INTERNATIONALMONETARY FUND andWORLD BANK Strengthening IMF-World Bank Collaboration on Country Programs and Conditionality-Progress Report Prepared by PDR incollaboration with FAD (IMF) and by OPCS and PREM (World Bank) Inconsultation with other Departments Approved by James W. Adams (OPCS). Mark Allen (PDR). and Gobind T.Nankani (PREM) February 24. 2004 Contents Page Executive Summary ................................................................................................................... 4 I.Introduction............................................................................................................................. 6 I1.Frameworkfor Bank-FundCollaboration............................................................................. 7 A.Framework for Collaborationat the Country Level.................................................. 8 B.InstitutionalCoordinationbetweenthe Bank andthe Fund...................................... 9 C. Collaborationon Thematic Issues ............................................................................. 9 III.AssessmentofBank-FundStaffCollaborationonCountryPrograms............................... 11 A.ProgramDesign and CountryOwnership ............................................................... 12 B.CoordinationandDivision ofLabor ....................................................................... 17 C. Coverage and Consistency of Conditionality.,........................................................ 20 D.Factors Supporting andImpedingEffectiveCollaboration..................................... 21 IV. Summary Assessment andRecommendations................................................................... 24 A. Summary Assessment ............................................................................................ -24 B.EnhancingCollaboration......................................................................................... 26 V Issues for Discussion . ........................................................................................................... 33 Boxes 10 2. Bulgaria-Bank-Fund 1. SelectedAreas o f IntensifiedBank-FundCollaboration .................................................... CollaborationinPractice................................................................ 15 3. BurkinaFaso-Bank-Fund CollaborationinPractice ........................................................ 16 4. Evolutiono fBank-Fund Collaboration The 2002 and 2003 Surveys................................ . 18 5. Evolutiono f Structural Conditionality inLow-Income Countries ..................................... 22 - 2 - Figures 14 2. Coordination andDivisionofLabor ................................................................................... 1. ProgramDesignandCountry Ownership ........................................................................... 19 4. FactorsContributing to Effective Collaboration.,............................................................... 3. Coverage and Consistencyo f Conditionality...................................................................... 23 24 Annex I A. SurveyonCountry Authorities .......................................................................................... . 35 B. SurveyofIMFMission Chiefs andWorld Bank Country Directors.................................. 37 C. Questionnaire to Executive Directors................................................................................. 40 - 3 - Abbreviationsand Acronyms AML Anti-Money Laundering CAS Country Assistance Strategy C A W Country Analytical Website CFAA Country Financial and Accountability Assessment CFT Combating the Financing o f Terrorism CPAR Country Procurement Assessment Review D A C Development Assistance Committee D C Development Committee E C European Commission FAD Fiscal Affairs Department (IMF) FATF Financial Action Task Force FSAP Financial Sector Assessment Program FSB Fiscal Strategy Brief FSLC Financial Sector Liaison Committee GDDS General Data Dissemination System HIPC Heavily Indebted Poor Countries IF1 International FinancialInstitution IMF International Monetary Fund IMFC International Monetary and Financial Committee JIC Joint Implementation Committee JSA Joint StaffAssessment L I C L o w Income Countries MDGs MillenniumDevelopment Goals M I C Middle Income Countries OECD Organization for Economic Cooperation and Development OPCS Operational Policy and Country Services (World Bank) PDR Policy Development and Review Department (IMF) PEFA Public Expenditure and Financial Accountability P E M Public Expenditure Management PER Public Expenditure Review P I N Public InformationNotice PREM Poverty Reductionand Economic Management (World Bank) PRGF Poverty Reductionand Growth Facility PRSP Poverty Reduction Strategy Paper PRSC Poverty ReductionSupport Credit PSIA Poverty and Social Impact Analysis RAP Regional Technical Assistance Plan ROSC Reports on the Observance o f Standards and Codes - 4 - Executive Summary Close collaborationbetweenthe Fundand the World Bank i s indispensable for providing effective support to member countries, and is a pillar for global efforts on development through the promotion o f financial stability, sustainable growth andpoverty reduction. Recognizingthis, inSeptember2000, the ManagingDirector ofthe Fundandthe Presidentofthe World Bank set out a shared vision for closer cooperation, emphasizing the importance o fnationalownership o f reform programs, the need for a coherent approach to supporting reform priorities basedon an efficient division o f labor, and the objective o f focusing conditionality on measures critical to program success. In2001,aframeworkoperationalizing thisvisionwas setoutinajointpaper, Strengthening IMF-WorldBank Collaboration on Country Programs and Conditionality, together with a corresponding staff guidance note. A preliminary review o f collaborationunder this new framework was discussedbythe Boards o fthe Bank andthe FundinSeptember 2002 based on a survey o f Bank country directors and Fundmission chiefs. At the time it was noted that the survey providedan initial snapshot o f the state of Bank-Fund collaboration and it was agreedto carry out an update o f it inlate 2003, and to solicit the view o fnational authorities regarding Bank-Fund collaboration. This paper reports on the findings o f the two surveys, describes the overall framework within which the two institutions collaborate, reviews collaborationon specific thematic issues, and elaborates on some measures to enhance collaboration. While at first sight, the surveyresults point to a broadly satisfactory assessment of Bank- Fundcollaboration (indeed, along several dimensions the results are stronger than last year's survey), it i s also clear that the enhanced framework for Bank-Fundcollaborationcannot fully address all the implementationissues that arise at a country level from time to time. In particular, the survey results underscore areas for fbrther improvement-including aneed for more consistent implementationo f the agreeddivisions o f labor for better agreement on the coverage and consistency o f conditionality, and for better coordination ininteractingwith the authorities. The survey o fthe authorities indicates that country ownership and national leadership of development and economic policies couldbe enhanced by a better alignment o fprogram design and conditionalityto the country's own reformpriorities, andthrough more shared work at the country level, includingjoint missions. Reflectingthese and other findings, this paper concludes that it would be useful to strengthen the Joint ImplementationCommittee (JIC). The revamped JIC would address cross- cutting issues on Bank-Fund collaboration, monitor progress on implementation o f the agreed framework o f collaboration on country programs and conditionality and, when needed, provide an additional instrument to help country teams inthe two institutions to reach agreement on priorities so as to ensure coherence o fpolicy advice and o fprogram design. The JIC would cover issues that arise both inthe low-income context as well as inmiddle-income countries. The paper also explores ways inwhich close collaboration onjoint analytical work on thematic issues that feed into program design can contribute to national ownership o f adjustment programs andto reform measures better aligned with the priorities and constraints faced bymember countries. - 5 - These include improved public expenditure and financial management (PEFM), and poverty and social impact analysis (PSIA) where efforts are underway to draw on each institution's areas of expertise. Finally, to ensure that the Board o fthe eachinstitutionremains informed o f the engagement and current assessmento fthe other institution inspecific reform areas, staff guidance is beingprepared onbest practices for the preparation o f the annexes and codifying the use o f assessment letters for the Fundrelations note incases where the PINor Chairman's Statement i s not considered to be sufficiently up-to-date. - 6 - I.INTRODUCTION 1. Close collaborationbetweenthe Fundandthe World Bank i s apillar for global efforts on development through the promotion o f financial stability, sustainable growth and poverty reduction and i s indispensable for providing effective support to member countries. Recognizing this, inSeptember 2000, the ManagingDirector ofthe Fundandthe President of the World Bank set out a shared vision for closer cooperation.' This vision, buildingon earlier agreements, emphasizes the importance o fnational ownership o freform programs, the need for a coherent approach to supportingreformprioritiesbasedon an efficient division o f labor, and the objective of focusing conditionality on measures critical to program success. Inoperational terms, this vision is now embodied ina strong framework for collaboration at the country level, centered on the HIPC andPRSPinitiatives for low-income countries, and buttressedby an intensified dialogue and cooperation between the Bretton Woods Institutions on thematic policy issues and on the global agenda to support development. 2. Reflecting convergent orientations inthe Fundon the streamlining o f its conditionality and inthe Bank on strategic selectivity, the Boards o f the Bank and the Fundwelcomed the stronger operational framework for collaborationas set out inan August 2001joint paper, Strengthening IMF-WorldBank Collaboration on Country Programs and Conditionality. This was followed by a staff guidance note, which provides a systematic structure for staff cooperation that stresses division o f labor based on the concept o f a lead agency, discussions and coordinationat early stages o f formulating policy advice and conditionality (upstream engagement), and effective information sharing among staff and with the Boards o f the two institutions.* 3. A progress report on collaborationon country programs and conditionalitywas discussed by the Boards o f the Bank andthe FundinSeptember 2002.3The report was basedmainly on a surveyo fFundmissionchiefs andBank country directors. At that time bothBoards reaffirmed the need to provide countries with coherent support, based on the elements o f the agreed TheIMF and the WorldBank Group: An Enhanced Partnershipfor Sustainable Growth and Poverty Reduction, Joint Statement by Horst Kohler, Managing Director, and James Wolfensohn, President (SecM2000-536), September 5,2000. See also Report of the Managing Director and the President on Bank-Fund Collaboration (World Bank document SecM98-733 and IMF document SM/98/226, September 4, 1998). On earlier efforts at improving collaboration, see the annex entitled"History on Bank-FundCooperation on Conditionality'' in"Strengthening IMF- World Bank Collaboration on CountryPrograms and Conditionality" (SecM2001-046 1/1, August 24,2001, and SM/01/219, Supplement 1, Revision 1, August 23,2001). OperationalizingBank-Fund Collaboration inCountry Programs and Conditionality-Staff Guidance Note (April 24,2002). See Strengthening IMF-WorldBank Collaboration on Country Programs and Conditionality- Progress Report (World Bank document SecM2002-443 and IMF document SM/02/27l), August 2002. - 7 - framework, and requested to be kept abreast o f Bank-Fund collaboration at the country level throughthe enhanced IMF-World Bank Relations Annex prepared by Bank staff, and the Fund Relations Note prepared by Fundstaff. The Boards also requested that the next progress report be based on a similar survey, preferablyexpanded to include the views o f country authorities. 4. The present report reviews experience with Bank-Fundcollaboration on country programs and conditionality, inparticular since the introductiono f the strengthened framework some 18 months ago. While the primary focus o fthe paper i s this enhanced framework, two points bear emphasizing. First, outside o f country programs and conditionality, the two institutions also cooperate on a wide variety o f other areas and issue^.^ Second, achieving results and providing effective support to members requires going beyond any formal framework for collaboration, and working closelytogether at all levels and stages, including resident representatives, country teams, area and country departments, and fbnctional departments and networks, as well as senior management andthe Executive Boards. 