metadata: authors: 0: author: Paul,Samuel
docna: 0: docna: Institutional development in World Bank
            projects : a cross sectoral review
docty: Policy Research Working Paper
subtopic: Private Sector Economics,Health Care Services Industry,Educational Sciences,Private Sector Development Law,Food Security,Marketing
teratopic: Poverty Reduction
abstracts: cdata!: As the scope of Bank work in
            institutional development ( ID ) widens, the design of ID in
            Bank projects needs to pay increased attention to several
            emerging problems and inconsistencies : a) without country
            specific sector ID strategy, there is no long term
            perspective to guide project design; b) uneven quality of
            institutional analysis and the limited attention to ID
            issues in economic and sector work can weaken the design
            process; c) the focus of ID work on project implementation
            limits concern for project sustainability; and d) more
            complex, sectorwide ID components call for more rather than
            less supervision.  The task, the author concludes is not to
            broaden ID work but to deepen it. He recommends : 1)
            encourage operational task managers to supplement skills at
            their command by mobilizing experts within the Bank to help
            analysis and design; 2) increase Bank expertise in this
            area; 3) use outside experts, as needsed; 4) expose Bank
            staff to a range of analytical frameworks to improve
            institutional analysis; and 5) make joint ( Bank and
            borrower ) institutional diagnosis and design a norm, giving
            borrowers a greater sense of ownership and creating a solid
            basis for sustainability.
repnme: repnme: Institutional development in World Bank
            projects : a cross sectoral review
display_title: Institutional development in World
            Bank projects : a cross sectoral review
listing_relative_url: /research/1990/04/700299/institutional-development-world-bank-projects-cross-sectoral-review
topicv3: Private Sector Development m1326060 1921,Education, Skills Development and Labor
            Market m1326135 1484,Agriculture and Food Security m1326205 435,Education m1327048 470,Health m1504661 3480
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Poverty Reduction
origu: Policy, Research & Ect Affairs
no_of_pages: 61
author_keys: 0: author_key: 142025
model_extractions: **Policy, Resoarch, and Extemal Affairs|**

**Public Sector Management and Private Sector Development**

- This paper a product of the Public Sector Management and Private Sector Development Division, - Country Economics Department is part of a larger effort in PRE to understand and evaluate the Bank's work on institutional development. This paper was presented at the conference on "Institutional Development and the World Bank" held in December 1989. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Emestina Madrona, room N9-061 extension 37489 (50 pages with figures and tables).

As the scope of Bank work in institutional development (ID) widens, the design of ID in Bank projects needs to pay increased attention to several emerging problems and inconsistencies: X Without country-specific sector ID strategies, there is no map or long-term perspective to guide project design.

- The uneven quality of institutional analysis and the limited attention to ID issues in economic and sector work can weaken the design process.

* The focus of ID work on project implementation tends to limit the concem for project sustainability.

There is a positive correlation between project sustainability and institutional development. The increasing difficulties in achieving ID objectives that Bank projects face, however, is a cause for concern. This phenomenon cannot be attributed solely to the macroeconomic constraints at work in borrower countries. There is also a clear mismatch between the complexity of ID issues being addressed and the operational staff skills to deal with them. Paul recommends:

* Encouraging operational task managers to supplement skills at their command by mobilizing experts within the Bank to help with analysis and design.

* Increasing Bank expertise in this area.

* The more complex, sectorwide ID components call for more rather than less supervision and a greater willingness to make mid-course corrections.

The task, Paul concludes, is not to broaden ID work but to deepen it, by shifting the focus more toward sustainability, allocating enough resources to support more relevant upstream diagnostic work, and upgrading the quality of the staff who work on ID issues.

* Using outside experts as needed, which will help strengthen the skills of operational staff.

* Exposing Bank staff to a range of analytical frameworks to improve institutional analysis.

* Making joint (Bank and borrower) institutional diagnosis and design a norn, so borrowers - have a greater sense of ownership a good basis for sustainability.

The factors that contribute to successful ID are well known; there is, however, a wide gap between knowledge and practice.

The PRE Working Paper Series disseminates the findings of work under way in the Bank's Policy, Research, and External Affairs Complex. An objective of the series is to get these findings out quickly, even if presentations are less than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.

Produced at the PRE Dissemination Center
# TABLE OF CONTENTCS

||EXECUTIVE SUMMARY.... . . . . . . . . . . . . . .|. . . .|.|i|
|---|---|---|---|---|
|I.|INTRODUCTIOND||||
||-<br>Sectoral ID inthe<br>Bank<br>.1||||
||-<br>Scope and Plan of Paper<br>... . . . . . . . . .|. . . .|.|3|
|II.|FREQUENCY, SCOPE AND DESIGN OF ID COMPONENTS . . . .|. . . .|. .|4|
||-<br>Evolution of ID Work<br>... . . . . . . . . . . .|. .<br>.|.|4|
||-<br>Institutional Analysis<br>... . . . . . . . . . .|. .<br>.|.|5|
||-<br>Design Features<br>.... . . . . . . . . . . . .|. . . .|.|9|
|III.|PERFORMANCE OF ID COMPONENTS ... . . . . . . . . . .|. . . .|.|14|
||-<br>Patterns of Performance<br>.<br>.<br>.<br>I. . . . . . .|. . . .|. .|14|
||-<br>Emerging Issues<br>.... . . . .<br>... . . . . .|. . . .|.|18|
|IV.|VARYING ID PERFORMANCE: UNDERLYING FACTORS .<br>. . .|. . . .|. .|28|
||-<br>Influence of the Macroeconomic Environment .<br>.|. . . .|. .|28|
||-<br>Impactof Design .... . . . . . . . . . . . .|. . . .|.|29|
||-<br>Implementation Problems<br>... . . . . . . . . .|. . . .|.|29|
||-<br>An In-Depth Analysis of OED Audits<br>. . . . . .|. . . .|. .|30|
|V.|CONCLUSIONS<br>.... . . . . . . . . . . . . . . . . .|. . . .|.|35|
||-<br>RecentTrends<br>.... . . . . . . . . . . . . .|. . . .|.|35|
||-<br>Emerging Challenges<br>... . . . . . . . . . . .|. . . .|.|36|
|VI.|POLICY IMPLICATIONS<br>.... . . . . . . . . . . . . .|. . . .|.|37|
||-<br>Strengthening the Bank's ID Capability . . . .|. . . .|. .|37|
||-<br>Improving the Match between Sector Strategy and|Project|ID|38|
||-<br>Institutional Analysis . . . . . . . . . . . .|. . . .|. .|41|
||-<br>Augmenting Sustainability<br>.<br>.<br>. . . . . . . <br>APPENDIX I .... . . . . . . . . . . . . . . . . . .|. . . . <br> . . . .|. .<br>.|42<br>46|

- _Assistance in the preperation of this paper was provided by 'Stuart Bell, Paige Eaves and Leila_ Zlaoui. _Comments on an earlier draft of this paper were gratefully received frcm_

_Arturo Israel, Mary Shirley, Ashok Subramanian and participants In a seminar held to discuss the paper._
# EXECUTIVE SUMMARY

The purpose of this paper is (1) to review the salient features<sup>of</sup> the World Bank's institutional development (ID) work in different sectors of the economy in the 1980s, (2) to assess the performance of<sup>ID components in</sup> Bank projects, and (3) to present the implications of the findings for Bank policy. Because of the wide spectrum of sectors<sup>being surveyed, cross</sup> sectoral, rather than, sector-specific features of ID work are highlighted. Investment projects, sector loans and sector adjustment<sup>loans in all regions</sup> fall within the purview of the paper. The paper draws<sup>upon the findings of</sup> sample surveys of projects, review papers on individual sectors<sup>and lending</sup> operations, Operations Evaluation Department (OED) data and analysis,<sup>and Bank</sup> staff interviews.

# Recent Trends

- The attention given to ID in Bank projects has increased significantly during the 1980s. Nearly 90 percent of the projects today have ID components in contrast to 72 percent in 1978. The awareness of ID issues on the part of Bank staff and<sup>their</sup> exploration of these issues during project preparation have increased steadily.

- O The scope of ID issues and of ID components in Bank projects<sup>has</sup> widened in recent years. By and large, this trend can be attributed to the newer policy-based lending instruments. Widening of the scope, however, has occurred through an expansion of the coverage of the institutions in the concerned sectors.

- Much greater attention is being given in recent projects<sup>to the</sup>

- sector- or subsector-level institutions and their structures and functions, while in earlier years, the preoccupation was solely with the project implementation unit (PIU) and its functions. This is a feature not only of policy-based lending<sup>operations but</sup> also of a growing number of investment projects.

- O The extension of ID work and the widening of the scope<sup>of ID have</sup> occurred primarily with elements and tasks which,<sup>for the most</sup> part, facilitate project implemencation, which is only one of the ID objectives. Much less attention is given to<sup>the ID objectives</sup> of sustainability and the long-term strengthening of sector-wide institutions. Country-specific sector ID strategies are relatively rare.

- Despite its expanded coverage in Bank projects, ID<sup>work that might</sup> facilitate the matching of beneficiary needs and<sup>demand to the</sup> design of project services and the choice of institutional alternatives for service delivery remains limited.<sup>Attention to</sup> the incentive framework necessary for long-term organizational performance and interorganizational collaboration and to issues of
- ii -

leadership and stakeholder support, which are essential for sustainability, seems to be modest.

> O Evaluations of the quality and relevance of institutional analysis in Bank projects have shown that there is much scope for improvement. Given the potential for good sector work to improve the quality of ID design, the unevenness and gaps in the Bank's sector work is worrisome.

- O While the limited investment in sector work on ID issues and the uneven quality of institutional analysis may have had an adverse impact cn the design of ID components, there has been some organizational learning in this area too. The quality of institutional analysis seems to have improved somewhat in some sectors although adjustment lending lags behind. There is increasing use of the process approach (joint analysis and consultations with relevant groups) in the diagnostic and design phases. ID focus has shifted significantly from PIUs to implementing agencies.

- The widening scope of ID and some of the design features of Bank projects are in.-.onsistent in several respects and might adversely affect ID performance.

- The absence of country-specific sector ID strategies goes counter to the trend of widening scope of ID as there is no map or long-term perspective to guide the design of project ID components.

- The uneven quality of institutional analysis and the limited attention to ID issues in economic and sector work go against the requirements of the widening scope of ID in projects.

- The continuing focus of ID on project implementation weakens the concern for sustainability in Bank projects and limits the attention given to the design of sectoral ID strategies referred to above.

- The more complex sector-wide ID designs and interventions (implied by the widening scope of ID) are being left to Bank sector specialists whose skills and experience are often inadequate to deal with these broader issues.

# The Performance of ID Components

- The achievement of ID objectives in Bank projects has declined somewhat in recent years. The proportion of projects with negligible ID ratings by the Operations Evaluations Department (OED) of the Bank has increased from 15 percent in 1980-1982 to 25 percent in 1986-1988. A recent OED study has found that only 52
- iii -

percent of Bank projects evaluated from 1986-1988 were rated "ikely to be sustainable."

- The decline in ID performance in the 1980s was only in part due to the problems in the macroeconomic environment. Factors internal to the project also seem to have made a difference to ID effectiveness. Weak analysis of institutional issues and overly complex ID designs, which failed to consider local capacity constraints, have contributed to the declining ID performance.

- Inadequate supervision of projects also seems to have contributed to the decline in ID performance. Although the percentage of projects receiving a negligible ID achievement rating increased throughout the 1980s, the rate of growth of their number declined when supervision of such projects increased. Conversely, when supervision was reduced, the rate of growth of negligible ID projects increased.

- Many of the actions required for ID success are within the control of governments and managers. The quality of leadership, attention to personnel development, flexibility in implementation reinforced by careful supervision, staff continuity, and the harmonization of national and external technical assistance (TA) inputs were among the key factors which separated the high-ID from the low-ID achievement groups. The difference between the proiects in hiehand low-ID achievement categories was not in the problems they

- faced, but rather, in their response to these problems.

# Policy Implications

1. The primary need on the ID front is not one of extending the work to more projects. The coverage, as noted above, is impressive. Rather, the challenge is to sharpen the focus, quality and relevance of ID work in selected lending operations. The growing number of projects which are addressing the more complex sector-wide ID issues seems to be the priority area that merits special attention. The task ahead is not to broaden, but to deepen, the process of ID work in these projects by shifting the focus more towards sustainability, by allocating adequate resources to support more relevant upstream diagnostic work, and by upgrading the quality of the staff who work on ID issues. A comparative analysis of projects with substantial and negligible ID achievement shows that the factors which lead to ID success are fairly well-known and that there is a consensus on how they work--even though it is risky to prescribe recipes for success. As the scope of ID widens, it is clear that intensive ID work should be undertaken only selectively and with a determination to support it within a longer-term perspective.

