ida's sectoral programs and country allocations€¦ · ida8 and ida9 refer to the eighth and...

International Development Association

IDA'S SECTORAL PROGRAMSAND COUNTRY ALLOCATIONS

IDA9 Discussion Paper No. 2March 1989

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CONTENTS

INTRODUCTION .............................................. 1

I. THE NEEDS OF THE LOW-INCOME COUNTRIES ........................ 2

II. THE IDA'S PROGRAMS IN THE NEXT FIVE YEARS ...... ............... 8

A. Macroeconomic Adjustment and Reform 9

B. Agriculture 10

C. Industry and Finance 11

D. Infrastructure 13

E. Human Resource Development 15

F. The Environment 18

G. IDA9 Allocations by Sectors and Instruments 20

III. COUNTRY AND REGIONAL ALLOCATIONS ........ .................. 22

A. IDA's Allocation Criteria 22

B. Country Program Allocations in IDA8 and IDA9 23

Adjustment in Africa 23

Economic Reform and Poverty Reductionin the Asian IBRD/IDA Blend Countries 26

Challenges in other IDA recipient countres 30

C. The Implications for Regional Allocations 31

Page ii. ~ ~

FIGURES

Figure 2.1: The Buildup of IDA Population, Health and Nutrition Lending .16Figure 3.1: Projected IDA8 Allocations ......... ......................... 24

TABLES

Table 2.1: Sectoral Allocations in IDA8 and IDA9 ......................... 20Table 3.1: IDA Allocations for Africa ......... ......................... 25Table 3.2: India: Debt Indicators ........... .......................... 28Table 3.3: Indicative Additional IDA Funding Requirements ................... 33

BOXES

Box 1.1: Bolivia: The Second Phase of Adjustment. 3Box 1.2: Nepal: Continuing Structural Adjustment. 4Box 1.3: The Prospects for an Adjustment Program in Zambia .5Box 1.4: India: Supporting the Private Sector Through Policy Reforms. 6Box 2.1: The Social Dimensions of Adjustment Project .10Box 2.2: Introducing New Agricultural Technology in Africa .11Box 2.3: Food Security in Africa .12Box 2.4: Reforming Bolivia's Financial Sector .13Box 2.5: Tanzania: Transport, Poverty and Food Security .14Box 2.6: Investing in Urban Services - An Integrated Approach .15Box 2.7: Improving Education in Bangladesh .17Box 2.8: Madagascar's Environmental Action Plan .18Box 2.9: IDA's Expanding Support for Forestry .19Box 3.1: Bank Group Support for Poverty Alleviation in India .27Box 3.2: Indonesia Compared to Nigeria and India .29Box 3.3: A Comparison of IDA Lending to Africa and to Other IDA Recipients

Excluding China and India .32

SYMBOLS

The symbol . in tables means "less than half the unit shown"The symbol .. in tables means "not available"The symbol - in tables means "not applicable"

Page iii

ACRONYMS

GDP Gross Domestic ProductIBRD International Bank for Reconstruction and DevelopmentIDA International Development Association

IDA8 and IDA9 refer to the Eighth and Ninth Replenishments of IDA respectivelyIMF International Monetary FundNGO Nongovernmental OrganizationSAL Structural Adjustment CreditSFA Special Facility for Africa

Note: Unless otherwise indicated the source of data for all the tables is The World Bank.

I. THE NEEDS OF THE LOW-INCOME COUNTRIES

1.1 "The Evolving Role of IDA' sketched economic management. In this respect some

the cycle of recent development experience in of the lessons of the 1980s have been learned

the low-income countries. In the late 1970s and many low income countries will enter the

high primary commodity prices, negative real next decade with more resilient economies and

interest rates and plentiful non-concessional an enhanced capacity to manage their domestic

credit led governments in many of these economies flexibly in response to changing

countries to increase their expenditures and exchange rates in the major trading countries,

invest in new capacity. In the early 1980s varying real interest rates and capital flows,

sharp declines in commodity prices combined and short-term commodity price fluctuations.

with high real interest rates to result in debt

servicing problems and limited access to 1.4 In attempting to identify the needs of

non-concessional credit. It became crucial for the low-income countries in the 1990s, it is

governments to adjust by shifting resources useful to distinguish four broad country

into the production of tradeable goods and groupings. The first three consist of countries

services and by restoring fiscal balance. IDA which have faced the need to adjust to the

and the IMF took the lead in supporting lower commodity prices and external resource

adjustment programs in the low-income flows of the 1980s, and in these the level of

countries by ensuring that a link was investment has fallen sharply since the late

established between the provision of external 1970s. In sub-Saharan Africa, for example,

funds and the undertaking of the needed gross domestic investment was only 12 percent

policy changes. of GDP by 1985. At this level, gross

investment is absorbed largely by replacement

1.2 By FY88, when the account in the expenditures to maintain the existing capital

earlier paper ended, the internal debate in stock. These investment levels are not

many low-income countries was not about adequate to provide the wide range of

whether to adjust, but rather about the timing supporting infrastructure which will be needed

and sequencing of the adjustment process. to exploit already available capacities in

For most low-income countries the priority agriculture, industry and services. Nor, at

was clearly perceived as more efficient these levels, has it been possible to safeguard

resource use -- both in the short run through the resources needed for long-term

better utilization of existing productive development, both human and natural. Social

capacity, and in the longer run through service coverage of the population has

institution building and the development of stagnated or declined and environmental

human resources and the conservation of damage has continued, perhaps irreversibly in

natural resources. This emphasis was also some countries.

relevant for the large Asian countries, which,

although not facing a crisis of macroeconomic 1.5 Important differences have begun to

adjustment, were concerned that high rates of emerge among these countries, however. A

investment in the 1960s and 1970s had not first group of countries (most notably Bolivia

yielded commensurate growth. Programs in -- see Box 1.1, Burundi, Ghana, Malawi, Tbgo,

these countries were increasingly geared to and most of the small island economies in the

economic reforms aimed at raising growth Caribbean) has essentially completed the first

rates and reducing poverty. phase of their adjustment programs -- of

correcting the key macroeconomic imbalances.

1.3 The most enduring legacy of the 1980s This group of countries have by and large set

may well be the volatility of the global their exchange rates at realistic levels which

environment and the premium placed on provide incentives to domestic producers, have

flexible economic structures and responsive reduced biases against exports and agricultural

INTRODUCTION

The background paper on "The alleviation, environmental programs,

Evolving Role of IDA", which was discussed institution-building, the development of the

by the IDA9 Deputies at their meeting in private sector, collaboration with non-

February, outlined the very considerable government organizations and the coordination

changes which had taken place in IDA's of external aid. Section lI describes how

programs and policies during the period IDAs programs in the various sectors are

FY85-88. In their discussions the Deputies designed to support these common themes of

asked that IDAs management provide an country development programs. The

indication of how IDAs programs were likely management of these themes requires careful

to evolve further during the period of the integration of activities within and across

ninth replenishment (FY91-93) and the sectors, and IDAs lending instruments are

consequences of that evolution for the designed to achieve this integration. The

allocation of IDA resources. This paper balance of activities between sectors and

responds to that request. between lending instruments is built up from

IDAs response to individual country needs.

The paper begins with a discussion of Current projections are that this will result in

the different ways in which countries have some shift towards the human resource sectors

responded to the need to adjust their and an unchanged share of adjustment lending

economies since the early 1980s. A number of in the IDA9 period as compared to IDA8.

countries have substantially implemented the

first (macroeconomic) phase of the adjustment IDA allocations across countries are

process and are in a position to deepen determined by the size of the country, its per

adjustment programs at the sectoral levels and capita income, performance and absorptive

to expand investment in infrastructure and capacity, and creditworthiness. In the IDA8

the social sectors. A second group of period there has been a substantial premium

countries have just started to adjust and must in allocations attached to the willingness of

still give priority to the task of restoring countries to undertake adjustment programs.

macroeconomic balance. Growth in these During IDA9 it is possible that a number of

countries will depend on their ability to make other countries, mainly in Africa, will begin

more efficient use of existing capacity and to adjustment programs requiring substantial IDA

reallocate resources between and within allocations in support. Also, some Asian

sectors. A third group of countries have not countries received relatively lower IDA8

yet embarked on adjustment programs. In allocations than intended because of the

addition, there is a fourth group of countries impact of natural disasters and political

-- mainly the large, diversified Asian instability on project implementation. Some

economies -- which have been relatively of these countries would also be claimants for

well-managed and have grown rapidly during additional allocations in IDA9. Section III

the 1980s. Section I explores the needs of reviews the possible trends in allocation in

these four categories of countries during the IDA9 relative to IDA8 and concludes that,

1990s if they are to achieve sustained growth given the uncertainties relating to the

and poverty reduction. prospects for individual countries and the

likely pressure of additional claimants on

There are a number of common constrained IDA resources, it will be

themes in IDAs support for development important that allocations in the IDA9 period

programs in these countries. These include: be managed flexibly across regional and

the efficient allocation of resources, poverty country programs.

I. THE NEEDS OF THE LOW-INCOME COUNTRIES

1.1 'The Evolving Role of IDA" sketched economic management. In this respect somethe cycle of recent development experience in of the lessons of the 1980s have been learnedthe low-income countries. In the late 1970s and many low income countries will enter thehigh primary commodity prices, negative real next decade with more resilient economies andinterest rates and plentiful non-concessional an enhanced capacity to manage their domesticcredit led governments in many of these economies flexibly in response to changingcountries to increase their expenditures and exchange rates in the major trading countries,invest in new capacity. In the early 1980s varying real interest rates and capital flows,sharp declines in commodity prices combined and short-term commodity price fluctuations.with high real interest rates to result in debtservicing problems and limited access to 1.4 In attempting to identify the needs ofnon-concessional credit. It became crucial for the low-income countries in the 1990s, it isgovernments to adjust by shifting resources useful to distinguish four broad countryinto the production of tradeable goods and groupings. The first three consist of countriesservices and by restoring fiscal balance. IDA which have faced the need to adjust to theand the IMF took the lead in supporting lower commodity prices and external resourceadjustment programs in the low-income flows of the 1980s, and in these the level ofcountries by ensuring that a link was investment has fallen sharply since the lateestablished between the provision of external 1970s. In sub-Saharan Africa, for example,funds and the undertaking of the needed gross domestic investment was only 12 percentpolicy changes. of GDP by 1985. At this level, grossinvestment is absorbed largely by replacement1.2 By FY88, when the account in the expenditures to maintain the existing capitalearlier paper ended, the internal debate in stock. These investment levels are notmany low-income countries was not about adequate to provide the wide range ofwhether to adjust, but rather about the timing supporting infrastructure which will be neededand sequencing of the adjustment process. to exploit already available capacities inFor most low-income countries the priority agriculture, industry and services. Nor, atwas clearly perceived as more efficient these levels, has it been possible to safeguardresource use -- both in the short run through the resources needed for long-termbetter utilization of existing productive development, both human and natural. Socialcapacity, and in the longer run through service coverage of the population hasinstitution building and the development of stagnated or declined and environmentalhuman resources and the conservation of damage has continued, perhaps irreversibly innatural resources. This emphasis was also some countries.relevant for the large Asian countries, which,although not facing a crisis of macroeconomic 1.5 Important differences have begun toadjustment, were concerned that high rates of emerge among these countries, however. Ainvestment in the 1960s and 1970s had not first group of countries (most notably Boliviayielded commensurate growth. Programs in -- see Box 1.1, Burundi, Ghana, Malawi, Togo,these countries were increasingly geared to and most of the small island economies in theeconomic reforms aimed at raising growth Caribbean) has essentially completed the firstrates and reducing poverty. phase of their adjustment programs -- ofcorrecting the key macroeconomic imbalances.1.3 The most enduring legacy of the 1980s This group of countries have by and large setmay well be the volatility of the global their exchange rates at realistic levels whichenvironment and the premium placed on provide incentives to domestic producers, haveflexible economic structures and responsive reduced biases against exports and agricultural

Box 1.1: Bolivia: The Second Phase or Adjustment

In late 1985 Bolivia faced a major economic crisis brought on by a crushing debtburden, a huge and inefficient public sector, extensive controls on economic activityand poor macroeconomic management. Hyperinflation was running at 28,000 percent,per capita income had fallen by 24 percent since 1980 and the public sector deficit hadwidened to 23 percent of GDP. In response, the new Government embarked on astabilization program, raising the prices of most public sector services, cutting spending,and dealuing by 93 percent; inflation was reduced lo 22 percent bv 1988.