5. The structure ofthis paper is as follows. Section I1provides abrief overview ofthe framework for Bank-Fund collaborationon country programs and conditionality. Responding to the Directors' requests, Section 111reports the results o f a more comprehensive survey o f the staffs' and o f national authorities' experience with Bank-Fundcollaboration onprogram design and conditionality since the adoptiono f the new framework5, together with some observations drawn from case studies (Bulgaria and BurkinaFaso) and a quantitative review o f Bank and Fundconditionalityinlow-incomecountries. While these findings point ingeneral to broad satisfaction with the collaborative process, some results also identify areas for further improvement. Section N provides a summary assessment on collaborationbased on these findings and identifies areas for further improvement, and Section V concludes with issues for discussion. 11. FRAMEWORKBANK-FUND FOR COLLABORATION 6. BankandFundmanagementshave agreedon, andhaverepeatedlyreaffirmed, the complementary roles andresponsibilities o f eachinstitution andthe importance o f close collaboration at the country and institutionallevels to provide coherent policy advice and support to nationalreformprioritiesa6Further, and reflecting a broad international consensus on Box 1,below, describes some o fthe other areas inwhich the two institutions collaborate. A surveyon Bank-Fundcollaborationonpublic expenditure issues was discussed bythe Boards o f the two institutions inearly 2003 (SM/03/73 and SecM2003-0077). As notedbelow, some o f the results o fthat survey are echoed inthe surveyreportedinthis paper. See 1989 Concordat;Report of the Managing Director and the President on Bank-Fund Collaboration (World Bank document SecM98-733 andIMF document SM/98/226), September4, 1998; and TheIMF and the WorldBank Group: An Enhanced Partnershipfor Sustainable Growth and Poverty Reduction, Joint Statement byHorst Kohler, Managing Director, and James Wolfensohn, President (SecM2000-536), September 5,2000. - 8 - the centrality for sustainable growth and successful poverty reductiono f a comprehensive approach encompassing macro, structural, and social policies, Bank and Fundstaff have intensified their dialogue on thematic policyissues o f relevance to the Bretton Woods Institutions, as well as on the supportive global agenda for development. A. Frameworkfor Collaborationat the Country Level 7. Bank-Fundcollaboration insupporting countryprograms i s crucial to obtaining sustainable development results inthe field. For middle-incomecountries, solutions and processesimplementedhave generally followed the framework for Bank-Fund collaborationlaid out inthe 2001joint paper and associated staff guidance note with tailored approachesreflecting the diversity o f these countries' assistance needs, and the sometimes different degrees and timing o f engagement o f the two institutions. 8. Bank-Fundcoordination inlow-income members takes place within an overarching framework centered around the PovertyReduction Strategy Papers (PRSP) process and, inmany cases, inthe context o f the enhancedHeavily IndebtedPoor Countries (HIPC) initiative. Inthis perspective, muchprogress has been achieved inlow-income countries, buildingon the Poverty ReductionStrategy Papers (the PRSP approach), as a country-ownedplatform for more effective collaboration, and on the successful collaborationinimplementingthe enhanced HIPC initiative. Country-owned PRSPs form the basis for lendingand technical assistance, and the joint staff assessments(JSAs) of low-income members' PRSPs, and PRSPprogress reports provide a means for the Bank and Fundcountry teams to ensure that the fullrange o fneededpolicy advice i s made available to countries. Reports for the Boards on progress on implementationcontinue to be preparedjointly by the staffs (the most recent o fwhich was inSeptember 2003). The two institutions are currently working on ajoint framework for debt sustainability for low-income countries andon a statistical update on the enhancedHIPC initiative (planned for Spring 2004).7 9. The Fundhas launched areflection on its role inlow-income member countries (SM/03/257 and SM/03/288). The Executive Boardo f the Fundreaffirmedthat the Fundshould remain engagedinassisting low-income membersover the long term, but asked that there be further consideration ofthe modes ofengagementto ensurethat the Fundwas beingas effective as possible inassisting low-income members intheir efforts to meet the MDGs. While the intemal reflectiono f the Fundi s continuing, the Board emphasized that the role o f the Fundin helpinglow-income members shouldbeprimarily directed to establishing macroeconomic frameworks that can support highsustained growth andpoverty reduction; identifying and helpingcountries manage sources o fmacroeconomic risks andvulnerabilities; and strengthening institutions and policies that underpinsound macroeconomic management-including the management o fpublic financial resources as well as exchange, monetary, and financial systems. The Boardalso notedthat the Fundhas neither the mandate nor the capacity to provide long-term 'Asthe Boards have set end2004 as the sunset date for the HIPC initiative, Bank and Fundstaff are also evaluating options for dealing with the debt overhang inthe remaining 11HIPCs that have yet to reach decisionpoint. - 9 - development assistance; instead, the role o fthe Fund's financial support shouldbe primarily to ease the burdenof adjustment and help countries weather shocks. Thus, while the Fund's financial and technical assistancecan provide a necessary component to launching sustained growth and poverty reduction inlow-income countries, macroeconomic stability and financial soundness are not sufficient conditions for sustained growth andpoverty reduction. The Board therefore underscoredthe need for close collaboration with the Bank and other development partners in supporting country poverty reduction strategies. B. InstitutionalCoordinationbetweenthe Bank and the Fund 10. The interactions betweenteams at the country level are complemented bybroad-based and well-developed mechanisms o f institutional coordination. Regular meetings between the President o f the Bank andthe Managing Director o f the Fund, as well as between the Managing Directors o f the Bank and the DeputyManaging Directors o fthe Fund, provide the foundations for a regular dialogue at the most senior level o fbothmanagements. Senior staff inFundArea Departments and Regional Vice Presidencies inthe Bank are also inclose andregular contact; and so are respective centralunitson keypolicy issues o fmutual interest with a growing number o fjoint activities. Staffs o f each institution attend Boardmeetings at the other institution, where they are available to clarify issues raised by ExecutiveDirectors, including on coordination. 11. These regular contacts are also buttressedby two institutional coordination mechanisms: the Joint ImplementationCommittee (JIC) for cooperation inHIPC/PRSP countries and the Financial Sector Liaison Committee (FSLC) for cooperation infinancial sector work. The FSLC, established in 1998 for cooperation inthe financial sector work, has been instrumentalin improvingprocedures by which staff exchange information, coordinate work programs, undertakejoint missions, provide consistent policy advice to country authorities, and negotiate financial sector conditions inthe respective lending. Similarly, the Joint Implementation Committee (JIC), established in2000 by Bank and Fundmanagements, was instrumentalin fostering rapid implementation o fthe HIPC initiative. C. Collaborationon Thematic Issues 12. To improve coherence inpolicy advice, technical assistance, program support, and conditionality, Bank andFundstaffmaintain an intense dialogue on thematic policy issues. Linkedto the reform o fthe internationalfinancial architecture, the two institutions are closely collaboratingon programs such as the Financial Sector Assessment Programs (FSAP), the Reports on Standards and Codes (ROSCs), or the Anti-Money Laundering(AML)and Combatingthe Financingo f Terrorism (CFT) initiatives. The two institutions also continue to step up their support to countries on cross-cutting issues on the global development agenda, trade, and global monitoring o fpolicies and actions for achievingthe MDGs and related outcomes, including aid and aid effectiveness. Box 1("Areas o f IntensifiedBank-Fund Collaboration") provides an overview o f selected policy initiatives where Bank-Fund collaboration i s beingstrengthened. Inaddition, two areas o f crucial importance where enhanced cooperation increasinglydraws on the comparative advantages o f the two institutions are Public Expenditure andFinancialManagement and Poverty and Social Impact Analysis. Work on, and collaborationinthese two areas have been revamped as described inSectionIV. - 10- Box 1. Selected Areas of Intensified Bank-Fund Collaboration A. Joint Work onthe InternationalFinancialArchitecture 1.FinancialSectorReform. To strengthen collaboration inthe financial sector, ajoint Bank-Fund FinancialSector LiaisonCommittee was established in 1998.Enhanced collaboration is also reflected in the FinancialSector Assessment Programs (FSAP), jointly undertaken by the Bank and the Fund, which aim at assessinga country's financial sector strength and vulnerabilities and at identifyingreformpriorities inthe context ofthe Fund'ssurveillance andthe Bank's financial sector development work. As of end- December 2003, about 100 countries have participated or agreed to participate inthe near future inan assessment.The two institutions also collaborate on FSAP follow-ups. The joint FSAP review (discussed bybothBoards inMarch2003) highlighted common challenges: maintain arealistic pace o fassessments through streamlining; prioritization and greater selectivity; and ensure more systematic follow-up. A joint Bank-Fund review is plannedby 2005, and ajoint research program relating to measures o f financial sector development and deepeningi s underway. 2. Reportson Standardsand Codes(ROSCs). The Bank and the Fundare collaborating closely on a program to assessprogress inmember countries' implementationand observance o f standards and codes. The Fundhas takenthe leadon data and fiscal transparency; bothinstitutions have assessedfinancial sector standardsjointly as part of the FSAP; andthe Bank has taken the lead incorporate govemance, accounting and auditing, and insolvency and creditor rights. Duringthejoint review byboth Boards in March 2003, the Boards called for greater prioritization and adequate follow-up on ROSCs.A joint Bank- Fundreviewisplannedfor 2005. 3. Anti-Money Laundering (AML) and CombatingtheFinancing of Terrorism (CFT). The Bank and the Fundhave started ajoint actionplancomplementaryto the efforts o f others, aimed at helping countries buildtheir regulatory and institutional framework to fight money launderingandthe financing ofterrorism. The Bank and FundBoards have agreed to add the Financial Action Task Force (FATF) 4018 Recommendations to the list of areas and associated standards and codes useful to the operational work of the Bank and the Fund.The Bank and FundBoards endorsed a 12-monthpilot program o f AML/CFT assessments and accompanyingROSCs, to be undertakenwith a number o fpartners, inparticular the FATFand the FATF-Style Regional Bodies (the Asia-Pacific Group, the CaribbeanFinancial Action Task Force, the Eastern and South African Anti-Money Laundering Group, South American Group for International Financial Action Against Money Laundering (GAFISUD) and Select Committee of Experts on the Evaluation of Anti-Money LaunderingMeasures (MONEYVAL)). Bank- and Fund-ledassessments have been integratedinto thejoint FSAP framework. About 50 countries have been assessed duringthe 12-month pilot program. The pilot program will bereviewed bythe Bank and the FundBoards inMarch 2004, with a view to make this programpermanent. A revisedassessment methodology i s under preparationto bringit inline with the revised FATF40+8 recommendations, adopted in June 2003. B.Joint Work on GlobalDevelopmentIssues 4. Trade. The Bank and the Fundare following up on their commitment, expressed inthejoint letter of the Fund'sManagingDirector andthe Bank's President to the Director-General o fthe World Trade Organization (August2003), to assist countries intaking hlladvantage o f the opportunities from international trade. Inparticular, the Bank and the Fundare working on three mainpriorities: i)help countries designpolicies, institutional reforms, and investment programs aimed at addressing key obstacles to trade expansion; ii)help governments design measuresto support affectedpopulation groups ;and iii) tailor respective lending to respondto the specific challenges posed by the Doha Development Agenda. In November 2003, ina letter to Heads o f Government o f all member countries and their Finance and Trade Ministries, Horst Kohler and James D.Wolfensohn called for renewing progress on world trade talks, emphasizingthe central importance o f multilateral trade liberalization to growth and prosperity. - 11- 5. Millennium Development Goals(MDGs) and Global Monitoring. At its April 2003 meeting, the Development Committee reaffirmed its commitment to a regular monitoringo f the policies and actions of developing and developedcountries and development agencies for achieving the MDGs and related outcomes. Pursuant to that, at its September 2003 meetinginDubai, the Development Committee agreed upon a plan for an annual global monitoring report-to be available intime for the SpringDevelopment Committee meeting-supplemented byinterimreports on selected issues. The Spring2004 global monitoring report will present an assessmentof the policies and actions inkey areas and, based on that assessment, identifjr priority issues for Development Committee discussions. This report will beprepared jointly bythe Bank and the Fund, inconsultationwith other partner agencies. The division of labor between the Fundand the Bank reflects their areas o fmandate and comparative advantage, with the Bank focusing on structural and social policies and the Fundfocusing on macroeconomic policies. To enhance and facilitate the monitoring o fprogress towards the MDGs, Bank and Fundstaff are collaborating on enhancing the General Data Dissemination System(GDDS) to support the compilation o f MDGindicators. 