United States General Accounting Office

GAO Briefing Report to the Chairman,

Committee on the Budget, House of

Representatives

April 1995 MULTILATERAL

DEVELOPMENT

World Bank Reforms

on Schedule but

Difficult Work Remains

GAO/NSIAD-95-131BR

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-260151 

April 5, 1995

The Honorable John Kasich

Chairman, Committee on the Budget

House of Representatives

Dear Mr. Chairman:

In June 1994, we reported on the World Bank’s efforts to carry out a plan

of action intended to remedy the growing number of unsatisfactory

projects the Bank finances and reorient it to the core mission of reducing

poverty through sustainable development.1

 You recently requested an

update of the Bank’s efforts to implement the 87 tasks in its action plan.

We determined Bank progress on all tasks but focused on 12 key tasks

related to (1) country assistance strategies and portfolio reviews, (2) the

independent inspection panel, and (3) project completion reviews. At your

request, we also reviewed the Bank’s implementation of its openness

policy. On March 20, 1995, we briefed your committee staff on these

issues. This report contains the information conveyed at the briefing.

Background The World Bank occupies an important position in donors’ development

assistance strategies through two types of loans. The International Bank

for Reconstruction and Development (IBRD) provides project financing at

commercial interest rates for middle-income developing countries. The

International Development Association (IDA) provides credits on

concessional terms to low-income countries. In fiscal year 1994, the Bank’s

Board of Executive Directors approved 137 IBRD loans totaling about 

$14.2 billion and IDA credits totaling $6.6 billion. For fiscal year 1996, the

administration has requested about $28 million in paid-in capital for IBRD

and about $1.37 billion for IDA.

The Bank’s action plan for reform is the result of the 1992 report of the

Bank’s Task Force on Portfolio Management.2

 The Task Force found a

growing number of unsuccessful Bank projects and attributed this to poor

project design, management, and implementation; an institutional culture

focused on loan approval and disbursements; country factors, such as

poor economic policies and weak institutional capacities; and external

factors beyond the Bank’s control. The action plan, approved in June 1993,

1

Multilateral Development: Status of World Bank Reforms (GAO/NSIAD-94-190BR, June 6, 1994).

2

Effective Implementation: Key to Development Impact, Report of the Portfolio Management Task

Force, World Bank: Sept. 22, 1992.

Page 1 GAO/NSIAD-95-131BR Multilateral Development
B-260151 

is a set of management and operational reforms intended to reorient the

Bank toward improved portfolio management and project quality.

Results in Brief The World Bank is generally on schedule in carrying out its action plan for

reform; 70 of the plan’s 87 tasks had been completed at the time of our

review and the remaining were in process. However, it is still too early to

assess the action plan’s impact on improving project quality. Some tasks

are procedural in nature and their value will be determined as they are

incorporated into Bank operations. For example, tasks such as identifying

best practices, producing reports, and developing guidelines are first steps

toward the more difficult work of changing Bank focus from loan approval

to project management and sustainable development.

Country assistance strategies are becoming an important tool for portfolio

management. The Bank prepared 62 country assistance strategies in fiscal

year 1994. We reviewed 10 strategies written between May 1993 and

May 1994 (including those for Argentina and Nicaragua where we

conducted fieldwork). The strategies we reviewed generally included most

of the key information, but some gaps were identified. The strategies

examined the country’s economic performance and development agenda,

external factors affecting financing, and the Bank’s strategy for achieving

development objectives. The strategies also summarized portfolio

performance, based mainly on the country portfolio performance reviews.

However, two strategy papers had no information on creditworthiness or

country risk, and none of the strategies contained data on

nondevelopment expenditures, as required by Bank guidance.

According to Bank officials, country portfolio performance reviews are

used to assess the overall performance of a country’s portfolio and resolve

issues based on project-specific deficiencies. According to a Bank report,

the Bank conducted 38 country portfolio performance reviews during

fiscal year 1994. Country assistance strategies are to take into account the

results of these portfolio reviews, and the reviews are also to be used in

considering new loans. The Bank did not provide us with portfolio

performance reviews because it considers this proprietary information.

We therefore could not confirm the extent of any links among the

strategies, the portfolio reviews, and new lending. According to officials in

Argentina, it will take several years before these linkages are fully

established and their impacts can be seen in Bank project lending

patterns.

