The World Bank can do better in strengthening and using borrowers’ own systems for managing risk. On this objective, there is widespread agreement. Where there is less consensus is how the Bank can best achieve this goal. Unfortunately, the consultation and 2012 launch of the Program for Results lending instrument and the discussion of borrower systems within the ongoing review of the World Bank safeguard policies have failed to build broad agreement between the Bank, governments and civil society on the best way forward.
Among the factors that have contributed to the lack of wider agreement on strategy for use of borrower systems is the lack of evidence to back up arguments about what works, what doesn’t and why. As a contribution to the debate about borrower systems, the Bank Information Center is releasing a new study by authors, Mark Grimsditch and Jessie Connell entitled:
The paper, which focuses on the two year progress in implementing PforR financing for the Rural Water Supply and Sanitation program in Red River Delta region of Vietnam, provides some critical evidence on the risks of moving to greater use of frameworks and borrower systems without robust safeguards. The findings of the research paper are timely given the ongoing OPCS review of Pfor4 pilot operations, a planned IEG evaluation of PforR in FY16, and measures proposed in the World Bank’s proposed Safeguard Framework that prioritize greater use of borrower systems for managing environmental and social risk.
What is Program-For-Results (PforR)?
To enable wider programmatic impact and greater borrower discretion as to how funds are used, PforR financing is provided to a borrower’s overall program budget, rather than linked to individual projects or transactions. Yet PforR is not subject to the usual World Bank “safeguards”, which aim to prevent and mitigate undue harm to people and their environment in the development process. PforR relies primarily on borrower systems to implement programs and manage social and environmental risks, but requires that borrowers comply with equivalent safeguard principles within an agreed period of time. While the model has potential to strengthen borrowers’ systems and provide direct incentives for results, it also has potential to expose communities to risks stemming from reduced sub-project-level oversight.
This Research
Based on field visits to communities participating in the RWSS program and interviews in Hanoi and Washington, the paper explores these tensions and captures early insights about the specific program, while offering broader lessons for the use of the PforR lending model elsewhere.
The intent of the research was to explore some of the main risks noted by CSOs during the PforR consultation process, and which led to two limitations placed by the World Bank Board of Directors on early PforR implementation: the exclusion of high risk activities and a 5% cap on total Pfor4 lending.
There is much to learn from the first PforR pilot in the Red River Delta of Vietnam. This research highlighted positive aspects of the results-based approach of PforR. However, it also revealed that challenges are being experienced in critical areas. The recommendations have been developed with the Vietnam PforR pilot in mind, but may also have broader application to Vietnam’s second PforR, the Results-Based National Urban Development Program in the Northern Mountains Region, which was approved in June 2014
Initial evidence suggests that, if designed well, the results-focus of PforR has potential to increase the accountability of how funds are spent and to enhance the leverage of Bank investments to strengthen borrowers’ systems. However, at this early stage there is some evidence to suggest that a number of social and technical risks need to be better managed through the PforR system, at least in the context of the Results-Based RWSS.
Main report findings
- The results-focus drives activities, but leads to targeting of communities that are already better resourced.
- The Results-based RWSS has a narrow focus on tangible/quantitative results.
- Additional World Bank supervision of all aspects of implementation is required under PforR.
- Appropriate sequencing of capacity building with operational activities has not occurred.
- There is potential for harm in higher risk programs – especially when complex resettlement of ethnic minorities is being undertaken.
- Inconsistent systems and language are being used to identify risk.
- Transparency and participation are limited, especially for sub-projects.
- There is evidence of potential program-wide leverage, but it is limited.
Some recommendations include:
- Better program targeting is needed to effectively reach poorer communities and poorer households within the targeted communities.
- Risks related to equality of access, compulsory land acquisition and ethnic minorities require an audit of gaps in compliance with the Program Action Plan and further consultation within the Bank, the GoV and affected communities.
- Increased monitoring and supervision by the Bank should be factored into program planning and budgeting for future PforR investments at all stages of program preparation and implementation.
- Appropriate sequencing of activities must occur for PforR to function as intended, especially the provision of capacity building prior to sub-project implementation.
- Despite some positive findings, this research suggests it is too soon to lift the “5 percent cap” or restriction on Category A activities for PforR in the near future.
- Efforts should be made to improve coherence and consistency of risk identification and categorization methods in order to ensure mitigation actions are properly aligned with risk.
- More needs to be done to assess whether or not program-wide leverage has been achieved.
- Social and environmental DLIs should be used.
- Revisions to the disclosure requirements for PforR sub-projects are needed so that village and project locations, risk assessments and mitigation measures are available early in the program planning process for public comment.
Significance of these lessons about the Vietnam PforR for broader questions related to World Bank support and use of Borrower Systems:
Country systems for social and environmental assessment and management need to be strengthened as a fundamental goal of the development process and a key aspect of the World Bank’s mission. Pfor4 was adopted by the Bank to explore how borrower systems can be increasingly relied on when those systems are demonstrated through robust, transparent and inclusive processes to be equivalent to international standards, and where countries not only have good policies on paper but the institutional capacity to implement them on the ground. The proposed Environment and Social Framework forecasts the Bank’s plans for greater deferral of risk appraisal and management with investment lending through use of frameworks and borrower systems.
What is lacking to advance a forward looking and informed discussion is a common set of criteria to evaluate, strengthen and monitor the performance of these types of borrower driven risk management tools. Capacity to manage risk, allow for public participation, ensure adequate and timely disclosure to affected people, provide accountability and define leverage are just some of the areas where the Bank and stakeholders lack common, minimum indicators and information to decide if borrower systems are equivalent and acceptable in comparison the highest standards.
This PforR case provides some early warnings for the expanded use of borrower systems. Proper up front preparation of operations typically leads to identification of capacity gaps and well sequenced measures to strengthen borrower capacity for implementation. The Vietnam water and sanitation case highlights the risk that the Bank is likely to underestimate the borrower’s ability to implement complex programs, or that gap filling measures may not be sequenced as planned. In turn, Bank underestimation of monitoring and supervision costs will likely be a constant issue. As some push for short-term cost and time savings through the use of borrower systems, the risk of not fully funding adequate supervision of risk management could be exacerbated.
As indicated in the BIC ESAM model policy proposal, any use of borrower systems by the Bank (whether though P4R or other instruments), should be guided by the principle that all similar risks should receive similar treatment. In contrast, the draft Bank Safeguard Framework proposes an ambiguously designed transfer of responsibility and accountability for safeguard outcomes to borrowers with a concomitant loosening of safeguard compliance at appraisal and open-ended compliance during implementation. Such an approach lacks eligibility criteria, measures for accountable gap analysis, and clear disclosure requirements, and judging from the the lessons of the Vietnam case study, will have counter-productive effects for the shared objective of enhancing borrower’s capacity to manage environmental and social risk.
World Bank PforR in Practice – Vietnam – Executive Summary July 2014For more information on the BIC report on the Vietnam PforR or BIC’s work on borrower systems, contact:
Jelson Garcia, BIC Asia Program Director, jgarcia@bicusa.org
Vince McElhinny, BIC Sr. Policy Advisor, vmcelhinny@bicusa.org