6. Aid andAid Effectiveness. While the Bankhas the leadingrole on issuesrelatedto aid and aid effectiveness, close collaborationwith the Fundinthis area i s crucial, especially given the importance for both institutionso f meetingthe MDGs agenda. Joint work is occurring inthree main areas. First, as harmonization is now widely seen as an integral part o f the aid effectiveness agenda, the Bank and the Fundarejointly followingup onthe implementation measuresset inthe Rome declaration issued, in February2003 by the High-Level Forumon Harmonization. Second, as requested bythe Development Committee inDubai ,the Bank and Fundwill report bythe next Springmeetings on ongoing work on " (,..)the merits ofvarious policy options, such as aninternational financing facility, to mobilize the substantial additional resources that are needed over the mediumterm ...", for financing additional development aid. Lastly, the IMFand the Bank will, at the next 2004 annual meetings, jointly respondto the IMFC request expressed inDubai, "to do further work on aid effectiveness, absorption capacity, financing facilities andresults-based measurement mechanisms (. ..)". 7. Debt Sustainability.Bank and Fundstaff collaboratedon the preparation o f debt sustainability assessments for the HIPC initiative and for periodic statistical updates on progress towards implementation of the initiative. Inaddition, recent analytical work by the staffs o f the two institutions has focused on developing a common fi-amework for assessingdebt sustainability inlow-income countries inthe future. 111. ASSESSMENT BANK-FUNDSTAFFCOLLABORATIONONCOUNTRY PROGRAMS OF 13. The assessment o fBank-Fund collaborationinStrengthening IMF-WorldBank Collaboration on Country Programs and Conditionality-Progress Report (discussed by the Boards inSeptember 2002) was based, inpart, on a questionnaire that surveyed staff views on the state o fBank-Fund collaboration as well as factors they perceived as helping or impedingit. At that time, it was notedthat the survey provided aninitial snapshot ofthe state ofBank-Fund collaboration on program design and conditionality following the introduction o fthe enhanced collaboration framework. Itwas also agreedto carry out an update o f the survey inlate 2003 and to solicit the views o fnationalauthorities regarding Bank-Fundcollaboration. - 12- 14. To this end, two suryeys were designed (see Annex I).8 The first was sent to national authorities incountries with either current or recent Bank adjustment lendingoperations or Fund- supported programs (or both) through the offices o f the respective Executive Directors.' Questions focused on the authorities' perception o f collaboration, includingthe effects o f collaboration on programdesign, conditionality and ownership. Ininterpretingthe survey results it is important to bear inmindthat responserate, while inline with similar surveys, was only 40 percent, so the results may not be fully representative o f country experiences." 15. The second surveywas sent to Bankcountry directors andFundmission chiefs, building on last year's survey o f staff views regarding the effectiveness and quality o f collaboration, and adding questions on program design and ownership, dialogue with national authorities, and the usefulness o f the Bank-Fundannexes inprogram documents. 16. The surveys results, presented inthe rest ofthis section, cover four broadareas of collaboration: (i) program design and country ownership; (ii) coordination and division of labor; (iii) coverage and consistency o f conditionality; and (iv) specific factors contributingto, or impeding, collaboration. These themes are further illustratedbytwo case studies. One middle- income country, Bulgaria (Box 2), andone low-income country, BurkinaFaso (Box 3), where both institutions have heavy involvement instructural reforms were chosen for this purpose. A. ProgramDesignand CountryOwnership 17. The surveyresults indicate that both countryauthorities and staffbelieve that program ownership is an integralpart ofmost Bank- and Fund-supportedprograms. According to the authorities, reform programs are largely orfully owned bythe country, thoughmost o fthese A third survey was sent to the Executive Directors inboththe Bank and the Fund, asking their views on the existingBank-Fundrelations annexes. The results o f this survey are analyzed in section IV.B below. Via the offices o f the respective ExecutiveDirectors, the surveywas sent to the national authorities o f 95 countries with either current (as o f mid-2003) Bank operations or Fund- supported programs, or an operatiodprogramat any time duringthe past two years. Inthe case of the Bank, this includes PRSPcountries as well as other countries with adjustment lending operations or where the Bank i s active inproviding advice. Inthe case o f the Fund, program countries include PRGF countries and countries with upper credit tranche arrangements. The staff questionnaire was sent to the country teams for the same set o f countries. lo A number ofrespondents indicatedthat their experience with active programs was not sufficiently recent (for instance, the program or operation had expired almost two years ago) to merit inclusioninthe surveyresults andtherefore declined to respond. Intotal, responsesfrom 38 national authorities were received, yielding a response rate which, while on the low side, i s comparable to the response rates on similar surveys o f national authorities. The staff survey draws on the views o f Bankcountry directors for 48 countries and Fundmission chiefs for 72 countries. - 13 - responses fall into the first o fthese categories (46 versus 35 percent); conversely, almost one quarter o frespondents felt that ownership was lacking or only partial (Figure 1-A). Some 85 percent o f the authorities responded that Bank and Fundsupport has served to widen ownership of the country's development strategy (Figure 1-B).Mirroring this finding, a majority o fBank and Fundstaff (89 percent) believe that programs are largely or substantially aligned with a country's own development strategy-though 10percent o f Fundrespondents and 13 percent o fBank respondents found little or no alignment (Figure 1-C). 18. The authorities also acknowledge increased flexibility on the part ofboth institutionsin program design, showing greater sensitivity to social and political constraints; none o f the authorities respondedthat they consider either the Bank or Fundstaffto be very inflexible. Nevertheless, the authorities perceive the Bank and Fundsomewhat differently:whereas 20 percent o fthe respondents believe that the Bank is veryflexible inprogram design, the corresponding figure for the Fundi s only 11percent (Figure 1-0). Similarly, 21 percent of the respondents strongly agree that collaborationhas resultedinBankconditionality beingmore sensitive to political and social concerns, compared to only 12percent for conditionality in Fund-supportedprograms (Figure 1-E). The authorities' perceptions are largely mirrored inthe answers bythe staff, who believe that they have been open-minded when designing conditionality. Specifically, a majority o fFundstaffbelieve that conditionality waspartly modzfied duringprogramnegotiations. Inthe case o f the Bank, a majority o f staffrespond that conditionality was largely modzjied. Almost 90 percent o f Fundstaffresponses indicatethat they consider the World Bank to be rather or veryflexible indiscussions with authorities and donors, but less than 75 percent ofthe Bank respondents consider Fundstaffto be rather or vevyflexible (Figures 1-F, 1-G). 19. The authorities' responsesalso suggestthat improvements inBank-Fund collaboration have hadpositive effects on numerous specific aspects o fprogram discussions. Specifically, improved collaborationhas served to reduce the time spent discussing and negotiating policies to be supported bythe Bank and the Fund(Figure 1-H).Inaddition, the vast majority of the authorities' responses stress that good collaborationhas facilitated the delivery o f technical assistance-over 90 percent o f the responsesnote that the delivery o f technical assistance has largely or very much improved as a result o f good collaboration. - 14- Figure1. ProgramDesignand Country Ownership 1/ Chart A. Authorities' responseto: Chart B. Authorities' responseto ... What is the extent o f country ownership of Do you agree that Bank-Fundparticipationhas led BankiFund-supported progams? to wider ownership o fyour development strategy? 100 6o t E World Bank 51 WorldBank AC. n o Partly largely full strongly disagree agree strongly ownershiu owned owned ownershio disagree agree Chart C. Staff responseto: Chart D.Authorities'responseto: How ahgied are Bank- andFund-supported progams aid the country's own development strategy? 80 8o views o f authonties dunngprogram design? 7 I I I 70 4 60 ' Fundrespondents 51 51 51 0 Bank respondents 40 UTotal ~ 30 J alignment lnflenble flerable flerable Chart E. Authorities' responseto: Chart F. Staffresponseto: Has Bank-Fundcollaboration made conditionality Doyou perceive the World Bank as fleable m its discussions with authonties and donors? 6o more sensitive to social and political concerns? W o r l d B a n k 39 0 Bank respondents I 30 - strongly disagree agree strongly very inflexible somewhat rather flexible very flexible disagree agree flexible __ .. . ~ - Chart G. Staff response to: Chart H.Authorities' responseto: -- - Do you perceive the IMF as flexible inits discussions Do you agree that lncreased Bank-Fundcollaboration has with authorities anddonors? 80 reduced t h e program preparation burdeno f authorities? 80 , 70 Fundrespondents 64 60 0Bank respondents 50 Total 40 30 20 10 n very rnflexrble somevhat rather flexible very flexible strongly disagree agree strongly flexible disagree agree 1/All figures are inpercent ofrespondents. - 1 5 - Box2: Bulgaria-Bank-Fund CollaborationinPractice Bulgaria has adheredto a policy frameworkcenteredon its currency boardarrangementsince 1997. A prudent fiscal policy and strict incomepolicies havekept inflation low and the external balance sustainable. Structuralreforms over the past few years have focused primarily on enterpriseand financial sector issues, in part becausethese were the main source o f financial imbalances during Bulgaria's first few years of transition. Consequently,less attentionwas devotedto other reform areas, such as social sector and institutional reforms. The first phase of enterprisereforms-now largelyfinalized-aimed at privatizing enterprises innon-strategicsectors.The secondphase-where progresshas been slower-attempts to developregulatory frameworks in strategicsectors (electricity, water, telecoms), strengthen marketinstitutions, and improve governance and the delivery of social services. Inthe banking sector, the priority was to resolvethe status ofbanks with weak loanportfolios while attractingstrategicinvestors and strengtheningbanking supervision. From a Development Strategy to Program Conditionality Against this background, Bank lending operationsandFundarrangementsinitially centeredon reforming the enterpriseand financial sectors. Conditionality was extensive, at times applying to individualbanks or enterprises; out of 55 structural conditions inFYOO (see box table below), 25 focused inthese two sectors. A numberof other structural conditions dealt with establishingnew regulatoryframeworks, apre-condition for the successful privatization of enterprisesin strategic sectors. The natureof conditionality andthe number of conditions evolved over time. At present, Bank conditionality reflects increasedinvolvement in second-generationreforms (e.g., governance, institution building, and social sector reforms).The Bank's CAS includesa three-year programmaticadjustmentlending (PAL) program, of which the first PAL operation- approvedinFebruary2003-aims at advancingregulatory and institutional reforms inthe real and financial sectors.The decline inthe number of conditions in Fund arrangementsreflectsseveral factors-the emphasis on streamlining conditionality, the switch from an EFF-arrangementto a SBA, and the broader scope of the Bank-supportedoperationsin the healthand education sectors, inparticular. Enterpriseand financial sector reforms, though still very detailed, represent one-quarterof all structuralconditions comparedto almost one-half inFYOO. Bank-Fund Collaboration The division of labor betweenthe Bank and the Fund has beenclearly defined. The Fund took early on the leadin macroeconomicpolicies and intrade reform issues. More recently,the Fund has focused its attention on tax administration and the developmentof a Treasury system. The Bank has been supportingthe government's efforts to addresspoverty reductionand meet social development Bulgaria-World Bank and FundStructuralConditionalityby Fiscal Year 1/ 2/ objectives. Ingeneral, the Bank has been Area of Reform Binding conditionality IMF Structural leadingthe dialogue on the core structural FYOO FY02 Benchmarks aspects of the reform World IMF World IMF FYOO FY02 Bank Bank The areas of overlap in conditionality Trade regime 0 0 2 0 4 1 benefitedfrom good collaboration. The Capital account 0 0 0 0 1 0 Enterprisereformamdprivatization 4 9 4 1 7 0 staffs ofthe two institutions carriedout a Tax and expenditure reform 1 4 0 2 3 1 Financial Sector Assessment Program Socialpolicy and safety net 0 1 1 0 0 3 (FSAP) that provided a shared perspective Financial sector 1 1 2 0 3 3 on the financial sector, and servedas a Labor market 0 1 0 0 0 . 