- Priority in ID work should be given to both investment projects and policy-based operations addressing the more complex sector-wide ID issues. They need more resources for upstream sector work and greater flexibility of supe.,vision.
- iv -

2. There is a clear mismatch between the complexity of ID issues being addressed in recent Bank projects and the operational staff skills available within the Bank to deal with them. The redesign of ministry functions and interministeria **l** inkages, sector-wide identification of institutional alternatives for service delivery, organization of beneficiary groups, redistribution of authority and responsibility between levels of government, and the reorientation of the bureaucracy following deregulation involve a diversity of actors, interest groups and problems of interorganizational behavior with which operational staff are not always familiar. The wider institutional analysis and design of sectoral ID are less often within the staff's competence, especially if they are relatively inexperienced. The actions that can be taken by the Bank to deal with the mismatch problem are threefold:

- Operational task managers should be encouraged to supplement the skills at their command by mobilizing available expert resources within the Bank to undertake the required institutional analysis and the design of ID strategies and components. The starting point is an interest in addressing these issues.

- Bank expertise in this area must be augmented as demand for it increases.

- By using expert assistance from outside the Bank as needed, training can be used to strengthen the skills of operational staff to better deal with these issues.

3. An important way to improve the prospects for ID success and project sustainability is by linking the project to the sector's strategy. While country-specific sector strategies do exist, there is not much evidence of matching ID strategies to influence (a) the roles and functions critical to the management of a sector ministry, (b) the functions that can be delegated or contracted out to public or private enterprises and/or agents and ways to ensure their accountability for performance, and (c) the support needed by enterprises for better internal management. The design of sectoral ID strategies has to be tailored to specific country contexts.

- The Bank may consider initiating programs to design such strategies in three or four countries And sectors in which it is heavily involved and where the concerned governments wish to undertake them as joint exercises. Public sector management divisions in the Bank could play a catalytic role in this endeavor.

4. The mapping and analysis of the relevant institutions is a basic requirement for the design of a country-specific sectoral ID strategy. Where there is ambiguity about the nature and causes of institutional issues, there is a case for generating the institutional diagnosis by bringing together the different stakeholders whose perceptions will be critical to the design if a viable ID strategy. The spectrum of issues to be analyzed will vary widely in
terms of ambiguity. The choice of a suitable analytical framework for such analysis is, therefore, important. Bank staff need to be exposed to the rar.ge of analytical frameworks available so that appropriate choices can be made and expert assistance sought if necessary.

- The discipline of systematic institutional analysis will become a Bank jp. ztice only when senior managers seek evidence on such analysis whenever ID designs or reforms are proposed in projects. Objectives and scope of the analysis, aspects or elements of the ID issues Investigated, the extent of the borrower's involvement in the diagnosis, analysis of interest groups and their likely impact, and the quality and commitment of the local leadership are the dimensions on which staff should be carefully probed by the management.

- Given the contextual nature of institutional analysis, it may be difficult to specify the approaches to be used, but the feasibility of developing guidelines for the benefit of staff should be explored as cumulative field experience in institutional analysis becomes available in the Bank.

- Institutional diagnosis and design done jointly by the Bank and borrower should be the norm so that a greater sense of ownership and commitment on the part of the latter is created, and a firm foundation for sustainability is laid.

5. Project sustainability can be enhanced if the Bank will change some current practices. Widening the scope of ID to take demand and other client-related issues into account is important, especially in projects that target the poor or deal with social services. Well-focused sector work can facilitate this effort. The quality of supervision and flexibility in the use of resources for this function can have a positive impact on sustainability. Greater attention to project supervision is required because more complex ID issues are being dealt with. Discussions with Bank staff reveal a growing concern that a major casualty of the tightening of supervision will be ID performance. OED data on substantial ID achievement (SID) and negligible ID achievement (NID) cases have clearly demonstrated the key role of supervision and staff continuity.

6. Bank staff working on different sectors do observe the factors which constantly inhibit sustainability. Some of them are country or sector specific, and others are more generic. They may well be aware of the kinds of interventions necessary to remedy them and to strengthen project sustainability. There is, at present, no systematic way in which this Nowledge and cumulative project experience on institutional constraints can ,e tapped and used to evolve selective country strategies in which the Bank and borrowers can work together. Ir-ieed, problems in this category are sometimes addressed through adjustment operations, TA loans, etc. The country implementation reviews being held in recent years seem to focus so much on the current project implementation problems that issues germane to sustainability do not perhaps get addressed adequately. What is required is a special
- vi -

country-level review with the government to highlight the enduring institutional constraints on sustainability that the Bank's projects seem to experience repeatedly. The review would be used as a basis fox a Bankcountry dialogue on the key issues and what might be done to remedy them. At the least, it is an exercise which could lead to realistic remedies because it would be built on experiences on the ground, and could complement the broader actions being taken through adjustment operations. Examples of the use of this approach do exist in some country departments.

- O Periodic reviews (every three to five years) of the major countryspecific institutional constraints on sustainability--learned from the Bank's project experience--must be undertaken systematically in countries where the Bank has lent to many sectors and where governments are likely to be more receptive to such cross-sectoral review exercises.
INSTITUTIONAL DEVELOPMENT AT THE SETORAL LEVEL

# I. INTRODUCTION

The critical role of i:adigenous institutions in the development process has long been recognized by he international development community. Irrespective of the sectors of the economy which they support, donors tend to provide guidelines to their staff for assessing and strengthening the indigenous institutions responsible for planning end implementing their projects. In their book on the World Bank's role and record in financing development, Warren Baum and Stokes Tolbert alluded to the broader significance of institutional development (ID) as follows:' Developing strong institutions, then, is a primary means of ensuring efficient implementation of projects and of safeguarding the hard-won national and international resources committed to them. But the significance of strengthening the institutions associated with an investment transcends the efficient execution of that investment, just as institutional shortcomings in a single project can have serious repercussions well beyond the project itself. Careful attention to the quality of institutional performance in a series of projects can help to build up managerial capacicy and hence development potential in an entire industry or sector.

# Sectoral ID in the Bank

Individual projects in any sector (e.g., agriculture, education, etc.) are relatively small in relation to the total investment in an economy. Nevertheless, the success of project-related ID efforts can have a positive and cumulative impact on a country's broader institutional capacity and development. The effectiveness of ID in the project context will be influenced by the following five factors: (1) Macroeconomic policies which improve the stability and the growth prospects of the economy and provide the positive or enabling environmental conditions for ID efforts to succeed. (2) The fit between the project and the relevant sector's strategy including the directional changes being planned on the institutional front. (3) The responsiveness of the project to its cl<sup>4</sup> .ents facilitated either by competition in the sector environment or by strategies to mobilize demand for the project's services. Sectors may differ in terms of these features.2 (4) The capacity of the I Warren Baum and Stokes Tolbert, Investing in Development, Oxford University Press, New York, 1984, p. 499.

2 See Arturo Israel, Institutional DeveloRment, Johns Hopkins Press, Baltimore, 1987, for a discussion of competition and specificity as sectoral features which influence project outcomes.
-2-

project institution's) to efficiently organize its (theii) internal structure, functionts, systems and skills. (5) Adequate resources and leadership to manage the project, and create the organizational culture (values) and interinstitutional linkages required for success.

A project which benefits from all of the above factors is likely to perform better in terms of ID than one which is affected negatively by the weaknesses in one or more of these factors. These factors, of course, influence ID performance over different time frames. Capacity for efficient management, for example, may impact performance in the short or medium term. Major changes in the macroeconomic environment or policy capacity building in the public sector, on the other hand, may require long p3riods. Borrower governments and their project managers are critical to the orchestration of these factors. The Bank can impact ID performance in f'- projects only with their active involvement. In short, ID entails a serie actions which the Bank may influence, but cannot control.

The ID "component" in a Bank project can be thought of as a combination of objectives and elements or tasks in support of the objectives, which are implemented through a range of instruments at the Bank's disposal. The ;isic objectives of ID are threefold: (1) to facilitate the project implementation process; (2) to contribute to the sustainability of project benefits (the continuation of benefits beyond the project period); and (3) to support the development of sector or sub-sector level institutions and linkages among them even if these are not directly relevant to project implementation (investment). Clearly, the first objective has a short-term focus, whereas the other two look beyond the project. The mix of elements included in an ID component will vary depending on the relative importance given to these objectives in a project. Thus a mix consisting of measures to strengthen the project implementation unit (PIU) and project-related training is designed to furcher the first objective more than the others. A mix of elements dominated by loi'g term capacity building measures, mechanisms for cost recovery, design of sector level incentives framework (e.g., compensation, career paths in government, etc.) and strengthening of interorganizationa **l** inkages is likely to reinforce the second and third objectives more than the first. Needless to say, the scope of ID will be wider when all three objectives are pursued than when it is confined to anyone of them. ID elements (tasks) and instruments constitute the core of the design of ID components.

The Bank has a range of lending instruments to match its hierarchy of ID objectives. Specific investment project loans, (the traditional lending instrument in sectors), sector loans, sector adjustment loans (SECALs), structural adjustment lohr.s (SALs) and technical assistance loans (TALs) which accompany adjustment leL.ding constitute the current set of lending instruments.3 In a .2,ical investment project, ID is usually geared to the first objective of .wiementing an investment activity. While this investment 3 Hybrid loans which combine investment and adjustment have also emerged in recent years.
- 3 -

can pursue the second ID objective of sustainability, other instruments have at least in theory a comparative advantage in the pursuit of tho second<sup>and</sup> third ID objectives. Thus sector loans and SECALs can deal with the problems of multiple sector institutions better than investment projects. SALs can influence macroeconomic management better than other instruments and thus<sup>help</sup> create the conditions for project sustainability and sector-wide institutional reforms. In reality, however, the short-term horizon of adjustment loans limits their potential for moving up the hierarchy of ID objectives.4 Positive ID performance in Bank projects requires a suitable match between<sup>the</sup> hierarchy of iD objectives and the hierarchy of its lending instruments.

# ScoRe and Plan of the Paper

The purpose of this paper is threefold: (1) to review the salient features of the Bank's institutional development work in the diverse sectors of the econ,my; and (2) to assess the performance of ID components in Bank projects, and (3) to present the implications of the findings of the analysis for Bank policy. In terms of features, special attention will be given to the recent trends in the expansion of ID work, its scope, and the design of ID components based on a cross-sectoral analysis of Bank projects in the 1980s. Sector-specific features, though important, will not be explored since there is a wide spectrum of sectors covering agriculture, industry and finance. transport, power and infrastructure, education, population, health and nutrition. Projects in all regions served by the Bank are covered by the review. Discussion of SALs is excluded mainly because another paper deals solely with SAL related reforms.3 SECALs are within tne scope of the paper. Projects in the foregoing sectors (excluding SECALs) accounted for nearly 75 percent of the Bank's total lending in FY88 in spite of the growth of adjustment lending. This review, therefore, focuses on the "workhorse" of the Bank, an activity in which the Bank has acquired considerable experience and expertise over the years.

Chapter T introduces the theme of institutional development and the scope and plan of the review. Chapter II examines the frequency, scope, and design of ID components in Bank projects across different sectors. The range and treatment of institutional issues will be covered under design. Chapter III focuses on the trends and patterns of ID performance in Bank projects. The factors underlying the variability of ID<sup>performance are</sup> analyzed in Chapter IV. The major conclusions of the study in terms of the trends in ID work, emerging gaps, and the tasks ahead are then summarized in Chapter V. Possible directions for improving the match between the<sup>Bank's</sup> widening scope of ID work and its in-house skills, closer linkages between sector strategies and ID work, and ways to improve institutional analysis and augment project sustainability are discussed in Chapter VI.

4 A series of loans can, for the most part, overcome this problem provided a long-term perspective is taken at the outset.

5 A separate paper "Civil Service Reform and the World Bank" (CECPS, 1989) by Barbara Nunberg and John Nellis reviews the SAL experience.
- 4 -

# II. FREOUENCY. SCOPE AND DESIGN OF ID COMPONENTS

# Evolution of ID Work

A review of ID components in traditional projects in different sectors, sector loans and sector adjustment loans (SECALs) reveals some interesting trends in the evolution of their frequency and scope: (1) The vast majority of Bank projects across all sectors have ID components today. From 72 percent in 1978, the proportion of projects with ID components has increased to over 90 percent in 1989. Regional sample surveys show the ID coverage to be 100 percent in LAC (Latin America and the Caribbean) (FY88), 94 percent in Africa (FY88), 93 percent in Asia (FY86) and 83 percent in EMENA (Europe, Middle East & North Africa) (FY89). A sectoral distribution of the share of projects with ID components and their growth in the early 1980s are given in Table 1 below.

Table 1 SECTORAL FREOUENCY OF PROJECTS WITH ID COMPONENTS

||**1978-1981**<br>**(Average)**|**1985-1987**<br>**(Average)**|
|---|---|---|
|SECTOR|||
|Agriculture|81%|83%|
|Industry|94%|88%|
|DFC|97%|98%|
|Public Utilities|79%|86%|
|Transport/Uxban/Tourism|77%|82%|
|Education|97%|94%|
|Population/Health|100%|78%|
|Non-Project Lending|8%|90%|
|Total|80%|83%|

Source: A. Paige Eaves, OED Analysis of Institutional DeveloRment, CECPS (mimeo), 1989.