The stabilization was accompanied by an adjustment program designed to slimulategrowth by rationalizing the public sector and by allowing prices to allocate resources.Almost all quantiiative trade restrictions were eliminated, and a uniform tariff of 20percent was inirod'uced. Controls on prices and on interest rates were abolished. Sowere subsidized credil programs. The resiructuring of the banking sector was begun.The exchange rate was determined in daily auctions with uni%ersal access. Restriclionson employment practices and wage negotiations were eased. A first phase of publicenterprise reform starred, including employment reductions and the reorganization ofthe Central Bank. Public administration reforms included tighter control of all publicsector wages and a complete overhaul of tax administration. The Emergency SocialFund was established to cushion the impact of the program on the poor. The economyhas responded, but slowly, growing by 2.4 percent in 1987 and 2.8 percent in 1988.

While macroeconomic balance has ihus largely been achieved, much remains to bedone in the areas of public administration, incentives and external finance and toiniegrate the poor into the development process. The Government plans to improvetax and cusioms enforcement, to reform wage and employment practices, to privatizepublic enterprises, and to decentralize health and education services. Public invesimentis to be made more efficient, and infrasiructure improvements necessary to supportgreater indusirial production and trade are planned in power and transport. TheGovernment will continue reforms in the banking sector (see Box 2.4). Investment codereform will improve the business climate, and will be critical to aitracting foreigninvestment in mining and hydrocarbons. Reforms are also underway in agriculture -which is stagnating - to increase output and exports through improved crop productionsystems, the introduclion of new technology and the increased availability of credit.Achieving these planned reforms will he difficult, however, because of Bolivia's largedebt burden; despile buybacks and rescheduling. official debt sernice in 1988 stillaccounted for 10 percent of Ireasury revenues and 51 percent of export earnings.Increased concessional assistance and further debt rescheduling will be necessary tosupport further economic reforms and ensure sustained growth.

production, have lowered rates of protection the adjustment process at the sector levelon manufactured goods, have reduced fiscal through upgrading key sector agencies,deficits and inflation rates, and have moved improving administration, and the deregulationreal interest rates to positive levels. and privatization of activities which can bebetter handled through appropriate incentives1.6 The priority for this group of countries and policies. Further, it requires theis to address the technological, institutional identification of investment needs in theand infrastructure bottlenecks which limit the supply of infrastructure -- not merely in thesupply response. This requires a deepening of short-run, but, given the long gestation period,

Box 1.2: Nepal: Continuing Structural Adjustment

The government of Nepal's growing frustration with low growth performance over

three decades of development efforts manifested itself in surging public expenditures

to accelerate development in the early 1980s. The budget deficit rose from 6 percent

of GDP in FY81 to 10 percent in FY85. During this period international reserves fell,

and domestic borrowing increased substantially to finance development expenditures.

It became evident that growth was not sustainable under these macroeconomic

conditions. In 1985, Nepal embarked on a structural adjustment program of stabilization

(increasing public revenues, lightening government expenditures and monetary policies)

and structural reforms (promoting agricultural and industrial growth while improving

development adminisiralion and public en'terprise performance), supported by' IMF

Standby Arrangements, and subsequently by the SAF and a SAL from IDA.

Macroeconomic performance under the program through FY85-88 has been encouraging

- GDP growth averaged 4 percent annually; internalional reserves increased substantially

through export growth, doubling of tourism receipts and increased aid disbursements;

and gross domestic borrowing fell from 4 percent of GDP to 2 percent while

development expenditures increased by 12 percent in real terms. In spite of the

improved macroeco'nomic balances, Nepal's economy remains fragile. Imports are almost

twice ihe level of exports and public expenditures are almost double public revenues.

Improving Nepal's weak institutions and development administration is a slow but

crucial process. Even with this promising start, adjustmenL measures have to be

sustained and broadened into other areas in the coming years to accelerate growth, while

ensuring macroeconomic stability. Within this broad framework, supporting investments

will also be necessary in agriculture and hydroelectricity to mobilize the necessary

resources and in human resource developmenl to address critical poverty concerns.

in investments in transport, power, Nepal -- see Box 1.2, Nigeria and Tanzania, for

communications and water, in the late 1990s example). In these countries, the key first

as well. steps towards achieving macroeconomicbalance have been taken, but must now be

1.7 In addition to the supply response reinforced through supporting measures. For

these countries must emphasize the example, in most cases foreign exchange use

sustainability of the development process. has been liberalized, but substantial areas of

They must resume the expansion and control and rationing remain. Quantitative

upgrading of their education and health restrictions are in the process of being

systems and develop programs for natural substituted by tariffs and tariff levels are being

resource conservation and management. While reduced. Fiscal deficits have been brought

these countries should be able to finance the down, but remain too high. In general,

expansion of these programs out of increased progress has been quite good in the areas of

levels of domestic savings, they will continue interest rates and agricultural prices where the

to require concessional resource flows at the major distortions have been corrected. In

current real levels. There is little likelihood essence, macroeconomic adjustment still

within a time-frame of five years that these requires strengthening.

countries will develop sufficientcreditworthiness to permit any significant 1.9 The problem for these countries is to

amount of non-concessional borrowing. sustain their adjustment efforts. This is not

just a matter of policy change. These

1.8 A second group of countries has made countries have not yet developed the

a promising start in adjusting (Guinea, Mali, management capacity and undertaken the

Box 1.3: The Prospects for an Adjustment Program in Zambia

The Zambian government slopped servicing its debt and embarked in May 1987 ona program, withoul the support of IDA and the IMF, which while maintaining someearlier sector reforms, has exacerbated policy distortions -- an overvalued fixed exchangeraLe and administralive allocation of foreign exchange, exiensive price controls, fExedinterest rates at highly negative real levels, and an inflalionary public expenditureprogram financed largely through borrowing from the central bank. Zambia's situationincluding iLs dependence on sleadily declining copper resources is an unusually difficullone and even with quite far-reaching adjusiment measures the prospecti is forconsirained growth until the economy is gradually diversified out of its dependence oncopper. Recenily the government has taken some sleps in the right direction,recognizing perhaps the unsuslainability of the current approach even with bothrelatively favorable recent copper prices and very limited payments on iLs debt. Itcarried out a small devaluation, increased the interest rate ceiling to 25 percent --though inflation is running at about 50 percent, announced a 1989 budget designed toreduce the budget deficit to 5 percent of GDP from a reported 9.5 percent in 1988, andinlroduced a scheme to target the maize subsidy lo the poor. IDA is continuing itsdialogue with the government about the content of reform programs and measures tohelp clear the arrears. A full fledged adjusiment program will require both debt reliefand substantial concessional funding sustained over ihe long-term if it is to have anychance of success.

institutional reforms which can support the be constrained by lack of transport, power orachievement of adjustment. Continuing fiscal water. Special interest programs which protectdeficits, for example, are in many cases a the poor during the adjustment process andsymptom of an unwillingness or inability to permit broad-based support have been a keycome to grips with the problems of the public to the relative success of the matureenterprises and to eliminate the budgetary adjustment programs in Ghana and Bolivia.drain which they are causing. They need to be designed and implemented bythis group of countries as well. The provision1.10 This group of countries will not be of external resources to these countries mustable to increase investment levels over a five remain closely tied to their willingness toyear time-frame as much as the first group. sustain adjustment efforts.Increased domestic savings will have to be

directed at restoring macroeconomic balance. 1.11 The third group of countries consistsThis puts an even greater premium on using of those which have not yet started or haveexisting resources more efficiently. There is aborted their adjustment programs. Thesescope, for example, for small and medium countries include Guyana, Liberia, Sierrainvestments in the private sector, which can Leone, Sudan and Zambia (see Box 1.3). Tbyield high returns through unlocking existing this group should be added those countriescapacities and can be substantially financed with programs which have been suspended orthrough new private savings. By reducing not begun due to political instability such assubsidies to the better off in the education and Afghanistan, Vietnam and Haiti. Somewhathealth sectors, expenditure can be retargeted different has been the case of Sri Lanka whereto provide for expanding services and civil strife has disrupted recent efforts toupgrading quality for the poor. At the same revive major adjustment efforts initiated in thetime, some new investment will be necessary late seventies and early eighties. It is notto address the most serious infrastructure necessary to deal at length with the needs ofbottlenecks so that supply responses will not these countries. If the political will is there,

Box 1.4: India: Supporting the Private Sector Through Policy Rerorms

After several decades of resirictive industrial regulatory policies and an inward looking

trade regime, India has recently embarked upon broad reforms to foster greater

competition, a more active and vibrant private sector, and industrial efficiency. The

reform program includes liberalizing the domestic regulatory framework to free up

enterprise investment decisions and technology acquisition; encouraging exports through

more flexible exchange rate polices; streamlining export administration; and starting to

reduce import barriers. These changes have already srimulated private sector investmeni

and led to significantlv higher manufacturing growth and exports..................... ... .... ......

Policy reform is now under way in areas such as industrial regulation, export

administration, public enterprise reform, industrial closure and credit and capital

markets, particularly in such priority subseclors as electronics. aulomotive products,

steel, capital goods and fertilizer. Private sector involvement is also being encouraged

by opening up offshore areas to the international oil industry - an initiative that has

proved highly successful. The GovernmenL is also providing improved incentives for

increased involvement of the private sector in large public utilities such as the Bombay

Suburban Electricity Supply, as well as permitting the establishment of a number of

smaller private sector utilities consortia across the country.

then a very substantial international program countries discussed above and a stronger base

of concessional assistance will be needed to of development skills and institutions.

support adjustment and reconstruction efforts. Bangladesh has also implemented sound

Unfortunately, with each year of delay the cost macroeconomic policies and adjusted well to

of adjustment increases, both in terms of the the deteriorating external environment. Its

scale and difficulty of the reform measures economic structure, however, is closer to that

needed and the required external support. of sub-Saharan Africa and its poverty situation

perhaps even more serious; it will thus

1.12 The fourth group of countries consists continue to be an IDA-only borrower into the

of those countries which do not face foreseeable future.

short-term financial crises but which are in

need of continuous structural change of a 1.13 TWo key issues face these countries.

long-term nature. They also face major First, China and India have achieved high

challenges in dealing with widespread poverty levels of investment and domestic savings

and tapping the potential of their vast human given their per capita income levels. They

and physical resources. These are largely the have captured the initial benefits of import

low-income countries of Asia which have substitution in manufacturing and the green

achieved a reasonable degree of revolution in agriculture. In the 1980s,

macroeconomic stability and growth through governments in both countries realized that

much of the 1980s: China, which grew the the next phase of their development required

fastest, India (see Box 1.4), Pakistan and until a more decentralized economic structure and

the recent floods, Bangladesh. The careful a greater use of market signals to promote

macroeconomic management which has more efficient production with an emphasis on

characterized these economies has, in the case exports as the engine of future growth.

of China, India and Pakistan, established Reform programs have been launched with this

creditworthiness for funding a substantial part objective and in the face of considerable

of their development on non-concessional political opposition. The extension of these

terms. In addition, these particular countries programs threatens those groups which have

have much more diversified structures than the benefitted from the traditional systems, but

governments are aware that they provide the programs and it is increasingly urgent becausekey to the imperatives of rapid income growth decentralized decision-making, necessaryand poverty reduction. though it is for economic purposes, runs therisk of reducing the effectiveness of even the1.14 The second key issue these countries limited pollution controls and otherface is the sustainability of their development regulations which exist at present.programs. China, India and Pakistan all have

large -- and poor -- populations relative to 1.15 It is apparent from the discussiontheir resource endowments. The long-term above that the low-income countries enter theproblems of economic management are 1990s with a varied menu of developmentprodigious. Large segments of the population objectives. In some ways the problems of themust be given the skills and facilities to 1990s are very different from those of theparticipate in the modern economy. Poverty present decade. Many low-income countriesreduction efforts must be intensified. A are moving from a situation of crisis, ofparticularly grave concern relates to the correcting major distortions in a limitedenvironment in these countries. There is number of key economic variables, andincreasing awareness that the natural resource entering a situation where detailed policy andbase needs to be safeguarded against the investment analysis and programming at theimmense pressures of increased populations. sector level need to be undertaken if they areNone of these countries has as yet integrated to sustain growth and reduce poverty.these issues into the design of its development

