Low-Income Countries
International Financial Institutions Met Many Goals in Response to Financial, Food, and Fuel Crises, but Impact on Spending Difficult to Establish
Gao ID: GAO-11-832 September 28, 2011
The 40 poorest countries in the world, known as low-income countries (LICs), have been negatively impacted by successive food, fuel, and financial crises since 2007. In response, international financial institutions (IFI), including the World Bank and International Monetary Fund (IMF), have taken actions to increase financial assistance for affected countries. Between 2008 and 2010, Congress appropriated $3.3 billion to the World Bank's International Development Association, which funds development programs in LICs. Congress also authorized the U.S. representative at the IMF to vote to approve the sale of some of the IMF's gold to increase lending to LICs. LICs' ability to repay debt remains important as financing levels rise and decisions are made about the mix of loans and grants they receive. GAO was asked to examine (1) the economic impact of the crises on LICs, (2) IFIs' responses and reported results, and (3) IFIs' assessment of the impact of the crises on LICs' ability to repay their debt. GAO analyzed documents and information from the World Bank and the IMF, including data on macroeconomic indicators, financial commitments, and debt analyses. GAO interviewed staff from the World Bank, IMF, and U.S. Treasury. GAO selected three African countries for more thorough analysis, a sample that is meant to be illustrative, not representative.
In LICs, the recent food, fuel, and financial crises resulted in slower economic growth, higher deficits, and higher inflation, but the macroeconomic impacts were less than experienced by the advanced economies. The crises also slowed foreign direct investment in LICs, which had been growing steadily since 2000. During the crises period, LICs' average economic growth slowed from 7.1 percent in 2007 to 5.3 percent in 2009. IFIs have reported that lower growth rates caused by the crises could lead to increases in poverty in LICs, and our previous work shows that many LICs were experiencing protracted food emergencies and had severe and widespread malnourishment even prior to the onset of the crises. During the crises, food and fuel prices rose significantly, then declined, and have risen again in 2011 to levels experienced during the crises. In response to the crises, IFIs increased funding and disbursed some funds more quickly to LICs, but the impact of these actions on LIC government spending has been difficult to establish. Between 2008 and 2010, the World Bank committed $18.1 billion through regular lending and five crisis response initiatives, an increase of 39 percent from the pre-crises period. Total first year disbursements also increased by 12.7 percent. Three of four of the initiatives designed to increase the speed of disbursements met their goal. However, the proportion of committed funds that have been disbursed in the first year following project approval declined, as compared to the pre-crises period. Disbursement rates depend on several factors, including recipient country capacity, need, and governance; and the type of lending. The World Bank's International Finance Corporation responded to the crises through investments, trade initiatives, and enhanced coordination with donors, but its response was limited by the availability of resources and recipient countries' limited ability to implement programs quickly. The IMF boosted lending to LICs more than sixfold to $4.9 billion, which governments could use to bolster their reserves or make international payments. While most LIC governments' spending increased during the crises, we found that the impact of World Bank and IMF actions on spending has been difficult to establish. According to IFIs' analysis, the crises did not significantly impair LICs' ability to repay their future debt, and thus did not necessitate an increase in their access to grants, which do not have to be repaid, relative to loans. The reliability of this analysis depends on the realism of IFIs' projections, which include quick economic recovery, implementation of policy reforms, and low inflation. According to IFIs' projections, the ability of six LICs to repay their debt improved during the crises, and thus they received more loans instead of grants. However, the IMF subsequently reported renewed risks to the global economic recovery, meaning that projections for future export growth, government revenue, and inflation might be too optimistic. This report contains no recommendations. The World Bank, IMF, and U.S Treasury generally agreed with our findings but identified areas to provide greater context.
GAO-11-832, Low-Income Countries: International Financial Institutions Met Many Goals in Response to Financial, Food, and Fuel Crises, but Impact on Spending Difficult to Establish
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
September 2011:
Low-Income Countries:
International Financial Institutions Met Many Goals in Response to
Financial, Food, and Fuel Crises, but Impact on Spending Difficult to
Establish:
GAO-11-832:
GAO Highlights:
Highlights of GAO-11-832, a report to congressional requesters.
Why GAO Did This Study:
The 40 poorest countries in the world, known as low-income countries
(LICs), have been negatively impacted by successive food, fuel, and
financial crises since 2007. In response, international financial
institutions (IFI), including the World Bank and International
Monetary Fund (IMF), have taken actions to increase financial
assistance for affected countries. Between 2008 and 2010, Congress
appropriated $3.3 billion to the World Bank‘s International
Development Association, which funds development programs in LICs.
Congress also authorized the U.S. representative at the IMF to vote to
approve the sale of some of the IMF‘s gold to increase lending to
LICs. LICs‘ ability to repay debt remains important as financing
levels rise and decisions are made about the mix of loans and grants
they receive.
GAO was asked to examine (1) the economic impact of the crises on
LICs, (2) IFIs‘ responses and reported results, and (3) IFIs‘
assessment of the impact of the crises on LICs‘ ability to repay their
debt. GAO analyzed documents and information from the World Bank and
the IMF, including data on macroeconomic indicators, financial
commitments, and debt analyses. GAO interviewed staff from the World
Bank, IMF, and U.S. Treasury. GAO selected three African countries for
more thorough analysis, a sample that is meant to be illustrative, not
representative.
This report contains no recommendations. The World Bank, IMF, and U.S
Treasury generally agreed with our findings but identified areas to
provide greater context.
What GAO Found:
In LICs, the recent food, fuel, and financial crises resulted in
slower economic growth, higher deficits, and higher inflation, but the
macroeconomic impacts were less than experienced by the advanced
economies. The crises also slowed foreign direct investment in LICs,
which had been growing steadily since 2000. During the crises period,
LICs' average economic growth slowed from 7.1 percent in 2007 to 5.3
percent in 2009. IFIs have reported that lower growth rates caused by
the crises could lead to increases in poverty in LICs, and our
previous work shows that many LICs were experiencing protracted food
emergencies and had severe and widespread malnourishment even prior to
the onset of the crises. During the crises, food and fuel prices rose
significantly, then declined, and have risen again in 2011 to levels
experienced during the crises.
In response to the crises, IFIs increased funding and disbursed some
funds more quickly to LICs, but the impact of these actions on LIC
government spending has been difficult to establish. Between 2008 and
2010, the World Bank committed $18.1 billion through regular lending
and five crisis response initiatives, an increase of 39 percent from
the pre-crises period. Total first year disbursements also increased
by 12.7 percent. Three of four of the initiatives designed to increase
the speed of disbursements met their goal. However, the proportion of
committed funds that have been disbursed in the first year following
project approval declined, as compared to the pre-crises period.
Disbursement rates depend on several factors, including recipient
country capacity, need, and governance; and the type of lending. The
World Bank‘s International Finance Corporation responded to the crises
through investments, trade initiatives, and enhanced coordination with
donors, but its response was limited by the availability of resources
and recipient countries‘ limited ability to implement programs
quickly. The IMF boosted lending to LICs more than sixfold to $4.9
billion, which governments could use to bolster their reserves or make
international payments. While most LIC governments‘ spending increased
during the crises, we found that the impact of World Bank and IMF
actions on spending has been difficult to establish.
According to IFIs‘ analysis, the crises did not significantly impair
LICs‘ ability to repay their future debt, and thus did not necessitate
an increase in their access to grants, which do not have to be repaid,
relative to loans. The reliability of this analysis depends on the
realism of IFIs‘ projections, which include quick economic recovery,
implementation of policy reforms, and low inflation. According to IFIs‘
projections, the ability of six LICs to repay their debt improved
during the crises, and thus they received more loans instead of
grants. However, the IMF subsequently reported renewed risks to the
global economic recovery, meaning that projections for future export
growth, government revenue, and inflation might be too optimistic. In
addition, for the three countries we reviewed, macroeconomic
projections did not adequately take into account country-specific
vulnerabilities, such as the failure to implement reforms and make
planned investments. However, given that the IFIs update projections
on a regular basis, any excessive optimism should become evident over
time, and some lenders could then increase the amount of grants they
provide which would help mitigate potential debt problems.
View [hyperlink, http://www.gao.gov/products/GAO-11-832] or key
components. For more information, contact Thomas Melito at (202) 512-
9601 or melitot@gao.gov.
[End of section]
Contents:
Letter:
Background:
Crises Negatively Impacted LICs, but Less Than Experienced by Advanced
Economies:
IFIs Increased Funding and Met Many Disbursement Goals, but the Impact
of Their Actions on LIC Government Spending Has Been Difficult to
Establish:
IFIs Did Not Lower Debt Distress Ratings Due to the Crises, but If
Underlying Projections Prove Too Optimistic Then Grants Could Be
Increased:
Concluding Observations:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Economic, Demographic, and Financial Assistance Data for
LICs:
Appendix III: World Bank Commitments and Disbursements to LICs through
Crisis Response Initiatives:
Appendix IV: Comments from the U.S. Department of the Treasury:
Appendix V: Comments from the World Bank:
Appendix VI: Comments from the International Monetary Fund:
Appendix VII: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: Selected Crises-Related Events and Actions:
Figure 2: Economic, Demographic, and Financial Assistance Data for 40
LICs:
Figure 3: Real GDP Weighted Average Growth Rate for 38 LICs, 2004
through 2010:
Figure 4: Consumer Price Inflation and Real GDP Growth Rate for 38
LICs, 2004 through 2010:
Figure 5: World Food Prices, January 2001 through May 2011:
Figure 6: World Crude Oil Prices in U.S. Dollars per Barrel, January
2007 through June 2011:
Figure 7: Current Account Deficit as a Percent of GDP for 38 LICs,
2004 through 2010:
Figure 8: Foreign Direct Investment Net Inflows for 39 LICs in Current
U.S. Dollars, 2000 through 2009:
Figure 9: First Year Disbursement Rates of Initiative Lending and Non-
Initiative Lending, Ranked from Fastest to Slowest:
Figure 10: Percentage Point Change in First Year Disbursement Rates
from the Pre-Crises Period to the Crises Response Period:
Figure 11: Performance Ratings and Associated Debt Burden Threshold
Indicators:
Figure 12: Risk of Debt Distress and Performance Ratings for 37 LICs,
as of December 2010:
Figure 13: Changes in 10 Countries' Debt Distress Ratings and
Financing Terms, 2007 through 2010:
Figure 14: Distribution of World Bank Commitments to 38 LICs, by
Country, 2008-2010:
Figure 15: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds through the Global Food Crisis Response
Program, by Country:
Figure 16: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds through the Fast Track Facility, by Country:
Figure 17: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds through the Rapid Social Response Program, by
Country:
Figure 18: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds, Pilot Crisis Response Window, by Country:
Abbreviations:
CPIA: Country Policy and Institutional Assessment:
DSA: debt sustainability analysis:
G-20: Group of Twenty:
GDP: gross domestic product:
IDA: International Development Association:
IFI: international financial institution:
IMF: International Monetary Fund:
IFC: International Finance Corporation:
LIC: low-income country:
MDB: multilateral development bank:
MDG: Millennium Development Goal:
ODA: Official Development Assistance:
PPP: purchasing power parity:
SDR: Special Drawing Right:
UN: United Nations:
USAID: U.S. Agency for International Development:
U.S. Treasury: U.S. Department of the Treasury:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
September 28, 2011:
The Honorable Barney Frank:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Gregory Meeks:
House of Representatives:
[End of section]
The 40 poorest countries in the world, known as low-income countries
(LICs), have been negatively impacted by successive and overlapping
food, fuel, and financial crises since 2007.[Footnote 1] International
financial institutions (IFIs), including the World Bank and the
International Monetary (IMF), report that these crises have had a
severe impact on poverty.[Footnote 2] In addition, the World Bank
reports that the crises led to significant increases in hunger and
infant mortality, impacting millions of people in developing
countries. In response to the crises, IFIs have taken actions to
increase financial assistance for affected countries.
