Poverty Reduction

Debt Relief

Reform

Gender Equality

Trade for Development

Financial Architecture

Thematic Perspectives

Addressing the Social, Institutional, and Economic Dimensions of Poverty

In fiscal 2001 the World Bank intensified efforts to address many of the social, institutional, and economic issues underlying poverty. In close partnership with the IMF, it accelerated implementation of a country-owned approach to development that firmly links poverty reduction to debt relief and concessional lending. It also promoted good governance and effective public institutions—both critical for sustained poverty reduction. In addition, the Bank is helping developing countries pursue gender equality and integrate into the global economy, while working at the global level to strengthen the international financial architecture.

Much Bank lending to support improved economic management, policies, and institutions falls under the umbrella of adjustment lending. Adjustment lending promotes sustained growth and poverty reduction by supporting countries’ efforts to undertake structural and social reforms (see table 3.1, and table 8.14 in About the World Bank).

Accelerating Support for Poverty Reduction Strategies

In December 1999 the Bank and the IMF launched the Poverty Reduction Strategy Paper (PRSP) Program to accelerate poverty reduction in low-income countries. PRSPs provide the basis for debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and for concessional Bank and Fund lending. They identify key obstacles to poverty reduction and lay out a plan to overcome those obstacles, with mechanisms to monitor progress. The country-driven nature of PRSPs is the program’s most notable feature: the strategies are produced by the countries themselves in broad consultation with civil society and poor people—marking an important shift in culture for the Bank and the Fund. (See box 3.1.)

The PRSP Program gained considerable momentum in fiscal 2001. A total of 29 countries presented Interim PRSPs (I-PRSPs), in many cases to qualify for preliminary HIPC debt relief. In addition, 3 countries presented their first Full PRSPs in fiscal 2001. Over the past year, the Bank has sought to better align its country assistance with countries’ visions and priorities as laid out in PRSPs. The Poverty Reduction Support Credit (PRSC) was introduced in fiscal 2001 to support an IDA-eligible country’s policy and institutional reform program to help implement its poverty reduction strategy (box 3.2). The PRSC is grounded in the principles of the Comprehensive Development Framework and the international development goals. It is derived from the PRSP, based on the Country Assistance Strategy, and underpinned by suitable analysis—environmental, social, structural, and fiduciary. Over time, it is expected to become an important vehicle of IDA financial support to low-income countries with strong programs, anchoring the Bank’s overall support for their poverty reduction strategies.

The PRSP approach is still at an early stage. The process was conceived as a broad framework for engaging domestic stakeholders and external development partners, while providing a vehicle for improved aid coordination. Regional development banks, United Nations development agencies, most bilateral donors, the European Union, and many nongovernmental organizations have indicated support for the approach and an intention to work with countries in the PRSP process. At the same time, the process entails steadfast endeavor over the long term. Only when countries reduce poverty—an impact that can be observed only over a number of years—can PRSPs claim success.

Fulfilling Promises of Enhanced Debt Relief

Fiscal 2001 was an important year for the HIPC Initiative. Building on enhancements in September 1999 emphasizing deeper, broader, and faster debt relief and stronger links to poverty reduction, debt relief was committed for an additional 16 countries: Benin, Cameroon, Chad, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Nicaragua, Niger, Rwanda, São Tomé and Principe, and Zambia. As a result of the HIPC Initiative, the 23 countries that have reached their decision points

(Decision point: The point at which the international community agrees—for countries with unsustainable debt levels and a solid record on economic reform and poverty reduction programs—on the amount of relief needed to reduce outstanding debt to a sustainable level. Multilateral creditors, including IDA, begin providing significant "interim assistance" beginning immediately at the decision point.)

The year’s considerable progress was enabled by the intense efforts and dynamic cooperation of HIPC governments, official creditors, and civil so-ciety from around the world. The relief packages for the 23 countries were developed with country authorities and approved by the Bank and IMF Boards of Executive Directors in less than 16 months.

As a result of the enhanced HIPC Initiative assistance, the annual public debt service burdens of the 23 countries over the next three years will be cut by roughly $1.1 billion, equal to 1.2 percent of GDP. As a share of government revenues, debt service will fall from 28 percent before HIPC relief to about 13 percent in 2001–02, freeing up resources for identified poverty reduction priorities, including social sector expenditures. Debt service payments will be reduced to about 2 percent of GDP, in comparison with 7 percent of GDP that these countries will be spending on social investments.