(2) ID work in the Bank's lending operations is increasingly focusing on the more complex tasks of strengthening sectoral or subsectoral agencies, restructuring ministry level activities and functions, and aiding the process of capacity building at the sector level. Changes in project design which cause shifts from turnkey civil works to other more institutionintensive activities (e.g., road construction to maintenance, school building
- 5 -

to education system, etc.) have contributed to this trend in several sectors. A review of sector loans in the education and power sectors shows that the primary objectives of their ID components are to strengthen sector organization, planning and management.' For example, the education sector loans in Guinea-Bissau, Mauritania and Mozambique focused on the upgrading of several subsectoral agencies, and on improving planning, monitoring and evaluation in the sector ministries. Additionally, the Guinea-Bissau sector loan was intended to restructure the entire education ministry. The power sector loan for Somalia focused on sector-wide organizational and regulatory reforms and on strengthening or creating maintenance management options and financial management systems.

(3) The broader range of ID issues (e.g., sector-wide concerns) are treated more often in policy based operations such as SECALs, sector loans and some of the technical assistance loans which are higher up in the hierarchy of lending instruments than in investment projects which tend to have a more limited focus.7 ID components in SECALs, for example, fall into three categories in terms of their links with policy reforms.8 (a) Those directly linked to the policy reforms in a given SECAL (e.g., regulatory and procedural reforms needed to implement specific policy reforms). (b) Those required to facilitate the sector's supply response (e. g., in agriculture, price reform followed by support measures for institutions of research, extension or credit, and in infrastructure, support services and private sector development). (c) Broader reforms designed to support sector development beyond the adjustment process (e.g., improving policymaking and sector management in general).

# Institutional Analysis

In most Bank projects, institutional issues are identified and analyzed in the context of the overall objectives and design of the lending operation, typically in "initiating briefs" or "issues papers," and subsequently in Staff Appraisal Reports (SARs). Although institutional issues are sometimes raised further "upstream" in country economic and sector Twork too, they need not necessarily be carried forward to the design of ID components in Bank projects. A review of projects reveals three principal features of institutional analysis.

6 David Steedman, Institutional Dimensions of Sector Lending: Education and Power Projects, CECPS (mimeo), 1989.

7 Even among investment projects approved in FY89, it was found that a third had ID components dealing with sector-wide issues (based on an analysis of a 20% sample).

8 For a fuller discussion of these reforms, see Samuel Paul, Institutional Reforms in Sector Adjustment Operations, PPR Working Paper Series No. 227, World Bank, 1989.
- 6 -

(1) The range of institutional issues discussed in Bank investment projects are usually implementation related: manpower inadequacies including lack of skills, limited capacity for inter-agency coordination, weaknesses in the systems for planning, monitoring and evaluation, cost recovery issues, lack of maintenanc. systems and inappropriate organizational structures. Table 2 shows that these issues are identified regularly in project briefs and to a lesser extent in SARs. The lower percentages of these issues reflects the normal tendency of staff to exercise greater selectivity in the later phases of the project cycle.<sup>9</sup> (2) Evaluations of the quality and relevance of institutional analysis in Bank projects have concluded that there is much scope for improvement. A recent study of 84 projects (see Table 3) found that 43 percent of the projects were reasonably good but that 33 percent were relatively weak in their treatmient of ID issues."0 The remainder were rated adequate, an in-between category. The quality of institutional analysis was considered better in investment projects in human resources, infrastructure and energy and weaker in adjustment lending operations. Among regions, Asia and Africa were found to have treated ID issues relatively better than EMENA and LAC.

The above finding about the weaknesses of institutional analysis in Bank projects is confirmed by a recent review of the institutional reforms in SECALs." It should be noted, however, that the institutional issues in adjustment lending are broader and more complex than in investment projects. In general, institutional diagnosis in SECALs focused on the technical aspects of service delivery. However, the impact of interest groups on the working of the institutions, the likely resistance to reforms from the political or bureaucratic fronts and an assessment of the risks involved in the proposed reforms seem to have been neglected. Similarly, the capacity of the organizations and their top management to steer the reforms and get results was seldom assessed. Among the weaknesses in institutional analysis identified in yet another study are the lack of an analytical framework for ID work in many cases, inadequate attention to institutional mapping, failure to address leadership-related issues, and the neglect of the broader legal 9 This may also be due to a reluctance to tackle the more contentious issues during project appraisal.

10 Cheryl Gray, et. al., Institutional Development Work at the Bank: A Review of 84 Bank Projects, CECPS, 1989.

1 Paul, op. cit.
- 7 -

# Table 2

# DISTRIBUTION OF INSTITUTION ISSUES IN PROJECT BRIEFS AND SARS

||Frequency|in|
|---|---|---|
|Institutional issues<br>Project<br>identified/discussedl<br>(FY8|Briefs (%)<br>4&FY85)|SARs(%)<br>(FY83-FY87)|
|1. Manpower inadequacies (including<br>skills)|56|56.3|
|2. Coordination<br>problems|53|28.5|
|3. Gaps in planning, monitoring and<br>evaluation systems|50|31|
|4. Weak local capacity|40|10|
|5. Need to restructure or decentralize<br>organizations|34|*|
|6. Problems of financial management (cost recovery<br>& support systems, budgetary controls)|32|17.5|
|7. Constraints on compensation<br>and incentive<br>structures|18|*|
|8. Lack of attention to demand for project<br>services|15|20|
|9. Autonomy issue|12|1.3|

l In both sets of documents, SARs and project briefs, the categories of issues reported sometimes overlap. Adjustments have been made to minimize double counting.

- This category does not exist as such in SARs.
-8-

Table 3

# SECTOR AND RATING OF INSTITUTIONAL ANALYSIS

# IN SAMPLE PROJECTS

(in percent)

|SectorIOferation|Weak|Adequate|Good|Total|
|---|---|---|---|---|
|Agriculture|35|29|35|100|
|Human Resources|23|23|56|100|
|Infrastructure/Energy|23|23|55|100|
|Trade/Finance/Industry|29|29|43|100|
|SECALs|67|17|17|100|
|SALs|73|9|18|100|
|TALs|27|27|45|100|
|TOTAL|33|24|43|100|

constraints on the projects' viability.<sup>12</sup> Given these weaknesses, it is not surprising that in general country-specific sector ID strategies are not articulated in recent projects.13 (3) The Bank's upstream investment in economic and sector work can be a powerful aid to the quality and relevance of the institutional analysis and ID design work in projects. The usefulness of country economic work (CEW) for project level institutional analysis will depend (a) on the extent to which the analysis takes explicit account of institutional problems; (b) on whether an assessment of the institutional capacity to implement current policies exists in the country; and (c) on the degree to which institutional inadequacies have been diagnosed and directions for reform identified. The major conclusion of a recent review of a sample of 45 CEW reports is that the contribution of CEW to project level institutional analysis is modest.14 Its finding that only 5 out of the 45 reports (11%) met all the criteria mentioned above is disturbing.

**12** A critical and in-depth review of institutional analysis in ten Bank Projects is summarized in Appendix 1. For further details, see Samuel Paul, Institutional Analysis in World Bank Projects, CECPS, 1989.

13 This finding is based on an analysis of the 20 percent sample of projects approved in FY89.

**14** Henry Laurant, Review of ID Aspects of Economic Growth, CECPS (mimeo), 1989.
- 9 -

In contrast to CEW, sector work is credited with closer links to project identification and design. In the sector studies undertaken in FY85, FY87 and FY88, well over half discussed institutional issues. Annual reports by sector departments, however, indicate that major inadequacies in sector work exist across almost all sectors. For example, a recent report on transport policy reform noted: the Bank was generally more successful when it dealt with technical matters and was least successful when Bank staff attempted to use a technical, economic and operational rdtionale to deal with issues that were inherently political and bureaucratic in nature... CESW was good at providing broad policy advice, but was weak in identifying the rationale for existing policies and developing a practical program for reforming them. In many cases, the issues identified in such work furthermore appeared to be ill-advised; they were not relevant in the country context and often appeared doctrinaire.15 In addition, the Population Lending and Sector Review (1988) stated that it was uncommon for sector studies to go beyond a description of service delivery and a preliminary assessment of the management structure of the relevant central government agencies.16 A review of sector work in all education projects approved during FY84 and FY85 showed that there was no analytical treatment of matters dealing with the relevant institutional and socio-political settings." While there are signs of recent improvements, the unevenness and gaps in the Bank's sector work is especially worrisome given the potential for good sector work to exert a positive influence on pro<sup>4</sup> ect level ID component design. (See Box A ).

# Design Features

The salient features of ID components in Bank projects in terms of their content, focus, and design process are the following: (1) The interventions or elements included in an ID component reflect the substance of the des4gn. There is a discernible pattern in the

**15** Ian C. Heggie, TransRort Policy Reform: Review of Experienlce and DeveloRment of a Framework for Designing Policy Reform, Discussion Parer INU 15, World Bank, p. iii.

16 George Simmons and Rushikesh Maru, The World Bank's Population Lending and Sector Review, PPR Working Paper, WPS 94, Population and Human Resources Department, September 1988, p. 18.

17 Annual ORerational Review: Fiscal 1988 Education and Training, World Bank, February 1989, p. iii.
- 10 -

BOX A

# Indonesia: Sector Study on Public Resource ManaQement

This sector report and a subsequent health project illustrate the value of examining the institutional aspects of public resource management before planning a project which will increase the resource flow to a particular sector. In a sector report on Indonesia's public resource management, analysts highlight the fact that, while infrastructure and social services have been substantially expanded, problems lie in the dearth of resources planned for operation and maintenance. This has led in recent years to a deterioration of facilities and lower quality operations in many sectors. The O&M problem is not solely one of inadequacy of funds: other systemic weaknesses arise from the planning and budgeting process, limited technical and management capacity to undertake O&M, particularly at the local level, institutional biases against maintenance, and neglect of proper civil servant compensation. There is no coherent approach to O&M financing, as resources for O&M are provided through a large number of separate channels. Coordination is further ccnfused by the lack of clarity in the division of responsibilities for O&M implementation between the central government and local authorities. The latter are being asked to assume increased responsibilities for completed infrastructure and expanded programs, but often lack the technical and managerial capacity to opetate and maintain complex systems of infrastructure and social services.

The health sector, until recently focused on expanding the rural health center infrastructure, is especially afflicted by the excessive fragmentation of funding channels. Rigidities in the budget systems limit the flexibility of institutional managers to shift funds across functions, thus constraining the efficiency of operational units. In addition, planners will need to consider higher compensation for staff. Government health workers cften request informal "user charges," seek additional private employment, and have little incentive to engage in preventive health activities.

The sector report conclude that emphasis must be placed on increasing the capacity to do O&M rather than on simply doing O&M. A comprehensive ID component would include strengthening the structure and status of O&M organizations, adjusting civil service compensation, establishing support units at local levels to assist with planning, budgeting, and implementation of O&M by line units, increasing supervision, and planning for staffing needs.

A new health sector prsject in Indonesia will build on the findings and recommendations of this important sector study. Along with financing health education in the broadest sense, the project proposes to support the Government of Indonesia in its efforts to strengthen the Health Ministry's policy development, planning and financial management capabilities, program auditing, and the rationalization of its regulatory functions. The stimulus for this approach was provided by the sector study which, among other things, pointed out the serious institutional issues in this Ministry's management of its operation and maintenance expenditures.
- 11 -

planned ID interventions across sectors in investment projects which typically include measures for (a) strengthening the existing functions of project related organizations or project implementation units (PIUs); (b) adding new functions to existing organizations to make them mere effective; (c) creating new organizations or units for project implementation; and (d) divesting or privatizing existing organizations or their pdrts in some of the more recent projects.18 All of them invariably call for the development or upgrading of skills.

In contrast to investmenc: projects, the design of institutional components in sector loans and SECALs usually consists of much broader elements: sector-wide organizational restructuring and strengthening, regulatory and procedural reform, and bu!lding policy and planning capability for sector management. The relative frequency of the three categories tend to vary from one operation to another. TablJe 4 provides a comparative picture of the types of institutional interventions included under the trade, industry and agriculture SECALs and the frequency of each type within each sector, as indicated by the percentages.

**TabLe**

||||**FREQUENCY**OF I|NSTITUTIONAL|REFORMS|||
|---|---|---|---|---|---|---|---|
|-------------------------------------------|**Policy**<br>**PIn**<br>Capacity<br>**B**<br>---------------------|**ins**<br>**uilding**|**Orgtlantimal**<br>**and Streng**|**letruturing**<br>**then**|Regulatory<br>Procedural<br>__-----------__----------------------|**and**<br>Reform|TOTAL|
||Number|X|Number|X|Number|X|Number|
|Industry|13|25|21|40|19|36|53|
|Agriculture|38|32|52|**44**|29|24|119|
|**Trade**|13|24|27|50|14|26|54|
|**TOrAL**|64|28|**100**|44|62|27|226|

(2) A review of the ID design content in Bank projects based on sample surveys of investment projects and discussions with Bank staff shows that the first ID objective of supporting project implementation (investment) is the dominant preoccupation of ID components.19 The redesign of agency organizational structures, training of project personnel or other ministry staff and reform of management systems are examples of ID work focused on implementing agencies (see Diagram I in Chapter VI for a hierarchy of 18 Based on a review of 80 Bank projects approved durin& FY83-FY87 by D. W. Brinkerhoff in Institutional Analysis and Institutional Development: A Survey of World Bank Proiect Experience, CECPS (mimeo), 1989.