Between 2008 and 2010, Congress appropriated $3.3 billion to the World
Bank's International Development Association (IDA), which funds
health, education, infrastructure, agriculture, economic, and
institutional development programs in about 80 developing countries,
including LICs.[Footnote 3] During this period, IDA launched crises
response programs in LICs to protect the poor and vulnerable, maintain
and increase social and infrastructure spending, and--in conjunction
with the World Bank's International Finance Corporation (IFC)--support
and promote private sector activity. In 2009, Congress authorized the
Secretary of the Treasury to instruct the U.S. Executive Director to
the IMF to vote to approve the sale of a limited amount of the IMF's
gold to, among other things, provide additional lending to LICs.
[Footnote 4] The IMF said it would respond to the crises in part by
increasing below-market-rate financing to LICs with crises-related
balance-of-payments problems.[Footnote 5]
Since the 1990s, many LICs have received a significant amount of debt
relief from the IMF, the World Bank, other multilateral creditors,
country creditors, and commercial creditors to lower debt to levels
considered "sustainable," meaning the country can make its future debt
payments on time and without rescheduling. Recognizing that debt
relief recipients remain vulnerable to future debt problems, caused by
shocks, such as food and fuel price increases or adverse weather
events, the World Bank and IMF jointly conduct a debt sustainability
analysis (DSA) to assess how a country's current level of debt and
prospective new borrowing affect its ability to service its future
debt. An important output of the DSA is a country's debt distress
rating, which is used to determine the mix of grants and loans
provided by IDA to countries. For example, countries classified at a
high risk of debt distress receive 100 percent grants from IDA, which
do not have to be repaid, while countries at moderate risk receive a
blend of 50 percent grants and 50 percent loans, which are provided at
below-market rates.
You asked us to assess the IFIs' response to LICs' needs during the
crises. We examined (1) the economic impact of the crises on LICs, (2)
IFIs' responses and reported results, and (3) IFIs' assessment of the
impact of the crises on LICs' ability to repay their debt.
To address our objectives, we analyzed documents and data from the
U.S. Department of the Treasury (U.S. Treasury), the World Bank, and
the IMF. We interviewed officials from these institutions, as well as
from the Department of State, and the U.S. Agency for International
Development (USAID). We compiled data for macroeconomic indicators
from IMF, World Bank, and United Nations (UN) databases and compared
each LIC's macroeconomic performance during the crises period of 2007
through 2009 to the pre-crisis period of 2004 through 2006.[Footnote
6] We selected three countries in Africa for more thorough analysis:
Burundi, Ethiopia, and Tanzania. We selected these countries based on
several criteria, including the number of IFI projects and amount of
IFI financial support. Our selection of countries is nongeneralizable
and meant to be illustrative, not representative. We focused on the
amount and speed of financial assistance and the extent to which IFI
actions caused increases in recipient governments' spending, but we
recognize that there are other less quantifiable considerations for
assessing the impacts and effectiveness of IFI financial assistance.
We analyzed World Bank data on financial commitments and disbursements
made to LICs between 2005 and 2007, the pre-crisis period, and between
2008 and 2010, the crises response period, to evaluate whether the
World Bank's crisis response was consistent with the institutions'
stated goals. We used information on IMF program and funding levels to
determine the nature and size of the IMF's response to the crises and
assessed the sensitivity of the results of an IMF analysis of
government spending in LICs in 2009 using data from the IMF and the
World Governance Indicators. We analyzed joint IMF-World Bank debt
analyses, IMF program documents, and World Bank Country Assistance
Strategies to assess IMF-World Bank efforts to monitor debt
sustainability for the three case study countries. Our assessment of a
country's debt distress rating, or the degree to which a country faces
repayment difficulties, included an examination of the debt analyses'
underlying macroeconomic projections and assumptions.
We conducted this performance audit from September 2010 to September
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. (See
appendix I for a more detailed discussion of our scope and
methodology.)
Background:
Since 2007, a series of overlapping food, fuel, and financial crises
have negatively affected the world economy, prompting the IFIs to
respond. (See figure 1.)
Figure 1: Selected Crises-Related Events and Actions:
[Refer to PDF for image: timeline]
Subprime mortgage crisis in the United States: 2007, Q1, Q2.
Financial crisis in advanced economies: 2007 Q2 - 2008 Q3.
Global economic crisis: 2008 Q3 - 2009 Q2.
Gradual recovery: 2009 Q3 - 2010 Q4.
Fuel price increase: 2007 Q1 - 2008 Q2;
Fuel price decrease: 2008 Q2 - 2009 Q2;
Fuel price increase: 2009 Q3 - 2010 Q4.
Gradual food price increase: 2007 Q1 - 2007 Q4;
Food crisis: 2007 Q4 - 2008 Q2;
Gradual food price decrease: 2008 Q2 - 2009 Q2;
Food price increase: 2009 Q3 - 2010 Q4.
2007 Q4:
Beginning of food export restrictions.
June 2008:
World Bank announces food crisis response;
Food price peak.
December 2008:
World Bank announces financial crisis response.
March 2009:
World Bank announces crises response framework.
July 2009:
The IMF announces planned increase in financial assistance for LICs.
December 2009:
World Bank announces additional resources for LICs.
Source: GAO based on World Bank, IMF, Energy Information Agency
Administration, and UN Food and Agriculture Organization information.
[End of figure]
Between 2007 and 2009, a financial crisis in the U.S. subprime
mortgage market gradually extended to other developed countries and
became a global financial crisis, which in turn generated a global
economic crisis impacting developed and developing countries--
including LICs--with varying degrees of intensity. Prior to, and
partly in parallel with the financial crisis, global food and fuel
prices increased sharply between mid-2007 and mid-2008. In some cases
this exacerbated the impact of the financial crisis and some
governments banned food exports. Although international food and fuel
prices dropped precipitously as the global financial crisis unfolded
in late 2008, they have resurged to record highs again in 2011,
igniting concerns about a repeat of the 2008 food crisis and its
negative impact on poor people in developing countries, particularly
LICs.
IFIs and global leaders have launched a coordinated international
response to the crises. In March 2009, the World Bank announced a
comprehensive crises response framework that could channel additional
donor contributions to poor countries to bolster ongoing World Bank
activities. To help ensure that IFIs would have sufficient resources
to respond to the crises, in April 2009 the Group of Twenty (G-20)
world leaders committed to measures designed to increase IFI resources
available to LICs, including through voluntary bilateral contributions
to the World Bank's crises response framework.[Footnote 7] The G-20
also endorsed the IMF's intention to increase financing for LICs,
including from resources derived from proceeds of IMF gold sales.
[Footnote 8]
LICs, the majority of which are in sub-Saharan Africa, comprised a
population of about 810 million people at the outset of the crises in
2007. Most LICs depend to some extent upon imports of food and fuel,
and about half are classified as fragile states challenged by weak
capacity, poor governance, political instability, ongoing violence or
the legacy of past conflict, as shown in figure 2. According to IFIs,
these factors can render countries vulnerable to crises driven by
fluctuations in international food and fuel prices.
Figure 2: Economic, Demographic, and Financial Assistance Data for 40
LICs:
[Refer to PDF for image: interactive map of the world]
Instructions: Online, hover over a country name in the table for more
information. For print version, see appendix II, page 53.
Country: Afghanistan;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Bangladesh;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Benin;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Burkina Faso;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Burma (Myanmar);
Net food importer[A]: No;
Net energy consumer[B]: No;
Fragile[C]: Yes.
Country: Burundi;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Cambodia;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Central African Republic;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Chad;
Net food importer[A]: Yes;
Net energy consumer[B]: No;
Fragile[C]: Yes.
Country: Comoros;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Democratic Republic of Congo;
Net food importer[A]: Yes;
Net energy consumer[B]: No;
Fragile[C]: Yes.
Country: Eritrea;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Ethiopia;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Gambia, The;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Ghana;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Guinea;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Guinea-Bissau;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Haiti;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Kenya;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Kyrgyzstan;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Laos;
Net food importer[A]: Yes;
Net energy consumer[B]: No;
Fragile[C]: No.
Country: Liberia;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Madagascar;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Malawi;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Mali;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Mauritania;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Mozambique;
Net food importer[A]: Yes;
Net energy consumer[B]: No;
Fragile[C]: No.
Country: Nepal;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Niger;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: North Korea;
Net food importer[A]: Yes;
Net energy consumer[B]: No;
Fragile[C]: No.
Country: Rwanda;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Sierra Leone;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Solomon Islands;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Somalia;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Tajikistan;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Tanzania;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Togo;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Country: Uganda;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Zambia;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: No.
Country: Zimbabwe;
Net food importer[A]: Yes;
Net energy consumer[B]: Yes;
Fragile[C]: Yes.
Sources: GAO analysis of World Bank UN and US Department of Energy
data; Map Resources (map).
[A] In food-importing countries, imports of basic foodstuffs
outweighed exports over the past 3 years, according to the UN Food and
Agriculture Organization.
[B] We define net energy consumers as those countries for which net
energy production was less than consumption in 2009.
[C] The World Bank uses the term "fragile" to refer to countries with
particularly weak policies and institutions, as well as those with the
presence of a UN or regional peace-keeping or peace-building mission
during the past 3 years.
[End of figure]
The World Bank and IMF provide financial and technical assistance to
member countries. Two World Bank institutions--IDA and IFC--assist
LICs. IDA, the primary World Bank financer to LICs, provides no-
interest loans and grants to eligible countries that have limited or
no access to international credit markets.[Footnote 9] IDA funds long-
term programs in agriculture, infrastructure, and social services such
as health and education, and provides technical assistance for
programs in economic and institutional development to strengthen
country policies and institutional capacity. Commitments to these
programs are disbursed at different rates depending on a number of
factors, including recipient country capacity and whether the project
is an investment lending project or a development policy lending
project.[Footnote 10] The rate of disbursements is important because
committed funds cannot be used by recipient countries until the funds
are disbursed. IFC provides investments and advisory services to build
the private sector in developing countries, including LICs.[Footnote
11]
The IMF provides economic surveillance, lending, and technical
assistance to its member countries. IMF surveillance involves the
monitoring of economic and financial developments and the provision of
policy advice. The primary purpose of IMF lending is to assist
countries facing balance-of-payments difficulties, and IMF loans to
LICs are intended to help foster economic growth and reduce poverty.
IMF lending is conditional upon borrowing countries' implementation of
policies.[Footnote 12] To help countries manage their economies, the
IMF provides guidance and training on how to strengthen institutions
and design appropriate macroeconomic, financial, and structural
policies.
Since 1996 the World Bank and IMF have participated in bilateral and
multilateral efforts to relieve the debt burdens of poor countries to
help them achieve long-term economic growth and debt sustainability,
meaning they can make their future debt payments on time without
rescheduling. To assess how a country's current level of debt and
prospective new borrowing affect its ability to service its debt in
the future, the World Bank and IMF jointly conduct a DSA. DSAs include
an analysis of a country's projected debt burden over the next 20
years and its vulnerability to shocks. In 2009, we reported that the
World Bank and IMF had improved their DSAs, including by considering
the strength of a country's policies and institutions, and that the
DSAs identified numerous ambitious actions countries should take in
order to avoid future unsustainable debt levels.[Footnote 13]
Crises Negatively Impacted LICs, but Less Than Experienced by Advanced
Economies:
The food, fuel, and financial crises negatively impacted LIC
economies, but the slowdown in growth was less than experienced by
advanced economies. Our analysis shows that during the crises period
of 2007 through 2009, key economic indicators slowed or declined for
38 LICs compared to the pre-crises period of 2004 through 2006.
[Footnote 14]
Economic Growth Slowed and Inflation Increased:
While the average annual growth rate in real gross domestic product
(GDP),[Footnote 15] or national income, for the 38 LICs remained
positive during the crisis period, it declined by an average of about
1 percentage point, dropping from an average of 7.1 percent during the
pre-crises period to an average of 6.2 percent during the crises
period. The largest decline occurred between 2007 and 2009 when real
GDP growth fell nearly 2 percentage points, from 7.1 percent to 5.3
percent. (See figure 3.) Nine countries experienced an actual decline
in their real GDP in 2008 or 2009: Cambodia, Chad, Eritrea, Guinea,
Madagascar, Mauritania, Niger, Solomon Islands, and Zimbabwe.
Figure 3: Real GDP Weighted Average Growth Rate for 38 LICs, 2004
through 2010:
[Refer to PDF for image: line graph]
Crisis period: mid-2006 through mid-2009.