Page 2 GAO/NSIAD-95-131BR Multilateral Development
B-260151 

The Inspection Panel was established in 1993 as an independent forum to

investigate allegations that the Bank has not complied with its own

policies and procedures on particular projects. Currently working on its

first case, the Panel is investigating allegations that the Bank violated

several of its policies or procedures on a hydroelectric project. The Panel

recently determined that three of the allegations required further

investigation, that the Bank complied with relevant policies and

procedures on one, and that the remaining allegation was not valid.

Although the Panel disclosed its deliberations, the claimants expressed

some dissatisfaction with the results. Nongovernmental organization

officials welcome the Panel’s establishment, but have expressed concern

about some operating procedures, such as when information should be

made available directly to the public. World Bank officials pointed out that

claimants have the option of releasing information on the case directly to

the public, but the Bank would not do so while the case is ongoing.

The Bank has taken steps to encourage openness in its operations. Upon

request, the Bank’s Public Information Center provides documents that

give summary information on proposed projects and various economic,

sector, environmental, and technical reports. Under the new Bank

disclosure policy, the Bank must provide sufficient reason for not

disclosing other requested information. Also, the Bank acknowledges that

steps are needed to improve overseas access to public information and to

overcome language barriers.

During the course of our review, officials from nongovernmental

organizations, reports by the World Bank, and other reports identified

concerns about the Bank’s reform effort. We did not conduct a full review

of these concerns; however, based on our collective work on Bank issues

to date, we believe two concerns warrant further study. These include the

extent to which the action plan addresses (1) poverty reduction and

sustainable development and (2) participation in planning and executing

Bank projects by borrowers and affected populations.

Scope and

Methodology

We interviewed and collected data from World Bank officials in

headquarters offices, including the Office of the U.S. Executive Director,

the Operations Policy Department, and the Operations Evaluation

Department. We verified that the Bank had implemented 26 tasks in the

action plan by reviewing supporting documentation. We further focused

on 12 key tasks related to country assistance strategies and portfolio

reviews, the independent inspection panel, and project completion

Page 3 GAO/NSIAD-95-131BR Multilateral Development
B-260151 

reviews. Such tasks included (1) identifying and disseminating best

practices for country portfolio performance reviews and country

assistance strategies, (2) reflecting country portfolio performance in

country assistance strategies, (3) implementing new guidelines for project

completion reporting, and (4) establishing an independent inspection

panel. We also reviewed the Bank’s implementation of its openness policy.

We discussed Bank reform efforts with officials of the Treasury and State

Departments and the U.S. Agency for International Development and with

officials of several nongovernmental organizations that closely follow

Bank operations. We visited the Bank’s Public Information Center and

obtained access to its publications through the Internet. To determine how

Bank reforms may have affected field operations, we visited Argentina, a

middle-income country with a large hard loan portfolio, and Nicaragua, a

low-income country with a large concessional loan program.

Our review was conducted between December 1994 and March 1995

according to generally accepted government auditing standards. We

discussed our findings with Treasury and Bank officials and incorporated

their comments as appropriate.

We are sending copies of this report to the Secretaries of Treasury and

State and the Administrator of the Agency for International Development.

Copies will also be made available to others upon request.

If you or your staff have any questions about this report, please call Tetsuo

Miyabara, Assistant Director, International Affairs Issues, on

(202) 512-8974. Other major contributors to this report include Audrey

Solis and Sherlie Svestka of the International Affairs Issues group and

Anindya Bhattacharya of the New York Regional Office.

Sincerely yours,

Joseph E. Kelley

Director-in-Charge

International Affairs Issues

Page 4 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Purpose of Our Review

Provide information on World Bank’s

•overall progress on action plan,

•country strategies and reviews,

•project completion reporting,

•activities of inspection panel, and

•implementation of openness 

policy.

Page 5 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Summary Results

• Plan is generally on schedule,

but difficult work remains. 

• Country strategies contain key 

data but also have some gaps.

• Completion report is improved.

• Inspection panel is handling first case 

as required, but concerns are raised.

• Bank takes openness steps.

Page 6 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

World Bank Action Plan Is on 

Schedule

• Most tasks will be implemented 

by summer 1995: 70 are 

complete, 17 are in progress. 

• It is too early to

determine full impact.

• Bank and Board of Directors

are monitoring results.