II. IDAS PROGRAMS IN THE NEXT FIVE YEARS

2.1 IDAs objectives have always been to encourage a supply response and then

assist countries to promote growth and reduce reallocating expenditures towards the

poverty. But the focus of these programs has investments and recurrent spending needed

depended on the nature of the needs of to support it; in human capital it involves

recipient countries at particular points in time. reallocating expenditures away from

With the macroeconomic imbalances of the subsidies for the better off recipients of

early 1980s, IDA's programs were health and education services towards

characterized by the attempt to deal with expanding the coverage and quality of

economy-wide issues -- and the introduction programs for the poor.

of structural adjustment in parallel with IDAs

traditional focus on investment projects and * Poverty alleviation is being implemented

individual project agencies. As adjustment has not only in traditional areas of activity such

moved beyond the broad macroeconomic as rural development and human resources

variables to increasing concern with sectoral but also through attention to the social

policies, institutional capacity and supply dimensions of adjustment, food security, the

responses, the late 1980s have seen a clear targeting of public expenditure, population

trend towards integrated programs at the policy, and the role of women in

sector level. development. The instruments of support

combine policy changes to correct the bias

2.2 These sector programs have been against rural income-earners, adjustment

supported by IDA first through increased loans to support sector reallocation, and

economic and sector work and second through investments both as components of sector

the development of sector adjustment and and project loans and as free-standing

investment credits as lending instruments poverty-oriented projects.

which can encompass policy change,

maintenance, institutional development, * Environmental programs are designed to

investment rationalization, poverty alleviation ensure that economic development is

and sustainable development. There is compatible with maintaining both the global

increasing use of hybrid loans, which combine and national ecosystem. Measures to meet

quick disbursing funds to support policy this objective include not only the

changes and ensure that the needs of the establishment of regional environmental

sector are met (e.g. through provision of units and country programs but the

foreign exchange for equipment and books in integration of natural resource management

the education sector) with investment concerns in many sectors, including

components and technical assistance to provide programs to limit population growth, to

for building up the capacity of the concerned promote reforestation, to manage

ministries and institutions. watersheds and to control industrial

pollution.

2.3 At the same time as the level of

operation for IDA programs is trending o Institution-building involves not only the

towards the sector, the program content is traditional long-term relationship with

being increasingly determined by a number of individual agencies such as power and water

themes which cut across sectors. utilities and road maintenance departmentsbut a wider attention to the respective roles

* The efficient allocation of resources of the public and private sectors, to the

complements the sector-wide approach need to strengthen the public sector's

discussed above. It involves giving priority capacity to manage economic policy, and to

to the sectoral policy changes needed to

the need -- especially in Africa -- for more 2.6 There are two key areas in IDAswell-trained economic managers. concern with macroeconomic balance. Thefirst is the efficient use of resources, achieved* The development of the private sector is through ensuring that incentives reflectbeing pursued not only in industry where scarcities and enabling public and privatesupport is continuing for regulatory reform agents to respond to them. Incentives includeto improve the business environment and producer prices and exchange and interestfor the divestiture of public enterprises but rates so that resources are allocated asalso in agriculture and infrastructure, where efficiently as possible in line with countries'it offers the potential for more efficient comparative advantages. They also include thedelivery of services. regulatory frameworks affecting the businessenvironment within which both private and* Collaboration with Non-Governmental public enterprises operate. The improvementOrganizations is increasing particularly in of the operational efficiency and/or divestitureenvironmental, poverty and human resource of public enterprises is emerging as anareas. Field missions are taking the lead in especially important instrument in thedeveloping collaboration with indigenous establishment of a responsive, competitiveNGOs. environment.

* IDA has substantially expanded its role in 2.7 The second key area is the need tothe coordination of external aid, and this protect the poor in the adjustment process,expansion is likely to continue. The number both through meeting the problem of theand scope of aid groups is continuing to short-term dislocation of vulnerable groupsgrow, at the regional level with the Special and through protecting expenditure categoriesProgram of Assistance in Africa -- which which are critical to improving the economicwill likely be extended, at the country level status of the poor in the longer run. The- with new mechanisms for countries like reestablishment of fiscal balance as an elementNigeria, and at the sectoral level where in achieving overall macroeconomic balancethere is increasing coordination, including has usually implied reduced public investmentby field missions. programs and public expenditures. In order toensure that these spending cuts do not have2.4 The succeeding sections attempt to adverse short- or long-term consequences forshow how these themes are being carried the poor, governments need to explore thethrough in IDAs programs at the sector level. allocation of expenditure both within andbetween sectors. In a number of areas,A. Macroeconomic Adjustment and subsidies which mainly benefit the better offReform can be retargeted to assist the poor. TheSocial Dimensions of Adjustment Project (seeBox 2.1) will help both governments and IDA2.5 In all countries, macroeconomic to incorporate such measures in adjustmentbalance is needed to ensure the consistency of programs in Africa.domestic and external resource availabilities

and expenditure, and the coherence of growth 2.8 The share of economy-wide adjustmentand poverty objectives. In many countries, in total IDA lending to individual countriesmoreover, economy-wide adjustment or reform will continue to vary widely according torequires a specific focus and cannot be country circumstances. As indicated inaddressed through the aggregation of Section I, where adjustment programs are nowindividual sector programs. Support for firmly in place, IDAs financial support willmacroeconomic adjustment and reform will shift at the margin to funding sectoralthus continue to be a major component of programs both for policy reform andIDA's programs in the IDA9 period. investments in physical and human capital;adjustment lending to countries like Boliviaand Ghana will largely be confined to sectors

: .. . - :- ..::::-..-.- -:.......... : --:.... ......::-- .-.. .. ..... .- .. ......... -.

Box 2.1: The Social Dimensions or Adjustment Project

The project was initiated by the World Bank, UNDP and the African Development

Bank in collaboration with other donors to strengthen the capacity of governments in-- -- . .. ... ... - -...... .. .. -.. . . ...... ... ,...,..

sub-Saharan Africa in three areas. First, in the design and implementation of......................................... ...... ... .. ......... ......... ................. .

adjustment programs that foster the participation of the poor in Ihe process of economic

growth, and protect vulnerable groups. Second, in the development and maintenance

of statistical databases that will be used to monitor the impact of adjustment measures

and social policies on the poor. Third, in the formulation of policy analysis on social

issues that will contribute to the design of adjustment programs. The project is

expected to be operational in seven IDA recipient countries by the end of FY89:

Gambia, Ghana, Guinea, Madagascar, Mauritania, Senegal and Zambia. Fourteen more

are to be included by the end of FY91: Burundi, Chad, Guinea-Bissau, Malawi, Mali,

Mozambique, Niger, Sao ibme and Principe, Somalia, Sudan, Thnzania, Tbgo, Uganda

and Zaire.---. -.. .... .......... ... ~~~~~~~~~~~~~. .. .......... ........... . .. ........ .....

.... .... .....------- . ...... ....... ....----.... -..

The data generated by the project will provide a broader basis for dialogue between

IDA and governments in Africa. Thus, while the project will increase the capability of

governments to formulate policy decisions, it will also enable IDA to identify and

routinely include poverty alleviation concerns in its support for adjustment. Moreover,

it will enable a better understanding of how specific policies affect the poor, and thereby

also prove useful in designing intervenLions outside the adjustment context. For

example, the project has already provided support to the government in Guinea in

designing the social policy reform program under SAL ni. Additionally, it has added

useful input to the planned Social Development Support Project, and will contribute to

the design of SAL IIl (planned for FY90), an education seclor project (planned for -

FY90), and a health project (planned for FY92).

where reform is still needed, particularly the of cases the supply response has been

agricultural and financial sectors. Structural impressive, but in many countries it is held

adjustment loans will remain common, back -- through the need to improve

however, for the large group of countries technologies and the inadequacy of

which have recently embarked on adjustment institutional support and educational standards

programs in which elements of the to do so, through the need to improve

macroeconomic framework for growth still supporting infrastructure, and through the

need to be put in place. need to free up the supply of inputs so that

farmers get credit, fertilizer, seeds, pesticides

B. Agriculture and water in the quantities and at the timethey need them.

2.9 The agriculture sector remains the key 2.10 IDA's lending for agriculture will

to effective adjustment and poverty reduction continue to exceed that of any other sector,

in most developing countries, both as a accounting for about 30 percent of the total

consequence of the heavy dependence on program. In Africa, agriculture lending will

agriculture for export growth and the role it focus on raising output to increase incomes

plays as the leading employer and the main and provide food security with four main

occupation. Substantial progress has been emphases: first, adjustment lending to

made in many low-income countries in eliminate price distortions and improve

correcting price distortions in agriculture -- marketing systems -- sector lending is expected

between agricultural goods and manufactures, to account for about 25 percent of all lending

between different crops, and between for African agriculture; second, assisting the

agricultural outputs and inputs. In a number

Box 2.2: Introducing New Agricultural Technology in Africa

IDA is promoting an approach new to Africa, but already used with considerablesuccess on projects in India and Indonesia, lo improve agricultural systems andproductivity, and hence the effectiveness and efficiency of invesiments, through trainingof extension workers by researchers and regular extension visits to smaliholders byextension workers. The key element is the sirengthened contact between agriculturalservice delivery agencies (especially research) and farmers that the training and visitsbring and the consequent supply of services that are based on farmers' needs for inputs,technology and demonstration. This approach seeks to generate and apply newagricult ural technology through carefully designed national programs managed by Africanpublic and private sector managers and supporied by experts based in national andinternational agricultural research ceniers. The programs are now being implementedin 20 African countries through strenglhened exisling institulions, in conLrast lo the pastwhen many parallel agencies were established. Coordination with other donors andNGOs is essential in order to ensure a cohesive sirategy.