Year: 2004;
Percent change in real GDP: 7.04.
Year: 2005;
Percent change in real GDP: 7.2%.
Year: 2006;
Percent change in real GDP: 7.04.
Year: 2007;
Percent change in real GDP: 7.11.
Year: 2008;
Percent change in real GDP: 6.09.
Year: 2009;
Percent change in real GDP: 5.29.
Year: 2010;
Percent change in real GDP: 5.62.
Source: GAO analysis of World Economic Outlook data as of April 2011.
Note: The weighted average is an aggregate reflecting the relative
size of countries in terms of their share in total GDP of the entire
group. The derivation of these weights requires that GDP in national
currency terms be converted to a common currency (in practice, the
U.S. dollar). Since 1993, exchange rates based on purchasing power
parities (PPP) have been used for this purpose. PPP-based GDP takes
differences in price levels across countries into account to ensure
that the GDP weights reflect each country's share in real output.
[End of figure]
The slowdown in the growth rate of real GDP in LICs was milder than
the downturn in real GDP growth experienced by advanced economies
during the crises, which declined from 2.7 percent in 2007 to -3.4
percent in 2009. According to the IMF, the LICs' period of growth
prior to the crises provided a cushion, helping many countries weather
the food and fuel price increases between 2007 and 2008 and the global
financial crisis. However, IFIs have reported that lower growth rates
caused by the crises could lead to increases in poverty in LICs.
Moreover, the slowdown in real GDP growth occurred while LICs'
inflation was rising. The average annual inflation rate for 38 LICs
increased from 8.6 percent during the pre-crises period to an average
of 11.6 percent during the crises, peaking at nearly 14 percent in
2008. (See figure 4.)
Figure 4: Consumer Price Inflation and Real GDP Growth Rate for 38
LICs, 2004 through 2010:
[Refer to PDF for image: line graph]
Crisis period: mid-2006 through mid-2009.
Year: 2004;
CPI inflation: 7.40%;
Real GDP growth rate: 7.04%.
Year: 2005;
CPI inflation: 9.07%;
Real GDP growth rate: 7.23%.
Year: 2006;
CPI inflation: 9.27%;
Real GDP growth rate: 7.04%.
Year: 2007;
CPI inflation: 10.23%;
Real GDP growth rate: 7.12%.
Year: 2008;
CPI inflation: 13.88%;
Real GDP growth rate: 6.09%.
Year: 2009;
CPI inflation: 10.61%;
Real GDP growth rate: 5.29%.
Year: 2010;
CPI inflation: 7.36%;
Real GDP growth rate: 5.62%.
Source: GAO analysis of World Economic Outlook data as of April 2011.
Note: The weighted average is an aggregate reflecting the relative
size of countries in terms of their share in total GDP of the entire
group. The derivation of these weights requires that GDP in national
currency terms be converted to a common currency (in practice, the
U.S. dollar). Since 1993, exchange rates based on purchasing power
parities (PPP) have been used for this purpose. PPP-based GDP takes
differences in price levels across countries into account to ensures
that the GDP weights reflect each country's share in real output.
[End of figure]
Higher food and fuel prices contributed to rising inflation. World
food prices were stable from 2001 to the beginning of 2007, and then
climbed steeply during 2007 and 2008.[Footnote 16] After a brief
downturn in the latter part of 2008, world food prices began rising
again, resulting in a net increase in prices of about 74 percent
between January 2007 and May 2011. (See figure 5.)
Figure 5: World Food Prices, January 2001 through May 2011:
[Refer to PDF for image: line graph]
Crisis period: 1/2007 through 1/2010.
Month/Year: 1/2001;
Food price index: 97.6.
Month/Year: 2/2001;
Food price index: 98.5.
Month/Year: 3/2001;
Food price index: 99.9.
Month/Year: 4/2001;
Food price index: 98.2.
Month/Year: 5/2001;
Food price index: 99.7.
Month/Year: 6/2001;
Food price index: 98.5.
Month/Year: 7/2001;
Food price index: 101.2.
Month/Year: 8/2001;
Food price index: 101.1.
Month/Year: 9/2001;
Food price index: 99.4.
Month/Year: 10/2001;
Food price index: 97.4.
Month/Year: 11/2001;
Food price index: 98.3.
Month/Year: 12/2001;
Food price index: 97.9.
Month/Year: 1/2002;
Food price index: 96.9.
Month/Year: 2/2002;
Food price index: 94.9.
Month/Year: 3/2002;
Food price index: 95.
Month/Year: 4/2002;
Food price index: 93.3.
Month/Year: 5/2002;
Food price index: 91.6.
Month/Year: 6/2002;
Food price index: 92.5.
Month/Year: 7/2002;
Food price index: 94.7.
Month/Year: 8/2002;
Food price index: 96.3.
Month/Year: 9/2002;
Food price index: 99.9.
Month/Year: 10/2002;
Food price index: 100.4.
Month/Year: 11/2002;
Food price index: 102.3.
Month/Year: 12/2002;
Food price index: 101.7.
Month/Year: 1/2003;
Food price index: 95.5.
Month/Year: 2/2003;
Food price index: 97.1.
Month/Year: 3/2003;
Food price index: 95.3.
Month/Year: 4/2003;
Food price index: 94.5.
Month/Year: 5/2003;
Food price index: 95.3.
Month/Year: 6/2003;
Food price index: 95.6.
Month/Year: 7/2003;
Food price index: 94.7.
Month/Year: 8/2003;
Food price index: 96.2.
Month/Year: 9/2003;
Food price index: 98.2.
Month/Year: 10/2003;
Food price index: 100.8.
Month/Year: 11/2003;
Food price index: 103.6.
Month/Year: 12/2003;
Food price index: 105.3.
Month/Year: 1/2004;
Food price index: 101.4.
Month/Year: 2/2004;
Food price index: 102.5.
Month/Year: 3/2004;
Food price index: 105.9.
Month/Year: 4/2004;
Food price index: 106.
Month/Year: 5/2004;
Food price index: 104.6.
Month/Year: 6/2004;
Food price index: 106.6.
Month/Year: 7/2004;
Food price index: 105.7.
Month/Year: 8/2004;
Food price index: 105.1.
Month/Year: 9/2004;
Food price index: 105.5.
Month/Year: 10/2004;
Food price index: 104.8.
Month/Year: 11/2004;
Food price index: 106.3.
Month/Year: 12/2004;
Food price index: 107 .
Month/Year: 1/2005;
Food price index: 107.4.
Month/Year: 2/2005;
Food price index: 106.7.
Month/Year: 3/2005;
Food price index: 109.4.
Month/Year: 4/2005;
Food price index: 107.3.
Month/Year: 5/2005;
Food price index: 108.4.
Month/Year: 6/2005;
Food price index: 109.5.
Month/Year: 7/2005;
Food price index: 109.4.
Month/Year: 8/2005;
Food price index: 109.3.
Month/Year: 9/2005;
Food price index: 111.1.
Month/Year: 10/2005;
Food price index: 112.6.
Month/Year: 11/2005;
Food price index: 111.4.
Month/Year: 12/2005;
Food price index: 113.6.
Month/Year: 1/2006;
Food price index: 111.5.
Month/Year: 2/2006;
Food price index: 115.6.
Month/Year: 3/2006;
Food price index: 113.3.
Month/Year: 4/2006;
Food price index: 114.8.
Month/Year: 5/2006;
Food price index: 115.5.
Month/Year: 6/2006;
Food price index: 114.8.
Month/Year: 7/2006;
Food price index: 117.5.
Month/Year: 8/2006;
Food price index: 115.9.
Month/Year: 9/2006;
Food price index: 115.1.
Month/Year: 10/2006;
Food price index: 118.1.
Month/Year: 11/2006;
Food price index: 122.
Month/Year: 12/2006;
Food price index: 123.7.
Month/Year: 1/2007;
Food price index: 117.7.
Month/Year: 2/2007;
Food price index: 120.
Month/Year: 3/2007;
Food price index: 120.8.
Month/Year: 4/2007;
Food price index: 123.6.
Month/Year: 5/2007;
Food price index: 127.3.
Month/Year: 6/2007;
Food price index: 135.4.
Month/Year: 7/2007;
Food price index: 140.8.
Month/Year: 8/2007;
Food price index: 146.3.
Month/Year: 9/2007;
Food price index: 154.1.
Month/Year: 10/2007;
Food price index: 156.7.
Month/Year: 11/2007;
Food price index: 162.8.
Month/Year: 12/2007;
Food price index: 167.7.
Month/Year: 1/2008;
Food price index: 164.5.
Month/Year: 2/2008;
Food price index: 177.3.
Month/Year: 3/2008;
Food price index: 179.7.
Month/Year: 4/2008;
Food price index: 178.9.
Month/Year: 5/2008;
Food price index: 179.9.
Month/Year: 6/2008;
Food price index: 184.7.
Month/Year: 7/2008;
Food price index: 181.4.
Month/Year: 8/2008;
Food price index: 171.9.
Month/Year: 9/2008;
Food price index: 161.9.
Month/Year: 10/2008;
Food price index: 142.
Month/Year: 11/2008;
Food price index: 129.5.
Month/Year: 12/2008;
Food price index: 122.
Month/Year: 1/2009;
Food price index: 125.7.
Month/Year: 2/2009;
Food price index: 121.4.
Month/Year: 3/2009;
Food price index: 123.
Month/Year: 4/2009;
Food price index: 126.8.
Month/Year: 5/2009;
Food price index: 135.4.
Month/Year: 6/2009;
Food price index: 135.9.
Month/Year: 7/2009;
Food price index: 132.6.
Month/Year: 8/2009;
Food price index: 137.1.
Month/Year: 9/2009;
Food price index: 137.4.
Month/Year: 10/2009;
Food price index: 140.
Month/Year: 11/2009;
Food price index: 150.3.
Month/Year: 12/2009;
Food price index: 153.
Month/Year: 1/2010;
Food price index: 153.6.
Month/Year: 2/2010;
Food price index: 150.3.
Month/Year: 3/2010;
Food price index: 143.8.
Month/Year: 4/2010;
Food price index: 145.2.
Month/Year: 5/2010;
Food price index: 144.8.
Month/Year: 6/2010;
Food price index: 143.6.
Month/Year: 7/2010;
Food price index: 147.3.
Month/Year: 8/2010;
Food price index: 156.1.
Month/Year: 9/2010
Food price index: 165.7.
Month/Year: 10/2010;
Food price index: 174.9.
Month/Year: 11/2010;
Food price index: 181.6.
Month/Year: 12/2010;
Food price index: 190.6.
Month/Year: 1/2011;
Food price index: 203.3.
Month/Year: 2/2011;
Food price index: 209.1.
Month/Year: 3/2011;
Food price index: 203.8.
Month/Year: 4/2011;
Food price index: 206.5.
Month/Year: 5/2011;
Food price index: 204.4.
Source: UN Food and Agriculture Organization of Monthly World Food
Price Index.
Note: The monthly index includes meat, dairy, cereals, oil, and sugar.
[End of figure]
Similarly, world crude oil prices rose sharply during 2007 and 2008
and, after receding through early 2009, rose again through May 2011,
resulting in a net price increase of over 99 percent when compared to
January 2007. (See figure 6.)
Figure 6: World Crude Oil Prices in U.S. Dollars per Barrel, January
2007 through June 2011:
[Refer to PDF for image: line graph]
Crisis period: 2/2007 through 1/2010.
Month/Year: 1/2007;
Dollars per barrel: $54.63.
Month/Year: 2/2007;
Dollars per barrel: $52.11.
Month/Year: 3/2007;
Dollars per barrel: $57.83.
Month/Year: 4/2007;
Dollars per barrel: $64.93.
Month/Year: 5/2007;
Dollars per barrel: $63.4.
Month/Year: 6/2007;
Dollars per barrel: $66.79.
Month/Year: 7/2007;
Dollars per barrel: $69.91.
Month/Year: 8/2007;
Dollars per barrel: $73.81.
Month/Year: 9/2007;
Dollars per barrel: $71.42.
Month/Year: 10/2007;
Dollars per barrel: $75.57.
Month/Year: 11/2007;
Dollars per barrel: $89.64.
Month/Year: 12/2007;
Dollars per barrel: $85.91.