Page 7 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

The Bank’s action plan responds to the 1992 report of the Task Force on

Portfolio Management that attributed a growth in the number of

unsuccessful Bank projects to poor design and implementation, borrower

policies, and some factors beyond the Bank’s control and made

recommendations to strengthen loan portfolio management. Of the 

87 tasks in the action plan, 70 have been completed and 17 are in varying

stages of implementation. One task has taken longer than

expected—establishing performance indicators and benchmarks, such as

student enrollment or contraception prevalence rates. The Bank is

developing indicators for 15 sectors. According to a Bank official,

indicators for 13 sectors are in final draft and should be released by

August 1995. The remaining two are to be issued by November 1995.

As we reported in June 1994, it will be several years before the full impact

of the action plan can be determined. The plan is still in implementation,

and efforts to create an internal environment that supports portfolio

management will take years to become evident in Bank processes.

The Bank and its Board of Executive Directors are monitoring the reform

efforts primarily through its Annual Review of Portfolio Performance and

reports of the Operations Evaluation Department and the Joint Audit

Committee. Bank officials told us that the report of the Annual Review of

Portfolio Performance for 1994, scheduled for release in April 1995,

contains data that will show project performance improvements, such as

loan cancellations and project restructurings.

Page 8 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

CASs Contain Key Information, 

But Some Have Gaps 

Reviewed 10 country 

assistance strategies (CAS)

•All identified critical needs,

economic performance, and 

development strategies.

•Some lacked required data

on creditworthiness,

nondevelopment spending

trends, and 

assessment criteria.

Page 9 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

We reviewed 10 CASs reflecting different regions, types of loans, and

portfolio sizes.1

 Each CAS is required to have the following information:

economic and social performance, external factors, the country’s

development agenda, and the Bank’s assistance strategy. The assistance

strategy section is to include information on macroeconomic prospects,

portfolio implementation and performance, relevant findings of economic

and sector work, relevant governance issues, and cooperation with other

donor institutions. A final section summarizes issues for Board discussion,

including risk evaluation and criteria for assessing progress in key areas.

The strategies we reviewed generally included the information required

and set forth strategies linked to current conditions, performance, and

development priorities. Most provided ample detail. For example, the CAS

for Tanzania outlined the steps needed to improve project implementation.

It also included discussions on how lending would be adjusted in the

absence of needed economic reforms and measurement criteria for both

economic adjustment and investment lending. However, some CASs were

missing important information. For example, CASs for countries with

International Bank for Reconstruction and Development (IBRD) loans are

to summarize current and prospective creditworthiness, Bank exposure,

and possible implications for new lending. The China CAS included no

discussion of creditworthiness, despite the fact that China has more than

$2.1 billion in IBRD loans for fiscal year 1994. The China CAS neither

evaluated risks nor set forth criteria for assessing progress.

To encourage borrower investment in social sectors, CASs are to consider

trends in nondevelopment spending by the borrower—for International

Development Association (IDA) countries, this includes military

expenditures. The CASs we reviewed did not describe nondevelopment

spending, although the Nicaragua CAS provided information on personnel

reductions in the armed forces.

Officials at Treasury and the U.S. Executive Director’s Office agreed with

our overall assessment of the varying quality. However, they point out that

this process was only started in 1992 and that they have noted continuing

improvements in the information and analysis provided.

1

Argentina, Brazil, China, Egypt, Ghana, Indonesia, Kenya, Mexico, Nicaragua, and Tanzania.

Page 10 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Portfolio Review and Lending

Strategy Links Not Confirmed

Action plan requires portfolio 

performance reviews to be 

reflected in country lending 

strategies.

•Bank did not provide us 

needed data on other 

country portfolio reviews.

Page 11 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

To strengthen the Bank’s transition to a country-based lending strategy

from a project-by-project approach, the Task Force recommended that the

results of the country portfolio performance review be incorporated into

each country’s lending strategy. The Task Force had found that the design,

composition, and size of future lending programs did not sufficiently

reflect the lessons of implementation experience. The Bank’s action plan

includes tasks for conducting country portfolio performance reviews and

incorporating the results into the CAS document.

During fiscal year 1994, the Bank conducted 38 country portfolio

performance reviews and prepared 62 CASs for Board discussion. We could

not confirm whether the portfolio review results were fully reflected in the

CASs because the Bank declined to provide us with the portfolio

performance documents. The Bank maintains that this is proprietary

borrower information. According to World Bank officials in Argentina, the

impact of these reviews on project lending strategies will take several

years to become apparent.

Page 12 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Steps Taken to Improve 

Project Completion Reports

Revised Implementation 

Reports provide

•information on future of 

project operations and

•data and analysis to support 

project performance 

assessments.