0 basis for financial sector conditionality Institutionbuilding 0 0 4 1 1 0 under both the SBA and PAL programs. Other structuralareasisectors 9 4 9 2 1 2 Similarly, the Bankcontributed to the TOTAL 15 20 22 6 20 10 dialogue with a poverty assessment and a Public Expenditure and Institutional 1/ The periods selected follow the World Bank's fiscal year; FYOO is July 1, 1999 to June 30,2000 and FY02 is July 1,2001 to June 30,2002. Review (PEIR). The Fund and Bank teams 2/ World Bank loans include: Financial and EnterpriseSector Adjustment Loan and have also worked closely with the first tranche ofEnvironment andPrivatization Support Adjustment Loan (EPSAL) governmenton the developmentof a new in FYOO and Agriculture Sector Adjustment Loan and secondtranche o fEPSAL in regulatoryframework inthe energy sector, FY02. Fundarrangements include:EFF (third review) and a SBA (second review). based on their respectivemandates.. Only reforms with test dates inthe referencedfiscal year are included. - 16- Box3. Burkina Faso-Bank-Fund CollaborationinPractice Burkina Faso has outlined its developmentstrategy in its PRSP (May 2000). The PRSP outlines amore effective framework `fordecidingwhenandhowthegovernmentshouldintervene.ThePRSPsetoutthefollowingfourpillarsofthe government's strategy:acceleratingequitablegrowth; promoting accessto social services; increasingemployment and income-generatingactivities for the poor; and promoting good governance. *From a Development Strategyto Program Conditionality The Fundhas provided supportto the government'sprogramunder ESAFIPRGFarrangementsbetweenFYOO and FY02. Tax andtrade reform were consideredessentialto creationof an environmentconduciveto efficient private sector investmentand growth. The Bank has focused on action plansinkey economicsectors and reforms to improve public financemanagement, as well as governance and decentralizationissues through a series of poverty reduction and support credits.The designof the Bank's PRSCrepresents a shift inthe way IDA supports growth and poverty reduction in the country, movingtoward more consolidatedprogrammatic support, increased supportto social sectors, and building institutional capacityto help the authoritiesmanage public resourcesmore effectively. The total number of structural conditions inBank-supportedprogramsincreasedfrom 11to 14 betweenFYOOand FY02, whereas the number o f Fund's conditionsdid not change. Bank-Fund Collaboration The division of labor betweenthe Bank and the Fund benefitedfrom focusing on a limited number of reform areas. The Fund took the lead inthe policy dialogue on macroeconomicpolicies. Its conditionality focusedprimarily on privatization and tax administration inFYOO. More recently, the Fund has added conditionality on trade policies and financial sector. The Bank has taken the lead inassistingwith the privatization of energy and telecommunicationssectors and removing BurkinaFaso-World Bank and FundStructuralConditionalityby FiscalYear l / 2/ administrative to the creationof enterprises and private investment.With ~~ Area of Reform Binding IMF Structural introduction of the first PRSC, the Bank WorldFYOOIMF World FY02IMF FYOO FY02 Benchmarks has significantly broadenedthe scope and Bank Bank detail of its assistance to Burkina Faso. It Trade regime 2 0 0 1 0 0 is also acting as leadagency in supporting Capitalaccount 0 0 0 0 0 0 pro-poor sectoralpolicies and institutional Enterprisereform amd privatization 0 2 0 0 2 0 changesfocusing on basic education, Tax andexpenditurereform 8 2 2 health, and rural development. Social policy and safety net 0 0 7 00 00 10 Financialsector Labor market 0 0 0 1 0 0 The areas of overlap in conditionality Institutionbuilding were characterized,accordingto the views Other structural areashectors 1 0 1 0 0 0 elicited from staff, by good Bank-Fund collaboration. The Bank and Fund staffs TOTAL 1 1 4 1 4 4 2 2 jointly follow the developmentsin the 1/ The periodsselected follow the WorldBank'sfiscal year; FYOO is July 1, 1999to cotton sector becauseof its importancefor June 30,2000 and FY02 is July I,2001 to June 30,2002. macroeconomicaggregates and rural 2/ WorldBank loans include:ThirdStructuralAdjustment Credit inFYOO andfirst incomes.The Bank and the Fund also PovertyReductionandSupportCredit(PRSC) inFY02.IMFarrangementsinclude closely collaborate in supportingthe an ESAFPRGFprogram(programapproval) and its sixth review.Only reformswith government's reform inthe area of public test dates inthe referencedfiscal year are included. finance management and governance, based on their respectivemandates.. Important elements ofthe reformprogramincorporatethe main recommendationso f the HIPCAssessmentandAction Planpreparedjointly by the staffsofthetwo institutions. InFY02, the Bank and Fund teams closely collaboratedinsupporting the government's reformwith complementaryconditions on adopting a new legal framework and bringing into operationan independentsupreme audit institution and the anti-corruption unit. - 17- I B. Coordination and Division of Labor 20. Almost all country authorities-94 percent-feel that their discussions and programs with both the Bank and the Fundfocus on the country's own priority areas, which inturn help deepencountryownership ofprograms (Figure 2-A). Inline with this outcome, over 98 percent ,of both Bank and Fundrespondents claim to have a largely shaved or common perspective on the reforms a country needs to implement (Figure 2-B). l1 Moreover, this reflects a sharp 'improvementrelativeto the 2002 surveyinthe shareofrespondents (from 48 to 63 percent) who believe they now have a common perspective with their counterparts at the other institution (Box 4). As such, the survey responses suggest that policy advice and program design by the two institutions are well aligned to the country's own development priorities. 21, Underlying this commonperspective i s a relatively clear division of labor betweenBank and Fundstaffregardingeach institution's responsibilities inparticular areas o f reform. More than 90 percent o f Bank and Fundstaffrespondents claim that the roles o f the two institutions are either largely orfully clear (Figure2-C), slightly above the 2002 tally (83 percent; Box 4). Nevertheless, there i s scope for improvement as most respondents report that the respective roles are largely, rather thanfully, clear. 22. Regardingcommunication and upstream coordination, 90 percent o f Bank and Fund staff indicate that they often or always receive pertinent information, comments, and technical inputs from their counterparts inatimely manner (Figure2-D). It is noteworthy, however, that 65 percent o f Bank respondents believe that they always receive inputs from their Fund colleagues ina timelymanner, whereas only 38 percent o f Fundrespondents claim always to receive timely inputs from Bank staff. Respondents from both institutions invite each other to comment as part o f their internal reviewprocess o f draft Board documents (79 percent; Figure2- E), and additional responses(also 79 percent, Figure 2-F) indicatethat these views are either always or often taken into account. 23. Involvement inthe design of conditionality by counterparts at the other institution i s also common, though there are some differences inthe perceptions betweenBank and Fundstaff. About 90 percent o frespondents at both institutions report at least some involvement (Figure 2- G),though about halfo fFundrespondents report some discussion while about one-half ofBank respondents report detailed discussion (and 4 and 18 percent, respectively, claimjoint decision- making). Inpart, this may bebecause Fundstafftend to draw on the expertise o fBank staff for the design o f structural measures and associated conditionality given the Fund's narrower mandate instructural areas. Regardless o fthese differing perceptions, there i s broad agreement among respondents that this involvement i s effective (89 percent; Figure 2-H). l1 Bankand Fundstaffs inIDAcountries appear to have a greater sense ofcommonperspective on structural reforms, perhaps because o f the existence o f a formal arrangement for collaboration throughthe PRSP process. It should be stressed, however, that the sample o f respondents i s small, and even more so once it is broken into IDA andnon-IDA countries. - 18- Box 4. Evolution of Bank-Fund Collaboration, the 2002 and 2003 Surveys Data indicate that a number o f improvements took place since 2002 inthe area o f division o f labor and coordination. Inparticular: close to 98 percent o f all staff respondents believe that a largely shared or common perspective on reforms exists and the share o f staff witha common perspective increased from 48 to 63 percent (Chart A); 9 1percent o f all staff respondents believe that the division o f labor i s very clear (up from 83 percent in2002; Chart B); and close to 90 percent ofall staffreport that they participate inthe formulation o fother institution's conditionality (Chart C) and the vast majority o f these respondents perceive this involvement as largely or highly effective. Butthere are also areaswhere the responses suggest some deterioration: coverage o f important reform areas decline by 7 percentage points to 81 percent, inlarge measure as a result o f an increase inthe number o f respondents that classify coverage aspartial (Chart D); dissatisfaction with the timetables for implementation o f conditionality have increasedfrom 27 to 38 percent o f all respondents (Chart E); and the categories revealing concern on enforcement o f conditionality by the other institution have risen (Chart F). In.other areas few changes since the 2002 survey are discernible. _ _ Chart A What is the extent ofsharedperspective Chart B Howclear IS the division o f labor? on reforms of Bank and Fundteams? 80 - 80 70 - 2002 63 70 ~ ~ Z O O Z 63 60 - 0 2003 60 02003 50 - 50 - 40 - 40 30 30 20 I O-- 20 0 - I O no shared partly shared largely shared common 0 perspective perspective perspective perspective not clear partly clear largely clear fully clear Chart C What IS the extent of mvolvement m the Chart D How would you charactenzethe ' ::1 formulation o f other mtitution's conditionality 7 coverageof lmportant reformareas? 80 80 7 70 82002 60 i 0 2003 60 . 02003 50 ~ 30 40 20 30 ~ I O 20 J 0 no consultation some discussion detailed joint decision discussion making not sufficient partly covered largely covered fully sufficient Chart E What are your views regarding the tlmetable Chart F Do you have wncems regardmgenforcement 80 ---for implemntation ofother mstitution's cond~t~onahty? 80 - of other mstitution's wndiflonality" __ 70 - 70 ~ 82002 2002 60 60 - - 0 2003 44 50 . 57 54 0 2003 50 .* no concern occasional some concern binconcern not ambitious couldbe faster aboa right too ambitious I concern _- z - 19- ? I . Figure2. Coordinationand Divisionof Labor 1/ Chart A. Authorities' responseto: Chart B. Staff responseto: ____.. I Do you agree that the Bank andthe Fundfocus m What IS the extent ofshared perspective on areas o f country's priorities? reforms ofBankand Fundteams? I 80 7 70 - 61 65 63 60 . Fundrespondents ~ 50 i 0 Bank respondents 40 1 UTotal * strongly disagree agree strongly no shared partly shared largely shared common disagree agree perspective perspective perspective perspective Chart C. Staff responseto: Chart D. Staff responseto: I, Howclear is the divisionoflabor? Do you receive timely inputs from the other mstitutioii? 80 80 65 70 65 sn 70 .. 6o;I E Fundrespondents EFundrespondents 49 50 -I l 50 0 Bank respondents 401- QTotal 30 20 I not received occasionally often received always received not clear partly clear largely clear fully clear received L Chart E. Staff responseto: Chart F. Staffresponseto: .. Are you invited to comment mother Arey.our views were taken into account institution's internal process7 by the other institution? 