Month/Year: 1/2008;
Dollars per barrel: $92.93.
Month/Year: 2/2008;
Dollars per barrel: $88.71.
Month/Year: 3/2008;
Dollars per barrel: $98.01.
Month/Year: 4/2008;
Dollars per barrel: $98.39.
Month/Year: 5/2008;
Dollars per barrel: $115.11.
Month/Year: 6/2008;
Dollars per barrel: $121.36.
Month/Year: 7/2008;
Dollars per barrel: $137.11.
Month/Year: 8/2008;
Dollars per barrel: $121.29.
Month/Year: 9/2008;
Dollars per barrel: $106.41.
Month/Year: 10/2008;
Dollars per barrel: $93.38.
Month/Year: 11/2008;
Dollars per barrel: $58.66.
Month/Year: 12/2008;
Dollars per barrel: $43.12.
Month/Year: 1/2009;
Dollars per barrel: $34.57.
Month/Year: 2/2009;
Dollars per barrel: $42.07.
Month/Year: 3/2009;
Dollars per barrel: $42.85.
Month/Year: 4/2009;
Dollars per barrel: $50.27.
Month/Year: 5/2009;
Dollars per barrel: $52.92.
Month/Year: 6/2009;
Dollars per barrel: $65.62.
Month/Year: 7/2009;
Dollars per barrel: $68.47.
Month/Year: 8/2009;
Dollars per barrel: $67.5.
Month/Year: 9/2009;
Dollars per barrel: $68.07.
Month/Year: 10/2009;
Dollars per barrel: $65.
Month/Year: 11/2009;
Dollars per barrel: $76.34.
Month/Year: 12/2009;
Dollars per barrel: $73.89.
Month/Year: 1/2010;
Dollars per barrel: $78.89.
Month/Year: 2/2010;
Dollars per barrel: $70.42.
Month/Year: 3/2010;
Dollars per barrel: $78.17.
Month/Year: 4/2010;
Dollars per barrel: $82.57.
Month/Year: 5/2010;
Dollars per barrel: $76.56.
Month/Year: 6/2010;
Dollars per barrel: $73.85.
Month/Year: 7/2010;
Dollars per barrel: $73.49.
Month/Year: 8/2010;
Dollars per barrel: $73.81.
Month/Year: 9/2010;
Dollars per barrel: $76.11.
Month/Year: 10/2010;
Dollars per barrel: $79.35.
Month/Year: 11/2010;
Dollars per barrel: $82.82.
Month/Year: 12/2010;
Dollars per barrel: $88.34.
Month/Year: 1/2011;
Dollars per barrel: $92.6.
Month/Year: 2/2011;
Dollars per barrel: $97.78.
Month/Year: 3/2011;
Dollars per barrel: $108.03.
Month/Year: 4/2011;
Dollars per barrel: $118.38.
Month/Year: 5/2011;
Dollars per barrel: $108.32.
Month/Year: 6/2011;
Dollars per barrel: $113.55.
Source: GAO analysis of U.S. Department of Energy, Energy Information
Agency.
[End of figure]
While the human and social development impacts of higher prices vary
by country, the resurgence in prices has triggered renewed concern.
Our previous work shows that many LICs were experiencing protracted
food emergencies and had severe and widespread malnourishment even
prior to the onset of the crises.[Footnote 17] In April 2011, the IFIs
warned that the resurgence of higher food prices was increasing the
cost of food imports in LICs, aggravating existing balance-of-payments
problems and putting pressure on government budgets. Moreover, in July
2011, the UN World Food Program declared a food crisis in eastern
Africa due mainly to low domestic harvests resulting from consecutive
droughts.[Footnote 18]
Trade and Fiscal Deficits Worsened:
The average current account (trade) deficit-to-GDP ratio for the 38
LICs increased from 3.6 percent in 2007, to 5.4 percent in 2008, and
decreased to 4.2 percent in 2009, as shown in figure 7.[Footnote 19]
Twenty-eight countries experienced a widening of their current account
deficit-to-GDP ratio during the crises period compared to the pre-
crises period.
Figure 7: Current Account Deficit as a Percent of GDP for 38 LICs,
2004 through 2010:
[Refer to PDF for image: line graph]
Crisis period: mid-2006 through mid-2009.
Year: 2004;
Percent of GDP: -2.80.
Year: 2005;
Percent of GDP: -3.44.
Year: 2006;
Percent of GDP: -2.74.
Year: 2007;
Percent of GDP: -3.58.
Year: 2008;
Percent of GDP: -5.42.
Year: 2009;
Percent of GDP: -4.16.
Year: 2010;
Percent of GDP: -4.66.
Source: GAO analysis of World Economic Outlook data as of April, 2011.
Note: The weighted average is an aggregate reflecting the relative
size of countries in terms of their share in total GDP of the entire
group. The derivation of these weights requires that GDP in national
currency terms be converted to a common currency (in practice, the
U.S. dollar). Since 1993, exchange rates based on purchasing power
parities (PPP) have been used for this purpose. PPP-based GDP takes
differences in price levels across countries into account to ensures
that the GDP weights reflect each country's share in real output. PPP
GDP weighted average for 38 LICs.
[End of figure]
Moreover, the fiscal deficit-to-GDP ratio increased from an average of
2.6 percent in 2007 to 3.7 percent in 2009 for 37 LICs, attributable
more to rising expenditures than declining revenues. The fiscal
deficit-to-GDP ratio for the LICs averaged 1.8 percent between 2004
and 2006 and nearly doubled to 3.2 percent between 2007 and 2009. The
IMF reported that most LICs adopted a countercyclical fiscal response,
such as preserving or expanding spending to support the economy and
protect the poor.[Footnote 20] The growth rate of real primary
expenditures[Footnote 21] accelerated, leading to a widening of the
fiscal deficit-to-GDP ratio. The IMF also reported that LICs could
increase spending, in part, because they had established sufficiently
strong fiscal positions before the crises began.
Foreign Direct Investment Declined in 2009:
Net foreign direct investment inflows for 39 LICs declined by 17
percent during 2009, ending a generally steady increase since 2000, as
shown in figure 8.[Footnote 22] Twenty-three of the 39 countries, or
nearly 60 percent, had lower net foreign direct investment inflows in
2009 compared to 2007.
Figure 18: Foreign Direct Investment Net Inflows for 39 LICs in
Current U.S. Dollars, 2000 through 2009:
[Refer to PDF for image: line graph]
Crisis period: mid-2006 through mid-2009.
Millions of current U.S. dollars:
Year: 2000;
Foreign direct investment, net inflows: $2,759.
Year: 2001;
Foreign direct investment, net inflows: $2,842.
Year: 2002;
Foreign direct investment, net inflows: $3,592.
Year: 2003;
Foreign direct investment, net inflows: $4,740.
Year: 2004;
Foreign direct investment, net inflows: $5,440.
Year: 2005;
Foreign direct investment, net inflows: $5,428.
Year: 2006;
Foreign direct investment, net inflows: $7,157.
Year: 2007;
Foreign direct investment, net inflows: $12,812.
Year: 2008;
Foreign direct investment, net inflows: $14,526.
Year: 2009;
Foreign direct investment, net inflows: $12,933.
Source: GAO analysis of World Development Indicators data.
Note: Data not available for 2010. Net inflows is net foreign direct
investment in the reporting economy from foreign sources less net
foreign direct investment by the reporting economy to the rest of the
world.
[End of figure]
IFIs Increased Funding and Met Many Disbursement Goals, but the Impact
of Their Actions on LIC Government Spending Has Been Difficult to
Establish:
In response to the crises, we found that IDA met its goal to increase
the amount of financial assistance and partly met its goal to increase
the speed of disbursements to LICs, but the impact of IDA's actions on
LIC government spending has been difficult to establish. The IFC
increased assistance to LICs but its response was limited by capacity
constraints and is difficult to measure. The IMF significantly boosted
financial assistance to LICs, but its contribution to LIC government
spending increases during the crises has been difficult to establish.
IDA Increased Financial Assistance and Met Many Disbursement Goals,
but Impact on Government Spending Has Been Difficult to Establish:
IDA met its goal to increase the amount of financial assistance and
partly met its goal to increase the speed of disbursements to LICs.
[Footnote 23] In addition, IDA reported that its crises response
initiatives supported LIC government spending but we found that the
impact has been difficult to establish.
The World Bank Used Regular Lending and Established New Initiatives to
Respond to the Crises in LICs:
The World Bank responded to crises in LICs through regular IDA lending
and by establishing initiatives. The World Bank committed a total of
$18.1 billion in IDA funds to LICs during the crises response period
between 2008 and 2010 through both regular IDA lending and crisis
response initiatives. This represented an increase in new commitments
of approximately $5 billion, or 39 percent, as compared to commitments
made between 2005 and 2007.[Footnote 24] These resources were part of
a fixed 3-year allocation, replenished in 2008 prior to the onset of
the global economic crisis.[Footnote 25] This allocation represented
an increase of 12.8 percent as compared to the 2005-2008 IDA
allocation and was intended in part to help countries achieve the
Millennium Development Goals (MDGs).[Footnote 26] To respond to the
crises within the context of this fixed set of resources, IDA could
choose to shift its priorities toward crisis response, accelerate
disbursements of existing IDA funds, or provide additional funds from
donors or internal resources.
To complement regular IDA lending during the crises, the World Bank
established a crisis response framework comprised of five initiatives
that committed $12.2 billion in financial assistance to LICs between
2008 and 2010. These commitments included $10.8 billion in existing
IDA funds and $1.4 billion in new financial assistance. The five
initiatives are:
* the Global Food Crisis Response Program (food program), established
in May 2008 to help countries reduce the impact of high food prices on
the poor by providing rapid financial assistance, policy advice, and
social protection services[Footnote 27] such as food stamps and school
feeding programs for the most vulnerable;[Footnote 28]
* the IDA Fast Track Facility, established in December 2008 to help
countries offset the impacts of the financial crisis on governments'
budget expenditures, including social and infrastructure programs;
[Footnote 29]
* the Rapid Social Response Program (social protection program),
established in April 2009 to help countries mitigate the impacts of
crises by promoting social protection programs through rapid financing
of immediate interventions in safety nets[Footnote 30] and other
areas, and by improving capacity needed to establish and implement
effective safety net systems;[Footnote 31]
* the Infrastructure Recovery and Assets Platform (infrastructure
program), established in March 2009 to help countries mitigate the
impacts of the crises by supporting critical infrastructure
investments and new project development and implementation, and;
[Footnote 32]
* the Pilot Crisis Response Window, established in November 2009 to
help reduce the need for countries to make tradeoffs between financing
crises response efforts or long-term development programs by providing
new financing that was additional to countries' existing IDA funds.
[Footnote 33]
IDA Increased the Amount of Financial Assistance to LICs by $1.4
Billion:
In response to the crises, IDA committed $1.4 billion in new financial
assistance to 36 LICs between 2008 and 2010.[Footnote 34] Four of the
five initiatives--the food, social protection, and infrastructure
programs and the Pilot Crisis Response Window--aimed to increase the
amount of financial assistance available to LICs using additional
donor contributions and internal World Bank resources.[Footnote 35] We
found that IDA committed $1.1 billion in new financial assistance to
LICs through the Pilot Crisis Response Window and $288 million in new
grant assistance to LICs through the food and social protection
programs. The World Bank reported that governments' requests for
social protection grants to establish and enhance safety net systems
provided by the social protection program significantly exceeded the
availability of new resources. By April 2011, LICs had submitted 133
project proposals totaling $161 million against available funding of
about $58.5 million. These projects were to establish or enhance
social protection activities and safety net systems benefiting the
poorest, as well as to improve the data and institutional capacity
necessary for effective implementation.[Footnote 36] The World Bank
further reported that it has established a permanent Crisis Response
Window effective July 2011 that could be used to continue to fund
activities supporting both crises response and preparedness in IDA-
eligible countries, including LICs.[Footnote 37] Finally, donors did
not provide additional funding to the infrastructure initiative, which
was originally designed to provide up to $3 billion to help offset the
impact of soaring energy prices.