Page 13 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

The action plan includes two tasks related to revising the format of the

report prepared at the conclusion of the Bank’s involvement with a

project—the Implementation Completion Report (ICR). These reports are

analyzed by staff of the Operations Evaluation Department (OED). Bank

officials believe that the revised format will enhance the evaluations that

OED staff conduct on completed projects using the ICRs. The Director of

OED explained that the three new features of the reports—descriptions of

the future of project operations, assessments by the regional staff

responsible for the project, and the provision of data and analysis to

support these assessments—will give the OED staff a better indication of

how the project has achieved its objectives, its sustainability, the

performance of both the Bank and the borrower, and an assessment of

anticipated outcomes.

We reviewed the seven ICRs completed between July 1994 (when they

became mandatory) and January 1995 and found them to be in compliance

with the requirements of the new format. We found in each of these

reports that the required information was provided or explanations were

given for why it could not be provided.

Page 14 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Panel Handles Case Properly, 

But Concerns Are Raised 

• Inspection Panel and Bank 

complied with relevant 

procedures in first 

investigation.

• Claimant is concerned that 

Panel did not find Bank 

noncompliance with two of the 

five initial allegations.

• NGOs welcome panel but some

have procedural concerns.

Page 15 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

The Inspection Panel is an independent forum established by the World

Bank’s Board of Executive Directors in September 1993 to investigate

complaints from groups directly affected by Bank-financed projects. The

Panel’s mandate is to investigate claims that the Bank has failed to abide

by its operational policies and procedures in project design and

implementation. The Panel consists of a full-time chairman and two

part-time members appointed in April 1994. Members are nominated by

the Bank’s president and appointed by the Board of Executive Directors to

whom they directly report. The Panel’s operating procedures were

adopted in August 1994 and are to be reviewed within the next year and

modified as appropriate.

In October 1994, the Panel received its first formal complaint. It concerned

the Arun III Hydroelectric Project in Nepal and alleged Bank

noncompliance with its operational policies and procedures on

(1) economic evaluation of investment operations, (2) disclosure of

information policy, (3) environmental assessment, (4) involuntary

resettlement, and (5) indigenous peoples. On November 22, 1994, Bank

management responded to the Panel that it had complied with all

requirements. After its initial investigation, the Panel recommended, and

the Board subsequently authorized, a full investigation of possible

violations of Bank policies relating to (1) environmental assessment,

(2) involuntary resettlement, and (3) indigenous peoples.

The Panel determined that the Bank had followed its procedures with

respect to economic analysis and recommended no further investigation.

Regarding disclosure policies, the Panel determined the Bank could not be

judged by the most recent disclosure policy that was approved in

August 1993, while the initial project preparation began almost 8 years

ago. Correspondence to the Panel from the claimants in Nepal demanded

that compliance with economic analysis and disclosure policies be

included in the full investigation, but the Panel has not reversed its

decision that these two areas do not warrant further investigation.

Nongovernmental organizations generally welcome the establishment of

the Panel. However, some nongovernmental officials have expressed

concern about several operating procedures, such as when information

should be made available directly to the public. Bank officials pointed out

that the claimants have the option of releasing information on the case to

the general public, but the Bank would not do so while a case is under

investigation.

Page 16 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Bank Takes Steps Toward 

Openness, But Concerns Remain

• Public Information Center provides 

various documents on request.

•Center received 17,000 requests 

in 1994.

•Internet provides free access.

• Staff appraisal reports not 

available until after project

approval; overseas access needs 

improvement.

Page 17 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

The Bank’s main venue for disseminating information is the Public

Information Center in Washington, D.C., and its field offices in London,

Paris, and Tokyo. Free documents include (1) Project Information

Documents (PIDs)—the most requested document—which are brief 2-page

summaries on projects being identified for Board approval,

(2) environmental reviews, and (3) “precis”—a series of findings and

recommendations from evaluation studies and audits. Documents such as

project staff appraisal reports and various economic, sector, technical, and

environmental reports are available at a cost of $15 each. Documents can

also be obtained or ordered from the Center through the Internet.

In 1994, the Center received almost 17,000 information

requests—42 percent from businesses, 20 percent from public agencies,

9 percent from Bank staff, 4 percent from academia, and 2 percent from

nongovernmental organizations. The remaining 23 percent are not broken

down by clientele. Resident missions and country departments may also

provide information not included in the Center’s statistics.