19 Ibid. However, only about a fourth of the projects approved in FY89 had PIUs.
- 12 -

frameworks for institutional analysis). The scope of ID does not seem to cover, except in a minority of cases, issues of demand which are relevant to the design of the project service and hence essential to sustainability, its fit with beneficiary needs and the choice of institutional alternatives for delivery consistent with the nature of the service.20 Attention to these issues may entail linkages with grass-roots level organizations especially in projects d_aling with poorer segments of the population or when demand mobilization is important as in population projects. The goals of sustainability and sector-wide institutional strengthening with a focus on client groups are thus addressed only in a limited way. As noted earlier, the broader, sector-wide capacity building interventions which contribute to sustainability are attempted by SECALs. However, their quick disbursing nature terds to militate against the long-term perspective required for the success of these interventions. Thus, there is little evidence of sectoral ID strategies into which project ID components are integrated.

The project implementation focus will no doubt also contribute to project sustainability in some measure. After all, strengthening of agencies, functions, staff, etc. are necessary inputs for sustaining benefits beyond the project horizon. Sometimes even project implementation units (PIUs) can be so planned that they are sustained beyond the project period as permanent entities in the sector (see Box B). When, however, the incentives for building on these inputs beyond the project are not assured, leadership and borrower commitment issues are ignored, and the likely impact of macroeconomic factors are not adequately taken into account, the potential for sustainability is severely curtailed.

(3) There is evidence of an increasing use of the process approach (involving clients and consultations with key local actors in the course of project preparation) in institutional diagnosis and design, but it is likely that the practice is person-dependent and not yet institutionalized in the Bank. The use of the process approach with minimal reliance on external consultants is evident in the preparation of the Morocco agriculture sector adjustment loan. Here the diagnostic exercise was carried out through a series of local task forces and joint meeting between them and the Bank staff. This work benefitted greatly from the prior insights generated within the Agriculture Ministry which had a USAID-funded expatriate adviser. For the most part, however, the diagnosis was done by the Moroccans who built a consensus on the issues and actions to be t&ken through an interactive process that involved the Bank staff at the relevant stages. The process was facilitated by the fact that the Bank staff involved had considerable knowledge of the country, acquired through continuous years of project and sector work.

20 In the 20% sample of projects approved in FY89 and referred to above, about a third had addressed demand and client-related issues. All population/health projects have given some attention to clients and demand, followed by agriculture and education projects.
- 13 -

BOX B Evolution of Project Management Units into Permanent Institutions Malaysia Muda and Kemubu Irrigation Proiects The ID aspects of these projects are their most successful accomplishments, primarily because the two regional development authorities established under the projects were abY.e to operate as efficient, independent organizations after project completion--with full support from both federal and state governments. The Muda Agricultural Development Authority (MADA) and the Kemubu Agricultural Development Authority (KADA) developed the capacity to plan regional development strategies and ensure that credit and other inputs reached farmers. Much of their strength was drawn from active coordination with the local Farmers' Associations (FA), which evolved after completion into quasiautonomous, participatory grass-roots organizations with considerable power to represent local farming interests (primarily those of larger farmers, since land access problems effectively blocked small and landless farmers from benefitting substantially). FA leaders were represented in each of the Authorities' local offices, thus enabling the authorities to incorporate beneficiaries into decisionmaking and implementation processes.

(4) While there are gaps and weaknesses in the Bank's analysis and design of ID components, there is encouraging evidence of learning too. First of all, the increasing use of the process approach referred to above is a good example of learning. This represents a welcome, through partial, shift from the tendency to stick to pre-determined "blueprints' to a willingness to explore options more flexibly, to draw upon local knowledge and to experiment with new institutional alternatives. Some sectors such as health, nutrition, population as well as some subsectors of agriculture seem to have led this trend possibly because of the more complex problems and diverse and difficult beneficiary groups they face. The use of local workshops and task forces during project preparation is more frequent today than a decade ago in several sectors. Second, there is evidence of learning in respect to institutional analysis. The quality of the treatment of institutional issues has improved especially in investment projects in infrastructure, energy and human 2 1 resources. on the other hand, adjustment operations which are relatively new were rated as much weaker in terms of institutional analysis. Third, even where PIUs are used, greater attention is being paid to the need to strengthen capabilities within the sector agencies. This trend, the widening of the scope of ID and long-term capacity building elements are responses to the problems arising out of earlier project experiences. Though these changes are not pervasive, they represent an important dimension of organizational learning within the Bank.

21 See Gray et. al., oR. cit., Paul, op. cit.
- 14 -

A major finding of this chapter is that Bank projects are increasingly dealing with sector-wide ID issues. The foregoing review, however, reveals important internal contradictions between the widening scope of ID in projects and other ID features and practices.

(a) The absence of country specific sector ID strategies is inconsistent with the trend towards widening the scope of ID as there is no map or long-term perspective to guide the design of project ID components.

(b) The uneven quality of institutional analysis and the limited attention to ID issues in economic and sector work go against the requirements of the widening scope of ID in projects.

(c) The continuing focus of ID on project implementation weakens the concern for sustainability in Bank projects and limits the attention given to the design of sectoral ID strategies referred to above.

(d) The more complex sector-wide ID designs and interventions (implied by the widening scope of ID) are being left to Bank sector specialists whose skills and experience are not always adequate to deal with these broader issues. The problems noted above may well have been exacerbated by this mismatch.

# III. PERFORMANCE OF ID COMPONENTS

The evaluation of ID objectives in Bank projects is by no means easy. The diversity of prcjects, sectors and country contexts on the one hand, and the problems of performance measurement and of the choice of evaluation criteria on the other, add to the complexity of this assessment. Above all, there is the problem of data and the limitations of global surveys even if data were available. Given these constraints, our endeavor will be to sift the a'ailable and admittedly partial evidence from Bank performance reviews to discern performance trends and their interpretation by knowledgeable persons. This will be supplemented by a more detailed analysis of the factors underlying the differential ID performance found in Bank projects. The broad performance review will provide a useful setting within which the factors which influence ID performance could be probed in depth and their policy implications identified.

# Patterns of Performance

The Bank's Annual Reviews of Implementation and Supervision (ARIS) FY80-FY88 show that managerial problems are the most common (compared to financial, technical or political) barrier to good performance in Bank projects. These problems in turn are attributed to institutional weaknesses (lack of organizational capacity, staff skills, etc.). Sectors where these problems are relatively more pervasive are agriculture, water supply, population, and urban development. What is even more significant, however, is the ARIS finding that the proportion of projects which face moderate to severe
- 15 -

managerial problems has increased from 30-35 percent of the total to more than 60 percent during the period FY80-FY88. It is reasonable to conclude from this evidence that the achievement of ID objectives in Bank projects has become progressively more difficult in recent years. Among the reasons for the deteriorating ID performance reported in ARIS are limited institutional capacities exacerbated by the difficult macroeconomic conditions in borrower countries, the growing complexity of project design and the adverse impact of the surfeit of donor activities in some countries.

More detailed and systematic evidence on ID performance in Bank projects is available from the Annual Reviews of Project Performance Results of the Operations Evaluation Department (OED), which unlike the ARIS data, provides information on projects completed and audited a few years ago and hence sheds light on the trends in ID performance going farther back into the past. OED reviews have evaluated ID performance in projects for over 10 years and have categorized them into those with "substantial," "negligible" and "partial" ID achievements based on evaluations by OED sta.'f of the extent to which the ID objectives of projects have actually been ar.h:te-,ei on the ground. While this clearly reflects the use of judgment by staff a-,d consultants, it is the type of evaluation in which OED has built up consic±rable expertise over the years, using data generated through extensive field visits and discussions with diverse groups of interested persons including borrower representatives and Bank operational staff. In spite of their limitations, the OED time series on ID performance in projects is the best and most comprehensive evidence we have on the subject.

Of the 1,250 projects with ID components over the periods CY78-CY87, OED estimates that 36 percent made substantial progress towards the achievement of their ID objectives while 19 percent showed negligible achievement.22 Nearly 45 percent of the projects were reported to have partially achieved their ID objectives. Among the sectors, industry (48%), public utilities (42%), and DFC (40%) had the highest substantial ID achievement ratings. Among the sectors with the highest negligible ratings were agriculture (25%) and population/health (23%). The latter, being a relatively new sector, had very few completed projects (See Table 5).

A regional comparison of these ratings showed that Africa had the highest negligible achievement rating (26%), a not surprising finding given the general state of institutional weaknesses in that region. ID achievement was substantial in Asia in 43 percent of the cases and rnegligible in 11 percent. However, ID efforts in Asia focused on incremental improvements in established institutions, and fewer Asian projects had ID objectives. Substantial ID achievement in EMENA and LAC were 32 percent and 29 percent respectively. Their negligible achievement ratings were 18 percent and 16 percent respectively.

22 Eaves, op. cit.
- 16 -

# Tal 5 ACHIEVEMENT OF ID OBJECTIVES BY SECTOR **1978 - 1987**

|SECTOR|TOTAL NO.<br>OF PROJECTS|
|---|---|
|Substantial|1'9<br>33|
|AGRICULTURE<br>Partial|163<br>42|
|Negligible|96<br>25|
|Total|388<br>100|
|Substantial|27<br>48|
|INDUSTRY<br>Partial|18<br>32|
|Negligible|11<br>20|
|Total|56<br>100|
|Substantial|51<br>40|
|D F C<br>Partial|58<br>45|
|Negligible|19<br>15|
|Total|128<br>100|
|Substantial|96<br>42|
|PUBLIC UTILITIES*<br>Partial|96<br>42|
|Negligible|35<br>15|
|Total|227<br>100|
|TRANSPORT<br>Substantial|91<br>34|
|URBAN<br>Partial<br>|119<br>45<br> <br>|
|TOURISM<br>Negligible|54<br>20|
|Total|264<br>100|
|Substantial|43<br>31|
|EDUCATION<br>Partial|79<br>56|
|Negligible|18<br>18|
|Total|140<br>100|
|POPULATION/<br>Substantial|3<br>23|
|HEALTH/<br>Partial|7<br>54|
|NUTRITION<br>Negligible|3<br>23|
|Total|13<br>100|
|Total Substantial|450<br>36|
|Total Partial|563<br>45|
|Total Negligible|237<br>19|
|-------<br>-- -----------<br>--------------<br>-----|...--<br>--------<br>------<br>-------------.....|
|GRAND TOTAL**|1,250<br>100|

* includes power, telecommunications, water/sanitation

** including 34 non-project lending operations Source: OED
- 17 -

A disaggregation of agriculture projects by )ED showed that credit and irrigation institutions have been relatively more successful largely because they seem to have had better defined functions and clearer mandates. Livestock and area development projects, on the other hand, had much less success with ID. The ID problems in agriculture projects noted by OED were similar to those found in other sectors: lack of skilled management and staff, staff turnover, tension between expatriate experts and local counterparts, mismatch between project needs and training proposals, lack of borrower commitment and Bank-borrower disagreements on objectives. In an analysis of impact studies from 27 agriculture and 4 education projects, OED observed that in almost all projects which were found to be unsustainable, the impact evaluations had pointed to areas where institutional capacity needed to be strengthened in the post-implementation period. On the other hand, OED found that good ID work had contributed much to the sustainable projects. Sustainability for agriculture activities, as in other sectors which deal with diverse populations, require that project goals and actions to achieve them match the needs and motivations of the affected publics as well as the concerns of the borrowers. A series of projects in the same sector offers an opportunity to improve the prospects for sustainability. Even in a series of projects, however, when the ID measures were limited by the time horizon of each project and focused only on current project implementation issues, the strengthening of long term institutional capacity essential to sustainability did not follow. While there are success stories among education projects, OED reviews offer examples of how in some of them the lack of adequate assessment of the capacity of implementing agencies led to negligible ID achievement.

The sectoral patterns of success or failure reflected in this analysis of OED data confirm the patterns found by a more detailed study made on the basis of 175 projects completed about a decade ago.<sup>23</sup> This review showed a pattern by sector, subsector, and act'vity but, except in a few cases, not by country. Although some sectors subsectors, and activities have had consistently good or bad results over long periods in most countries, few countries have consistently had successes or failures in most sectors. The most successful institutional development programs were in industry, telecommunications, some utilities, development finance companies or industrial development banks, and "industrial" types of agriculture such as plantations. A mixed performance was found in other utilities (a rather large group), transport projects (ports and highways), and agricultural credit .Lnstitutions. Poorer results were registered in most other types of agriculture, education, and railways. Differential sectoral performance was 2 attributed to the factors of specificity and competition.1 Specificity is defined as the degree to which it is possible to specify the objectives of an activity and to measure and control its performance. Competition refers to the extent to which an activity is subject to external or market competition or to surrogates of competition such as pressure from clients or from the internal control devices of the organization managing the activity. Sectors 23 Israel, ob. cit.

