The World Bank and the IMF adapt their approaches in line with new demands
Typically, the Bank and the IMF are thought of as international agencies that offer only financial assistance. But both institutions have always complemented such assistance with general policy advice, as well as advice and training in a variety of specialized policy and technical areas. In recent years, this latter aspect of their work, which fits into the generic category of “technical assistance,” has undergone significant changes. For both, the catalyst has been their growing support of structural adjustment programs in countries facing severe domestic and external economic conditions. A further impetus has come from the major economic transformations underway (in Eastern Europe and elsewhere), and the increasing recognition that sustainable economic development cannot take place—and proper economic policies cannot be carried out—if the national institutions and economic management are inadequate to the tasks.
Broadly speaking, technical assistance (TA) can be considered any activity that enhances human and institutional capabilities through the transfer, adaptation, and use of knowledge, skills, and technology. For budgetary purposes, both institutions designate certain activities of this type under the rubric of “TA.” But in practice, the technical help actually offered encompasses a much wider field, often a natural outgrowth of regular contacts and missions, consultations, and negotiations. This article takes a look at how this wider TA has evolved at the Bank and the IMF, focusing on plans to meet the changing needs of member countries in the 1990s.
See also “The World Bank’s technical assistance,” by Francis Lethem and Vincent Riley, and “The Fund’s technical assistance,” by IMF staff, Finance & Development, December 1982.
The Bank: A Greater Emphasis on Institutional Development
The 1980s saw a dramatic change in the nature of the Bank’s lending program, with the introduction of policy-based lending and a greater emphasis on social sector projects. With this shift came an increased reliance on TA, as the Bank saw this aspect of its work supporting the expanded and more diversified lending portfolio, the intensification of institutional development efforts, and the growing complexity of operations, particularly in structural and sectoral lending.
Until this shift in lending policy—traditionally the Bank had concentrated on large infrastructure projects and rural development—the Bank’s experience with TA was generally satisfactory. Most of the financing went to so-called “hard” TA—engineering services for project design and construction, as well as feasibility studies of future projects (e.g., studying the extension of a drug distribution system in a health project). This type of TA is relatively straightforward in terms of design, implementation, supervision, and measurement, essentially asking the outside expert to perform a task and substitute for unavailable local skills.
But by the mid-1980s, the focus had shifted more to so-called “soft” TA—the provision of expert services for institutional and human resource development and project-related training—which now accounts for around 70 percent of the Bank’s TA portfolio. Soft TA, as it turns out, is much more difficult to design, implement, and supervise, and lacks benchmarks for measuring progress. Moreover, it has a significantly longer gestation period and demands a knowledge of the local society that foreign consultants find difficult to acquire in the time available. Not surprisingly, therefore, the experience of donors and recipients with soft TA—particularly in Sub-Saharan Africa, where it accounts for most of the assistance rendered—has proved to be highly frustrating.
Much of the impetus for the soul-searching on this matter has come from internal reviews examining the Bank’s development experience. Over the last few years, study after study has concluded that in cases where Bank projects have not worked well, failure has resulted primarily from institutional factors—whether it be an inadequate assessment of the capacity of the host government; poor management of available financial and human resources; or an insufficient understanding of the surrounding culture, institutional structures, and behavioral norms. In Sub-Saharan Africa, the situation is acute. Indeed, broad-based programs for institutional development are now seen as central to any strategy for African development.
To some degree, the Bank contributes directly to institutional development—enhancing the indigenous capacity of borrower institutions to perform their functions on a sustainable basis—through its lending and economic and sector work. But its most commonly used tool for this purpose is soft TA. However, a series of studies the Bank has undertaken since 1986, some looking at TA worldwide, others focusing on TA in Sub-Saharan Africa, confirm that this assistance is not resulting in the expected improvement of skills and abilities of individuals or in the enhanced capacity of institutions. The Bank’s experience is not unique. Other donors, such as the United Nations Development Programme (UNDP) and the Development Assistance Committee of the Organization for Economic Cooperation and Development, have begun to rethink TA for the same reasons. As a result, some tangible improvements have been made, but the real challenge still lies ahead for both donors and recipients.
