# **III.3 Attention to Political Economy Drivers: Evolving Practices and Potential Pay-offs**

Given the considerable importance that political economy factors play in enabling or hindering progress of public sector reforms, an important question is how such factors are or can be taken into account in designing and implementing operations. This section addresses current and emerging practices and this regard, and reviews tentative evidence on whether increased or more systematic attention pays off in terms of better support and better results achieved.

## **III.3.1 Understanding and acknowledging political economy dynamics and risks**

What efforts are teams currently making to assess and address political economy risks and variables to calibrate and manage World Bank support? And is there any (tentative) evidence that more attention to and more analysis of political economy factors can pay off in terms of operational performance? To investigate these questions, this section draws on three sources: Implementation Completion Reports of closed operations and semi-structured interviews with 13 team members and task team leaders of eight ongoing public sector operations;<sup>36</sup> Furthermore, it revisits 17 public sector operations initiated in fiscal year (FY) 2008 that had been included in the 2009 Quality Assurance Group (QAG) review of attention to governance and anticorruption (GAC). The section compares the level of attention to governance and political economy at the project approval stage to project performance as of 2011.

World Bank teams feel that they generally understand political economy factors and anticipate related operational challenges. That said, for a majority of the teams interviewed, efforts to understand political economy variables were limited to internal team discussion about the operation, but were not necessarily made explicit. Unsurprisingly, operations vary as to the frankness and the accuracy of the ex-ante assessment of political economy-related risks, and assessments ex-post of whether these were fair. Furthermore, the way in which risks are assessed (and suggested to be mitigated) is influenced by bureaucratic incentives. Most importantly, once planning for an operation has been started, there is a strong incentive to achieve its approval – which may in turn incentivize teams to downplay risks that cannot be readily mitigated. There can also be various pressures to aim for relatively ambitious designs.<sup>37</sup> As in the literature, the risk of fluctuating political reform commitment featured prominently in Bank documentation and interviews with task teams.<sup>38</sup> For several closed operations – both satisfactory and unsatisfactory— government commitment was explicitly assessed as high _ex ante_ , but turned out to be lower _de facto_ – with the subsequent Implementation Completion Report arguing that the risk of uncertain or fluctuating commitment could have been recognized at entry. Several interviewees explained that the level of government commitment can easily be

> 36 Ongoing operations were selected for easier access to teams and institutional memory. Interviews were conducted in person and by phone.

> 37 Both of these issues are to some degree addressed by recent internal reforms: the introduction of an Operational Risk Assessment Framework (ORAF) and the emphasis on seeking feasible reforms, set out in the 2012 PSMA.

> 38 Apart from political economy, other key challenging factors that several teams referred to include civil service incentives/pay and capacity constraints, as well as the role and incentives of consultants in the implementation stage.

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