24 Ibid.
- 18 -

tend to differ in terms of the relevance of these factors to their activities/services.

BOX C Sequencing ID Through a Series of Projects Three Agricultural Prolects (PaRua New Guinea) The First Agricultural Credit Project initiated a lending program to smallholders for development of pork, beef and poultry enterprises through the Agricultural Bank (ABPNG). The appraisal zeport for the project focused on the need for the project executing agency to strengthen its technical and financial management with technical assistance. The Second Agricultural Project addressed this issue more fully. A program was launched to reduce administrative costs, to streamline aranch operations and to make them field oriented. A reorganization of the branch network, as well as a staff and retrenchment program followed. Improved benefits and remuneration competitive with the private sector were then introduced. As a result the quality of ABPNG management improved substantially, and staff turnover declined from 27 percent in 1981 to 12 percent in 1984. In addition, a localization program was initiated and proceeded at a satisfactory pace without sacrificing the efficiency of the bank and its lending and investment operations. From 54 expatriates officers in 1974, the number declined to 35 in 1980 and 21 in 1985.

In order to alleviate the problems encountered during the implementation of the second project and to enhance institutional development, under the Third Agricultural Project, ABPNG undertook to implement an action program and a new financial strategy. A condition of effectiveness was the appointment of a suitably qualified individual as deputy managing director. In addition, a program was launched to monitor and evaluate the impact of subloans on farmers' income, expenditure patterns, and attitudes about which previous projects lacked information.

# Emerging Issues

OED reviews which use data pertaining to projects completed prior to the mid-1980s also shed useful light on the trends over time in the achievement of Bank ID objectives.25 The data is organized by evaluation year 25 Data do not permit a disaggregation o. ID objectives and of the extent of achievement of each.
- 19 -

which means that projects evaluated in a given year may have been approved nearly 10-15 years prior to the evaluation. Thus, in evaluation year CY87, for example, the approval dates for the set of projects range from CY73 to CY84. In the majority of cases, projects were closed in the year prior to evaluation, although some projects may have been evaluated several years after closing. Thus the data represent the evolution of ID results, and not necessarily the evolution of ID design. Additionally, the evaluations of overall project objectives and ID objectives have been done independently; thus, overall ratings are nos weighted by corresponding ID ratings.

First of all, OED data show that ID achievement in the set of 1,699 projects completed and reviewed over the period CY78-CY88 has declined significantly. Since 1982 the share of projects with negligible achievement has steadily increased from 15 percent to 25 percent (See Figure **l).26** The share of projects with substantial ID achievement has declined from 42 percent to 35 percent during the same period. The share of projects with partial ID achievement also has declined from 48 percent to 44 percent during this period. These are disturbing trends and deserve to be analyzed carefully. T-ne recent ARIS finding that institutional problems are becoming increasingly severe in the proiects currently under implementation adds to the significance of these trends. The factors underlying the deteriorating ID performance are examined in Section IV.

Second, in terms of regions, the neglig!hle ID achievement category in Asia has marginally worsened, and the substantial achievement category has declined significantly. In Africa, cn the other hand, the negligible achievement category, which had worsened significantly until 1985, has since stabilized. EMENA shows a decline in the substantial achievement category and a relatively stable trend in the negligible category. LAC shows a considerable worsening in both the substantial and negligible achievement categories (see Figures 2-5).

Third, with respect to sectors, the negligible ID achievement category in education has hotably worsened since 1982.27 Transport/urban and public utilities also show a similar (worsening) trend though the latter seems to be stabilizing. The negligible achievement category in agriculture is relatively stable, but in industry/DFC, there has been some improvemer,t. Note that transport/urban and agriculture have the highest levels in the negligible achievement category (see Figures 6-10). PHR completed projects were too few in number to be included in this assessment.

> 26 Changes in the OED criteria for eva''uation and learning over time might explain a part of this phenomenon. On the other hand, the ARIS reports reinforce the OED results in general.

> 27 The focus here is only on the negligible ID category and not on the overall ID performance of the sectors. For example, the partial ID achievement category has improved somewhat in education since 1983.
- 20 -

Fourth, ID achievement in projects and overall project performance can be expected to be positively correlated although it is difficult to predict how strong the relationship will be. The degree of correlation will depend not only on the nature and objectives of ID, but also on the quality of ID activities. If the focus of ID is on strengthening project management or on improving specific functions or systems directly relevant to the project, there is likely to be a strong and immediate impact of ID on project performance. If, on the other hand, ID supports studies or training of a long-term nature, it is doubtful that an immediate impact will be felt on project outcomes. Overall project success may also assist ID achievement especially if it facilitates the completion of ID activities.

An analysis of the OED data for 1987 and 1988 shows that there is a significant positive relationship between ID achievement and the overall achievement of project objectives. Table 6 partitions a total of 185 projects (CY87&CY88) into four segmentE. They are divided vertically into two categories (satisfactory and unsatisfactory) by overall achievement rating. The same projects are divided horizontally into negligible and substantial ID achievement categories. Of the total number of projects with a satisfactory overall rating (70%), nearly 80 percent had substantial ID achievement. Of the projects rated unsatisfactory overall, only 17 percent had substantial ID achievement. Of the projects which had an overall unsatisfactory rating, 83 percent had negligible ID achievement, whereas only 23 percent of the projects with overall satisfactory rating had negligible ID achievement. The results reported above shows that while ID achievement is not a sufficient condition for overall project performance, it seems to be an influential factor. Further analysis of the nature and elements of ID is necessary for to better understand the relationship between the two. External factors, for example, could neutralize the effects of ID or comnensate for its lack. ID is only one of the overall project objectives and certainly not a dominant one in most cases.

Fifth, ID achievement and project sustainability (continuation of benefits beyond the project period) are positively correlated. This implies that strengthening of institutions and upgrading of skills and capacities that take place through pzoiects contributes to sustainability. Table 7 shows that of 41 projects with substantial ID achievement, 40 were likely to be sustainable. Of the 34 projects unlikely to be sustainable, only one had substantial ID. On the other hand, of the 46 projects with negligible ID achievement, 33 were unlikely to be sustainable. Sustainability is obviously influenced by several factors, but ID is certainly an important one of them. On the link between ID and sustainability, OED's Annual Review for 1988 observed: Most sustainable Bank-financed operations put a major emphasis on the development of the institutional capacity required to sustain benefit flows after their completion. As the complexity of projects increases, the demand for human capital becomes more critical to sustainability. Prospects for sustainabilitv are better in projects where the Bank has been able to ensure that the goals, and intended means of achieving them, are compatible with the attitudes and cultural values of their intended beneficiaries.
# Figure 1

<!-- Start of picture text --> Figure 2<br><!-- End of picture text --> <!-- Start of picture text --> ALL SECTO AM<br>AMEWrMEACIUMV C OF IOCUECWThE PERCENTAGE AC IEYEM OF ID OBECTI<br>(REVIWYEARS CV70" ( EW YEORS CY?<br>100<br>70 . T o<br>OD_. .. . .. .0 .......-...<br>a. L4 --- - - - -- I 1<br>40 -: 40<br>~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I-Se..<br>no . . . . . . ......... ~~~~~~~30 ,0 40... ..<br>20 . ., ... .... .. . ; 20 .................. ........ ............. ~~~~~~~~.......<br>O II 0 I . O 0-I - .I A~~~~~~I I "<br>7079 amm4Q 0095 es 78 79<br>ra~~Nsf i, _l 1<br><!-- End of picture text -->
Figure 3 <!-- Start of picture text --> AFPAC<br>PERCENTAGE ACHIVEMENT OF D OIJECTIVES<br>(REVIEW YEA.RS cY7S4U<br>oo .<br>70 .. .70 ..<br>10 .. . . . ..<br>IL7IL _<br>l " [,- -~~ -~ %___ _-<br>40 0~~~~~~~~~~~~~~~~~8 .40<br>30 _...3.**-*<br>X~~~ .. -- I I<br>7v711 W2 838 8&85<br>Su-dw Pr Ngbh<br><!-- End of picture text --> <!-- Start of picture text --> Figure 4<br><!-- End of picture text --> <!-- Start of picture text --> EMENA<br>PERCENTAGE ACH4VENT OF 1D OBJECTI<br>(REViW YEARS CWW"<br>gso I<br>U __- ~ ~ _,<br>Oi_<br>0_ . ..<br>. .............................. It .........--- I<br>78-79 Gl>V2 8395 8<br>J&ba_ Pa - 11ue<br><!-- End of picture text -->
# Figure 5

# Figure 6

<!-- Start of picture text --> EOUC^OEATI<br>IAC<br>PERCENTAGE ACHEVEME OF 10 BJECTNES PERCENTAGE ACHIEYEMENT OF 10 OJECTIE<br>ff0 so Nts " ''X''EFtSYT" . . . .p . . . oo 0. . " (RVL ,,__-MR C . . , .10<br>To. .70 % .<br>50. . ..........<br>dp~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9<br>40~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~4<br>%<br>O~~~~~~~~~~~~<br>7579 eo042 63-10 65-68 78-79 P*82 am-6 6w8as<br>Pam P-I<br>ab_w Po -oo-IPA<br><!-- End of picture text -->
Figure 7 Figure 8 <!-- Start of picture text --> 1MuRlAAruIn P1C unIures<br>PORCETEACmHVEUMUa IUOWECSH P tERAE AC# tVEUN OF0 OD Tw<br>(RUEW YEAR CT"4 (REVIET EARSCT7S4S<br>tOO l 0<br>0 .. . ... . .. .. ...... ....<br>zo ~~~~~ ......... ~ ~ 4 b l<br>so .D .......... ....... .e . _- F~\ OD e.-. . ......<br>X0 000 ... . .. , ..... .. . . .......<br>I_ ~ ~ ~ ~ ~ ~ h .. 1 P N<br>so1; . ..... .......... .. o.. . . .. ... .. . .. ..... .. .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.0<br>0 ..... . l , o , ,6~~~~~~~~~~bm . N<br>MO am am as-Be 78079 80-82 83-85 as-.<br><!-- End of picture text -->
Figure 9 <!-- Start of picture text --> AGRICULTURE<br>PERCENTAGE ACHIEVEMETW OF IUOECTNES<br>tODVIEW YEARSC146<br>m l ._ l l l<br>70<br>100 _<br>so o2s3sea<br>7879 60-62 83-86 86-88<br>50<br>~~~~~~~I _<br><!-- End of picture text --> Figure 10 <!-- Start of picture text --> INOUSTIRWOF<br>PERCENTAGE ACHIEVEMENT OF 10 OBECTIES<br>(REV0EW YEARS CY7W4<br>l lll90<br>7<br>....... ,-<br>so t989 3s89<br>7~~~~ ~ ~~~8-7008 38 88<br>50<br>__ I<br><!-- End of picture text -->
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# Table 6

# JOINT CONTINGENCY TABLE OF ASSOCIATION BETWEEN ACHIEVEMENT OF ID OBJECTIVES AND ACHIEVEMENT OF OVERALL PROJECT OBJECTIVES, ALL SECTORS (Review Years CY87-CY88)

# By Number of Projects

# Overall Achievement

|Un|satisfactory<br>Satisfacto|ry|
|---|---|---|
|Negligible<br>ID|47<br>29|76|
|Achievement|||
|Substantial|10<br>99|109|
||57<br>128|185|

# By Percentage of Projects

# Overall Achievement

|Un|satisfactory Satisfactor|y|
|---|---|---|
|Negligible<br>ID|25%<br>16%|41%|
|Achievement|||
|Substantial|5%<br>54%|59%|
||30%<br>70%|100%|

Note : Does not include 'partial" ID achievement category. Source: OED Database
- 27 -

# Table 7

# JOINT CONTINGENCY TABLE OF ASSOCIATION BETWEEN ACHIEVEMENT OF ID OBJECTIVES AND LIKELIHOOD OF SUSTAINABILITY ALL SECTORS (Review Years CY87-CY88)*

# Likelihood of Sustainability

<!-- Start of picture text --> Unlikely Likely<br>Negligible 33 13 46<br>ID<br>Achievement<br>Substantial 1 40 41<br>34 53 87<br><!-- End of picture text --> JOINT CONTINGENCY TABLE OF ASSOCIATION BETWEEN ACHIEVEMENT OF ID OBJECTIVES AND LIKELIHOOD OF SUSTAINABILITY ALL SECTORS (Review Years CY87-CY88)

# Likelihood of Sustainabilitv

<!-- Start of picture text --> Unlikely Likely<br>Negligible 38% 15% 53%<br>ID<br>Achievement<br>Substantial 1% 46% 47%<br>39% 61% 100%<br><!-- End of picture text -->

- Data on both sustainability and ID achievement were available only for 87 projects.
- 28 -

# IV. VARYING ID PERFORMANCE: lNDERLYING FACTORS

Projects may differ in their ID achievement due to: (1) exogenous factors such as the differing macroeconomic or sectoral environments facing them, (2) project design-related factors, and (3) other factors affecting project implementation.

