Ethiopia – IDA Credit for Promoting Basic Services Phase III (PBS 3) Project and Country 

Partnership Strategy 

September 21, 2012 

U.S. Position 

Promoting Basic Services Phase III Project

The United States welcomes today's discussion of Promoting Basic Services Phase III, a project 

reflecting the Bank's long-term partnership with the Government of Ethiopia to address the 

country's basic human development challenges. This has been an ambitious undertaking by the 

Bank and Ethiopia, and the United States commends staff for their hard work in collaboration 

with the Government of Ethiopia and development partners. 

The United States highlights the strong gains that the country has made on the Millennium 

Development Goals and recognizes that PBS played an important role in helping to achieve these 

gains. The United States notes, among other achievements, the increase in primary school 

enrollment, decline in infant mortality, and improved rural access to potable water. These gains 

among a very large and diverse population have been achieved through a highly decentralized 

delivery system. Bank support has been essential in funding the substantial staffing needs and 

building the capacity required to make such a far-reaching program produce results. 

The United States notes the efforts that the Bank has made to improve transparency and 

accountability in a political environment that traditionally has been less open to such reforms. In 

particular, the United States appreciates the publication of budget and expenditure data, which 

has reached 70 percent of all woredas (districts), as well as efforts to post basic service delivery 

data for consumers of these services. The United States also appreciates the efforts to implement 

social accountability tools, including the pilot grievance redress mechanism. 

Notwithstanding the program's notable achievements in these areas, the United States continues 

to have serious concerns about the high fiduciary risks and weaknesses in the accountability 

mechanisms of the program. The United States is especially troubled about the KPMG audit on 

procurement issues that staff shared with us showing that only 6% of procurement contracts were 

satisfactory. Although the bulk of PBS expenditures are for salaries rather than procurement, the 

risks identified in the procurement audit reflect fiduciary risks at the local level that may have 

implications as well for PBS' payment of recurrent expenditures. In terms of accountability 

weaknesses, the United States is concerned that the grievance mechanism is only fully in place at 

the broad regional (and not woreda) level. Given the remoteness of many woredas, this means 

most citizens are unable to access the regional ombudsman. The United States appreciates that 

Sub-Program B -Strengthening Local Transparency and Accountability Systems - will help 

address these fiduciary and accountability issues. However, the United States wants to see 

positive outcomes in these areas before the United States can be confident that the government - 

which is playing no role in funding this Sub-Program - is committed to an effective and credible 

grievance mechanism that is accessible at the local level. As a supplement to the work that will 

be undertaken in this Sub-Program, the United States recommends that an independent audit of 

payroll systems be undertaken, perhaps in parallel with the next procurement audit. 
The United States is aware that an Inspection Panel complaint has been filed that alleges possible 

involuntary resettlement associated with this program. The United States recognizes the Bank’s 

assessment that these concerns do not trigger any of its safeguards. However, the United States 

takes these allegations seriously and the United States expects the Bank to implement fully its 

safeguards in situations where they are applicable. The United States would like to emphasize 

the special burden that the Bank has to ensure the highest possible standards, particularly in light 

of civil society allegations. 

In conclusion, although the United States appreciates the impressive developmental gains that 

Ethiopia has made as well as this program's contribution to those achievements, the United States 

does not believe that the program incorporates adequate fiduciary controls and processes for 

accountability sufficiently to mitigate the inherent risks in such a large-scale, decentralized 

program. For this reason, as the United States has stated on previous phases of this project, the 

United States regrets that the United States must abstain. The United States urges Bank staff to 

design and integrate program mechanisms that will enhance fiduciary controls and accountability 

at all government levels and seek greater engagement with civil society as it moves forward. 

Country Partnership Strategy 

The United States is pleased to discuss the Country Partnership Strategy for Ethiopia, which will 

help the country continue its impressive progress toward meeting the Millennium Development 

Goals. The United States notes in particular the increase in primary school enrollment, the 

decline in infant mortality, and the improvement in access to infrastructure and to potable water. 

The United States is impressed by the developmental outcomes achieved so far and appreciates 

the persistent effort of both the Bank and Ethiopian authorities to address the needs of Ethiopia’s 

large and diverse population. 

Notwithstanding these noteworthy results, the United States believes that future gains will 

depend on a greater openness by Ethiopia’s government to private-led growth and investment, 

and to civil society. This was one of the lessons drawn in the last CAS Completion Report, and 

the new CPS appropriately recognizes that the government will be unable to fund the range of its 

development priorities solely through domestic financing. Attracting substantial private 

investment – and making the best use of IFC’s and MIGA’s recent engagement in Ethiopia – will 

require an increased focus on reforms to help private firms more easily conduct business in the 

country. While the United States respects that Ethiopian authorities must drive the country’s 

development agenda, the United States urges the Bank to advocate strongly for reforms to allow 

a greater role for the private sector to drive the country’s development. Similarly, the United 

States believes there is an important role to be played by other non-government actors, including 

civil society, which also can increase the responsiveness of government to the needs of the 

Ethiopian people. 

The United States believes that improving agricultural productivity is key to Ethiopia’s economic 

growth and development, and agrees with the Bank’s assessment that a stronger framework for 

land tenure is necessary. The United States notes that the government’s Growth and 

Transformation Plan intends to transform the agriculture sector in Ethiopia from subsistence to 

market-led production. As noted in the CPS, inconsistent rules governing land tenure contribute 
to inefficiencies in the allocation of land for agriculture. The United States joins the Bank in 

encouraging greater progress in developing a transparent framework for land tenure. 

The United States would like to see more rapid progress in the Bank’s dialogue with the 

government on safeguards policies. The United States appreciates the Bank’s ongoing 

engagement with Ethiopian authorities on the application of safeguards, including OP 4.10 on 

Indigenous Peoples. The United States is concerned, however, about the government’s 

hesitation to come to an agreement on the application of this and other social and environmental 

protections. The United States is eager to see greater progress going forward. 

The United States urges the Bank to be cautious as it considers the possible resumption of budget 

support under the new CPS. While the United States acknowledges that Ethiopia’s fiduciary 

controls are improving with Bank support, the pace has been very slow and key weaknesses 

remain, as, for example, some recent independent analysis of Ethiopia’s procurement systems 

has made clear. The United States asks management to consult closely with the Board as the 

Bank considers its plans for development policy operations in the country.