Low-Income Countries: International Financial Institutions Met Many Goals in Response to Financial, Food, and Fuel Crises, but Impact on Spending Difficult to Establish
Published: 2011-09-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The 40 poorest countries in the world, known as low-income countries (LICs), have been negatively impacted by successive food, fuel, and financial crises since 2007. In response, international financial institutions (IFI), including the World Bank and International Monetary Fund (IMF), have taken actions to increase financial assistance for affected countries. Between 2008 and 2010, Congress appropriated $3.3 billion to the World Bank's International Development Association, which funds development programs in LICs. Congress also authorized the U.S. representative at the IMF to vote to approve the sale of some of the IMF's gold to increase lending to LICs. LICs' ability to repay debt remains important as financing levels rise and decisions are made about the mix of loans and grants they receive. GAO was asked to examine (1) the economic impact of the crises on LICs, (2) IFIs' responses and reported results, and (3) IFIs' assessment of the impact of the crises on LICs' ability to repay their debt. GAO analyzed documents and information from the World Bank and the IMF, including data on macroeconomic indicators, financial commitments, and debt analyses. GAO interviewed staff from the World Bank, IMF, and U.S. Treasury. GAO selected three African countries for more thorough analysis, a sample that is meant to be illustrative, not representative..
section_title: What GAO Found
paragraphs: In LICs, the recent food, fuel, and financial crises resulted in slower economic growth, higher deficits, and higher inflation, but the macroeconomic impacts were less than experienced by the advanced economies. The crises also slowed foreign direct investment in LICs, which had been growing steadily since 2000. During the crises period, LICs' average economic growth slowed from 7.1 percent in 2007 to 5.3 percent in 2009. IFIs have reported that lower growth rates caused by the crises could lead to increases in poverty in LICs, and our previous work shows that many LICs were experiencing protracted food emergencies and had severe and widespread malnourishment even prior to the onset of the crises. During the crises, food and fuel prices rose significantly, then declined, and have risen again in 2011 to levels experienced during the crises. In response to the crises, IFIs increased funding and disbursed some funds more quickly to LICs, but the impact of these actions on LIC government spending has been difficult to establish. Between 2008 and 2010, the World Bank committed $18.1 billion through regular lending and five crisis response initiatives, an increase of 39 percent from the pre-crises period. Total first year disbursements also increased by 12.7 percent. Three of four of the initiatives designed to increase the speed of disbursements met their goal. However, the proportion of committed funds that have been disbursed in the first year following project approval declined, as compared to the pre-crises period. Disbursement rates depend on several factors, including recipient country capacity, need, and governance; and the type of lending. The World Bank's International Finance Corporation responded to the crises through investments, trade initiatives, and enhanced coordination with donors, but its response was limited by the availability of resources and recipient countries' limited ability to implement programs quickly. The IMF boosted lending to LICs more than sixfold to $4.9 billion, which governments could use to bolster their reserves or make international payments. While most LIC governments' spending increased during the crises, we found that the impact of World Bank and IMF actions on spending has been difficult to establish. According to IFIs' analysis, the crises did not significantly impair LICs' ability to repay their future debt, and thus did not necessitate an increase in their access to grants, which do not have to be repaid, relative to loans. The reliability of this analysis depends on the realism of IFIs' projections, which include quick economic recovery, implementation of policy reforms, and low inflation. According to IFIs' projections, the ability of six LICs to repay their debt improved during the crises, and thus they received more loans instead of grants. However, the IMF subsequently reported renewed risks to the global economic recovery, meaning that projections for future export growth, government revenue, and inflation might be too optimistic. This report contains no recommendations. The World Bank, IMF, and U.S Treasury generally agreed with our findings but identified areas to provide greater context.

section_title: Letter
paragraphs: The 40 poorest countries in the world, known as low-income countries  (LICs), have been negatively impacted by successive and overlapping  food, fuel, and financial crises since 2007. International financial  institutions (IFIs), including the World Bank and the International  Monetary (IMF), report that these crises have had a severe impact on  poverty. In addition, the World Bank reports that the crises led to  significant increases in hunger and infant mortality, impacting millions of  people in developing countries. In response to the crises, IFIs have taken  actions to increase financial assistance for affected countries.
Between 2008 and 2010, Congress appropriated $3.3 billion to the World  Bank’s International Development Association (IDA), which funds health,  education, infrastructure, agriculture, economic, and institutional  development programs in about 80 developing countries, including LICs.  During this period, IDA launched crises response programs in LICs to  protect the poor and vulnerable, maintain and increase social and  infrastructure spending, and—in conjunction with the World Bank’s  International Finance Corporation (IFC)—support and promote private  sector activity. In 2009, Congress authorized the Secretary of the  Treasury to instruct the U.S. Executive Director to the IMF to vote to  approve the sale of a limited amount of the IMF’s gold to, among other  things, provide additional lending to LICs. The IMF said it would respond  to the crises in part by increasing below-market-rate financing to LICs  with crises-related balance-of-payments problems.
Since the 1990s, many LICs have received a significant amount of debt  relief from the IMF, the World Bank, other multilateral creditors, country  creditors, and commercial creditors to lower debt to levels considered  “sustainable,” meaning the country can make its future debt payments on  time and without rescheduling. Recognizing that debt relief recipients  remain vulnerable to future debt problems, caused by shocks, such as food  and fuel price increases or adverse weather events, the World Bank and  IMF jointly conduct a debt sustainability analysis (DSA) to assess how a  country’s current level of debt and prospective new borrowing affect its  ability to service its future debt. An important output of the DSA is a  country’s debt distress rating, which is used to determine the mix of grants  and loans provided by IDA to countries. For example, countries classified at  a high risk of debt distress receive 100 percent grants from IDA, which do  not have to be repaid, while countries at moderate risk receive a blend of  50 percent grants and 50 percent loans, which are provided at below- market rates.
You asked us to assess the IFIs’ response to LICs’ needs during the  crises. We examined (1) the economic impact of the crises on LICs, (2)  IFIs’ responses and reported results, and (3) IFIs’ assessment of the  impact of the crises on LICs’ ability to repay their debt.
To address our objectives, we analyzed documents and data from the U.S.  Department of the Treasury (U.S. Treasury), the World Bank, and the IMF.  We interviewed officials from these institutions, as well as from the  Department of State, and the U.S. Agency for International Development  (USAID). We compiled data for macroeconomic indicators from IMF, World  Bank, and United Nations (UN) databases and compared each LIC’s  macroeconomic performance during the crises period of 2007 through  2009 to the pre-crisis period of 2004 through 2006. We selected three  countries in Africa for more thorough analysis: Burundi, Ethiopia, and  Tanzania. We selected these countries based on several criteria, including  the number of IFI projects and amount of IFI financial support. Our  selection of countries is nongeneralizable and meant to be illustrative, not  representative. We focused on the amount and speed of financial  assistance and the extent to which IFI actions caused increases in recipient  governments’ spending, but we recognize that there are other less  quantifiable considerations for assessing the impacts and effectiveness of  IFI financial assistance. We analyzed World Bank data on financial  commitments and disbursements made to LICs between 2005 and 2007,  the pre-crisis period, and between 2008 and 2010, the crises response  period, to evaluate whether the World Bank’s crisis response was  consistent with the institutions’ stated goals. We used information on IMF  program and funding levels to determine the nature and size of the IMF’s  response to the crises and assessed the sensitivity of the results of an IMF  analysis of government spending in LICs in 2009 using data from the IMF  and the World Governance Indicators. We analyzed joint IMF-World Bank  debt analyses, IMF program documents, and World Bank Country  Assistance Strategies to assess IMF-World Bank efforts to monitor debt  sustainability for the three case study countries. Our assessment of a  country’s debt distress rating, or the degree to which a country faces  repayment difficulties, included an examination of the debt analyses’  underlying macroeconomic projections and assumptions.
We conducted this performance audit from September 2010 to  September 2011 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. (See appendix I  for a more detailed discussion of our scope and methodology.)
subsections: section_title: Background
paragraphs: Since 2007, a series of overlapping food, fuel, and financial crises have  negatively affected the world economy, prompting the IFIs to respond.  (See fig. 1.)
Between 2007 and 2009, a financial crisis in the U.S. subprime mortgage  market gradually extended to other developed countries and became a  global financial crisis, which in turn generated a global economic crisis  impacting developed and developing countries—including LICs—with  varying degrees of intensity. Prior to, and partly in parallel with the financial  crisis, global food and fuel prices increased sharply between mid-2007 and  mid-2008. In some cases this exacerbated the impact of the financial crisis  and some governments banned food exports. Although international food  and fuel prices dropped precipitously as the global financial crisis unfolded  in late 2008, they have resurged to record highs again in 2011, igniting  concerns about a repeat of the 2008 food crisis and its negative impact on  poor people in developing countries, particularly LICs.
IFIs and global leaders have launched a coordinated international  response to the crises. In March 2009, the World Bank announced a  comprehensive crises response framework that could channel additional  donor contributions to poor countries to bolster ongoing World Bank  activities. To help ensure that IFIs would have sufficient resources to  respond to the crises, in April 2009 the Group of Twenty (G-20) world  leaders committed to measures designed to increase IFI resources  available to LICs, including through voluntary bilateral contributions to the  World Bank’s crises response framework. The G-20 also endorsed the  IMF’s intention to increase financing for LICs, including from resources  derived from proceeds of IMF gold sales.