The World Bank Intended to Increase the Speed of Financial Assistance
to LICs during the Crises; Results Are Mixed:
Four of the five IDA initiatives--the Fast Track Facility, food
program, social protection program, and Pilot Crisis Response Window--
were designed to increase the disbursement speed of commitments made
from existing IDA funds. While disbursement rates are a useful metric
for capturing the World Bank's response to the immediate needs of
recipient countries through the crises response initiatives, we
recognize that there are other less quantifiable considerations for
assessing the impacts and effectiveness of development assistance.
These initiatives were also designed to increase the speed of project
preparation and processing, which occurs prior to project approval.
According to the World Bank, preparation time was reduced during the
crisis for both investment lending and development policy lending
programs. To determine whether the disbursement speed of commitments
made through the crises response initiatives had increased, we
compared the first year disbursement rates for each initiative to the
first year disbursement rate of projects approved from 2008 through
2010 that did not fall under any initiative. The World Bank uses a
different methodology to report disbursement rates. We did not use the
World Bank's standard disbursement rate methodology because our
analysis sought to isolate those activities which were explicitly
undertaken in response to the crises.[Footnote 38]
These initiatives committed approximately $3.9 billion to 32 LICs from
existing IDA funds. Three of four initiatives increased the speed of
disbursements. The infrastructure program, which committed $6.9
billion in existing IDA funds in addition to the $3.9 billion, did not
have a goal to increase the speed of disbursements. More specifically:
* The first year disbursement rate was 69.1 percent for the Fast Track
Facility, compared to a first year disbursement rate of 33.5 percent
for projects that were not funded through an initiative.
* The first year disbursement rate was 64.5 percent for the food
program, compared to a first year disbursement rate of 33.5 percent
for projects that were not funded through an initiative. However, we
found that almost half of the commitments made through existing IDA
funds, about $405 million, went to three projects in Ethiopia and
Bangladesh. When these projects are excluded from the analysis, the
disbursement rate for this initiative declines to 39 percent.
* The first year disbursement rate for the social protection program
was 34.1 percent, slightly higher than the first year disbursement
rate of 33.5 percent for projects that were not funded through an
initiative. However, the social protection program did not increase
the speed of disbursements when compared to social protection projects
approved during the pre-crises period, which had a first year
disbursement rate of 47.8 percent.[Footnote 39] According to the World
Bank, increasing the speed of disbursements for social protection
programs in LICs has been challenging due to a lack of existing social
protection programs and recipient countries' capacity to effectively
implement them.[Footnote 40] To address this challenge and facilitate
crises preparedness in LICs, the World Bank intends to continue to
finance the development of social protection programs. In early 2011
donors emphasized the importance of a continued focus on capacity
building and improved data collection in LICs, to help overcome these
constraints.
* The Pilot Crisis Response Window did not increase the disbursement
speed of commitments, with a first year disbursement rate of 27.5
percent, compared to a first year disbursement rate of 33.5 percent
for projects that were not funded through an initiative (see figure 9).
Figure 9: First Year Disbursement Rates of Initiative Lending and Non-
Initiative Lending, Ranked from Fastest to Slowest:
[Refer to PDF for image: vertical bar graph]
Crisis response initiative: Fast track facility;
Percentage of funds disbursed: 69.1%.
Crisis response initiative: Food program;
Percentage of funds disbursed: 64.5%.
Crisis response initiative: Social protection program;
Percentage of funds disbursed: 34.1%.
Non-initiative lending: 33.5%.
Crisis response initiative: Pilot crisis response window;
Percentage of funds disbursed: 27.4%.
Source: GAO analysis of World Bank data.
Note: We determined the first year disbursement rates by calculating
the total disbursements for each project for the first four quarters
following project approval, then taking the ratio of total
disbursements to the total committed funds.
[End of figure]
In 2009, the Development Committee, an advisory group to the World
Bank and IMF, also urged the acceleration of the delivery of financial
assistance to recipient countries. However, we found that the World
Bank did not accelerate disbursements for both investment lending
projects or development policy lending projects for the group of LICs
on average as a whole even though a majority of countries received
disbursements faster during the crises response period. Specifically,
the average first year disbursement rate to LICs was 16.8 percent for
all investment lending projects approved between 2008 through 2010, as
compared to an average first year disbursement rate of 17.3 percent
for all investment lending projects approved between 2005 through
2007. Similarly, the average first year disbursement rate to LICs was
90.7 percent for all development policy lending projects approved
between 2008 through 2010, as compared to an average first year
disbursement rate of 96.9 percent for all development policy lending
projects approved between 2005 through 2007. Overall, the average
first year disbursement rate to LICs was 31.1 percent for all projects
approved between 2008 and 2010, as compared to an average first year
disbursement rate of 39.3 percent for all projects approved between
2005 and 2007, a difference of about 8 percentage points. According to
U.S. Treasury, this decline in part reflects the World Bank's need to
ensure that recipient country capacity and governance controls were
sufficiently robust to absorb the additional resources provided during
the crisis period.
However, at the individual country level, total commitments in 22 of
36 LICs, including commitments made to both investment lending
projects and development policy lending projects, were disbursed
faster during the crises period than during the pre-crises period.
[Footnote 41] Disbursement rates, which vary over time, depend on a
number of factors, including recipient country capacity, need, and
governance, and the type of lending. For example, commitments to
Burundi, a fragile state with limited capacity, increased by 114
percent while disbursements increased by 46 percent, which results in
a lower disbursement rate during the crises response period. (See
figure10.) LIC governments reported mixed experiences relating to the
timeliness of the World Bank's response to crises. Some governments
said they received financial support very rapidly, while others noted
that World Bank support had been sluggish[Footnote 42]. For a more
detailed analysis of World Bank commitments and disbursement rates to
individual countries, see appendix III.
Figure 10: Percentage Point Change in First Year Disbursement Rates
from the Pre-Crises Period to the Crises Response Period:
[Refer to PDF for image: horizontal bar graph]
Disbursed slower during the crises period than pre-crises:
Country: Niger;
Change in disbursement rate: -59.38%.
Country: Central African;
Change in disbursement rate: -54.70%.
Country: Liberia;
Change in disbursement rate: -51.43%.
Country: Bangladesh;
Change in disbursement rate: -33.36%.
Country: Ghana;
Change in disbursement rate: -20.22%.
Country: Uganda;
Change in disbursement rate: -19.42%.
Country: Democratic Republic of Congo;
Change in disbursement rate: -17.3864
Country: Cambodia;
Change in disbursement rate: -13.99%.
Country: Burundi;
Change in disbursement rate: -11.77%.
Country: Afghanistan;
Change in disbursement rate: -10.83%.
Country: Madagascar;
Change in disbursement rate: -6.47%.
Country: Tanzania;
Change in disbursement rate: -5.43%.
Country: Rwanda;
Change in disbursement rate: -0.53%.
Country: Haiti;
Change in disbursement rate: -0.05%.
Disbursed faster during the crises period than pre-crises:
Country: Togo;
Change in disbursement rate: 75.13%.
Country: Guinea;
Change in disbursement rate: 61.66%.
Country: Guinea-Bissau;
Change in disbursement rate: 54.95%.
Country: Tajikistan;
Change in disbursement rate: 46.00%.
Country: Gambia, The;
Change in disbursement rate: 24.51%.
Country: Sierra Leone;
Change in disbursement rate: 19.46%.
Country: Kyrgyz Republic;
Change in disbursement rate: 19.27%.
Country: Mali;
Change in disbursement rate: 16.94%.
Country: Chad;
Change in disbursement rate: 16.11%.
Country: Ethiopia;
Change in disbursement rate: 11.42%.
Country: Burkina Faso;
Change in disbursement rate: 10.08%.
Country: Malawi;
Change in disbursement rate: 9.70%.
Country: Laos;
Change in disbursement rate: 8.88%.
Country: Mozambique;
Change in disbursement rate: 6.92%.
Country: Mauritania;
Change in disbursement rate: 5.73%.
Country: Nepal;
Change in disbursement rate: 3.97%.
Country: Zambia;
Change in disbursement rate: 3.94%.
Country: Kenya;
Change in disbursement rate: 2.77%.
Country: Eritrea;
Change in disbursement rate: 2.76%.
Country: Comoros;
Change in disbursement rate: 1.55%.
Country: Benin;
Change in disbursement rate: 0.43%.
Country: Solomon Islands;
Change in disbursement rate: 0.39%.
Source: GAO analysis of World Bank project data.
Note: Pre-crises period is between 2005 and 2007; crises period is
between 2008 and 2010. Disbursement rates, which vary over time,
depend on a number of factors, including recipient country capacity,
need, and governance, and the type of lending. For example,
commitments to Burundi, a fragile state with limited capacity,
increased by 114 percent while disbursements increased by 46 percent,
which results in a lower disbursement rate during the crises response
period.
[End of figure]
The World Bank reported that speed was facilitated by the Bank's new
rapid response policy and increased use of development policy lending
where circumstances permitted. In addition, World Bank and U.S.
Treasury officials reported that the restructuring of existing lending
portfolios facilitated an expedient response in some countries.
For Two Initiatives, the Impact of World Bank Actions on Government
Spending Has Been Difficult to Establish:
Two initiatives were designed to support domestic spending in
recipient countries during the crises, in areas including social
services, education, and infrastructure. In 2010, the World Bank
reported that both initiatives--the Fast Track Facility and the
infrastructure program--met this goal. For example, the World Bank
reported that the Fast Track Facility operation in the Democratic
Republic of Congo prevented the government from having to cut
essential social spending or resort to inflationary spending.
Similarly, the World Bank reported that the infrastructure program
supported domestic spending and helped to mitigate the direct impacts
of the crisis.
However, as we previously reported, IFIs do not independently track
developing countries' poverty-reducing expenditures and instead rely
upon developing countries' governments to provide such data, even
though the accuracy of these data and country capacity to provide this
information is questionable.[Footnote 43] Additionally, for the
infrastructure program, the World Bank developed a rapid diagnostic
tool to identify at-risk countries and provide a detailed assessment
of crises impacts and associated country infrastructure spending
needs, but conducted the diagnostic in only one LIC,
Bangladesh.[Footnote 44] Therefore, we found that the degree to which
World Bank actions impacted government spending has been difficult to
establish.
IFC Increased Assistance to LICs, but Its Response Was Limited by
Capacity Constraints:
The IFC responded to the food and fuel crises through lending in the
agriculture and energy sectors and responded to the financial crisis
through existing and new initiatives and by enhancing coordination
with donors, but its response was limited by capacity constraints.
Between 2008 and 2010, IFC increased its new lending commitments in
LICs while new IFC commitments overall declined and foreign direct
investment in LICs declined by 17 percent between 2008 and 2009. As a
result, IFC's investments during the crises in LICs increased as a
percentage of net foreign direct investment. Annual IFC commitments in
LICs in fiscal years 2009 and 2010 exceeded $900 million each year,
while commitments in fiscal year 2008 were about $460 million. IFC
also committed a total of $1.1 billion to LICs through two crisis
response initiatives,[Footnote 45] the pre-existing Global Trade
Finance Program and the new Global Trade Liquidity Program, which
supported $3.4 billion in trade through credit guarantees and risk
sharing.[Footnote 46]
According to officials, IFC also developed new approaches for
coordinating with other multilateral institutions in LICs at the
regional level. The Joint Action Plan for Africa, established in 2009,
for example, developed a method for IFC to collaborate more closely
with other lenders in support of development activities in Africa.
Similarly, officials said that agreements with donors, made to enhance
the response to the financial crisis, will allow IFC to quickly
coordinate with donors in response to a future crisis.
According to IFC officials, IFC's response was limited by internal and
external constraints. Internally, under its Articles of Agreement IFC
must undertake its financing on terms and conditions which it
considers appropriate, taking into account, among other things, the
terms and conditions normally obtained by private investors for
similar financing. In addition, IFC has relatively limited resources
as compared to other IFIs.[Footnote 47] Officials told us that because
of these constraints, much of its crisis response relied on donor
governments to provide additional funds. In some cases, this
dependence negatively affected the speed of IFC's response because IFC
could not respond until donor governments fulfilled their commitments.
IFC also faced external capacity constraints in recipient countries.
For example, officials explained that in Ethiopia, foreign investors,
including IFC, are often subject to additional scrutiny by the
government, which has limited IFC's ability to do business there.