80 ~ 80 ,I Fundrespondents 69 7n Fundrespondents i" - ,O , 60 - 0 Bank respondents 0 Total 49 40 - I I rarely or never sometimes O f t e n always ~ rarely or never sometimes often aivays Chart G.Staffresponse to: Chart H.Staffresponseto: How would you characterize your mvolvement inthe I s the mvolvement in other mstitution's formulation o f other institution's conditionality? conditionality (ifany) effective? _ _ -~ 80 80 Fund 70 i 7o respondents 6o IFundrespondents , 6o I' OBank 52 21 55 54 0 Bank respondents no consultation some discussion detailed joint decision not effective mixed l=gelY h1Ck discussion making effective effective ..._ 1/ All figures are inpercent ofrespondents. - 20 - C. Coverage and Consistency of Conditionality 24. The paper Strengthening IMF-WorldBank Collaboration on Countryprograms and Conditionality (August 2001) and the Conditionality Guidelines (2002) call for each institution to have conditionality on reforms deemed critical to the success o f the country's programit i s - supporting, with the understanding that the design and monitoring o f the reform measures should draw on the other institution's expertise when these lie outside the institution's own core areas. While staffresponsesindicate broad satisfaction with the applicationofthis principle, there are 'important differences inperceptions. Most respondents (8 1percent) sharethe view that coverage by conditionality o f important reform areas i s adequate, but the perceptions o f Bank and Fund staff differ. Over 90 percent o f all Bank respondents believe that the important reform areas are largely orfully covered, compared to only 75 percent o fFundrespondents (Figure 3-A). A greater proportion(47 percent) o f Fundmission chiefs are less satisfied with the other institution's coverage inkeypolicy areas (not covered or some gaps) than the corresponding proportion (16 percent) o fBank country directors who feel that there are gaps inthe coverage of Fundconditionality (Figure 3-B).The views o fnationalauthorities oncoverage and collaboration add a new dimensionto this assessment. Ofcountry authorities' respondents, 93 percent feel that collaborationhas ledto better coverage o f reform areas and two-thirds o f these respondents report that collaborationhas reduced the number o fprogram conditions. Inline with these results, slightlyover 90 percent o fthese respondents perceive that collaborationhas improvedthe focus on critical reform areas (Figure 3-C). 25. Some 61 percent o f the authorities' responsesindicatethat the degree o f duplication of conditionality is, at most, low (Figure 3-D), a view that i s consistent with the observed facts o f areas covered by conditionalityinboth institutions (Box 5). Also, almost halfo f the authorities feel that duplication arises either because the conditions are critical for bothprograms (45 percent) or becauseo fproblems intiming or phasingo f conditionality (47 percent), while less than 10 percent believe that it reflects inadequate collaboration betweenthe staffs o f the two institutions. Staffperceptions are similar, though Bank staff indicate somewhat greater concem about duplication o f conditionalityinoverlapping areas (35 percent). Incontrast, only 9 percent o f Fundrespondents indicate some duplication, while 39 percent see none (Figure 3-E). Onthe reasons for duplication, 72 percent o f staff responsesindicatedthat the duplicationwas because the measureswere considered critical to bothinstitutions' programs. 26. National authorities mostly see the timetable for reformproposed inBank- and (to a somewhat lesser degree) Fund-supported programs as beingrealistic. For both institutions, two- thirds o f the national authorities responded that they either agree or strongly agree that the timetables are realistic (Bank 72 percent and Fund60 percent). Similarly, more than half of the staff respondents believe that the other institution's timetable for implementation o fkey measures is about right (Figure 3-F). However, close to halfo f the Fundrespondents feel that key reforms inthe Bank-supported programs could be implementedfaster, compared to 11percent of Bank staff who think that Fund-supported measures could be undertaken faster. Likewise, 18 percent o f Bank respondents consider the Fund's timetable to be overly ambitious, while only 1percent o fFundrespondents feel that the Bank's timetable is overly ambitious. m - 2 1 - 1 27. Relative to the 2002 survey, staffrespondents report somewhat greater concern about the other institution's enforcementof conditionality(Box 4). Inparticular, Fundresponses tilt more towards occasional (48 percent) andsome (27 percent) concern; only 18 percent report'no concern, while Bankresponsestilt towards no (39 percent) or occasional (39 percent) concern (Figure3-G). At the same time, there was somewhat greater agreementbynational authorities ,thattheFunddemonstratesgreaterflexibilitythantheBankinapplyingwaiversinthefaceof unexpected or exogenous shocks (Figure 3-H). D. FactorsSupportingandImpedingEffectiveCollaboration 28. Ultimately, the purpose o f the surveys i s to find ways inwhich to improve collaboration. Respondents were therefore asked to rate various factors-identified inthe 2002 surveyas being . contributors or impediments to effective collaboration-in terms o f importance intheir own experience. Consistent with last year's findings, when asked about the factors that support collaboration, morethan90 percent o fboth Bank and Fundstaff emphasized the need for consistency o f views, clarity andcomplementarity o f the division o f labor, coordination in shared areas o fresponsibility, complementary lendingor interventioninstruments, andrelations between country teams (Figure4). The existence o f formal arrangements for collaboration, such as the PRSP, was also seen as important, albeit less so than these other factors. 12 29. Country authoritiesconcurred with these responsesbut also emphasized the importance o fhaving their own, country-driven development strategy that increases the demand for well- coordinated policy advice, programdesign, and conditionalityby the two institutions. Onthe supply side, they underscoredthe need for institutionalcommitment-as expressed inincentives and allocation o f adequate resources-to collaborationbetweenthe Bank andthe Fund. In practicalterms, greater coordination at the country level andjoint missions would foster collaborationandhelp reduce the time requiredfor interactions with staff, which may be o f particular importance incountries with limited implementationcapacity. 30. Finally, askedto rate which factors specifically impededcollaboration, mirroring the responses o fthe authorities, the staffs identifieda lack o f client (country) leadership (32 percent) or o f a country-owned development strategy (24 percent) as beingthe most important. Ofthe institutionalfactors stressedbythe authorities, structural or institutional impediments (23 percent) and the lack o f incentives andresource allocation (20 percent) rankedhighinthe staff responses as well. Respondents from both institutions also emphasized differences in institutional strategy and management styles, internalbureaucracy, and poor personal relations as impediments. Collaboration is also viewed as beingdifficult incountries where both institutions are not equally present and actively involved. l2 Likewise, the survey ofcountry authorities on collaborationonpublic expenditure issues (SM/03/73 and SecM2003-0077) found that country ownership and PRSPs are important elements o f enhancedBank-Fundcollaboration. - 22 - Box 5. Evolution of Structural Conditionality in Low-Income Countries A review o fBank and Fundconditionality inlow-income countries also indicates a shift inthe areas of involvement o f each institution over the past few years. Consistent with the Fund's efforts to streamline and focus conditionality, the average number o f structural policy conditions under PRGF arrangements and reviews has decreased sharply. In parallel, the Bank has expanded structural conditionality inits core areas. While interpreting trends inthe numbers o f conditions, especially across the two institutions, is fraught with difficulty, a count o f the average number o f structural conditions inprograms approved betweenthe period 1998- 2000 and those approved inthe period 2001-2002 suggest: the Fundmaintained its preeminence inits core areas (exchange rate policy, monetary policy, capital account); the Bank deepened its involvement, while the Fundreduced its structural conditionality, inthe Bank's core areas (poverty reduction strategies, governance, regulatory reforms), as well as in other social and economic sectors (agriculture, infrastructure, etc.); the Bank has increasedits role, while the Fundhasreduced its structural conditionality, inthe areas ofpublic enterprise reform, financial sector, and civil service reform. Both institutions remain engaged infiscal management including through enhanced collaboration on thematic issues. IMFStructuralConditions World Bank Structural Conditions (numberofmeasuresper review) (number o fconditions per loan) Taxpolicy and admistration Taxpolicy and administration World Bankcore areas (other) ,IMF coreareas (other) World Bankcore areas (other) IMF core areas (other) Sectorpolicies ,FlnanclalSector Sectorpolicies (agnculture, / FinancialSector (agnculture,etc ), etc ) \ \ I ' ` e i I Public EnterpnseReformiL Public(includingEnterpriseprivatization)Reform\\,/Civil ServiceReforms (mcludmg pnvatuation) Flscal Management FiscalManagement (mcludmg e F leveland (including e T . level and composition) - - composition) *ESAF -PRGF(all) - - =IDAFW8-00-IDA FYOI-02 - 23 - Figure 3. Coverage and Consistency of Conditionality 1/ Chart A. Staff responseto: Chart B. Staff response to: H o w would y o u characterue the coverage H o w would you charactertze the other mstitution's o f unportant reform areas? coverage ofpolicy areas? ___ I 70 60 ' Fund respondents 53 .^ I 50 0 Bank respondents I mTotal #-- 30 20 10 important areas some gaps most areas all key aieas I O not covered 1 adequately adequately not sufficient partly covered largely covered fully sufficient , covered covered A Chart C. Authorities' responseto: Chart D.Authorities'response to: Do you agreethat Bank-Fundcollaboration has , I s there duplication o f conditionality7 I ~ 100 led to greater focus on critical reform areas? 60 I W o r l d Bank strongly disagree agree strongly -..___disagree w e e none low some hi& _ _ ~ Chart E. Staff responseto: Chart F. Staffresponseto: I s there duplication of conditionality in overlapping areas? ':1 H o w would y o u charactertze the tunetable for 80 unplementation o f other mtitution's conditionality? 70 - I Fund respondents 71 60- 51 54 52 0 Bank resoondents Fundrespondents 60 0 Bank respondents 0 Total 40- none occasional some high not ambitious could be faster about right too ambitLou ~.. - Chart G:Staffrewonseto Chart H:Authorities'responseto , Do you have concems regdrdmg the enforcement Do you agre that the Bank and Fundwaver 80 , o f other mstitution's conditionality'J 1 policy is sufficiently flexrble? 70 m Fundrespondents 100 ~ I 60 4n .- 0 Bank respondents 1 44 0 Total World Bank , I I strongly disagree agree strongly I no concern occasional some concern big concem I concern disagree agree I/Allfiguresareinpercentofrespondents. - 24 - Figure 4. Factors Contributingto Effective Collaboration (Inpercent of respondentsineach category) L Factors Contributingto Effective Collaboration (in percent of respondents) Structural / institutional framework decentralization vs centralization, internal structure and processes 1 Country driven collaboration Joint mission(s) Existence of a consistent country-owned development strategy Incentives for, resources and commitment to collaboration Complementarity of intervention instruments 92 92 Formal arrangementr for collaboration(PRGFRRSP, HIPC) I_ , , Relations berueen country teams 9. )"I 1 71,'' .,- b Coordination on areas of shared responsibility Cla-ity and complementarity of d n .ston o f labor Commmications suliure of the institui:ons > Consisienc) of viens ,3' 0 20 40 60 80 100 120 Iv. SUMMARY ASSESSMENT RECOMMENDATIONS AND A. Summary Assessment 31. An important contributionofthe surveys undertakenfor this progress report is to provide a more systematic assessmento f Bank-Fund collaborationthancan be based on purely anecdotal evidence. This year's findings echo those o f the 2002 survey; indeed, along several dimensions the results are stronger, suggesting a beneficial impact as teams have gained experience with the enhancedframework and guidance introducedlast year. For example, the share of staff respondents denoting a common perspective on the priority reforms for a country has increased substantially, from less-than-one-half to almost two-thirds. Staffs also indicate being involved closely inprogram design issues with their counterparts at the other institution and view this interaction as very effective. 32. At the same time, the survey findings reinforce some perceptions that are commonin anecdotal evidence andthat point to tensions inthe collaborativeprocess. Fund stafftendto view their Bank colleagues as beingflexible-perhaps overly so-in program design and inthe coverage and enforcement o f conditionality. Fundstaff are also more likely to have concerns about timeliness with which they receive technical inputs and about a lack o f ambition inthe Bank's timetable for reforms. For their part, Bank staff are more likely to view the Fundas - 25 - uncompromisingwhen it comes to program design or conditionality, and too optimistic about the pace and scope o f reforms that are within the implementationcapacity o f the country or the political and social constraints faced by the authorities. 