(Washington, D.C.) – The Government Accountability Project (GAP) has learned that through the first nine months of fiscal year 2007 (FY 2007), the World Bank’s lending to poor African countries has plummeted relative to the amount lent through the same time period last year. The lending lapse has occurred despite Bank president Paul Wolfowitz’ frequent public statements that the region is his top priority.
Through the first three-quarters of FY 2007, the total amount of lending to Africa equals approximately $1.8 billion, one billion dollars less than the $2.8 billion committed at the same point last year. In total, the Bank lent $4.8 billion to Africa in FY 2006. To match the same output as last year, which Wolfowitz has pledged to do, an additional $3 billion would have to be committed for African projects in the next 15 weeks (July 1st).
It is impossible to finalize lending at this level in so short a time and still provide quality projects to the region. Moving $3 billion through the rigorous Bank approval and safeguard process in 15 weeks could only be accomplished if serious shortcuts are taken. Inside sources state that one-half of promised fourth quarter lending planned for Africa was still in the ‘concept’ stage as of March 8. According to the Annual Review of Portfolio Performance, the average time required to shepherd a loan from concept to final approval in FY 2006 was 15.5 months.
Bank staff members have voiced concern about the quality and development effectiveness of this new lending for impoverished countries, many of which have only recently been relieved of major debt burdens.
“We have been hearing that morale is abysmal among Africa region staff members as a result, and many are outraged at the compromises they are being forced to make on loan quality,” said Bea Edwards, GAP International Program Director.
The lending shortfall for Africa comes as Wolfowitz begins negotiations with the Bank’s donor countries, which underwrite the International Development Association (IDA), the World Bank’s low-or-no interest lending program that provides aid to poor countries. IDA lends to 82 of the world’s poorest countries, nearly half of which are in Africa. Every three years, donor governments decide how much to contribute to IDA, and talks began on March 5 for the three-year cycle beginning in July 2008.
As talks began, Wolfowitz declared that half of IDA’s $9.1 billion in annual lending would be committed to Africa, appealing to IDA’s donor country negotiators for generous aid to poor countries in the region, regardless of their opinion of him.
With this financial information, however, it may be difficult for member countries to trust Wolfowitz’ abilities and sincerity about fighting poverty in Africa, and this may decrease the expected amount of future deposits in IDA.
“This situation shows neglect by the Bank’s upper levels of the real work needed to address poverty in Africa,” said Edwards. In part, problems are due to the departure last year of Gobind Nankani, former Vice President for the Africa region. Nearly four months later, Paul Wolfowitz has still not named a permanent replacement for him.
Why Funding Cannot be Rushed
In real terms, responsible lending is impossible to effect under the time pressure now exerted by Wolfowitz, as he embarks on the IDA talks. Typically, it is the borrowing country’s government that drives project preparation at the concept stage, and not the Bank, as it is the country’s ministries that must plan crucial activities, national funding and staffing. Technical, institutional, environmental and financial issues must all be flagged and solved. If this work is inaccurate or incomplete, the country risks borrowing money that, at best, it cannot use effectively and, at worst, it cannot use at all. Only after thorough preparation work has been completed should the project go to the ‘Appraisal Phase.’
Bank staff must work out the problems highlighted earlier, and they often spend up to one month in the borrowing country consulting with counterparts. Finally, Bank staff and borrowing country governments negotiate financing terms and conditions. This year, half of Africa’s fourth quarter lending is still many months away from appraisal, much less approval, and because management cannot present all these projects on the last day of the last quarter, many important steps in this process will simply have to be skipped, in order to meet the deadline.
Unfortunately, poor preparation only becomes apparent a year or so into projects, when lagging disbursements show the country’s inability to follow through. When this happens, poor countries are left paying an annual ‘commitment charge’ to the Bank for money they were not ready to use. For this reason, rushed lending may actually do more harm than good. The rush job may put African countries recently relieved of debt back into the bind of repaying loans that did not actually benefit them