005 parliament intervened directly to reject leg- islation that would have reduced the ability of the Department of Public Administration to enforce the pro-meritocracy 1999 civil service law. Source: World Bank. returns, and are deployed efficiently. But past rating increased, enlarging its unused bor- allocation decisions may not work out as rowing capacity, and giving it greater fiscal intended, and new opportunities continually flexibility for potential future use. arise. Chapter 1, for example, highlights the Thailand initiated in 2005 a large five-year potential for new, highly productive public public investment program of 2.5­5 per- investments in key infrastructure areas. The cent of GDP annually to upgrade and development returns can thus be high from improve infrastructure, addressing widely reviewing public expenditures to identify spe- recognized bottlenecks, including mass cific expenditure with high potential returns, transit in Bangkok and the country's inter- and ongoing, low-return expenditures that provincial highways. Credit rating agen- could usefully be redirected toward high- cies have assessed the investment program return uses.10 Where this process works well, to be an important driver of growth over the fiscal space opened up for new investment the medium term--assessments that were or productive current expenditure can be large: based on the country's earlier fiscal credi- bility and enabled it to finance these invest- Chile invested on average 5 percent of GDP ments via borrowing. However, both the in infrastructure during the second half of IMF and rating agencies have noted that the 1990s without resorting to significant effective management of the investment borrowing, primarily through reallocation program will be needed to ensure contin- of expenditure, increased efficiency, and the ued access to markets. use of public-private partnerships. One The United Kingdom routinely incorpo- consequence was that the country's credit rates spending reviews into its budget 152 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S preparation process. Despite this, a 2003 area; providing a mechanism for concentrat- independent review of public sector effi- ing limited country capacity; creating a focal ciency identified over US$15 billion of point for harmonizing multiple, overlapping ongoing spending which was not being effi- donor programs around a coherent agenda; ciently used, and was directly "cash releas- providing a clear focal point for results-based ing" and so available for reallocation. monitoring and evaluation; and serving as catalysts for broader change in country sys- For all of the potential benefits of arrange- tems. Financing mechanisms can run from ments to review and adjust earlier decisions sector-specific budget support (donors pool on resource allocation, putting them in place all their funding and channel it through the is difficult--for at least three reasons. First, as budget using country procedures but care- the previous section of this chapter has fully monitoring flows to the preferred sector) detailed, in many low-income countries even to approaches that partly "enclave" the use of the basics of cross-cutting budget and admin- funds. To realize their potential, though, two istrative systems do not work well. Second, issues need to be confronted. even where the systems work well, they might First, even at the level of an individual sec- not drill down in sufficient detail to distin- tor, the challenges of aid harmonization and guish effectively between low- and high- alignment remain formidable. Donors must return activities: the knowledge needed to be willing to subsume their particular priori- assess development returns can be highly spe- ties under the umbrella of a country-led sec- cialized, and reside within sectors, not in bud- torwide program and to harmonize their get central agencies. Third, many high-return procedures. This is proving difficult, even in investments cut across sectoral boundaries-- Tanzania, a global leader in incorporating aid as illustrated in chapter 2 by the high benefits into country-led strategies and systems. In for childhood health of upgrading wood- that country's sectorwide program (SWAP) in burning stoves or dirt floors. education, for example, donors provide sup- While the returns are thus high from port through basket funding, but have not all strengthening budget systems so they can pri- harmonized their reporting requirements. As oritize more effectively, especially in low- of October 2004, there were an estimated income and weaker governance settings the 110 projects still on the books, with an aver- need to use resources well is too urgent to be age size of only $906,000 (Economic and dependent solely on systemic improvements. Social Research Foundation 2005). The case is compelling for complementing Second, focusing public management efforts at system improvements with more tar- reforms on a single sector risks making sys- geted efforts--within individual sectors and temic reform more difficult later on. Road across sectors--to identify high-return invest- funds, for example, aim to strengthen ment opportunities, as well as opportunities accountability by harnessing the incentives of for freeing up resources locked into low- users, who have a stake in the efficient and return activities. This is an activity for which honest use of resources, including stakehold- development partners can provide targeted ers from the road transport industry, cham- assistance. The Public Expenditure Reviews bers of commerce, and farmers organizations. facilitated by the World Bank, already an These have an extra incentive to provide established part of the landscape of develop- oversight because some of the revenues used ment dialogue, offer a ready-made vehicle. for road investment and maintenance comes Sectorwide programs. Partial approaches from earmarked vehicle licenses and fuel that focus on improving governance and ser- levies.11 As another example, sectorwide pro- vice provision in one sector have the potential grams in education sometimes (notably in to achieve many goals simultaneously. These Francophone Africa) have included a move include getting quick wins in a high-priority toward community schools, with increased G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 153 C H A P T E R 6 parental oversight. This has been shown to provision facilities, for example through com- improve both school management and educa- munity-driven approaches discussed a little tional outcomes.12 In addition, locating respon- later. Two intermediate examples illustrate fur- sibility for the contracting of teachers with ther the potential of empowerment through communities can also help reduce unit costs: information. "even when offering average salaries as low as The first example highlights how detailed, half the civil service teacher wage, countries public information can enable citizens to make have found more qualified applicants than they informed judgments regarding the performance can hire" (World Bank 2005: 82­85). of politicians, policy makers, and providers-- Despite their advantages, such sectorally and to respond with support, or pressure for focused initiatives can be at variance with change. Frustrated by years of inaction on pub- standard approaches to strengthening cross- lic services which increasingly were unable to cutting bureaucratic controls. Ring-fencing keep up with Bangalore's dynamism and pop- through road funds can undercut the ability ulation pressure, in 1994 a group of citizens to make choices among competing uses of introduced the idea of a user survey­based resources, fragment the systems of budgetary "report card" on public services. Initially, the control, and complicate efforts to achieve impact was modest. Nonetheless, the spon- broader improvements in the financial man- sors persisted, establishing a nongovernmen- agement system. Community contracting of tal organization (NGO), the Bangalore Public teachers risks undercutting efforts to introduce Affairs Center, to institutionalize the effort, transparent meritocratic practices of recruit- building coalitions with other NGOs and ment and promotion, and can also create new repeating the report card survey in 1999 and opportunities for informality and patronage. 2003. Figure 6.5 highlights the extraordinary Each of these criticisms presumes that broader turnaround in perceptions of the quality of systemic reforms are directly feasible. But in service delivery. The Public Affairs Center many settings this is unlikely to be the case: the describes how this was achieved: challenge is to achieve gains in an imperfect world, where the best can be the enemy of the The first and second report cards had put good. Further, partial reforms also have the the city's public agencies under the scan- potential to nudge along incremental change in ner. The adverse publicity they received, broader systems: A well-managed road fund according to many observers, acted as a could spur more far-reaching public financial trigger for corrective action. Inter-agency management reforms. Community teachers comparisons seem to have acted as a might create an opening for more flexible proxy for competition. Citizen activism approaches to civil service reform. Engaging and dialogues with the agencies also citizens in public sector governance within increased during this early period. These individual sectors can be a valuable spur to developments prepared the ground for a civic engagement more broadly. positive response from the Government. Using information to improve accountabil- A good example is the political leader- ity at the service provision front-line. Open ship and vision displayed by the Chief information on the performance of public Minister S. M. Krishna in the past four agencies can engage citizens in a continuum of years. He provided the framework ways. At one end is political accountability: within which a set of able administrators citizens can use information on the quality of could set in motion a series of actions service provision as part of their decision and reforms in the agencies. Many civil regarding the reelection of incumbents, at society groups and the media have stim- national or local levels. At the other end is the ulated and supported this momentum. use of performance information by citizens Sustaining this movement is the chal- directly involved in the governance of service lenge for the future. (See Paul 2002: 71) 154 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S FIGURE 6.5 Perceptions of service delivery performance in nine Bangalore agencies, 1994­2003 Percent satisfied 100 94 92 96 85 80 78 77 73 73 73 67 60 47 41 42 40 34 34 32 32 25 20 16 14 5 6 9 4 n/a 1 n/a 0 BMP BESCOM BWSSB BSNL Government Police BDA BMTC RTO hospitals Agencies 1994 1999 2003 Source: Samuel Paul, Public Affairs Centre, Bangalore, presentation at 6th Global Forum on "Reinventing Governments." Note: BMP = Bangalore Municipal Corporation; BESCOM = electricity; BWSSB = water supply; BSNL = Telecom Department; BDA=Land Development Authority; BMTC = MetropolitanTransport Corporation; RTO = Motor Vehicle Licensing The service provision scorecard approach textbook distribution and highway infra- pioneered in Bangalore has been widely imple- structure, to make delivery more effective. mented--in countries ranging from Brazil to The project determined that 21 percent of the Philippines, Ukraine, and Turkey. textbooks were not actually delivered to The second example involves more hands- schools designated to receive them, creating on citizen monitoring of official mechanisms losses of more than US$3 million, which the and reports of how public resources are used. Department of Education promised to rec- A few instances are summarized below: tify. The template developed for this project has been used by many other CSOs. In Rajasthan, India, building on the pas- In Tanzania, the Rural Initiatives and sage of a Right to Information Act in the Relief Agency helped 10 local communi- state in 2001, the Movement for the Rights ties track government program expendi- of Peasants and Workers (MKSS) orga- tures for health and education. The pilot nized public hearings in rural areas at projects appear to have helped ensure that which figures from the records of licensed commitments to deliver funds were indeed distributors of subsidized food rations followed through. The expenditure track- were compared with figures from the ing tool has been made available to CSOs ration books of recipients. Social audits in other rural areas of the country. were also carried out of hospitals during which data from medical records were The latter two instances both were funded compared with patients' actual experience. by the Partnership for Transparency--an In both cases, large discrepancies between international NGO (supported by Sweden, the two sets of figures were revealed. This the United Nations Development Programme led to further investigation, which in turn [UNDP], and the World Bank) that provides disclosed evidence of corruption, embez- micro-grants to CSOs engaged in fighting zlement, and maladministration.13 corruption. Independent evaluations have A Philippines civil society organization shown the large majority of these projects to (CSO), the Ateneo University Group, set be successful. The maximum grant size pro- up a citizen monitoring effort, together vided by the Partnership for Transparency is with government agencies responsible for US$25,000--underscoring that empowerment G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 155 C H A P T E R 6 through information can be a low-cost, high- agents have greater credibility because return strategy for improving governance. of proximity to the community and rep- Decentralization has increasingly been seen utations developed through social inter- as a response to governance dysfunction. It has action over an extended period. But on a dual role in a national governance system. both theoretical and empirical grounds First, democratic subnational governments can this could go either way. The crucial offer an important check and balance against question is always whether decentral- central executive power. Second, subnational ization increases accountability relative governments potentially have advantages in to its alternatives. If local governments the provision of some public services. are no more vulnerable to capture than Decentralization often is driven by politics. the center is, decentralization is likely Sierra Leone embarked on decentralization as to improve both efficiency and equity. a way of building simultaneously intergovern- (World Bank, World Development mental institutions, local government capac- Report (WDR) 2004: 90) ity, and bottom-up accountability. When that country's civil war ended in 2002, the govern- The second set of accountabilities comprises ment initiated a process of national consulta- the allocation of responsibilities between cen- tion on decentralization. In February 2004, it tral and local governments. These include the enacted a progressive Local Government Act, assignment of responsibilities for service provi- establishing 19 local councils, which, over the sion (clarifying which services are assigned to period of 2004­8, will take over a large set of local authorities, which are assigned to national responsibilities and resources related to pri- authorities, and which involve complementary mary education, primary health, agriculture, responsibilities for both local and central feeder roads, water, and sanitation. The World authorities); the allocation of fiscal resources Bank has supported fiscal decentralization (including some tax base for local authorities) technically and has helped open political and fiscal accountability; and regulatory, fidu- space for development-oriented local politi- ciary, and other forms of central oversight over cians to emerge and establish track records by local activity. promoting community-based approaches to Clarifying these responsibilities in ways that local infrastructure investment. give each tier of government an incentive to Does decentralization help reduce poverty? perform its role efficiently is a complex task and For this to happen, two sets of accountabilities deeply political. Decisions over the decentral- need to work well. The first comprises down- ization "rules of the game" involve a zero-sum ward accountability to local residents. As the contest between national and local politicians 2004 World Development Report (WDR) on and bureaucracies over who controls resources improving service provision to the poor put it: and influence. The interplay between technical complexity and political jockeying can some- Where decentralization is driven by a times create difficulties. A comparative review desire to move services administratively of experience in six East Asian countries (Cam- closer to the people . . . the assumption bodia, China, Indonesia, Philippines, Thailand, is that [it] works by enhancing citizens' and Vietnam) concluded that voice in a way that leads to improved services. . . . Voters make more use of The result [has been] a kind of "insti- information about local public goods in tutional limbo". . . . Whether by design their voting decisions because such or as a result of slippages in the imple- information is easier to come by and mentation process, intergovernmental outcomes are more directly affected by structures have substantial internal local government actions. And political inconsistency. The functions of different 156 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S levels of government overlap. Bottom- (CDD)--an approach that "gives control over up accountability of locally elected bod- planning decisions and investment support to ies is dampened by top-down methods community groups and local governments."14 for appointing key officials. And the It seeks to synthesize two types of development discretion given to local authorities in interventions which historically have been con- spending unconditional fiscal transfers sidered separately from one another--decen- is effectively curtailed by central gov- tralization, as described above, and social ernment control over human resources. investment funds. The latter have been used (White and Smoke 2005: 7) extensively by donors to transfer resources to poor communities in a participatory way. As the 2004 WDR concluded: Between 1999 and 2005, the World Bank alone channeled over US$10 billion to poor Subnational authorities can be efficient communities. According to most reviews, providers and regulators of local ser- these CDD operations have helped to get ser- vices under the right institutional incen- vices to citizens more cost-effectively and equi- tives and with clarity about who does tably, and have supported participation and what--and with what. But greater accountability. Nonetheless, fierce debate sur- autonomy can also increase opportunis- rounds CDD. Underlying this debate are con- tic behavior and create moral hazard, trasting views regarding the likely interplay, in resulting in costs that diminish account- weaker governance settings, between bottom- ability and the benefits of decentraliza- up approaches, and efforts to strengthen tion. Good design, sound management, national governance systems. and constant adaptation by both central Certainly, the risks are large. As with many and subnational authorities are needed donor-funded initiatives, early generation to make decentralization work. (World social funds bypassed the public administra- Bank, WDR 2004: 185) tion with the usual costs associated with par- allel implementation (see box 6.5). But in Community-based approaches to local addition, such programs offer a sometimes infrastructure investments. In recent years, irresistible opportunity to political leaders. In community-based approaches to local invest- Peru, for example, between 1994 and 2000, ments have been pursued aggressively under over US$900 million was allocated to the the rubric of community-driven development Peruvian Social Fund, FONCODES. The BOX 6.5 Why stand-alone investment projects can be bad for governance Over the past half-century, stand-alone investment projects have been the dominant response of exter- nal donors to the dilemma of ensuring accountability in weaker-governance settings. Projects imple- mented by autonomous units have a useful role, especially for large infrastructure initiatives. But from a governance perspective, the turn to wholly parallel, projectized arrangements is a conclusion of despair. Such projects substitute external for local accountabilities, thereby perpetuating weaknesses in national governance systems. They typically insulate themselves from the day-to-day business (and rules) of the public sectors in the countries in which they operate: they establish independent project implementation units; set up their own procedures; offer salaries higher than those available in the civil service; and attract away the best talent, demoralizing those who remain. Reducing the prevalence of separate project implementation units is therefore one of the aims of the Paris Declaration (chapter 3). G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 157 C H A P T E R 6 poverty benefits were significant: 80 percent reform, by working closely with line min- of the resources went to the poorest 40 per- istries and local governments to help build cent of municipalities. Increasingly, however, their capabilities and interactions with com- it became apparent that FONCODES was munity groups. Advocates argue that, espe- being used as a source of patronage and pop- cially in weaker governance settings, this ularity by the country's populist president, hybrid approach can be a powerful way of Alberto Fujimori. Disbursements increased in supporting decentralization. Efforts along the months directly preceding elections, and these lines are under way in many countries, while poorer areas were more likely to get ranging from Afghanistan to Albania, Brazil, funding, those poorer areas that were "swing Indonesia, the Kyrgyz Republic, Tanzania, voters" were favored in resource allocation and Zambia. Indonesia offers one example of (Schady 2000). how this integration can proceed (see box Practitioners of CDD have worked to 6.6), but in some other countries programs address these risks by designing and imple- have failed to evolve much beyond parallel menting programs as part of a broader strat- mechanisms. Instead, by seeking to break out egy of governance improvement--combining of the comfort zone provided by parallel pro- scaled-up participatory resource transfers to jects, they have brought to the surface the communities and longer-run institutional many rivalries and unresolved tensions that BOX 6.6 Linking community-based resource transfers and decentralization in Indonesia Indonesia's Kecamatan Development Program (KDP) gives communities planning and decision- making power over development resources. The KDP was begun in 1998, in the aftermath of a major financial crisis and political turmoil. Over three phases, close to US$1 billion has passed through the program, which encompasses 28,000 villages--almost 40 percent of Indonesia's total. The first phase funded more than 50,000 infrastructure and economic activities, benefiting some 35 million poor people. The main initial motivation for the KDP was that traditional methods for disbursing funds through line ministries had failed. The KDP proved able to provide quick, high-volume disburse- ments of development funds down to the local level. These are channeled outside the usual gov- ernment disbursement mechanisms, allowing financing to flow directly to kecamatan localities and village-level bank accounts controlled by communities. Direct financing resolves decision-making bottlenecks caused by central efforts to plan and control activities. KDP disbursement takes an aver- age of two weeks between the time when a village places a request and when funds arrive in the vil- lage account. Field studies and audits show that projects deliver a broader range of services at lower-than-normal costs, with greater community involvement, with corruption reduced most effec- tively by a combination of external audits plus citizen participation. Since 1998, Indonesia has progressively systematized its formal system of decentralization. Con- sequently, the second and third phases of KDP have emphasized greater oversight from district par- liaments, government monitoring, links with sectoral agencies such as education and health, district matching grants, and local involvement in drafting formal decentralization regulations on village autonomy. The KDP platform has also provided lessons which are being incorporated into local governance reforms to support greater transparency and participation in district policies related to information disclosure, procurement, budget planning, and allocation, leading to higher pro-poor expenditures. Source: World Bank documents; Wong and Guggenheim 2005. 