Response on World Bank Funding and Conditionality

January 2008

I have agreed that the UK will contribute £2.134 billion to the fifteenth replenishment of the World Bank’s International Development Association (IDA 15) over the next three years, which makes the UK the largest donor to IDA 15. This contribution reflects IDA’s effectiveness in helping poor countries increase and sustain growth and tackle poverty. In deciding the UK contribution, I carefully reviewed the commitments made by the Bank during the IDA 15 negotiations and the Bank’s progress on conditionality.

The World Bank has come a long way in recent years in its use of conditions and the UK government has been instrumental in this change. In 2004 the Bank abolished its use of prescriptive conditionality – the practice of insisting on specific reforms. Following a review of conditionality policy in 2005, the Bank adopted the Good Practice Principles to ensure a change in practice. These Principles commit the Bank to ensure that conditions are not imposed on governments and that a one-size-fits-all approach is not taken.

A further progress review in November 2006 provided clear evidence that the Bank’s practice was broadly consistent with the Good Practice Principles. Areas for further improvement were highlighted and agreed. In 2007, partly in response to requests from the UK, the Bank did a further review of its use of conditionality including extensive consultations with developing country partners. This showed that the Bank had made good progress in implementing the Good Practice Principles. Once again the Bank acknowledged that there was room for further improvement and so adopted new commitments to reinforce the 2005 Good Practice Principles.

The UK’s sustained engagement on this issue has achieved important results. We believe that the Bank has improved its performance in recent years. This is reflected in the fall in number of conditions in the Bank’s operations in low income countries from 32 in 1999 to 12 in 2007. But we will continue to pursue this agenda. That is why in my discussions with the Bank’s President, Robert Zoellick, I have urged the Bank to do even more. The Bank has made a number of significant commitments in light of these discussions. For example:

• Improve staff incentives to implement the Good Practice Principles and increase country ownership more broadly.
• Improve the use of Poverty and Social Impact Analysis (PSIA) to allow a better understanding of the impact of policy choices on the poor. The Bank has finished public consultations on a good practice note on PSIAs.
• Two further reviews of progress on conditionality policy in the next 18 months. One will be led by the Independent Evaluation Group – which is independent from the management of the Bank.
• Agreement to strengthen local capacity for policy analysis and formulation to increase local participation in policy making.
• Increased decentralisation: more staff on the ground with more decision-making authority thereby enabling the Bank to be more responsive to developing country governments and work better with civil society locally. 

It was in light of these significant – and concrete – commitments for further progress on conditionality that in mid December 2007 I agreed that the UK will contribute £2.134 billion to the World Bank over the next three years. This contribution makes the UK the largest donor to the World Bank over this funding period.

I believe that helping secure such comprehensive commitments have again placed the UK at the forefront of the World Bank reform process. To ensure that we rigorously monitor the commitments made, I have also decided that our Executive Director on the Bank’s board should be a full time position. I will remain in regular contact with President Zoellick on these and related issues in the coming years.
 

Douglas Alexander
Secretary of State for International Development

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