In Kenya the training and visit approach has already been successful in significantlyincreasing smallholders' maize yields in high potential areas. The IDA-suppornedBaringo Arid and Semi-Arid Lands Development Project focused on pilot studies toimprove agricultural technology use in a resource-poor area. Successful inierventionsincluded ihe application of research resulis which identified crops and crop varietiesbest adapted to the difficult local climate. The rangeland was improved by reseedingand soil conservation mcasures, increasing livestock offtake to some extent. Rainwaterharvesting techniques and inexpensive small scale irrigation were introduced to farmers.

development of new technologies and investment. This new focus in agriculturalimproved practices through support to lending is evidenced by watershed managementagricultural research and extension (see and rainfed agriculture projects in some of theBox 2.2); third, financing rural infrastructure, poorest regions in India, reforestation andwith particular emphasis on the rehabilitation small irrigation projects managed by privateand construction of rural roads; and fourth, user groups in Nepal, restructuring of the treepromoting food security in order to reduce crop estates in Sri Lanka to improvemalnutrition and poverty (see Box 2.3). operational efficiency, and more effective useof local credit and marketing institutions for2.11 Agricultural lending to Asia, where fisheries in Bangladesh.institutions are more developed, will aim to

complement increased productivity with C. Industry and Financestructural changes in the rural economy inorder to give poor farmers better access toproductive assets and to provide the landless 2.12 IDA's lending for industry and finance,with expanded employment and income which fell during FY85-88, is being built upopportunities. The strategy will include better again, closely linked to its efforts to promotemanagement of land, water and forestry an efficient private sector, but with a veryresources; strengthening credit and marketing different focus than in the past. The declineinstitutions; improving tax policies and price in lending was largely a result of the ending ofincentives; enhancing the capacity of existing most direct lending for new investment inassets through better operations and public enterprises in the productive sectorsmaintenance; and promoting increased and of a reduction in lending through financialhousehold sector involvement in agricultural intermediaries because of their deterioratinghealth. In order to promote an efficient

Box 2.3: Food Security In Africa

[DA has launched a majof initiative designed to ensure food security for the

25 percent of people in Africa who are currently malnourished. Agricultural growth

will continue to be the main thrust of IDA's programs, but will now be pursued in

conjunction with programs to target both food insecurity arising From natural disasters

(transitory food insecurity), and from either continued unavailability or unaffordability

of food (chronic food insecurity). A report carried out with the World Food

Programme reviewing the effectiveness of food aid on transitory food insecurity is

expected to be completed in FY89 and its conclusions are expected to affect subsequent

agricultural lending. Food security action plans focusing on chronic food insecurity are

being devised for most African FDA recipient countries. These plans will focus on

individual country situations iden if'ing groups that do not benefit from overall

economic growth and formulating specific lending operations -- both investment and

adjustment -- to target these groups. In most countries the food insecure are mainly

the rural poor. Increasingly African women farmers are becoming heads of households

without the commensurate access to credit or land tenure rights this responsibility

implies. These plans will suggest ways lo integrale these women into the development

process. Population growth, which is expected to exceed agricultural growth, exacerbates

food insecurity and will be a key determinant in policy decisions arising from these

plans. Seven food security plans will be completed by the end of FY89, for Benin,

Buridna Faso, Kenya, Madagascar, Mozambique, Nigeria and Sudan, and 6-8 more will

be completed each year through FY93. Lending operations'are expected 'to start in

FY90, and surge during the IDA9 period.

The initiative aims for universal food security by 2020 and will require cooperation

among IDA, other donors and NGOs and the successful integration of IDA's programs

for women in development, population, health, agriculture and adjtusiment.

' : ~~~~~- : - - ,' . . .:--- -- - -- - -: ' - -. .'- - . -- - .'.'- - - .-'-.-

private sector, programs will need to focus sector are the prerequisites of this approach.

first on encouraging a more competitive The adjustment programs adopted by an

environment through measures such as trade increasing number of countries have supported

liberalization and regulatory reform, second on trade and regulatory reform but have only just

improving the quality of financial begun to focus on the financial sector. IDAs

intermediation and promoting an efficient future lending to the financial sector in these

financial system, and third on improving the countries, mainly in Africa but also including

performance of public enterprises, including by Bolivia (see Box 2.4), is likely to adopt a

their divestiture, so that inefficient protected "systemwide" approach to the banking sector

public enterprises do not pre-empt financial and promote both operational improvements

and real resources. These measures will at the level of individual financial institutions

involve a mix of sectoral adjustment and and the sorely needed acquisition of technical

investment operations, and lending through skills. Given that most private entrepreneurs

financial intermediaries. in Africa at present operate in the informalrather than the modern industrial sector,

2.13 The major shift in allocation during innovative programs will be needed to deliver

the IDA9 period is expected to be through credit and other necessary inputs. In Asia, by

increased lending for the private sector contrast, where institutions are better staffed

through the financial system, which will more but are not yet playing the active role in

than offset the trend away from direct support intermediating financial flows which economic

for public industrial enterprises. An effective reform requires, IDA will emphasize an

business environment and an efficient financial expanded and more effective intermediation,

Box 2.4: Reforming Bolivia's Financial SectorIDA has supporied the Bolivian government's effons to modernize and reform itsfinancial sector through the Public Financial Management Operation (PFMO) and theFinancial Sector Adjusiment Credit (FSAC). The PFMO created a foundation formodernizing the sector by assisting the resiructuring of the Central Bank. theestablishment of an autonomous Superintendency of Banks, and an analysis of theproblems of the public banks. IDA's assistance through the FSAC is intended toincrease confidence in the banking system and mobilize financial resources, sirenglhenthe financial condition of banks, and reduce the high real cost of credit. The aim is toincrease the overall efficiency of Bolivia's financial sector and enhance its ability tofinance the working capital and invesiment needs of the productive sectors. Short-runresults since 1987 have been impressive with signiricant remonetization, the improvedfinancial condition of the banking system, and significantly lower real interest rates.IDA has also assisted the government to begin to rehabililale Bolivia's two largest publicbanks, the Banco del Esiado and the Banco Agricola; as part of the FSAC, thegovernment is preparing restructuring plans for them. IDA expects to continue to playa major role in supporting further improvements in Bolivia's financial sector. IDAfinancing of a Bank Rehabilitation Credit would be a logical next step to assist the twobanks to streamline their operations, and to consolidale reforms in banking regulationand supervision.

including by commercial banks. need to ensure that transport, communications,power and water are available to2.14 The approach which IDA takes to manufacturers, traders and farmers. IDAassist with the promotion of competition will lending will support both increasing thealso vary according to country circumstances. efficiency of existing investments and capacityIn the larger Asian countries, IDA will focus expansion.on the reform of the regulatory environmentand reducing levels of protection. In Africa, 2.16 There remains considerable scope towhere domestic markets are small, competition raise the returns on existing investments. Thiswill be promoted most effectively through the will involve efficient operation andcontinued liberalization of the trade regime. maintenance, complemented by rehabilitation.In both regions IDA will continue to support The financial and operating performance ofefforts to improve the efficiency of existing power utilities in many countries, for instance,public enterprises. This includes attention to has not improved, in part because of thethe regulatory and financial environment in financial burden of past overinvestment and inwhich they operate and continued support for part because of inadequate control of technicalprivatization.

and other losses. IDA will continue tosupport improvements in the managerial andD. Infrastructure technical capacity of these institutions in orderthat they can achieve the levels of proficiencyneeded for effective operation of existing

2.15 A number of adjusting countries which fesdad sound plan in ofnew ity.are gadualy iprovng te stuctue of facilities and sound planning of new capacity.are gradually improving the structure ofincentives face the possibility of an inadequate 2.17 As countries move from recessionsupply response due to bottlenecks in through adjustment to sustained growth,infrastructure. This could have serious effects however, existing infrastructure will not benot only for growth but also for the standard adequate and capacity will have to beof living of the poor and for food security, as expanded. The ivestments which IDA willin Tbnzania (see Box 2.5). During the IDA9 finance often have a long gestation period and

period there will be increasing attention to the

Box 2.5: Ibnzania: Thansport, Poverty And Food Security

In Thnzania, past neglect of road maintenance has noL only caused travel time on

many trunk roads to double, but has also isolaled many rural communities and

agricultural production areas. It now takes 16 hours to travel from Dar es Salaam to

the Kenya border, and a significant amount of the 1987 cotton crop is still in storage

because it cannot be transported. Despite being able to grow enough food, lMnzania

is a food insecure country; many low-fertile regions are not being served because rural

roads are often so bad that transport cannot be obtained.

To address this problem, a nationwide Integrated Roads Project is under preparation

to support an 8 to 10-year road stabilization program, to rehabilitate trunk and regional

roads and improve access to key agricultural areas. The project, which will be supported

bv IDA. AfDB, ILO and many bilateral donors, will largely benefit the poor rural

dwellers and farmers. Crop losses will be greatly reduced, and improved rural access

will gradually encourage traders and small-scale industries to establish themselves in the

hinterland. The outcome will be greater food security and a reduction in poverty

through closer integration of rural areas with the internal and exporl markets.

cannot be delayed until shortages emerge. The environment are factored into the design of

foundations need to be put in place now and investment programs. A special emphasis in

through the IDA9 period for the infrastructure Africa will be on the development of

which will be needed later in the 1990s. It is comprehensive energy strategies. IDA will

to be expected therefore that there will be also further its efforts to stimulate the supply

major capacity expansion projects started of infrastructural services through increased

during this period, even while existing capacity private sector involvement, especially in

is not yet fully utilized. Obviously there is a transport, telecommunications, water and

need to proceed cautiously so that the sanitation and urban services. This will mean

mistakes of the late 1970s and early 1980s are paying more attention to regulatory

not repeated. Investments will likely be frameworks than in the past, for example in

smaller-scale, more flexible and more carefully the telecommunications sector, where the lack

phased to permit adaptation to lower than of competition has led to an inflexible supply

expected growth in demand. unable to meet changing demand patterns.

2.18 In supporting the development of new 2.19 The very large investment needs of the

infrastructure, IDA is moving away from a infrastructure sectors mean that IDA will less

focus on individual projects. This approach is and less be the sole source of external finance

most evident in the urban sector (see Box 2.6), for projects. Rather, IDA will itself move

but is increasingly used in other sectors also. further toward sector investment lending and

Investment needs for water supply, for will also increasingly take on the role of

instance, are so large -- and the unserved are catalyst and coordinator of external financing.

so poor -- that all investments in the sector The large investment needs also mean,

need to be considered in the context of however, that countries will need to seek out

payment capacity of the users and the overall opportunities to use low cost technologies.

management of water resources. This Thus, IDA will support the accelerated

approach cuts across conventional sector development of cheaper fuel sources for power

boundaries including agriculture, industry, generation and low cost technologies for water

environmental protection, drinking water and and sanitation which can be maintained by

sanitation. In the energy sector, IDA is taking their users. Where efficient, IDA will

steps to ensure that linkages among power, continue to encourage the use of labor-

fossil fuels, forestry, rural development and the intensive construction and maintenance

'Box 2.'6: Investing in Urban Services - An Integrated Approach

Cities make vital contributions to economic gromth. About 60 percent of the GNPof the developing countries is produced in she urban areas. Even with continuedagricultural development, nearly 80 percent of GNP growth in the near future will comefrom the cities. Future economic grovwth is thus contingent on the smooth functioningof cities as complex networks of social and economic activities. The demand for urbanserices will accelerate in the future along wilth the pace of urbanization itself; 43percent of the developing world's population wiU live in urban areas by the year 2000,compared to only 31 percent today.

With limiled financial and human resources, financing and managing this increaseddemand through maintaining existing assets and creating new capacity requires a newapproach. Garbage collection or supplying water and electricity are not separate tasksbut part of managing a set of interrelated services. IDAs approach is changingaccordingly, away from financing traditional single subseclor operations (e.g. w,alersupply, sanitation, shelter, etc.) io more explicitly balancing the tradeoffs in investmentand operations/maintenance requirements between subsectors. IDA is already supportingthis new approach with the Nepal Municipal Development and the Sri Lanka UrbanDevelopment projects. These projects eslablish municipal or revolving funds io financehigh priority investment programs after an integraled technical, financial, economic andenvironmental appraisal. The upstream participation of subnational government levelsis cniical to the process.

methods in order to generate employment andalleviate poverty. 2.21 It is increasingly evident that

successful human resource development andE. Human Resource Development poverty reduction programs will require betterintegration of the needs and status of womeninto project and program design. Some2.20 The volume of IDAs efforts to limited progress has been made in includingsupport the development of human resources women in development issues in IDA'sis growing rapidly and its direction is analytical and lending work. More is neededchanging. Governments have increasingly and IDA is moving to extend its activities infound it difficult to maintain education and this area. Intensive work now under way inhealth programs in the face of weak service Kenya, India, Bangladesh and Pakistan shoulddelivery institutions, declining public sector lead to women in development strategies for4 resources and the consequent need to reduce these countries and to lessons which can alsoexpenditures. "The Evolving Role of IDA" be applied elsewhere. IDA will concentratediscussed the worrying tendency for women-oriented activities on credit andgovernments to reduce the quality of service extension for smallholder farmers, credit forthrough starving these education and health smallscale enterprises in the informal sector,services of the non-salary recurrent family planning, education (especiallyexpenditures for the schoolbooks, equipment, secondary education for women on which themedicines and transport needed to make returns are very high indeed) and as specialeffective use of teachers, doctors and nurses. targets of poverty alleviation efforts such asDeteriorating social indicators are thus a very food security in Africa. In addition, anreal possibility for the future unless service experimental project focusing specifically onquality is restored through more efficient women in development is planned for theallocation of resources and through Gambia. In general, however, IDA willinstitutional reform.