LICs, the majority of which are in sub-Saharan Africa, comprised a  population of about 810 million people at the outset of the crises in 2007.  Most LICs depend to some extent upon imports of food and fuel, and  about half are classified as fragile states challenged by weak capacity,  poor governance, political instability, ongoing violence or the legacy of  past conflict, as shown in fig. 2. According to IFIs, these factors can  render countries vulnerable to crises driven by fluctuations in international  food and fuel prices. ........................................
subsections: section_title: Instructions:
paragraphs: Online, hover over a country name in the table for more information. For print version, see appendix II, page 53.
In food-importing countries, imports of basic foodstuffs outweighed exports over the past 3 years,  according to the UN Food and Agriculture Organization.  We define net energy consumers as those countries for which net energy production was less than  consumption in 2009.  The World Bank uses the term “fragile” to refer to countries with particularly weak policies and  institutions, as well as those with the presence of a UN or regional peace-keeping or peace-building  mission during the past 3 years.
The World Bank and IMF provide financial and technical assistance to  member countries. Two World Bank institutions—IDA and IFC—assist  LICs. IDA, the primary World Bank financer to LICs, provides no-interest  loans and grants to eligible countries that have limited or no access to  international credit markets. IDA funds long-term programs in agriculture,  infrastructure, and social services such as health and education, and  provides technical assistance for programs in economic and institutional  development to strengthen country policies and institutional capacity.  Commitments to these programs are disbursed at different rates depending  on a number of factors, including recipient country capacity and whether  the project is an investment lending project or a development policy lending  project. The rate of disbursements is important because committed funds  cannot be used by recipient countries until the funds are disbursed. IFC  provides investments and advisory services to build the private sector in  developing countries, including LICs.
The IMF provides economic surveillance, lending, and technical  assistance to its member countries. IMF surveillance involves the  monitoring of economic and financial developments and the provision of  policy advice. The primary purpose of IMF lending is to assist countries  facing balance-of-payments difficulties, and IMF loans to LICs are  intended to help foster economic growth and reduce poverty. IMF lending  is conditional upon borrowing countries’ implementation of policies. To  help countries manage their economies, the IMF provides guidance and  training on how to strengthen institutions and design appropriate  macroeconomic, financial, and structural policies.
Since 1996 the World Bank and IMF have participated in bilateral and  multilateral efforts to relieve the debt burdens of poor countries to help  them achieve long-term economic growth and debt sustainability,  meaning they can make their future debt payments on time without  rescheduling. To assess how a country’s current level of debt and  prospective new borrowing affect its ability to service its debt in the future,  the World Bank and IMF jointly conduct a DSA. DSAs include an analysis  of a country’s projected debt burden over the next 20 years and its  vulnerability to shocks. In 2009, we reported that the World Bank and IMF  had improved their DSAs, including by considering the strength of a  country’s policies and institutions, and that the DSAs identified numerous  ambitious actions countries should take in order to avoid future  unsustainable debt levels.
section_title: Crises Negatively Impacted LICs, but Less Than Experienced by Advanced Economies
paragraphs: The food, fuel, and financial crises negatively impacted LIC economies,  but the slowdown in growth was less than experienced by advanced  economies. Our analysis shows that during the crises period of 2007  through 2009, key economic indicators slowed or declined for 38 LICs  compared to the pre-crises period of 2004 through 2006.
subsections: section_title: Economic Growth Slowed and Inflation Increased
paragraphs: While the average annual growth rate in real gross domestic product  (GDP), or national income, for the 38 LICs remained positive during the  crisis period, it declined by an average of about 1 percentage point,  dropping from an average of 7.1 percent during the pre-crises period to  an average of 6.2 percent during the crises period. The largest decline  occurred between 2007 and 2009 when real GDP growth fell nearly 2  percentage points, from 7.1 percent to 5.3 percent. (See fig. 3.) Nine  countries experienced an actual decline in their real GDP in 2008 or  2009: Cambodia, Chad, Eritrea, Guinea, Madagascar, Mauritania, Niger,  Solomon Islands, and Zimbabwe.
The slowdown in the growth rate of real GDP in LICs was milder than the  downturn in real GDP growth experienced by advanced economies during  the crises, which declined from 2.7 percent in 2007 to -3.4 percent in  2009. According to the IMF, the LICs’ period of growth prior to the crises  provided a cushion, helping many countries weather the food and fuel  price increases between 2007 and 2008 and the global financial crisis.  However, IFIs have reported that lower growth rates caused by the crises  could lead to increases in poverty in LICs.
Moreover, the slowdown in real GDP growth occurred while LICs’ inflation  was rising. The average annual inflation rate for 38 LICs increased from  8.6 percent during the pre-crises period to an average of 11.6 percent  during the crises, peaking at nearly 14 percent in 2008. (See fig. 4.)
Higher food and fuel prices contributed to rising inflation. World food  prices were stable from 2001 to the beginning of 2007, and then climbed  steeply during 2007 and 2008. After a brief downturn in the latter part of  2008, world food prices began rising again, resulting in a net increase in  prices of about 74 percent between January 2007 and May 2011. (See  fig. 5.)
Similarly, world crude oil prices rose sharply during 2007 and 2008 and,  after receding through early 2009, rose again through May 2011, resulting  in a net price increase of over 99 percent when compared to January  2007. (See fig. 6.)
While the human and social development impacts of higher prices vary by  country, the resurgence in prices has triggered renewed concern. Our  previous work shows that many LICs were experiencing protracted food  emergencies and had severe and widespread malnourishment even prior  to the onset of the crises. In April 2011, the IFIs warned that the  resurgence of higher food prices was increasing the cost of food imports  in LICs, aggravating existing balance-of-payments problems and putting  pressure on government budgets. Moreover, in July 2011, the UN World  Food Program declared a food crisis in eastern Africa due mainly to low  domestic harvests resulting from consecutive droughts.
section_title: Trade and Fiscal Deficits Worsened
paragraphs: The average current account (trade) deficit-to-GDP ratio for the 38 LICs  increased from 3.6 percent in 2007, to 5.4 percent in 2008, and  decreased to 4.2 percent in 2009, as shown in figure 7. Twenty-eight  countries experienced a widening of their current account deficit-to-GDP  ratio during the crises period compared to the pre-crises period.
Moreover, the fiscal deficit-to-GDP ratio increased from an average of 2.6  percent in 2007 to 3.7 percent in 2009 for 37 LICs, attributable more to  rising expenditures than declining revenues. The fiscal deficit-to-GDP  ratio for the LICs averaged 1.8 percent between 2004 and 2006 and  nearly doubled to 3.2 percent between 2007 and 2009. The IMF reported  that most LICs adopted a countercyclical fiscal response, such as  preserving or expanding spending to support the economy and protect  the poor. The growth rate of real primary expenditures accelerated,  leading to a widening of the fiscal deficit-to-GDP ratio. The IMF also  reported that LICs could increase spending, in part, because they had  established sufficiently strong fiscal positions before the crises began.
section_title: Foreign Direct Investment Declined in 2009
paragraphs: Net foreign direct investment inflows for 39 LICs declined by 17 percent  during 2009, ending a generally steady increase since 2000, as shown in  fig. 8. Twenty-three of the 39 countries, or nearly 60 percent, had lower  net foreign direct investment inflows in 2009 compared to 2007.
section_title: IFIs Increased Funding and Met Many Disbursement Goals, but the Impact of Their Actions on LIC Government Spending Has Been Difficult to Establish
paragraphs: In response to the crises, we found that IDA met its goal to increase the  amount of financial assistance and partly met its goal to increase the  speed of disbursements to LICs, but the impact of IDA’s actions on LIC  government spending has been difficult to establish. The IFC increased  assistance to LICs but its response was limited by capacity constraints  and is difficult to measure. The IMF significantly boosted financial  assistance to LICs, but its contribution to LIC government spending  increases during the crises has been difficult to establish.
subsections: section_title: IDA Increased Financial Assistance and Met Many Disbursement Goals, but Impact on Government Spending Has Been Difficult to Establish
paragraphs: IDA met its goal to increase the amount of financial assistance and partly  met its goal to increase the speed of disbursements to LICs. In addition,  IDA reported that its crises response initiatives supported LIC government  spending but we found that the impact has been difficult to establish.
The World Bank responded to crises in LICs through regular IDA lending  and by establishing initiatives. The World Bank committed a total of $18.1  billion in IDA funds to LICs during the crises response period between  2008 and 2010 through both regular IDA lending and crisis response  initiatives. This represented an increase in new commitments of  approximately $5 billion, or 39 percent, as compared to commitments  made between 2005 and 2007. These resources were part of a fixed 3- year allocation, replenished in 2008 prior to the onset of the global  economic crisis. This allocation represented an increase of 12.8 percent  as compared to the 2005-2008 IDA allocation and was intended in part to  help countries achieve the Millennium Development Goals (MDGs). To  respond to the crises within the context of this fixed set of resources, IDA  could choose to shift its priorities toward crisis response, accelerate  disbursements of existing IDA funds, or provide additional funds from  donors or internal resources.