158 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S characterize countries stuck in a syndrome of FIGURE 6.6 A constellation of checks and balances institutions weak governance. Surfacing the reality of the difficulty and unpredictability of change in weaker gover- Civil society - Media nance settings need not, however, be a bad Judiciary thing. The challenge for CDD practitioners is to learn more about how to improve the odds: Legislature What approaches make success in incremen- tally fostering sustainable institutional change Subnational governments and more likely, and in which country settings? autonomous oversight agencies When might the net benefits of a CDD inter- vention be positive, even with no success in cat- Executive alyzing institutional change? Demand-driven and incremental institutional reforms such as CDD tend to be judged against a standard of perfection. Unsurprisingly, they fall short. Source: Authors. What is needed is some agreement as to what incremental improvement would look like-- and a monitoring approach that systematically tions with one another is only loosely hierar- tracks and assesses incremental, demand- chical. Depending on a country's constitution, driven institutional change. the judiciary may or may not be a constraint on legislative authority. Citizens may ultimately Monitoring and Improving elect governments but on a day-to-day basis National Checks and their role is more participatory than hierarchi- Balances Institutions cal. We can distinguish three broad groups: Strong checks and balances institutions are An "outer constellation" of civic voice-- key to a well-functioning national governance the rules (for example on freedom of infor- system. Some of these checks and balances are mation) and actors (such as the media) global (including global financial and other that ensure the open operation of civil markets) and are considered elsewhere in this society--and the transparent flow of infor- report. The focus here is on national checks mation and data that enables citizens to and balances institutions. Developmental play an informed role in public discourse. leadership or a dynamic political movement (Though not an explicit focus in this can sometimes substitute for weak national report, the discipline provided by compet- checks and balances, at least for a period. But itive markets is an important buttress of over the longer run, well-functioning checks this outer constellation.) and balances institutions are key to sustain- A "middle constellation" of impartial dis- ability. They help keep the executive arm of pute resolution--in particular the justice government focused on the public purpose. system They are vital for fighting corruption, for An "inner constellation" of direct over- ensuring that state actors at all levels use pub- sight--subnational governments, autono- lic resources efficiently and effectively, and for mous oversight agencies, and the legislature. helping to ensure that citizens perceive state institutions to be legitimate. The next three subsections consider each Figure 6.6 disaggregates checks and bal- of these in turn, focusing on approaches to ances into a constellation, arranged in terms of monitor the quality of the relevant checks and their "distance" from the executive authority balances institutions and highlighting how they oversee. The relationship of these institu- some can be strengthened. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 159 C H A P T E R 6 accepted norms for the collection and publi- The Outer Constellation--Transparency cation of economic and social data. Created in and Voice 1996, the Special Data Dissemination Stan- Citizen engagement, underpinned by access dard (SDDS) is a voluntary standard whose to high quality information, forms the outer- subscribers18--countries with market access most, and possibly the most important, ele- or seeking it--commit to meeting internation- ment of a national system of checks and ally accepted levels of data coverage, fre- balances. Figure 6.7 depicts the "virtuous cir- quency, and timeliness. SDDS subscribers are cle of transparency" in a way that highlights required to maintain a Web site that contains the links between the provision of informa- the actual data. For countries that do not have tion and state responsiveness. market access, the General Data Dissemina- Information reveals the actions of policy tion System provides a detailed framework makers; this facilitates evaluation and moni- that promotes the use of internationally toring, activism rises, and with it the level of accepted methodological principles, the adop- public debate. Policy becomes more contestable tion of rigorous compilation practices, and and citizens are motivated by the possibility of ways in which the professionalism of national holding the government accountable. Commu- statistical agencies can be enhanced. nication with the government becomes a two- These norms can serve as benchmarks for way flow, generating further demands for more statistical capacity building. There is, as yet, reliable information. The virtuous circle is com- no agreed single measure of statistical capac- pleted as government practices become more ity, but work carried out as part of the 14th open and more responsive to citizens. replenishment of IDA's resources (IDA 14) Strengthening the virtuous circle. Several provides a basis for monitoring changes in the factors are needed for this virtuous circle to performance of statistical systems. Data are work well. First is the production and dissem- compiled annually on three key dimensions of ination of good quality information. Recent capacity: statistical practice, data collection, initiatives by international agencies, including and indicator availability. The indicators are the IMF and the World Bank, have begun to combined to generate overall indicators for put in place a framework of internationally each dimension and to produce a single over- all indicator. This measure paints a worrying picture of statistical capacity (figure 6.8). As the low average scores in figure 6.8 for "prac- FIGURE 6.7 The virtuous circle of transparency: from disclosure to responsiveness tice" and "collection" signal, many IDA countries lack the ability to provide basic sta- tistics on a regular basis, resulting in a vicious circle--limited, poor-quality data reduce Analysis of Availability of outcomes and demand for data and lower interest in sup- information policy proposals porting data collection. Attempts to bridge the availability gap include proxy data or simula- tions. Capacity has been increasing slowly, if Accountability at all, in most poor countries. Especially in the poorest, the impact of projects to strengthen statistical capacity has often been disappoint- ing. Investments are usually not sustained, Public advocacy Public debate often because of the piecemeal, short-term nature of projects. The international commu- nity has responded to these weaknesses with the Marrakech Action Plan for Statistics Source: Authors. (MAPS). The objective of MAPS is to assist all 160 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S FIGURE 6.8 Measuring country statistical capacity: IBRD, IDA, and IDA-Africa, 1999­2005 Percent 100 90 80 70 60 50 40 30 20 10 0 IBRD IDA IDA-AFR IBRD IDA IDA-AFR IBRD IDA IDA-AFR Practice Collection Availability 1999 Change between 1999­2005 Source: Country Statistical Information Database (www.worldbank.org/data/countrydata/csid.html). See IDA (2004) for methodology. developing countries to either implement or countries have adopted laws and nearly a prepare a longer-term national statistical dozen more are currently considering them. development plan by the end of 2006. South Africa enacted a wide-reaching law in A second factor needed for the virtuous 2001 and many countries in southern and circle of transparency to work well is disclo- central Africa, mostly members of the Com- sure--the critical step that turns information monwealth, are following that country's lead. into a potent tool for civic accountability. All A third factor is an independent media. governments routinely disclose reams of Independent media are a crucial pillar of good information, including selective information governance, and a critical link in the account- aimed at shaping public opinion. Most demo- ability chain between the government and the cratic societies have some basic standards of governed. Investigative journalists increase disclosure--publication of judicial decisions, the likelihood of detection of corruption, and or the records of parliamentary debates, for punitive action, thus fostering good gover- example. More recently, however, global nance. Mass media also function as a channel changes in politics, technology, and values of citizen voice, influencing government poli- have converged to provide a powerful impe- cies and actions to be more relevant and tus to efforts to strengthen the transparency responsive to citizen preferences.16 As box 6.7 of governance systems. underscores, a vibrant and good-quality media This global sea change is reflected in the can be a potent development asset. growing number of countries that have A fourth factor is an engaged civil society. adopted Freedom of Information Laws15-- Perseverance of civil society is crucial as a over 50 as of the end of 2004, with efforts way of ensuring that greater transparency under way in an additional 30. The trend is translates into a change in the internal cul- spreading worldwide: in Asia, nearly a dozen tures of public institutions. Development countries have either adopted laws or are on practice has responded to the new focus on the brink of doing so. In South and Central civil society--illustrated by the participatory America and the Caribbean, half a dozen nature of the PRS process. Box 6.8 outlines G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 161 C H A P T E R 6 BOX 6.7 How media access can influence development outcomes A variety of studies have documented the link between better-informed citizens and better-performing governments. Besley and Burgess (2002) show that state governments in India were far more respon- sive to food crises in those states that had high newspaper circulation than in those that did not. Adserá, Boix, and Payne (2003) find, similarly, that corruption is significantly lower in countries with high newspaper circulation. And Strömberg (2004) finds that households with radios during the U.S. Great Depression were much more likely to benefit from relief efforts than were households that lacked them.17 BOX 6.8 The Poverty Reduction Strategy process in Rwanda and Vietnam Rwanda's PRS process has complemented and helped deepen dialogue initiated through the National Unity and Reconciliation Commission (NURC), set up to promote peace, tolerance, and respect following the 1994 genocide. There is easy public access to the PRS, including a summary in Kinyarwanda, and to fiscal data, as well as the emergence of some leading CSOs vocal on poverty issues. Participatory surveys and stakeholder seminars have been conducted by the Poverty Obser- vatory, a strategic planning and monitoring directorate charged with monitoring PRS implementa- tion. Efforts are under way to merge dialogue held by the NURC with that conducted by the Poverty Observatory. The development debate is being consolidated with stronger analytical underpinnings. Vietnam produces a Socio-Economic Development Plan (SEDP) every five years. The SEDP typ- ically has been prepared by central government agencies with little consultation outside the com- munist party. Subsequent to the finalization of the 2001­5 SEDP, the government embarked on developing a PRS--the Comprehensive Poverty Reduction and Growth Strategy (CPRGS)-- together with local experts and researchers as well as international and local CSOs. The existence of parallel processes and strategies has caused some confusion on the reference point for policy mak- ers, but has provoked unprecedented lively debate on policy directions in the National Assembly. In preparing the 2006­10 SEDP, the government has committed to emulate the participatory approach to planning that characterized the preparation of the CPRGS. for Rwanda and Vietnam how the PRS voice (TV). The broad indicator captures the helped crowd civil society more systemati- overall TV environment--including the human cally into the policy discourse. This marked a rights and political governance dimensions. departure from the earlier practice of donors The specific indicator focuses more directly on and international financial institutions (IFIs) those aspects of transparency most directly rel- of focusing narrowly on the executive, and evant for achieving the Millennium Develop- has sought to engage more directly citizens ment Goals (MDGs). and their elected representatives. A recent Two broad indicators were considered for review suggests progress on this front (table this report--the aggregate KK "voice and 6.2) but shows that engagement is well devel- accountability" indicator, and a related indica- oped in only a minority of countries. tor that focuses more narrowly on transparency. Monitoring transparency and voice. One Table 6.3 reports the better-established "voice broad and one specific set of indicators are used and accountability" indicator--noting also that in this subsection to monitor transparency and at 0.88 the correlation between the voice and 162 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S TABLE 6.2 Participation in the PRS, 2005 CIVIL SOCIETY PARTICIPATION Little action Action under way Well developed Well developed Bhutan, Djibouti, Bosnia and Herzegovina, Ghana, Rwanda, Uganda Lao PDR, Tajikistan Burkina Faso, Cambodia, Guinea, Honduras, Madagascar, Mali, Mauritania, Moldova, VEMENT Mozambique, Timor-Leste OL INV Action under way Azerbaijan, Benin, Armenia, Burundi, Cape Verde, Tanzania, Vietnam YRA Rep. of Congo, Pakistan Ethiopia, Kyrgyz Republic, Liberia, Mongolia, Niger, Serbia and Montenegro, Yemen, Zambia ARLIAMENTP Little action Central African Republic, Albania, Bangladesh, Bolivia, Cameroon Dem. Rep. of Congo, Côte Chad, The Gambia, Georgia, d'Ivoire, Dominica, Guinea- Guyana, Haiti, Kenya, Lesotho, Bissau, Nepal, São Tomé and Malawi, Nicaragua, Senegal, Principe, Sri Lanka, Sudan Sierra Leone Source: World Bank 2005b. accountability and the transparency results is that their environment for voice and account- high.18 The indicator is estimated from 19 sep- ability is relatively strong or relatively weak. arate disaggregated sources--each of which If we locate the high- and middle-income focuses on a specific aspect of TVA. KK note countries in the KK VA sample using the same that these include "a number of indicators cut-off points as for the 66-country IDA-eligi- measuring various aspects of the political ble sample, a considerable number falls below process, civil liberties and political rights. table 6.3's top-third group. While all of the These indicators measure the extent to which high-income OECD member countries are sig- citizens are able to participate in the selection nificantly above the top third cut-off point for of governments. We also include indicators the 66-country sample, six non-OECD high- measuring the independence of the media, income countries are located below this cut- which serves an important role in monitoring off point. Of 77 middle-income countries, 30 those in authority and holding them account- rank below the top-third cut-off point, and 16 able for their actions" (see Kaufmann, Kraay, of these score low enough to be in the bottom- and Mastruzzi 2005). third of the 66-country sample. Table 6.3 reports the distribution of the sam- The specific indicators are taken from the ple of 66 IDA-eligible countries across three Global Integrity Index (GII). As box 6.9 groups, distinguishing among countries accord- describes, the GII is an example of "good ing to whether one can be at least 95 percent practice" methodology for governance indi- confident, using a two-tailed test, that given cators. As explained earlier, as with all gover- measurement errors they indeed fall into the cat- nance indicators, the estimates have some egory in which they are located. As with all gov- margin of error. But because each measure is ernance measures, the indicator provides some specifically defined, it provides "actionable" useful benchmarking, but only for a subset of information for governance reform. The countries is it possible to assert with confidence specific GII indicators cover the range of the G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 163 C H A P T E R 6 TABLE 6.3 KK voice and accountability 2004, 66 low-income countries In relevant third (with 95% certainty) In relevant third (with less than 95 % certainty) Top third Benin, Ghana, India, Lesotho, Mali, In top half (with 95 % certainty): Mongolia, São Tomé and Principe, Albania, Bolivia, Bosnia and Herzegovina, Comoros, Guyana, Honduras, Senegal, Serbia and Montenegro Madagascar, Mozambique, Nicaragua, Niger, Papua New Guinea, Solomon Islands Middle third Armenia, Bangladesh, The Gambia, Could be in bottom third: Could be in top third: Guinea-Bissau, Indonesia, Malawi, Azerbaijan, Cambodia, Congo, Burkina, Faso, Georgia, Kenya, Moldova, Nigeria, Sierra Leone, Djibouti, Nepal, Yemen Sri Lanka, Tanzania, Zambia Uganda Bottom third Dem. Rep. of Congo, Côte d'Ivoire, In bottom half (with 95 % certainty): Eritrea, Haiti, Lao PDR, Pakistan, Angola, Bhutan, Burundi, Cameroon, Central African Republic, Chad, Sudan, Uzbekistan, Vietnam, Ethiopia, Guinea, Kyrgyz Republic, Mauritania, Rwanda, Tajikistan, Togo Zimbabwe Source: Kaufmann, Kraay, and Mastruzzi 2005. TABLE 6.4 Global Integrity Index--transparency and civic participation (by group) Civil society organizations Access to information law Freedom of the media OECD countries 95 87 91 Middle-income countries 88 60 74 Low-income countries 82 41 79 Source: www.globalintegrity.org. Notes: The covered by the index, grouped in the three categories shown above, are Australia, Germany, Italy, Japan, Portugal, United States; Argentina, Brazil, Guatemala, Mexico, Namibia, Panama, Philippines, Russian Federation, South Africa, Turkey, Ukraine, República Bolivariana de Venezuela; and Ghana, India, Indonesia, Kenya, Nicaragua, Nigeria, Zimbabwe. Scoring: Each question within each category is scored on a 0­100 scale, using specific guidelines. The category score is the average of the scores for the individual question. checks and balances constellation, though ment policy. The justice sector covers a vast so far country coverage remains limited. array of institutions, issues, and functions. In Table 6.4 reports the scores for three specific the broadest terms, it can be defined as the GII subindicators, which measure facets of institutions and processes by which laws are the environment for transparency and civic devised and enforced. It includes legal services participation for 25 OECD, middle-, and and their providers (for instance, lawyers and low-income countries. Low-income coun- paralegals), police, prosecutors, the judiciary, tries lag, especially in the right of access to courts and their officials, other institutions information. that resolve disputes, and institutions that exe- cute judgments. The justice sector fulfills two distinct, but complementary, sets of essential The Middle Constellation--Justice and functions. It provides services to citizens, such the Rule of Law as safety and security, and resolving disputes. Justice sector reform and promoting the rule And it can help to constrain the arbitrary and of law have emerged as key goals of develop- discretionary use of state power. 