Evolution of Bank TA
The Bank’s reviews of TA experience have concentrated on evaluating two types of Bank-financed assistance, which together account for about 95 percent of all TA lending by the Bank and the International Development Association (IDA). By far the largest portion is in the form of detailed TA components of projects financed by Bank loans and IDA credits; these might be “hard” or “soft,” or a mixture, depending on the nature of the project. In the Philippines, for example, one project supports the introduction of a variety of technologies to address declining productivity in upland and shore areas and the associated rural poverty.
With the advent of broad-based structural and sectoral adjustment loans in the 1980s, however, another form of Bank-financed assistance—“free-standing” TA—has begun to play more of a role, notably in Sub-Saharan Africa. This is primarily aimed at supporting policy and institutional adjustment, without being linked to any particular physical investment. For example, two recent projects in Madagascar focused on building up national consulting and training institutions, while a project in Kenya aimed at strengthening the Ministry of Agriculture, and another in Uganda helped set up and develop the Agricultural Secretariat, which plays a key role in formulating and overseeing major policies and programs in the agricultural sector. The Bank also provides TA in two other important ways: through projects funded by others (such as UNDP) but administered by the Bank, or through projects financed from the administrative budget (primarily training offered by the Economic Development Institute to officials from developing nations).
The amount of funds provided for project-related and free-standing TA has remained fairly constant over the past ten years at around $1.2 billion annually (about 8 percent of overall Bank lending), with the former still accounting for most of this figure. On a regional basis, Asia has received the most, followed by Africa; Latin America and the Caribbean; and Europe, the Middle East and North Africa. In relative terms, however, Bank TA to Africa ranks as the most important, constituting around 15 percent of all Bank lending to the region, a significantly higher proportion than elsewhere.
The nature of the problem
But why is the success rate of TA so unsatisfactory—particularly in Sub-Saharan Africa, a region that now receives over $4 billion annually in TA from donors worldwide, with an estimated 70,000-100,000 expatriates giving advice? The Bank’s own studies cite a variety of reasons:
• TA is often perceived by recipients as “supply driven,” imposed from abroad as a “price” for financial assistance, rather than a response to local demand;
• the commitment of borrowers is often weak or wavering;
• borrowers are not adequately involved in identification and design, and are often unable to manage TA or absorb it in a sustainable manner;
• projects are overdesigned, too ambitious, and unduly sophisticated, reflecting only a partial understanding of the local environment;
• there is a lack of coordination among donors, resulting in duplication and sometimes conflicting advice;
• the compensation paid for external TA is very high compared with local salaries, but, except for engineering work, results are not always tangible and rarely long-lasting;
• the shift from hard to soft TA is causing further problems in implementation and monitoring;
• with most Bank-financed TA directed toward the public sector, unattractive working conditions and salaries for local government staff fail to attract skilled personnel into public service, indirectly prolonging dependence on TA and compromising the effectiveness of training programs; and
• TA is not being made part of a comprehensive capacity building strategy for the country and is not being given enough time to take hold.
In light of these problems, donors worldwide have been arriving at roughly the same conclusions as to what needs to be done to improve the effective use and sustainability of TA—that is, the capacity to be self-sufficient after aid funds have been exhausted and to use TA project results on a continuing and enduring basis. Perhaps most important, for TA to work, there is a growing realization that the preconditions for viability must exist, such as strong government commitment and good governance.
But there is also now the acceptance that the need for TA and its desirable form vary greatly from region to region, and over time, depending on stages of development and human resource capacities. This means that there is a legitimate role for many types of TA, whether aimed at merely providing services to perform a task, or the building up of capacity, with getting the job done in the short run of lesser importance. Further, economic development in no way eliminates the need for TA, as the industrialized nations—the largest importers of knowledge (skills, licenses, know-how, etc.)—demonstrate. The critical difference is that the more advanced nations are the ones determining their own needs, and on what terms; they also know how best to make use of the external assistance.