Figure 2.1: The Buildup of IDAPopulation, Health and

Nutrition Lending e/

FY84-88 FY89-93SDR 456M SDR 1238M b/

Population/Heal th

Health 277Meat1~72M

29

Population/Health

41M Population ipecial Programs

/ ~~~~~~~~~~~~~123M cf

Populatiorn .. Pooulatlon, d/

Health/Nutr,ton meaith & Nutrition

79M Nutrition 178M

74M

a/ The differentiation shown here represents Population. Health and Nutrition lending only

generally. For example, most health projects alsoinclude population and nutrition components.

b/ Specific amounts are subject to change depending on individual country circumstances and the size

of the IDAg replenishment. Dollar projections converted at $1.35/ SDR.

c/ Refers to AIDs, social development and poverty alleviation projects.

d/ Refers to lending which address a broad range of problems across sectors.

support women in development not through parallel with family planning and health care.

self-standing projects but through integration IDA's increasing attention to women's

into other lending; a good example is a project employment, education and health, in

in Nepal which will recruit women foresters conjunction with direct population activities,

and support the establishment of Women will therefore support borrowers' population

Forest Committees, capitalizing on their efforts. Financing issues will continue to be

spontaneous appearance during the the focus of most health lending, including

implementation of a prior project. especially attention to cost recovery (with

differentiated user charges to ensure access for

2.22 IDA lending for population and health the poor), insurance schemes, the provision

is projected to increase by over 250 percent in of services by NGOs, and the decentralization

the next five years as compared to its level of of public services to link as closely as possible

SDR 456 million in FY84-88 (see Figure 2.1). resource mobilization and allocation. Future

The major increase will be for population. As lending will extend these emphases in four

important as the volume of direct population areas. First, more attention will be paid to

operations, however, is the impact of other the overall health policy environment and to

measures on population growth. It is management issues in addition to finance.

becoming evident that the most effective Second, and closely linked, projects will adopt

combination of steps to reduce birth rates a narrower, more targeted focus with regard to

includes expanded income earning specific interventions but a wider focus with

opportunities and education for women, in regard to sectoral policy, finance and

management. Third, and also linked, an effort

Box 2.7: Improvilg Education in Bangladesh

An education project now under preparation consists of three componenis, all ofwhich botb address policy and provide Finance. The firsl deals witb access to primarvschooling, whicb is currently available lo only 60 percent of school-age children. and toonly 33 percent of girls. It includes the construction of ne% schools and classrooms, therenovation of older schools, the maintenance of school buildings, and the financing ofNGOs which provide primary schooling designed to reach the very poor and girls. Thesecond seeks to improve ihe quality of primary and secondary school education, tbroughleacber training and research. In addition, it focuses on improving texibooks andexaminations, and the curricula. The third strengthens institutional development,specifically the planning, management and monitoring of governmenl educationinstitutions, and reformulatec personnel policy with regard to the promotion, pay andbenefits of teachers.

The issues addressed in this project arose from IDAs extensive sector work inBangladesh. This work identified the most important issues for education there: thedevelopment of basic skills in the population, including literacy and vocational skills, andthe need to reduce wasle and improve quality in educalion. A Voc-alional REainingProject and a follow-up General Education Project, currently planned for IDA9, willensure the continuation of a cohesive strategy to meet these goals for education inBangladesh.

will be made to support both cost containment expenditures to protect and expand serviceand the reduction of the urban bias of most levels for the poorest group. This shift willhealth services. Fourth, regional priorities will involve financing not only time slices ofreceive more direct attention -- a health country's education investment programs, butstrategy for Africa is now under development. also greater financing of sectoral expenditureNutrition will receive increased attention. including recurrent costs (see Box 2.7). It willWhile nutrition, like population, will in also include the financing of educationgeneral continue to be treated within adjustment operations, especially in Africa,agricultural, food security and health where education policies are less appropriateoperations, free standing projects are emerging than in Asia. By 1992, IDA plans policy-basedin three areas: (a) "food-as-medicine' or education sector lending in about 25 Africantargeted direct feeding -- following a very countries. IDA is also supporting thesuccessful operation in the Indian state of development of training institutions toThmil Nadu; (b) food distribution, including increase the supply of specialized professionalthe efficiency of food marketing systems; and skills, including engineers, financial managers(c) micronutrient programs, reflecting recent and economists.research into the importance of iodine, vitaminA and iron on mental ability and general 2.24 Lending for training will increasinglyhealth.

be implemented through free-standing credits2.23 Major qualitative changes are to be rather than as components in investmentimplemented over the next five years in IDAs projects in all sectors; in Nepal, for instance,education lending. By the end of IDA9, sector a project to train engineers is being prepared.lending will be IDAs dominant mode of IDA is also attempting to establish aoperation in education, permitting a higher mechanism to develop a specialized cadre forvolume which will be essential if IDA is to economic management and analysis in Africa.support increased access to basic education. There are very few first class trainingThis sector lending will allow IDA to support institutions in Africa. IDA has embarked ongovernments in re-allocating their education

Box 2.8: Madagascares Environmental Action Plan

Concern for the environment in Madagascar has led to the formulation of an

environmental action plan (EAP) by the government, with the support of IDA, other

aid agencies, the World Wildlife Fund and other NGOs. The plan proposes five priority

programs to be carried out over a period of 15 to 20 years with the goal of reconciling

the population with the environment and thereby halting environmental degradation.

Interventions designed to protect and manage the environment while developing tourism

are the first priority; without these, Madagascar's forests -- which once covered most of

its land area -- will disappear in 30 years. Secondly, a National Environmental Fund

uill be created to provide a restricted source of financing for projects in local

communities. Third, mapping and land management will be improved. Fourth,

environmental education, training, and sensitization programs will be introduced in

schools, universities, and implementing agencies for the EAP. Fifth, an EAP support

program will be set up to establish new and reinforce existing environmental institutions,

to develop environmental studies and research, and to strengthen databases. IDA's first

free-standing environmental credit is expected to result from the plan. In addition,

beneeits will go beyond the environment. For instance, the EAP will create jobs

through the development of tourism and expected improvements in agricultural

production.

a dialogue with African governments and 2.26 Environmental issues and priorities

institutions, donors, private foundations and vary considerably by region. In Asia the

other interested parties to see how this gap dominant issues are deforestation, land

might be filled, very probably on a regional degradation, and urban and industrial

basis. pollution. Deforestation problems have been

identified in India, the Solomon Islands, Sri

F. The Environment Lanka, Laos, Nepal, and China and remedial

programs and projects are being prepared. A

2.25 IDA's environmental activities are new approach to Asian urban and industrial

increasing rapidly, following the reorganization pollution is also under development.

of the World Bank in FY88 and the major Although most urban projects already contain

expansio n of e nvironmen thal stafof some components to handle domestic and

Environmental Action Plans have been municipal waste, and most industry projects

completed for Lesotho and Madagascar (see have an industrial pollution component, the

Box 2.8) and are under preparation for Capital Cities Clean-Up project will address

Burkina Faso, Ghana, Nepal and Rwanda. these concerns simultaneously in cities with

Still more are envisioned for the IDA9 period, over 10 million inhabitants through research,

mostly in the tropical areas of Africa. These analysis, policy recommendations, and

plans identify to governments areas for policy investment. This project is intended to lead

change and institution building and also to the identification and financing of a

specific investments that could benefit the substantial program to arrest the deterioration

environment; they also identify potential areas in the urban environment. Preliminary

for supportive IDA lending. The instittiaonal discussions have been held in China and India

forectspof natural resource management are for the proposed three year program that

aspects o aua eoremngmn r could include Beijing, Shanghai, Bombay,

increasingly being emphasized as it becomes culd Delhi and Shanghe Bombay,

clear that most environmental institutions are Calcutta, Delhi and Madras. The program will

weak. likely have substantial lending implicationsfor IDA during the IDA9 commitment period.

Box 2.9: IDA's Expanding Support for ForestryDeforestation is a dominant environmental issue in both African and Asian IDA-recipient countries. The underlying causes vary between country or region, but are usuallydue to increasing limber exports to industrialized countries, or a rising population whichincreases the demand for fuelwood and limber, and forces more land, however marginal.into agricultural production. In general, widespread poverty places subslanlial pressure onforests to provide a livelihood. In Asia, the Terai region in Nepal, and Sri Lanka havethe highest rates of deforestation averaging annually 4 and 2 percent respectively. InAfrica, deforestation is occurring most rapidly in Madagascar and Nigeria where forests aredeclining at a rate of 3 to 5 percent annually. Forests in these countries are likely todisappear in the nexi two lo three decades without efficient management and new planting.IDA plans to double its lending for forestry to SDR 700 million in FYSS-92.

In Africa, priority will be given to supporting the rehabilitation of foresiryadministrations, agro-foresirv interventions, sustained management of natural tropicalrainforests for productive purposes and preservation of foresiry ecosysiems. fuelwoodprovision and incorporating household energy/fuelwood components into energy projects.In the Sahel and Ethiopia a land conservation and management approach thal incorporales*forestry, soil and water conservalion and animal husbandry will be designed to susiainoverall agricultural productivity.

In Asia, IDA will support the rationalization of forestry policies in tropical timberexporiing countries, the establishment of complemeniary indusirial planiations and naturereserves, the strengthening of foresiry adminisirations, inifiatikes to find better ways tomanage public, commercial and privae forests/wastelands, and the development ofcommercial forestry on a large scale to achieve self-sufficienc in wood products.

2.27 In Africa, deforestation and 2.28 As deforestation is so important, IDAdesertification are the most important is stepping up its forestry lending (seeenvironmental problems, largely the result of Box 2.9). This is the most visible element inthe use of traditional agricultural methods on IDAs expanded environmental lending but notever more marginal land under the pressure of the most typical. Most significant is thea rapidly growing population. Thus, slowing manner in which the management of naturalof population growth and modernization of resources is increasingly a routine componentagriculture are key to their resolution. In of lending for agriculture, industry andaddition, programs to protect and manage the infrastructure. In addition, IDA is alsoremaining natural forests through institution beginning to develop free-standingbuilding, equipment provision, forest environmental lending as in Madagascar.demarcation, land tenure, and development Other projects under consideration include aninterventions in the buffer zones surrounding environmental rehabilitation project for anforests are likely to expand substantially in the industrial zone in India and a project tonext decade, and to be increasingly linked to combat urban and industrial pollution inpolicy changes. Already, projects to redress China.deforestation are being developed in Guinea,Benin, 'Ibgo, Madagascar, Sudan, Ghana andZaire. Land management and conservationprojects to combat desertification and improvethe productivity of drylands farming areas areunder preparation in Burkina Faso, Mali,Somalia, Ethiopia, and Lesotho.

...... .... - ' -'.-' . -- - . -... -.- --.- -:: -.-' -'. '.-- .... .. .-..-.... ........... '.. ............ ..........

lble 2.1: Sectoral Allocations In IDA8 and [DA9

(Cenim sham)

-''-'"" '- ...... ~........................ . ...... ....... ....... .. .'"'-'-.-'-':''.

.. ...... :- .' :. '. .: ':: ': .. :, ... .,: :,: . ...:: .- :-::: : : : , .... . :-: : :: . ' ..:

Agriculture and Industry 40 41

Infrastructure 26 22

(Energy, Power, Telecommunications,Transport, Urban)

Human Resource-Related 15 21

~~~~~~~~~. .. . .. ........... .... ... W. .j...... ... .. .. ........................

(Education, PopuLation, HeaLth,

Nutrition, Water SuppLy, Sanitation)

~~~~~~~~~~~.... . . .. . . . . .. . .. . --. . . . -. .-..:--.--- --. -. ... ...--. --.