164 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S BOX 6.9 The Global Integrity Index as a tool for governance monitoring The GII, developed by the Center for Public Integrity, focuses on measurement of "the existence and effectiveness of mechanisms that prevent abuse of power and promote public integrity, and on the access that citizens have to their government." The GII has a nested design--with answers to more than 290 detailed questions providing the basis for estimating a variety of indicators at different levels of aggre- gation. This enables users to move from the more aggregated indicators to the most disaggregated, and thereby identify strengths and weaknesses. Country-specific scoring is done by a diverse panel of in- country experts, each operating individually to avoid "contamination by consensus," and with rigor- ous, "blind" peer review. So far, the index has been estimated only for 25 countries--6 OECD countries, 12 middle-income countries, and 7 IDA-eligible low-income countries. Global Integrity aims to increase the number of countries covered to over 100 by the end of 2006. It remains to be seen, though, whether the GII will receive the sustainable financing and broad legitimacy necessary for it to become a widely used part of the arsenal of governance indicators. The table below details the questions for 10 indica- tors that are most directly relevant to the dimensions of checks and balances highlighted for this report. Some specific GII indicators Indicators of transparency and civic participation Civil society organizations--In law, do citizens have a right to form CSOs? Do they in practice? Can citizens organize into trade unions? In practice, do CSOs actively engage in public advocacy campaigns? Are civil society activists safe when working on corruption issues? Access to information law--In law, do citizens have a right of access to information? In practice, is the right of access to information effective? Freedom of the media--In law, is freedom of the media guaranteed? In law, is freedom of speech guaranteed? Are citizens able to form media entities? Is the media able to report on corruption? Are journalists safe when investigating corruption? Indicators of justice and the rule of law Judiciary--In law, is the independence of the judiciary guaranteed? Is the appointment process for high court judges effective? Can members of the judiciary be held accountable for their actions? Can citizens access the judicial system? In law, is there a program to protect witnesses in corruption cases? Are judges safe when adjudicating corruption cases? Rule of law and access to justice--In practice, does the criminal justice process function according to the rule of law? In law, is there a general right of appeal? Are citizens protected from detention without trial? Are individual economic rights guaranteed? Law enforcement--Is the law enforcement agency (that is, the police) effective? Can law enforcement officials be held accountable for their actions? Indicators of direct oversight Legislature--Can members of the legislature be held accountable [by the judiciary] for their actions? In law, are members of the legislature subject to prosecution? Are there regulations governing conflict of interest by members of the legislature? Can citizens access the asset disclosure records of members of the legislature? Can citizens access legislative processes and documents? Does the legislature have control of the budget? Can citizens access the national budgetary process? National ombudsman--In law, is there a national ombudsman, public protector, or equivalent agency covering the entire public sector? Is the national ombudsman effective? Can citizens access the reports of the ombudsman? Supreme audit institution--In law, is there a national supreme audit institution, auditor general, or equivalent agency covering the entire public sector? Is the supreme audit institution effective? Can citizens access reports of the supreme audit institution? Anticorruption agency--In law, is there an agency (or group of agencies) with a legal mandate to address corruption? Is the main anticorruption agency effective? Can citizens access the main anticorruption agency? Source: Center for Public Integrity 2004. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 165 C H A P T E R 6 TABLE 6.5 The quality of some attributes of the justice system in 25 countries (by group) Judiciary Rule of law and access to justice Law enforcement OECD countries 79 93 90 Middle-income countries 71 74 63 Low-income countries 58 72 59 Source: www.globalintegrity.org. Note: See table 6.4 for a list of countries in each category. A well-functioning justice sector is expected ness and predictability of the judiciary, and the to reflect certain basic qualities, most notably enforceability of contracts . . ." The CPIA-rules the rule of law. Indeed, the term "rule of law" indicator focuses primarily on the extent to is sometimes seen as synonymous with, or used which the legal system facilitates private as a proxy for, a well-functioning justice sector. economic activity, but also looks at broad out- Yet, as with the justice sector generally, there is comes (safety), specific outcomes and func- no shortage of conceptions as to what the rule tions (provision of business licenses, contract of law is said to entail.19 Both the rule of law enforcement), and formal characteristics of the and justice reform have been defined broadly system. The correlation between the two indi- with reference to their essential role in ensuring cators is quite high, at 0.83. Combining the democracy and human rights--or narrowly two indicators for 66 low-income countries with reference to their impact on predictability yields 12 countries that are both in the top for business processes and investment climate. third of the KK rankings for the indicator, and Differences in priority and definition will have have a CPIA-rules score of 3.5 or above a direct impact on which reform efforts are pri- (Armenia, Bhutan, Ghana, Honduras, India, oritized to improve the functioning of the jus- Lesotho, Madagascar, Malawi, Mali, Senegal, tice sector and the rule of law and, in turn, what Sri Lanka, and Tanzania). should be measured. Efforts are under way to develop more spe- There already exist a number of broad and cific, actionable indicators. Three are note- specific indicators on justice and rule of law worthy. The first two comprise the Doing issues. Most of them are not aimed specifically Business and Investment Climate surveys. As at justice and the rule of law, however, and discussed in chapters 1 and 5, both include only incorporate a section on it, as part of a indicators that can be used to monitor the broader focus or theme. Others, while focus- performance of the justice system relevant to ing on justice and rule of law issues, focus on specific features of the business environment. specific processes or institutions and do not (See this chapter's annex for specific indica- seek an overall view of the state of the rule of tors relevant to the justice system.) The third law. The two sets of broad indicators that comprises the three GII justice and the rule of make global comparisons among countries law subindicators identified in box 6.9. Table comprise the KK "Rule of law" aggregate indi- 6.5 summarizes the subindicator scores for cator, and the "Property rights and rule-based 25 OECD, middle-, and low-income coun- governance" CPIA criterion. As examined in tries. The results suggest that for many of chapter 5, the KK Rule of Law indicator aggre- them, improving the justice system is a large gates data from multiple sources, namely: ". . . challenge. This area has been prominent in several indicators which measure the extent the development agenda only for a short to which agents have confidence in and abide period, and much remains to be learned as to by the rules of society. These include percep- what reforms work. Box 6.10 summarizes tions of the incidence of crime, the effective- some emerging lessons. 166 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S BOX 6.10 Strengthening justice--three initial lessons The World Bank's work in justice reform has largely focused on formal institutions, beginning with the courts, and institutions supporting the market. More recently, an increased priority has been placed on access to justice, and attention has also focused on the link between formal and informal institutions, as well as the role that informal institutions play in helping to fulfill the roles of the jus- tice sector. Three lessons emerge: Lesson #1: Do not work on independence without simultaneously working on accountability. Early efforts to increase independence of courts tended to focus on how judges are selected and eval- uated, and their capacity to deliberate and decide cases without undue influence from other branches of government or other pressure. Accountability of judges, particularly to the public, was some- times not given as much emphasis as judicial independence. Yet citizens' greatest complaints about courts tend to focus first on corruption and second on delay, neither of which are likely to improve substantially without greater judicial accountability. Lesson #2: Reforms that seek to overhaul the way justice systems operate will endure only if they deliberately strengthen the management of the reform process. Profound institutional change requires professional change management at the planning and implementation stages. This is pointed out quite clearly in studies of the criminal justice reform processes in many countries of Latin America, in which attempts to replace written processes with oral hearings and trials suffered backsliding in the absence of improved management of the institutions involved. Lesson #3: If one is looking to increase the amount or quality of justice for the average citizen, look at both formal and informal justice systems. Most World Bank projects, and many of the jus- tice reform projects of major donors, focus on improving the administration of justice through for- mal institutions--courts, prosecutors' offices, ministries of justice, and so on. Assistance has also been provided to legal aid institutions both formal and informal, and major donors have supported development of alternative dispute resolution mechanisms such as mediation and arbitration-- though often as a recognized, and sometimes court-annexed, part of a formal proceeding. The role of informal, local justice systems--which in some countries govern as much as 95 percent of the population--has only recently begun to receive more attention. The GII provides disaggregated measures The Inner Constellation--Direct Oversight of the quality of direct oversight. As table Direct oversight institutions in the first two 6.6 summarizes, in most OECD and some of inner rings of figure 6.6 include elected sub- the middle-income countries restraints on national authorities, ombudsmen, supreme the executive are rated as high; Zimbabwe audit institutions (with independent author- stands out among the low-income countries ity to review national accounts, monitor the considered, as having few effective executive probity with which public resources are used, constraints. and report on their findings to parliament), One of the most widely used aggregate anticorruption agencies (with independent indicators is the "executive constraint" mea- authority to investigate and sometimes also sure of the POLITY data set.20 This measure prosecute accusations of corruption), and the refers to ". . . the extent of institutionalized national legislature, to which the executive constraints on the decision-making powers generally is directly accountable. Though this of the executive. Such limitations may be section focuses principally on monitoring, imposed by any `accountability group.'" In box 6.11 illustrates for one direct oversight Western democracies these are usually legis- institution--the legislature--some of the latures. Other kinds of accountability groups challenges of improving performance. are the ruling party in a one-party state, G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 167 C H A P T E R 6 BOX 6.11 Legislative oversight in Africa--a work in progress A recent study of legislatures in four African countries--Benin, Ghana, Kenya, and Senegal--iden- tified large differences in their effectiveness. The Kenyan parliament emerged as the most indepen- dently assertive; the Ghanaian and Beninese legislatures were described as semi-independent (and certainly more independent as of 2002 than 10­15 years earlier); but the Senegalese legislature was judged to be almost entirely subservient to the executive. These variations in independence translated into variations in how parliamentarians allocated their time between policy-related and constituency-support activities, with the Kenyans most (and the Senegalese least) preoccupied with the former. But even in Kenya, there was only limited real engagement with the budgeting process (as distinct from other aspects of policy making), and even this engagement tended to focus narrowly on the implementation of spending commitments within the districts of individual members. Multiyear delays in the presentation of audits have led some parliamentarians to refer disparagingly to audit committees as the "post-mortem committees." Legislative strengthening is best seen as a complement to related governance improvements involving civil society. Civil society organizations are sources of technical expertise and can provide specialized legislative committees with information about the effects of public policies and policy alternatives: Treating legislatures as self-contained entities that can be fixed by repairing internal mecha- nisms is unlikely to get very far. Rather, . . . it is more useful to think in terms of helping a society develop the capacity to enact laws that incorporate citizens' interests . . . [this means] working with many people and groups outside the legislature. (Carothers 1999: 107, 186­87) The internal workings of legislatures can nonetheless be important to give parliaments the abil- ity to sustain their interventions, bring significant independent expertise to bear, and exercise effec- tive leverage in their oversight activities. These might include creating a permanent, independent nonpartisan staff for parliament; making changes in internal rules to permit tougher scrutiny of key executives; establishing and strengthening specialized committees (including those focused on bud- get, education, health, roads, rural development, and cross-cutting themes--including poverty reduction); building links with CSOs and independent policy-advisory institutions; establishing well-paid research capabilities to serve parliament; and "putting their own house in order" to improve credibility, for example by establishing codes of conduct for members of parliaments, and by making campaign financing transparent, honest, and constrained. Source: Barkan, Adamolekun, and Zhou 2004; World Bank Institute. TABLE 6.6 The quality of some direct oversight institutions in 25 countries (by group) Legislature National ombudsman Supreme audit institutions Anticorruption agency OECD countries 79 83 98 85 Middle-income countries 66 81 92 68 Low-income countries 73 73 78 77 Source: www.globalintegrity.org. Note: See table 6.4 for a list of countries in each category. 168 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S councils of nobles or powerful advisors in Trajectories of change. Table 6.7 applies the monarchies, the military in coup-prone poli- governance indicators used in earlier sections ties, and in many states a strong, indepen- to identify 28 countries that rate well in the dent judiciary. quality of either their bureaucracies or their POLITY IV scores on a 7-point scale. Most checks and balances institutions. While 10 OECD and many middle-income countries countries rate well in both areas, performance score in the high and medium-high categories, across the remaining countries is uneven. Ten but many countries that confront difficult gov- countries (Rwanda and Vietnam, for example) ernance issues also score medium-high on the have relatively capable public bureaucracies, indicator. A country's political and bureau- but less strong checks and balances institu- cratic leadership can find itself constrained tions. And the pattern is reversed in the other either as part of a well-functioning overall insti- 8 countries (Albania and Lesotho, for instance) tutional environment or as part of an overall where relatively stronger indicators for checks syndrome of state weakness. The final section and balances are not matched by correspond- of the chapter considers these issues further. ingly capable public bureaucracies. Why might patterns such as those in table Sequencing Governance 6.7 be observed? Figure 6.9 illustrates three Reforms possible trajectories for governance turn- arounds. These might vary depending on both This final section brings together some of the the initial political impetus within a country individual governance measures examined in and the longer-term historical processes that this chapter to pose a complex question-- can shape and constrain political and institu- how to engage countries with an uneven mix tional reform. of governance strengths and weaknesses? In trajectory 1 a developmentally oriented This is a somewhat different problem from political leader takes power in a hitherto the question of how to engage with countries clientelistic setting (as when President Rawl- with severe all-round governance weak- ings took power in Ghana in the early 1980s, nesses, in part because the uneven mix may or President Museveni in Uganda in the mid- reflect turnaround cases rather than stable, 1980s). A common early focus of reform clientelistic equilibria. might be to liberalize the economy and TABLE 6.7 State capacity and state accountability Quality of checks and balances institutions Bureaucratic capability Medium or Low Higher Higher 10 countries (Azerbaijan, Bhutan, 10 countries (Armenia, Benin, Bolivia, Burkina Faso, Ethiopia, Indonesia, Ghana, Honduras, India, Mali, Senegal, Pakistan, Rwanda, Tanzania, Serbia and Montenegro, Sri Lanka) Uganda, Vietnam) Medium or low 38 countries 8 countries (Albania, Guyana, Lesotho, Moldova, Mongolia, Nicaragua, Niger, Papua New Guinea) Source: Collated by the authors. Notes: States with higher bureaucratic capability are those with CPIA-budget scores of 4 and above, or both CPIA-admin and CPIA-budget scores of 3.5 and above. States with higher quality of checks and balances institutions are those that score "high" on at least two of the voice and account- ability, rule of law, and executive constraints broad checks and balances measures reviewed in earlier subsections of this chapter. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 169 C H A P T E R 6 FIGURE 6.9 Governance turnarounds: three trajectories Trajectory I Trajectory II Trajectory III Quality of bureaucracy high low low high low high low high Quality of checks and balances institutions Initial turnaround Desirable follow-through Source: Authors. strengthen the performance of the public sec- phase of governance reform in which the tor. This can emphasize strengthening the momentum for greater accountability con- capabilities of the public bureaucracy--pub- tinues--and the reinvigorated legitimacy lic administration and financial management, that comes from stronger participation and and the service provision frontline. The accountability provides a platform for ongo- strengthening of checks and balances institu- ing improvements in bureaucratic capability. tions can initially be a low priority, though Whether and how this subsequent phase countries vary as to whether there is an initial unfolds is, of course, an empirical matter. weakening of checks and balances relative to In trajectory 3 turnaround starts from a the status quo (as in Ghana) or a modest state collapse. Sometimes external interven- improvement (as in Uganda). But once the tion helps to reintroduce the precondition for reform process matures, the priority for gov- an effective state: a monopoly on the legiti- ernment reform might usefully shift from mate use of violence. This umbrella of security strengthening bureaucratic authority to en- provides an opportunity for reestablishing hancing stability by increasing transparency, both the bureaucracy and checks and balances participation, and accountability of the state. institutions. Once a new base has been estab- This subsequent phase is, in practice, advanced lished, the process can continue in a balanced in Ghana and more tentative in Uganda. way, with momentum coming from the newly In trajectory 2 a turnaround is initiated by reestablished domestic institutions. This pat- a move to political pluralism. Examples in tern is evident in countries ranging from Africa include democratic transitions over the Bosnia and Herzegovina to Mozambique. past 15 years in countries as varied as Benin, These varying trajectories pose some dilem- Kenya, Malawi, Nigeria, and Zambia. Exam- mas for the design and sequencing of gover- ples in Europe and Central Asia include Alba- nance reform: nia and Romania in the early 1990s. The initial political opening is only a first move in Change that focuses first on improve- the direction of stronger checks and balances ments in bureaucratic quality has the institutions. The dotted line signals a second potential for rapid gains in public sector 170 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S performance. But without a subsequent investment in strengthening country systems. effort to strengthen checks and balances (See Gelb and Eifert 2005 for this argument.) institutions, it risks subsequent reversal-- As the principles of the Paris Declaration on perhaps by a reversion to corrupt behav- Aid Effectiveness underscore, heavily frag- ior by the political leadership, perhaps by mented project aid complicates and disrupts a loss of legitimacy with citizens. national systems, whereas budget support, Change that begins with a political open- combined with technical assistance, can facil- ing can generate a surge of confidence and itate the improvement of these systems, par- improve the climate for private invest- ticularly if scaling up depends on continuing ment. But unless the gains are consoli- system improvements (see chapters 3 and 4). dated, the country risks becoming trapped Tanzania illustrates this potential: it has in a cycle of what Thomas Carothers shown rapid improvement in budget manage- (2002) has called "feckless pluralism"-- ment systems since 2001 and has been a ben- with short-lived governments repeatedly eficiary of progressively scaled-up budget voted out of power, never having sufficient support over the period. The other examples support and longevity to build the base of highlighted in this chapter suggest that, for bureaucratic capability on which effective- countries determined to improve their admin- ness and legitimacy will eventually depend. istrative budget systems, achieving a "good enough" standard within, say, 5­10 years may These varying trajectories also pose dilem- be feasible. Budget support might be initiated mas for a country's development partners-- quite early in the cycle of improvement--and both for scaling