In this framework, a number of practical recommendations have begun to emerge, incorporating the notion that TA must be adapted to the cultural, social, and political values of local institutions. These include: giving greater priority to long-term institutional goals over short-term project goals; ensuring there is a real client, convinced of the need for external TA to deal with a technical, institutional, or policy problem of high priority; establishing plans for systematically replacing expatriate staff with locals; improving aid coordination; designing TA programs to encourage the transfer of knowledge; making civil service employment more attractive to skilled workers; improving the financial viability of revenue-generating public enterprises as a prerequisite to improving pay and working conditions; privatizing certain public services; systematically evaluating the performance of consultants; exploring grant financing options; and introducing procedures for better management of TA personnel (e.g., using market mechanisms to find nationals before seeking expatriates and developing local consulting expertise).
Progress to date
Various bilateral and multilateral donors have begun to put some of these initiatives into practice, but progress has been slow. Nonetheless, several positive developments are worth citing:
• coordination among donors is improving; where relevant, TA is now included on the agenda of Bank-led Consultative Groups and UNDP-led roundtables that assess aid flows to countries;
• Bank staff are making greater efforts to find grant resources for recipients (most bilateral and multilateral agencies, such as UNDP, provide TA as a grant) and keep the loan component of TA to a minimum;
• the Bank is increasingly using more innovative forms of TA, such as “twinning” arrangements (professional relationships between similar operating entities in developed and developing countries), the provision of TA in combination with training and periodic follow-up assistance, and the use of UN volunteers and nongovernmental organizations;
• the Economic Development Institute has broadened its field programs to include courses on the institutional aspects of management and issues in development management, besides holding two-week seminars in member countries on the management of TA; and
• there has been a shift from the use of long-term advisors to short-term consultants, at least in free-standing TA—a positive trend given the high cost of TA, the resentment often caused by the presence of expatriates, and the risk of creating undue dependency on foreign help.
In addition, two initiatives—co-sponsored by UNDP, the Bank, and the African Development Bank—are under way. One is aimed at supporting the development of local consulting expertise in selected countries (initially, the Congo, Cote d’lvoire, Ghana, Madagascar, Mauritius, Senegal, and Tanzania) and encouraging donors to at least put African consultants on an equal footing, in terms of eligibility, with nationals ©f the donor country. The other is designed to build a critical mass of African policy analysts and economic managers through a variety of means, including rehabilitating selected national institutions, improving or building regional institutions, and expanding in-service training.
Bank-IMF technical assistance for Eastern Europe
For the Bank and the IMF, the speed, complexity, and scope of the intended reforms in Eastern Europe have triggered a virtual explosion in the demand for TA. As these countries move into uncharted territory, both institutions are trying to help by sifting through the experiences of others, aiding in the process of better formulating goals, and trying to coordinate assistance from others. One of the significant unknowns, however, is how quickly attitudes can be changed, as market-oriented systems will require a sense of initiative and competitiveness, and an ability to assess risk—all of which have been absent in these societies for the past 40 years.
The Eastern European nations tend to enjoy a relatively high level of technological sophistication, but the institutional constraints are quite serious. Typically, help is needed across a rather wide spectrum: fiscal policy and administration, financial and economic restructuring and management, implementation of monetary policy instruments, and even the collection of accurate basic economic data needed for a market-oriented system.
For all of these countries, one of the critical challenges is to quickly transform a “monolithic” banking system (where a single institution performs all banking functions) into one where the functions of the central bank are distinct from those of the commercial banks and the government. In Poland—where the major restructuring decisions were adopted early on—the IMF and the Bank, at the request of the Polish authorities, are coordinating efforts to set up a modern financial sector.
The IMF has taken the unusual step of organizing a cooperative effort to modernize the central bank. Experts from six central banks—the Bank of France, the Netherlands Bank, the Bank of England, the US Federal Reserve System, the German Bundesbank, and the Austrian National Bank—have made repeated short-term visits, advising in banking supervision, interbank clearing, money market operations, foreign exchange operations, accounting operations and internal auditing, and monetary and balance of payments data collection. The World Bank is taking the lead in supporting policy and institutional development in the commercial banking sector, and it will also finance the computer and telecommunications networks to support the new banking system. UNDP, together with bilateral donors, has provided financing for training activities.