Overall, IFC officials said that the actions they took to respond to
the crises sent a positive signal to the market, but officials noted
that this is difficult to measure and did not provide quantitative
evidence of this effect.
IMF Significantly Boosted Financial Assistance to LICs, but Its
Contribution to Government Spending Increases Has Been Difficult to
Establish:
During the crises response period between 2008 and 2010, the IMF
response included committing approximately $4.9 billion in new lending
to 28 LICs, temporarily lowering interest rates on its loans, and
doubling the limit individual countries could borrow against.[Footnote
48] In addition, the IMF provided $250 billion to support all of its
members, including LICs, which collectively received the equivalent of
$5.8 billion.[Footnote 49] Governments could use these funds to boost
international reserves, cushion against shocks, or meet balance-of-
payment needs. Moreover, the IMF changed its lending instruments to
address crisis impacts, aiming to make them more flexible and tailored
to specific country needs. For example, according to the IMF, the
newly created Rapid Credit Facility provides low-access, rapid, and
below-market-rate financial assistance to LICs facing an urgent
balance-of-payments need, without requiring program-based conditions.
According to IMF officials, these efforts were supplemented by
technical support and surveillance activities, which also played a
role in assisting LICs through the crises. In addition, the IMF
reported that its policy advice and programs in LICs were supportive
of a countercyclical policy response and higher government spending
during the crisis. For example, according to the IMF, government
spending increased in almost 90 percent of LICs with IMF programs in
2009.[Footnote 50]
We found that IMF loans to LICs increased more than sixfold from
approximately $748 million between 2005 and 2007 to about $4.9 billion
between 2008 and 2010. In the three countries we reviewed--Burundi,
Ethiopia, and Tanzania--the IMF reported that country-specific program
goals were achieved. However, circumstances may change quickly, and in
one case, inflation resurged soon after the program ended. While
conclusions from this sample are not generalizable to all LICs, these
examples illustrate how IMF-supported programs operated in these three
countries.
* In July 2008, Burundi started a 3-year $76 million arrangement with
goals to support poverty reduction and macroeconomic stability.
Approximately 3 years later, a June 2011 IMF review stated that
performance under the program has been broadly satisfactory, despite
the impact of the food and fuel shocks. At the same time, however, the
IMF also lowered Burundi's 2011 economic growth projection to 4.2
percent, due in part to the expectation that higher food and fuel
prices will continue.
* Ethiopia requested a $240 million arrangement in August 2009 to help
steer the economy through the global financial crisis, with the goals
of reducing inflation and building international reserves. In October
2010, an IMF review concluded that the program was on track and that
government policies to reduce inflation and increase reserves had been
successfully implemented. According to IMF officials, the program
ended in November 2010 and inflation rose to about 30 percent in May
2011, mainly because the government did not implement agreed-to
reforms.
* Tanzania began a $328 million 12-month arrangement in May 2009 with
the goal of mitigating the adverse impact of the global financial
crisis and addressing a projected deterioration in balance of payments
stemming from a decline in exports and foreign direct investment. The
IMF's subsequent review determined that country program goals were
met, and the program was concluded on schedule a year after inception.
The IMF also noted that LICs supported by an IMF program increased
government spending during the crises, including on health and
education services, more than countries that were not supported by an
IMF program, and implied that this was attributable to the IMF
programs "as Fund financing reduced liquidity constraints and helped
catalyze donors' support."[Footnote 51] However, we found that this
causal link has been difficult to establish because the comparison
groups differ in important ways. In order to conclude that differences
in government spending are driven by IMF programs, the groups of
countries being compared need to be as similar as possible. Our
analysis of the data underlying the IMF's assertion found that non-
program LICs consistently differed from program LICs across certain
measures of institutional quality and macroeconomic policy.
Furthermore, the finding that program LICs increased spending more
than non-program LICs is highly sensitive to the inclusion of a few
countries in the group of non-program LICs,[Footnote 52] which either
did not need a program or could not obtain one. Non-program LICs had
lower scores on a variety of measures of institutional quality, such
as political stability, government effectiveness, and rule of
law.[Footnote 53] Countries with institutional weaknesses in these
categories may overlap with the fragile states, as shown in figure 2.
In addition, non-program LICs had higher inflation rates and larger
budget deficits prior to the crises than LICs with IMF-supported
programs, which may indicate that non-program countries had less
capacity to use fiscal and monetary policy to respond to the crises.
We conducted several analyses to determine if the IMF's results were
sensitive to small changes in the underlying sample of countries
designed to make the set of non-program LICs more like LICs with IMF
programs.[Footnote 54] In one analysis, we omitted the countries with
the two lowest scores on political stability in 2009 (Sudan and Yemen)
from the set of non-program LICs, thereby making the sample more
similar to program LICs. Based on the new sample, program LICs no
longer increased spending more than non-program LICs. In another
analysis, we omitted the countries with the two largest budget
deficits prior to the crisis (Eritrea and Guyana) from the set of non-
program LICs and similarly found that program LICs no longer increased
spending more than non-program LICs. Importantly, it does not
necessarily follow from these sensitivity analyses that IMF-supported
programs were ineffective at increasing spending. A reasonable
estimate of what might have happened in the absence of an IMF-
supported program is necessary to assess the impact of programs on
spending, which the IMF analysis implicitly assumes is the experience
of non-program LICs. A more rigorous analytical approach would be
needed to conclude that IMF-supported programs resulted in increased
government spending during the crises. Analytical approaches that
systematically account for differences between program and non-program
countries would be necessary to credibly conclude whether or not an
IMF-supported program led to greater public spending.[Footnote 55]
IFIs Did Not Lower Debt Distress Ratings Due to the Crises, but If
Underlying Projections Prove Too Optimistic Then Grants Could Be
Increased:
The IMF and World Bank prepare annual debt distress ratings, which
assess countries' ability to repay their debt.[Footnote 56] The IMF
and World Bank did not lower any LICs' debt distress rating as a
result of the food, fuel, and financial crises. However, we found that
some of the underlying macroeconomic projections might prove too
optimistic based on current risks to the global economic recovery and
rising commodity prices, as well as on our review of the debt
sustainability analysis (DSAs) for three countries. If these
projections ultimately prove too optimistic and countries' ability to
repay their debt declines significantly, some multilateral
institutions could subsequently choose to provide more grants than
loans to help lower the risk of debt problems reemerging. Our review
of these DSAs is nongeneralizable and meant to be illustrative, not
representative.
Debt Distress Ratings Assess Countries' Ability to Repay Debt:
The debt distress rating is the IMF and World Bank's assessment of the
risk that a country will not be able to repay its future debt. In
assessing risk and determining a sustainable debt level, the DSA
considers the strength of the country's policies and institutions
based on the World Bank's Country Policy and Institutional Assessment
index (CPIA). The index classifies LICs as weak, medium, or strong
performers, with debt burden thresholds associated with each
performance category, as shown in figure 11.[Footnote 57] For example,
Ethiopia is in the "medium" performer category, which means that its
performance will be judged against the debt burden threshold
indicators for that category. The threshold indicator for the present
value debt-to-export ratio is 150 percent.[Footnote 58] Exports are an
important source of funding for repaying debt. The IMF and World Bank
have determined that debt-to-export levels in excess of 150 percent
put LICs ability to repay debt at risk. According to Ethiopia's 2010
DSA, Ethiopia's debt-to-export ratio is projected to reach a high of
133 percent in 2011 and then decline. Burundi, which is classified as
a "weak" performer, faces a lower, more constraining threshold of 100
percent. According to its 2010 DSA, Burundi's debt-to-export ratio
exceeded this limit throughout the projection period by a wide margin.
For example, from 2011 through 2013, that ratio was projected to be at
or above 200 percent. The IMF and World Bank use the extent and
duration of the threshold breaches to determine the country's debt
distress risk rating, as discussed below.
Figure 11: Performance Ratings and Associated Debt Burden Threshold
Indicators:
[Refer to PDF for image: illustrated table]
Performance Rating: Strong Performer (CPIA greater than or equal to
3.75);
Present value of debt as a percentage of:
Exports: 200%;
GDP: 50%;
Revenue: 300%;
Present value of debt service as a percentage of:
Exports: 25%;
Revenue: 35%.
Performance Rating: Medium Performer (CPIA greater than 3.25; less
than 3.75);
Present value of debt as a percentage of:
Exports: 150%;
GDP: 40%;
Revenue: 250%;
Present value of debt service as a percentage of:
Exports: 20%;
Revenue: 30%.
Performance Rating: Weak Performer (CPIA less than or equal to 3.25);
Present value of debt as a percentage of:
Exports: 100%;
GDP: 30%;
Revenue: 200%;
Present value of debt service as a percentage of:
Exports: 15%;
Revenue: 25%.
Source: GAO analysis of World Bank and IMF documents.
Note: According to the IMF, since loans to LICs vary considerably in
their interest rates and length of repayment, the framework focuses on
the present value of debt obligations to ensure comparability over
time and across countries.
[End of figure]
The assessment of the country's risk of debt distress--meaning the
country cannot service its debt without resorting to exceptional
finance (such as debt relief) or a major correction in balancing its
income and expenditures--depends on how the country's debt indicators
compare with these debt burden threshold indicators under the DSA's
"baseline" scenario, as well as under alternative scenarios and stress
tests.[Footnote 59] The baseline is the main macroeconomic scenario
which describes the evolution of the debt and the macroeconomic
variables based on realistic assumptions and projections of key
macroeconomic variables such as GDP, inflation, exports, imports, and
government revenues. Countries are classified into four categories--
low, moderate, high risk, or in debt distress--according to their
likelihood of debt distress, based on the extent and duration of
breaches in their threshold indicators.[Footnote 60] (See figure 12.)
Debt burden thresholds are not rigid ceilings, and, according to the
IMF and World Bank, the debt distress rating seeks to strike a balance
between a mechanistic use of the categories and a judgmental approach.
Countries classified as "in debt distress" or "high risk of debt
distress" receive 100 percent grant financing from IDA, while
countries at moderate risk receive 50 percent grants and 50 percent
concessional loans, and countries at low risk continue to receive 100
percent concessional loan financing. As shown in figure 12, 13 of the
LICs are "in" or at "high" risk of debt distress and 24 are either at
"moderate" or "low" risk.
Figure 12: Risk of Debt Distress and Performance Ratings for 37 LICs,
as of December 2010:
[Refer to PDF for image: illustrated table]
Performer Rating: Weak Performer;
Risk of Debt Distress and Financing Type:
In Debt Distress (All grants): Comoros, Eritrea, Guinea, Zimbabwe;
High (All grants): Afghanistan, Burundi, Democratic Republic of Congo,
Guinea-Bissau, Haiti, Laos, Tajikistan, The Gambia;
Moderate (50 percent grants and 50 percent concessional loans):
Cambodia, Central African Republic, Chad, Sierra Leone, Solomon
Islands, Togo;
Low (All concessional loans): Liberia.
Performer Rating: Medium Performer;
Risk of Debt Distress and Financing Type:
In Debt Distress (All grants): None;
High (All grants): Burkina Faso;
Moderate (50 percent grants and 50 percent concessional loans): Benin,
Kyrgyzstan, Malawi, Mauritania, Nepal, Rwanda;
Low (All concessional loans): Bangladesh, Ethiopia, Kenya, Madagascar,
Mali, Mozambique, Niger, Zambia.
Performer Rating: Strong Performer;
Risk of Debt Distress and Financing Type:
In Debt Distress (All grants): None;
High (All grants): None;
Moderate (50 percent grants and 50 percent concessional loans): Ghana;
Low (All concessional loans): Tanzania, Uganda.
Source: GAO analysis of World Bank and IMF DSAs.
Notes: Thirty-seven of the 40 LICs are included. Burma, North Korea,
and Somalia are not included because they do not have public DSAs.
[End of figure]
The DSA uses a 3-year moving average CPIA score in determining a
country's policy performance in order to reduce variations in the risk
of debt distress rating stemming from small annual fluctuations in the
CPIA that do not represent a material change in countries' capacity to
service their debt. If following the release of the new annual CPIA
score, the updated 3-year moving average CPIA rating breaches the
applicable CPIA boundary, the country's performance category would
change only if the size of the breach exceeds 0.05; if below 0.05, the
country's performance category would change only if the breach is
sustained for 2 consecutive years.