The Bank has taken steps to provide more information to the public and

nongovernmental officials have said that the Bank is more open than in

the past; however, some concerns remain. While many technical reports

are available, the most complete technical project document—the staff

appraisal report—is available only after project approval.

Nongovernmental officials remain concerned that important technical

information may not be available for timely input by affected populations.

A recent Bank report noted that start-up had been slow due to some

unfamiliarity on the part of Bank staff on what was to be made available to

the public but is improving. Concerns remain regarding access to

information in locations where Bank projects are implemented. A related

concern is the language barrier—Bank documents are available mostly in

English, which may not serve local populations, especially those in remote

areas. The Bank plans to address these concerns by training Bank staff on

the openness policy, translating some documents into French and Spanish,

and studying ways to increase the role of resident missions and local

governments to ensure that key information is available in project areas.

Page 18 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Bank Has Initiated Other 

Improvements

• Offices’ budget responsibility 

is based on dollars rather 

than staff years.

• Efforts are underway to better 

inform project offices of lessons 

learned from recent evaluations.

• OED is piloting reviews of projects 

in early design phase.

Page 19 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

During our review, we learned that the Bank has undertaken some reforms

that, although not addressed in the action plan, have the potential for

improving Bank operations and project quality. They include changes in

the budget processes, efforts to better disseminate OED evaluation results,

and OED efforts to improve project proposals.

According to Treasury officials, one of the more important reforms that

the Bank has undergone in recent years is the change in the budgeting

process. Previously all costs were simply presented in terms of staff time

without unit level managers, such as those responsible for regional

programs, having to be concerned about actual costs. Unit managers now

must manage dollar accounts from which they pay for salaries, travel,

benefits, consultants, and overhead. This new procedure makes managers

more accountable for decisions on how they have chosen to spend the

funds allocated to their unit.

In February 1994, recognizing that lessons learned from previous

evaluation reports are not always reflected in the design of new projects,

the Bank established a task force to review processes and identify

practices worth replicating to disseminate OED evaluation results. The task

force is expected to have a final report by the end of fiscal year 1995.

In November 1993, OED established a pilot review process to comment

informally on selected projects early in the design phase. OED reviews the

initial executive project summary (IEPS), which is the earliest formal

document outlining the goals of a new lending operation and pertinent

issues, risks, and evaluation experience. OED received 129 IEPSs in fiscal

year 1994 and sent comments on 64 back to the regional staff. In

27 percent of those commented on, the project goals were found to be

poorly defined. In 48 percent, risk assessments appeared to be unrealistic

and in 67 percent, provisions for monitoring and evaluation were

nonexistent or judged unsatisfactory. OED has reported that regional staff

has been interested in their comments, and OED plans to continue this pilot

activity through fiscal year 1995. The Bank reports that these OED reviews

of IEPSs will enable that department to determine whether changes in

project quality at entry are occurring.

Page 20 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Concerns About the Bank’s 

Reform Efforts 

Reforms may not fully address

•poverty reduction and 

sustainable development and

•participation by those affected.

Page 21 GAO/NSIAD-95-131BR Multilateral Development
Briefing Section I 

Status of World Bank Reforms

Nongovernmental organization officials, World Bank reports, and other

reports identified some concerns about World Bank reform efforts. We did

not conduct a full examination of these concerns; however, based on our

collective work on Bank issues to date, we believe two concerns may

warrant further study. First, there is a question of the extent to which the

action plan’s management and operational improvements address poverty

reduction and sustainable development. According to nongovernmental

officials, Bank emphasis on management improvements alone will not be

sufficient to address poverty and promote sustainable development. World

Bank officials point out that the action plan is complemented by other

policies and initiatives for achieving these goals.

The second area is a long-standing concern of nongovernmental

organizations that people affected by Bank projects should be able to

participate in some of the project planning and decision-making. They

point out, and the Bank agrees, that projects would be more effective if

project beneficiaries participated in planning and therefore had a direct

stake in project success. In response to this criticism, Bank officials said

they have made efforts to incorporate broader participation in planning

and implementing projects, as part of their objective to become a more

open and transparent organization. For example, Bank officials point out

that about half the projects approved in fiscal year 1994 involved

nongovernmental participation. We reviewed 8 project proposals

submitted since the action plan was established, but only two mentioned

participation by affected populations as a part of the process for

developing the proposals.

(711112) Page 22 GAO/NSIAD-95-131BR Multilateral Development
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