To complement regular IDA lending during the crises, the World Bank  established a crisis response framework comprised of five initiatives that  committed $12.2 billion in financial assistance to LICs between 2008 and  2010. These commitments included $10.8 billion in existing IDA funds  and $1.4 billion in new financial assistance. The five initiatives are:  the Global Food Crisis Response Program (food program),  established in May 2008 to help countries reduce the impact of high  food prices on the poor by providing rapid financial assistance, policy  advice, and social protection services such as food stamps and  school feeding programs for the most vulnerable;  the IDA Fast Track Facility, established in December 2008 to help  countries offset the impacts of the financial crisis on governments’  budget expenditures, including social and infrastructure programs;  the Rapid Social Response Program (social protection program),  established in April 2009 to help countries mitigate the impacts of  crises by promoting social protection programs through rapid  financing of immediate interventions in safety nets and other areas,  and by improving capacity needed to establish and implement  effective safety net systems;  the Infrastructure Recovery and Assets Platform (infrastructure  program), established in March 2009 to help countries mitigate the  impacts of the crises by supporting critical infrastructure investments  and new project development and implementation, and;  the Pilot Crisis Response Window, established in November 2009 to  help reduce the need for countries to make tradeoffs between  financing crises response efforts or long-term development programs  by providing new financing that was additional to countries’ existing  IDA funds.
In response to the crises, IDA committed $1.4 billion in new financial  assistance to 36 LICs between 2008 and 2010. Four of the five  initiatives—the food, social protection, and infrastructure programs and  the Pilot Crisis Response Window—aimed to increase the amount of  financial assistance available to LICs using additional donor contributions  and internal World Bank resources. We found that IDA committed $1.1  billion in new financial assistance to LICs through the Pilot Crisis  Response Window and $288 million in new grant assistance to LICs  through the food and social protection programs. The World Bank  reported that governments’ requests for social protection grants to  establish and enhance safety net systems provided by the social  protection program significantly exceeded the availability of new  resources. By April 2011, LICs had submitted 133 project proposals  totaling $161 million against available funding of about $58.5 million.  These projects were to establish or enhance social protection activities  and safety net systems benefiting the poorest, as well as to improve the  data and institutional capacity necessary for effective implementation.  The World Bank further reported that it has established a permanent  Crisis Response Window effective July 2011 that could be used to  continue to fund activities supporting both crises response and  preparedness in IDA-eligible countries, including LICs. Finally, donors  did not provide additional funding to the infrastructure initiative, which was  originally designed to provide up to $3 billion to help offset the impact of  soaring energy prices.
Four of the five IDA initiatives—the Fast Track Facility, food program, social  protection program, and Pilot Crisis Response Window—were designed to  increase the disbursement speed of commitments made from existing IDA  funds. While disbursement rates are a useful metric for capturing the World  Bank’s response to the immediate needs of recipient countries through the  crises response initiatives, we recognize that there are other less  quantifiable considerations for assessing the impacts and effectiveness of  development assistance. These initiatives were also designed to increase  the speed of project preparation and processing, which occurs prior to  project approval. According to the World Bank, preparation time was  reduced during the crisis for both investment lending and development  policy lending programs. To determine whether the disbursement speed of  commitments made through the crises response initiatives had increased,  we compared the first year disbursement rates for each initiative to the first  year disbursement rate of projects approved from 2008 through 2010 that  did not fall under any initiative. The World Bank uses a different  methodology to report disbursement rates. We did not use the World  Bank’s standard disbursement rate methodology because our analysis  sought to isolate those activities which were explicitly undertaken in  response to the crises.
These initiatives committed approximately $3.9 billion to 32 LICs from  existing IDA funds. Three of four initiatives increased the speed of  disbursements. The infrastructure program, which committed $6.9 billion  in existing IDA funds in addition to the $3.9 billion, did not have a goal to  increase the speed of disbursements. More specifically:    The first year disbursement rate was 69.1 percent for the Fast Track  Facility, compared to a first year disbursement rate of 33.5 percent for  projects that were not funded through an initiative.    The first year disbursement rate was 64.5 percent for the food  program, compared to a first year disbursement rate of 33.5 percent  for projects that were not funded through an initiative. However, we  found that almost half of the commitments made through existing IDA  funds, about $405 million, went to three projects in Ethiopia and  Bangladesh. When these projects are excluded from the analysis, the  disbursement rate for this initiative declines to 39 percent.    The first year disbursement rate for the social protection program was  34.1 percent, slightly higher than the first year disbursement rate of  33.5 percent for projects that were not funded through an initiative.  However, the social protection program did not increase the speed of  disbursements when compared to social protection projects approved  during the pre-crises period, which had a first year disbursement rate  of 47.8 percent. According to the World Bank, increasing the speed  of disbursements for social protection programs in LICs has been  challenging due to a lack of existing social protection programs and  recipient countries’ capacity to effectively implement them. To  address this challenge and facilitate crises preparedness in LICs, the  World Bank intends to continue to finance the development of social  protection programs. In early 2011 donors emphasized the  importance of a continued focus on capacity building and improved  data collection in LICs, to help overcome these constraints.    The Pilot Crisis Response Window did not increase the disbursement  speed of commitments, with a first year disbursement rate of 27.5  percent, compared to a first year disbursement rate of 33.5 percent for  projects that were not funded through an initiative (see fig. 9).
In 2009, the Development Committee, an advisory group to the World  Bank and IMF, also urged the acceleration of the delivery of financial  assistance to recipient countries. However, we found that the World Bank  did not accelerate disbursements for both investment lending projects or  development policy lending projects for the group of LICs on average as a  whole even though a majority of countries received disbursements faster  during the crises response period. Specifically, the average first year  disbursement rate to LICs was 16.8 percent for all investment lending  projects approved between 2008 through 2010, as compared to an  average first year disbursement rate of 17.3 percent for all investment  lending projects approved between 2005 through 2007. Similarly, the  average first year disbursement rate to LICs was 90.7 percent for all  development policy lending projects approved between 2008 through  2010, as compared to an average first year disbursement rate of 96.9  percent for all development policy lending projects approved between  2005 through 2007. Overall, the average first year disbursement rate to  LICs was 31.1 percent for all projects approved between 2008 and 2010,  as compared to an average first year disbursement rate of 39.3 percent  for all projects approved between 2005 and 2007, a difference of about 8  percentage points. According to U.S. Treasury, this decline in part reflects  the World Bank’s need to ensure that recipient country capacity and  governance controls were sufficiently robust to absorb the additional  resources provided during the crisis period.
However, at the individual country level, total commitments in 22 of 36  LICs, including commitments made to both investment lending projects  and development policy lending projects, were disbursed faster during the  crises period than during the pre-crises period. Disbursement rates,  which vary over time, depend on a number of factors, including recipient  country capacity, need, and governance, and the type of lending. For  example, commitments to Burundi, a fragile state with limited capacity,  increased by 114 percent while disbursements increased by 46 percent,  which results in a lower disbursement rate during the crises response  period. (See fig.10.) LIC governments reported mixed experiences  relating to the timeliness of the World Bank’s response to crises. Some  governments said they received financial support very rapidly, while  others noted that World Bank support had been sluggish. For a more  detailed analysis of World Bank commitments and disbursement rates to  individual countries, see appendix III.
The World Bank reported that speed was facilitated by the Bank’s new  rapid response policy and increased use of development policy lending  where circumstances permitted. In addition, World Bank and U.S.  Treasury officials reported that the restructuring of existing lending  portfolios facilitated an expedient response in some countries.
Two initiatives were designed to support domestic spending in recipient  countries during the crises, in areas including social services, education,  and infrastructure. In 2010, the World Bank reported that both initiatives— the Fast Track Facility and the infrastructure program—met this goal. For  example, the World Bank reported that the Fast Track Facility operation in  the Democratic Republic of Congo prevented the government from having  to cut essential social spending or resort to inflationary spending.  Similarly, the World Bank reported that the infrastructure program  supported domestic spending and helped to mitigate the direct impacts of  the crisis.
However, as we previously reported, IFIs do not independently track  developing countries’ poverty-reducing expenditures and instead rely  upon developing countries’ governments to provide such data, even  though the accuracy of these data and country capacity to provide this  information is questionable. Additionally, for the infrastructure program,  the World Bank developed a rapid diagnostic tool to identify at-risk  countries and provide a detailed assessment of crises impacts and  associated country infrastructure spending needs, but conducted the  diagnostic in only one LIC, Bangladesh. Therefore, we found that the  degree to which World Bank actions impacted government spending has  been difficult to establish.
section_title: IFC Increased Assistance to LICs, but Its Response Was Limited by Capacity Constraints
paragraphs: The IFC responded to the food and fuel crises through lending in the  agriculture and energy sectors and responded to the financial crisis  through existing and new initiatives and by enhancing coordination with  donors, but its response was limited by capacity constraints. Between  2008 and 2010, IFC increased its new lending commitments in LICs while  new IFC commitments overall declined and foreign direct investment in  LICs declined by 17 percent between 2008 and 2009. As a result, IFC’s  investments during the crises in LICs increased as a percentage of net  foreign direct investment. Annual IFC commitments in LICs in fiscal years  2009 and 2010 exceeded $900 million each year, while commitments in  fiscal year 2008 were about $460 million. IFC also committed a total of  $1.1 billion to LICs through two crisis response initiatives, the pre- existing Global Trade Finance Program and the new Global Trade  Liquidity Program, which supported $3.4 billion in trade through credit  guarantees and risk sharing.