33. These differences seem to stem less from a lack o f a shared vision about the reform priorities of the country-see Figure 1-B, 1-Cyabove-than the difficulties inherent from . differences inthemandates, cultures, andstructures ofthetwo organizations. Structuralmeasures inBank-ledsectoral reformoperations mayhavetimetables that arehardto mesheasily with the immediacyo fmacroeconomic stability andthe urgency o f filling the budgetor balance of payments gaps that are often the focus o f Fund-supported programs. There are also logistical differences ininteractions with the authorities, with the Fundrelyingprimarily on headquarters- based country teams and mission chiefs, and the Bank often basingits country teams inthe field under a resident Country Director, while some sector specialists continue to be headquarters- based and cover several countries. Sharedperspectives andclarity o f the division o f labor do not rule out the possibility that important reform areas nevertheless remainuncovered by either institution, especially inlight o fresource constraints. Moreover, there is a need to ensure that the Bank and Fundremainengaged across the membership, even incases where performance has been weak. Inaddition, inmanyMICs where engagement o f the Bank and the Fundis less continuous, there may be an inevitableoverlay on conditions pertaining to a sharedperspective. Finally, there i s a risk o f "institution-shopping", whereby countries may prefer to seek the support o f one institution (especially to fill budgetary or balance o fpayments gaps), sometimes becausethe reformmeasures and conditionalityassociated with that support i s considered less onerous. 34. The difficulties inday-to-day collaborationthat stem from these differences are not insurmountable, but they clearly require a strong framework for collaboration, sustained efforts and goodwill at all levels andphases o f the collaborativeprocess-resident representatives, country teams, area and country departments, and functional departments-and networks (especially on thematic issues), as well as senior management and the Executive Boards. Inareas where both institutions are engaged, albeit from different perspectives, the need for upstream engagement and coordination thus remains an urgent priority. There i s also potentialto learn from and encourage adoptiono fbest practice inteam collaboration at the country level; some institutional mechanisms for doing so are considered below. 35. As emphasizedbythe authorities' surveyresponses, also critical to achievingthe shared objectives o f financial stability, sustainable growth, andpoverty reductioni s strong country ownership and national leadership o f development and economic policy programs. This echoes earlier findings, inparticular inthe latest progress report on PRSPs, which identified as a pressingpriority the needto assist low-income countries better inthe preparation and implementationo f fully-owned PRSPs, and facilitate aligned support from the donor - 26 - , ~ommunity.'~Somewaysofenhancingownershipthatdrawoncollaborationandjointanalytical work on thematic issues are explored below. B. Enhancing Collaboration - 36. While the survey results suggestthat overall framework for Bank-Fundcollaborationi s generally robust, efforts are underway to improve collaborationinthe four key dimensionso f the collaborative process: collaborationat the country level, institutionalcoordination betweenthe Bank and the Fund, more focused reporting to the Boards, andjoint upstream analyticalwork on thematic issues that feeds into the dialogue with the country and bolsters ownership. Framework for Bank-Fund Collaboration at the Country Level 37. Inlow-incomecountries, awell-definedcountryframeworkhasbeenputinplacewiththe advent o f the PRSPs and o f the enhancedHIPC initiative, thus providing a good basis for a coherent and consistent work o f the BrettonWoods Institutions, fully alignedwith the country's development strategy. Inparticular, the Joint StaffAssessments (JSA), which evaluate the soundness o f the PRSPs, have helped the staffs to develop common views. Buildingon this framework, three complementary priorities can be defined. First, support for PRSP formulation andimplementationremains crucialinstrengthening country ownership andleadership o ftheir programs-identified bynational authorities as areas for improvement. Inparticular, the Bank andFundstaffs have agreedto work jointly to help countries explore "alternative scenarios" to accelerateprogress on the MDGs andtheir financing implications as part o f the PRSPprocess. Second, improvingthe design ofprogram measuresthrough increasedjoint and upfront analytical work that draws on each institution's comparative advantages appears fundamental to ensure the elaboration o f a common diagnosis which can then feed into the country process. In addition, such improved analytical work on reform measures, including estimates o f their impact andcosts andbenefits, couldprovide a fruitful avenue for buildingnationalownership. Third, reinforcing upstream engagement and coordination o f the two institutions, usinginparticular the opportunityoffered bythe JSA process, would fkrther efforts to promote synergies, better delineate responsibilities insupport o fthe PRSPs, and reduce gaps or overlap. 38. Inmiddle-income countries (MICs), there is no explicit framework for country-led coordination as inthe case o f PRSP countries. The wide variety o f financing needs among MICs leads to differences inthe timing andnature o f Bank andFundsupport and inthe content and scope o f conditionality, making collaboration more challenging.l4 Nevertheless, the principles for effective collaborationremainthe same: agreement on a coherent program o f support based on a Poverty Reduction Strategy Papers-Progress in Implementation,IMF and IDA Staffs, September 12,2003 l4The considerations affectingBank-Fund Collaboration inMICs are discussed inthejoint 2001 review on "Strengthening World Bank-IMFCollaboration on Country Programs and Conditionality" (SecM2001-0461/1, August 24,2001 and SM/01/219, Supplement 1, Revision 1, August 23,2001) - 27 - country-owned strategy; early consultation onprogram design and conditionality; and division o f responsibilities, basedon respective mandates andcomparative advantage. While the roles and methods o f intervention o f the Fundand o f the Bank are constantly evolving inMICs to keep pacewith their diverse needs, both institutions are committedto supportingMICs intheir growth and development strategies ,based on their respective mandates. Against this background, it will be important to pay continuedclose attention to the modalities o fBank-Fundcollaboration in I these countries, buildingon past lessons and evolving experience. 39. Better upstream engagementbetween staffs remainkey to strengthen collaborationand improve coherence and consistency o f support and conditionality inboth low and middleincome countries. Existing mechanisms ('joint staff assessmentsinPRSP countries, preparation o f World BankCountryAssistance Strategies andofFundprograms) are andshouldcontinue to bethe appropriate opportunities for such upstream engagement. Staffs will therefore continue to be strongly encouraged byboth Managements to use these opportunities for upstream andjoint work, to ensure sharedviews and clarity o f responsibilities. Inaddition, joint and parallel missions provide an opportunity for strengthening collaborationinlow- and middle-income countries alike. Drawing on resident representatives and field offices o fboth institutions also allows for more informed assessments about political constraints and country ownership as well as facilitating outreach efforts. Moreover, these same mechanisms will help frame a better coordinated dialogue betweenthe authorities and the staffs. InstitutionalCoordinationbetweenthe Bankandthe Fund 40. Inordertobolster collaborationbetweencountryteamsandto strengthenoverallBank- Fundcollaboration, Bank andFundmanagement also intendto re-establish the Joint ImplementationCommittee. As noted above, the JIC, established in2000, was instrumental in fostering rapid implementation o fthe HIPC initiative. Gradually, however, evolution inthe size and structure of the JIC meant that it was not able it to retain its focus and effectiveness. Therefore, Bank and Fundmanagement intendto re-establish the JIC with a more streamlined structure. A small group o f senior staff members o fboth institutions will meet regularlyinthe JIC, with additionalparticipationinvitedon an ad hoc basis as relevant to the issue under consideration, and report to management. The JIC would address cross-cutting issues on Bank- Fundcollaboration, monitor progress onimplementationofthe agreed framework of collaboration on country programs and conditionality and, when needed, help country teams in . the two institutions to reach agreement on priorities so as to ensure coherence o f policy advice andprogramdesign. Coverage o f cross-country issues will include those that arise inlow-income 'as well as middle-income countries. As such, the JIC will further the institutional framework for monitoringprogress on overall Bank-Fund collaborationincountryprograms. Reportingto the Boards 41, Transparent reporting inBoard documents o f the views o f each institution on reform priorities, program conditionality, and progress inimplementation o f the agreedprogram, J - 28 - constitutes a crucial element for ensuringconsistency o f views, transparency and staff accountability. l5One mechanism for improved collaborationand communication with the respective Executive Boards introduced in200216,is the enhanced annexes on IMF and World . Bankrelationsinprogramdocuments. Aside from keepingthe Boards abreastofdevelopments, these annexes were intended to help ensure upstream engagementbetweenthe staff o f the two ' institutions, delineate the division o f responsibilities, andprovide an assessment o f the country's reform efforts.17 IMF-Bank RelationsAnnex 42. TheIMF-Bank Relations Annex, providedbythe Bank staff for informingthe Fund's Board, covers not only the Bank's lendingand overall assistance and work program for the country, but also systematic information about the areas where the Bank i s taking the lead and its views on the reform program, including specific conditionality and progress inimplementation. The annex goes through the internal clearance process, includingby management, and i s circulatedto the Bank's Board for information. Its disclosure inFunddocuments i s govemed by the general disclosure policies o f the Bank. Such annexes have beenprepared for 53 countries over the periodMay 2002-December 2003. 43. Inorder to helpensure that the Bankrelations annexes hlfilltheir intendedpurpose, guidance i s beingprovided to Bankstaff on best practices for preparingthese annexes, including a clear demarcation o f areas inwhich the Bank i s involved or i s taking the leadrole and, where relevant, a candid analysis o f the structural policy challenges. Following existing practices, IMF- World Bank Relations annexes will be providedbythe Bank staff for new Fund-supported programs or when warranted by significant development and changes incountry circumstances. l5As indicatedinSection II,inaddition to reporting on country matters, Bank and Fundstaff have beenreportingjointly to the Boards on a wide range o f thematic and policy issues o fjoint relevance to the two institutions, such as public expenditure management, trade, FSAPs, ROSCs. l6See OperationalizingBank-Fund Collaboration inCountry Programs and Conditionality- Staff Guidance Note, op. cit. l7Only a few Directors answered the survey on the annexes on Bank-Fundrelations. Respondents found the summaries useful as an instrumentto communicate the staffs' views to the Boards and the quality o f the reportingto be good. Some ExecutiveDirectors noted, however, that reporting on the division o f labor and the identification o f the lead agency i s not always as clear and that the overall picture o fthe coherence o f program design i s sometimes missinginthe annexes. Moreover, comments received from Executive Directors called for more candid analysis of the macroeconomic and structural issues, as well as more information about collaboration and coordination. - 29 - Fund RelationsNote 44. Inaccordancewithexistingguidelines,theFundRelations Noteprovidedbythe Fund staff for the information o f the Bank's Board, has typically been the public informationnotice I (PIN) following the completion o f anArticle IV consultation, or the Chairman's statement after a decisionon the use o f Fundresources. Although the Chairman's statement informs the Bank's Board about the views o fthe Fundon a country's program, the PINdoes not provide information on the division o f responsibilities between the two institutions. Since the issuance o f the guidelines, a total o f 38 PINShave been attached to Bankdocuments as FundRelations Notes, and four Chairman's statements. 45. To ensure that the Bank Board receives an up-to-date assessment o f macroeconomic developments, when Fundand Bank staffjointly consider the informationprovidedby the most recent PIN or Chairman's statement to be insufficiently up-to-date to provide an adequate assessment o f current developments, the information to the World Bank's Executive Boardwould beprovidedby an assessment letter.l8 assessmentletters would follow existing guidelines These which stipulate that such letters shouldprovide a clear and candid assessment o f the country's macroeconomic conditions, policies, and prospects.'' The guidelines also note that these letters may beprovided to the World Bank when a recent PINor Chairman's statement i s not available (inwhich caseit should clearlyidentifyreformpriorities, programconditionality, andprogress in program implementation). The FundRelations Note (whether inthe form o fPIN/Chairman's statement or an assessment letter) will continue to be providedbythe Fund staff for Bank adjustment operations or whenwarranted by significant developments and changes incountry circumstances. To help ensure that Fundrelations notes satisfy their aim, whenever the PIN or Chairman's statement or assessment letter is not specific enough, the remittance cover note will include a clear demarcation o f structural areas inwhich the Fundi s involved or taking the lead role and, where relevant, a candid analysis o f the structural policy challenges. Collaborationon ThematicIssues:PublicExpenditureandFinancialManagement. 