up aid and for ensuring the scaled up as long as the carefully monitored sustainability of development support. improvement continues to be evident. Scaling up across different country settings. Second, priority could be given to reforms Consider first the dilemma uneven bureau- that foster transparency--in budget manage- cratic capability poses for efforts to scale up ment and more broadly. Transparency relies aid. As table 6.7 summarizes, perhaps about on public information as a source of pressure 20 low-income aid recipients currently have for better public sector performance--in a budget management and administrative sys- less technocratic way than is implied by top- tems reasonably capable of targeting spending down reforms of bureaucratic capability. To on poverty reduction priorities--and of exe- be sure, the route from transparency to per- cuting and monitoring spending in a compre- formance is circuitous, and the timing of hensive, credible, and transparent way. With impact, unpredictable. So far, no study defin- a few exceptions, World Bank budget support itively pinpoints the relationship between via Poverty Reduction Support Credits has transparency and performance. But many been targeted to these institutionally stronger examples, including some in this report, high- countries, in the upper quintiles of the CPIA light the potential--from the tracking of edu- (see Gelb and Eifert 2005). cation expenditures in Uganda, to service What might be the "mutual accountability" delivery report cards in Bangalore and Brazil, basis for scaling up aid in the remaining coun- to the impact of media prevalence across tries? Three possibilities are worthy of note. India's states. Even with continuing weakness First, even where current systems fall short, in bureaucratic capability, a case could thus budget support might be scaled up for coun- be made for scaling up aid (including some tries based on a clearly improving trend in the component of budget support) to countries quality of their budget and administrative that clearly commit themselves to facilitating management systems. This is not simply transparency in how public resources--and because the additional resource transfers can state power more broadly--are used. be poverty reducing: a shift from project aid The third possibility for countries is to to budget support can also be seen as an target scaled-up aid more directly toward G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 171 C H A P T E R 6 poverty-reducing services, which can be done difficult to find fault with the readiness of in several ways. A key distinction here is donors to support government efforts to focus between countries where bureaucratic capa- principally on strengthening bureaucratic bility may be on the upturn but is only at an capability and development policy--and to early stage of improvement--and those emphasize decentralization as a means of where there is little sign of political commit- bringing government closer to the people. As is ment to improve governance and capacity. In well known, far-reaching reductions in Ugan- the former group, the sectorwide approaches dan poverty resulted from the early actions of described earlier that focus on improving government, and donor support. At the same governance and service provision in part of time, it also seems clear that development part- the overall system are attractive. In the latter ners can wait for too long--until it is too late group, the focus might be on infrastructure to put the challenge of strengthening checks and other service delivery investment pro- and balances squarely on the agenda. An jects--complete with project implementation example here is President Suharto's Indone- units and related mechanisms that operate sia--where a failure to focus early enough on apart from country systems. Box 6.5 detailed checks and balances was associated with rising some well-founded objections to these corruption, financial crisis, and a difficult approaches. But where there is little political process of political succession which led to commitment to improve country systems and some significant reversal of the development little sign that governments would have tar- gains of earlier decades. Overall, the track geted pro-poor spending, these objections record of recent decades suggests that (perhaps have less relevance. partly as a consequence of the Cold War) in Sustainability--bringing checks and bal- many countries development partners may ances onto the agenda. In the short-term, aid have waited too long before putting checks can thus straightforwardly be scaled up to and balances institutions higher on the agenda countries with improving budget and adminis- of development dialogue. trative systems. But a longer-run challenge A second consideration is that our knowl- looms. While trajectories of improvement edge of how to get "from here to there" is less vary, and in the short run no one type of turn- developed than our understanding of what around is superior to another, unless the gains well-functioning checks and balances institu- in the bureaucracy and the checks and bal- tions should look like. One exception to this ances institutions eventually evolve in a bal- proposition is the value of transparency, anced way, the risk is high that initial which is essential for the effective working of improvements in governance will not be sus- all checks and balances and which can and tained. Over the medium term, it may there- should be enhanced in almost all settings--at fore become necessary to focus the governance quite low cost. Donors and IFIs can play a dialogue on the complementary aspects of the direct role here, including by ensuring that all bureaucratic and institutional agenda that are analytical work is made widely available, not spontaneously coming to the fore. How with translation into local languages. We can these sensitive issues best be addressed? know less as to when and how improvements A first consideration is timing. In some set- in transparency translate into genuine gains tings it may not be practical to press very early in accountability and performance, but it in a turnaround process for far-reaching does seem to be at least a necessary condition. reforms of checks and balances. In Uganda, for Given the limitations of current knowl- example, in the immediate aftermath of the edge, perhaps all that can be offered at this Amin and latter-Obote years the state was in stage is a modest process suggestion. Even-- total collapse, and the ability of the new gov- or perhaps especially--when it is still uncom- ernment to assert authority over the nation fortable, governments and their development was limited. Under such circumstances, it is partners might usefully begin a dialogue on 172 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S how to strengthen checks and balances insti- 7. The composite measure comprises a subset tutions. The aim of this dialogue would be to of the data used for the KK government effective- agree on a phased sequence of steps for ness aggregate indicator; it excludes responses on strengthening these institutions, perhaps the quality of public service provision and on the emphasizing more those directly relevant to credibility of government's commitment to poli- cies, and it excludes the CPIA-admin (because it is MDG outcomes--transparency, gender, the being used as a cross-check). justice system, and local governance for 8. World Bank, Operations Evaluation Depart- example. Recipient countries would be ment (1999: ii­iii). The OED review highlighted accountable for proceeding with an agreed four specific weaknesses in Bank-supported inter- sequence. In return, they would enjoy more ventions: the poor quality of information on civil certainty over what is expected by the inter- service reform performance, needed for monitoring national community. Donors, in turn, having and evaluation; the limited role afforded to strate- agreed on a way forward would be expected gic management and cultural change; the absence of not to shift the goalposts after the fact. checks and balances on arbitrary action; and a fail- ure to appreciate key contextual contexts. Notes 9. See the articles by Mike Stevens and Stefanie Teggemann; Kithinji Kiragu, Rwekaza Mukandala, 1. For details of, and results from, the Code of and Denyse Morin; Poul Engberg-Pedersen and Fiscal Transparency, see http://www.imf.org/external/ Brian Levy in Levy and Kpundeh (2004). np/fad/trans/index.htm and Hameed (2005). 10. For the detailed analysis on which this sub- 2. The correspondence between the four section is based, see International Monetary Fund dimensions of CPIA-budget--(a) through (b)-- and the World Bank (for the Development Com- and the PEFA PFM framework in figure 6.1 is as mittee), "Fiscal Policy for Growth and Develop- follows: (a) corresponds to policy-based budgeting ment: An Interim Report," April 2005. and the formulating process; (b) corresponds to a 11. For a detailed discussion of road sector combination of the comprehensiveness of budget reform, see Heggie and Vickers (1998). coverage, credibility that the budget is realistic and 12. For a review of the role of community implemented as intended, plus the budget execu- schools in Francophone Africa, and the relevant tion arrangements for the exercise of predictabil- lessons from international experience, see Gersh- ity, control, and stewardship in the use of public berg and Winkler (2004). funds; (c) corresponds to the systems of account- 13. For information on the MKSS, visit ing and recordkeeping to provide the information http://www.freedominfo.org/case/mkss/mkss.htm needed for proper management, plus auditing or contact the organization at mkssrajasthan@ mechanisms that ensure external scrutiny. Inter- yahoo.com. Press coverage of MKSS activities has governmental finance--the focus of (d)--is not been extensive and includes Deccan Herald (Sep- directly incorporated in the PEFA framework. For tember 21, 2003) and Mail & Guardian Newspa- the detailed scoring system used in the CPIA, see per, South Africa (February 20, 2004). http://siteresources.worldbank.org/IDA/Resources/ 14. See http://www.worldbank.org/cdd. CPIA2004questionnaire.pdf. 15. This review of the role of Freedom of Infor- 3. See the PEFA Web site at http://www.pefa. mation Laws is adapted from Bellver and Kauf- org/index2.htm. mann (2005). 4. For some questions the benchmark was set 16. For a pioneering, in-depth analysis, see at the score of B and for others at A. Further Islam (2002). details, including the descriptions of how to score 17. Adserà, Boix, and Payne (2003); Besley and each question, are available at http://www.pefa. Burgess (2002); Strömberg (2004). org/about_test.htm. 18. Consideration was given to using three new 5. Niger's ranking improved in eight categories measures of transparency produced by Kaufmann and declined in three. Five of the improvements and a co-author, but it was decided to stick with were sufficient to achieve the benchmark (but all the better-known and more thoroughly scrutinized three declines were from benchmark level to below). "voice and accountability" measure. The correla- 6. See, for example, the Africa Action Plan tion between the aggregate voice and aggregate recently issued by the World Bank. transparency indicators is 0.88. As for the two G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 173 C H A P T E R 6 transparency subindicators, the correlation tems. See, for example, Rigo and Gruss (1991: between "voice and accountability" and "political 5­8) for an excellent overview of the origins of the transparency" is 0.93. The correlation is much rule of law, in Greek and Roman thinking, as well lower--0.41--with the measure of "economic and as its emergence as central tenets in the British and institutional transparency." But the latter measure French legal orders. For a more extensive discus- generates very large standard errors relative to the sion, covering both Western and non-Western con- other KK indicator, raising questions as to the ceptions and origins of the Rule of Law, see Hager coherence of the underlying concept it is intended (2000: 3­20). to measure. See Bellver and Kaufmann (2005). 20. The POLITY project, (www.cidcm.umd.edu/ 19. The inception of the term "rule of law" inscr/polity) run from the University of Maryland, is reaches to the roots of Western political thought-- the world's most widely used data resource for for instance, in early Greek and Roman political monitoring regime change and studying the effects writings--and also appears as a cornerstone in the of regime authority. For details, see Marshall and genesis of various European legal and political sys- Jaggers (2002: 23­24). ANNEX Doing Business Indicators and Investment Climate Surveys--Some Useful Measures for Governance Monitoring A: Measures of corruption (ICS) Unofficial payments for firms to get things done (% of sales) Average value of gifts or informal payments to public officials to "get things done" with regard to customs, taxes, licenses, regulations, services, and so on. The values shown indicate a percentage of annual sales. Firms expected to give gifts in meetings with tax inspectors (%) Percentage of firms for which a gift was expected in meeting with tax inspector. Value of gift expected to secure government contract (% of contract) Percentage of contract value expected as a gift to secure government contract. Corruption a "major or severe" obstacle (% of firms) Percentage of firms that say corruption is a major or severe obstacle to the operation and growth of their business. B: Measures of transactions costs associated with red tape (i) Doing Business indicators Starting a business The number of procedures, average time spent during each procedure, and official cost of each procedure involved in incorporating and registering a commercial or industrial firm. Dealing with licenses The number of procedures, average time spent during each procedure, and official cost of each procedure involved in obtaining necessary licenses and permits, completing required notifications and inspections, and obtaining utility connections (using construction of a warehouse as a benchmark). Registering property The number of procedures, average time spent during each procedure, and official cost of each procedure involved in registering property (using as a benchmark the case of an entrepreneur who wants to purchase land and buildings in the largest business city--already registered and free of title dispute). Trading across borders Number of documents, approvals, signatures, or stamps required, and the time and associated cost necessary to com- ply with all procedural requirements for exporting and importing a standardized cargo of goods. 174 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 M O N I T O R I N G A N D I M P R O V I N G G O V E R N A N C E S U B S Y S T E M S ANNEX (continued) (ii) Investment climate indicators Senior management time spent dealing with requirements of regulations (%) Average percentage of senior management's time that is spent in a typical week dealing with requirements imposed by government regulations (such as taxes, customs, labor regulations, licensing, and registration), including dealings with officials, completing forms, and so on. Time spent in meetings with tax officials (days) Average time firms spend in meetings with tax officials (days). Time to claim imports from customs (days) Average number of days that it takes from the time goods arrive in their point of entry (for example port, airport) until the time they can be claimed from customs. Customs and trade regulations a "major or severe" obstacle (% of firms) Percentage of firms that say customs regulations present major or severe obstacles to the operation and growth of their business. C: Measures of quality of provision of specific public services (ICS) Delay in obtaining a connection (days) [electricity, water, telephone] Average actual delay, in days, that firms experience when obtaining a connection, measured from the day the estab- lishment applied to the day it received the service or approval. Supply failures and outages (days) [electricity, water, telephone] Average number of days per year the establishment experienced supply failures and outages from the public network. Value lost to supply failures (% of sales) [electricity, water, telephone] Total losses over the course of a year resulting from interruptions in electricity service, as a percentage of sales, includ- ing losses due to lost production time from the outage, time needed to reset machines, and production and sales lost due to processes being interrupted. Supply weaknesses a "major or severe" obstacle (% of firms) [electricity, water, telephone] Percentage of firms that say the shortcomings of the infrastructure present major or severe obstacles to the operation and growth of their business. D: Measures of justice and the rule of law (ICS, except "Enforcing contracts") Enforcing contracts (DB) The number of procedures involved from the moment a plaintiff files a lawsuit over a payment dispute until actual payment, and the associated time in calendar days, and cost, necessary to resolve the dispute. Confidence in the judiciary system (%) Percentage of firms that agree with the statement, "I am confident that the judicial system will enforce my contrac- tual and property rights in business disputes." Dispute resolution time (weeks) Average amount of time, in weeks, that it usually takes to resolve an overdue payment. Legal system a "major or severe" obstacle (% of firms) Percentage of firms that say the legal system presents major or severe obstacles to the operation and growth of their business. Crime, theft, and disorder a "major or severe" obstacle (% of firms) Percentage of firms that say crime, theft, and disorder present major or severe obstacles to the operation and growth of their business. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 175 7 Strengthening Global Checks and Balances T he worldwide scale of embezzled funds their own anticorruption controls, improving and corruption proceeds is difficult to transparency, encouraging adherence to inter- judge. One estimate puts it at a stagger- nationally recognized standards and codes, ing $1 trillion a year (Kaufmann 2005). Nige- and working with their clients to encourage ria's President Abacha embezzled between domestic accountability. $2 billion and $5 billion; Zaire's President This chapter discusses international legal Mobutu, an estimated $5 billion. Kenya lost initiatives for good governance, global and $600 million in one scandal alone in the early regional corruption treaties, and transparency 1990s, and Angola lost an estimated $4 billion initiatives (annex tables 7.1­7.3). Of recent between 1997 and 2002.1 The recent report by vintage, these initiatives form an embryonic the Independent Expert Commission on the network of global checks and balances that Oil-for-Food program found evidence of $1.8 deserves to be strengthened to reduce around billion in kickbacks to the Iraqi government the world the rewards of corrupt behavior from oil companies and suppliers. Corruption while increasing the risks of detection. is an international problem: even when no for- eign party is involved, the proceeds of devel- International Legal Initiatives oping-country corruption are typically kept in with Extraterritorial Reach the world's major financial centers. Everywhere the primary responsibility for Certain international legal initiatives strengthen establishing strong national governance sys- the anticorruption framework in industrial tems and combating corruption rests with countries in ways that hold individuals and citizens and their national authorities. But companies responsible for acts committed in national governance systems operate in a other countries. This extraterritorial reach is global context, as noted in chapter 5. Global potentially a great support to poor countries influences can encourage or facilitate domestic whose judiciaries often are not up to the task of corruption, and global efforts can complement prosecuting complicated corruption cases with domestic efforts to strengthen governance and international dimensions, especially when they improve transparency. involve large international companies, politi- Donors and international financial institu- cally influential nationals, or both. The two tions (IFIs) are essential parts of the global most important anticorruption initiatives are governance framework, especially for poor the Organisation for Economic Co-operation countries. Their efforts include bolstering and Development (OECD) anti-foreign-bribery G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 177 C H A P T E R 7 convention and the anti-money-laundering phase 2 reports; in the meantime, Trans- (AML) recommendations of the Financial parency International (TI) published in 2005 a Action Task Force (FATF). Both are supported progress report on enforcement of the conven- by the OECD and have developed monitoring tion (Transparency International 2005). TI mechanisms based on the peer review model. reports a positive start to enforcement, with Monitoring has gone beyond legislation and foreign bribery cases or investigations in 15 of now concentrates on enforcement. They are 24 countries surveyed (representing 95 percent linked in that the handling of bribes under the of OECD exports), but it notes with concern convention is subject to the sanctions pertain- the nine countries that have neither cases nor ing to AML. Together, they greatly facilitate investigations. The convention's preventive mutual legal assistance, exchanges of infor- effect is more difficult to measure. Skeptics mation, extradition of suspects, and seizure point to the fact that the United States, despite of assets. actively prosecuting foreign bribery since 1977, scores only in the middle range on the propensity of its companies to give bribes, Implementing the OECD according to a 2002 survey of international Anti-Bribery Convention bribe payers.2 Inspired by legislation in effect in the United Rigorous monitoring through high quality States since 1977, the OECD Convention on reports is clearly one of the convention's Combating Bribery of Foreign Public Offi- strong points. It is critical that the OECD cials in International Business Transactions countries continue to support this monitoring was hailed in 1997 as the first global instru- beyond 2007, when the current funding runs ment to target the supply side of corruption. out. The TI Progress Report notes several Until then, most OECD countries considered potentially serious weaknesses, and in partic- bribes paid to foreign officials as legitimate ular recommends strengthening government business expenses that were tax deductible. enforcement organizations to deal with for- All 30 OECD members quickly ratified the eign bribery cases. It also sees a need to convention, and it came into force in 1999. improve public awareness and to raise The first phase involved bringing national accounting and auditing standards. To shift legislation up to the standard of the conven- part of the burden from criminal enforcement tion. This phase, examined in phase 1 of the to voluntary compliance, it favors promoting peer review process, is substantially complete. corporate compliance programs. IFIs can In phase 2, which involves onsite visits, the help by making the adoption of such pro- focus is on enforcement. Seven countries are grams a condition for bidding on their pro- being examined each year, and by 2008 reports jects; the World Bank has already done so. will have been published on all signatories. Without overburdening the review process, Now that bribery is in most countries an ways should be found to engage more coun- offense under their AML legislation (see tries, especially emerging market economies below), enforcement of the convention can whose importance to trade and investment in take advantage of more forceful investigating the developing world is growing rapidly. The techniques and additional sanctions. Although convention has been criticized for excluding the convention is in principle open to all coun- small "facilitation payments" from its defini- tries, the obligations of the peer review process tion of bribery and for not dealing with force selectivity, and so far only six non-OECD bribery in political party financing. How sig- members have been admitted. natories handle the more than 2,000 foreign Effectiveness can be judged by the examina- kickback cases exposed by the Independent tion reports' type and number of recommenda- Inquiry Committee, which examined the UN tions and the rate of their implementation. The Oil-for-Food Program, will be critical to the OECD will soon publish a review of two dozen convention's future credibility (box 7.1). 