According to officials, IFC also developed new approaches for  coordinating with other multilateral institutions in LICs at the regional  level. The Joint Action Plan for Africa, established in 2009, for example,  developed a method for IFC to collaborate more closely with other  lenders in support of development activities in Africa. Similarly, officials  said that agreements with donors, made to enhance the response to the  financial crisis, will allow IFC to quickly coordinate with donors in  response to a future crisis.
According to IFC officials, IFC’s response was limited by internal and  external constraints. Internally, under its Articles of Agreement IFC must  undertake its financing on terms and conditions which it considers  appropriate, taking into account, among other things, the terms and  conditions normally obtained by private investors for similar financing. In  addition, IFC has relatively limited resources as compared to other IFIs.  Officials told us that because of these constraints, much of its crisis  response relied on donor governments to provide additional funds. In some  cases, this dependence negatively affected the speed of IFC’s response  because IFC could not respond until donor governments fulfilled their  commitments. IFC also faced external capacity constraints in recipient  countries. For example, officials explained that in Ethiopia, foreign  investors, including IFC, are often subject to additional scrutiny by the  government, which has limited IFC’s ability to do business there. Overall,  IFC officials said that the actions they took to respond to the crises sent a  positive signal to the market, but officials noted that this is difficult to  measure and did not provide quantitative evidence of this effect.
section_title: IMF Significantly Boosted Financial Assistance to LICs, but Its Contribution to Government Spending Increases Has Been Difficult to Establish
paragraphs: During the crises response period between 2008 and 2010, the IMF  response included committing approximately $4.9 billion in new lending to  28 LICs, temporarily lowering interest rates on its loans, and doubling the  limit individual countries could borrow against. In addition, the IMF  provided $250 billion to support all of its members, including LICs, which  collectively received the equivalent of $5.8 billion. Governments could  use these funds to boost international reserves, cushion against shocks,  or meet balance-of-payment needs. Moreover, the IMF changed its  lending instruments to address crisis impacts, aiming to make them more  flexible and tailored to specific country needs. For example, according to  the IMF, the newly created Rapid Credit Facility provides low-access,  rapid, and below-market-rate financial assistance to LICs facing an urgent  balance-of-payments need, without requiring program-based conditions.  According to IMF officials, these efforts were supplemented by technical  support and surveillance activities, which also played a role in assisting  LICs through the crises. In addition, the IMF reported that its policy advice  and programs in LICs were supportive of a countercyclical policy  response and higher government spending during the crisis. For example,  according to the IMF, government spending increased in almost 90  percent of LICs with IMF programs in 2009.
We found that IMF loans to LICs increased more than sixfold from  approximately $748 million between 2005 and 2007 to about $4.9 billion  between 2008 and 2010. In the three countries we reviewed—Burundi,  Ethiopia, and Tanzania—the IMF reported that country-specific program  goals were achieved. However, circumstances may change quickly, and  in one case, inflation resurged soon after the program ended. While  conclusions from this sample are not generalizable to all LICs, these  examples illustrate how IMF-supported programs operated in these three  countries.
In July 2008, Burundi started a 3-year $76 million arrangement with  goals to support poverty reduction and macroeconomic stability.  Approximately 3 years later, a June 2011 IMF review stated that  performance under the program has been broadly satisfactory,  despite the impact of the food and fuel shocks. At the same time,  however, the IMF also lowered Burundi’s 2011 economic growth  projection to 4.2 percent, due in part to the expectation that higher  food and fuel prices will continue.    Ethiopia requested a $240 million arrangement in August 2009 to help  steer the economy through the global financial crisis, with the goals of  reducing inflation and building international reserves. In October 2010,  an IMF review concluded that the program was on track and that  government policies to reduce inflation and increase reserves had  been successfully implemented. According to IMF officials, the  program ended in November 2010 and inflation rose to about 30  percent in May 2011, mainly because the government did not  implement agreed-to reforms.    Tanzania began a $328 million 12-month arrangement in May 2009  with the goal of mitigating the adverse impact of the global financial  crisis and addressing a projected deterioration in balance of payments  stemming from a decline in exports and foreign direct investment. The  IMF’s subsequent review determined that country program goals were  met, and the program was concluded on schedule a year after  inception.
The IMF also noted that LICs supported by an IMF program increased  government spending during the crises, including on health and education  services, more than countries that were not supported by an IMF  program, and implied that this was attributable to the IMF programs “as  Fund financing reduced liquidity constraints and helped catalyze donors’  support.” However, we found that this causal link has been difficult to  establish because the comparison groups differ in important ways. In  order to conclude that differences in government spending are driven by  IMF programs, the groups of countries being compared need to be as  similar as possible. Our analysis of the data underlying the IMF’s  assertion found that non-program LICs consistently differed from program  LICs across certain measures of institutional quality and macroeconomic  policy. Furthermore, the finding that program LICs increased spending  more than non-program LICs is highly sensitive to the inclusion of a few  countries in the group of non-program LICs, which either did not need a  program or could not obtain one. Non-program LICs had lower scores on  a variety of measures of institutional quality, such as political stability,  government effectiveness, and rule of law. Countries with institutional  weaknesses in these categories may overlap with the fragile states, as  shown in fig. 2. In addition, non-program LICs had higher inflation rates  and larger budget deficits prior to the crises than LICs with IMF-supported  programs, which may indicate that non-program countries had less  capacity to use fiscal and monetary policy to respond to the crises.
We conducted several analyses to determine if the IMF’s results were  sensitive to small changes in the underlying sample of countries designed  to make the set of non-program LICs more like LICs with IMF programs.  In one analysis, we omitted the countries with the two lowest scores on  political stability in 2009 (Sudan and Yemen) from the set of non-program  LICs, thereby making the sample more similar to program LICs. Based on  the new sample, program LICs no longer increased spending more than  non-program LICs. In another analysis, we omitted the countries with the  two largest budget deficits prior to the crisis (Eritrea and Guyana) from  the set of non-program LICs and similarly found that program LICs no  longer increased spending more than non-program LICs. Importantly, it  does not necessarily follow from these sensitivity analyses that IMF- supported programs were ineffective at increasing spending. A  reasonable estimate of what might have happened in the absence of an  IMF-supported program is necessary to assess the impact of programs  on spending, which the IMF analysis implicitly assumes is the experience  of non-program LICs. A more rigorous analytical approach would be  needed to conclude that IMF-supported programs resulted in increased  government spending during the crises. Analytical approaches that  systematically account for differences between program and non-program  countries would be necessary to credibly conclude whether or not an IMF- supported program led to greater public spending.
section_title: IFIs Did Not Lower Debt Distress Ratings Due to the Crises, but If Underlying Projections Prove Too Optimistic Then Grants Could Be Increased
paragraphs: The IMF and World Bank prepare annual debt distress ratings, which  assess countries’ ability to repay their debt. The IMF and World Bank did  not lower any LICs’ debt distress rating as a result of the food, fuel, and  financial crises. However, we found that some of the underlying  macroeconomic projections might prove too optimistic based on current  risks to the global economic recovery and rising commodity prices, as well  as on our review of the debt sustainability analysis (DSAs) for three  countries. If these projections ultimately prove too optimistic and countries’  ability to repay their debt declines significantly, some multilateral institutions  could subsequently choose to provide more grants than loans to help lower  the risk of debt problems reemerging. Our review of these DSAs is  nongeneralizable and meant to be illustrative, not representative.
subsections: section_title: Debt Distress Ratings Assess Countries’ Ability to Repay Debt
paragraphs: The debt distress rating is the IMF and World Bank’s assessment of the  risk that a country will not be able to repay its future debt. In assessing  risk and determining a sustainable debt level, the DSA considers the  strength of the country’s policies and institutions based on the World  Bank’s Country Policy and Institutional Assessment index (CPIA). The  index classifies LICs as weak, medium, or strong performers, with debt  burden thresholds associated with each performance category, as shown  in figure 11. For example, Ethiopia is in the “medium” performer  category, which means that its performance will be judged against the  debt burden threshold indicators for that category. The threshold indicator  for the present value debt-to-export ratio is 150 percent. Exports are an  important source of funding for repaying debt. The IMF and World Bank  have determined that debt-to-export levels in excess of 150 percent put  LICs ability to repay debt at risk. According to Ethiopia’s 2010 DSA,  Ethiopia’s debt-to-export ratio is projected to reach a high of 133 percent  in 2011 and then decline. Burundi, which is classified as a “weak”  performer, faces a lower, more constraining threshold of 100 percent.  According to its 2010 DSA, Burundi’s debt-to-export ratio exceeded this  limit throughout the projection period by a wide margin. For example, from  2011 through 2013, that ratio was projected to be at or above 200  percent. The IMF and World Bank use the extent and duration of the  threshold breaches to determine the country’s debt distress risk rating, as  discussed below.