IMF and World Bank Did Not Lower Debt Distress Ratings Due to Crises:
Although the crises adversely impacted LICs' economies, the IMF and
World Bank did not change any country's debt distress rating as a
result of the crises, indicating that they did not expect the crises
to adversely impact LIC economies enough to significantly impair their
ability to repay debt. The IMF forecasted a rebound in LIC growth in
line with the forecast of a quick recovery for the global economy. The
global recovery, which the IMF subsequently reported is subject to
risks, is expected to boost demand for LIC exports and improve access
to foreign capital, both of which are expected to facilitate private
sector growth. According to the IMF, the LICs' period of growth prior
to the crises provided a cushion, helping countries weather the food
and fuel price increases between 2007 and 2008 and the global
financial crises. As a result, LICs were able to implement
countercyclical policies, such as preserving or expanding spending to
support the economy and protect the poor, and expanding public
investment.
For reasons other than the crises, the IMF and World Bank changed 10
LICs' debt distress ratings from 2007 through 2010. (See figure 13.)
Nine ratings improved for the following reasons:
* Six countries received full and irrevocable debt relief from
government and multilateral creditors.[Footnote 61]
* Two countries, Chad and Niger, had higher projected GDP growth
stemming from growth in mineral sectors. Chad achieved higher GDP
growth due to oil sector growth. Niger is implementing large uranium
and oil projects, which are expected to boost exports and government
revenues significantly.
* Ethiopia's rating changed due to the inclusion of workers'
remittances as an important source of debt service financing and
resilience of the Ethiopian economy to the global economic crisis.
Only one rating worsened. Burkina Faso's debt distress rating changed
from moderate in 2007 to high in 2008 because the country was
reclassified from a strong to medium performer and therefore exceeded
the new, lower debt burden indicators.
The implication of a change in a country's debt distress rating is
that a country whose rating improves will generally receive a larger
proportion of concessional loans, and if it worsens, it will receive a
greater proportion of grants, as shown in figure 13.[Footnote 62]
Figure 13: Changes in 10 Countries' Debt Distress Ratings and
Financing Terms, 2007 through 2010:
[Refer to PDF for image: illustrated table]
Country: Burkina Faso;
2007: Moderate risk of debt distress;
2008: High risk of debt distress;
2009: High risk of debt distress;
2010: High risk of debt distress.
Country: Burundi;
2007: N/A (years when the country did not have a DSA);
2008: In debt distress;
2009: High risk of debt distress[A];
2010: High risk of debt distress.
Country: Central African Republic;
2007: In debt distress;
2008: In debt distress;
2009: Moderate risk of debt distress[A];
2010: Moderate risk of debt distress.
Country: Chad;
2007: High risk of debt distress;
2008: N/A (years when the country did not have a DSA);
2009: Moderate risk of debt distress;
2010: Moderate risk of debt distress.
Country: Congo, Democratic Republic;
2007: In debt distress;
2008: N/A (years when the country did not have a DSA);
2009: In debt distress[A];
2010: High risk of debt distress.
Country: Ethiopia;
2007: Moderate risk of debt distress;
2008: Moderate risk of debt distress;
2009: Moderate risk of debt distress;
2010: Low risk of debt distress.
Country: Guinea Bissau;
2007: In debt distress;
2008: N/A (years when the country did not have a DSA);
2009: In debt distress;
2010: High risk of debt distress[A].
Country: Liberia;
2007: N/A (years when the country did not have a DSA);
2008: In debt distress;
2009: In debt distress;
2010: Low risk of debt distress[A].
Country: Niger;
2007: Moderate risk of debt distress;
2008: N/A (years when the country did not have a DSA);
2009: Moderate risk of debt distress;
2010: Low risk of debt distress.
Country: Togo;
2007: In debt distress;
2008: In debt distress;
2009: In debt distress;
2010: Moderate risk of debt distress[A].
[A] Indicates that a country's rating change coincided with the
country completing requirements for full and irrevocable debt relief
under the Heavily Indebted Poor Countries Initiative.
Source: GAO analysis of World Bank and IMF DSAs.
[End of figure]
For LICs We Reviewed, Ratings Depend on Projections That Might Prove
Too Optimistic:
According to the IMF and World Bank, the DSA's quality depends to a
large extent on the realism of the projections under the baseline
scenario. As explained in their policy paper, realistic means that the
scenario takes account of a country's growth potential as well as its
capacity constraints, including the risk that governments do not
implement desired policy reforms.[Footnote 63] Further, historical
averages for the key macroeconomic variables for the past 10 years may
provide some guidance about the extent of realism in the baseline
scenario projections. The IMF has indicated that explicit
justification is required if sustainable debt ratios are driven by DSA
assumptions that deviate sharply from historical norms.
We assessed the realism of the 2010 DSA projections for three
countries--Burundi, Ethiopia, and Tanzania--and found that a too
optimistic tone potentially prevailed. While conclusions from this
sample are not generalizable to all LICs, these examples are
illustrative of how DSAs are conducted. For the sample we reviewed, we
based our conclusion on our analysis of the divergence between the DSA
projections and their historic values,[Footnote 64] as well as on the
reasonableness of the DSAs' underlying assumptions that countries (1)
would realize growth-enhancing investments; (2) would implement agreed-
to reforms, such as tax reforms that would boost government revenues;
and (3) would not be subject to adverse country-specific factors, such
as recurring droughts, floods, and political instability. For the
three countries we reviewed, we found that macroeconomic projections
did not adequately consider the country's vulnerabilities, such as
failure to implement reforms, inability to make planned investments,
or recurrence of adverse weather or political instability.
Burundi's DSA Projections:
The 2010 DSA for Burundi projects that real GDP growth rate will
increase from its 10-year historical average of 2.7 percent to an
average of 4.7 percent over the medium-term. This projected strong GDP
growth depends on several factors, including an increase in
anticipated export earnings from privatization of the coffee sector,
which accounts for about two-thirds of total exports, and integration
into the East Africa Community, which could give Burundi access to a
broad market of about 120 million people and attract more investment.
However, Burundi might not meet the GDP projection if it does not
realize the higher export earnings from reform of the coffee sector.
Privatization of the coffee sector is occurring more slowly than
expected, with only 13 of 117 coffee processing facilities sold
because there were few interested buyers. While the government plans
to accelerate the sale of the remaining stations beginning in 2011, it
is not clear whether investors will buy them. In June 2011, the IMF
lowered Burundi's 2011 growth projection from 4.5 percent to 4.2
percent, noting that higher food and fuel prices were likely to
continue to increase throughout the year.
The IMF reported that risks to Burundi's macroeconomic outlook are
significant and include higher food and fuel prices and a worsening of
the political, social, and security situation, which would endanger
donor support and could further worsen debt indicators.[Footnote 65]
Nonetheless, the 2010 DSA assumes Burundi's security and political
situation will continue to improve. Moreover, Burundi's 2010 DSA
projected a large decrease in the fiscal deficit-to-GDP ratio, from a
5 percent average during 2007 through 2009, to 1.3 percent in 2015,
based on a widening of the tax base as a result of continued tax
reforms as well as reductions in spending. The IMF said that
mobilizing domestic revenue is critical for Burundi's fiscal
sustainability. However, the fiscal deficit projections assume that
Burundi will control government wages and reduce defense and security
spending.
Ethiopia's DSA Projections:
In 2010, the IMF and World Bank changed Ethiopia's risk of debt
distress from "moderate" to "low" based on the inclusion of workers'
remittances, which means that Ethiopia now receives 100 percent
concessional loan financing instead of 50 percent grants and 50
percent concessional loans.[Footnote 66] In addition, Ethiopia's 2010
DSA projected that Ethiopia would achieve strong export growth and
implement key reforms. Ethiopia's 2010 DSA projected exports as a
percent of GDP to rise to 19.1 percent by 2015, compared to the 10-
year average of 13.5 percent, and to further increase to a 31 percent
average during 2016 through 2030. However, in April 2011 IMF staff
expressed concern that Ethiopia's failure to implement monetary
reforms, including removing the government-imposed bank credit
ceilings, as well as highly negative real interest rates, were
hindering the commercial banks' financing role, which is fundamental
to higher growth.[Footnote 67] In May 2011, IMF staff lowered
estimates for Ethiopia's real GDP growth rate from the 7.7 percent
forecasted in Ethopia's 2011 DSA to 6 percent for 2011 through 2012
due to high inflation, restrictions on private bank lending, and a
more difficult business environment.
The projected large increase in growth in the 2010 DSA depended on
anticipated growth in service exports resulting from an expected
increase in electricity exports based on current energy investments,
greater investment in the national airline, and continued good
harvests supporting agriculture. The DSA notes Ethiopia's debt profile
is very sensitive to export growth assumptions.
The inclusion of workers' remittances as a source of debt repayment
was a main reason for the improvement in Ethiopia's debt distress
rating in 2010. While the DSA projects workers' remittances to remain
large and stable at 8.5 percent of GDP, it did not provide historical
data or additional information upon which to base this conclusion.
[Footnote 68] Moreover, IMF staff reported that Ethiopia's risk of
external shocks, such as droughts and high international commodity
prices, is high. Ethiopia depends on rain-fed agriculture, which
accounts for nearly half of GDP and 85 percent of employment. For the
last 30 years, Ethiopia has been hit by droughts every 5 to 7 years,
as well as frequent increases in international prices. However, staff
told us that country-specific factors, such as weather-related shocks,
were not specifically incorporated in the baseline scenario as such.
[Footnote 69]
Tanzania's DSA Projections:
Tanzania's 2010 DSA projects higher export and GDP growth. The 2010
DSA projects a 6.5 percent real GDP growth rate in 2011, rising to 7.5
percent in 2015. The growth in real GDP is based on expected returns
from the increase in infrastructure investment, including a rise in
agricultural productivity and improved food distribution through
investment in rural roads and markets, which is to be financed by
additional domestic and external borrowing on less concessional terms.
Also, Tanzania's DSA projects an increase in the export-to-GDP ratio
from 24.1 percent in the medium term to 28.5 percent in the long-term
based on the country's potential to substantially increase commodity
and manufacturing exports.
Following discussions with Tanzanian government officials, in
Tanzania's 2011 DSA the IMF projected a slowdown in real GDP growth
for fiscal year 2011/12 (July through June), from the earlier
projected rate of 7.1 percent to 6.6 percent. This revision was based
on adverse weather, rising fuel prices, and lagging investment. The
poor rainfall disrupted electricity generation and lagging investment
coupled with higher demand for electricity led to power rationing,
which adversely impacted growth. The rising cost of fuel increased the
replacement cost of power generation. In addition, the ongoing drought
could adversely affect the 2011 food harvest.
If Projections Prove Too Optimistic, Creditors Could Provide More
Grants:
To the extent that DSA projections prove too optimistic, debt problems
may reemerge. This could become evident in the projections in future
DSAs, and, if the deviations from the prior projections are
significant enough, the country's debt distress rating could change,
meaning the country could receive more grants than loans. IMF and
World Bank staff advise that the quality of the DSA hinges critically
on the projections and assumptions underlying the baseline scenario,
since alternative assumptions can lead to substantially different debt
dynamics.
The causes of optimism in the DSAs could be at the global
macroeconomic level as well as at the country level. According to the
IMF, there are increased risks to global economic recovery, including
slower growth and extreme volatility in commodity prices. At the
country level, our assessment of three countries' DSAs illustrates how
projections and assumptions can change over a relatively short period
of time, potentially affecting a country's risk of debt distress. For
example, Burundi's present value of debt-to-exports ratio already
exceeds the country-specific threshold by a wide margin throughout the
projection period. Burundi faces challenges in generating higher
government revenue through tax reform and increasing export earnings
due to slower than anticipated coffee sector reforms. Lower fiscal
revenues or declining GDP growth would lead to a considerable
deterioration of its debt ratios, according to its 2010 DSA. This
could lead to Burundi being classified as "in debt distress." However,
since Burundi is already to receive only grants from creditors,
options to assist the country financially might be limited.