# Influence of the Macroeconomic Environment

To test the hypothesis that macroeconomic developments have a major influence on ID achievement, the following exercise was undertaken. Since most of the relevant macroeconomic (external to projects) variables can be quantified, the discriminant analysis technique was applied to a sample (N-213) of the different categories of ID performers to determine whether they discriminate between the different categories. The discriminating variables used were GNP, rate of growth of GNP, literacy, share of government expenditure in GNP, rate of inflation, population, official development assistance (ODA) as a percent of GNP, and urbanization. The statistical results obtained can be interpreted as follows:

- (1) The eight variables together are extremely weak in their discriminatory power with reference to the categories of substantial, partial and negligible ID achievers. In other words, these macroeconomic or environmental factors together explain only a small proportion of the variation in the estimated discriminant function (8%).28

- (2) Of the eight variables, those with the most discriminatory power were the rate of inflation, and the rate of growth of GNP. Both are significant at .05 level. This means that of all environmental variables, those which best reflect macroeconomic changes over time (both improvement and deterioration) seem to be the most discriminating factors. The level of GNP, on the other hand, has insignificant discriminatory power. It is reasonable to conclude that ID is facilitated by a growing economy with relative price stability. A stagnant or deteriorating economy with rising prices seem to be associated with negligible ID achievement.

- (3) Since a very large proportion of the variance (92%) remains unexplained by the estimated discriminant function, the reasons for the variability in ID achievement have to be sought in (a) inadequate institutional analysis and poor ID design (e.g., design that does not match local capacity), and (b) difficulties which emerge in the course of implementation even when design is not a problem. The latter may be precipitated by factors external

28 Other variables, including sector specific variables might have explained a larger proportion of the variance. Data availability, however, was a barrier to further refinements.
29 -

-

to the project or by poor project management. Traditional projects, sector loans, and SECALs face both types of problems.

# Impact of Design

Gaps in institutional analysis have already been discussed in Chapter II. These weaknesses can be expected to adversely affect the quality of ID design. Inadequacies in sector work, also noted in Chapter II might have contributed to a weakening of the quality of ID design, especially when more complex designs are put in place. Complexity has increased not merely because of the multiplicity of agencies (beyond the implementing agency) targeted by the design, but also because of the sector-wide institutional implications of the policy reforms being addressed through Bank projects in recent years. OED findings do not yet fully reflect the complexity problem. ARIS, however, refers to the adverse impact of the widening scope of ID on the implementation of ID components.

# Implementati2n Problems

Managerial and institutional weaknesses in borrower countries are repeatedly identified as the major reasons for the poor ID implementation in Bank projects (Annual Review of Implementation and SunqMriAsion, 1988, 1989).29 They manifest themselves in inefficient public agencies, incentive problems in key governmental organizations, lack of autonomy and dearth of competent and experienced staff and managers. In the case of SECALs, the borrowers failed to take follow-up actions essential to the success of policy and institutional reforms even though they met the conditions of the loans. In Zambia, for example, an action plan for the rehabilitation of public enterprises was prepared, thus meeting a condition of the SECAL. But the holding company responsible for the program would not actively follow up and make it effective. In Hungary, a restructuring program office was set up as required by the SECAL, but supervisior. reports confirmed that restructuring was not fully understood by the Ministry of Industry staff.

Implementation is slowed down significantly by projects which are too complex in relation to the sector's implementation capacity, either in the technical design or in the managerial skills and structures required for implementation. Certain types of projects, especially those with multiple components, such as those in Urban, Population/Health and Agriculture sectors, required coordination of diverse activities, strong organizational framework and institutional management, but implementation reviews indicated these were more susceptible to problems than others. In the case of SECALs, the implementation of institutional reforms was delayed in several cases by internal coordination problems when multiple ministries were involved. This was a special problem in trade SECALs whose design envisaged multi-agency cooperation. Virtually all trade SECALs called for inter-ministerial coordination and about half of agriculture SECALs required such coordination.

29 Obviously, these factors had an adverse effect on the overall project implementation too.
- 30 -

Lack of flexibility in implementation was a major problem in many projects. Mid-course corrections are invariably necessary even with the best of designs. If the management, however, is inflexible, effective implementation becomes difficult because the needed changes cannot be made. In part, this is a problem of design which tends to specify the lend states" to be achieved but ignores the requirements of the "transition" or the steps needed to get from the starting point to the end. It also sheds light on the limits of the supervision process. Often organizational structure or the creation of a new agency receives much attention, but the processes required to make them perform and adapt to emerging contingencies are neglected. Difficult macroeconomic environments in countries have exacerbated this problem. Their adverse impact on governmental decisionmaking and implementation processes, the lack of ability to provide counterpart funds, and lack of managerial incentives has been pervasive in the affected countries.

The role of supervision in responding to implementation problems is vividly brought out by the experience of the projects evaluated by OED. While the percentage of projects receiving a negligible ID achievement rating increased continuously throughout the 1980-88 period, analysis of the data shows that when supervision of negligible ID projects (measured in staffweeks adjusted for project costs) increased, the rate of growth in the number of negligible projects declined. Conversely, when supervision was reduced, the rate of growth of negligible ID projects increased. Projects rated as substantial ID achievers also followed a similar pattern for most of the period. Though the measurement of supervision in staffweeks is a partial measure that does not take quality into account, this finding lends support to the view that inadequate supervision limits the ability to deal with implementation problems and as a result adversely affects ID performance.

# An In-Depth Analysis of OED Audits

A random sample of 45 projects was selected from the larger OED project set for a qualitative analysis of the factors internal to projects which may have a bearing on ID performance. The sample consisted of 21 low performers (negligible ID achievement) and 24 high performers (substantial ID achievement) selected from all relevant sectors (agriculture, transport, public utilities and energy, education, and industry and DFC).<sup>30</sup> A review of the projects clearly brings out the generic character of the issues; most issues identified below were present across all sectors and in both categories of ID achievement. The fact that projects in both high and low achievement categories do face similar problems suggests that ways of handling ID issues and responding to contingencies do matter. This makes the role, capabilities, and incentives of those who plan and manage ID 30 Sectoral features also have a bearing on ID performance, but have not been examined here as OED audits did not provide adequate details on the subject.
. 31 interventions critical to success. The major factors which separate the substantial ID (SID) from the negligible ID (NID) achievers in the sample are the following: Focus on develoRing and managing Rersonnel. In most projects, NID as well as SID, the lack of professional personnel was an issue. In the worst cases the problem was one of limited skills and capacity of the work force due to deficiencies in the coverage and quality of the education systems; such problems were brought out in the Dominican Republic Yaque del Norte Irnogulen Project (NID), for example. Even in the SID cases where professional skills existed locally, low salaries in the implementing agency resulted in high staff turnover. Technical assistance, training and salary adjustments alleviated the problem substantially in such cases. NID cases were marked by inadequate needs assessment and poor specification of the content and timing of staff training. In successful cases, training design was detailed, massive and continuous. Redundancy in training was built in to offset the staff turnover problem.

LeadershiR and effective use of autonomy. Lack of leadership was not frequently mentioned as an ID issue in the audits, but strong leadership was reported as a success factor associated with the effective establishment of new organizations, competent management, and good use of TA. In the Madagascar Mangaro Forestry Project and the Tanzania Trucking Industry Rehabilitation and Improvement Project, both SIDs, top leadership and senior level management teams were considered the key to anticipating and dealing with problems. Both sets of projects (SID and NID) faced problems arising from the lack of autonomy, and from political interference. The control by Government of project agencies posed major obstacles for implementation in the Panama DFC project (NID) while this did not become a serious issue in the Thai DFC project (SID). The Bank's ways of coping with the problem varied a lot, and attempts to solve it through the technical route or organizational rearrangements usually failed (Indonesia, First and Second North Somalia Estate Projects (NID). Technical (e.g., budgeting) improvements, however, did introduce greater discipline in operations. The best results to date were in cases where government interventions were made more transparent (e.g., a system of managed funds in the Indonesia DFC project) without diluting the accountability of the agency concerned. This augmented the latter's autonomy significantly and improved its incentives for better performance while at the same time permitting the government to play its legitimate political role.

g#2#city for institutional analysis and design. SID cases showed evidence of a broader concept of project preparation that included institutional assessment (diagnosis of institutional capacities, mapping of alternative institutional arrangements, and socioeconomic assessment of beneficiaries). The NID cases were
- 32 -

characterized by a gap between ID diagnosis and project design. Though during preparation, there was a clear assessment of limited institutional capacity, the project as designed exceeded local implementation capacity. In some NID cases, there was no explicit institutional assessment. The project as designed either overestimated institutional capacity or less frequently underestimated it (resulting in unnecessary conflicts, and missed opportunities). Some NID projects ignored local conditions and constraints. Project preparation did not pay attention to local actors/beneficiaries or/and implementors as was the case in the Guyana Livestock Project, for example.

Flexibility in implementation. Adapting to contingencies in the course of implementation was a strength of SID projects. Coordination was a problem when several agencies within a ministry or several ministries were involved in project implementation. SID cases solved this by trying out different arrangements for the location of PIUs. This testifies to the importance of flexibility in institutional arrangements in light of implementation experience. Leadership has been found to be critical to the manageme%nt of flexible implementation. SID projects also showed evidence of staff continuity in Bank supervision missions, and greater flexibility in problem resolution. More ,requent and longer missions were found useful in some projects which faced difficult problems. The same staff being involved in missions over time helped a great deal. SID related borrowers had greater familiarity with Bank procedures.

CaDacity for harmonizing local and external inputs. SID projects seem to have had greater staff stability partly through their better management of the services of consulting firms. Most projects (SID and NID), however, experienced long delays in recruiting consultants and local staffs just as they faced delays in the esteblishing new organizations. Furthermore, tensions between local staff and expatriate consultants were among the most frequent problems faced by both sets of projects, but SID projects managed the conflicts better. When TA was imposed on governments, its internalization suffered and its use for on-the-job training was limited.
- 33 -

# BOX D

# Technical Assistance: Tensions Between Borrower and the Bank NEPAL FIRST HIGHWAY PROJECT (NID)

The Nepal Government's attitude towards this project's technical assistance program was ambivalent all along. The project's Government seems to have felt that the expatriate experts did not understand the aspirations of the Nepalese and, justifiably or not, it also felt that experts' skills were already available within the organization. It felt that it could use outside assistance in the area of high level general planning and not of the "nuts and bolts' of feasibility investigations or project supervision as provided under the project. As a result the experts' study and its recommendations did not receive the attention they deserved. It was not until after the experts' departure that the Department of Roads implemented some of the experts' recommendations, though the terms of reference of the experts were to help implement the recommendations accepted by the government. The impression remains that the Government was not convinced of the need for technical assistance as provided, but accepted it because it was a requirement of the project.

Given the strong influence of ID achievement on overall project performance and sustainability, the declining trend in ID performance evident from OED data is a cause for concern. The repeated references to institutional problems in recent ARIS reports echo the same concern. That deterioration in the macroeconomic environment explains only a part of this phenomenon implies that an improvement in macroeconomic conditions will not by itself solve the problem of declining ID performance. The weaknesses 'n institutional analysis and design, already noted in Chapter II, seem to have exacerbated ID implementation problems. The foregoing analysis of SID and NID projects shows that there are specific ID actions which can be taken during project design and implementation to make them more effective. There is, however, no recipe or action sequence that can be prescribed for all situations. The fact is that SID cases are not necessarily those with better initial endowments than NID cases. Both seem to face similar problems, but respond to them differently. Leadership capacity, attention to personnel issues, flexibility in planning and implementation aided by good supervision, and the harmonization of national and external inputs (TA) seem to be the key distinguishing marks of the more successful cases. The evidence offered here reaffirms much that is already known and documented about ID success. The question is why this knowledge is not being applied.
- 34 -

BOX K,

# Orchestrating ID Design and Implementation Madagascar Lac Alaotra Rice Proiect

This project was designed to increase rice production by improving quality inputs and agriculture research, rehabilitating irrigation infrastructure, and developing sector institutions. The planning and management of ID work in this project illustrate a successful attempt to deal with institutional constraints using complementary TA projects, upstream institutional analysis, simultaneous sectoral and structural adjustment programs, project leadership and the ongoing policy dialogue between the government, the Bank, and other donors on sector strategy and environment.