The assessment of the country’s risk of debt distress—meaning the  country cannot service its debt without resorting to exceptional finance  (such as debt relief) or a major correction in balancing its income and  expenditures—depends on how the country’s debt indicators compare  with these debt burden threshold indicators under the DSA’s “baseline”  scenario, as well as under alternative scenarios and stress tests. The  baseline is the main macroeconomic scenario which describes the  evolution of the debt and the macroeconomic variables based on realistic  assumptions and projections of key macroeconomic variables such as  GDP, inflation, exports, imports, and government revenues. Countries are  classified into four categories—low, moderate, high risk, or in debt  distress—according to their likelihood of debt distress, based on the  extent and duration of breaches in their threshold indicators. (See fig.  12.) Debt burden thresholds are not rigid ceilings, and, according to the  IMF and World Bank, the debt distress rating seeks to strike a balance  between a mechanistic use of the categories and a judgmental approach.
Countries classified as “in debt distress” or “high risk of debt distress”  receive 100 percent grant financing from IDA, while countries at moderate  risk receive 50 percent grants and 50 percent concessional loans, and  countries at low risk continue to receive 100 percent concessional loan  financing. As shown in figure 12, 13 of the LICs are “in” or at “high” risk of  debt distress and 24 are either at “moderate” or “low” risk.
The DSA uses a 3-year moving average CPIA score in determining a  country’s policy performance in order to reduce variations in the risk of  debt distress rating stemming from small annual fluctuations in the CPIA  that do not represent a material change in countries’ capacity to service  their debt. If following the release of the new annual CPIA score, the  updated 3-year moving average CPIA rating breaches the applicable  CPIA boundary, the country’s performance category would change only if  the size of the breach exceeds 0.05; if below 0.05, the country’s  performance category would change only if the breach is sustained for 2  consecutive years.
section_title: IMF and World Bank Did Not Lower Debt Distress Ratings Due to Crises
paragraphs: Although the crises adversely impacted LICs’ economies, the IMF and  World Bank did not change any country’s debt distress rating as a result  of the crises, indicating that they did not expect the crises to adversely  impact LIC economies enough to significantly impair their ability to repay  debt. The IMF forecasted a rebound in LIC growth in line with the forecast  of a quick recovery for the global economy. The global recovery, which  the IMF subsequently reported is subject to risks, is expected to boost  demand for LIC exports and improve access to foreign capital, both of  which are expected to facilitate private sector growth. According to the  IMF, the LICs’ period of growth prior to the crises provided a cushion,  helping countries weather the food and fuel price increases between 2007  and 2008 and the global financial crises. As a result, LICs were able to  implement countercyclical policies, such as preserving or expanding  spending to support the economy and protect the poor, and expanding  public investment.
For reasons other than the crises, the IMF and World Bank changed 10  LICs’ debt distress ratings from 2007 through 2010. (See fig. 13.) Nine  ratings improved for the following reasons:    Six countries received full and irrevocable debt relief from government  and multilateral creditors.    Two countries, Chad and Niger, had higher projected GDP growth  stemming from growth in mineral sectors. Chad achieved higher GDP  growth due to oil sector growth. Niger is implementing large uranium  and oil projects, which are expected to boost exports and government  revenues significantly.    Ethiopia’s rating changed due to the inclusion of workers’ remittances  as an important source of debt service financing and resilience of the  Ethiopian economy to the global economic crisis.
Only one rating worsened. Burkina Faso’s debt distress rating changed  from moderate in 2007 to high in 2008 because the country was  reclassified from a strong to medium performer and therefore exceeded  the new, lower debt burden indicators.
The implication of a change in a country’s debt distress rating is that a  country whose rating improves will generally receive a larger proportion of  concessional loans, and if it worsens, it will receive a greater proportion of  grants, as shown in figure 13.
According to the IMF and World Bank, the DSA’s quality depends to a  large extent on the realism of the projections under the baseline scenario.  As explained in their policy paper, realistic means that the scenario takes  account of a country’s growth potential as well as its capacity constraints,  including the risk that governments do not implement desired policy  reforms. Further, historical averages for the key macroeconomic  variables for the past 10 years may provide some guidance about the  extent of realism in the baseline scenario projections. The IMF has  indicated that explicit justification is required if sustainable debt ratios are  driven by DSA assumptions that deviate sharply from historical norms.
We assessed the realism of the 2010 DSA projections for three  countries—Burundi, Ethiopia, and Tanzania—and found that a too  optimistic tone potentially prevailed. While conclusions from this sample  are not generalizable to all LICs, these examples are illustrative of how  DSAs are conducted. For the sample we reviewed, we based our  conclusion on our analysis of the divergence between the DSA  projections and their historic values, as well as on the reasonableness  of the DSAs’ underlying assumptions that countries (1) would realize  growth-enhancing investments; (2) would implement agreed-to reforms,  such as tax reforms that would boost government revenues; and (3)  would not be subject to adverse country-specific factors, such as  recurring droughts, floods, and political instability. For the three countries  we reviewed, we found that macroeconomic projections did not  adequately consider the country’s vulnerabilities, such as failure to  implement reforms, inability to make planned investments, or recurrence  of adverse weather or political instability.
The 2010 DSA for Burundi projects that real GDP growth rate will  increase from its 10-year historical average of 2.7 percent to an average  of 4.7 percent over the medium-term. This projected strong GDP growth  depends on several factors, including an increase in anticipated export  earnings from privatization of the coffee sector, which accounts for about  two-thirds of total exports, and integration into the East Africa Community,  which could give Burundi access to a broad market of about 120 million  people and attract more investment. However, Burundi might not meet  the GDP projection if it does not realize the higher export earnings from  reform of the coffee sector. Privatization of the coffee sector is occurring  more slowly than expected, with only 13 of 117 coffee processing facilities  sold because there were few interested buyers. While the government  plans to accelerate the sale of the remaining stations beginning in 2011, it  is not clear whether investors will buy them. In June 2011, the IMF  lowered Burundi’s 2011 growth projection from 4.5 percent to 4.2 percent,  noting that higher food and fuel prices were likely to continue to increase  throughout the year.
The IMF reported that risks to Burundi’s macroeconomic outlook are  significant and include higher food and fuel prices and a worsening of the  political, social, and security situation, which would endanger donor  support and could further worsen debt indicators. Nonetheless, the  2010 DSA assumes Burundi’s security and political situation will continue  to improve. Moreover, Burundi’s 2010 DSA projected a large decrease in  the fiscal deficit-to-GDP ratio, from a 5 percent average during 2007  through 2009, to 1.3 percent in 2015, based on a widening of the tax base  as a result of continued tax reforms as well as reductions in spending.  The IMF said that mobilizing domestic revenue is critical for Burundi’s  fiscal sustainability. However, the fiscal deficit projections assume that  Burundi will control government wages and reduce defense and security  spending.
In 2010, the IMF and World Bank changed Ethiopia’s risk of debt distress  from “moderate” to “low” based on the inclusion of workers’ remittances,  which means that Ethiopia now receives 100 percent concessional loan  financing instead of 50 percent grants and 50 percent concessional  loans. In addition, Ethiopia’s 2010 DSA projected that Ethiopia would  achieve strong export growth and implement key reforms. Ethiopia’s 2010  DSA projected exports as a percent of GDP to rise to 19.1 percent by  2015, compared to the 10-year average of 13.5 percent, and to further  increase to a 31 percent average during 2016 through 2030. However, in  April 2011 IMF staff expressed concern that Ethiopia’s failure to  implement monetary reforms, including removing the government- imposed bank credit ceilings, as well as highly negative real interest  rates, were hindering the commercial banks’ financing role, which is  fundamental to higher growth. In May 2011, IMF staff lowered estimates  for Ethiopia’s real GDP growth rate from the 7.7 percent forecasted in  Ethopia’s 2011 DSA to 6 percent for 2011 through 2012 due to high  inflation, restrictions on private bank lending, and a more difficult business  environment.
The projected large increase in growth in the 2010 DSA depended on  anticipated growth in service exports resulting from an expected increase  in electricity exports based on current energy investments, greater  investment in the national airline, and continued good harvests supporting  agriculture. The DSA notes Ethiopia’s debt profile is very sensitive to  export growth assumptions.
The inclusion of workers’ remittances as a source of debt repayment was  a main reason for the improvement in Ethiopia’s debt distress rating in  2010. While the DSA projects workers’ remittances to remain large and  stable at 8.5 percent of GDP, it did not provide historical data or additional  information upon which to base this conclusion. Moreover, IMF staff  reported that Ethiopia’s risk of external shocks, such as droughts and  high international commodity prices, is high. Ethiopia depends on rain-fed  agriculture, which accounts for nearly half of GDP and 85 percent of  employment. For the last 30 years, Ethiopia has been hit by droughts  every 5 to 7 years, as well as frequent increases in international prices.  However, staff told us that country-specific factors, such as weather- related shocks, were not specifically incorporated in the baseline scenario  as such.
