World Bank attaches too many strings to COVID-19 aid, report says

The World Bank’s budget support to governments during the COVID-19 pandemic comes with demands that may get in the way of the speed and flexibility of financial assistance, according to new research urging the bank to remove its normal policy reform conditions during the health crisis. The analysis by Clemence Landers and Rakan Aboneaaj at the Center for Global Development looked at development policy financing, or DPF — the bank’s way of providing unearmarked funds that are subject to conditionalities. Between April 2020 and March of this year, the World Bank dispensed $21.6 billion in budget support through International Development Association and International Bank for Reconstruction and Development programs, according to the CGD researchers. On average, the bank has demanded recipient governments implement eight “prior actions” as conditions before it would disburse money. Most focused on issues such as climate and standard fiscal policy reforms, while some were related to health and COVID-19. “Some of these conditions in normal times would be totally fine,” Landers told Devex. “But these are not necessarily a very good thing during a crisis.” “Pushing resources to countries should be the priority right now.” --— Annalisa Prizzon, senior research fellow, Overseas Development Institute The DPF loans, grants, and credits are specifically designed to aid governments while promoting long-term fixes, such as better public financial management and improving the investment climate — which are all meant to contribute to sustained poverty reduction. But governments may get sidetracked from their pandemic response when they are forced to focus on issues unrelated to COVID-19, Landers argued. “A big reform agenda in a budget support operation is a heavy load,” said Landers, who previously worked for the U.S. Treasury Department. She urged a laserlike focus on the current crisis. “The bank is instead distracting the country by putting attention on a whole host of reforms that can wait,” she said. An additional issue is how reform conditions can slow down the pace of the disbursements. “In these contexts, speed really matters,” Landers said. In their research, Landers and Aboneaaj found that the bank was diverging from the International Monetary Fund, which has seemingly settled on fewer rules for its financial support programs during the pandemic. “The IMF has channeled around 80 percent of its crisis finance through no or limited conditionality programs,” the study said. “There are also instances where the IMF temporarily waived conditionality around fiscal reforms, but the World Bank urged countries to stay focused on fiscal and debt targets,” the study found. The bank declined to comment on questions from Devex about the study. The World Bank is touting a 60% increase in support to low- and middle-income countries during the pandemic, compared with the 15-month period prior. World Bank President David Malpass called it “the fastest growth rate” the group has achieved, during a speech last weekend to a meeting organized by the G-20 group of nations. In all, Malpass said the bank has moved $157 billion to countries in need during the pandemic. Near the onset of the coronavirus outbreak, Malpass made clear that he believed a fast response would be vital to move out of the recession and into an economic rebound. The bank has indeed allocated funding through IDA — the main source of concessional loans and grants for the lowest-income nations — faster than expected. It will need to replenish the IDA funds aheads of schedule, amid calls for donors to scale up their funding. The CGD study noted that IDA did become progressively more pandemic-focused over the last year, though it found that the same could not be said for the bank as a whole. But Malpass has insisted that the bank’s overarching reform agenda will not be dropped. “Countries will need to implement structural reforms to help shorten the time to recovery and create confidence that the recovery can be strong,” he said last year. Martin Ravallion, a professor of economics at Georgetown University, said that there is a case for “sensible conditions” on support during the pandemic — such as those specifically related to health, including vaccination plans — but that other stipulations should be set aside. “I am disappointed by the lack of flexibility shown by the bank with regard to its budget support operations during the COVID crisis,” said Ravallion, who also serves as a nonresident fellow at CGD but did not participate in the report. Annalisa Prizzon, a senior research fellow at the Overseas Development Institute, said that the top concern during the current global health crisis should be speed. “Pushing resources to countries should be the priority right now,” she said, urging flexibility in how funds are distributed. Prizzon was not involved in CGD’s research. The World Bank moved quickly at the start of the crisis, she said. But overall, her research has shown that the financing falls short of what was offered up during the financial crisis of 2008-2009, and Prizzon said she is worried there is a slowing trend as the emergency wears on. Prizzon warned that the COVID-19 pandemic could have more lasting effects on fragile countries than even that financial crisis. While lower-income countries remain a concern, there is also a worry that lower-middle-income nations currently able to tap markets will soon need help. “Many middle-income countries have been somehow overlooked during this crisis,” she said. This could mean they will turn to the World Bank and other multilateral institutions. “We are still in the midst of the crisis. The emergency is not over,” Prizzon said. Landers also voiced caution over the fate of middle-income countries. “We can very easily find ourselves in a situation where a couple of months down the line, these countries need external financing,” she said.