Global Poverty Research Group

The World Bank’s contribution to poverty reduction

By John Toye*. July 2005

The ESRC Global Poverty Research Group is committed to helping policy makers in their endeavour to reduce poverty worldwide. The GPRG is therefore particularly interested in what the policymakers themselves think about their own performance in reducing poverty – what they think they are doing right and what they think they are doing wrong. This comment highlights the World Bank’s recently published 2004 Annual Review of Development Effectiveness, which turns a critical spotlight on the Bank’s own past efforts to reduce world poverty.

The World Bank has been for many years the most methodical of all development agencies -- multilateral and bilateral -- in evaluating the results of its own operations. This is demonstrated by the existence of the Operations Evaluation Department (OED), a constitutionally independent department within the World Bank with wide responsibilities for assessing and reporting on Bank programmes.

The OED publishes an annual review that brings together material from its many evaluations -- this year the report focus is the Bank’s contributions to poverty reduction. The overall impression conveyed by the OED Review is that the Wolfensohn Presidency has succeeded in entrenching poverty reduction as the Bank’s central mission, and in articulating most of its operational activities to support that mission in a coherent manner. There are still outliers -- development assistance to post-conflict countries and subscriptions to global research programmes -- but most of the Bank is now focused towards the MDG poverty reduction goals.

Since James Wolfensohn made poverty reduction the Bank’s over-arching objective, the OED Review can be read as a judgement on the success of the Bank under Wolfensohn’s tenure:

1. Poverty reduction strategy. The main focus of this year’s OED Review was the poverty reduction strategy adopted by the Bank in 2001. This strategy had two broad goals:

  • improving the economic environment by increasing investment, job creation and sustainable growth -- the Bank maintains that private sector investment is the primary engine of poverty reducing growth; and
  • empowering poor people to participate in the development by investing in them -- via investment in health and education services.

The OED Review endorsed this twin-track strategy. However, the report warned that:

  • interactions between the growth and social aspects of poverty reduction have tended to be overlooked; and
  • attention has been diverted from certain sectors that cut across the economic and the social tracks, but which can help to reduce poverty.

Thus, the Review effectively sets the stage for the Bank to be more active in supporting infrastructure, rural and urban development and the environment.

2. Tailor-made programmes. World Bank officials have regularly denied that they use ‘one size fits all’ programmes. However, the Bank now faces similar OED criticism. The OED Review finds that the Bank has difficulty customizing its 2001 poverty reduction strategy to individual countries. This issue stems from two problems:

  • Bank programmes that increasingly focus on poverty-reduction measures lack appeal to middle income countries.
  • Historically, the Bank has made unrealistic assessments of countries’ political environments and capacities to implement reforms.

Neither of these difficulties is likely to be easy to overcome. Middle income countries (MICs) which can access international capital markets have been put off by conditions and transaction costs of borrowing from the Bank. Nonetheless, the Bank’s core business is lending. On his first day in office Wolfowitz announced his intention to reverse the fall in MIC lending which has occurred since the mid-90s, but recognised that at least some of the costs (eg of assessing environmental impacts) are necessary.

The fall in MIC lending has put greater pressure on lending to low income countries, resulting sometimes in imprudent decisions. Since the Bank has preferred creditor status, it has suffered no direct financial penalty. Any attempt to make more rigorous assessments of client economies however, without being seen to undermine fragile market confidence, would prove difficult.

3. Results oriented operations. Under Wolfensohn, the World Bank promoted itself as “the Knowledge Bank”. In this context, perhaps the most embarrassing criticism in the OED review is that the Bank does not have an operational results framework that links its country-level interventions with outcomes on poverty measures. In plainer language, the Bank does not know how its actions have affected poverty. In particular, little has been done to find out the effects of two of the Bank’s more recent initiatives:

  • The Bank adopted the reform of governance (or of the operation of public sector institutions) as an objective in the 1990s.
  • Another new area of operation adopted in the Wolfensohn era was the empowerment of the poor through social development activities.

In both cases, little improvement is yet evident and the problems -- corruption and social oppression -- are highly intractable.

In the past, the Bank has relied on the notion that increasing government social expenditures was the way to reduce poverty, and that debt relief would reduce poverty if it facilitated increased social spending. Rightly, the OED review is not convinced by this argument. It insists that the Bank’s analytical work must focus attention on the growth and social aspects of poverty reduction. Thus, the OED Review stresses the urgency of discovering evidence of impact.

Implications. The process of trying to achieve operational coherence has exposed a number of other vulnerabilities within the Bank:

  • The move away from lending targets to results on the ground has highlighted weaknesses in the Bank’s monitoring of the communities whose lives the Bank affects.
  • Further areas of work that Wolfensohn grafted on the ‘pro-poor’ agenda, because they were thought to be vital, have been left without visible means of support.

The Bank seems likely to direct its research to the analysis of pro-poor growth, with a view to improving its effectiveness through evidence-based policy changes. Negative results could be used to push cuts in traditional programmes.

While the OED Review is simply one part of the institutional learning exercises designed to keep the Bank running efficiently, it creates openings and justifications for a new re-shaping of its activities under new President, Paul Wolfowitz. He signalled in his first statements since taking office that he is aware of the issues raised and likely to react.

* The views expressed are those of the author(s) and do not necessarily represent those of the Global Poverty Research Group, Oxford University, or the Economic and Social Research Council