Tanzania’s 2010 DSA projects higher export and GDP growth. The 2010  DSA projects a 6.5 percent real GDP growth rate in 2011, rising to 7.5  percent in 2015. The growth in real GDP is based on expected returns  from the increase in infrastructure investment, including a rise in  agricultural productivity and improved food distribution through investment  in rural roads and markets, which is to be financed by additional domestic  and external borrowing on less concessional terms. Also, Tanzania’s DSA  projects an increase in the export-to-GDP ratio from 24.1 percent in the  medium term to 28.5 percent in the long-term based on the country’s  potential to substantially increase commodity and manufacturing exports.
Following discussions with Tanzanian government officials, in Tanzania’s  2011 DSA the IMF projected a slowdown in real GDP growth for fiscal  year 2011/12 (July through June), from the earlier projected rate of 7.1  percent to 6.6 percent. This revision was based on adverse weather,  rising fuel prices, and lagging investment. The poor rainfall disrupted  electricity generation and lagging investment coupled with higher demand  for electricity led to power rationing, which adversely impacted growth.  The rising cost of fuel increased the replacement cost of power  generation. In addition, the ongoing drought could adversely affect the  2011 food harvest.
section_title: If Projections Prove Too Optimistic, Creditors Could Provide More Grants
paragraphs: To the extent that DSA projections prove too optimistic, debt problems  may reemerge. This could become evident in the projections in future  DSAs, and, if the deviations from the prior projections are significant  enough, the country’s debt distress rating could change, meaning the  country could receive more grants than loans. IMF and World Bank staff  advise that the quality of the DSA hinges critically on the projections and  assumptions underlying the baseline scenario, since alternative  assumptions can lead to substantially different debt dynamics.
The causes of optimism in the DSAs could be at the global macroeconomic  level as well as at the country level. According to the IMF, there are  increased risks to global economic recovery, including slower growth and  extreme volatility in commodity prices. At the country level, our assessment  of three countries’ DSAs illustrates how projections and assumptions can  change over a relatively short period of time, potentially affecting a  country’s risk of debt distress. For example, Burundi’s present value of  debt-to-exports ratio already exceeds the country-specific threshold by a  wide margin throughout the projection period. Burundi faces challenges in  generating higher government revenue through tax reform and increasing  export earnings due to slower than anticipated coffee sector reforms. Lower  fiscal revenues or declining GDP growth would lead to a considerable  deterioration of its debt ratios, according to its 2010 DSA. This could lead to  Burundi being classified as “in debt distress.” However, since Burundi is  already to receive only grants from creditors, options to assist the country  financially might be limited.
Similarly, if Ethiopia does not achieve the export growth projections in its  DSAs, its debt ratios and performance ratings could worsen, and, if  significant enough, could lead to a worsening of its debt distress rating. If  this occurs, the terms of Ethiopia’s financing from certain lenders could  change. Ethiopia now receives its financial assistance as all concessional  loans, but a change in risk rating could lead to financing with a larger  grant component.
Regarding Tanzania, IMF staff reported in 2011 that revenue collection  had fallen short of ambitious targets, and that the rapidly increasing fiscal  deficit was being financed by increasingly expensive resources due to a  shift from mostly grants to loans. Though Tanzania’s current risk of debt  distress is low, maintaining current spending policies could widen the  fiscal deficit, leading to rising debt servicing costs, with an adverse impact  on the debt indicators. In May 2011, IMF reported that Tanzania faces  formidable challenges given widespread poverty, high population growth,  and tremendous dependence on foreign aid, and the near-term economic  outlook is subject to considerable uncertainty with a rising risk of donor  aid shortfalls and higher international fuel prices.
Moreover, the effectiveness of the debt distress rating and associated  financing requirements in keeping countries’ debt at sustainable levels  depends on their broader use by borrowers and creditors. Some other  multilateral institutions—including the African Development Bank, Asian  Development Bank, Inter-American Development Bank and International  Fund for Agricultural Development—and developed countries use the  debt distress rating system to make decisions about their terms of  financing. If projections ultimately prove too optimistic and countries’  ability to repay their debt declines significantly, some multilateral  institutions could subsequently choose to provide more grants than loans  to help lower the risk of debt problems reemerging.
section_title: Concluding Observations
paragraphs: The food, fuel, and financial crises resulted in slower economic growth,  higher deficits, and increased inflation for LICs. While the overall impact  of the crises on LICs may have been milder than in the advanced  economies, the high rate of poverty in these countries increases their  overall vulnerability. For example, our previous work shows that many  LICs were experiencing protracted food emergencies and had severe and  widespread malnourishment even prior to the onset of the crises. The IFIs  responded to the crises by increasing the amount of resources made  available to the LICs. The IMF increased lending to LICs more than  sixfold to almost $5 billion. The World Bank committed $18.1 billion  through regular lending and five new crises response initiatives that  committed $12.2 billion in financial assistance to LICs, including $1.4  billion in new funding. The World Bank provided funding as a mix of loans  and grants, depending on the performance and debt vulnerability of each  country. The World Bank was able to meet its goal of increasing the  speed of disbursement for several initiatives, but the overall picture is  mixed, especially when compared to the pre-crises period. Furthermore,  in the case of both institutions, the impact of these new resources on LIC  government spending during the crises has been difficult to establish.  According to the World Bank and IMF, the crises did not significantly  impair the countries’ ability to repay their future debt, because they  expected the world economy to reestablish its pre-crises growth levels  and the LICs to implement reforms necessary to achieve projected future  growth levels. However, the increased risk to the global recovery and the  extreme volatility of commodity prices may undermine the realization of  these expectations. To date, the mix of loans and grants provided by the  multilateral development banks have been largely unaffected by the  crises. We found that the projections for our case study countries may  prove too optimistic, which could contribute to debt problems re-emerging  as the amount of loans countries receive could be greater than what  would be considered sustainable. However, given that the IFIs update the  DSAs on a regular basis, any excessive optimism should become evident  over time, and the World Bank and other lenders could then increase the  amount of grants they provide which would help mitigate potential debt  problems.
section_title: Agency Comments and Our Evaluation
paragraphs: The U.S. Treasury, World Bank, and IMF provided written comments on a  draft of this report, which are reprinted in appendixes IV, V, and VI,  respectively.
The U.S. Treasury commented that the IFIs appropriately responded to  the crisis and effectively managed the trade-offs associated with quickly  disbursing funds in an environment of limited capacity to absorb aid and  that the United States strongly advocated for increased IFI engagement in  LICs during the crises.  The Treasury letter also stated that we provided a  good overview of how the IMF responded forcefully to the crisis.  In our  discussion on the impact of IMF programs on government spending, they  suggested we should have examined the impact of IMF programs on  social spending.  However, we would emphasize that accounting for the  differences between program and non-program countries is critical to  estimating the impact of IMF programs on spending during the crisis,  which the IMF did not do in their 2010 report. The U.S. Treasury also  noted that speed of disbursements is just one measure of effective crisis  response and that it is important to consider trade-offs between speed of  disbursements and the need to ensure adequate governance structures  and fiduciary controls are in place. We included this information in our  report. In addition, the Treasury stated that by working closely with the  World Bank and other multilateral development banks (MDBs) to put in  place the right fiduciary arrangements and strengthen country capacity to  absorb and manage MDB assistance, the Treasury can improve the  quality of the World Bank’s and other MDBs’ interventions and improve  the monitoring and reporting of development results.
The World Bank stated that it welcomes and agrees with our overall  conclusion that IFIs, including IDA and IFC, met many goals in response  to the crises in LICs. The World Bank also stated that it achieved a  significant increase in both its commitments and its disbursements to  LICs. We acknowledge that the World Bank responded to crises in LICs  by increasing its commitments and disbursements through regular IDA  lending and by establishing initiatives. Our analysis focused on the  initiatives because these were specifically designed to respond to the  crises. Our calculations for the overall commitments and disbursements,  as well as the disbursement rates, differed from the World Bank’s  because our methodology sought to isolate those activities which were  explicitly undertaken in response to the crises. The World Bank said that  IDA accelerated assistance delivery without compromising attention to  governance and aid effectiveness. We acknowledge that disbursement  rates, which vary over time, depend on a number of factors, including  recipient country capacity, need, and governance, and the type of  lending. The World Bank said there is growing evidence that IDA- supported public spending for essential services increased. As we  previously reported, IFIs do not independently track developing countries’  poverty-reducing expenditures and instead rely upon developing  countries’ governments to provide such data, even though the accuracy  of these data and country capacity to provide this information is  questionable. Finally, regarding debt sustainability, the World Bank noted  that our analysis is based on a sample of just three countries and thus  cannot assess the realism of the 2010 DSA projections. We based our  conclusions on our assessment of the realism of the 2010 DSA  projections for three countries as well as on the current risks to global  economic recovery, reported by the IMF in August 2011.