Econoary-w,iide 19 16

(Structural Adjustment, Technical

Assistance)

G. IDA9 Allocations by Sectors good example is IDAs support for road

and Instruments maintenance in Africa.2.31 At the time of writing this paper,

2.29 IDA allocations by sector derive from detailed programs are only available for the

four factors. The first is the analysis carried first two years of IDA9 (FY91 and 92). The

fout ofacontors. neds in the Bana cGroup's comparison of the sectoral breakdown of these

out of country needs in the BanklGroupfs programs with the IDA8 period supports the

economic and sector work. In Malawi, for view that for the most part the significant

example, this work indicated that agricultural shifts are taking place within sectors, in the

credit was available to large smallholders and content and focus of program and project

estates, but largely excluded the smallest design, rather than between sectors. The Bank

farmers. IDA then structured its lending to Group is now present in most sectors in most

fill this gap. Second, programs incorporate active borrowing countries. The form this

the results of the dialogue with governments presence takes varies. In the very smallest

on priorities. By showing that well-designed IDA borrowers this may be reflected in multi-

interventions for poverty reduction and sectoral operations or by grafting elements of

environmental improvement yield high returns, other sector programs onto an agricultural

IDA has influenced governments to internalize sector credit for example. In large countries

and replicate these programs. most sectors will be represented by operations

at frequent intervals.

2.30 Third, programs are geared to IDAs

leadership in the design and funding of the 2.32 In one respect, however, the sectoral

overall development program through its comparison between IDA8 and IDA9 is

chairing of aid groups. Thus, IDA steers its important. As indicated earlier, there is

own resources into activities which evidence of a shift towards human resource

complement those of other donors. IDA related activities. This is likely to be achieved

usually takes the lead in issues which are of by reallocating funds out of the infrastructure

special political sensitivity such as adjustment sectors and economy-wide activities. This

programs and social sector policies, and limits shift, shown in Table 2.1, is present in both

its involvement in areas where there is strong the Africa and Asia programs.

donor support and lesser policy implications,

such as in telecommunications. Fourth, parts 2.33 With one important exception, lending

of IDA programs rest on the need for long- instruments are not the subject of allocation,

term continuity in institution-building. A

but rather reflect decisions on how to achieve As a consequence, the IDA8 Deputiesobjectives. In the 1970s, ceilings were set on recommended that adjustment lending notthe share of non-project lending in order to exceed 24 to 30 percent of the total.protect the investment-project financing

character of the Bank Group. With the 2.34 The balance between adjustmentincreasing prominence of adjustment lending lending and investment lending is not expectedin the 1980s, there has been similar concern to change during the IDA9 period. Smallto ensure that quick-disbursing balance of declines in the share of adjustment lending inpayments support should complement the Africa are expected to be offset by smallBank Group's investment financing, not increases in Asia. The overall share of bothsupplant it. For IBRD, the ceiling is set by structural and sectoral adjustment lending isreference to portfolio and capital availability expected to be maintained at around 25considerations; for IDA, by the implications percent.for the encashment of donor contributions.

III. COUNTRY AND REGIONAL ALLOCATIONS

A. IDA's Allocation Criteria consideration in IDA allocations than in the

past.

3.1 IDA commitments are allocated for

individual country programs, on the basis of 3.4 Performance has become particularly

country size, per capita income, performance important in IDA allocations with the increase

and creditworthiness. Changes in country in support for adjustment programs. The

status vis-a-vis these criteria lead to changes performance criterion is now applied through

in allocations. a consideration of four separate elements:

macroeconomic management; long-term

3.2 Country size is an important management including institutional

determinant of IDA allocations. For much of development, incentive frameworks, natural

IDA's history there has been a ceiling on the and human resource management, etc.; poverty

share of the largest recipients. There has been alleviation policies and programs; and the

concern that the two, three or four largest willingness and capacity of the government to

borrowers could preempt so much of IDAs undertake a policy dialogue with IDA and

resources as to lessen its global character. other agencies on these issues. The adoption

This group has at various times included of an adjustment program requires progress in

Bangladesh, China, India, Indonesia, and all four of these areas and at the same time

Pakistan. The IDA8 Deputies recommended the success of the program depends in large

that a ceiling of 30 percent of the total part on adequate financing. This has

replenishment resources be placed on the motivated the very substantial premium which

allocation for the two largest borrowers, India is attached to adjustment in IDA's current

and China. This continued the past practice allocations.

of low per capita allocations to these

countries. At the other end of the scale is the 3.5 Performance also relates to the ability

"small country bias," i.e. in smaller countries of a country to make efficient use of IDA

a relatively large program is needed for resources -- its absorptive capacity. In a

continuity of IDA involvement in key sectors. number of countries IDAs programs are

constrained by institutional and administrative

3.3 Per capita income dominates the weaknesses. In others, programs are larger

determination of country eligibility for IDA. because of the availability of high return

The eligibility ceiling was set at a per capita projects and the capacity to implement them.

income of $250 in the early 1960s, which

translates into $940 in 1987. In the late 1970s, 3.6 Creditworthiness determines the

however, constrained IDA availabilities meant relative shares of IBRD and IDA in overall

that the poorest countries could not be country programs for those IDA-eligible

adequately funded if all countries below the countries also able to borrow from IBRD.

ceiling were to receive IDA resources. In IDA's policy statements define

addition, countries in the lower-middle income creditworthiness as the ability to service new

group (between $580 and $940 in 1987) were external debt at market interest rates over the

able to obtain commercial funding in the late long-term. Conversely, a lack of

1970s and early 1980s. For this reason IDAs creditworthiness implies a need for

management has used an informal 'operational concessional resources as part of a sustainable

cut-offW of $580 in 1987 for allocating IDA. financing package for a country's development

With the group of IDA recipients thus limited program. As far as the countries with per

to a group of very poor countries, relative capita incomes between the $940 formal

poverty within this group has become a lesser eligibility ceiling and the $580 operational cut-

off are concerned, the paper on IDA eligibility

discusses their worsening creditworthiness permitted the Association to maintain a7 during the 1980s.

balanced program in that quick-disbursingloans have supplemented rather than displaced3.7 The application of these criteria is a traditional investment lending.matter of judgement. While calculations areprepared as a basis for comparison, the 3.10 As Table 3.1 shows, IDA commitmentsallocation decisions are not, and cannot be, to 21 countries in Africa (up from 8 four yearsmechanical. The application of the criteria in ago) which are undertaking adjustment are

the IDA8 and IDA9 periods is discussed roughly double on a per capita basis thanbelow. those of comparable size not yet doing so. Anumber of other countries need to undertakeB. Country Program Allocations adjustment and will require substantial supportin IDA8 and IDA9 if they do so. Africa's resource needs duringthe IDA9 period are thus closely linked to theprospects for sustaining current adjustment3.8 . IDA8 commitments during FY88-90 programs and for starting or resumingare expected to total SDR 11.7 billion. Of programs in other countries. There are

this, SDR 10.6 billion represents donor reasons to be optimistic about the capacity ofresources and SDR 1.1 billion is commitments the current adjusters to sustain their programs.against reflows from IDA recipients. The These include the scale of financing nowallocation of these commitments by region, available and the evident improvements incountry, sector and lending instrument is performance in a number of countries withshown in Figure 3.1. Allocations in IDA8 advanced adjustment programs relative toreflect the situation of the universe of IDA those which have either not started or are atrecipients in relation to the criteria outlined an early stage.above and the guidance of the IDA8 Deputiesthat 45-50 percent of donor resources should 3.11 But there is another side of the coin.be allocated to sub-Saharan Africa. Changes A rapid supply response in Africa can resultin the IDA9 period will largely reflect changes from the initial adjustment measures.with regard to the performance and Agricultural producers using existingcreditworthiness criteria. It is convenient to technologies have responded quickly to pricelook at changes with respect to these criteria incentives, as evidenced in Ghana and Togo,in three broad categories of countries: for example. The next phase of adjustmentsub-Saharan Africa; the Asian IBRD/IDA may well be more difficult, because it relies on

blend countries (China, India and Pakistan); new technologies, the upgrading ofand other recipients.

institutional and infrastructure capacity, anda better trained workforce. For a number ofAdjustment in Africa

adjusting countries, IDA will need to maintaina substantial level of activities but to shift the3.9 IDA8's focus in Africa is to support composition of these at the margin out ofadjustment efforts. This has been achieved by quick-disbursing credits into sector and projectconcentrating IDAs resources on the adjusting programs which promote the second stagecountries and by marshalling donor supply response which these countries willcofinancing through the Special Program for need in order to continue to grow.Assistance. IDA has substantially reallocatedits funding to help governments to finance the 3.12 For countries whose adjustmenttransition costs of economic restructuring. programs are in mid-course the current mix ofIDA's capacity, in concert with the IMF, the activities continues to be appropriate.European and African Development Funds and Occasional back-tracking will occur -- thethe donor community, to provide timely and program in Zaire, for instance, hasadequate funding of adjustment programs has encountered implementation difficulties -- butbeen a major factor in supporting African many of these governments have already paidgovernments. IDAs enhanced support for the political price involved in correcting someadjustment has provided a basis for meaningful of the major distortions and reducing thelinkage of donor cofinancing. It has also economic rents associated with them. Unless

Figure 3.1:Projected IDA8 Allocations

(SDR 11.7 Billion)

By Region By Country

A2t10 47%

Uric O7t

Chl^- 1^-~~~01 32

LO.In -tttO 04

to. C-bb-0 2%

AMS 47%

T.-.n. as Oh...

By Sector By Lending Instrument

AR4l u_tr* *7 3_32 tfqW -ntft 12%

Ed5 C010n X IQO Dc_ .6cont 32%

uet. B.4 I i ct,. c 11%

94 1 6 0,

Otat t

no~ ~ ~ ~ ~ ~ ~ ~ ~~~~~Cll. A*SI*tStto 2%

fi;lAil

l8l ..

I%

nd 3

c dun -2

rm.GM."h AsV.t..t 2%

EW.t-019.P, lf>Zsutowi~~~~~~~~~~~~~~~~~~~~~~~~'FSnrX*U.4 .Ga..s_

1~~~~~~~~~~0111~~~~~~~~~~~~~~~~~ as o'u°1ct 1

Tbble 3.1: IDA Allocalions ror Africa /(IDA8, annual average)

Population SDRs per Capita

Under 2 miitUo-iAdjusting countries

12.0Other countries 7.1

2 million to 9.9 million-Adjusting countries

9.tOther countries 3.9

10 million to 50 millionAdjusting countries

6.9Other countries 3.1

W/ Excludes Nigeria.

there are major external shocks in the formof commodity price changes, there is every 3.15 It is important to note again thereason to expect that adjustment programs in distinction between adjustment lending andthese countries will be able to be sustained so IDA's support for adjustment programs.long as the current level of real resource flows Quick-disbursing lending for African adjustingfor this group is continued. countries is expected to account for up to 40percent of total IDA8 lending for Africa. The3.13 The major uncertainty for both IDA level for IDA9 will depend on the factors citedand the donor community arises in countries above, with a relative decline in the firstwhich need to adjust but are not doing so. It category of countries being potentially offsetis difficult to predict how many will begin by the possibility that new countries will comeadjustment programs before the end of the into adjustment. In all these countriesIDA9 period. They include some of the however, it would be appropriate for IDA tolargest countries in Africa (Ethiopia and the maintain the program directions discussed inSudan--which also has substantial arrears to Section II, and in particular increase itsthe IMF) and some countries which will need support for sustainable development programsdebt workout programs, including the in the areas of human resources and thesettlement of arrears to the IMF, IBRD and environment.IDA (Liberia, Sierra Leone and Zambia).3.16 TWo other important changes from3.14 Given their size, the key determinants IDA8 should be mentioned. The first is theof additional IDA9 needs to support additional requirements of Nigeria. This is aadjustment in Africa will be the prospects in matter of both potentially improvedEthiopia, Sudan and Zambia. If these and performance and its deterioratingother countries were to adopt adjustment creditworthiness. Nigeria resumed IDAprograms and if these programs were to be borrowing in FY89, when a devaluation of thefunded on the same basis as countries of naira on top of declining oil revenues and thecomparable size, the aggregate increase in destruction of its other exporting sectorsresources needed for this purpose in the IDA9 brought its GNP per capita well below IDAsperiod would be about SDR 1 billion in IDA8 operational cut-off. The IDA8 allocation ofterms.'I This includes also the expected new SDR 150 million is not commensurate withprogram for Angola.

