Abstract

The Bank and the Fund have a long history of working together on civil service reform. On occasion, structural reform measures are included in both Bank- and Fund-supported programs. In the 11 country cases such instances were found in: (a) the promotion of merit-based hiring (Benin, Bolivia, Cambodia, FYR Macedonia, Mongolia, and Russia); (b) the improvement of payroll systems (Zambia); (c) fiscal decentralization (Bolivia, Mali, Pakistan, Tanzania, and Zambia); and (d) a shift from targeting employment numbers to placing controls on the budget (Zambia).

The Bank and the Fund have a long history of working together on civil service reform. On occasion, structural reform measures are included in both Bank- and Fund-supported programs. In the 11 country cases such instances were found in: (a) the promotion of merit-based hiring (Benin, Bolivia, Cambodia, FYR Macedonia, Mongolia, and Russia); (b) the improvement of payroll systems (Zambia); (c) fiscal decentralization (Bolivia, Mali, Pakistan, Tanzania, and Zambia); and (d) a shift from targeting employment numbers to placing controls on the budget (Zambia).

The case studies also show that civil service reform remains on the agenda for future Bank- and Fund-supported programs. The two staffs see many areas for needed reforms. These include: (a) professionalization of the civil service (Benin, Mongolia, and Pakistan); (b) improvements in the payroll system (Cambodia, Mongolia, Pakistan, and Zambia) and pay reform (Benin, the Republic of Yemen, and Zambia); (c) reductions in the size of the wage bill (Bolivia, FYR Macedonia, Mongolia, the Republic of Yemen, and Zambia); and (d) increases in the quantity and quality of services delivered (Cambodia, Mali, Mongolia, Pakistan, and Tanzania).

The reform challenges facing the civil service—improving incentives through pay and career structures, and improving service delivery, accountability, and transparency—are largely structural issues, but they have major macrofiscal implications. Joint involvement has been productive, with selective Fund conditionality usefully supporting Bank operations and Bank conditionality usefully supporting Fund operations. Past Fund-supported programs have included conditionality on the wage bill and on the size of civil service employment, as well as on structural reforms. However, the focus on the wage bill has tended to have little impact on overall employment because of institutional and political factors. Moreover, reductions in real public sector wages may have exacerbated difficulties in retaining skilled staff.

Bank-supported programs have included conditionality on the restructuring of government agencies, reform of nonwage compensation rules, reduction in government employment, reform of pay scales, and steps to make the civil service more meritocratic and career-oriented. But even here there have been tradeoffs between different structural components of civil service reform, as well as a lack of clarity with regard to objectives.

Problems have arisen from uncoordinated actions by donors. However, conflicts between the Bank and the Fund have been infrequent. This is, in part, because the relationship between the two institutions has generally improved with early dialogue and the building of personal relationships between staff. Under streamlining, it is probable that a clearer distinction will be drawn between structural conditionalities within Bank operations and macroeconomic benchmarks and performance criteria in Fund programs.

The timing and sequencing of reforms in Bank- and Fund-supported programs have not always been made explicit. This is partly attributable to the lack of an articulated strategy for the short and medium term by the two institutions at the country level. This has made it difficult for governments to determine whether the Bank and the Fund are providing consistent advice. Timing and sequencing of macrofiscal and structural reforms in the strategies of the two institutions reflect the different time horizons of the programs that they support. In some cases, short-term macroeconomic objectives (such as the need to reduce government spending) have run counter to longer-term structural reforms (such as the need to decompress wages and improve pay structures).

While the framework of collaboration between the Bank and the Fund has been enhanced for low-income countries in the context of the Poverty Reduction Strategy Paper (PRSP) process, there has been less progress in middle-income countries. Both country groups could benefit from a more effective Bank-Fund partnership in support of country programs. The principles noted in the recently established Joint Guidelines include: clarity on primary responsibilities, full consultations between institutions, and distinct accountability in lending decisions. These principles would ensure clarity of roles, improve accountability, and increase transparency. In the area of civil service reform the staff of the two institutions will report to their Boards on the role of each institution and the responsibilities of the institution taking the lead. 17

The overall conclusion to emerge from the September workshop is that Bank and Fund staff should engage in a dialogue earlier in the reform process, and with greater focus. Systematic and early sharing of information and institutional views is crucial. There are opportunities for early agreements within the framework of the Bank Country Assistance Strategy (CAS) and Fund Article IV consultations and program discussions. At least for low-income countries the PRSP process (particularly the Joint Staff Assessment) could provide a vehicle for coordination. Yet it is not clear whether existing PRSPs and Interim PRSPs (I-PRSPs) are adequate in terms of their specificity regarding civil service reforms.