The IMF indicated broad agreement with the findings of our report,  including the overview of the impact of the crisis on LICs. While the IMF  suggested that our assessment is narrow, we paid sufficient attention to a  range of response efforts, mentioning the IMF’s call for countercyclical  policy responses, improved macroeconomic conditions in LICs, doubling  of access levels, and modifications to lending instruments. The IMF  acknowledged that comparing program with non-program countries does  not prove a causal link from program engagement to higher spending and  notes a recent related study. We include a reference to the study entitled  “What Happens to Social Spending in IMF-Supported Programs” but also  note that it does not necessarily reflect the results during the crises  response period. The IMF also stated that growth assumptions underlying  LIC DSAs have been borne out so far and that DSAs have built-in  methods for addressing risks. We described the IMF’s use of alternative  scenarios and stress tests to arrive at a country’s debt distress rating.  However, we noted that these tests are very general and do not  adequately reflect country-specific risks including political instability,  adverse weather, global economic crises, and failure to implement  reforms or make planned investment. Our analysis of the three countries’  DSAs is intended to be illustrative and not generalizable. Our conclusion,  that projections which might be too optimistic could be mitigated by future  DSAs and additional grants, is not dependent on these three countries.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to Members of Congress;  U.S. Treasury, the IMF, and the World Bank. In addition, the report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to examine (1) the economic impact of the crises on  low-income countries (LIC), (2) international financial institutions’ (IFI)  responses and reported results, and (3) IFIs’ assessment of the impact of  the crises on LICs’ ability to repay their debt.
Economic Impact of Crises  To examine the impact of the crises on LICs’ economic performance, we  collected and analyzed key macroeconomic data from 1990 through 2010  for 38 of the 40 LICs for which data were available, except as where noted.  We analyzed variables including real gross domestic product (GDP),  current account, fiscal deficit, government expenditures and revenue,  consumer price index measure of inflation, and foreign direct investment.  We obtained these data series from the widely used IMF and World Bank  databases—World Economic Outlook, International Financial Statistics,  and World Development Indicators. We computed LICs’ average economic  performance with respect to each of the key economic variables, including  current account and fiscal deficits and inflation, using a real GDP weighted  average based on purchasing power parity (PPP) GDP, so that the  resulting weighted average reflects each country’s size in terms of their  share in total GDP of the entire group of LICs. We used the PPP GDP  weights to construct weighted averages for the other variables, including  fiscal and current account deficits, government revenue and expenditures,  and the consumer price index measure of inflation.
We analyzed the LIC group’s macroeconomic performance over the 2007  through 2009 crises period, and compared this to the group’s  performance during the pre-crisis period from 2004 through 2006 to  determine whether economic performance improved or deteriorated. We  also disaggregated the results to determine which countries experienced  improvements and deteriorations in each of the key macroeconomic  variables. We corroborated our results with data from the economic and  financial forecasting firm, IHS Global Insight. We also examined and  assessed the DSA’s incorporation of World Economic Outlook  assumptions concerning the global pace of recovery, including those of  the country’s key trading partners. We also compiled information on  international food and oil price data from the UN Food and Agriculture  Organization’s Food Price Index and the U.S. Department of Energy.  Additionally, we reviewed IMF country reports and World Bank Country  Assistance Strategies, which also contain limited historical information on  the key macroeconomic variables. Some IMF data is based on  developing country government data with greatly varying statistical  capacity across countries, and we discussed these limitations with IMF  officials. We determined that the data were sufficiently reliable for  summarizing countries’ past macroeconomic performance.
subsections: section_title: Crises Response
paragraphs: To examine IFIs’ responses to the crises and reported results, we  analyzed documents and data from the World Bank and the IMF. For the  World Bank, these documents include proposals and framework  documents for the crisis response initiatives; Country Assistance  Strategies and Interim Strategy Notes; Project Information Documents  and Implementation Completion Reports; and Independent Evaluation  Group reports and approach papers. For the IMF, we reviewed IMF  country reports; countries’ letters of intent; research papers; and the  Independent Evaluation Office reports. We also reviewed joint World  Bank-IMF publications. We interviewed officials from these institutions, as  well as from the Department of State and the U.S. Agency for  International Development.
To evaluate whether the World Bank’s crisis response was consistent  with the institution’s stated goals of increasing the speed of  disbursements, we analyzed World Bank data on financial commitments  and disbursements made to LICs between 2005 and 2010. To do this, we  determined the first year disbursement rate for all projects approved  during the crises response period (2008 through 2010); all projects  approved during the pre-crises period (2005 through 2007); and all  projects approved during the crises response period under each initiative,  as well as those approved during the crises response period outside of  any initiative. We did not use the World Bank’s standard disbursement  rate methodology because our analysis sought to isolate those activities  which were explicitly undertaken in response to the crises. For our  analysis, this included only projects approved after the World Bank first  stated its intention to respond to any of the three crises. This occurred in  early 2008, with the establishment of the Global Food Crisis Response  Program. We also identified the total number of projects and the amount  of funding committed in association with any of the World Bank’s crisis  response initiatives.
To measure the speed of disbursements, we first calculated the total  disbursements for each project that took place during the first four  quarters following project approval. We then determined the average  disbursement rate by using a weighted average, which is computed as  the ratio between the sum of first year disbursements and the sum of the  commitments. One type of project, “additional financing” projects, tracks  disbursements under the “parent” project, though commitment amounts  are recorded under the “additional financing” project. In our dataset, there  were 160 of these projects, out of a total of 622. To ensure that  disbursements from “additional financing” projects were captured in our  analysis, we developed a methodology that calculated the remaining  commitment balance of the “parent” project as of the quarter in which the  additional financing project is approved. We then added the balance to  the new commitment from the additional financing project to form the  denominator of the disbursement ratio. We then calculated the first year  disbursement rate by determining the first four quarters of disbursements  under the “parent” project following the approval date of the “additional  financing” project. We used disbursement data through June 2011, the  latest available, to ensure as many projects as possible (97 percent of all  projects) had 4 quarters of disbursements. Eighteen projects approved in  the fourth quarter of 2010 had only 3 quarters of disbursement data. We  used disbursement data through June 2008 for the pre-crisis period to  make our analysis comparable. We then compared various disbursement  rates to one another to reach our conclusions. We assessed the reliability  of the data we used in our analysis by comparing the consistency of the  data among the various sources, and discussing the data with World  Bank and IMF officials. For the data used to determine World Bank  disbursement rates, we interviewed World Bank officials to understand  their database and correct errors in the data. We determined that the data  used in our analysis were sufficiently reliable for our purposes.
To determine U.S. dollar values associated with the IMF’s response to the  crises, we used information on IMF program and funding levels. To  calculate the portion of the $250 billion in support that the LICs received,  we totaled the amount each country received in Special Drawing Rights,  the IMF’s unit of account, and multiplied that by the August 28, 2009  conversion rate to arrive at a U.S. dollar value. To calculate that IMF  loans to LICs increased more than sixfold from approximately $748  million between 2005 and 2007 to about $4.9 billion between 2008 and  2010, we used data from the “IMF Lending Arrangements” online tool.  For each year, we totaled new lending to LICs in Special Drawing Rights,  then converted that total to dollars using the year-end exchange rate. We  also assessed the sensitivity of the results of an IMF analysis of  government spending in LICs in 2009 using data from the IMF and the  Worldwide Governance Indicators. We compared program LICs and non- program LICs using measures of institutional quality from the World  Governance Indicators and indicators of macroeconomic policy from the  IMF’s World Economic Outlook database. We conducted sensitivity  analyses by omitting countries with the lowest scores on certain  measures of institutional quality or the least favorable pre-crisis  macroeconomic policies from the sample of non-program LICs. We  assessed the reliability of data used in our sensitivity analyses and found  them to be sufficiently reliable for summarizing and ranking countries’  institutional quality and macroeconomic policy.
section_title: Debt Sustainability Analyses
paragraphs: To examine the extent to which IFI’s assessments of LICs’ ability to repay  their debt was impacted by the crises, we reviewed the changes in each  of the 40 LIC’s Country Policy and Institutional Assessments (CPIA) and  debt distress ratings over the period 2007 through 2010 to determine if  the crises led to a change in a country’s rating. We used CPIA data from  the World Bank’s online database and the debt distress ratings from each  of the LIC’s debt sustainability analyses (DSA) over the period.
To illustrate how the DSAs are conducted and how macroeconomic  projections affect the reliability of the debt distress rating, we focused on  three case study countries: Burundi, Ethiopia, and Tanzania. We selected  these countries based on criteria that include the number of IFI projects,  amount of IFI financial support, and country conditions. For example,  between fiscal years 2008 and 2010, Ethiopia and Tanzania were in the  top three recipients of IDA assistance by dollar value, receiving  approximately $4.8 billion, while Burundi is a post-conflict fragile state.  For each of our three case-study countries, we analyzed the country’s  2010 World Bank-IMF Bank DSAs, as well as the associated IMF  program reviews and Article IV consultations, and World Bank Country  Assistance Strategies. We also reviewed prior and subsequent DSAs to  make comparisons and check for data consistency. In addition, we met  with IMF staff responsible for the DSA preparation for preparing each of  the case-study countries.
We based our assessment of the DSA’s ability to accurately reflect the  country’s debt vulnerabilities on our analysis of the DSA’s  macroeconomic projections and the underlying assumptions, which form  the basis of the country’s risk of debt distress. These include the DSA’s  projections and assumptions regarding key macroeconomic variables,  such as real GDP and export growth, and the divergence of the growth  rates of these variables from their historic values; assumptions regarding  the LIC’s implementation of reforms and productivity-increasing  investment; and assumptions concerning the country’s vulnerability to  external shocks, including adverse weather, political or regional instability,  and rising food and fuel prices.