178 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G G L O B A L C H E C K S A N D B A L A N C E S BOX 7.1 Kickbacks under the United Nations Oil-for-Food Program The United Nations Oil-for-Food Program was established in 1995 to permit Iraq to sell oil to raise funds to buy food, medicine, and other humanitarian supplies. The proceeds of oil sales were to be paid into a UN escrow account, which would then pay for humanitarian supplies. The program oper- ated from 1996 until the US-led invasion of Iraq in 2003. In response to criticisms of corruption and abuse of the program, including by UN officials, UN Secretary-General Kofi Annan appointed an investigatory commission, headed by former U.S. Federal Reserve Chairman Paul Volcker. According to the commission's October 2005 report, the Iraqi government manipulated the pro- gram to receive funds outside the UN escrow accounts that it could use freely. Although the Oil- for-Food program was supervised by the United Nations, the Iraqi government was free to choose its oil traders and goods suppliers, and it generally picked companies willing to participate in its kickback schemes. Starting in 2000, Iraq applied surcharges on oil sales and traders transferred these as side payments to Iraqi offshore accounts. Iraq received an estimated $229 million in kick- backs from 139 oil traders. More significantly, the Iraqi government demanded that all suppliers of humanitarian goods pay fictitious transportation or service fees into special overseas bank accounts. The Volcker report provides evidence of the payments, mostly since 2000, by 2,235 suppliers of "humanitarian kickbacks" of over $1.5 billion. The list of countries with companies implicated in the kickback scheme includes most signato- ries of the OECD convention, which criminalized bribery of foreign officials. Their governments must now determine whether these kickbacks amount to bribery under the convention. In addition to national laws prohibiting foreign bribery, these companies would have violated UN sanctions. A number of companies have already launched internal investigations and suspended executives. In the meantime, the United Nations is dealing with the implications of the scandal for its own over- sight, transparency, and accountability practices. Source: Independent Inquiry Commission 2005. Implementing the FATF's Forty The FATF recommendations are wide rang- Recommendations on Money Laundering ing. The 2003 update requires financial insti- International efforts to fight money launder- tutions to pay special attention to politically ing have also helped combat corruption exposed persons and enhance their customer because money laundering is the mechanism due diligence, and it extended coverage to used to hide corrupt gains. The multinational nonfinancial businesses--such as gem dealers FATF, created in 1989, issued its Forty Rec- and lawyers. ommendations on Money Laundering, now Compliance is assessed by the FATF and an international standard, in 1990. In 2003 FATF-style regional bodies through a peer the recommendations for AML were sub- review process, as well as by the International stantially strengthened; and in 2003 and Monetary Fund (IMF) and the World Bank in 2004, nine special recommendations for mea- their Financial Sector Assessment Program. All sures to aid in combating financing of terror- assessments follow an agreed methodology ism (CFT) were added. At the heart of the with 250 criteria. The FATF accepts assess- AML recommendations is the identification ments by the IMF and World Bank for its pur- of the crimes that give rise to money launder- poses, and the IMF and Bank accept FATF ing, the predicate offenses. Both corruption assessments. Since the new recommendations and bribery--including that of foreign offi- were introduced in 2004, the Fund and Bank cials--are among those predicate offenses. have completed 12 assessments, and the FATF G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 179 C H A P T E R 7 has completed 13. When governments agree, mendations generally lower. Countries were reports are published, and to date almost all largely compliant with about half the recom- have been. The IMF and the World Bank also mendations, but compliance of banks with contribute technical assistance: nearly 1,000 customer due diligence and suspicious trans- officials from 111 countries were trained in actions was weak. In poor countries, various aspects of AML/CFT regimes. AML/CFT systems are still at an early stage; To expand its regional coverage, the FATF in core legal systems are substantially lacking. 2005 firmed relations with the Russian Feder- The effectiveness of the system is defined by ation and with FATF-style regional bodies in its ability to identify and prosecute existing Africa, Asia, the Pacific, and South America. It cases--and to prevent or deter future cases. also invited China to attend as an observer, There is no information on the numbers of pending the mutual evaluation of its AML/CFT successful prosecutions, and in any case these systems. The list of Non-Cooperating Coun- would be misleading because AML cases tries and Territories--the FATF's ultimate sanc- often end in a sentence for a related, easier-to- tion against weak AML/CFT programs--was prosecute crime such as a tax evasion or fraud. shrunk further. Begun in 2000 with 23 juris- A case involving the Dominican Republic dictions, the Cook Islands, Indonesia, and the shows how the extraterritorial reach of the Philippines were removed in 2005, and only AML/CFT framework can help developing Myanmar, Nauru, and Nigeria remain. The countries support their governance efforts at study of the increasingly sophisticated tech- home (see box 7.2). niques in money laundering and terrorist As is true for the OECD convention, rigor- financing--typologies--plays a key role in the ous monitoring underpins success in imple- FATF standard-setting process, and the results menting AML/CFT. Countries should identify are summarized in annual reports. gaps in their enforcement systems, develop An IMF/World Bank review of ALM/CFT action plans to fill them, and charge the assessments in 2004 and 2005 found compli- appropriate authorities to execute them. ance with the more demanding 2003 recom- Opportunities for international cooperation BOX 7.2 The Dominican Republic--AML in support of anticorruption In November 2005 a Miami jury found a prominent financier from the Dominican Republic (DR) liable to pay more than $176 million for fraudulently transferring money from the DR's Banco Intercontinental, known as Baninter. This bank collapsed in 2003, setting off a banking crisis in which the central bank of DR lost half of its foreign exchange reserves. The failure was attributed to massive fraud and corruption. The civil suit in Miami was brought by the DR's bank liquidating commission. The case is being appealed but, regardless of the outcome, it highlights the usefulness of the AML system in the international fight against corruption. The DR authorities were able to sue in the United States for racketeering and fraudulent money transfer related to corruption on their territory. The U.S. verdict is expected to buttress ongoing criminal cases, against the financier and others involved in Baninter's collapse, in the DR, where despite several years of investigations no trial has taken place. The DR case is part of a trend in which South Florida is becoming the venue for international fraud cases involv- ing residents of neighboring Latin America and the Caribbean. U.S. courts, spurred on by the Patriot Act, which expanded their jurisdiction, are becoming more open to hearing foreign cases involving residents outside the country. Sources: Washington Post (December 1, 2005) at http://www.washingtonpost.com/wp-dyn/content/article/2005/12/01/ AR2005120101287.html; St. Petersburg Times (March 30, 2004) at http://www.sptimes.com/2004/03/30/Business/ Florida_banks_part_of.shtml. 180 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G G L O B A L C H E C K S A N D B A L A N C E S should be fully exploited. The IFIs can play a national laws be in substantive compliance useful role by continuing their assessment and before ratification. The convention is com- providing technical assistance, particularly to prehensive in its coverage and detailed in its developing countries. measures. It covers public and private sector corruption, and active and passive corruption Global and Regional (paying and receiving bribes). It emphasizes Anticorruption Conventions prevention, detection, prosecution, confisca- tion of proceeds, and international coopera- Anticorruption conventions are binding tion. To reinforce its provisions, it requires agreements among states on the prevention that many offenses be criminalized; in this and sanctioning of corruption. Strong inter- respect it goes beyond even the FATF's AML national interest in corruption led in the 1990s framework. Some of its provisions are to several regional conventions: the UN Dec- mandatory; others are recommended. Nego- laration Against Corruption and Bribery in tiations benefited from the organization of International Commercial Transactions and controversial subjects into four pillars (box the UN Convention Against Transnational 7.3). The framework for asset recovery is Organized Crime.3 In December 2005 the considered groundbreaking. It recognizes the UN Convention Against Corruption, the first return of assets as a "fundamental principle" global anticorruption convention, became and urges state parties to "afford one another effective. The conventions offer the following the widest measure of cooperation and assis- benefits for countries: tance" (Art. 52) (box 7.4). The convention envisages a review mechanism to be estab- a model anticorruption legal framework; lished by a Conference of State Parties, which a framework for mutual legal assistance, is to meet regularly. One issue that did not such as information exchange and extradi- make it into the convention was corruption in tion, and for addressing the international political party financing. dimensions of corruption; and To realize the aspirations of the conven- international benchmarks to help advance tion, many more countries must ratify it. In domestic reforms. addition, an effective monitoring mechanism is indispensable; it is high on the agenda for For IFIs, the conventions offer guidance on the first meeting of the Conference of State anticorruption interventions and standards Parties in December 2006. Industrial coun- for support, and for civil society they offer a tries should lend their technical and financial standard and a way to engage with govern- support to this mechanism. Developing and ments on corruption issues. transition countries will need technical assis- For poor countries, implementing anticor- tance with implementation; in this regard, ruption conventions is not easy. It requires industrial countries and IFIs can make an political commitment and considerable human important contribution. and financial resources. Donors and interna- tional financial institutions can offer useful Implementing Regional assistance with the process. Anticorruption Conventions Regional anticorruption conventions cover Implementing the United Nations Africa, Europe, and Latin America. Asia has Convention Against Corruption no convention, but 25 Asian countries have The convention became effective in Decem- signed the nonbinding ADB-OECD Action ber 2005, after 30 countries had ratified it. Plan for Asia-Pacific. The regional conven- Ratifications continue at a rapid rate. In some tions complement the global UN convention cases they are delayed by the requirement that and will continue to be useful. Each has its G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 181 C H A P T E R 7 BOX 7.3 Four pillars of the United Nations Convention Against Corruption Preventive measures: anticorruption policies and bodies; for the public sector, merit-based recruit- ment, codes of conduct, financial transparency and accountability, and participation of civil soci- ety; for the private sector, conflict of interest, regulatory abuse, and corporate governance Criminalization and law enforcement: a comprehensive list of predicate offenses, with criminaliza- tion mandatory for some (bribery, embezzlement, and other forms of misappropriation of property by a public official, obstruction of justice) and recommended for others; waivers of bank secrecy; whistle-blower protection; and civil remedial actions Asset recovery: standards for return of property, direct recovery of property through civil action, and recovery of assets through international confiscation procedures International cooperation and monitoring: mutual legal assistance; cooperation in investiga- tions, prosecutions, and judicial proceedings and in the collection of evidence and the tracing, seizure, confiscation, and recovery of proceeds of crime; a monitoring mechanism to be decided by the Conference of State Parties Source: Webb 2005. BOX 7.4 International asset recovery--a complicated exercise In the 1990s several cases of massive looting of public funds by political officials in developing coun- tries came to light, and the victimized countries pressed for recovery of the assets, which they believed were stored in financial centers around the world. But asset recovery, it turns out, is a com- plex legal undertaking. Before they can be repatriated, hidden assets must first be traced and iden- tified; next, they must be frozen or seized; and then, they must be legally confiscated or forfeited. Looting is hard to prove, and the looter has ample funds to erect legal obstacles. The provisions dealing with asset recovery in the UN Convention Against Corruption are therefore timely. Even so, industrial countries will have to mobilize the necessary specialized resources. For instance, G-8 justice ministers offered in 2004 to mount accelerated response teams to ensure forfeiture in appro- priate large-scale corruption cases. One of the more successful cases is that of Vladimiro Montesinos, former head of the Peruvian National Intelligence Service. Montesinos fled Peru in September 2000. He was arrested in República Bolivariana de Venezuela and extradited to Peru. After receiving suspicious transaction reports, the Swiss judiciary started AML proceedings and ordered various accounts frozen. The Peruvian authorities followed with a formal mutual assistance request, explaining the local charges against Montesinos and showing how they were linked to the frozen money. In the end some $170 million was recovered. What proved critical was the high level of cooperation among Swiss, U.S., and Peruvian judicial authorities. Other cases have not been so successful. Only $4 million of the $5 billion looted by Mobutu Sese Seko has been identified, and less than $700 million of the $5 billion to $10 billion embezzled by Ferdinand Marcos was recovered. Of the estimated $2 billion to $5 billion looted by Sani Abacha, only about $825 million was recovered; some $1.3 billion remains frozen. Sources: Transparency International [http://www.transparency.org/]; U4-Utstein Anti-Corruption Resource Centre [http://www.u4.no/]; G-8 declaration [http://www.g7.utoronto.ca/justice/G8justice2004_corruption.pdf]. 182 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G G L O B A L C H E C K S A N D B A L A N C E S own strengths and, thanks to its regional ori- Corruption (GRECO). This is a voluntary entation, ownership and support. country group--most Council of Europe The Inter-American Convention against countries belong, as does the United States-- Corruption, adopted in 1996, was the first that has agreed to review good governance anticorruption convention. All 34 members of instruments. The only requirement for mem- the Organization of American States have rat- bership is a willingness to participate fully in ified the convention, although only 15 have the mutual evaluation process--including provided the required legal information. At providing experts--and to agree to be evalu- the urging of civil society groups, state parties ated. Members must also contribute finan- established a follow-up mechanism for imple- cially to GRECO. Both its voluntary nature mentation in 2001. Since then, a committee of and its independent funding set the GRECO government-appointed experts has started to apart from other monitoring mechanisms. produce country review reports, 23 of which Most countries have been covered in two have been published. In 2005 it was decided rounds of review, and more than 70 reports to post annual country progress reports on the have been published. Internet, and 20 are currently available. Adopted by the heads of state and govern- In 1999 the Council of Europe adopted the ments of the African Union in 2003, the Criminal Law Convention on Corruption African Union Convention on Preventing and and the Civil Law Convention on Corrup- Combating Corruption is the latest regional tion. The Criminal Law Convention aims to convention. It is relatively comprehensive-- harmonize national laws on the definition of for example, it covers the controversial issue corruption offenses, set up complementary of corruption in the funding of political par- penal measures, and improve international ties--and most of its provisions are manda- cooperation in bringing offenders to justice. tory. Its description of acts of corruption and The Civil Law Convention, a first attempt to related offences is particularly broad. Its define common rules for civil litigation in cor- regional orientation is evident in its emphasis ruption cases, requires states to provide legal that foreign companies should be set up in a remedies for persons who have suffered from way that respects national legislation, that the acts of corruption (box 7.5). Parties to a con- private sector should be encouraged to par- tract whose consent has been "undermined ticipate in the fight against unfair competi- by an act of corruption" should be able to ask tion, that governments should involve civil a court to declare it void. society in monitoring and implementation, The Council of Europe conventions are that everyone is entitled to a fair trial, and monitored by the Group of States Against that signatories should cooperate with the BOX 7.5 Civil versus criminal law pursuits of corruption A civil lawsuit against corruption has several advantages over a criminal lawsuit. It empowers vic- tims to litigate on their own initiative, potentially relieving public prosecutors of a complicated bur- den. Civil courts are also less onerous, have a longer reach, and their burden of proof is less demanding than in criminal courts, making recovery of assets more likely. Drawbacks are that civil courts lack the strong evidence-gathering methods available to criminal courts and that they require adequate resources on the part of the litigators. Not only citizens but also states can seek remedies in civil court. Source: Transparency International 2000. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 183 C H A P T E R 7 countries of origin of multinationals to pursue cators on the state of government corruption. corrupt acts. Unfortunately, only 10 countries Both the Fund and the Bank have trans- have ratified so far, 5 short of the minimum parency policies that provide for Internet needed for the convention to come into effect. publication of most of their documents. In the meantime, Africa is gathering experi- Two transparency initiatives focus on the ence with the peer review monitoring of the natural resource sector. More than 50 coun- quality of governance in the New Partnership tries qualify as rich in hydrocarbons or miner- for Africa's Development (NEPAD) (box 7.6). als, many of them low- or middle-income countries that depend on natural resources for International Transparency more than half their government revenue (IMF Initiatives 2005). This concentration of rent creates unusual scope for corruption, which by under- Transparency enjoys broad international sup- mining domestic institutions reduces long- port as a powerful and practical tool for term growth (Sala-i-Martin and Subramanian improving governance. More than 60 coun- 2003). Resource-rich developing countries as a tries have passed legislation that recognizes group lag in human indicators and experience and protects citizens' right to information more violent conflicts than less-endowed coun- held by public bodies. Several international tries (Collier and Hoeffler 2003). In 2003, the good governance initiatives focus on the need Extractive Industries Transparency Initiative to improve the quality and availability of was launched to ensure public accounting for information. Promoting transparency is also all resource revenue, and the Kimberley high on the agenda of the IFIs. The IMF set a Process was launched to certify that diamonds standard for the quality of official statistics are conflict free (box 7.7). These initiatives and developed codes for transparency in fis- dovetail with private sector governance initia- cal policy and monetary and financial poli- tives (international arbitration, credit ratings, cies, and it reports on their observance. The regulatory transparency, corporate governance World Bank compiles and disseminates indi- principles, investment guidelines, codes of con- BOX 7.6 The African Peer Review Mechanism When the African heads of state launched NEPAD in 2002, they created at the same time the African Peer Review Mechanism (APRM) to foster better governance. The format emphasizes sharing of experience, reinforcement of successful practices, and capacity building. At the time, the APRM was viewed as one of NEPAD's most innovative projects, and it is still considered ambitious, yet realis- tic and pragmatic (Déme 2005). The review process has five stages: country self-assessment, onsite review, preparation of country report and discussion with authorities, submission of report to heads of state for consideration and decision, and formal tabling of the report and the recommendations by heads of state for discussion in various regional structures. A recent evaluation found the APRM too government-oriented and advocated more effective participation by the private sector, civil soci- ety, and all development stakeholders (ECA 2005). Ghana was the first country to traverse the first four stages during the Summit of the APRM Forum in January 2006. The final report listed capac- ity constraints, gender disparity, corruption, lack of decentralization, and land issues as the main governance concerns in Ghana. For the June 2005 discussion of the draft by heads of state, the Ghanaian government produced an extensive response. The report and response will be published. So far 25 countries have formally acceded to the APRM. Rwanda is far advanced in the process; Algeria and South Africa are completing their self-assessment. Source: NEPAD [http://www.nepad.org/2005/files/aprm.php/]. 184 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G G L O B A L C H E C K S A N D B A L A N C E S BOX 7.7 Improving governance in resource-rich countries In 2003 the United Kingdom launched the Extractive Industries Transparency Initiative (EITI), which built on the NGO campaign Publish What You Pay (PWYP). Both aim to enhance the trans- parency of natural resource revenue. PWYP strives for mandatory disclosure of payments by extrac- tive industry companies; the EITI aims for voluntary disclosure, but by governments as well as companies. In the EITI, companies and governments use similar templates for reporting all revenue flows, whether accruing directly to government or through a national oil company. Any discrepan- cies will become evident from comparing the templates. More than 20 oil-producing countries have endorsed the EITI, and most have started to implement it. The United Kingdom currently provides a secretariat, and an International Advisory Group is preparing proposals for a future management structure and a monitoring and validation system. The Kimberley Process Certification Scheme was launched in 2003 to prevent raw diamond pro- duction from fueling conflicts, as has happened in Angola, Sierra Leone, and elsewhere. A joint ini- tiative of governments, the international diamond industry, and civil society, the scheme requires participant countries to ship their rough diamonds in sealed containers accompanied by certificates listing the country of origin. Participants are prohibited from trading with nonparticipants. This permits the United Nations to impose sanctions on the trade in diamonds from conflict areas. Presently, diamonds from Liberia continue under sanction (imposed in 2001), and sanctions on dia- monds from Côte d'Ivoire were imposed in December 2005. Industry self-regulation supplements the scheme to help ensure that only jewelry containing certified diamonds enters the retail chain. Implementation is monitored through peer review: 19 country reports had been produced by the end of 2005; the summaries have been made public. Enforcement relies heavily on a diamond trade database currently not accessible to the public. Sources: EITI [http://www.eitransparency.org/news.htm]; PWYP [http://www.publishwhatyoupay.org/english/]; Kimberley Process [http://www.kimberleyprocess.com:8080/]. duct). The Joint Oil Data Initiative aims to lish an aggregate template for their compa- improve the timeliness, availability, and qual- nies to avoid revealing commercially sensitive ity of monthly oil data.4 information, but some countries insist on individual company declarations. The EITI stakeholders include the more Implementing the Extractive Industries than 280 NGOs in the PWYP coalition, Transparency Initiative (EITI) which is developing complementary initia- More than 20 countries are already partici- tives. Because the EITI implicitly measures pating in the EITI, more than half of them in transparency of host countries to companies, Sub-Saharan Africa. At the London EITI PWYP published two reports in 2005 that Conference in 2005, participants endorsed attempt to measure the transparency that the six criteria for assessing implementation, home countries require of companies, and while encouraging countries to go beyond that the companies themselves exhibit.5 The them. One of the criteria covers the active home country report evaluates performance engagement of civil society in the design, against four criteria and finds that 9 of 10 monitoring, and evaluation of the process. countries score less than 50 percent. Securi- This can be time consuming, as is organizing ties regulation and accounting standards are the reporting on the government side, and found to be most important. Canada leads auditing the figures of companies and gov- the ranking and is the only country to require ernments. The EITI permits countries to pub- financial disclosure on a country-by-country G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 185 C H A P T E R 7 basis, a critical transparency practice. The tatorial regime in Liberia, the conflicts in the company report concludes that transparency Democratic Republic of Congo, and political practices remain weak: 23 of 25 companies instability and repression in Zimbabwe. The reviewed scored below 30 percent. Compa- Kimberley Process followed meetings of dia- nies tend to publish data by region and not by mond-producing states and a resolution of the country, which does not help with host coun- United Nations General Assembly supporting try transparency. the creation of an international certification The World Bank and IMF support the EITI scheme for rough diamonds. In November directly--both assist its Secretariat and the 2002 two years of negotiation culminated in Bank manages a multidonor trust fund--and the Kimberley Process Certification Scheme. indirectly. In June 2005 the IMF issued its The scheme outlines how trade in rough dia- Guide on Resource Revenue Transparency, monds is to be regulated by countries, regional which applies the IMF's fiscal transparency economic organizations, and rough-diamond principles to the challenges facing resource- trading entities. rich countries (IMF 2005). This guide feeds The scheme has been remarkably successful into IMF advice on resource revenue trans- in enhancing transparency in the traditionally parency. The World Bank, in implementing its secretive diamond trade. Almost all producer 2004 management response to the Extractive countries are participants, as are all the major Industries Review, concluded in a December rough-diamond importing countries. Some 2005 review that the Bank is now applying a $32 billion in rough diamonds were traded in more considered approach to its assessment 2003, according to data compiled by the of governance risks in extractive industries.6 scheme, and some 57,000 certificates were The EITI is successful as a narrowly tar- issued. Important overlapping interests among geted initiative with great popular appeal. As governments, NGOs, and industry--the third country interest grows, so does the risk of concerned about the image of its product-- "free riders," and it has become a matter of contributed to this success. The rotating urgency for the EITI to establish a monitor- chair--South Africa in 2003, Canada in 2004, ing and validation procedure. So far only Russia in 2005, Botswana in 2006--with a Azerbaijan, Gabon, the Kyrgyz Republic, and secretariat supported by working groups and Nigeria have published EITI reports, and they committees chaired and organized by partic- all reveal serious deficiencies in coverage ipants and industry, is proving an effective and/or government accounting procedures. governance model, permitting flexibility and These deficiencies will have to be addressed country ownership. Civil society organizations through broader public finance reform to favor building on this success and using the achieve genuine political accountability for Kimberley Process to ensure that diamonds the spending of mineral revenues. contribute in a meaningful way to the devel- opment of African producer countries and the individuals who mine them.7 Implementing the Kimberley Process The Kimberley Process is also linked to sev- Certification Scheme (KPCS) eral other initiatives. As a result of the FATF's Diamonds have fueled several of Africa's most extension of its AML/CFT provisions to devastating wars. In Angola in the 1990s, the precious-gem traders, all cash transactions civil war was financed primarily by natural in rough diamonds exceeding $15,000 or resources--oil (on the government side) and 15,000 must be reported. And since the EITI diamonds (the rebel group, National Union for is open to mining and thus could be extended Total Independence of Angola [UNITA]). Over to diamond mining, there are potential syner- the past decade and a half, diamonds have also gies with the Kimberley Process. A pressing helped finance, train, and equip the Revolu- concern are stronger controls in countries tionary United Front in Sierra Leone, the dic- with alluvial diamond mining typically carried 186 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G G L O B A L C H E C K S A N D B A L A N C E S out by a great many small operators, such as parency in the management of public sector Angola, the Democratic Republic of Congo, resources is a pragmatic way of promoting and Sierra Leone. Despite its broad country accountability, which also invites civil society participation, the scheme cannot hope to pre- participation. Resource-rich countries can vent all trade in noncertified raw diamonds. But demonstrate their commitment to trans- it can drive a significant price wedge between parency by joining the EITI. certified and noncertified diamonds, making Developed countries should also ratify the the trade in sanctioned diamonds much less UN convention speedily. In addition, they remunerative. should make it a priority to raise awareness of these initiatives and conventions among their Conclusions and Policy business communities. Their financial, politi- Recommendations cal, and analytical support will strengthen the emerging network in the face of changing The legal initiatives, anticorruption conven- practices in international corruption. The key tions, and transparency initiatives described to making any anticorruption initiative work above, form--together with many supporting is effective monitoring. Peer review with initiatives in the public and private sector-- ample opportunities for civil society partici- an embryonic network of global checks and pation has proven to be an effective model. A balances. It appears an appropriate response monitoring mechanism for the UN anticor- to the international manifestations of corrup- ruption convention should be established at tion and poor governance, exacerbated in the earliest opportunity. This and existing recent years by the forces of globalization. It monitoring mechanisms deserve to be prop- also offers the international community many erly supported and adequately funded, and opportunities for supporting developing coun- their findings utilized. The provisions on tries as they tackle poor governance at home. asset repatriation in the UN anticorruption The network is largely accidental, the result of convention should urge financial-center separately motivated initiatives, not a grand countries to make good on their promises. design. For the network to realize its potential, Developing countries need help with this synergies among individual components must legally complicated task, which promises a be exploited and duplication avoided. All com- triple payoff--symbolically, as a deterrent, ponents need continuous reinforcement. This and in terms of funds recovered. Developed is a global undertaking, with a large role for countries can also provide technical assis- civil society and the private sector, and with tance to developing countries in implement- responsibilities for policy makers at all levels. ing the AML/CFT framework and the For developing countries, including middle- anticorruption conventions. income countries, the first order of business is The IMF and multilateral development to ratify relevant conventions, especially the banks (MDBs) have a special role to play. As UN and African Union anticorruption con- a priority they must ensure that their in-house ventions, if they have not yet done so. Ratifi- operations meet high integrity standards and cation should be followed by efforts to amend that their interventions in member countries legislation to bring it up to the standards of promote good governance. Their technical the conventions and to ready the law enforce- assistance with the implementation of the ment apparatus. Developing countries should AML framework, the anticorruption conven- take advantage of existing opportunities, call- tions, and the EITI and the Kimberley Process ing on OECD countries to pursue bribery by will be most helpful to developing countries. multinationals on their territories, on finan- Both institutions are already actively sup- cial centers to assist with asset repatriation, porting the EITI secretariat. They can lever- and on donors and IFIs for help with the age the anticorruption conventions by using AML/CFT framework. Maximum trans- them as blueprints for guiding their own good G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 187 C H A P T E R 7 governance programs in member countries. story/0,,1731884,00.html; Human Rights Watch, The MDBs can use their procurement experi- "Some Transparency, No Accountability" at http:// ence to help combat bribery of officials in devel- www.hrw.org/. oping countries through the disbarment and 2. See Transparency International's Bribe Pay- cross-disbarment of firms that engaged in cor- ers Index at http://www.transparency.org/. 3. For a useful overview of anticorruption ruption or other illegal practices. By promoting conventions, see chapter 5 of Transparency Inter- transparency across all government operations, national's Global Corruption Report 2003. they empower civil society and permit account- 4. See http://www.jodidata.org/. ability. The IMF can counter the "resource 5. Measurement of transparency was con- curse" by pursuing the widespread adoption of ceived by Save the Children UK. The reports are the good practices described in its Guide on posted on the PWYP Web site at http://www Resource Revenue Transparency, and the .publishwhatyoupay.org/measuring_transparency/ World Bank by pursuing the good governance index.shtml. agenda set out in its Management Response to 6. See the World Bank's Oil, Gas, Mining, and the Extractive Industries Review. Chemicals Department Web site at http://web .worldbank.org/WBSITE/EXTERNAL/TOPICS/ EXTOGMC/0,,contentMDK:20605112~menuPK Notes :336936~pagePK:148956~piPK:216618~theSitePK :336930,00.html. 1. See U4 Utstein Anti-Corruption Resource 7. See relevant papers on the Web sites of Part- Centre at http://www.u4.no/; The Guardian, March nership Africa Canada [http://www.pacweb.org/e/] 16, 2006. Available at www.guardian.co.uk/kenya/ and Global Witness [http://www.globalwitness.org/]. 188 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T R E N G T H E N I N G G L O B A L C H E C K S A N D B A L A N C E S afi.org/ site .oecd.org/ tf-ga.f eb W http://www http://www y lead in peer TF-AF Bank and plenar y y ingk or ld Business Bodies or mechanism with (WBI) expert w ands supported or W Briber TFAF W assessments plenar assessment vieer on tional with gional by or and w Re OECD with,f Monitoring oup Self peer examiner discussion, by Gr Interna ransactionsT Self-assessments, vieer IMF teams Style (FSRBs) by staf discussion ship 6 tions 2 and and aniza countries and member org ent OECD Curr 30 countries All non-OECD 31 territories gionaler y oval sevitaitinil mostl countries countries ppra 16 countries to y countries; Eligible OECD non-OECD subject Originall industrial ga le y of as y and t y adopt itt tionalan ks briber ea to tr orist the tor y wor briber the tional bring to comba as na terr the to inter ev to 1989, te gulaer countr frame and and in will eas. alg verity and ar omote ted Objecti se le criminalize ficials, pr policies genera ea veti ficials. its to of Cr to of . political these member balances: y same and ks y tional laundering gisla in eign the y le wor and each amend orf velop s orF or necessar of with domestic De interna mone financing TFAF orms necessar bouta efr check Global eness)v ficials on (1990) on y Of Business askT fectife (1999) tions 7.1 of Briber ortyF Public tional Action eary( Convention ting TF)A Laundering eign (F ABLET y orF Interna ce Name OECD Comba of in ransactionsT Financial orF Recommenda Mone ANNEX G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 189 C H A P T E R 7 (continued) .org/pdf/ site .unodc .africa-union.org/ .oas.org/juridico/ eb W http://www http://www http://www english/ st orf is fir but and is by Parties uption peer y orf te the an ovide was Sta which American enc wing The orf consisting 2006. 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Millennium Development Goals Goal 1: Poverty (US$1 a day headcount ratio, %) Share of consumption to poorest quintile (%) Goal 2: Primary education completion (gross intake to final primary grade, %) Secondary enrollment (gross, %) Goal 3: Ratio of girls to boys in primary and secondary school (%) Women in nonagricultural sector (% of total nonagricultural employment) Goal 4: Child mortality (under-5 mortality rate per 1,000) Measles immunization (% of children ages 12­23 months) Goal 5: Maternal mortality ratio (modeled estimate, per 100,000 live births) Births attended by skilled health staff (% of total) Goal 6: HIV prevalence (% of population ages 15­49) Incidence of tuberculosis (per 100,000 people) Goal 7: Access to an improved water source (% of population) Access to improved sanitation facilities (% of population) Goal 8: Fixed-line and mobile phone subscribers (per 1,000 people) Internet users (per 1,000 people) B. Measures of Governance Performance Overall governance performance Control of Corruption (KK, TI, ICS) Policy outcome (CPIA cluster A­C average) Aggregate public institutions (CPIA cluster D) Business transactions costs (DB, ICS) Bureaucratic capability Budget and financial management (CPIA 13) Public administration (CPIA 15) Checks and balances institutions Voice and accountability (KK) Justice and rule of law (KK, CPIA 12) Executive constraints (Polity IV) C. Overall Trade Restrictiveness Index (OTRI) D. Official Development Assistance (ODA) Net Official Development Assistance by DAC and non-DAC Countries Net Official Development Assistance Receipts CPIA: Country Policy and Institutional Assessment; DB: Doing Business indicators; ICS: Investment Cli- mate Surveys; KK: Kaufmann and Kraay; OTRI: Overall Trade Restrictiveness Index; TI: Transparency International. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 203 S T A T I S T I C A L A N N E X TABLE A.1 Millennium Development Goals Goal 2 Goal 1 Achieve universal Goal 3 Goal 4 Eradicate extreme poverty primary education Promote gender equality Reduce child mortality Primary Women in Child Measles education Ratio of girls nonagricultural mortality immunization Poverty Share of completion to boys in sector (under-5 (% of (US$1 a day consumption (gross intake to Secondary primary and (% of total mortality children headcount to poorest final primary enrollment secondary nonagricultural rate per ages 12­23 ratio, %) quintile (%) grade, %) (gross, %) school (%) employment) 1,000) months) 1998­2004a 1998­2004a 2001­4a 2004 2004 2003 2004 2004 Afghanistan .. .. .. 13 34 .. .. 61 Albania <2 9.1 99 78 97 40.3 19 96 Algeria .. .. 94 81 99 15.5 40 81 Angola .. .. .. 17 .. .. 260 64 Argentina 7.0 3.2 102 99 103 47.6 18 95 Armenia <2 8.5 107 91 103 47.0 32 92 Australia .. .. 100 154 98 48.9 6 93 Austria .. 8.6 .. 100 96 44.5 5 74 Azerbaijan <2 12.2 96 83 97 48.5 90 98 Bangladesh 36.0 9.0 73 51 106 24.2 77 77 Belarus <2 8.5 101 94 100 55.9 11 99 Belgium .. 8.5 .. 160 106 44.4 5 82 Benin 30.9 7.4 49 26 71 .. 152 85 Bhutan .. .. .. .. .. .. 80 87 Bolivia 23.2 1.5 100 89 98 36.5 69 64 Bosnia and Herzegovina .. 9.5 .. .. .. .. 15 88 Botswana .. .. 92 74 102 47.0 116 90 Brazil 7.5 2.6 111 110 103 46.9 34 99 Bulgaria <2 8.7 97 99 97 52.2 15 81 Burkina Faso 27.2 6.9 30 12 76 15.2 192 78 Burundi 54.6 5.1 33 12 82 .. 190 75 Cambodia .. .. 82 26 85 52.6 141 80 Cameroon 17.1 5.6 72 44 87 .. 149 64 Canada .. 7.2 .. 105 100 49.2 6 95 Central African Republic .. .. .. 12 .. .. 193 35 Chad .. .. 30 15 58 .. 200 56 Chile <2 3.3 97 88 99 37.3 8 95 China 16.6 4.7 100 70 99 39.5 31 84 Hong Kong, China .. .. 111 85 95 46.9 .. .. Colombia 7.0 2.5 94 75 104 48.8 21 92 Comoros .. .. 50 35 84 .. 70 73 Congo, Dem. Rep. of .. .. .. 23 .. .. 205 64 Congo, Rep. of .. .. 66 32 87 .. 108 65 Costa Rica 2.2 3.9 92 68 101 39.5 13 88 Côte d'Ivoire 14.8 5.2 43 25 68 20.2 194 49 Croatia <2 8.3 91 88 101 46.3 7 96 Cuba .. .. 93 93 98 37.7 7 99 Czech Republic .. .. 102 97 101 45.8 4 97 Denmark .. .. 103 127 103 48.3 5 96 Djibouti .. .. 29 22 75 .. 