Planners of this second project in the Lac Alaotra region were able to draw on Bank experience with a previous irrigation operation. An impact evaluation showed few sustained results--due in large part to lack of attention to the agricultural development parastatal's (SOMALAC) institutional capacity. Before designing the second project, therefore, a TA project funded institutional analysis of SOMALAC, along with management and technical training and consultir,g services. It also supported the reorganization of the Ministry of Agriculture (MPARA). Studies were made of the intended beneficiaries which examined culture, land tenure arrangements, community organizations, and other factors influencing rice production. Other reinforcing elements were the policy and economic studies undertaken to convince the government of the need to reduce reliance on parastatals, eliminate price subsidies, and increase privatization.

Effectiveness was delayed by SOMAIAC, which continued to perform poorly, due to depressed rice prices, management weakness, and overstaffing. A second TA which project extended the support to sector institutional reforms initiated under the first, emphasized changes needeil to transform the parastatal into an institution able to work with client participation and private sector competition. Supported by a proactive Director-General, SOMALAC's three divisions, increasingly operating as separate companies, continued to carry out management improvement activities. In 1989 each was the subject of a restructuring study that resulted in further recommendations.

The sector environment presented a number of additional obstacles to implementation. The legal framework for the farmer-run Water Management Committees (WMCs) was vague, but the management succeeded in clarifying it within the first year. IMF-government negotiations for structural adjustment established a goal of complete privatization of commodity markets, thereby reducing problems stemming from government reluctance to reduce the commodity marketing regulating powers of the decentralized regional authorities.

The project's ability to overcome many of the institutional constraints in the sector environment and within SOMALAC greatly facilitated work with the WMCs program in its pilot and expansion stages. It also contributed to technical achievements in irrigation rehabilitation and agricultural research and extension.
- 35 -

# V. CONCLUSIONS

# Recent Trends

Three significant trends have emerged in the Bank's ID work in the 1980s. First, the extension or coverage of ID in Bank projects has become pervasive. Nearly 90 percent of the projects today have ID components in contrast to 72 percent in 1978. The awareness of ID issues on the part of Bank staff and their exploration of these issues during project preparation have increased steadily.

Second, there nas been a widening of the scope of ID issues and of the elements that have constituted ID components in recent years. There is also evidence that these elements are, in many cases, common across sectors. By and large, this trend can be attributed to the newer policy-based lending instruments. Widening of the scope, however, has occurred through an expansion of the coverage of the institutions in the concerned sectors. Much greater attention is being given in recent projects to the sector or subsector level institutions and their structures and functions while in earlier years the preoccupation was solely with the PIU and its functions. The latter, however, still continues to be a feature of ID work in some projects and sectors.

Third, while these are important and encouraging developments, the achievement of ID objectives in Bank projects has declined significantly in recent years. A recent OED study has found that only 52 percent of Bank projects evaluated from 1986-88 were rated "likely to be sustainable' though 76 percent of the cohort were considered "satisfactorily" completed in terms of investment.31 This implies that though the overall project implementation is satisfactory in nearly three fourths of the cases, project benefits are sustained only in about two thirds of them. The report further stated that most sustainable Bank projects put a major emphasis on the development of the institutional capacity required to sustain benefit flows after their completion.

The decline in ID performance in the 1980s was only in part due to the problems in the macroeconomic environment. Factors internal to the project also seem to have made a difference to ID effectiveness. Weak analysis of institutional issues and overly complex ID designs which failed to consider local capacity constraints have contributed to the declining ID performance. The difference between the projects in high and low ID achievement categories, however, was not in the problems they faced, but rather in their response to their problems. The quality of leadership, attention to personnel development, flexibility in implementation reinforced by careful supervision, and the harmonization of national and external (TA) inputs were among the key factors which separated the high ID achievement 31 OED, Annual Review of Ev-aluation Results, World Bank, 1989.
- 36 -

groups. Therefore, many of the actions required for ID success are within the control of governments and managers.

Despite the expanded coverage of ID work, widening the scope of ID to address issues germane to project sustainability has occurred only on a limited scale in Bank projects. ID work that might facilitate the matching of beneficiary needs and demand to the design of project services and the choice of institutional alternatives for service delivery remains neglected. Attention to the incentive framework necessary for long-term organizational performance and interorganizational collaboration and to issues of leadership and stakeholder support, which are essential for sustainability, seems to be modest. In terms of these dimensions, the scope of ID continues to be narrow with ID components focusing heavily on the internal functions of implementing agencies as is clear from the elements of their design.

The widening scope of ID and some of the design features of Bank projects are inconsistent in several respects, and might adversely affect ID performance. (a) The absence of country specific sector ID strategies goes counter to the trend of widening scope of ID as there is no map or long-term perspective to guide .he design of project ID components. (b) The uneven quality of institutional analysis and the limited attention to ID issues in economic and sector work go against the requirements of the widening scope of ID in projects. (c) The continuing focus of ID on project implementation weakens the concern for sustainability in Bank projects and limits the attention given to the design of sectoral ID strategies referred to above. (d) The more complex sector-wide ID designs and interventions (implied by the widening scope of ID) are being left to Bank sector specialists whose skills and experience are often inadequate to deal with these broader issues.

# Emerging Challen-es

The extension of ID work and the widening of the scope of ID have thus occurred primarily in terms of elements and tasks which, for the most part, facilitate project implementation. In the tradeoff between the ID requirements of short-term project implementation and those of longer-term project sustainability, Bank projects have in general chosen to support the former. Apart from the overriding organizational priority given to lending and project implementation, the fact that sustainability, is to a large extent, beyond the control of Bank staff may partly explain this tendency. Resolution of these creative tensions is an important challenge for the Bank.

While the limited investment in sector work on ID issues and the uneven quality of institutional analysis may have had an adverse impact on the design of ID components, there has been some organizatiunal learning in this area too. For example, the quality of institutional analysis seems to have improved somewhat in several sectors although adjustment lending lags behind in this respect. There is increasing use of the process approach (joint analysis, consultations with relevant groups in countries) in the diagnostic and design phases. ID focus has shifted significantly from PIUs to implementing agencies. Further reinforcement of these changes are in order.
- 37

The primary need on the ID front is not one of extending the work to more projects. The coverage, as noted above, is impressive. Rather, the challenge is to sharpen the focus, quality and relevance of ID work in selected lending operations. The growing number of projects which are addressing the more complex sector-wide ID issues seems to be a vulnerable area that merits special attention. The task ahead is not to broaden, but to deepen the process of ID work in these projects by shifting the focus more towards sustainability, by allocating adequate resources to support more relevant upstream diagnostic work and by upgrading the quality of the staff who work on ID issues. A comparative analysis of projects with substantial and negligible ID achievement shows that the factors which lead to ID success are fairly well known and that there is a consensus on how they work even though it is risky to prescribe recipes for this purpose. As the scope of ID widens, it is clear that intensive ID work should be undertaken only selectively and with a determination to support it within a longer-term perspective.

# VI. POLICY IMPLICATIONS

# Strengthening the Bank's ID Capability

Recent trends in the Bank's ID work have important implications for the Bank's capacity to address and advise on ID issues. On one hand, Bank projects are attempting more complex (sector wide, multi-agency and long-term oriented) ID designs and interventions. Even under normal conditions, these are difficult to accomplish. On the other hand, as pointed out in Chapter II, these complex designs are being crafted by staff whose primary skills and experience have been in strengthening PIUs or in dealing with the internal functions and systems of implementing agencies. The operational staff whose forte is sector technology and economics had an edge in diagnosing and advising on these agency-related institutional problems. The wider instituttional analysis and design associated with sectoral ID issues, however, are less often within their competence especially if they are relatively inexperienced. For example, the redesign of the management of ministry functions and inter-ministerial linkages, sector-wide identification of institutional alternat ves for service delivery, redistribution of authority and responsibility between levels of govertnment (decentralization), and the reorientation of the bureaucracy following deregulation involve different actors, interest groups and inter-organizational behavior problems which they may not have been exposed to in many cases. Thus, there is a clear mismatch between the nature of ID issues being addressed in recent projects and the skills and experience available in the country departments to deal with them.

In confronting this issue, the Bank has three options. It can withdraw from its sector-wide ID work into the PIU mode and restore the fit between its in-house skills and the ID problems being addressed. It can pilot complex sector policy reforms but leave sectoral institutional development and reforms to its borrowers. Or, it can reinforce its sector knowledge with the
- 38 -

additional skills required to diagnose sector-wide ID issues in its borrower countries and to assist them in the design of the needed reforms.

Of the three options, the first does not seem to be viable in the present context. It will make the Bank irrelevant in ID terms and undermine the sustainability of its projects. The second option may work in countries which have the capacity to plan and manage their own sectoral ID strategies. Only a limited number of countries have this capacity, however. The third option is the most logical and timely one, but will entail important steps to mobilize the expert resources within the Bank to undertake systematic institutional analysis to design sectoral ID strategies and to prepare and supervise ID components in projects to fit these strategies. Provided there is interest in addressing the.se issues, the reorganized Bank permits task managers to reinforce the limited skills at their command by tapping into the expert resources within the Bank. Bank expertise in this area clearly needs to be augmented as demand increases. Operational sector staff will need to be strengthened through training to deal with the new set of ID issues more effectively and to use expert assistance from outside the Bank as required.32

# Imnroving the Match between Sector Strategy and Proiect ID

One way to improve the prospects for ID success and project sustainability is to link the project to the sector's strategy so that project objectives receive priority within that strategy. It might be argued that linking sector strategies and their institutional implications is not an easy task. In many countries, Bank staff and governments muddle through these issues all the time. The question is whether this activity can be made more systematic and focused so that projects and their ID achievement from it are strengthened in the process. The reasons for this are threefold: (1) The widening of the scope of ID noted above shows that the Bank has crossed the relatively easier infrastructure building terrain to one that is more institution intensive. Even investment lending has to cope increasingly with problems of utilization, performance and efficiency which can be resolved only through the mediation of better policies, incentives and human and organizational capabilities. (2) The latter set of tasks happen to be more complex, politically sensitive, and difficult to implement as borne out of the experience of adjustment lending. In fact, other things being equal, one should expect the prospects of ID achievement and sustainability to be less bright in the future given the nature of these interventions. (3) The Bank's diminishing control over the project cycle will make it difficult for the project staff to sustain the reinforcement necessary during the maintenance phase of these changes. The Bank's control is greatest in the earl'est phase when a project is under appraisal and least as the project nears completion and beyond when at best it can have only a modest degree of influence on outcomes. In areas where the Bank has the least control, staff will have the least incentive to provide time and support. This applies in particular to sector strategy issues (policy and institutional) which may call for an 32 Training workshops along these lines have been organized for education staff.
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increased allocation of staff time and resources. The conflict between the declining Bank control over the project cycle and the steady support requirements of ID activities can contribute mightily to low ID achievement.

All these are compelling reasons why the Bank must play a more earnest role in encouraging borrowers to move towards the design of country specific ID strategies at the sector level so that it can have a positive impact on project ID efforts. The importance of consistent and rational policies in sectors has been recognized by the reorganized country departments of the Bank and sectoral strategies do exist in specific country contexts. What is less clear is whether their counterparts in terms of sectoral institutional development strategies exist. Broad strategic/political choices are often made by the Bank's borrowers as part of adjustment efforts, and themes such as privatization, commercialization, domestic capacity building, decentralization, reducing expatriate management, and empowerment of beneficiaries, emerge from such choices. The implications of these strategic cboices in terms of (a) th.. roles and functions critical to the management of a sector ministry, (b) the functions which can be delegated or contracted out to public or priv7at **e** nterprises/other agents and ways to ensure their accountability for performance, and (c) the support needed by enterprises/agents for better internal management constitute the core of a sectoral ID strategy.33 However, strategies have to be implemented in a real world context, ty-pically starting from a mixed bag of initial conditions. The pace of movement is determined by the government in a sectoral context, and adequate analysis of, preparation for, and effective implementation of the transition is needed though in some situations, shock treatments are the only way to overcome resistance (see Box F).

When a government thus initiates or builds a consensus on a new or changed institutional framework in a sector that matches its policies and is willing to assign priorities for the tasks to be accomplished, it can be said to have a sectoral ID strategy. Projects which can be fitted as building blocks into these priorities are more likely to succeed than others even when some of them adopt "second best" ID options knowing that they would still make sense within a long-term strategic framework. Since the design of sectoral ID strategies has to be tailored to specific country contexts, the Bank may wish to launch programs to design such strategies in three or four countries and sectors in which it is heavily involved and where the concerned governments wish to undertake them as joint exercises.

33 Bank projects have traditionally given the most attention to (c) above.
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BOX F

# Nigeria: Institutional Evolution in Agriculture

The trade-off between short-term project implementation concerns and longer-term institutional development (ID) goals is well illustrated by the evolution of the Bank-supported Nigerian agriculture program. At the same time the importance of achieving success in building support for longer-term sectoral institutional strategy is also brought out.