The IMF: Improving Domestic Financial Management
While the IMF has provided technical assistance on a fairly limited basis almost since its inception, this service has become heavily in demand in recent years. Some of the requests have emanated from the so-called socialist countries that are in the process of switching over to market-oriented economies; these include countries in Eastern Europe, as well as Algeria, Angola, Benin, Cape Verde, Laos, Mozambique, and Viet Nam. Others have come from countries that are already market-based but are restructuring their economies.
At the same time, the IMF has come to more generally accept that a country cannot carry out appropriate economic policies if the domestic economic and financial institutions are inadequate. Indeed, for an economy to realize the full potential of a structural adjustment program, it usually needs the IMF’s TA. These programs constitute far more complex forms of adjustment than that associated with the traditional short-term balance of payments financing, demanding a level of expertise and experience often lacking in many developing countries. Yet the IMF has come to share a number of the concerns felt by the Bank and other providers of TA in the area of institution building—notably the difficulty of transferring knowledge and skills fast enough to help countries become self-sufficient in economic management.
Given the strength of demand for TA and the IMF’s own emphasis in this area—but faced with limited budgetary resources—the IMF has gradually altered its approach. It now directs help in economic and financial management toward countries undertaking major structural and institutional reforms (in these circumstances, national authorities are more likely to put such help to good use). There has been a substantial increase in the amount of short-term assistance offered to members, with fewer advisors being stationed in countries on a long-term basis. There is also closer coordination among the various IMF departments providing TA, as well as among the IMF, the Bank, UNDP, and other agencies.
Evolution of TA
The IMF has long provided TA, at the request of countries, through advisory visits, formal training, and advice given in the course of annual consultations and regular staff contacts with national officials. The topics—heavily concentrated in the financial management area—include strengthening government budget formulation and controls, broadening the revenue base and reforming tax policies, developing capital markets, bolstering banking supervision and regulation, managing external debt, and improving the reliability of statistics.
For the most part, the IMF has provided these services almost without charge, unlike Bank TA, which is typically a component of Bank loans and IDA credits. Since the beginning of the 1980s, the IMF’s specifically budgeted outlays on TA have doubled; they now approach $40 million per year (about 15 percent of the IMF’s total administrative budget), with 40-45 percent going to African countries. Even so, there has been a strong sense at the IMF that more needs to be done in this area, prompting a search in recent years to find a way to stretch budgetary resources without impairing quality or control over the substance of the advice provided.
Two recent developments should enhance the impact of the IMF’s own administrative expenditures. In March 1990, the Executive Board approved the establishment of a special administrative account for TA, funded by Japan; the resources will be directed at helping member countries resolve—or avoid—debt-related difficulties. Earlier, in July 1989, the IMF and UNDP signed an agreement making the IMF an executing agency for TA financed by UNDP, which operates a TA program of over $800 million annually. As of August 31, 1990, 19 such UNDP-funded projects totaling $7.7 million were approved (Algeria, Angola, El Salvador, Haiti, Indonesia, Madagascar, Malawi, Myanmar, Namibia, Nepal, and Zaire), and negotiations have begun for ten others with anticipated total commitments of another $6.8 million—all of which would be completed over the next three years.
For UNDP, this association offers a way of broadening its portfolio to include an area it considers vital for developing countries: economic and financial management. For the IMF, the agreement opens up the possibility of taking a more systematic and longer-term approach in responding to TA needs, as well as of paying greater attention to building up indigenous capacities through appropriate training programs. So far, the assistance is being directed at two types of countries: those that need large-scale, urgent help on a broad front (e.g., Angola is receiving TA in the fiscal, money and banking, and balance of payments areas), and those that need relatively small-scale help in one well-defined area (e.g., Malawi is receiving TA in establishing a securities market).
