Zambia country assistance review : report from CODE (committee on development effectiveness)

 74327 CODE96-45 July 15, 1996 cooE gepoR From Committee on Development Effectiveness Zambia Country Assistance Review 1. The Committee on Development Effectiveness considered a report prepared by the Operations Evaluation Department (OED) entitled Zambia Country Assistance Review (SecM96-650), together with a draft management response prepared by the Africa Region (CODE96-36). 2. Country Assistance Reviews - A Valuable Instrument. Based on the rich debate generated by the report, the Committee concluded that the country assistance review (CAR) is a valuable instrument for evaluating the relevance, efficiency, and efficacy of the Bank's activities in borrowing countries. Acknowledging that the Zambia CAR is only the second in a series of "new style" CARs to have been completed by OED, the Committee agreed that it is a useful and revealing document. It encouraged OED to be even more rigorous in its focus on accountability in future CARs, and felt that the Zambia CAR could have been even more critical of the Bank's failure to pay attention to the impact and consequences of its policies in Zambia during the period under review. Noting that those policies had been approved by the Board, the Committee would welcome the inclusion in future CARs of a section on the views expressed by Executive Directors during the discussion of country policy issues in order to strengthen the Board's accountability. 3. As a procedural matter, the Committee welcomed the opportunity to review the Zambia CAR shortly before the Board consideration of the Zambia CAS and suggested that a systematic effort be made to coordinate CAR and CAS discussions. The Committee sees merit in having an historical evaluative perspective from which to assess current assistance strategies. It was suggested that, in general, the usefulness of CARs as background for CAS reviews would be enhanced if the forward looking recommendations were detailed and specific. The following issues which are pertinent to the upcoming Board review of the Zambia CAS were raised during the Committee's discussion of the Zambia CAR. 4. Failure of Bank Policies in the 1980s and Lessons Learned. The CAR concludes that the Bank's policies in Zambia in the 1980s failed because there was too much emphasis on policy-based operations in the absence of government ownership and commitment, and too much emphasis within policv-based operations on stabilization rather than on long term structural adjustment. The Bank clearly failed to pay attention to the relationship among the key policy components of its strategy in Zambia such as devaluation, and pricing policy. It did not give adequate attention to poverty reduction and the eqtitable distribution of the burden of adjustment. Partial application of reform measures does not generate desired results. In light of the continued poor performance of the Zambia economy and the deterioration of most poverty indicators, the Committee questioned management s assertion that the of Bank has alreadv learned and absorbed most of the lessons that the report drawsffrom the experience ihc 1980. A case in point is the agricultural sector where, according to the CAR, it was difficult to  July 15, 1996 CODE96-45 discern any kind of relation between the Bank's commendable sector policy work and the "agricultural" projects " approved during the eighties. Looking forward, the Committee noted that the current CAS includes only two "thin" paragraphs on agriculture which contain no new information or innovations. How effective can a policy dialogue with the Government be if the Bank does not demonstrate that important lessons learned from past experience are being applied to the development of an agricultural strategy for Zambia? How committed will the Government be to a strategy that spouts the buzzwords but does not clearly articulate the goals and objectives of that strategy, nor the means to achieve them? The Committee questioned whether the lessons from the past in fact had been fully absorbed by the Bank. 5. Importance of Ownership. The failure of the Bank to realistically assess the degree of political consensus in favor of reform and the strength of the commitment in favor of structural adjustment adversely affected the relevance and efficacy of the Bank's efforts in Zambia. This finding of the Zambia CAR once again underscores the critical importance of borrower ownership and commitment. Greater attention should have been given to getting wider understanding of and agreement on reform policies such as privatization. The resident mission had a crucial role to play by using the policy dialogue to impress upon the Government the importance of the proposed measures and by enhancing public awareness of the necessity of reform. The Committee urged management to do more expert monitoring and analysis of the political situation, and develop sensitivity to the political dynamics and concerns of those likely to be affected by reforms. 6. The report concludes that while in general the Bank's ESW has been of a high standard, some sector work has been too theoretical to be of much practical assistance in the design of operations. The question was raised as to how ESW in Zambia was initiated. Were specific studies requested by the Government? The point was emphasized that ESW must be demand-driven to foster ownership and commitment The Committee welcomed the statement that an increasing involvement of government officials and donors in ESW in recent years is having a good effect on the ownership and relevance of ESW studies, and on the implementation of their recommendations. It stressed that Africans must be empowered to take care of their own affairs. Capacity -building is critical. Without a major effort in this area very little will be accomplished. 7. Sequence of Reforms. Bank ESW identified three major policy areas for Zambian development during the last fifteen years - liberalization, privatization, and diversification. However, conditionality in adjustment lending emphasized liberalization and ESW gave priority to liberalization. Little or no ESW was done on privatization. While some speakers agreed with management that the Bank should not have forced the pace of privatization, the opposing view that effective liberalization required privatization was also strongly expressed. Another view was offered that neither liberalization, privatization, nor diversification was as important for Zambia as reform of the public sector. A properly functioning public sector is crucial to the success of any strategy to reduce poverty. 8. Overoptimism of Bank Strategy. The Committee expressed concern that there is still a tendency towards excessive optimism in forecasting Zambia's growth. Bank forecasts for the next five years call for positive per capita growth, at a rate achieved in only two years since 1985. Caution was urged. 9. Impact of Suspension of Disbursements. The report notes that the approach to suspension should be consistent with the idea that suspension is temporary and should include measures to minimize the negative impact on ongoing operations, and on the quality of the Bank's policy dialogue with the country. If possible, ESW and supervision should not be interrupted. Experience shows that the overall cost of interruption is higher than if ESW and supervision were continued during suspension. However, the Committee noted that circumstances (e.g., civil war) may exist which warrant a reduction or even an 2 July 15, 1996 CODE96-45 interruption of ESW and supervision. In such situations, decisions about what activities should take place should be made on a case by case basis, depending on the circumstances leading to suspension. 10. Debt Servicing and Debt Reduction. A recurring theme in Zambian development is the need for a high level of external support to service its external debt. Bank lending from 1991-1994 gave the highest priority to providing balance of payments support for debt servicing, and the lowest priority to project financing for growth and poverty reduction. The Committee emphasized the importance of finding a solution to this critical problem. 11. Donor/Bank Coordination. The Committee noted the report's finding that in the mid-eighties, bilateral donors were very influential in Zambian policy-making. Not particularly supportive of the merits of structural adjustment programs, they, at times, formed a countervailing influence to that of the Bank regarding Zambia's development. The need to coordinate donor efforts was still a new idea in the Bank in the 1980s. The current CAS indicates that the Bank is shifting its investment lending towards sector investment programs (SIPs) which are designed to bring the Government and all major donors together under a common sector policy framework and medium term investment program. The Committee warmly welcomed this innovation and the progress made, and stressed that coordination among donors and the Bank will continue to be critical, particularly in the area of policy. The Bank's role in aid coordination has been important in recent years and should be continued and strengthened and given a high priority in the CAS. In this context, the Committee stressed that the resident mission should be strengthened to play a more effective coordinating role. The most essential factor, however, remains the Zambia Government's own capacity to coordinate external assistance, and the Bank should provide effective support to this end. Ruth Jacoby Chairman Distribution Executive Directors and Alternates President's Executive Committee Senior Management, Bank, IFC, MIGA 3