Nigeria's size and comparable IBRD/IDA1/ i.e. without making any allowance for price increases from the IDAB tothe IDA9 period.

blend lending to large Asian countries for two countries. Second, the share of IDA funding

reasons. First, Nigeria was not factored into within the total program needs to be

the eighth replenishment and a substantial determined.

allocation would have been at the expense of

other programs. Second, there was concern 3.19 There are a number of reasons why a

about Nigeria's relatively poor track record part of the programs of China, India, Nigeria

since the oil boom and a consensus that it (discussed earlier) and Pakistan is funded

should reestablish its credentials in the course through IDA. First, their low average income

of IDA8. If it does, an IDA9 allocation per capita establishes a case for providing an

consistent with other IBRD/IDA blend additional implicit resource transfer through

countries would be about SDR 650 million in IDA's large grant element to assist in more

IDA8 terms and would provide the basis for rapid growth. Second, huge numbers of their

comprehensive Bank Group support for the populations continue to live in absolute

reform program and for infrastructure and poverty. Rapid growth is required for effective

human capital development. IDA9 projects poverty reduction. Third, targeted

are planned for agriculture, health, population, interventions to reduce poverty need to be

education, and rural infrastructure. A second designed and carried out, and governments are

important new source of demand for IDA understandably reluctant to borrow on

resources is Angola, with a per capita income commercial terms to finance these projects for

of about $400, it is expected to become a the environment and the social sectors when

member of the Association and to join the the time-frame for recovering the benefits may

group of recipient countries during the IDA9 be well after the timing of servicing the debts

period. 2 incurred. Fourth, the level of borrowing

needed in these countries to accelerate or

3.17 The needs of Angola, the new maintain growth could cause problems of

adjusting countries and the addition to the maintaining orderly debt servicing over the

Nigeria program would represent a demand on longer term if it were entirely on commercial

IDA resources of approximately SDR 1.5 terms. Fifth, the scale of IBRD funding which

billion in IDA8 terms. If the total allocation would be implied by the desired program level

for Africa were to remain unchanged at the would imply inappropriate levels of exposure

IDA8 level, this would imply a reduction in for the Bank and limit its capacity to continue

the average annual per capita allocation for to provide adequate support down the line.

other adjusting countries in Africa from SDR

7.6 to 5.0. 3.20 These considerations do not lead to a

very precise judgement about the appropriate

Economic Reform and Poverty Reduction in the blend of IDA/IBRD in country programs

Asian IBRD/IDA Blend Countries during the IDA9 period. A broad assessment

is needed as to whether the current blend is

3.18 IDAs focus in the IBRD/IDA blend consistent with the long-term role which the

countries will be to support programs of Bank Group can and should play in each

economic reform and poverty reduction. country.

There are five countries with per capita

income levels below IDAs operational cut-off, 3.21 In China, the reform effort, having

which are judged creditworthy to receive all completed a very successful first phase, now

(Indonesia) or part (China, India, Nigeria and faces a difficult set of "second generation"

Pakistan) of their Bank Group funding on issues and problems. Now that so many areas

IBRD terms at present. In principle the of economic decision-making have been

allocation process for these countries has two decentralized, China must work on developing

stages. First a decision needs to be made on the set of instruments and incentive signals

the size of the Bank Group program in these necessary to ensure that macroeconomic

countries, based on the overall resource needs, balance is combined with efficient micro-level

creditworthiness for IBRD borrowing and the decisions. The fragility of the reform and its

scale of Bank Group funding needed for vulnerability to inflation and loss of control

programs and projects to assist reform and over the economy -- which could trigger a

poverty reduction efforts in these large reaction among anti-reform elements -- are

2I Namibia, also expected to join the World Bank Group, is likely to

exceed the IDA per capita income eligibility ceiling.

Box 3.1: Bank Group Support ror PoXerty Alle0iation in IndiaThe Bank Groups most comprehensive effort to support poverty alleviation is now

underway in India - which has a per capita income under USS3(60 and 330 millionpeople (41 percent of the iotal population) living in absolute poverty. Despite sustainedeconomic growth, the proportion of ihe population in absolute poverry has not declinedand their total number has thus increased.

The Bank's program now has two major poverty allevialion emphases. First, the Bankis continuing e.xsting efforts to support growth and efficiency, but strengthening themto include a narrower targeting oe food and other subsidies and the reallocation ofpublic sector resources to provide easier access to nutrition, health. family planning, andeducation services, particularly for women. Such intermentions are now routinelyanalyzed as part of project preparation and are incorporated wherever appropriale.Second, over 25 percent of future Bank Group lending will be for projecis and majorproject components to benefit the poor direcily. This lending will include support forthe better delivery of social and infrastructure services to the poor. e.g. the Rural Waterand Sanitation (FY91), Second State Roads (FY92), and Third Nutrition (FY93)projects. It will also include increased support for area development in India's poorerregions, e.g. the Agricultural Extension Development (F'91), Second National WaterNianagement (F'92), and lMadhva Pradesh Composite Irrigation (FY93) projects. Inaddition, free standing poverty alle0ialion projects, based on the provision of assets tothe poor, are under preparation for the first time. The First Poverty Allevialion Project,scheduled for FY91, may he acceleraied if ongoing anal)tical work advances adequately,and will be followed by a second project scheduled for FY92.

increasingly apparent. Yet there is ample Bank Group activities during the IDA9 period.room for optimism in the pragmatism of The first will be institutional change, includingChina's leadership and the momentum of the the separation of economic and administrativereform. In these circumstances the continued functions and the further decentralization ofsupport of the international community decision-making throughout the economy. Theremains essential. With it, there is every second will be financial sector reform,prospect of China graduating from IDA within centering on the development of financiala decade or so.

institutions. The third will be improvementsin the planning and analysis of investment3.22 The Bank Group's assistance, including projects critical to reform in agriculture,IDA8 lending of about SDR 1.7 billion, is industry and infrastructure. The fourth will besimilarly moving into a second phase. Until continued support to alleviate poverty,now, it has concentrated on activities at the especially in the poorest regions. Finally,project level, providing a transfer of pricing policy and the development of indirectknowledge and technology through the levers of macroeconomic management, such asdiscipline of project analysis, preparation and monetary and fiscal policies, are fast becomingimplementation. In the process the Bank has priorities.built up a detailed understanding of theChinese system which is enabling it to play a 3.23 In the case of India the picture is

broader role in assisting the government in much more mixed. India has recently brokenaddressing such issues as poverty alleviation, free of the straitjacket of low rates of growthenvironmental protection, enterprise reforms, of the past thirty years, which did not permitregional disparities and economic integration. any significant reduction in the numbers of theThis role may well require the Bank Group to poor. Yet it is too early to say that aincrease its involvement at the sector level. sustainable higher growth plateau has beenFive areas have been defined for the focus of reached. The higher growth rate has been

ibble 3.2: India: Debt Indicators(Percent)

1980/81 1985/86 1987/88

Total debt service ratio 8 21 28

IBRD's share in debt service 12 10 15

IBRD's share in total DOD 5 6 11

bought at the cost of worsening debt indicators Given the need for the Bank Group to sustain

and the necessary liberalization of the its overall involvement in India both in terms

economy remains partial and tentative. of net resource flows and because of the need

for continuity at the sector and project levels,

3.24 The core of the Bank Group's support the shortfall in IDA lending has been

for India in the IDA9 period will have three compensated by increased IBRD lending and

elements. First, lending for sustainable a consequent expansion of India's share in the

development, including a free-standing IBRD portfolio. The per capita IDA allocation

environmental rehabilitation project, and to India has declined sharply in real terms. In

direct poverty alleviation -- see Box 3.1. IDA8 SDRs, India's per capita allocation has

Second, enhanced support for continued fallen from SDR 2.2 in IDA5 to SDR 0.8.

private sector development and policy reform The result has been a continuous hardening of

for industry, trade, energy and finance through the average terms of Bank Group lending from

a variety of vehicles including sector a grant element of 61 percent in 1978 to 28

investment programs, project lending, financial percent in 1988 as the share of IDA in total

intermediaries and, where appropriate, through Bank Group lending has declined from 83

quick-disbursing adjustment loans or percent in IDA5 to 29 percent in IDA8.

components. Third, continued investment

lending, with particular attention to the 3.26 India has had increasing recourse to

efficiency of investments, capacity-building, non-concessional borrowing to finance its

and modernization -- and including important development needs. Table 3.2 shows India's

new initiatives such as industrial energy increasing overall debt service burden, within

conservation and watershed management. which the IBRD share is rising rapidly.

3.25 The dilemma facing the Bank Group 3.27 'lb help India alleviate poverty and

in India is between the need for a substantial build up the savings needed to service future

program to support investment to improve debt, there is a strong case for increased

efficiency, private sector development and concessional funding, including from IDA, in

poverty reduction, and the serious risk of such the next several years. The IDA8 lending

a program on the basis of the current average program for India is SDR 1.9 billion. This

lending terms. Many of these investments will represents an average blend of one dollar of

not yield results in a short time frame. In IDA to every $2.40 of IBRD, with an average

particular some of the programs for poverty interest rate of 5.65 percent and a grant

alleviation, human resource development and equivalent of 31 percent. While the case for

safeguarding natural resources, despite having an additional SDR 1 billion allocation to India

high economic returns, will not generate the during the IDA9 period appears to be strong,

financial resources (both foreign and domestic) the implication would be a major reallocation

to service debt incurred to finance them. of resources away from other IDA recipients.

Box 3.2: Indonesia Compared to Nigeria and IndiaIndonesia is not currenily borrowing from IDA but can readily be compared to twoLBRD/IDA blend borrowers, India and Nigeria. All three have a per capita incomebelow the operational cutoff for IDA eligibility. However, Indonesia, which hasmaintained good economic management in the face of an adverse exiernalenvironment, has remained fully creditworthy for borrowing on nonconcessionalterms. The debt indicators of both India and Nigeria have declined, and theytherefore require a blend of [BRD and IDA resources to soften the terms of theirborrowing.

SELECTED INDICATORS C1987)

Per Population Population Manufactured Oil DebtCapita Growth in Absolute Exports/ Exports/ Exports/ Service/Income Population Rate Poverty GDP Exports Exports Exports(USS) (millions) (X) CX) (X) (X} M) (X)

Nigeria 370 107 3.4 32 . 91 10 /India 300 797 2Z.2 41 7 67 22Indonesia 450 170 2.2 33 26 25 48 33

a/ After rescheduling.

Like Nigeria and India, however, Indonesia has a rapidly growing population, muchof which lives in poverty. Indonesia is more vulnerable to changes in the externalenvironment than India which relies less on exports, and has a much broader exportbase. Manufacturing exports are 67 percent of India's exports versus only 25 percentof Indonesia's. Indonesia, like Nigeria is sensitive to external changes particularly theprice of oil. Both suffered following the 1986 crash in oil prices. Indonesia, however,successfull)' expanded its non-oil sector while Nigeria did not. Indonesia's challenge,then, is to further diversify its export base, while bringing more and more of the poorinto the mainstream of the development process. ILs debt service burden, much higherthan both Nigeria and India at 33 percent of exports in 1987, imposed by the hard termsat which it is borrowving makles it even more vulnerable to exiernal or internal imbalancewhile it is achieving this goal. An increase in concessional finance could improve thechances of success.

than those of the last decade. Public3.28 The government of Pakistan's policy investment will need to be complemented byagenda is to sustain growth through growing private sector investment, as theadjustment. Pakistan requires a new cycle of private sector assumes a larger role ininvestment -- both physical and human -- to economic growth. The key elements of thesupport long term development. Future agenda are reducing the budget deficit,growth will not be sustainable without strengthening the external account, improvingsignificantly higher levels of gross investment

public resource allocation, and implementing group of countries was restricted to 20-25

structural reforms. percent as a result of pre-allocations to

sub-Saharan Africa, China and India (see

3.29 The Bank Group will undertake an Box 3.3). Progress in the other recipient

extensive program at the sector and project countries has been mixed. Bolivia's

level to support these objectives. Continued adjustment is well-advanced. Laos is

policy-based sector adjustment lending will undertaking a dramatic program of reform.

focus on financial market and trade Bangladesh, Sri Lanka, and Nepal have made

liberalization and on reducing administrative some progress with their structural adjustment

controls, improving operational efficiency in programs; other potential recipients,

transport and energy, and increasing the Afghanistan, Kampuchea and Vietnam, have

involvement of the private sector in not yet mounted viable development programs.

agriculture, industry and energy. Direct It is of course difficult to predict to what

project lending will focus on poverty extent these countries will be claimants for

alleviation, human resource development and new or expanded funding in the context of

the elimination of infrastructure bottlenecks. IDA9.