Principles for Collaboration

Collaboration between the Bank and the Fund should rest on the following six foundations:

  • Be more selective. Selectivity and consistency of objectives are crucial. The priority afforded to different elements of the reform agenda can and should differ among civil service reform programs. Therefore, these priorities should be defined on a country-specific basis.

  • Develop a medium-term fiscal framework. Short-run policies aimed at protecting macroeconomic stability cannot ignore longer-run implications, and long-run structural reforms should not ignore the short-run fiscal impacts. Therefore, it is important to locate civil service reforms in the context of a medium-term framework. Such a framework would allow for the incorporation of the fiscal impact of the structural reform in civil service reform.

  • Foster national ownership by making reforms politically feasible. A first step could involve identifying stakeholders and then discussing tradeoffs in the absence of reform. In particular, the postponement of reforms could imply continued high employment and a high tax burden for the economy, with continuing poor service provision.

  • Focus and streamline conditionality. The recent Board paper 18 makes recommendations for a judicious approach to conditionality. The lead agency concept agreed on by both institutions should prove useful in coordinating conditionalities in Bank- and Fund-supported programs. Wage bill or employment targets in Fund-supported programs should be consistent with longer-term reforms being supported by the Bank. The Bank would take the lead in advising on structural reforms and in defining structural conditionalities. Bank staff should provide guide-posts and a timeline for these reforms, and seek to quantify their fiscal impact within the aforementioned medium-term framework. This will ensure the viability and sustainability of fiscal reforms. There was also agreement that selective and judicious use of Fund conditionality may still be needed to support reforms, particularly in crisis countries.

  • Agree on sequencing and timing of reforms. Sequencing and timing of reforms will have to be country-specific. For example, downsizing and reform of pay and grade structures is a judgment that has to be made at the country level. Explicit discussion between the Bank, the Fund, and the government on sequencing and timing of reforms should precede decisions on key actions such as civil service censuses, functional reviews, design of retrenchment programs, or monetization and consolidation of benefits.

  • Strengthen data collection. The workshop agreed that it is important to work toward a minimum dataset, sufficient to inform a basic model for illustrating tradeoffs in the dialogue with government. In addition to up-to-date wage and employment data, Bank and Fund staff agreed to work together to identify the core set of data required to support civil service reforms. Already, the Bank is strengthening its data collection in this area. For example, the Bank has undertaken extensive surveys of civil servants over the past 18 months, funded by the World Bank-Netherlands Partnership Program (BNPP). In addition, a new global database of government employment and wages has been established with preliminary data on 185 countries. 20

It must be recognized that civil service reform is a long-term challenge. Strengthening political incentives for reform and ensuring the sustainability of these reform efforts require long-term support by the Bank and the Fund. Acceptance of the need for reforms can be reinforced by pressure from civil society. This would require making information available on the quality of public services and publishing evidence on the impact that reforms have on improving the provision of these goods and services. In the past, the long-term nature of civil service reform was not always recognized; but the more recent focus in the Bank on longer-term programmatic operations—supplemented where necessary by shorter-term technical assistance—is now more aligned with the task at hand.

Next Steps

Moving forward, the Bank and Fund Area Departments and Regions will agree on a small set of “focus countries” for enhanced collaboration in the area of civil service reform. Focus countries will be countries where a significant stage or phase of civil service reform is planned but has not yet been fully launched. Staff of both institutions, in collaboration with government counterparts, will make explicit the assumptions guiding the Bank and the Fund in their support of civil service reform. Moreover, both staffs, in collaboration with government, will agree on the following: (a) the priority macroeconomic, structural, and governance objectives for civil service reform, placing these within a medium-term fiscal framework; (b) the establishment of lead responsibilities in the macroeconomic (Fund) and structural (Bank) areas, while ensuring that conditionalities are kept to a minimum; (c) the sequencing and timing of the reforms; and (d) a core set of wage and employment data to support civil service reforms.

The “focus countries” approach will assist in transforming the principles agreed on at the September workshop into a readily useable approach, and will test that the principles do in fact lead to more “traction” on core civil service reform issues.