Document Library

Key Text World Bank Group Work in Low-Income Countries Under Stress: A Task Force Report

Author: P Collier and N Okonjo-Iweala
Date: 2002
Size: 53 pages (323 KB)

Access full text: available online

Summary

How can the world’s poorest countries get on to the path of sustained economic growth? And how can the development community best help them? This report by the World Bank suggests that the challenge of aid effectiveness in poor countries with ineffective governments is to use other instruments, supplemented by financial transfers where necessary, to promote change.

Low-income countries under stress (LICUS) are characterised by weak policies, institutions and governance. Aid does not work well here because governments lack the capacity or inclination to use finance effectively for poverty reduction. Yet neglect of such countries perpetuates poverty and may contribute to the collapse of the state, with adverse regional and even global consequences. A strategy is needed to facilitate policy and institutional change while improving basic social outcomes. For example, focussing on a few reforms that are feasible in sociopolitical terms, around which capacity building and outcome monitoring can be coordinated. Initial changes may then reinforce the constituency for change, inducing further reform. To improve basic social outcomes requires supplementing weak central government delivery by strengthening multiple alternative channels. The ultimate goal, however, is strengthened and sustainable government capacity to provide services and reduce poverty. The LICUS approach depends on partnership among the relevant agencies. Also, it will require changes in how the World Bank conducts itself and uses its resources.

A key lesson from experience in aid effectiveness is that a country’s capacity to use development finance is related to its policies, institutions, and governance. This lesson has had a number of repercussions:

Development assistance has been increasingly concentrated on those low-income countries with reasonable policies, institutions, and governance.
Because LICUS have weak policies, institutions, and governance, development finance provided to them has been largely ineffective, and many donors have disengaged from them.
Although finance should continue to reflect performance, total disengagement from LICUS may have greater implications.
Countries abandoned by the international development community show few signs of autonomous recovery, and meanwhile their populations suffer severe deprivation.
Such countries are at risk of “state failure,” with its adverse effects, both regional and global.
Weak policies, institutions and governance lock countries into poverty and dependence on primary commodities – major risk factors in state breakdown.

Rather than disengaging completely from LICUS, the development community should continue to engage with them, albeit differently than with the typical low-income country.

Donor strategies for LICUS need to be adapted to country conditions.
Policies should usually have two objectives, substantial and sustained improvement in policies, institutions and governance and improvement in the provision of health and education.
Other objectives may be put on hold until there is greater capacity to move forward on a broader front.
Each objective requires a strategy, and it is at the level of strategy rather than objectives that the proposed LICUS approach becomes more distinctive.
Development agencies generally deploy two sets of instruments— finance and knowledge. Knowledge instruments are particularly useful in LICUS, with a more selective content targeted to a broader audience than in other countries.
Similarly, donor financial engagement should also be distinctive, with a greater proportion of grants relative to loans.

Access full text: available online

Source: Collier P. and Okonjo-Iweala N., (World Bank Task Force Leaders), 2002, 'World Bank Group Work in Low-Income Countries Under Stress: A Task Force Report', World Bank, Washington D.C.