46. InMarch2003,the ExecutiveBoards ofthe Bank andFundendorsed anew framework for collaborationamong development partners onpublic expenditure management work based on: (a) country-ownedreform strategies; (b) integrated and sequencedprograms o f diagnostic l8This modificationbringsinto the collaboration framework the changesintroducedbythe Operational Guidance Notefor Staff on Letters and StatementsAssessing Members 'Economic Conditions and Policies issued byPDR for Fundstaff inJune 18, 2003. Inindicative terms, and barring any major changes ina country's circumstances, the PIN, Chairman's statement, or assessmentletters are expected to remainvalid for a periodo f up to six months. ''Theguidelines clearly state that assessment letters "should avoid language that directly encourages other creditors or donors to provide financing insupport o f the policies the country is pursuing, or discourages them from doing so." The letters are circulatedto the Fund's Board for information. They can only bepublishedwith the consent o f the country. Ifthe country does not consent to publicationthey are excluded from the publishedBank Board documentation. - 30 - work; (c) coordinated technical and financial support; and (d) periodic reportingo fperformance bycountries.20The Bank andthe Fundhavetaken individual and collective steps (with other donors) over the past several months to make the new framework operational. Strengthening Collaboration AmongDevelopment Partners 47. Reflecting, inter alia, the views o f donor agencieswhich were polled inthe survey on Bank-Fund collaborationonpublic expenditure issues, the Bank and the Fundhave worked closely with Public Expenditureand FinancialAccountability (PEFA) partners to lay the groundwork for better donor collaboration.21Consultations among PEFA membershave served to expand support for the new framework byincorporatingthe perspectives o fbilateral development partners and the European Union. A working group with membership from the Bank's PREMand OPCS networks, the Fund's FAD, andthe PEFA secretariat was established to develop a common assessment instrument, including indicators o f public expenditure management (PEM) performance. This would address coordination and effectiveness problems associatedwith the multipleinstruments that now exist. A draft o f the ongoingwork on the performance indicatorswas completed andpresented to the PEFA Steering Committee in October 2003. The work was also sharedwith the newly established OECD-DAC Joint Venture on Public FinancialManagement to facilitate broader donor harmonizationon these issues. 48. Progress has been made insharing informationamong development partners. The Country Analytic Website (CAW) now provides one-stop access to completedPERs, Country FinancialAccountability Assessments (CFAA), Country Procurement Assessment Reviews (CPAR), and fiscal ROSC reports, together with public-finance-relatedwork from other development partners. Byenabling better coordinationo f analyticalwork, the CAW potentially reduces transactions costs for countries as well as development partners. Public expenditure documents constitute about 10percent o f all documents on the site, which was accessed approximately half-a-million times inthe first half o f 2003. Bank-Fund Collaboration on Expenditure and Financial Management Issues 49. The Bank and the Fundhave continued their close collaboration on assessingPEM systems andreporting onpoverty-reducing spending inH I P C S .Several steps have also been ~ ~ 2o SeeSecM2003-0077 and SM/03/73. 21The PEFAprogramis apartnership ofthe WorldBank, European Commission, the Fund, UK Department for InternationalDevelopment, Swiss State Secretariat for Economic Affairs, French MinistryofForeignAffairs, NorwegianMinistryofForeignAffairs, and Strategic Partnership with Africa. The PEFAprogrami s managedby a Steering Committee consisting o fheadquarters representatives o fthe member agencies. 22Trends inpoverty-reducing spendingand improvements inPEMsystems were last reported in "Poverty Reduction Strategy Papers-Detailed Analysis o fProgress inImplementation," SM/03/279, Supplement 1. - 3 1 - taken inpreparation for the comprehensive review and report to the Executive Boards in2004. These include the development o f ajoint database from the previous assessments; further refinement o f the assessmenttool, includingthrough the addition o f a new indicator on procurement; and development o f a guidance manual andprovisiono ftraining for missionteams, with a view to usingthe processmore actively to bringdonors together to support country-led reforms. Staffhave worked closely to planmissions to 28 countries from late 2003 through2004, which will routinely includeparticipationbymembers o fboth institutions. 50. Several steps have beentaken to improve the coordinationo fwork plans and missions between the Bank and the Fund. As envisaged under the new framework, FAD discusses its work on expenditure management issues with the Fund's area department teams inthe context o f its Regional Technical Assistance Plan (RAP) andthe mid-termreview o f the RAP. The RAP i s also being sent to the World Bank, while the World Bankhas also been informing FAD o f its planned activities for expenditurework ineach country. World Bank staff are also invited to the seminars that discuss FAD's Fiscal Strategy Briefs (FSBs).Inaddition, draft terms o f reference for FAD's technical assistancemissions are being sent to the Bank at the same time they are sent to departments inthe Fundfor review and comments. 51. Analytical work i s also being sharedfor review on a regularbasis. Consistent with the Fund's new dissemination policy on technical assistance reports, FADmissions now seek the authorities' permission to share draft and final reports with relevant development partners (including the World Bank).The World Bank will also be developing guidelines for the circulationo f draft analytic work for review by relevant development partners (including the Fund). 52. Collaboration on the fiscal ROSC and CFAA has also improved. To reduce the burdenon country authorities, parallel CFAA and ROSC Fiscal Transparency missions have been conducted or are planned(Croatia and Ecuador). Mission schedules are shared to avoid unnecessaryoverlap-in some cases resultinginpostponement o f a ROSC mission where a CFAA i s underwayor imminent (The Gambia, Senegal). ROSC updates have also been coordinated with missions to update assessments o f the ability o fHPCs to track poverty- reducing spending(Benin,Honduras). Bank staffhave participatedas team membersinFund ROSC missions (Bangladesh). Missionplanning and coordinationwill be further enhancedby the provision o f electronic databases on scheduled CFAA and ROSC missions that are accessible to staff o fboth institution^.^^ Similarjoint access i s beingdeveloped for institutional data, such as the database on budget system laws maintainedat the Fund's fiscal transparency website. 53. The Bank has taken a number of steps to makethe new collaborative approachto public expenditure management issueswork at an operational level. New guidelines and modules for public expenditure management work are beingdeveloped, inconsultation with the Fund staff. In addition, new training courses and workshops, accessible to both Bank and Fundstaff, are being 23Joint access to this database awaits completion o f software links, which i s expected by February 2004. - 32 - - offered to facilitate collaborationand develop a common body o f knowledge on public expenditureanalysis andmanagement. 54. Another significant step incollaborationi s taking place ina particular aspect o f the financial management o fpublic resources. All Bank adjustment loanproceeds and a significant - portion o f investment loanproceeds are disbursedthroughthe central banks o f borrowing d countries. Rather than conduct its own assessmento fthe control environment o f central banks, and recognizingthe Fund's leadingrole inthis area, the Bank's disbursementdecisions are informed by the Fund's safeguards assessments o f central banks under an agreement reached in 2002.24The procedures on safeguards assessments, which provide for strict controls to safeguard the confidential nature o fthese assessments, as well as informal exchanges o f information on relevant issues between the Bank and Fundstaff, have worked very well to date to the mutual benefit o fboth institutions. Collaborationon ThematicIssues: Poverty and SocialImpact Analysis. 55. Poverty and social impact analysis (PSIA) i s a set o ftools and analytical techniques designedto assess the impact on the poor and other vulnerable groups o f proposed policy measures. As such, it can help formjudgments about the costs andbenefits o f various reforms, thus contributing to betterprogramdesign andcountryownership. The analyticaltools canrange from relatively simple educated computations to sophisticated simulation techniques basedon household surveydata. The precise applicability o fPSIA thus depends both upon the nature of the measure under consideration and the availability o f data and models. 56. Interms ofdivisionoflabor, the Bank,as leadagency, hastakenakeyrole indeveloping analytical tools and procedures to promote and strengthen PSIA.25 The Bank i s currently supporting, or preparingto support, PSIA for particularpolicies inover forty low-income countries, of which halfare inAfrica. 24Safeguardsassessmentsare intendedto provide reasonable assurance to the Fundthat a central bank's control, accounting, reporting and auditing systems inplace to manage resources and Fund disbursements, are adequate to ensure the integrity o f financial operations and reporting to the Fund.There are five mainelements to the assessments: the external audit mechanism; the legal structure and independence o f the central bank; the financial reporting framework; the internal audit mechanism; and the internal controls system. 25The Bank haspublisheda Users' Guidefor PSIA, prepared detailed guidance on social and economic tools, and continues to disseminate examples o f good practice inPSIA (see "Poverty Reduction Strategy Papers-Detailed Analysis o f Progress inImplementation" prepared by the staffs o f the IMF and the World Bank (IDNSecM2003-0468, September 5, 2003; and "The Impact o f Economic Policies on Poverty and IncomeDistribution: EvaluationTechniques and Tools," F. Bourguignonand L.Pereira da Silva (editors), World Bank, Oxford UniversityPress. 2003). - 33 - 57. While recognizingthe lead role o f the Bank inPSIA, the Fundalso acknowledges-as a matter o f general principle-its own responsibilityfor ensuringthat measures inFund-supported .programs are appropriate (and for incorporatingavailable PSIA inPRGFprogram design, including compensating measures where appropriate). Nevertheless, becauseo f the Bank's expertise and leadrole, the Fundwill normally look for the Bank to assist PSIA for reforms in -Fund-supportedprograms (ifnecessarydrawing on support byFundstaff inareas o f Fundcore competence) within the constraints on the Bank's staff andbudgetaryresources. 58. Against this background, the existing framework for Bank-Fundcollaborationwill be strengthened to improve coordinationon the preparation o fPSIA. Specifically, as part o ftheir `upstream engagement' (ideally inthe context o fthe Bank CAS and Fundprogram discussions), Bank and Fundcountry teams-led bythe Bank country director andthe Fundmissionchief- would agree on an actionplan for implementing PSIA related to reforms supported by the respective programs. These discussions will bebased on the country's reform priorities andtake account o fpossible synergies inpreparing PSIA, includingwork being undertakenby other development partners, the timeframe for the analysis, andthe likely cost o f conductingthe analysis given available budgets. 59. When the Fundintends to support reforms outside the existing upstream agreement (such as onpolicy issues that arise subsequently) andundertakingPSIA i s considered appropriate for the contemplated measure, the Fundcountryteam would-in the first instance-seek the Bank's assistance, including exploring the possibility o fusingor expanding existing or scheduled work. The Bankwould consider such requests with a view to providing as muchhelp as possible on an ad hoc basis. To the extent that resource constraints preclude the Bank from doing so, however, the Fundcountry team would seek assistance from other sources, including from other development partners. Moreover, Fundmanagement i s supportingthe creation o f a unit inFAD to facilitate the integration o f PSIA into PRGF-supported programs. v. ISSUES FOR DISCUSSION 60. The Bank and the Fundsharethe goals o fpromoting financial stability, sustainable growth and poverty reduction. This update o f Bank-Fund collaboration incountry programs-in particular, the survey results-suggest that, while the framework for collaboration is working reasonablywell, there remains scope for improvement and for continuing to learn from each other and for adoptingbest practices. Bank andFundstaff will continue to monitor experience with collaboration and deal with emerging issues through the Joint ImplementationCommittee and other mechanisms that are now inplace. 