126 60 Dominican Republic 2.5 3.9 91 68 105 34.9 32 79 Ecuador 17.7 3.3 101 61 100 41.1 26 99 Egypt, Arab Rep. of 3.1 8.6 93 87 94 21.6 36 97 El Salvador 19.0 2.7 84 60 98 31.1 28 93 204 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Goal 6 Goal 7 Goal 8 Goal 5 Combat HIV/AIDS Ensure environmental Develop a global partnership for Improve maternal health and other diseases sustainability development (new technologies) Maternal Births Access to Fixed-line and mortality ratio attended Incidence of Access to an improved mobile phone (modeled estimate, by skilled HIV prevalence tuberculosis improved sanitation subscribers Internet users per 100,000 health staff (% of population (per 100,000 water source facilities (per 1,000 (per 1,000 live births) (% of total) ages 15­49) people) (% of population) (% of population) people) people) 2000 2000­4a 2003 2004 2002 2002 2004 2004 .. 14 .. 333 13 8 .. .. 55 98 .. 22 97 89 438 24 140 96 0.1 54 87 92 215 26 1,700 45 3.9 259 50 30 29 11 82 99 0.7 43 .. .. 579 133 55 97 0.1 78 92 84 260 50 8 .. 0.1 6 100 100 1,359 646 4 .. 0.3 14 100 100 1,438 477 94 84 <0.1 75 77 55 333 49 380 13 .. 229 75 48 37 2 35 100 .. 60 100 .. 424 163 10 .. 0.2 13 .. .. 1,333 403 850 66 1.9 87 68 32 38 12 420 37 .. 107 62 70 53 22 420 67 0.1 217 85 45 269 39 31 100 <0.1 53 98 93 507 58 100 94 37.3 670 95 41 396 34 260 96 0.7 60 89 75 587 120 32 99 0.1 36 100 100 966 283 1,000 38 1.8 191 51 12 37 4 1,000 25 6.0 343 79 36 12 3 450 32 2.6 510 34 16 40 3 730 62 5.5 179 63 48 74 10 6 98 0.3 5 100 100 1,053 626 1,100 44 13.5 322 75 27 18 2 1,100 14 4.8 279 34 8 14 6 31 100 0.3 16 95 92 799 267 56 96 0.1 101 77 44 499 73 .. .. 0.1 75 .. .. 1,733 506 130 86 0.7 50 92 86 427 80 480 62 .. 46 94 23 26 14 990 61 4.2 366 46 29 11 1 510 .. 4.9 377 46 9 102 9 43 98 0.6 14 97 92 533 235 690 68 7.0 393 84 40 86 17 8 100 <0.1 41 .. .. 996 293 33 100 0.1 10 91 98 75 13 9 100 0.1 11 .. .. 1,392 470 5 .. 0.2 8 100 .. 1,599 696 730 61 2.9 734 80 50 43 12 150 98 1.0 91 93 57 396 91 130 .. 0.3 131 86 72 472 48 84 69 <0.1 27 98 68 235 54 150 92 0.7 54 82 63 402 87 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 205 S T A T I S T I C A L A N N E X TABLE A.1 Millennium Development Goals (continued) Goal 2 Goal 1 Achieve universal Goal 3 Goal 4 Eradicate extreme poverty primary education Promote gender equality Reduce child mortality Primary Women in Child Measles education Ratio of girls nonagricultural mortality immunization Poverty Share of completion to boys in sector (under-5 (% of (US$1 a day consumption (gross intake to Secondary primary and (% of total mortality children headcount to poorest final primary enrollment secondary nonagricultural rate per ages 12­23 ratio, %) quintile (%) grade, %) (gross, %) school (%) employment) 1,000) months) 1998­2004a 1998­2004a 2001­4a 2004 2004 2003 2004 2004 Eritrea .. .. 44 28 73 35.0 82 84 Estonia <2 6.7 103 96 100 51.5 8 96 Ethiopia 23.0 9.1 51 28 73 .. 166 71 Finland .. 9.6 102 127 106 50.6 4 97 France .. .. 99 110 100 47.0 5 86 Gabon .. .. 66 50 .. .. 91 55 Gambia, The 59.3 4.8 .. 34 85 .. 122 90 Georgia 6.5 5.6 86 82 99 45.2 45 86 Germany .. 8.5 97 100 99 46.4 5 92 Ghana 44.8 5.6 65 42 91 .. 112 83 Greece .. 6.7 .. 96 101 41.1 5 88 Guatemala 13.5 2.9 70 49 91 38.7 45 75 Guinea .. .. 49 26 73 .. 155 73 Guinea-Bissau .. .. 27 18 65 .. 203 80 Guyana .. .. 95 90 116 .. 64 88 Haiti 53.9 2.4 .. .. .. .. 117 54 Honduras 20.7 3.4 79 .. .. 50.5 41 92 Hungary <2 9.5 97 103 100 47.1 8 99 India 34.7 8.9 84 52 88 17.5 85 56 Indonesia 7.5 8.4 101 62 98 30.8 38 72 Iran, Islamic Rep. of <2 5.1 95 82 100 .. 38 96 Iraq .. .. 74 45 78 .. .. 90 Ireland .. 7.4 101 109 103 47.4 6 81 Israel .. 5.7 101 93 99 48.9 6 96 Italy .. 6.5 103 99 99 41.2 5 84 Jamaica <2 6.7 84 84 101 48.0 20 80 Japan .. .. .. 102 100 40.8 4 99 Jordan <2 6.7 97 88 101 24.9 27 99 Kazakhstan <2 7.4 110 98 98 48.7 73 99 Kenya .. .. 89 48 94 38.5 120 73 Korea, Dem. Rep. of .. .. .. .. .. .. 55 95 Korea, Rep. of <2 7.9 105 91 100 41.2 6 99 Kuwait .. .. 91 90 104 24.1 12 97 Kyrgyz Republic <2 8.9 93 88 101 44.0 68 99 Lao PDR 27.0 8.1 74 46 84 .. 83 36 Latvia <2 6.6 98 95 99 53.4 12 99 Lebanon .. .. 94 89 102 .. 31 96 Lesotho .. .. 71 36 104 .. 112 70 Liberia .. .. .. .. .. .. 235 42 Libya .. .. .. 104 103 .. 20 99 Lithuania <2 6.8 105 103 98 50.0 8 98 Macedonia, FYR <2 6.1 97 85 99 42.2 14 96 Madagascar 61.0 4.9 45 .. .. .. 123 59 Malawi .. .. 59 29 99 12.5 175 80 206 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Goal 6 Goal 7 Goal 8 Goal 5 Combat HIV/AIDS Ensure environmental Develop a global partnership for Improve maternal health and other diseases sustainability development (new technologies) Maternal Births Access to Fixed-line and mortality ratio attended Incidence of Access to an improved mobile phone (modeled estimate, by skilled HIV prevalence tuberculosis improved sanitation subscribers Internet users per 100,000 health staff (% of population (per 100,000 water source facilities (per 1,000 (per 1,000 live births) (% of total) ages 15­49) people) (% of population) (% of population) people) people) 2000 2000­4a 2003 2004 2002 2002 2004 2004 630 28 2.7 271 57 9 14 12 63 100 1.1 46 .. .. 1,260 497 850 6 4.4 353 22 6 8 2 6 100 0.1 9 100 100 1,407 629 17 .. 0.4 12 .. .. 1,299 414 420 86 8.1 280 87 36 388 29 540 55 1.2 233 82 53 99 33 32 .. 0.1 82 76 83 337 39 8 .. 0.1 8 100 .. 1,525 500 540 47 2.2 206 79 58 93 17 9 .. 0.2 19 .. .. 1,465 177 240 41 1.1 77 95 61 350 61 740 56 3.2 240 51 13 15 5 1,100 35 .. 199 59 34 8 17 170 86 2.5 140 83 70 329 193 680 24 5.6 306 71 34 64 59 110 56 1.8 77 90 68 153 32 16 100 0.1 26 99 95 1,217 267 540 43 0.9 168 86 30 85 32 230 72 0.1 245 78 52 184 67 76 90 0.1 27 93 84 270 8 .. 72 <0.1 132 81 80 .. .. 5 100 0.1 11 .. .. 1,425 265 17 .. 0.1 9 100 .. 1,499 471 5 .. 0.5 7 .. .. 1,541 501 87 97 1.2 7 93 80 1,021 403 10 .. <0.1 30 100 100 1,176 587 41 100 <0.1 5 91 93 407 110 210 .. 0.2 151 86 72 351 27 1,000 42 6.7 619 62 48 85 45 67 97 .. 178 100 59 41 0 20 .. <0.1 90 92 .. 1,303 657 5 .. .. 26 .. .. 1,015 244 110 99 0.1 122 76 60 106 52 650 19 0.1 156 43 24 48 4 42 .. 0.6 68 .. .. 937 350 150 .. 0.1 11 100 98 429 169 550 60 28.9 696 76 37 109 24 760 51 5.9 310 62 26 3 0 97 .. 0.3 20 72 97 156 36 13 100 0.1 63 .. .. 1,235 282 23 99 <0.1 30 .. .. 642 78 550 51 1.7 218 45 33 19 5 1,800 61 14.2 413 67 46 25 4 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 207 S T A T I S T I C A L A N N E X TABLE A.1 Millennium Development Goals (continued) Goal 2 Goal 1 Achieve universal Goal 3 Goal 4 Eradicate extreme poverty primary education Promote gender equality Reduce child mortality Primary Women in Child Measles education Ratio of girls nonagricultural mortality immunization Poverty Share of completion to boys in sector (under-5 (% of (US$1 a day consumption (gross intake to Secondary primary and (% of total mortality children headcount to poorest final primary enrollment secondary nonagricultural rate per ages 12­23 ratio, %) quintile (%) grade, %) (gross, %) school (%) employment) 1,000) months) 1998­2004a 1998­2004a 2001­4a 2004 2004 2003 2004 2004 Malaysia .. .. 95 70 105 38.0 12 95 Mali .. .. 44 22 74 .. 219 75 Mauritania 25.9 6.2 43 20 96 .. 125 64 Mauritius .. .. 100 80 103 38.5 15 98 Mexico 4.5 4.3 97 79 102 37.4 28 96 Moldova 22.0 7.8 83 74 103 54.6 28 96 Mongolia 27.0 5.6 96 93 108 49.4 52 96 Morocco <2 6.5 67 47 88 26.2 43 95 Mozambique .. .. 29 11 82 .. 152 77 Myanmar .. .. 72 38 99 .. 106 78 Namibia .. .. 81 58 105 50.8 63 70 Nepal 24.1 6.0 71 46 90 17.4 76 73 Netherlands .. 7.6 100 122 98 45.7 6 96 New Zealand .. .. .. 119 107 51.3 7 85 Nicaragua 45.1 5.6 74 64 103 .. 38 84 Niger .. .. 25 8 71 .. 259 74 Nigeria 70.8 5.0 76 35 84 .. 197 35 Norway .. 9.6 103 114 101 49.1 4 88 Oman .. .. 91 86 98 25.6 13 98 Pakistan 17.0 9.3 .. 27 73 8.7 101 67 Panama 6.5 2.5 97 70 101 44.0 24 99 Papua New Guinea .. .. 55 26 87 35.4 93 44 Paraguay 16.4 2.2 89 65 98 42.0 24 89 Peru 12.5 3.2 96 90 97 37.2 29 89 Philippines 15.5 5.4 98 84 102 41.1 34 80 Poland <2 7.5 100 105 97 47.7 8 97 Portugal .. .. .. 109 102 46.9 5 95 Puerto Rico .. .. .. .. .. 40.1 .. .. Romania <2 8.1 90 85 100 45.3 20 97 Russian Federation <2 6.1 .. 93 100 50.1 21 98 Rwanda 51.7 .. 37 14 100 .. 203 84 São Tomé and Principe .. .. .. 39 94 .. 118 91 Saudi Arabia .. .. 62 68 92 14.5 27 97 Senegal .. .. 45 19 90 .. 137 57 Serbia and Montenegro .. .. 96 89 101 44.9 15 96 Sierra Leone .. .. .. 26 71 .. 283 64 Singapore .. 5.0 .. .. .. 47.8 3 94 Slovak Republic .. .. 101 92 100 52.1 9 98 Slovenia <2 9.1 102 112 99 47.4 4 94 Solomon Islands .. .. .. 30 91 .. 56 72 Somalia .. .. .. .. .. .. 225 40 South Africa 10.7 3.5 96 91 101 .. 67 81 Spain .. 7.0 .. 117 102 40.7 5 97 Sri Lanka 5.6 8.3 .. 81 102 43.2 14 96 208 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Goal 6 Goal 7 Goal 8 Goal 5 Combat HIV/AIDS Ensure environmental Develop a global partnership for Improve maternal health and other diseases sustainability development (new technologies) Maternal Births Access to Fixed-line and mortality ratio attended Incidence of Access to an improved mobile phone (modeled estimate, by skilled HIV prevalence tuberculosis improved sanitation subscribers Internet users per 100,000 health staff (% of population (per 100,000 water source facilities (per 1,000 (per 1,000 live births) (% of total) ages 15­49) people) (% of population) (% of population) people) people) 2000 2000­4a 2003 2004 2002 2002 2004 2004 41 97 0.4 103 95 .. 766 397 1,200 41 1.9 281 48 45 36 4 1,000 57 0.6 287 56 42 135 5 24 99 .. 64 100 99 700 146 83 95 0.3 32 91 77 545 135 36 .. 0.2 138 92 68 391 96 110 99 <0.1 192 62 59 184 80 220 63 0.1 110 80 61 357 117 1,000 48 12.2 460 42 27 27 7 360 57 1.2 171 80 73 10 1 300 76 21.3 717 80 30 206 37 740 15 0.5 184 84 27 22 7 16 .. 0.2 8 100 100 1,393 614 7 .. 0.1 11 .. .. 1,189 788 230 67 0.2 63 81 66 177 23 1,600 16 1.2 157 46 12 13 2 800 35 5.4 290 60 38 79 14 16 .. 0.1 5 100 .. 1,396 390 87 95 0.1 11 79 89 413 97 500 23 0.1 181 90 54 63 13 160 93 0.9 45 91 72 388 94 300 41 0.6 233 39 45 14 29 170 77 0.5 71 83 78 349 25 410 59 0.5 178 81 62 223 117 200 60 <0.1 293 85 73 446 54 13 100 0.1 29 .. .. 777 236 5 100 0.4 42 .. .. 1,384 281 25 .. .. 5 .. .. 974 221 49 99 <0.1 146 57 51 673 208 67 99 1.1 115 96 87 508 111 1,400 31 5.1 371 73 41 18 4 .. 76 .. 107 79 24 79 131 23 .. .. 40 .. .. 537 66 690 58 0.8 245 72 52 72 42 11 93 0.2 33 93 87 910 147 2,000 42 .. 443 57 39 19 2 30 .. 0.2 40 .. .. 1,350 571 3 99 0.1 19 100 100 1,027 423 17 100 0.1 15 .. .. 1,278 476 130 .. .. 59 70 31 17 6 1,100 25 .. 411 29 25 88 25 230 .. 15.6 718 87 67 473 78 4 .. 0.7 25 .. .. 1,321 336 92 96 0.1 60 78 91 165 14 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 209 S T A T I S T I C A L A N N E X TABLE A.1 Millennium Development Goals (continued) Goal 2 Goal 1 Achieve universal Goal 3 Goal 4 Eradicate extreme poverty primary education Promote gender equality Reduce child mortality Primary Women in Child Measles education Ratio of girls nonagricultural mortality immunization Poverty Share of completion to boys in sector (under-5 (% of (US$1 a day consumption (gross intake to Secondary primary and (% of total mortality children headcount to poorest final primary enrollment secondary nonagricultural rate per ages 12­23 ratio, %) quintile (%) grade, %) (gross, %) school (%) employment) 1,000) months) 1998­2004a 1998­2004a 2001­4a 2004 2004 2003 2004 2004 Sudan .. .. 49 33 88 18.9 91 59 Swaziland .. .. 61 42 96 31.3 156 70 Sweden .. 9.1 .. 137 111 50.9 4 94 Switzerland .. 7.6 96 93 96 46.9 5 82 Syrian Arab Rep. .. .. 107 63 94 18.2 16 98 Tajikistan 7.4 7.9 92 82 89 52.3 93 89 Tanzania 57.8 7.3 57 .. .. .. 126 94 Thailand <2 6.3 .. 77 98 46.9 21 96 Togo .. .. 66 39 73 .. 140 70 Trinidad and Tobago .. .. 94 84 101 41.3 20 95 Tunisia <2 6.0 94 77 102 25.3 25 95 Turkey 3.4 5.3 .. 85 85 20.6 32 81 Turkmenistan .. 6.1 .. .. .. .. 103 97 Uganda .. 5.9 57 19 97 .. 138 91 Ukraine <2 9.2 91 93 99 53.6 18 99 United Arab Emirates .. .. 75 66 102 14.4 8 94 United Kingdom .. 6.1 .. 170 116 49.9 6 .. United States .. 5.4 .. 95 100 48.8 8 93 Uruguay <2 5.0 94 106 105 46.3 17 95 Uzbekistan .. 9.2 98 95 98 41.5 69 98 Venezuela, R. B. de 8.3 4.7 89 72 103 41.5 19 80 Vietnam .. 7.5 101 74 94 51.8 23 97 West Bank and Gaza .. .. 98 94 103 .. .. .. Yemen, Republic of 15.7 7.4 62 48 63 6.1 111 76 Zambia 75.8 6.1 66 26 93 .. 182 84 Zimbabwe .. .. 80 36 96 21.8 129 80 World .. .. .. 66 93 38.1 79 76 Low-income .. .. 74 46 86 23.3 122 64 Middle-income .. .. 97 75 98 40.5 37 87 Lower-middle-income .. .. 98 72 98 39.9 40 86 Upper-middle-income .. .. 96 87 98 44.1 28 91 Low- and middle-income .. .. 86 61 92 36.1 86 74 East Asia and Pacific .. .. 99 69 98 39.7 37 82 Europe and Central Asia .. .. 94 92 96 47.3 34 93 Latin America and the Caribbean .. .. 97 87 102 43.7 31 92 Middle East and North Africa .. .. 88 67 90 .. 55 92 South Asia .. .. 82 49 87 18.1 92 61 Sub-Saharan Africa .. .. 62 30 84 .. 168 64 High-income .. .. .. 105 101 46.0 7 93 European Monetary Union .. .. .. 108 100 44.8 5 89 Source: 2006 World Development Indicators database. Figures in italics refer to periods other than those specified. a. Data are for the most recent year available. .. Not available. 210 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Goal 6 Goal 7 Goal 8 Goal 5 Combat HIV/AIDS Ensure environmental Develop a global partnership for Improve maternal health and other diseases sustainability development (new technologies) Maternal Births Access to Fixed-line and mortality ratio attended Incidence of Access to an improved mobile phone (modeled estimate, by skilled HIV prevalence tuberculosis improved sanitation subscribers Internet users per 100,000 health staff (% of population (per 100,000 water source facilities (per 1,000 (per 1,000 live births) (% of total) ages 15­49) people) (% of population) (% of population) people) people) 2000 2000­4a 2003 2004 2002 2002 2004 2004 590 87 2.3 220 69 34 58 32 370 74 38.8 1,226 52 52 119 32 2 .. 0.1 4 100 100 1,750 756 7 .. 0.4 7 100 100 1,560 474 160 .. <0.1 41 79 77 269 43 100 71 <0.1 177 58 53 46 1 1,500 46 7.0 347 73 46 32 9 44 99 1.5 142 85 99 537 109 570 61 4.1 355 51 34 48 37 160 96 3.2 9 91 100 745 123 120 90 <0.1 22 82 80 480 84 70 83 .. 28 93 83 751 142 31 97 <0.1 65 71 62 82 8 880 39 4.1 402 56 41 44 7 35 100 1.4 101 98 99 545 79 54 .. .. 17 .. 100 1,128 321 13 .. 0.2 12 .. .. 1,584 628 17 .. 0.6 5 100 100 1,223 630 27 .. 0.3 28 98 94 465 198 24 96 0.1 117 89 57 79 34 96 94 0.7 42 83 68 450 89 130 90 0.4 176 73 41 184 71 .. 97 .. 23 94 76 380 46 570 27 0.1 89 69 30 92 9 750 43 15.6 680 55 45 29 20 1,100 .. 24.6 674 83 57 55 63 410 60 1.1 139 82 54 476 139 682 40 2.1 224 75 36 76 24 142 87 0.7 114 83 61 486 90 153 86 0.3 114 81 57 438 74 92 95 2.6 112 93 81 564 159 450 60 1.2 162 79 50 312 62 117 86 0.2 138 78 49 435 74 58 94 0.7 83 91 82 536 138 194 87 0.7 64 89 75 499 115 183 72 0.1 54 88 75 219 42 564 36 0.8 177 84 35 76 26 921 42 7.2 363 58 36 65 19 14 .. 0.4 17 99 .. 1,306 545 10 .. 0.3 13 .. .. 1,430 443 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 211 S T A T I S T I C A L A N N E X TABLE A.2 Measures of Governance Performance Overall governance performancea Aggregate Policy public Control of corruption outcome institutions Business transaction costs Doing ICS--senior ICS--unofficial Business management payments for 2005-- time spent TI Corruption firms to get dealing with dealing with KK Control Perceptions things done CPIA cluster CPIA licenses (time requirements of of Corruptionb Indexc (% of sales)d A­C averagee cluster De required, days)f regulations (%)d Est. 2004 S.E. Est. 2005 S.E. Afghanistan ­1.33 0.21 2.5 1.09 .. .. .. .. .. Albania ­0.72 0.16 2.4 0.35 1.6 1 3 344 10.4 Algeria ­0.49 0.14 2.8 0.72 6.0 .. .. 244 .. Angola ­1.12 0.15 2.0 0.22 .. 5 5 326 .. Argentina ­0.44 0.13 2.8 0.60 .. .. .. 288 .. Armenia ­0.53 0.14 2.9 0.47 0.7 1 1 176 3.0 Australia 2.02 0.13 8.8 0.82 .. .. .. 121 .. Austria 2.10 0.15 8.7 0.48 .. .. .. 195 .. Azerbaijan ­1.04 0.12 2.2 0.46 2.7 1 3 212 5.2 Bangladesh ­1.09 0.14 1.7 0.52 2.1 1 3 185 3.7 Belarus ­0.91 0.15 2.6 1.39 0.5 .. .. 354 3.6 Belgium 1.53 0.15 7.4 0.93 .. .. .. 184 .. Benin ­0.34 0.19 2.9 1.33 .. 1 2 335 .. Bhutan 0.69 0.22 6.9 1.75 .. 1 1 .. .. Bolivia ­0.78 0.15 2.5 0.53 .. 1 3 187 .. Bosnia and Herzegovina ­0.54 0.14 2.9 0.38 0.3 1 2 476 4.3 Botswana 0.86 0.15 5.9 1.40 .. .. .. 160 .. Brazil ­0.15 0.13 3.7 0.46 .. .. .. 460 7.2 Bulgaria ­0.04 0.12 4.0 1.09 1.0 .. .. 212 2.8 Burkina Faso ­0.35 0.20 3.4 0.74 .. 1 2 241 .. Burundi ­1.16 0.24 2.3 0.32 .. 3 4 302 .. Cambodia ­0.97 0.19 2.3 0.48 4.6 3 5 247 8.6 Cameroon ­0.78 0.17 2.2 0.37 .. 2 3 444 .. Canada 1.99 0.14 8.4 0.95 .. .. .. 87 .. Central African Republic ­1.36 0.24 2.4 0.42 .. 4 5 237 .. Chad ­1.14 0.19 1.7 0.61 .. 2 4 199 .. Chile 1.44 0.13 7.3 0.91 .. .. .. 191 .. China ­0.51 0.12 3.2 0.60 1.6 .. .. 363 18.5 Hong Kong, China 1.57 0.13 8.3 1.14 .. .. .. 230 .. Colombia ­0.16 0.13 4.0 0.83 .. .. .. 150 .. Comoros ­1.14 0.26 2.6 .. .. 5 5 .. .. Congo, Dem. Rep. of ­1.31 0.15 2.1 0.37 .. 3 5 306 .. Congo, Rep. of ­1.02 0.18 2.3 0.44 .. 3 4 174 .. Costa Rica 0.78 0.14 4.2 0.85 .. .. .. 120 .. Côte d'Ivoire ­1.01 0.17 1.9 0.26 .. 4 4 569 .. Croatia 0.08 0.13 3.4 0.40 0.3 .. .. 278 2.7 Cuba ­0.62 0.17 3.8 1.58 .. .. .. .. .. Czech Republic 0.30 0.12 4.3 1.39 0.4 .. .. 245 2.1 Denmark 2.38 0.14 9.5 0.32 .. .. .. 70 .. Djibouti ­0.94 0.26 2.6 .. .. 2 4 .. .. Dominican Republic ­0.50 0.15 3.0 0.81 .. .. .. 150 .. Ecuador ­0.75 0.15 2.5 0.58 4.9 .. .. 149 13.4 212 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Bureaucratic capabilitya Checks and balances institutionsa Budget and financial Public Voice and management administration accountability Justice and rule of law Executive constraints Polity IV 2004-- KK Voice and executive CPIA 13e CPIA 15e Accountabilityb KK Rule of Lawb CPIA 12e constraintsg Est. 2004 S.E. Est. 2004 S.E. .. .. ­1.35 0.14 ­1.81 0.17 .. .. 2 3 0.03 0.11 ­0.80 0.15 3 6 .. .. ­0.91 0.15 ­0.73 0.13 .. 5 4 4 ­1.02 0.15 ­1.33 0.14 4 3 .. .. 0.49 0.14 ­0.71 0.12 .. 6 2 1 ­0.66 0.11 ­0.58 0.14 2 5 .. .. 1.40 0.16 1.82 0.13 .. 7 .. .. 1.25 0.16 1.76 0.13 .. 7 1 3 ­0.97 0.10 ­0.85 0.12 3 2 2 3 ­0.69 0.15 ­0.86 0.13 3 5 .. .. ­1.54 0.11 ­1.31 0.14 .. 2 .. .. 1.35 0.16 1.47 0.13 .. 7 1 3 0.30 0.16 ­0.47 0.17 3 5 2 1 ­1.18 0.19 0.27 0.23 1 2 2 2 ­0.01 0.15 ­0.55 0.13 4 7 2 3 ­0.14 0.11 ­0.76 0.14 3 .. .. .. 0.73 0.14 0.73 0.13 .. 7 .. .. 0.34 0.14 ­0.21 0.12 .. 6 .. .. 0.58 0.11 0.05 0.12 .. 7 1 2 ­0.38 0.15 ­0.62 0.17 3 3 4 4 ­1.13 0.18 ­1.50 0.21 4 .. 4 4 ­0.89 0.16 ­0.98 0.17 4 4 2 3 ­1.18 0.15 ­1.00 0.14 4 2 .. .. 1.38 0.16 1.75 0.13 .. 7 4 4 ­1.20 0.18 ­1.44 0.18 4 2 2 4 ­1.09 0.16 ­1.15 0.16 4 2 .. .. 1.09 0.14 1.16 0.12 .. 7 .. .. ­1.54 0.15 ­0.47 0.12 .. 3 .. .. 0.21 0.17 1.42 0.13 .. .. .. .. ­0.47 0.14 ­0.70 0.12 .. 6 4 4 ­0.14 0.19 ­1.04 0.25 4 7 3 4 ­1.64 0.15 ­1.74 0.14 4 .. 3 4 ­0.79 0.17 ­1.18 0.17 4 2 .. .. 1.11 0.14 0.57 0.13 .. 7 4 4 ­1.46 0.15 ­1.42 0.14 4 .. .. .. 0.46 0.11 0.07 0.12 .. 6 .. .. ­1.88 0.15 ­1.12 0.14 .. 1 .. .. 1.03 0.11 0.69 0.11 .. 7 .. .. 1.59 0.16 1.91 0.13 .. 7 3 4 ­0.85 0.19 ­0.61 0.21 4 3 .. .. 0.27 0.15 ­0.54 0.13 .. 6 .. .. ­0.19 0.14 ­0.71 0.13 .. 6 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 213 S T A T I S T I C A L A N N E X TABLE A.2 Measures of Governance Performance (continued) Overall governance performancea Aggregate Policy public Control of corruption outcome institutions Business transaction costs Doing ICS--senior ICS--unofficial Business management payments for 2005-- time spent TI Corruption firms to get dealing with dealing with KK Control Perceptions things done CPIA cluster CPIA licenses (time requirements of of Corruptionb Indexc (% of sales)d A­C averagee cluster De required, days)f regulations (%)d Est. 2004 S.E. Est. 2005 S.E. Egypt, Arab Rep. of ­0.21 0.14 3.4 0.80 8.0 .. .. 263 .. El Salvador ­0.39 0.17 4.2 1.06 1.1 .. .. 144 7.2 Eritrea ­0.64 0.22 2.6 1.34 0.2 4 3 187 3.8 Estonia 0.82 0.12 6.4 1.08 0.2 .. .. 116 2.3 Ethiopia ­0.85 0.16 2.2 0.41 .. 2 2 133 2.1 Finland 2.53 0.15 9.6 0.20 .. .. .. 56 .. France 1.44 0.14 7.5 0.85 .. .. .. 185 .. Gabon ­0.58 0.15 2.9 0.97 .. .. .. .. .. Gambia, The ­0.61 0.18 2.7 0.70 .. 3 4 .. .. Georgia ­0.91 0.13 2.3 0.47 0.2 1 2 282 3.0 Germany 1.90 0.14 8.2 0.57 .. .. .. 165 .. Ghana ­0.17 0.13 3.5 0.78 .. 1 1 127 .. Greece 0.56 0.15 4.3 0.78 .. .. .. 176 .. Guatemala ­0.74 0.15 2.5 0.57 2.6 .. .. 294 12.4 Guinea ­0.81 0.23 1.7 0.04 .. 3 4 278 .. Guinea-Bissau ­0.71 0.22 4.4 3.30 .. 3 5 .. .. Guyana ­0.35 0.24 2.5 0.36 .. 1 3 .. .. Haiti ­1.49 0.22 1.8 0.48 .. 3 5 186 .. Honduras ­0.71 0.15 2.6 0.62 1.7 1 2 199 10.2 Hungary 0.65 0.12 5.0 0.53 0.5 .. .. 213 4.0 India ­0.31 0.12 2.9 0.47 .. 1 1 270 12.9 Indonesia ­0.90 0.12 2.2 0.43 1.1 1 2 224 4.0 Iran, Islamic Rep. of ­0.59 0.15 2.9 0.76 .. .. .. 668 .. Iraq ­1.45 0.18 2.2 0.98 .. .. .. 210 .. Ireland 1.61 0.14 7.4 0.97 .. .. .. 181 .. Israel 0.79 0.14 6.3 1.24 .. .. .. 219 .. Italy 0.66 0.15 5.0 0.75 .. .. .. 284 .. Jamaica ­0.52 0.16 3.6 0.26 .. .. .. 242 .. Japan 1.19 0.13 7.3 1.18 .. .. .. 87 .. Jordan 0.35 0.14 5.7 1.04 .. .. .. 122 .. Kazakhstan ­1.10 0.13 2.6 0.85 0.7 .. .. 258 3.1 Kenya ­0.89 0.13 2.1 0.46 2.9 1 2 170 11.7 Korea, Dem. Rep. of ­1.46 0.23 1.5 0.31 .. .. .. 60 .. Korea, Rep. of 0.17 0.12 5.0 0.68 .. .. .. .. .. Kuwait 0.71 0.17 4.7 0.99 .. .. .. 149 .. Kyrgyz Republic ­0.92 0.13 2.3 0.35 2.4 1 4 152 6.1 Lao PDR ­1.15 0.19 3.3 1.97 .. 3 5 208 .. Latvia 0.23 0.13 4.2 0.65 0.5 .. .. 160 2.9 Lebanon ­0.51 0.16 3.1 0.44 .. .. .. 275 .. Lesotho ­0.05 0.18 3.4 0.76 .. 1 2 254 .. Liberia ­0.86 0.30 2.2 0.15 .. .. .. .. .. Libya ­0.91 0.18 2.5 0.72 .. .. .. .. .. 214 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Bureaucratic capabilitya Checks and balances institutionsa Budget and financial Public Voice and management administration accountability Justice and rule of law Executive constraints Polity IV 2004-- KK Voice and executive CPIA 13e CPIA 15e Accountabilityb KK Rule of Lawb CPIA 12e constraintsg Est. 2004 S.E. Est. 2004 S.E. .. .. ­1.04 0.15 ­0.02 0.12 .. 3 .. .. 0.26 0.14 ­0.34 0.15 .. 5 4 3 ­1.96 0.17 ­0.78 0.20 3 2 .. .. 1.13 0.11 0.91 0.12 .. 7 2 2 ­1.11 0.14 ­1.00 0.14 3 3 .. .. 1.50 0.16 1.97 0.13 .. 7 .. .. 1.24 0.16 1.33 0.13 .. 6 .. .. ­0.71 0.15 ­0.51 0.13 .. 2 4 3 ­0.59 0.16 ­0.32 0.17 3 2 2 3 ­0.34 0.11 ­0.87 0.13 2 5 .. .. 1.38 0.16 1.66 0.13 .. 7 2 2 0.39 0.14 ­0.16 0.12 2 6 .. .. 0.91 0.16 0.75 0.13 .. 7 .. .. ­0.39 0.13 ­0.96 0.13 .. 6 3 3 ­1.12 0.17 ­1.09 0.18 4 3 4 4 ­0.62 0.17 ­1.26 0.19 4 2 2 3 0.62 0.19 ­0.48 0.20 3 5 4 4 ­1.50 0.15 ­1.66 0.18 4 .. 2 2 ­0.02 0.15 ­0.61 0.14 2 5 .. .. 1.16 0.11 0.85 0.11 .. 7 1 2 0.27 0.15 ­0.09 0.12 2 7 1 2 ­0.44 0.13 ­0.91 0.12 4 6 .. .. ­1.36 0.15 ­0.83 0.13 .. 2 .. .. ­1.71 0.15 ­1.97 0.15 .. .. .. .. 1.30 0.16 1.62 0.13 .. 7 .. .. 0.46 0.16 0.77 0.13 .. 7 .. .. 1.06 0.16 0.74 0.13 .. 7 .. .. 0.54 0.15 ­0.32 0.14 .. 7 .. .. 0.98 0.16 1.39 0.13 .. 7 .. .. ­0.68 0.14 0.30 0.13 .. 3 .. .. ­1.21 0.10 ­0.98 0.12 .. 