Notwithstanding this progress, much work remains to be done to ensure the long-term sustainability of HIPCs. By delivering debt relief sufficient to reduce a country’s level of debt in NPV terms to either 150 percent of exports or 250 percent of government revenues at the decision point, the HIPC Initiative provides a robust basis for long-term debt sustainability. However, a permanent exit from debt rescheduling can only be achieved if the underlying causes that contributed to the debt problem are addressed. Hence, debt sustainability depends not only upon the absolute level of debt, but also upon a comprehensive set of policies that lead to poverty reduction and economic growth.

Reforming Public Institutions and Strengthening Governance

Good governance and strong public institutions are increasingly seen as critical for development effectiveness. More and more, the focus of Bank assistance is on helping countries to design and implement good policies themselves. A new strategy, "Reforming Public Institutions and Strengthening Governance," was published in November 2000; key new directions include emphasis on "bottom-up" empowerment and longer-term Bank lending to allow time for institutional reform.

Among governance issues, public expenditure management has emerged as a high-priority area. Effective public spending is crucial for poverty reduction, and strong public expenditure management systems are essential to ensure that development assistance is utilized as intended. The Bank, with partners, is working on an integrated approach to improving the quality of expenditure management in poor countries.

Since 1997 anticorruption activities have been increasingly integral and important components of the Bank’s public sector management portfolio, which represented 12 percent of the Bank’s commitments in fiscal 2001. Increasingly, efforts are aimed at not only assessing the quality of governance but also offering deeper insights into government performance and institutional arrangements.

Promoting Gender Equality

In fiscal 2001 the Bank published a major policy research report, Engendering Development—Through Gender Equality in Rights, Resources, and Voice. The main findings of the report—which benefited from extensive consultations with civil society, academia, and donors—place gender at the center of the Bank’s work on poverty reduction. The report shows that gender equality helps lower infant and child mortality, improve nutrition, and lower fertility rates; it is also associated with lower HIV/AIDS prevalence rates, less corruption in government, higher economic productivity, and faster growth—outcomes not traditionally linked to gender equality.

With strong empirical evidence that gender inequalities tend to slow development, the Bank has begun drafting a revised strategy for better integrating gender into its assistance. Several regional consultations, including with client governments, international agencies, and civil society, are helping to inform this process. Priorities are converging on diagnosing gender-related barriers, creating gender-inclusive consultations, and working with country and external partners to identify and support appropriate action.

Helping Countries Use Trade for Development

Trade plays an important role in growth—and therefore poverty reduction. The Bank’s three-pronged approach comprises analysis of impediments to trade, advocacy of better trade policies that support development, and advice to policymakers. In fiscal 2001 the Bank engaged in research and dissemination of studies demonstrating the crucial importance of opening developed-country markets to goods from developing countries. The Bank is also helping developing countries use the multilateral trading system more effectively through policy analysis, training, and a handbook for trade negotiators. A new sourcebook of information on trade aims to help client countries prepare PRSPs. In addition, two ongoing research programs, on general trade policies and agriculture, provide assistance to countries in identifying priorities for reforms at both the national and multilateral levels.

Strengthening the International Financial Architecture

The term "international financial architecture" refers to the financial and institutional arrangements that are critical to help countries avoid and mitigate crises, integrate into the global economy, and de-velop successfully. The Bank’s role in this area has three dimensions: ensuring that developing country perspectives are brought to bear on discussions on international norms and governance; helping developing countries integrate into the international economic and financial system; and diagnosing the social and structural obstacles to successful development as a basis for Bank assistance.

The Bank has been working closely with the IMF on initiatives that will help developing countries benefit from the global economy. The Financial Sector Assessment Program identifies financial system strengths and vulnerabilities. Under the Reports on the Observance of Standards and Codes (ROSC) Program, the Bank prepares assessments in its traditional areas of expertise; ROSCs summarize the extent to which countries observe certain internationally recognized standards that can help improve economic policymaking and strengthen the international financial system. In fiscal 2001 146 ROSC assessments were completed, 94 of which were published. The Bank has also collaborated with the IMF and other partner organizations to develop a set of principles and guidelines for effective insol-vency and creditor rights systems. In fiscal 2001 the Board and the Development Committee agreed that the Bank would, with partners, carry out a series of experimental country insolvency assessments under the ROSC Program. A third area of collaboration relates to preparation of studies on external debt management that will help construct a set of core principles for sovereign debt management.