61. The most important message from the authorities' responsesis the needto bolster country ownership and leadership, as a means to improve development effectiveness. A fruitful avenue for buildingnationalownership would be to increase and improve analyticalwork on reform measures, including estimates o ftheir impact and costs andbenefits. Collaborative work between the staffs o f the two institutions, drawing on their respective expertise, provides an excellent opportunity for doing so. The new framework for collaboration among development partners on public expenditure issues, which was endorsed by the Boards o f both institutions inMarch 2003, has laid the basis for closer work between the Bank andFundstaff and i s showing significant - 3 4 - ' results. The staffs have also reached understandings on cooperation on PSIA, with the Bank playing a leadingrole, but working inclose collaborationwith the Fund. 62. Going forward, it will be important to keep progress on collaboration on country programs under review, while beingmindfulthat frequent reviews or constant tinkering with framework may itselfdetract the collaborative efforts and work o f country teams and of national authorities. Beyond the framework for collaboration on countryprograms, periodic reviews o f the two institutions' work on thematic issuesprovide an opportunity for assessingBank-Fund collaboration inspecific areas. 63. Intheir discussions, ExecutiveDirectorsmaywishto addressthe following questions: 0 Do ExecutiveDirectors agree with the paper's assessment o fprogress andremaining challenges inBank-Fund collaboration? 0 Are there any other perspectives from member countries that Executive Directors would like to convey, beyondthe views already expressed inthe survey? 0 What do Executive Directors see as the priorities infurther improving collaboration? 0 What are the views o f Executive Directors regardingthe role o fupstream analyticalwork in supporting country ownership o fBank and Fundsupported programs? 0 Do Executive Directors concur with the collaboration agenda on thematic issues as a means for improving policy advice andprogram design and supporting the global development agenda? - 35 - ANNEX I A. SURVEY OF COUNTRY AUTHORITIES 1 Collaboration and Vision l a To what extent would you agree that discussions with IMF and World Bank teams focus onpolicy measuresinareas that you consider to be a priority for your country? lb To what extent would you agree that the participationo fthe IMF and World Bank inthe discussions encouraged wider ownership o f your countryk development strategy and enhancedits quality and depth? I C To what extent do you believe that IMFand World Bank demonstrated flexibility intaking the views o fthe authorities when designing specific program objectives and/or conditions? I d Do you feel that your country "owns" the IMF-supportedprogram or World Bank operation (inthe sense that the authorities and stakeholders insociety believe that the policies are achievable and inthe best interest o f the country)? Ifnot, pleaseindicatereasons. l e To what extent would you agree that increased collaboration has reduced the burdenonthe authorities interms oftime spent inmeetings with IMF/World Bankteams, responding to writtenrequests, negotiating, etc.? If Howdo youratethe collaborationbetweenIMF/WorldBank andother bilateral and multilateral institutions? 1g Do you feel that increasedcollaborationbetweenthe IMF and World Bank has improved the delivery o f technical assistance and reduced duplication? 2 Nature of Cooperation in Conditionality 2a To what extent would you agree that the IMF and World Bank teams have made a greater effort at increasing collaborationindesigningconditionality over the last two years? 2b To what extent would you agree that collaborationhas resultedin: (i) conditionsintherespectiveprogradoperation; Fewer (ii)Conditionality more attuned to your country's implementationcapacity; (iii)Conditionality more sensitive to social andpolitical concerns; (iv) A greater andbetter focus onthe critical reform issues for your country; (v) Coveringmost o fthe key areas; (vi) Helpingyou implementyour reformprogram. 3 Implementation of Conditionality 3a Do you agree that the timetable for implementation o fkeymeasures is realistic? 3b Do you agree that IMFandWorldBank policies for granting waivers has sufficient flexibility to: (i) dueconsiderationtotheimpactofexogenousunexpectedfactors? Give (ii) intoaccounttheadoptionofcorrective(orsubstantiallyequivalent) Take measures? (iii) appliedinacoordinatedmannerinbothinstitutions? Be - 36 - ANNEX I 4 Coverage of Conditionality 4a To what extent is there duplicationo f conditionalityinthe progradoperation supported by each institution? 4b What do you see as the main reasons for duplicationo f conditionality, ifany? (i)measure considered critical to both programs, (ii)difficulties intimindphasing o f condition, (iii)insufficient collaboration between IMF/WorldBank, (iv) other; please specify. 4c Ifconditionalitymissescriticalareas andhasgaps, what do yousee as the main reasonsfor those gaps? (i)measure not considered critical to either program, (ii)difficulties intimindphasing o f condition, (iii)conditiontoo controversial or unacceptable, (iv) condition set byother multilateral or bilateraldonors/creditors, (v) other; please specify. 5 Factors of Collaboration Looking at the overall process o f IMF/World Bank collaboration inyour country, how muchhave the following factors contributedto effective collaboration? Existence o f a consistent country-owneddevelopment strategy; Country drivencollaboration; Consistency o f views; Clarity and complementarity of division o f labor; Complementarityo f intervention instruments; Coordination on areas o f sharedresponsibility; Timeliness o f collaboration; Communicationsculture o f the institutions; Relations between country teams; Joint mission(s); Formal arrangements for collaboration (PRGF/PRSP, HIPC); Incentives for, resources and commitment to collaboration; Structural/ institutionalframework: decentralization vs. centralization, internal structure and processes; Other (please specify). 6 Inprovidedtext box pleaseaddany other comments onyour experience with IMF- World Bank collaboration. (Youmay expand the box as necessary.) - 3 7 - ANNEX I B. SURVEY OFIMFMISSIONCHIEFS AND WORLD BANK COUNTRY DIRECTORS 1 Division of Labor. To what extent do you think that the IMFandthe World Bank: 1a have developed a sharedperspective on the necessaryreforms? lb demarcated a clear division between the two institutions? 1c sufficientlycovered important reform areas? 2 Ownership by authorities 2a Was the designo fthe program aligned with the country's own development strategy (PRGF/PRSP ifrelevant)? 2b Iftheprogramdeviatedfromthe countryk initialdevelopment strategy, do you feel that the authorities endedhaving ownership o f the program and its conditionality? Ifnot, pleaseindicatereasons. 3 Discussions with authorities 3a Didnegotiations with the authorities leadto modifications inprogram objectives and/or conditions relative to staffs original plans, as spelled out in the briefingpaper (IMF) or the concept note (World Bank)? 3b Ifsubstantive modificationsweremade, were thesedueto: (i) new information, (ii) unforeseen factors, (iii) o f another IF1or bilaterals, or role (iv) authorities' insistence? 3c D o you think that (a) the IMF and (b) the World Bank are flexible in formulating measuresto take account o f comments from the authorities, the other institution, or bilaterals and other IFIs? (a) IMF. (b) World Bank. 4 I nformation Sharing. To what extent do you typically receivelprovidepertinent information, comments, and technical input frodto your counterparts at the IMF or the World Bank (e.g. keyparameters ofthe IMFmacro progradanalysis on structural areas) ina timelymanner? 4a Receive? Ifnot received, state the mainreasons. 4b Provide?Ifnot provided, state the main reasons. 5 Nature and Extent of Cooperation in Conditionality 5a What has been the extent o f your involvement inthe formulation o f the other institution's conditionality? 5b Ifany involvement, how effectivehasthis involvementbeen? 6 Other Institution 's Program Conditionality 6a What i s your view about the other institution's timetable for implementation o f keymeasures? 6b What i s your view about the other institution's enforcement o f conditionality that was considered critical to your program? - 38 - ANNEX I 6c What i s your view about the other institution's coverage o fpolicy areas requiringreform? Pleasespecify main areas, ifany. 7 Duplication of Conditionality 7a To what extent is there IMF/WorldBank duplicationo f conditionality in overlapping areas? 7b What are the main reasons for IMF/World Bank duplication, ifany? (i)measure considered critical to both programs, (ii)difficulties intimindphasing o f condition, (iii) pleasespecify. other; 7c To what extent is there duplication o f conditionality inoverlapping areas between the Bretton Woods institutions and that from bilateral or other IFIs? 7d Ifconditionalitymisses critical areas andhasgaps, what do you see as the main reasons for those gaps? (i)measure not considered critical to either program, (ii)difficulties intiming/phasingo f condition, (iii)condition too controversial or unacceptable, (iv) condition set byother IFIs or bilaterals, (v) other; please specify. 8 Review Process. As part o f the other institution's internalreview process o f draft Board documents: 8a have you beentypically invitedto comment and/or communicate? 8b have your views been taken into account? 9 IMFWorld Bank Annex 9a Do you agree that the IMF/World Bank Annex is a usefulprocess for collaboration? 9b How onerous was the preparation o f the IMF/WorldBank Annex for your team? 9c Have you collaborated with the staff o f the other institution inthe process of preparationo f the IMF/World Bank Annex? 9d Would you consider it more useful ifthe IMF/WorldBank Annex were prepared as ajoint product? 9e Would you consider useful a common standardized template o f ajoint IMF/WorldBank Annex? 10 Factors of Collaboration 10a Looking at the overall process of IMF/WorldBank collaboration inyour country, how much have the following factors contributedto effective collaboration? (i)Existence o f a consistent country owned development strategy; (ii) drivencollaboration; Client (iii)Agreement on coherent policy framework; (iv) Clarity and complementarity of division o f labor; (v) Complementarity o f intervention instruments; - 39 - ANNEX I (vi) Coordinationon areas of sharedresponsibility; (vii) Timeliness ofcollaboration; (viii) Frequent dialogue, info sharing, communication; (ix) Compositionandrelations betweencountry teams; (x) Joint mission(s); (xi) Formal arrangements for collaboration (PRGFPRSP, HIPC); (xii) Incentives for, resources and commitment to collaboration; (xiii) Structural / institutionalframework: decentralization vs. centralization, internalstructure andprocesses; (xiv) Other (please specify). 10b Looking at the overallprocess o f IMF/World Bank collaboration inyour country, how muchhave the following factors impededeffective collaboration? (i) oforinconsistentcountryowneddevelopmentstrategy; Lack (ii) drivenimpediments/lackofclientleadership; Client (iii)Disagreement on coherent policy framework / no corresponding program byother institution; (iv) Divisiono flabornot clear androlesnot complementary; (v) Interventioninstrumentstoo different form one another or not complementary; (vi) Lack of coordinationon areas o f sharedresponsibility; (vii) Timeliness of collaboration/ internaltimetables; (viii) Infrequent dialogue, lack o f communication and info sharing; (ix) Compositionandrelations between country teams; (x) Lack o fjoint mission(s); (xi) Deficient formal arrangements for collaboration; (xii) Lack o f incentives for, resources and commitment to collaboration; (xiii) Structural / institutionalimpediments: decentralization vs. centralization, internal requirements; (xiv) Other (please specify). 11 Inprovidedtext box please addany other comments onyour experience with Bank-Fund collaboration. (Youmay expand the box to the right as necessary.) - 40 - ANNEX I C. QUESTIONNAIRETO EXECUTIVEDIRECTORS As an additional input for the Bank-Fund collaboration paper, ExecutiveDirectors were invitedto express their views regardingtheir own experiences, rating the questions below on a scale from 1(strongly disagreeherypoor) to 4 (strongly agreehery good): 1. Do you agree that the Bank-FundAnnex is a useful instrument to communicate staffviews? 2. To what extent does the Annex prepared bythe IMF/World Bank staffmeet the following criteria? (a) overall quality o freporting; (b) focus onthe division of laborbetweenthe IMFand the World Bank and identification o f the lead agency. 3. To what extent does the Annex prepared bythe IMF/WorldBank provide an overall picture o f the coherence ofprogramdesign and conditionality across the two institutions?