To determine economic performance over the study period for our three  case study countries, and to calculate historical growth rates for key  macroeconomic variables, we relied primarily on IMF and World Bank  databases—World Economic Outlook, International Financial Statistics,  World Development Indicators, and Balance of Payments Statistics. We  also utilized data from IMF Article IV consultations and country program  reviews. We compared GAO-calculated 10-year historical averages for  the most important macroeconomic variables with the DSA’s historical  averages for these variables, which form the basis for the DSA’s  projections and debt ratios. We evaluated the IFIs’ determination of a  country’s risk of debt distress partly based on the extent to which the  values of historical key macroeconomic variables diverge from their  projected values; and, if so, whether the DSA provides reasonable  justification for this divergence. In making this assessment, we also  considered additional information available in the Article IVs, World Bank  Country Assistance Strategies, and Global Insight Country Intelligence  Reports. We also based our assessment of the IFIs’ determination of the  country’s risk of debt distress on the DSA’s consideration of country- specific factors, such as the country’s susceptibility to weather-related  shocks; political instability; and implementation of institutional reforms that  would enhance a country’s growth prospects, particularly in the economic  and debt management areas. We discussed our approach and  preliminary findings with officials from the IMF. We assessed the reliability  of data used in our country analysis based on the consistency of data  across various sources and determined them to be sufficiently reliable to  make nongeneralizable assessments of the DSAs for the three case  study countries.
We conducted this performance audit from September 2010 to  September 2011 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: Economic, Demographic, and Financial Assistance Data for LICs
subsections: section_title: Afghanistan
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (15%) assistance (85%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (50%) assistance (50%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (52%) assistance (48%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (54%) assistance (46%)
section_title: Burma (Myanmar)
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (24%) assistance (76%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (68%) assistance (32%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (37%) assistance (63%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (77%) assistance (23%)
section_title: Chad
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (42%) assistance (58%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (47%) assistance (53%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (54%) assistance (46%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (60%) assistance (40%)
section_title: Ethiopia
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (48%)
All bilateral  assistance (52%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (85%) assistance (15%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (45%) assistance (55%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (37%) assistance (63%)
section_title: Guinea-Bissau
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (66%) assistance (34%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (56%) assistance (44%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (32%) assistance (68%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (47%) assistance (53%)
section_title: Laos
paragraphs: Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (38%) assistance (62%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (30%) assistance (70%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (59%) assistance (41%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (48%) assistance (52%)
section_title: Mali
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (43%)
All bilateral  assistance (57%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (48%) assistance (52%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (35%) assistance (65%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (43%) assistance (57%)
section_title: Niger
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (51%)
All bilateral  assistance (49%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2009)
All multilateral  assistance (19%) assistance (81%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (48%) assistance (52%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (54%) assistance (46%)
Note: Average Annual Official Development Assistance (ODA), for which the main objective is economic development and welfare, was  calculated using data from 2008 and 2009 and does not include funding for 2010. ODA excludes certain items such as military aid   and antiterrorism activities.
section_title: Solomon Islands
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (4%) assistance (96%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2009)
All multilateral  assistance (24%) assistance (76%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (60%) assistance (40%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (47%) assistance (53%)
Note: Average Annual Official Development Assistance (ODA), for which the main objective is economic development and welfare, was  calculated using data from 2008 and 2009 and does not include funding for 2010. ODA excludes certain items such as military aid   and antiterrorism activities.
section_title: Togo
paragraphs: Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
subsections: section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (45%) assistance (55%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (41%) assistance (59%)
Assistance (ODA) (Dollars in millions)
Population (nearest million; 2009)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (41%) assistance (59%)
Population (nearest million; 2009)
Assistance (ODA) (Dollars in millions)
section_title: Life Expectancy (2008, years)
paragraphs: GNI per capita ($USD; 2008)
All multilateral  assistance (15%) assistance (85%)
section_title: Appendix III: World Bank Commitments and Disbursements to LICs through Crisis Response Initiatives
paragraphs: Between 2008 and 2010, the World Bank committed $12.2 billion in  financial assistance to 38 LICs through five crisis response initiatives,  including $10.8 billion from existing International Development  Association (IDA) funds, and $1.4 billion from new financial assistance.  Figure 14 shows World Bank commitments to 38 LICs between 2008 and  2010.
Within the four crisis response initiatives that sought to increase the  speed of disbursements of commitments from existing IDA funds, first  year disbursement rates varied by country, as shown in figures 15  through 18.
section_title: Appendix IV: Comments from the U.S. Department of the Treasury
subsections: section_title: GAO Comments
paragraphs: 1.  We emphasized that accounting for the differences between program  and non-program countries is critical to estimating the impact of IMF  programs on spending during the crisis, which the IMF did not do in  their 2010 report.   2.  We acknowledged that the speed of disbursements is one measure,  among others, of effective crisis response.  We acknowledged the  Treasury’s statement that the need to ensure that recipient country  capacity and governance controls were sufficiently robust to absorb  the additional resources provided during the crisis period played a role  in the speed of disbursements.
section_title: Appendix V: Comments from the World Bank
subsections: section_title: GAO Comments
paragraphs: 1.  We included information about commitments and disbursements in  our report, although our figures differ from the Bank’s because we  used different methodologies.  Our methodology isolated those  activities which were explicitly undertaken in response to the crises.  2.  We acknowledged that the World Bank responded to crises in LICs  through regular IDA lending and by establishing initiatives. Our  analysis focused on the initiatives because these were specifically  designed to respond to the crises.   3.  Our analysis sought to isolate those activities which were explicitly  undertaken in response to the crises. We did not assess the World  Bank’s standard approach to calculating disbursements. To measure  the speed of disbursements, we first calculated the total  disbursements for each project that took place during the first four  quarters, including the quarter of project approval. We then  determined the average disbursement rates for different groups of  projects by using a weighted average, which is computed as the ratio  between the sum of first year disbursements and the sum of the  commitments for all projects that belonged to a group.   4.  We acknowledged that disbursement rates, which vary over time,  depend on a number of factors, including recipient country capacity,  need, and governance, and the type of lending.    5.  As we previously reported, IFIs do not independently track developing  countries’ poverty-reducing expenditures and instead rely upon  developing countries’ governments to provide such data, even though  the accuracy of these data and country capacity to provide this  information is questionable. We focused on the Fast Track Facility  and the infrastructure program because these two initiatives were  explicitly designed to support domestic spending in recipient countries  during the crises.  6.  We based our conclusion that the underlying macroeconomic  projections might prove too optimistic on the realism of the 2010 DSA  projections for three countries—Burundi, Ethiopia, and Tanzania—as  well as on the current risks to the global economic recovery and rising  commodity prices, reported by the IMF in August 2011. Our analysis  of the three countries’ DSAs is intended to be illustrative and not  generalizable. Our conclusion, that projections which might be too  optimistic could be mitigated by future DSAs and additional grants, is  not dependent on these three countries.
section_title: Appendix VI: Comments from the International Monetary Fund
subsections: section_title: GAO Comments
paragraphs: 1.  We reported on a wide range of IMF responses, including the IMF’s  call for countercyclical policy responses, improved macroeconomic  conditions in LICs, doubling of access levels, and modifications to  lending instruments.  2.  We believe that comparisons of program and non-program country  performance can be misleading without appropriate context or  analysis. The IMF acknowledged that comparing program with non- program countries does not prove a causal link from program  engagement to higher spending and notes a recent related study.   The study found that IMF-supported programs were associated with  increased spending on education and health as percentage of GDP or  a percentage of spending in LICs, based on data from 1985 through  2009. We include a reference to the study, entitled “What Happens to  Social Spending in IMF-Supported Programs”—which was released  after our audit work had concluded—and we described its conclusions  and relevance in a footnote. In particular, the study’s results represent  the average effect of an IMF-supported program over the time period,  and therefore do not necessarily reflect the results during the crises  response period.    3.  We discussed the DSAs’ assumption for “quick recovery” in relation to  both LICs and the global economy. The IMF forecasted LICs’ recovery  in line with the forecast of a quick recovery for the global economy,  which was expected to boost demand for LICs’ exports. In August  2011, the IMF reported renewed risks to the global recovery, which  means that projections for future export growth could be too  optimistic. However, in commenting on this report, IMF noted that the  “quick recovery” assumption had been borne out so far. Our report  described the IMF’s use of alternative scenarios and stress tests to  arrive at a country’s debt distress rating. However, we noted that  these tests are very general and do not adequately reflect country- specific risks including political instability, adverse weather, global  economic crises, and failure to implement reforms or make planned  investment.
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: Cheryl Goodman, Assistant Director; Marc Castellano; RG Steinman;  Michael Hoffman; Elizabeth Kowalewski; and Arian Terrill made key  contributions to this report. The team benefited from the expert advice  and assistance of Adam Vogt, Etana Finkler, Bruce Kutnick, Fang He,  Shirley Min, Leah DeWolf, Kathryn Buldoc, Martin de Alteriis, Tom  McCool, Heneng Yu, Mary Moutsos, Mae Liles, and Holly Dye.