At the last replenishment of the International Development Association (IDA), the UK agreed to provide an additional £100 million if the World Bank made progress on harmonisation and conditionality. The first £50 million was linked to the bank carrying out a thorough review of its practice and current thinking on conditionality. In September 2005 the bank's governors endorsed this review, whose five new good practice principles for the use of conditions accord well with the principles underlying the UK policy on conditionality.
Bank management agreed to report to the board on implementation after the first year. The first progress report did not provide sufficient information. In September 2006, we told the bank that we would withhold our second contribution of £50 million until we saw clear evidence that the principles were being applied. President Wolfowitz agreed to produce a fuller report, which was discussed by the bank's board on 5 December. In our view, this thorough and candid report provided the evidence that the bank has made the satisfactory progress on conditionality that is required to release the second £50 million contribution.
The report reiterates bank management's strong commitment to make further improvements in its use of conditionality. Its several recommendations include:
avoiding conditions on sensitive policy areas if government ownership is uncertain or the political environment is fragile;
early and more proactive disclosure of the bank’s analytic work;
reducing the number of benchmarks;
specifying the progress expected so that an assessment can be made of the impact of the programme on the poor and the bank’s contribution to that programme.
Benchmarks set out the steps that a Government will take in implementing their policies and plans. They are not equivalent to conditions and do not affect disbursement. However, there is much misunderstanding and misinformation surround them. Feedback from developing country governments suggests that they do not always distinguish between benchmarks and conditions. Part of the bank’s response should therefore be to ensure greater understanding of the nature and purpose of benchmarks.
Further progress on conditionality will be a central consideration in our funding of the next replenishment of IDA, which begins in March. We asked the Bank to produce their next report on conditionality later this year and to consult with developing country governments in order to hear their views on how things are changing.
The International Monetary Fund (IMF) has a set of conditionality guidelines that are aligned with the principles adopted by the Bank. The IMF's most recent internal review demonstrated an improved focus of conditions within its area of core competence on macroeconomics. In addition a detailed report by the Fund's Independent Evaluation Office is currently being finalised. This will examine the IMF's use of conditions in areas such as privatisation and trade liberalisation.
The provision of direct development support by DFID to a partner Government is dependent on a number of conditions, including commitment to poverty reduction, human rights and accountability. Compliance with these conditions is assessed regularly.
However, DFID endeavours not to let the poor suffer by reducing our development assistance as a consequence of their Governments’ political choices or shortcomings. We will not put money directly through Government systems in countries where we have concerns about accountability or governance. We will, however, stay engaged in such countries where we believe our assistance can have a positive impact on poverty reduction. In these instances we will channel funds through NGOs or other development agencies instead.
There have been a number of cases since 2005 where events have caused DFID to review its bilateral engagement in certain countries.
In the case of Uzbekistan, where there were serious concerns about human rights, we took the view that our small programme was unlikely to have significant impact on poverty reduction in the current political environment. We therefore closed the bilateral programme in January 2006, but continue to support a Central Asia regional programme on HIV and AIDS that includes Uzbekistan. We also support the continued engagement there of multilateral agencies.
In Rwanda DFID considered interrupting UK aid at the beginning of 2005. This was a consequence of threats by the Government of Rwanda to send troops into the Democratic Republic of the Congo to attack the bases of hostile militia. After careful monitoring and assessment indicated that such attacks had not occurred, UK aid was provided without any reduction in 2005.
In several other cases we have not reduced funding but delayed it, chosen not to proceed with planned increases, or altered the channel through which we support poverty reduction.
Ethiopia—In June 2005 DFID put on hold a proposed increase in direct budget support from £30 million to £50 million in the light of human rights abuses, which occurred following the general election. In November the same year, we suspended all direct budget support to Ethiopia. DFID did not reduce the overall levels of aid to Ethiopia and has developed alternative programmes for delivering assistance to poor people.
Uganda—Of £50 million allocated by DFID as direct budget support to the Government of Uganda in the Ugandan financial year 2005-06, £15 million was not disbursed, following concerns about delays in political transition, the continuation of state financing for the ruling party, events surrounding the arrest and trial of the leader of the main opposition party, and a significant overrun in public administration expenditure. The £15 million was reallocated as humanitarian assistance in conflict affected areas of northern Uganda. Of the £35 million balance, £5 million was initially held back and linked to the conduct of multi-party elections; this sum was subsequently disbursed following the holding of these elections.
In the Ugandan financial year 2006-07, DFID’s direct budget support remained at £35 million due to governance and public expenditure concerns, rather than increase to a potential £55 million previously indicated to the Government of Uganda. Again, overall levels of UK aid were not affected.
Sierra Leone—in 2006, DFID withheld £2.5 million out of a £15 million allocation of direct budget support (£10 million baseline and £5 million performance-linked) following weaker than expected progress against mutually agreed benchmarks. The funds remained within the DFID programme for Sierra Leone and were reallocated as support to the election process.
Nepal—In February 2005 following King Gyanendra’s declaration of a State of Emergency and imposition of direct rule, I agreed new criteria for deciding on our aid programme in Nepal. In March 2005, projects that had been supporting the Police, Prime Minister’s Office and Prison Service as part of the Enabling State programme were stopped on effectiveness grounds. All other parts of the Nepal programme continued and funding for 2005-06 was maintained at 2004-05 levels.
It was decided that support through Government systems would continue in health and education, but individual payments would require ministerial scrutiny to reflect the high level of risk. As a result, the way funding was given to the Rural Access programme and Livelihoods and Forestry programme was revised and payments were made through direct support to these programmes rather than financial aid through the Government of Nepal’s budget.
We welcome the signing of the Comprehensive Peace Agreement on 21 November by the Seven Party Alliance Government and the Communist Party of Nepal (Maoist) and the subsequent Agreement on the monitoring of Arms and Armies on 28 November. The agreements are a major step forward and the UK stands ready to help support implementation. DFID is reviewing its strategy and programme in the light of recent developments to ensure that we continue to respond effectively to the changed political and conflict environment.
Palestinian Territories—Following the election of Hamas in January 2006 the Quartet (US, EU, UN and Russia) set out three principles for the new Palestinian Government: renouncing violence, recognising Israel’s right to exist and signing up to previous peace agreements. As a result of Hamas’s failure to comply with these principles the UK, alongside most of the international community, withdrew direct financial and technical assistance to the Palestinian Authority.
DFID has not, however, stopped or reduced its support to the Palestinians, but is disbursing funds in a different way. This includes a commitment of up to £12 million channelled to the EU-led Temporary International Mechanism (TIM). This provides aid directly to the Palestinian people to help meet their basic needs in areas such as health. DFID has also provided £15 million this year for Palestinian refugees across the Middle East, through the United Nations Relief and Works Agency. DFID is satisfied with the arrangements put in place to ensure its current contributions to the TIM and previous budget support contributions to the World Bank-managed reform trust fund are used for the purposes intended.
Further information on programmes where we have reduced or interrupted our development assistance can be found in table 6a of DFID’s departmental report 2006, (please note this only covers the period between April and December 2005), a copy of which is available in the library and on DFID’s website at the following address; http://www.dfid.gov.uk/pubs/files/departmental-report/2006/default.asp