2 2 3 ­0.34 0.13 ­0.98 0.12 3 6 .. .. ­2.05 0.15 ­1.15 0.16 .. 1 .. .. 0.73 0.15 0.67 0.12 .. 6 .. .. ­0.48 0.16 0.65 0.14 .. 3 3 4 ­1.06 0.11 ­1.04 0.13 4 4 4 4 ­1.55 0.18 ­1.27 0.17 3 3 .. .. 0.96 0.11 0.48 0.12 .. 7 .. .. ­0.81 0.15 ­0.32 0.14 .. .. 3 3 0.28 0.18 ­0.03 0.16 2 7 .. .. ­1.24 0.16 ­1.76 0.24 .. .. .. .. ­1.79 0.15 ­0.65 0.14 .. 1 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 215 S T A T I S T I C A L A N N E X TABLE A.2 Measures of Governance Performance (continued) Overall governance performancea Aggregate Policy public Control of corruption outcome institutions Business transaction costs Doing ICS--senior ICS--unofficial Business management payments for 2005-- time spent TI Corruption firms to get dealing with dealing with KK Control Perceptions things done CPIA cluster CPIA licenses (time requirements of of Corruptionb Indexc (% of sales)d A­C averagee cluster De required, days)f regulations (%)d Est. 2004 S.E. Est. 2005 S.E. Lithuania 0.36 0.12 4.8 0.57 0.8 .. .. 151 5.1 Macedonia, FYR ­0.52 0.14 2.7 0.68 0.4 .. .. 214 8.2 Madagascar ­0.15 0.21 2.8 1.25 0.9 1 2 356 20.8 Malawi ­0.83 0.14 2.8 0.89 .. 2 2 205 .. Malaysia 0.29 0.12 5.1 1.19 .. .. .. 226 .. Mali ­0.52 0.17 2.9 1.21 2.9 1 1 260 7.5 Mauritania 0.02 0.24 4.9 0.97 .. 2 3 152 .. Mauritius 0.33 0.15 4.2 1.22 .. .. .. 132 .. Mexico ­0.27 0.13 3.5 0.45 .. .. .. 222 .. Moldova ­0.86 0.13 2.9 1.06 0.8 2 3 122 3.6 Mongolia ­0.51 0.20 3.0 0.84 .. 2 3 96 .. Morocco ­0.02 0.14 3.2 0.67 .. .. .. 217 .. Mozambique ­0.79 0.14 2.8 0.61 .. 2 3 212 .. Myanmar ­1.49 0.19 1.8 0.25 .. .. .. .. .. Namibia 0.18 0.15 4.3 0.96 .. .. .. 169 .. Nepal ­0.61 0.16 2.5 0.74 .. 1 3 147 .. Netherlands 2.08 0.15 8.6 0.52 .. .. .. 184 .. New Zealand 2.38 0.15 9.6 0.15 .. .. .. 65 .. Nicaragua ­0.34 0.16 2.6 0.36 1.8 1 2 192 13.0 Niger ­0.87 0.23 2.4 0.29 .. 2 3 165 .. Nigeria ­1.11 0.13 1.9 0.29 .. 4 4 465 .. Norway 2.11 0.15 8.9 0.56 .. .. .. 97 .. Oman 0.78 0.17 6.3 1.48 1.0 .. .. 271 .. Pakistan ­0.87 0.14 2.1 0.74 1.6 1 2 218 8.7 Panama ­0.06 0.14 3.5 0.77 .. .. .. 128 .. Papua New Guinea ­0.90 0.15 2.3 0.46 .. 3 3 218 .. Paraguay ­0.99 0.15 2.1 0.35 .. .. .. 273 .. Peru ­0.35 0.14 3.5 0.61 .. .. .. 201 .. Philippines ­0.55 0.12 2.5 0.60 1.2 .. .. 197 6.9 Poland 0.16 0.12 3.4 0.95 0.4 .. .. 322 3.0 Portugal 1.23 0.15 6.5 1.17 .. .. .. 327 .. Puerto Rico 0.88 0.27 6.3 0.87 .. .. .. 137 .. Romania ­0.25 0.12 3.0 0.86 0.6 .. .. 291 1.1 Russian Federation ­0.72 0.12 2.4 0.34 1.0 .. .. 528 6.3 Rwanda ­0.36 0.24 3.1 1.72 .. 2 2 252 .. São Tomé and Principe ­0.66 0.26 2.6 .. .. 4 3 .. .. Saudi Arabia 0.15 0.17 3.4 0.99 .. .. .. 131 .. Senegal ­0.40 0.15 3.2 0.61 0.2 1 1 185 .. Serbia and Montenegro ­0.48 0.14 2.8 0.67 0.6 1 2 212 8.0 Sierra Leone ­0.88 0.22 2.4 0.49 .. 2 4 236 .. Singapore 2.44 0.13 9.4 0.22 .. .. .. 129 .. Slovak Republic 0.39 0.12 4.3 0.95 0.4 .. .. 272 3.0 216 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Bureaucratic capabilitya Checks and balances institutionsa Budget and financial Public Voice and management administration accountability Justice and rule of law Executive constraints Polity IV 2004-- KK Voice and executive CPIA 13e CPIA 15e Accountabilityb KK Rule of Lawb CPIA 12e constraintsg Est. 2004 S.E. Est. 2004 S.E. .. .. 0.97 0.11 0.60 0.12 .. 7 .. .. ­0.02 0.11 ­0.44 0.13 .. 7 3 2 0.07 0.17 ­0.30 0.17 2 5 3 2 ­0.50 0.14 ­0.29 0.13 2 6 .. .. ­0.36 0.13 0.52 0.12 .. 4 1 3 0.35 0.15 ­0.34 0.15 2 5 3 3 ­1.16 0.19 ­0.62 0.20 3 3 .. .. 0.94 0.16 0.84 0.14 .. 7 .. .. 0.36 0.14 ­0.26 0.12 .. 6 3 4 ­0.47 0.11 ­0.65 0.12 2 7 2 3 0.45 0.16 0.18 0.17 3 7 .. .. ­0.55 0.14 ­0.05 0.13 .. 3 3 3 ­0.13 0.15 ­0.60 0.13 3 4 .. .. ­2.19 0.15 ­1.62 0.15 .. 2 .. .. 0.47 0.14 0.22 0.13 .. 5 2 3 ­1.00 0.14 ­0.82 0.14 3 1 .. .. 1.49 0.16 1.78 0.13 .. 7 .. .. 1.47 0.16 1.93 0.13 .. 7 2 2 0.06 0.13 ­0.65 0.14 3 7 2 3 ­0.12 0.17 ­0.92 0.18 3 5 3 4 ­0.65 0.13 ­1.44 0.12 4 5 .. .. 1.53 0.16 1.95 0.13 .. 7 .. .. ­0.90 0.16 0.98 0.14 .. 2 2 2 ­1.31 0.14 ­0.78 0.12 3 2 .. .. 0.54 0.16 ­0.04 0.13 .. 6 2 3 ­0.03 0.15 ­0.82 0.14 4 7 .. .. ­0.23 0.15 ­1.09 0.14 .. 7 .. .. ­0.04 0.14 ­0.63 0.12 .. 7 .. .. 0.02 0.15 ­0.62 0.12 .. 6 .. .. 1.13 0.11 0.51 0.11 .. 7 .. .. 1.31 0.16 1.16 0.13 .. 7 .. .. 1.02 0.22 0.74 0.23 .. .. .. .. 0.36 0.11 ­0.18 0.12 .. 7 .. .. ­0.81 0.11 ­0.70 0.11 .. 5 2 2 ­1.09 0.17 ­0.90 0.19 3 3 3 3 0.55 0.20 ­0.55 0.25 3 .. .. .. ­1.63 0.15 0.20 0.13 .. 1 2 2 0.19 0.14 ­0.20 0.13 2 6 1 2 0.12 0.11 ­0.72 0.14 3 6 2 3 ­0.49 0.15 ­1.10 0.18 4 5 .. .. ­0.13 0.15 1.82 0.12 .. 3 .. .. 1.10 0.11 0.49 0.12 .. 7 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 217 S T A T I S T I C A L A N N E X TABLE A.2 Measures of Governance Performance (continued) Overall governance performancea Aggregate Policy public Control of corruption outcome institutions Business transaction costs Doing ICS--senior ICS--unofficial Business management payments for 2005-- time spent TI Corruption firms to get dealing with dealing with KK Control Perceptions things done CPIA cluster CPIA licenses (time requirements of of Corruptionb Indexc (% of sales)d A­C averagee cluster De required, days)f regulations (%)d Est. 2004 S.E. Est. 2005 S.E. Slovenia 0.97 0.12 6.1 1.16 0.1 .. .. 207 3.7 Solomon Islands ­1.23 0.24 .. .. .. 4 4 .. .. Somalia ­1.58 0.30 2.1 0.38 .. .. .. .. .. South Africa 0.48 0.12 4.5 0.64 0.1 .. .. 176 9.2 Spain 1.45 0.14 7.0 0.74 .. .. .. 277 .. Sri Lanka ­0.16 0.14 3.2 0.75 0.1 1 2 167 3.5 Sudan ­1.30 0.17 2.1 0.24 .. 4 5 .. .. Swaziland ­0.95 0.19 2.7 0.67 .. .. .. .. .. Sweden 2.20 0.14 9.2 0.27 .. .. .. 116 .. Switzerland 2.17 0.15 9.1 0.30 .. .. .. 152 .. Syrian Arab Rep. ­0.74 0.17 3.4 1.07 .. .. .. 134 10.3 Tajikistan ­1.11 0.15 2.1 0.37 1.0 2 4 .. 3.3 Tanzania ­0.57 0.13 2.9 0.47 1.3 1 1 313 14.4 Thailand ­0.25 0.12 3.8 0.64 .. .. .. 147 1.3 Togo ­0.92 0.23 2.7 0.03 .. 4 5 273 .. Trinidad and Tobago 0.02 0.16 3.8 0.97 .. .. .. .. .. Tunisia 0.29 0.14 4.9 1.06 .. .. .. 154 .. Turkey ­0.23 0.13 3.5 0.96 1.0 .. .. 232 10.8 Turkmenistan ­1.34 0.15 1.8 0.24 .. .. .. .. .. Uganda ­0.71 0.13 2.5 0.51 1.3 1 2 155 3.8 Ukraine ­0.89 0.12 2.6 0.32 1.4 .. .. 265 8.1 United Arab Emirates 1.23 0.17 6.2 1.37 .. .. .. 125 .. United Kingdom 2.06 0.14 8.6 0.51 .. .. .. 115 .. United States 1.83 0.13 7.6 1.05 .. .. .. 70 .. Uruguay 0.50 0.15 5.9 0.56 .. .. .. 146 .. Uzbekistan ­1.21 0.13 2.2 0.20 0.6 2 4 .. 2.5 Venezuela, R. B. de ­0.94 0.13 2.3 0.20 .. .. .. 276 .. Vietnam ­0.74 0.12 2.6 0.59 0.5 1 2 143 5.8 West Bank and Gaza ­0.60 0.34 2.6 0.49 .. .. .. 144 .. Yemen, Republic of ­0.84 0.16 2.7 0.54 .. 2 4 131 .. Zambia ­0.74 0.13 2.6 0.49 1.1 2 3 165 13.0 Zimbabwe ­1.01 0.14 2.6 0.77 .. 5 5 481 .. Sources: Various indicators as labeled for individual columns. a. Though shown only for KK and TI, all indicators, as discussed in the text, have margins of error. b. KK Governance scores lie between ­2.5 and 2.5, with higher scores corresponding to better outcomes (http://www.worldbank.org/wbi/governance/pdf/GovMatters_IV_main.pdf). c. Transparency International's Corruption Perpections Index (CPI) score relates to perceptions of the degree of corruption as seen by businesspeople and country analysts and ranges between 10 (highly clean) and 0 (highly corrupt) (http://ww1.transparency.org/cpi/2005/cpi2005.sources.en.html). d. http://rru.worldbank.org/EnterpriseSurveys/. e. The CPIA 2004 data are grouped from strong (1) to weak (5), with the number of groups depending on the distribution of the data. f. http://www.doingbusiness.org/ExploreTopics/DealingWithLicenses/. g. Polity IV 2004 Executive Constraints scores lie between 1 and 7, with higher scores corresponding to better outcomes(http://www.cidcm.umd.edu/inscr/polity/index.htm). .. Not available. 218 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X Bureaucratic capabilitya Checks and balances institutionsa Budget and financial Public Voice and management administration accountability Justice and rule of law Executive constraints Polity IV 2004-- KK Voice and executive CPIA 13e CPIA 15e Accountabilityb KK Rule of Lawb CPIA 12e constraintsg Est. 2004 S.E. Est. 2004 S.E. .. .. 1.12 0.11 0.93 0.12 .. 7 4 4 0.10 0.20 ­1.15 0.24 3 7 .. .. ­1.58 0.16 ­2.31 0.24 .. .. .. .. 0.86 0.14 0.32 0.11 .. 7 .. .. 1.17 0.16 1.12 0.13 .. 7 1 2 ­0.16 0.14 ­0.03 0.13 2 5 4 4 ­1.81 0.15 ­1.59 0.15 4 1 .. .. ­1.45 0.18 ­0.95 0.16 .. 2 .. .. 1.52 0.16 1.85 0.13 .. 7 .. .. 1.49 0.16 1.98 0.13 .. 7 .. .. ­1.72 0.15 ­0.40 0.14 .. 3 4 4 ­1.12 0.11 ­1.18 0.14 4 3 1 2 ­0.35 0.14 ­0.49 0.12 2 3 .. .. 0.24 0.15 ­0.05 0.12 .. 7 4 4 ­1.22 0.17 ­1.01 0.18 4 2 .. .. 0.49 0.16 0.17 0.14 .. 7 .. .. ­1.11 0.15 0.24 0.13 .. 2 .. .. ­0.15 0.15 0.04 0.12 .. 7 .. .. ­1.90 0.12 ­1.43 0.14 .. 1 1 3 ­0.64 0.13 ­0.79 0.12 2 3 .. .. ­0.62 0.10 ­0.83 0.12 .. 5 .. .. ­1.01 0.16 0.85 0.14 .. 3 .. .. 1.37 0.16 1.71 0.13 .. 7 .. .. 1.21 0.16 1.58 0.13 .. 7 .. .. 1.00 0.15 0.42 0.13 .. 7 3 4 ­1.75 0.10 ­1.30 0.12 4 1 .. .. ­0.46 0.13 ­1.10 0.12 .. 5 2 2 ­1.54 0.14 ­0.59 0.12 3 3 .. .. ­1.25 0.21 ­0.95 0.28 .. .. 3 3 ­0.99 0.14 ­1.11 0.14 4 2 3 3 ­0.36 0.14 ­0.54 0.12 3 5 4 4 ­1.48 0.13 ­1.53 0.13 4 2 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 219 S T A T I S T I C A L A N N E X TABLE A.3 Overall Trade Restrictiveness Index (OTRI), 2005 OTRI for Market access OTRI OTRI agricultural sector Market access OTRI for agricultural sector Albania 7.1 7.7 15.5 32.0 Algeria 40.8 48.7 12.1 0.0 Argentina 17.7 20.3 23.7 44.5 Australia 10.1 35.5 21.4 53.5 Bahrain 8.6 19.3 11.1 52.8 Bangladesh 18.8 23.0 17.7 24.7 Belarus 14.1 31.6 12.5 30.8 Bhutan 25.4 50.5 21.7 61.1 Bolivia 14.7 35.8 22.2 40.8 Brazil 23.5 38.1 16.1 44.7 Brunei Darussalam 8.4 12.7 17.1 0.0 Burkina Faso 13.0 38.5 27.0 35.1 Cameroon 17.6 24.0 9.9 17.5 Canada 6.0 18.5 12.0 45.4 Central African Republic 19.6 28.2 8.5 18.6 Chad 16.2 23.3 12.0 16.8 Chile 9.5 25.3 14.9 30.7 China 12.5 24.7 6.1 27.3 Hong Kong, China 1.1 14.6 10.9 27.2 Colombia 21.7 44.4 18.6 34.8 Costa Rica 4.6 11.9 15.5 39.3 Côte d'Ivoire 36.6 51.4 23.0 40.8 Czech Republic 4.4 6.8 8.2 46.4 Ecuador 14.7 35.6 18.3 27.7 Egypt, Arab Rep. of 39.9 79.1 16.1 63.5 El Salvador 12.8 15.7 22.6 47.2 Equatorial Guinea 15.9 24.3 5.9 41.3 Estonia 5.0 7.8 16.5 39.3 Ethiopia 16.6 14.4 23.9 42.6 Gabon 16.9 21.2 1.9 11.8 Ghana 15.4 31.2 9.4 21.1 Guatemala 12.7 38.9 23.9 33.1 Honduras 5.6 13.1 21.0 30.2 Hungary 8.1 22.6 11.7 45.1 Iceland 5.0 18.1 8.9 15.2 India 24.2 65.4 18.1 48.6 Indonesia 9.4 31.5 14.0 35.8 Japan 11.1 35.9 7.9 0.0 Jordan 20.3 21.3 9.9 25.9 Kazakhstan 14.3 33.3 16.3 58.8 Kenya 9.7 31.4 19.0 35.0 Kyrgyz Republic 4.0 8.6 16.9 37.5 Lao PDR 23.4 27.3 17.9 31.6 Latvia 9.7 32.4 17.0 34.8 Lebanon 14.3 46.2 15.7 36.6 Lithuania 5.9 18.1 21.9 40.3 Madagascar 13.3 18.1 20.6 37.7 Malawi 13.5 25.6 25.9 40.9 Malaysia 23.0 39.2 8.8 27.4 Mali 13.1 27.9 6.7 23.5 Mauritius 20.7 37.7 16.2 51.7 Mexico 26.9 57.9 7.7 25.2 220 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X OTRI for Market access OTRI OTRI agricultural sector Market access OTRI for agricultural sector Moldova 6.8 18.5 22.7 39.8 Morocco 44.3 73.1 11.8 28.2 Mozambique 13.3 29.2 22.2 37.4 Nepal 11.7 10.7 16.5 28.7 New Zealand 14.1 32.8 21.4 37.1 Nicaragua 10.3 37.8 28.3 43.5 Nigeria 47.0 75.7 5.9 15.1 Norway 7.9 69.9 9.1 30.7 Oman 12.9 55.0 7.8 16.9 Pakistan 15.1 34.8 21.9 64.2 Papua New Guinea 7.2 22.6 21.2 35.9 Paraguay 17.1 37.0 24.8 36.5 Peru 15.6 39.8 17.9 45.7 Philippines 20.5 50.2 9.7 61.3 Poland 8.3 25.7 14.3 33.1 Romania 17.8 38.4 12.0 29.2 Russian Federation 20.3 26.8 9.9 49.3 Rwanda 11.3 13.8 17.1 53.0 Saudi Arabia 10.6 15.2 3.1 44.4 Senegal 35.8 63.2 14.2 17.2 Slovenia 11.5 44.8 13.3 64.7 South Africa 7.1 12.3 12.2 46.7 Sri Lanka 7.5 17.8 18.2 23.4 Sudan 47.3 48.9 22.3 51.0 Switzerland 8.2 50.4 9.4 29.6 Tanzania 38.4 82.9 23.8 42.0 Thailand 9.2 37.7 13.6 69.3 Trinidad and Tobago 6.3 24.3 27.5 65.7 Tunisia 33.5 83.7 14.1 38.9 Turkey 11.3 37.7 11.9 37.3 Uganda 6.5 10.9 14.0 28.4 Ukraine 21.6 47.0 14.4 48.4 United States 7.8 21.6 10.8 47.6 Uruguay 20.2 36.1 26.9 40.5 Venezuela, R. B. de 21.5 47.0 6.4 37.3 Vietnam 35.2 52.5 22.3 53.1 Zambia 11.1 29.4 21.9 45.5 Zimbabwe 18.4 46.9 19.1 34.8 Low-income 20.2 29.7 18.2 37.1 Middle-income 16.6 33.3 12.1 39.4 High-income 11.2 28.6 12.6 34.9 European Union 11.9 37.5 11.9 37.3 Source: World Bank staff estimates. Note: OTRI and Market Access OTRI are estimated using the most recent available tariff schedules (2004­5) and ad-valorem equivalents of nontariff barriers (about 2001). The OTRI measures the restrictiveness of a country's own trade policies. It is defined as the uniform tariff that would keep aggregate imports at their observed level. The Market Access OTRI measures the restrictiveness of other countries' trade policies on the export bun- dle of each country. For a detailed methodology on the estimation of the OTRI and the Market Access OTRI see Kee, Nicita, and Olarreaga (2006). For Algeria, Brunei Darussalam, and Japan the Market Access OTRI for agriculture was not estimated owing to their limited agricultural exports. G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 221 S T A T I S T I C A L A N N E X TABLE A.4 Net Official Development Assistance (ODA) by DAC and non-DAC Countries 2001 2004 of which: ODA ODA ODA Technical Debt Food and Other ODA (current (percent (current Co-operation Forgiveness Emergency Bilateral Contributions (percent US$ millions) of GNI) US$ millions) Grants Grants Aid Grants ODAa to Multilaterals of GNI) DAC Donors Austria 633 0.34 678 133 117 60 13 325 0.23 Belgium 867 0.37 1463 414 211 103 133 561 0.50 Denmark 1634 1.03 2037 112 95 893 835 0.85 Finland 389 0.32 655 127 53 153 293 0.35 France 4198 0.31 8473 2340 1960 614 287 2906 0.41 Germany 4990 0.27 7534 2486 814 230 45 3712 0.28 Greece 202 0.17 465 196 13 77 161 0.23 Ireland 287 0.33 607 12 39 330 198 0.39 Italy 1627 0.15 2462 140 115 108 278 1757 0.15 Luxembourg 139 0.76 236 4 26 137 64 0.83 Netherlands 3172 0.82 4204 663 231 341 1189 1534 0.73 Portugal 268 0.25 1031 114 5 18 724 158 0.63 Spain 1737 0.30 2437 340 198 109 670 1037 0.24 Sweden 1666 0.77 2722 112 26 384 1437 646 0.78 United Kingdom 4579 0.32 7883 751 759 523 2798 2544 0.36 EU Members, Total 26388 0.33 42886 7947 4438 2717 9164 16731 0.35 Australia 873 0.25 1460 692 10 207 216 270 0.25 Canada 1533 0.22 2599 414 74 323 971 608 0.27 Japan 9847 0.23 8906 1914 2413 705 214 2988 0.19 New Zealand 112 0.25 212 46 28 72 53 0.23 Norway 1346 0.80 2199 287 261 871 662 0.87 Switzerland 908 0.34 1545 117 8 345 688 359 0.41 United States 11429 0.11 19705 7347 141 3916 3843 3455 0.17 DAC Members, Total 52435 0.22 79512 18764 7084 8501 16039 25126 0.26 Non-DAC Donors Czech Republic 26 0.05 108 11 11 9 29 45 0.11 Hungary 55 21 35 0.06 Iceland 10 0.13 21 16 5 0.18 Kuwait 73 0.19 209 185 24 Korea 265 0.06 423 54 13 247 93 0.06 Latvia 8 0 8 0.06 Lithuania 2 9 1 8 0.04 Other Bilateral Donors 76 492 468 24 0.11 Poland 36 0.02 118 25 93 0.05 Saudi Arabia 490 0.27 1734 1691 43 0.69 Slovak Republic 8 0.04 28 11 17 0.07 Turkey 64 0.04 339 185 45 27 47 0.11 United Arab Emirates 127 181 181 Non-DAC Countries,Total 1178 0.13 3726 249 11 67 2900 441 0.17 Source: OECD DAC Database. a. Other Bilateral ODA is Bilateral ODA - special purpose grants (technical cooperation, debt forgiveness, food and emergency aid) and administrative costs (not shown). Note: DAC countries also gave $5600 million in 2001 and $8500 in 2004 to countries in transition and more advanced developing countries. These flows are not classified by OECD-DAC as Official Development Assistance and they are not included in the totals. 222 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X TABLE A.5 Net Official Development Assistance (ODA) Receipts 2001 2004 of which: ODA Debt Food and ODA ODA ODA (current Technical Forgiveness Emergency Other per capita (percent (current US$ millions) US$ millions) Co-operation Grants Aid Grants ODA (in current US$) of GNI) Afghanistan 408 2190 459 430 1301 38.0 Albania 270 362 155 9 198 116.33 4.7 Algeria 224 313 189 27 97 9.67 0.4 Angola 289 1144 71 216 857 73.85 6.6 Argentina 151 91 66 1 24 2.37 0.1 Armenia 198 254 99 28 127 83.94 8.1 Azerbaijan 232 176 70 31 75 21.19 2.3 Bangladesh 1030 1404 215 271 142 776 10.09 2.4 Benin 274 378 90 84 8 196 46.23 9.3 Bhutan 61 78 23 0 55 87.05 11.9 Bolivia 735 767 242 508 36 ­20 85.14 9.1 Bosnia and Herzegovina 639 671 146 4 47 474 171.63 7.7 Botswana 29 39 34 1 2 2 22.05 0.5 Brazil 349 285 328 2 ­46 1.55 0.0 Burkina Faso 392 610 105 38 14 453 47.58 12.7 Burundi 137 351 28 7 138 177 48.20 54.6 Cambodia 420 478 157 16 306 34.64 10.3 Cameroon 487 762 152 423 10 177 47.51 5.4 Central African Republic 67 105 34 8 6 57 26.34 8.0 Chad 187 319 44 15 87 173 33.76 11.8 Chile 58 49 67 2 ­20 3.04 0.1 China 1476 1661 883 13 765 1.28 0.1 Colombia 381 509 478 8 37 ­14 11.33 0.5 Comoros 27 25 13 2 0 10 42.52 6.9 Congo, Dem. Rep. of 263 1815 144 778 259 634 32.50 28.6 Congo, Rep. of 75 116 32 5 14 65 29.87 3.5 Costa Rica 2 13 29 2 ­17 3.06 0.1 Côte d'Ivoire 170 154 78 119 63 ­107 8.62 1.0 Croatia 113 121 77 7 36 27.24 0.4 Cuba 54 90 36 7 48 8.00 Djibouti 58 64 30 0 6 29 82.15 8.9 Dominican Republic 108 87 63 9 15 9.92 0.5 Ecuador 173 160 150 13 16 ­18 12.27 0.6 Egypt, Arab Rep. of 1257 1458 201 150 5 1102 20.07 1.9 El Salvador 238 211 138 36 38 31.20 1.4 Eritrea 281 260 32 122 106 61.44 28.6 Ethiopia 1116 1823 179 151 456 1037 26.06 23.0 Gabon 9 38 44 7 3 ­17 27.89 0.6 Gambia, The 54 63 10 2 3 47 42.63 16.0 Georgia 300 315 102 81 132 69.72 5.9 Ghana 644 1358 142 1292 25 ­101 62.68 15.4 Guatemala 227 218 125 32 61 17.73 0.8 Guinea 282 279 72 70 47 90 30.32 7.3 Guinea-Bissau 59 76 16 6 2 53 49.36 28.2 Guyana 97 145 25 27 6 86 193.27 19.3 Haiti 171 243 89 1 90 63 28.90 6.7 Honduras 679 642 115 76 37 413 91.09 9.1 (continued) G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 223 S T A T I S T I C A L A N N E X TABLE A.5 Net Official Development Assistance (ODA) Receipts (continued) 2001 2004 of which: ODA Debt Food and ODA ODA ODA (current Technical Forgiveness Emergency Other per capita (percent (current US$ millions) US$ millions) Co-operation Grants Aid Grants ODA (in current US$) of GNI) India 1724 691 400 64 228 0.64 0.1 Indonesia 1471 84 430 55 ­400 0.39 0.0 Iran, Islamic Rep. of 117 189 80 104 6 2.82 0.1 Iraq 122 4658 396 98 961 3202 Jamaica 54 75 36 12 10 18 28.36 0.9 Jordan 433 581 109 12 113 348 106.80 5.0 Kazakhstan 148 265 120 2 142 17.67 0.7 Kenya 463 635 212 24 90 310 18.97 4.0 Korea, Dem. Rep. of 120 196 55 119 22 8.76 Kyrgyz Republic 189 258 110 25 123 50.66 12.2 Lao PDR 245 270 77 0 10 182 46.62 11.5 Lebanon 243 265 110 77 78 74.85 1.3 Lesotho 56 102 14 0 3 85 56.73 6.3 Liberia 39 210 27 148 35 64.80 53.3 Macedonia, FYR 248 248 105 0 4 139 122.14 4.7 Madagascar 374 1236 97 534 28 576 68.24 28.8 Malawi 404 476 111 49 23 292 37.75 25.9 Malaysia 27 290 64 2 223 11.65 0.3 Mali 354 567 121 117 3 326 43.20 12.2 Mauritania 268 180 40 85 21 33 60.40 11.1 Mauritius 22 38 22 0 16 30.79 0.6 Mexico 75 121 139 3 ­21 1.17 0.0 Moldova 122 118 58 13 47 27.98 4.0 Mongolia 212 262 74 29 159 104.19 16.4 Morocco 519 706 381 7 15 303 23.67 1.4 Mozambique 933 1228 209 17 72 930 63.22 21.4 Myanmar 127 121 40 4 30 48 2.42 Namibia 110 179 72 5 102 89.09 3.1 Nepal 394 427 118 1 24 286 16.06 6.4 Nicaragua 931 1232 106 861 35 230 229.16 28.2 Niger 257 536 60 203 21 251 39.71 17.5 Nigeria 185 573 255 22 296 4.45 0.9 Oman 2 55 8 0 47 21.71 0.2 Pakistan 1948 1421 135 42 56 1188 9.34 1.5 Panama 28 38 46 0 1 ­9 11.97 0.3 Papua New Guinea 203 266 187 1 79 46.08 7.6 Paraguay 61 0 49 0 ­49 0.00 0.0 Peru 453 487 292 25 40 131 17.67 0.7 Philippines 574 463 236 38 188 5.67 0.5 Rwanda 299 468 97 20 50 301 52.69 25.8 São Tomé and Principe 38 33 15 1 1 16 215.74 55.8 Senegal 413 1052 218 498 17 319 92.39 13.9 Serbia and Montenegro 1308 1170 296 6 108 760 143.61 4.9 Sierra Leone 345 360 37 17 79 226 67.46 34.4 Solomon Islands 59 122 97 5 20 261.92 47.7 Somalia 150 191 10 1 130 50 23.98 South Africa 428 617 241 3 373 13.56 0.3 224 G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 S T A T I S T I C A L A N N E X TABLE A.5 Net Official Development Assistance (ODA) Receipts (continued) 2001 2004 of which: ODA Debt Food and ODA ODA ODA (current Technical Forgiveness Emergency Other per capita (percent (current US$ millions) US$ millions) Co-operation Grants Aid Grants ODA (in current US$) of GNI) Sri Lanka 313 519 77 49 394 26.73 2.7 Sudan 185 882 78 4 683 118 24.83 4.5 Swaziland 29 117 11 67 39 104.48 4.9 Syrian Arab Republic 155 110 70 37 3 5.92 0.5 Tajikistan 170 241 51 45 145 37.48 12.1 Tanzania 1271 1746 175 276 65 1230 46.40 16.2 Thailand 281 ­2 161 18 ­180 ­0.03 0.0 Timor-Leste 195 153 82 4 67 165.47 31.7 Togo 44 61 35 8 1 17 10.19 3.0 Tunisia 378 328 142 1 185 33.02 1.2 Turkey 169 257 147 25 85 3.58 0.1 Turkmenistan 72 37 28 1 8 7.76 0.6 Uganda 793 1159 213 86 155 705 41.66 17.3 Uruguay 15 22 17 0 5 6.40 0.2 Uzbekistan 153 246 103 5 138 9.39 2.1 Venezuela, R. B. de 45 49 36 5 8 1.88 0.0 Vietnam 1450 1830 313 1 24 1492 22.27 4.1 West Bank and Gaza 870 1136 154 505 477 323.82 Yemen, Rep. of 461 252 52 16 51 134 12.40 2.1 Zambia 349 1081 144 387 27 523 94.17 21.2 Zimbabwe 164 186 56 67 63 14.38 4.0 East Asia & Pacific 7327 6790 3062 5 460 3263 Europe & Central Asia 4696 5456 1860 10 724 2862 Latin America & Caribbean 5960 6793 3440 1545 591 1216 Middle East & North Africa 4948 10563 2016 283 1968 6296 South Asia 5943 7128 1610 314 925 4280 Sub-Saharan Africa 14159 25941 4634 5342 3899 12065 Unspecified by region 8809 15298 3862 2062 9375 Low-income countries 22690 33954 6395 6525 4178 16856 Middle-income countries 17857 23823 8370 961 2969 11522 Unallocated 11297 20192 5720 12 3481 10980 Developing Countries, Total 52153 78308 20581 7499 10636 39592 Source: OECD DAC Database. Regional totals do not include ODA that is unspecified by region. The total for developing countries includes ODA that is unallocated by country or income group. Regional and income group totals differ from those shown in the World Development Indicators because these aggregates do not include countries that the DAC classifies as "Part II: Countries and Territories in Transition." G L O B A L M O N I T O R I N G R E P O R T 2 0 0 6 225 E C O - A U D I T Environmental Benefits Statement The World Bank is committed to pre- Saved: serving endangered forests and natural · 21 trees resources. We printed the Global Moni- · 976 pounds of toring Report 2006 on 15 percent post- solid waste consumer recycled paper, processed chlorine free. The World Bank has for- · 8,854 gallons of mally agreed to follow the recom- water mended standards for paper usage set · 15 BTUs by Green Press Initiative--a nonprofit · 1,198 pounds of program supporting publishers in using greenhouse gases fiber that is not sourced from endan- gered forests. For more information, visit www.greenpressinitiative.org.