Because of constraints on IDA resources the

share of IBRD in the Pakistan program has 3.32 During this period, political unrest and

risen from 43 percent in FY82, the first year natural disasters have had a devastating effect

of IBRD borrowing, to 59 percent in FY88. on the economies of Bangladesh and Sri

This is happening at the same time as Lanka. Floods and political unrest have taxed

Pakistan's overall debt service ratio has risen the resources of Bangladesh, already hard-

from 18 percent in 1982 to 28 percent in 1988. pressed to cope with development problems

As with India, there is a strong case for an that are acute by any standard, from high

additional IDA allocation for Pakistan. levels of extreme poverty, to the complex

environmental issues posed by annual flooding

3.30 Despite its relatively low per capita and to the need to accelerate agricultural and

income of $450, Indonesia (170 million industrial growth. Bangladesh is addressing

people) has been sufficiently creditworthy not these long-term development problems

to borrow from IDA; it is, of course, one of through efforts to increase food grain

the IBRD's largest borrowers, currently production, exploit its natural gas resources,

accounting for 8.5 percent of the IBRD and expand exports from the promising

portfolio. On many measures, however, beginnings registered in textiles and fisheries.

Indonesia is comparable to India and Nigeria Prudent macroeconomic management provides

(see Box 3.2). On balance the judgement that a good basis for future progress, both in terms

Indonesia is sufficiently creditworthy not to of investments and continuing structural

qualify for IDA is a difficult one to sustain reforms.

(and is not consistent with the practice of the

Asian Development Fund from which 3.33 Given its large population living in

Indonesia receives soft money). At present, extreme poverty and its stable economic policy

the level of IDA funding which Indonesia without major market distortions, Bangladesh

would require for a program which is more could utilize larger IDA resources very

than tokenism (SDR 1 billion) over the IDA9 productively. Sectoral adjustment lending

period is difficult to justify on the basis of could account for up to 40 percent of IDA

reallocations from existing programs which are lending especially to support industrial policy

already stretched thin. changes, to encourage private sector initiatives

and to continue policy reforms in agriculture

and energy. Large resources are also needed

Challenges in Other IDA recipient countries to support investments in agriculture, energy

and transport. Lending to assist the poor will

3.31 During much of the IDA8 period, aim at rural employment creation, family

programs for IDA-only countries in Asia, the planning, health, water supply and education.

Middle East and Latin America have been IDA could also be called upon to play a more

allocated relatively small amounts of resources. active role in still nascent efforts to develop

This was because the share of IDA of this a coordinated approach to flood control. As

in Africa, the achievement of an enlarged cannot yet be developed. All three wo4ld veryprogram in Bangladesh will require expanded likely include advice on policy reform, thoughtechnical assistance to build implementation probably not adjustment lending; quickcapacity at the sector and project level. disbursing program lending to finance importsfor reconstruction; and investment lending to3.34 Sri Lanka appears to be emerging from rebuild infrastructure, especially in rural areas.a protracted period of civil conflict of In Afghanistan, lending could also support thewidespread insecurity. When normalcy is resettlement of returning refugees. In additionestablished, Sri Lanka will require much larger to these Asian countries, significant IDAexternal resources than has been the case in resources could also be needed if Guyana andthe last few years, for economic reconstruction, Haiti adopt adjustment programs.growth and poverty alleviation. IDA would

support both adjustment and investment. 3.37 The potential funding requirements ofAdjustment lending would include both the these countries are considerable. Increasedrestructuring of the public sector and allocations to Bangladesh, Sri Lanka andagricultural policy reform. Agricultural Nepal could require SDR 500 million;lending will also address infrastructure increasing the Burma program and establishingbottlenecks and institutional development in fairly modest programs for Vietnam,areas such as forestry, extension, credit and Kampuchea and Afghanistan (and also Guyanairrigation, while the key area of manufactured and Haiti) could result in an increase of SDRexports development will be supported through 1.0 billion in IDA8 terms. The total IDA8industrial credit and export promotion. allocation for countries other than Africa,India and China is SDR 2.6 billion. 'Ib3.35 The adjustment program in Nepal has reallocate SDR 1.5 billion within this amountbegun to yield results in terms of growth and does not appear feasible, so that if resourcesexport expansion and further operations are are needed for new programs among theneeded to support it. Several credits are also countries in this group, they will have to beexpected to support the development of the funded as part of the total allocation process.enormous hydropower potential, Nepal's most

promising long-term export prospects. Otherproject lending will concentrate on agriculture,the environment and human resourcedevelopment. Programs in Bolivia, Laos and C. The Implications for Regionalother small countries will continue to require Allocationsstrong support from IDA.

3.38 IDA8 introduced, for the first time, a3.36 Similar developments are possible, floor on the allocation to a particular region.though far from certain, for other countries As noted, the Deputies earmarked 45-50that have either borrowed very little or not percent of donor-funded commitments forborrowed at all from IDA in recent years and Africa. Given the ceiling of 30 percent onwhich were not factored into the size of the India and China, by implication therefore, theIDA8 replenishment. Burma is a large substantial group of all other borrowers wascountry which can and should undertake allocated the residual 20-25 percent. IDAsprograms of economic reform and adjustment. Board subsequently decided to allocateIf it does, IDA would be expected to be a commitments against reflows in a mannermajor participant in these programs. While it broadly consistent with these guidelines,is difficult to predict the speed of though not necessarily in identical fashion, sorapprochement between Vietnam and the that IDAs management would have theinternational community, there are indications flexibility to respond to special needs such asthat the economic dialogue is reaching a new the recent floods in Bangladesh. The aboveand more productive phase, which would discussion identified a number of additionalsignificantly increase the possibility of lending claims on IDA resources which are likely tobeing resumed during IDA9. There are also arise during the IDA9 period. The funding ofpossibilities of resumed lending to Kampuchea these claims will have implications for theand Afghanistan. Programs for these countries regional allocation of funds in IDA9.

Box 33: A Comparison or IDA Lending to Africa and

to Other IDA Recipients Excluding China and India

ln 1975, each person in low income Africa received on average $0.95 for every dollar

of official development assistance received per person in Bangladesh, Bhutan, Burma,

Laos, Maldives, Nepal, Sri Lanka, Pakistan, Bolivia, Haiti, the Yemen Arab Republic

and the People's Democratic Republic of Yemen; by 1985 this had increased lo $2.18

and current projections indicate it will reach $3.24 by the IDA9 period. During IDA8,

if per capita allocations were the same for each country, and assuming 30 percent of

IDA for China and India, then the other low income countries' share would be 32

percent instead of the likely 22 percent. Yet there is little difference between Ihis group

or countries and sub-Saharan Africa (excluding Nigeria) in terms of population size (310

million compared to 296 million in Africa) or per capita incomes ($276 compared to

$236 in Africa). Poverty is just as widespread and, with the exception of Sri Lanka, all

indicators suggest a very low level of social development. Their economic management

is generally good but, aside from Pakistan, they have no ability to service new external

debt at market interest rates.

The discrepancy in allocations does not in and of itself constitute an argument for

increases, but Lhere is growing evidence that programs of the current IDA recipients in

the non-African group are being underfunded because of the relative stagnation of ODA

flows to them.

materialize. It would be prudent therefore to

3.39 The concessional nature of IDA assume that something of the order of SDR

funding means that demands will inevitably 1.5 billion will be needed to fund these

outweigh availabilities and that choices will programs during the IDA9 period.

have to be made among different programs.The resource needs are substantial if IDA is 3.41 TWo other categories of potential

to accommodate new members (Angola), new requirements have been cited in the discussion

adjusting countries in Africa (e.g Ethiopia, on country allocation and are shown in Table

Nigeria, Sudan, Zambia), and new or expanded 3.3. Unlike the previous category, these would

programs in other regions (e.g., Afghanistan, both represent departures from the guidelines

Bangladesh, Burma, Guyana, Haiti, Nepal, and practices of earlier replenishments. The

Pakistan, Sri Lanka, and Vietnam). These first is the need to moderate the average terms

needs could amount to more than SDR 3.0 of Bank Group assistance for India, through

billion compared to the total IDA8 funding an increase in the IDA share of the IBRD/IDA

level of SDR 11.7 billion. blend on the order of SDR 1.0 billion over the

IDA9 period. The second refers to the

3.40 Not all these potential additional options put forward in the paper on IDA

demands will materialize, of course. Insofar eligibility. If the countries which fall between

as countries qualify, however, they will need the eligibility ceiling and the operational cut-

to be funded on a basis which is consistent off were to be given access to IDA then the

with existing borrowers. In practice there will needs would be in a range of SDR 0.8-2.0

be a partial offset because some current billion. It is very difficult to see any scope for

programs will not be sustained. This, for reallocating current IDA commitments to

instance, is how IDA is now accommodating make these sums available.

the very modest IDA8 program for Nigeria.For IDA9, given the large number of these 3.42 Given the likelihood of increased

countries and the positive political trends in pressure on IDA resources in the years ahead,

many parts of Asia, the chances are high that IDA's management will need to allocate

a good proportion of these programs will resources to balance two concerns. First, ITl A

Tbble 3.3: Indicative Additional IDA Funding Requirements(SDR billion, IDA8 prices)

AfricaCurrent total 5.6

of which: Adjusting 4.3

Potential additionaL demands in IDA9 1.5

Nigeria 0.5Other adjusting countries 0.8Angola 0.2

China, India and Pakistan

Current total 3.9

PotentiaL additional demands in IDA9 1.2

India 1.0Pakistan 0.2

Other Recipients

Current total 2.2

Potentiat additional demands 1.5

Bangladesh, Nepal and Sri Lanka 0.5Burma, Afghanistan,Vietnam, 1.0

Kampuchea, Guyana, Haiti

IDA-ELigible Countries (above $580 per capita)

current total 0.0

Potential additional demands 0.8 - 2.0

needs to maintain its support for those doing so will be lowest. IDAs capacity toprograms which are ongoing, where respond quickly to situations wheregovernments are showing sustained governments are willing to take up adjustmentcommitment to adjustment, growth, poverty or face sudden and unexpected difficulties isreduction, human resource development and one of its important strengths and a key rolenatural resource management. Second, the it plays in the international concessionalopportunity to respond to changes in a funding system. Given the increased demandcountry's situation and support new or for IDA resources, as compared to the past,expanded efforts to promote development regional earmarking of funding would make itrepresents a challenge which both the donor much more difficult for IDA to respondcommunity and IDA should take up. The quickly during the IDA9 period. This arguesdifficulty of maintaining this balance would be in turn for flexibility in the allocation of IDA9minimized by preserving the maximum possible resources so as not to limit IDA's capacity toflexibility in responding to new country needs meet the challenges ahead.by allocating resources out of those programswhere at any given point in time the costs of

IDA ELIGIBILITY STATUS

Per Capdo boAbose Operakona Cutoff/ Pes Capita k,coND/IDA Blend IDA Only Below Eligiblity Gudemine Below 0Wia,,ona Cueoff

CURRENT IDA8 RECIPIENTS* =Z| PROSPECTIVE IDA RECIPIENTS **

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Refiers to countres Mhot wle expecMd to rcvecredift dunng d.e IDAS period 05of Mrdv 1.°8.°'-=9,__d1w_1_~_

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