The IMF’s Central Banking Department has always devoted much of its time to TA. But the past year has witnessed an unprecedented surge in such requests—especially from countries moving away from socialist economies, those disillusioned with direct administration of their financial systems, and those recognizing deep-seated problems in financial institutions.
Intent on responding to this demand but aware of past problems stemming from the slow pace of the transfer of skills in many countries, the Department has begun to try new approaches. It is making greater use of short-term missions, with an emphasis on taking advantage of outside experts’ practical experience (e.g., a Bank of England official recently advised the Central Bank of Kenya on operational aspects of money market and clearing system operations). The Department is also increasingly assigning long-term experts to countries within a UNDP project framework. Under a joint UNDP-IMF program, Namibia has now received six Central Banking experts, including one to serve as Governor of the newly established central bank; three of these are being financed with UNDP resources. The Department has also expanded its cooperative efforts with the World Bank. Besides joint missions, where the IMF helps design financial sector reform programs, the Department has implemented a pilot program in Sri Lanka, where the IMF provided help on bank supervision under a TA agreement funded by a Bank loan.
For the Fiscal Affairs Department, the last few years have brought a strong expansion of its relatively small but important TA program. A key influence has been the increase in IMF structural adjustment programs; about 70 percent of adjustment measures in such programs fall into the fiscal area. In fact, all 30 countries with programs under the structural adjustment facility (SAF) and enhanced structural adjustment facility (ESAF) have received fiscal TA. In addition, there has been a growing worldwide interest in improving public sector financial management, as evidence accumulates that inappropriate fiscal policies are often a major contributor to balance of payments difficulties and external debt problems.
Fiscal Affairs is responding by making much more use of outside experts to support staff on short-term visits, which may arise in response to a topical request (such as analyzing why a tax is not generating the anticipated revenue), or to a request associated with structural reform (e.g., some 20 low- and middle-income countries have received TA on the design and implementation of a value-added tax). Moreover, through UNDP-IMF programs, the Department will now be able to tackle the strengthening of fiscal administration (in Algeria, it is helping to reform and modernize tax administration over a two-to three-year period).
In recent years, the IMF’s Bureau of Statistics has also revised its TA program, which aims at helping member countries develop a reliable and current data base of economic statistics, both to enhance economic analysis and policy formulation and to permit international comparisons. As countries have been forced to contend with increasingly complex economic difficulties, more sophisticated facilities have been put in place to address these (such as SAFs and ESAFs). This has placed a higher premium on timely and accurate data, along with necessitating the collection of a greater variety of data—all at a time when developing countries have had to grapple with severe budgetary constraints. Indeed, as adjustment efforts have progressed, the IMF has become acutely aware that in many developing countries, the very ability to formulate and implement policy is being severely impaired by the poor quality of the data.
The Bureau’s new TA approach, facilitated by the UNDP and Japanese funds, involves two fundamental changes. Instead of sending one person to review a single statistical area, teams may now be sent to advise on a number of interrelated areas simultaneously. In addition, longer-term assistance may be offered, most likely involving the stationing of resident statistical advisors. For example, in Paraguay, a consultant is trying to help improve the quality of balance of payments data. In Angola—where inadequate data have hampered the quantification of existing imbalances—a resident advisor is helping establish a system to monitor fiscal developments, as part of a UNDP-IMF program.
For many years now, the IMF Institute has provided basic courses in Washington, DC, stressing the techniques and policy issues involved in formulating and carrying out the IMF’s adjustment programs. Currently, courses are offered on financial analysis, policy, and programming, along with a new course on programming and policies for medium-term adjustment and specialized courses on financial statistics and public finance. There are also seminars for senior policymakers, which have recently included the design of IMF-supported adjustment programs and centrally planned economies in transition.
In an effort to reach more government officials, the Institute plans to sharply increase the number of seminars and workshops held overseas from seven in FY1990 to at least 15 in fiscal year 1991. Most of these will take place in developing countries, within the context of UNDP-financed projects, but a number are also being planned for Eastern Europe. An important feature of these external activities is adaptation of the Institute’s core training material to make it relevant to the specific country or region in which the seminar or workshop is being held.
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