Without a sound basis for ensuring effective implementation, the earliest Nigerian projects relied on specialized project implementation units (PIU), with expatriate staff in key executive positions. These enclave projects, with adequate Bank funding, did not disrupt the normal administration of development program for two reasons: one, they were sma'l and, second, there was not much else happening. As the enclaves were seen to be successful, the evolution continued with Bank supporting statewide agriculture development projects (ADPs) but following the same PIU strategy for effective implementation. The absence of a long-term ID perspective did not pose an issue initially because, with the oil boom, Nigeria was slush with money to support two parallel systems in several states. ...the PIU, now enlarged to replicate the Ministry of Agriculture itself! The ID issues really hit the headlines as severe pressures developed on public resources; not only did financial sustainability issues come to the fore, but lack of resources of other development agencies, particularly the national research system and the parent ministries, led to serious rivalry and undermining of the implementation effort of the ADPs. It was the initial success of the Banksupported efforts that brought those states to demand the statewide ADPs; but the lack of an ID strategy undermined the implementation of core growth programs.

As evolution continued, the newer states liked some of the features of the PIU approach, especially financial and management autonomy and assessed their own future strategy. Rather than disband the old PIUs, states have made them the implementation arm of the ministries and brought them under their control, reduced the size of the ministries, and encouraged the Bank to provide support to institutions which have the normal mandate for certain activities. With increasing clarity slowly coming in the long-term ID straregy, at least at the state level, further role rationalization i;as started: rural roads maintenance is being moved towards the local governments, input distribution to cooperatives and private traders; research to national research institutes but with strong linkage with extension: credit back to the banking system and beneficiaries are being trained and organized to maintain rural water systems. The pace of change is moderated by the need to ensure effective delivery of services; but here again, the success achieved in one state is available to encourage others along just as successful Nigerian leadership in some of the early statewide projects has encouraged others to reduce the role of expatriate staff in project management.

Issues at the federal level - where the PIU concept was also applied when the program grew rapidly, are now surfacing, as core federal directorates and other agencies vie for a piece of the Bank-supported action; there is a feeling that a clearer ID strategy could have avoided this potential disruption.
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# Institutional Analysis

One of the requirements of a country-specific sectoral ID strategy is the mapping of the relevant institutions concerned with sector policy, sector-wide management, sector-wide support services and field operations which can be undertaken through sector work, even if there is no immediate plan to initiate major institutional reforms. An early start through sector work provides a longer lead time to understand the key issues and to develop a consensus within the government on the diagnosis and on the needed reforms.

Where institutional issues and constraints are self-evident or can easily be delineated, they can be analyzed in a standard, technical fashion (e.g., through the use of interviews, analysis of documents, statistics, etc.). When, however, there is much ambiguity about the issues involved and reasonable people differ as to their causes, it is important to adopt a "process approach' to institutional diagnosis. There is a case here for generating the diagnosis by bringing together the different actors or stakeholders whose perceptions of the problems will ba critical to a balanced assessment of the basic institutional issues involved. Since the implementation of the changes likely to be proposed will require their support, it is essential that the diagnostic process also acts as a consensus building exercise or at least contributes to an appreciation among the key participants of differing perceptions of the problems. The contextual roots and nuances of institutional issues cannot be over-emphasized and their diagnosis will seldom be easy for outsiders (especially short-term visitors) except in fairly simple cases. Joint diagnosis is important also for creating a sense of ownership of and commitment within the country to the ensuing results. Workshops, taskforces, etc. are useful instruments to achieve this goal.

Institutional diagnosis is never complete without an assessment, implicit or explicit, of the capacity and will of the relevant leaders to support reforms. The starting point has to be the identification of the leaders who are likely to be critical to the reform process. Then, they need to be appraised of the proposed institutional tasks and their full implications. Thirdly, it is necessary to ascertain (formally or informally) the extent to which they are ready to allocate the required resources (financial and human) for the proposed actions. This assessment is the only way to determine the priority they are likely to accord to the reforms. Fourthly, their responses need to be informally cross-checked with other stakeholders including bureaucrats, for their realism. These are essential steps in the diagnostic process even when an open and extended official discussion of the issues involved is ruled out for political reasons.

The range of institutional issues and gaps to be assessed in a project context can vary from an assessment of manpower and training needs to the design of organizational structures and the requirements of sustainability. The gaps as revealed by the analysis are inputs for the design of ID components. A hierarchy of analytical frameworks can be set up
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for this purpose (see Diagram I). Th, i.ar frameworks and methodologies are commonly used in the world of busint . Their use in the public sector and in the Bank's ID work is still in its in-ancy.

At one end of the spectrum in Diagram I is a framework for the analysis of technical and managerial manpower gaps. In order to perform stipulated tasks in a sector, agency or project, different types of or additional manpower and skills may be required. The framework will assume other components to be given and focus on manpower needs assessment, forecasts and evaluation of existing skills/manpower, identification of gaps, and an assessment of the prevailing conditions which may impede or facilitate goal achievement. Of the five frameworks, this has the narrowest focus.

The most complex framework presented in the diagram is for sustainability analysis within the broader environment of the project which can be done for multiple agencies. External organizations may play a control or influence role in relation to the agency being diagnosed. Gaps in terms of coordination and collaboration may be identified as a result of the analysis of interorganizationa **l** inkages. Gaps in human resources may point to the need for sectoral capacity building which is important for sustainability as outlined in framework 5. In between these two frameworks are three others which are useful for assessing functions, organizational structures. etc.

The discipline of systematic institutional analysis will become a Bank practice only when senior managers seek evidence on such analysis whenever ID designs or reforms are proposed in projects. Objectives and scope of the analysis, aspects or elements of the ID issues investtgated, the extent of the borrower's involvement in the diagnosis, analysis of interest groups and their likely impact, and the quality and commitment of the local leadership are the dimensions on which staff should be carefully probed by the management. Given the contextual nature of the analysis, it may be difficult to specify the approaches to be used, but the feasibility of developing guidelines for the benefit of staff should be explored as cumulative field experience in institutional analysis becomes available in the Bank.

# Augmenting Sustainability

Project sustainability has emerged as a major concern in the 1980s. There are several ways in which the prospects of sustainability can be improved through anticipatory action during project identification and design.

As noted above, a project with an ID component designed to fit a sector strategy and its institutional priorities has a better chance of being sustained than one which fits poorly. Other specific actions to be taken to augment sustainability are the following:
5 <!-- Start of picture text --> DLagram I<br>INSTITUTIONAL ANALYSIS<br>ANALYTICAL FRM_EWOKS<br><!-- End of picture text --> <!-- Start of picture text --> SUSTAINABILITY<br>WITEIN THE BROADER<br>ENVIRONMENT<br>TRANSACTIONS WITH<br>OTHER ORGANIZATIONS!<br>GROUPS<br>4 -COMPETITION<br>-COLLABORATION<br>SWSTAINABILITY -COORDINATION<br>ANALYSIS<br>LEGAL LEGAL<br>FRAME-NRI1 FRAMEWORK<br>-GOVERNING THE -GOVERNING THE<br>ORGANIZATION ORGANIZATION<br>-OTHER RELEVANT -OTHER RELEVANT<br>INSTITUTIONS INSTITUTIONS<br>RESOURCES RESOURCES<br>-LEADERSHIP -LEADERSHIP<br>-MAUNPOWER -MANPOWER<br>-FUNDS -FUNSl<br>-TECHNOLOGY -TECHNOLOGY<br>3 -INCENTIVES -INCENTIVES<br>-CAPACITY TO RELATE -CAPACITY TO RELATE<br>STRUCTURAL RESOURCES TO RESOURCES TO<br>ANALYSIS OBJECTIVES OBJECTIVES<br>ORGANIZATION ORGANIZATION ORGANIZATION<br>STRUCTURE STRUCTURE STRUCTURE<br>-DIFFERENTIATION -DIFFERENTIATION -DIFFERENTIATION<br>& INTEGRATION & INTEGRATION E INTEGRATION<br>OF FUNCTIONS OF FUNCTIONS OF FUNCTIONS<br>-SPECIFICATION -SPECIFICATION -SPECIFICATION<br>2 OF AUTHORITY OF AUTHORITY OF AUTEORITY<br>& RESPONSIBILITY E RESPONSIBILITY E RESPONSIBILITY<br>ANALYSIS OF<br>FUNC". IONS/SYSTEMS<br>FUNCTIONS FUNCTIONS FUNCTIONS FUNCTIONS<br>-PERSONNEL -PERSONNEL -PERSONNEL -PERSONNEL<br>-FINANCE -FINANCE -FINANCE -FINANCE<br>-MARKETING, etc. -MARKETING, etc. -MARKETING, etc. -MARKETING, etc.<br>SYSTEMS SYSTEMS SYSTEMS SYSTEMS<br>-RECRUITMENT -RECRUITMENT -RECRUITMENT -RECRUITMERT<br>I -EVALUATION -EVALUATION -EVALUATION -EVALUATION<br>-BUDGETING -BUDGETING -BUDGETING -BUDGETING<br>SKILL GAP<br>ANALYSIS PROCEDURES PROCEDURES PROCEDURES PROCEDURES<br>TECHNICAL TECHNICAL TECHNICAL TECHNICAL TECHNICAL<br>AND AND AND AND AND<br>MANAGERIAL MANAGERIAL MANAGERIAL MANAGERIAL MANAGERIAL<br>MANPOWER MANPOWER MANPOWER MANPOWER MANPOWER<br>GAPS GAPS GAPS GAPS GAPS<br><!-- End of picture text -->
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- (1) Increased attention must be given during project preparation to the demand for project services and to their fit with beneficiary needs especially where the poor are the primary beneficiaries. Well-focused sector work can aid these efforts. Bank staff must be encouraged to provide for beneficiary or community participation in projects and to facilitate the organization of the poor if appropriate in the project context. This may add to the time and resources required for project preparation but result in more sustainable projects.

- (2) Institutional diagnosis and design done jointly by the Bank and borrower should be the norm so that a greater sense of ownership and commitment on the part of the latter is created and a firm foundation for sustainability is laid.

- (3) Greater attention to project supervision is necessary as more complex ID issues are being dealt with. Discussions irith Bank staff reveal a growing concern that a major casualty of the tightening of supervision will be ID performance. OED data on SID and NID cases have clearly der,onstrated the key role of supervision and staff continuity.

While these are important actions, the fact remains that projects which are judged by their implementation record as opposed to their sustainability are likely to be unduly swayed by a short-term focus. Furthermore, as noted above, the traditional investment project is too weak an instrument to deal with issues such as long-term incentives and sector ID strategy. Fortunately, the Bank has in recent years found new lending instruments such as adjustment operations to compensate for this lack at least partially. Similarly, public investment and expenditure reviews can be used to aid sustainability now. While these are positive developments, the macrolevel focus in adjustment lending, its quick disbursing nature, and its tendency to support mostly top down and standardized reforms have left an important gap<sup>34</sup> .

There is at present no systematic way in which operational staffs' knowledge and cumulative project experience on institutional constraints are tapped and used to evolve selective country or sectoral ID strategies on which the Bank and borrowers can work together. Indeed, problems in this category are sometimes addressed through adjustment operations, TA loans, etc. The issue is one of developing an approach to the problem of sustainability by building on project level experience.

Take, for example, the promŽlem of TA. When design capabilities and specialized skills are absent in a country, a project typically provides for expatriate consultants (in transport, agriculture, industry, etc.).

34 A review of 33 SALs approved in the last three years shows that nearly two-thirds had measures to reduce public employment and wage bill while only a third had plans to strengthen economic management/personnel reforms.
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Unless a country is very small, at some stage it is necessary to develop some capacity in most places in these areas. It may be unviable and in fact undesirable to develop this capacity within government. The answer may lie in the development of consultancy capability within the country and sector in selected subjects or skills. In other contexts, the creation of independent research institutions may be the answer.35 This, however, is too complex for a traditional investment project to handle. Staff may be aware of the need, but take recourse to the less difficult TA route to meet project requirements. Similarly, leadership or incentive issues may crop up in individual projects all the time. Yet personnel policies, compensation practices, etc., are too complex issues to be tackled through investment projects and are, therefore, left out in favor of short cuts to tide over immediate problems. The same goes for procurement, inter-organizational problems, etc.

The country implementation reviews being held in recent years seem to focus so much on the current -iroject implementation problems that issues germane to sustainability do not perhaps get addresseti adequately. What is required is a special country-level review with the government to highlight the enduring institutional constraints on sustainability that the Bank's projects seem to experience repeatedly. This review to be undertaken every 3-5 years should be the basis for a Bank-country dialogue on the key issues and what might be done to remedy them. It might well lead to a useful consensus on the basic diagnosis and a prioritization of actions. In countries which seek Bank assistance to deal with these problems, it could lead to new lending operations of a long-term nature. At a minimum, it is an exercise which can lead to realistic remedies because it is built on experiences on the ground, and can complement the broader actions being taken through adjustment operations. Examples of the use of this approach at least partially by some country departments do exist. The challenge is to apply this approach to sustainability more systematically in countries where the Bank has lent to many sectors and where governments are likely to be more receptive to the cross sectoral review proposed above.

35 See Samuel Paul, David Steedman and Francis Sutton, Building Capability for Policy Analysis: Lessons of International Experience, PPR Working Paper Series No. 220, World Bank, 1989.