Similarly, if Ethiopia does not achieve the export growth projections
in its DSAs, its debt ratios and performance ratings could worsen,
and, if significant enough, could lead to a worsening of its debt
distress rating. If this occurs, the terms of Ethiopia's financing
from certain lenders could change. Ethiopia now receives its financial
assistance as all concessional loans, but a change in risk rating
could lead to financing with a larger grant component.
Regarding Tanzania, IMF staff reported in 2011 that revenue collection
had fallen short of ambitious targets, and that the rapidly increasing
fiscal deficit was being financed by increasingly expensive resources
due to a shift from mostly grants to loans. Though Tanzania's current
risk of debt distress is low, maintaining current spending policies
could widen the fiscal deficit, leading to rising debt servicing
costs, with an adverse impact on the debt indicators. In May 2011, IMF
reported that Tanzania faces formidable challenges given widespread
poverty, high population growth, and tremendous dependence on foreign
aid, and the near-term economic outlook is subject to considerable
uncertainty with a rising risk of donor aid shortfalls and higher
international fuel prices.
Moreover, the effectiveness of the debt distress rating and associated
financing requirements in keeping countries' debt at sustainable
levels depends on their broader use by borrowers and creditors. Some
other multilateral institutions--including the African Development
Bank, Asian Development Bank, Inter-American Development Bank and
International Fund for Agricultural Development--and developed
countries use the debt distress rating system to make decisions about
their terms of financing. If projections ultimately prove too
optimistic and countries' ability to repay their debt declines
significantly, some multilateral institutions could subsequently
choose to provide more grants than loans to help lower the risk of
debt problems reemerging.
Concluding Observations:
The food, fuel, and financial crises resulted in slower economic
growth, higher deficits, and increased inflation for LICs. While the
overall impact of the crises on LICs may have been milder than in the
advanced economies, the high rate of poverty in these countries
increases their overall vulnerability. For example, our previous work
shows that many LICs were experiencing protracted food emergencies and
had severe and widespread malnourishment even prior to the onset of
the crises. The IFIs responded to the crises by increasing the amount
of resources made available to the LICs. The IMF increased lending to
LICs more than sixfold to almost $5 billion. The World Bank committed
$18.1 billion through regular lending and five new crises response
initiatives that committed $12.2 billion in financial assistance to
LICs, including $1.4 billion in new funding. The World Bank provided
funding as a mix of loans and grants, depending on the performance and
debt vulnerability of each country. The World Bank was able to meet
its goal of increasing the speed of disbursement for several
initiatives, but the overall picture is mixed, especially when
compared to the pre-crises period. Furthermore, in the case of both
institutions, the impact of these new resources on LIC government
spending during the crises has been difficult to establish. According
to the World Bank and IMF, the crises did not significantly impair the
countries' ability to repay their future debt, because they expected
the world economy to reestablish its pre-crises growth levels and the
LICs to implement reforms necessary to achieve projected future growth
levels. However, the increased risk to the global recovery and the
extreme volatility of commodity prices may undermine the realization
of these expectations. To date, the mix of loans and grants provided
by the multilateral development banks have been largely unaffected by
the crises. We found that the projections for our case study countries
may prove too optimistic, which could contribute to debt problems re-
emerging as the amount of loans countries receive could be greater
than what would be considered sustainable. However, given that the
IFIs update the DSAs on a regular basis, any excessive optimism should
become evident over time, and the World Bank and other lenders could
then increase the amount of grants they provide which would help
mitigate potential debt problems.
Agency Comments and Our Evaluation:
The U.S. Treasury, World Bank, and IMF provided written comments on a
draft of this report, which are reprinted in appendixes IV, V, and VI,
respectively.
The U.S. Treasury commented that the IFIs appropriately responded to
the crisis and effectively managed the trade-offs associated with
quickly disbursing funds in an environment of limited capacity to
absorb aid and that the United States strongly advocated for increased
IFI engagement in LICs during the crises. The Treasury letter also
stated that we provided a good overview of how the IMF responded
forcefully to the crisis. In our discussion on the impact of IMF
programs on government spending, they suggested we should have
examined the impact of IMF programs on social spending. However, we
would emphasize that accounting for the differences between program
and non-program countries is critical to estimating the impact of IMF
programs on spending during the crisis, which the IMF did not do in
their 2010 report. The U.S. Treasury also noted that speed of
disbursements is just one measure of effective crisis response and
that it is important to consider trade-offs between speed of
disbursements and the need to ensure adequate governance structures
and fiduciary controls are in place. We included this information in
our report. In addition, the Treasury stated that by working closely
with the World Bank and other multilateral development banks (MDBs) to
put in place the right fiduciary arrangements and strengthen country
capacity to absorb and manage MDB assistance, the Treasury can improve
the quality of the World Bank's and other MDBs' interventions and
improve the monitoring and reporting of development results.
The World Bank stated that it welcomes and agrees with our overall
conclusion that IFIs, including IDA and IFC, met many goals in
response to the crises in LICs. The World Bank also stated that it
achieved a significant increase in both its commitments and its
disbursements to LICs. We acknowledge that the World Bank responded to
crises in LICs by increasing its commitments and disbursements through
regular IDA lending and by establishing initiatives. Our analysis
focused on the initiatives because these were specifically designed to
respond to the crises. Our calculations for the overall commitments
and disbursements, as well as the disbursement rates, differed from
the World Bank's because our methodology sought to isolate those
activities which were explicitly undertaken in response to the crises.
The World Bank said that IDA accelerated assistance delivery without
compromising attention to governance and aid effectiveness. We
acknowledge that disbursement rates, which vary over time, depend on a
number of factors, including recipient country capacity, need, and
governance, and the type of lending. The World Bank said there is
growing evidence that IDA-supported public spending for essential
services increased. As we previously reported, IFIs do not
independently track developing countries' poverty-reducing
expenditures and instead rely upon developing countries' governments
to provide such data, even though the accuracy of these data and
country capacity to provide this information is questionable. Finally,
regarding debt sustainability, the World Bank noted that our analysis
is based on a sample of just three countries and thus cannot assess
the realism of the 2010 DSA projections. We based our conclusions on
our assessment of the realism of the 2010 DSA projections for three
countries as well as on the current risks to global economic recovery,
reported by the IMF in August 2011.
The IMF indicated broad agreement with the findings of our report,
including the overview of the impact of the crisis on LICs. While the
IMF suggested that our assessment is narrow, we paid sufficient
attention to a range of response efforts, mentioning the IMF's call
for countercyclical policy responses, improved macroeconomic
conditions in LICs, doubling of access levels, and modifications to
lending instruments. The IMF acknowledged that comparing program with
non-program countries does not prove a causal link from program
engagement to higher spending and notes a recent related study. We
include a reference to the study entitled "What Happens to Social
Spending in IMF-Supported Programs" but also note that it does not
necessarily reflect the results during the crises response period. The
IMF also stated that growth assumptions underlying LIC DSAs have been
borne out so far and that DSAs have built-in methods for addressing
risks. We described the IMF's use of alternative scenarios and stress
tests to arrive at a country's debt distress rating. However, we noted
that these tests are very general and do not adequately reflect
country-specific risks including political instability, adverse
weather, global economic crises, and failure to implement reforms or
make planned investment. Our analysis of the three countries' DSAs is
intended to be illustrative and not generalizable. Our conclusion,
that projections which might be too optimistic could be mitigated by
future DSAs and additional grants, is not dependent on these three
countries.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to Members of
Congress; U.S. Treasury, the IMF, and the World Bank. In addition, the
report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-9601 or melitot@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix VII.
Signed by:
Thomas Melito:
Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to examine (1) the economic impact of the crises
on low-income countries (LIC), (2) international financial
institutions' (IFI) responses and reported results, and (3) IFIs'
assessment of the impact of the crises on LICs' ability to repay their
debt.
Economic Impact of Crises:
To examine the impact of the crises on LICs' economic performance, we
collected and analyzed key macroeconomic data from 1990 through 2010
for 38 of the 40 LICs for which data were available, except as where
noted. We analyzed variables including real gross domestic product
(GDP), current account, fiscal deficit, government expenditures and
revenue, consumer price index measure of inflation, and foreign direct
investment. We obtained these data series from the widely used IMF and
World Bank databases--World Economic Outlook, International Financial
Statistics, and World Development Indicators. We computed LICs'
average economic performance with respect to each of the key economic
variables, including current account and fiscal deficits and
inflation, using a real GDP weighted average based on purchasing power
parity (PPP) GDP, so that the resulting weighted average reflects each
country's size in terms of their share in total GDP of the entire
group of LICs. We used the PPP GDP weights to construct weighted
averages for the other variables, including fiscal and current account
deficits, government revenue and expenditures, and the consumer price
index measure of inflation.
We analyzed the LIC group's macroeconomic performance over the 2007
through 2009 crises period, and compared this to the group's
performance during the pre-crisis period from 2004 through 2006 to
determine whether economic performance improved or deteriorated. We
also disaggregated the results to determine which countries
experienced improvements and deteriorations in each of the key
macroeconomic variables. We corroborated our results with data from
the economic and financial forecasting firm, IHS Global Insight. We
also examined and assessed the DSA's incorporation of World Economic
Outlook assumptions concerning the global pace of recovery, including
those of the country's key trading partners. We also compiled
information on international food and oil price data from the UN Food
and Agriculture Organization's Food Price Index and the U.S.
Department of Energy. Additionally, we reviewed IMF country reports
and World Bank Country Assistance Strategies, which also contain
limited historical information on the key macroeconomic variables.
Some IMF data is based on developing country government data with
greatly varying statistical capacity across countries, and we
discussed these limitations with IMF officials. We determined that the
data were sufficiently reliable for summarizing countries' past
macroeconomic performance.
Crises Response:
To examine IFIs' responses to the crises and reported results, we
analyzed documents and data from the World Bank and the IMF. For the
World Bank, these documents include proposals and framework documents
for the crisis response initiatives; Country Assistance Strategies and
Interim Strategy Notes; Project Information Documents and
Implementation Completion Reports; and Independent Evaluation Group
reports and approach papers. For the IMF, we reviewed IMF country
reports; countries' letters of intent; research papers; and the
Independent Evaluation Office reports. We also reviewed joint World
Bank-IMF publications. We interviewed officials from these
institutions, as well as from the Department of State and the U.S.
Agency for International Development.
To evaluate whether the World Bank's crisis response was consistent
with the institution's stated goals of increasing the speed of
disbursements, we analyzed World Bank data on financial commitments
and disbursements made to LICs between 2005 and 2010. To do this, we
determined the first year disbursement rate for all projects approved
during the crises response period (2008 through 2010); all projects
approved during the pre-crises period (2005 through 2007); and all
projects approved during the crises response period under each
initiative, as well as those approved during the crises response
period outside of any initiative. We did not use the World Bank's
standard disbursement rate methodology because our analysis sought to
isolate those activities which were explicitly undertaken in response
to the crises. For our analysis, this included only projects approved
after the World Bank first stated its intention to respond to any of
the three crises. This occurred in early 2008, with the establishment
of the Global Food Crisis Response Program. We also identified the
total number of projects and the amount of funding committed in
association with any of the World Bank's crisis response initiatives.
To measure the speed of disbursements, we first calculated the total
disbursements for each project that took place during the first four
quarters following project approval. We then determined the average
disbursement rate by using a weighted average, which is computed as
the ratio between the sum of first year disbursements and the sum of
the commitments. One type of project, "additional financing" projects,
tracks disbursements under the "parent" project, though commitment
amounts are recorded under the "additional financing" project. In our
dataset, there were 160 of these projects, out of a total of 622. To
ensure that disbursements from "additional financing" projects were
captured in our analysis, we developed a methodology that calculated
the remaining commitment balance of the "parent" project as of the
quarter in which the additional financing project is approved. We then
added the balance to the new commitment from the additional financing
project to form the denominator of the disbursement ratio. We then
calculated the first year disbursement rate by determining the first
four quarters of disbursements under the "parent" project following
the approval date of the "additional financing" project. We used
disbursement data through June 2011, the latest available, to ensure
as many projects as possible (97 percent of all projects) had 4
quarters of disbursements. Eighteen projects approved in the fourth
quarter of 2010 had only 3 quarters of disbursement data. We used
disbursement data through June 2008 for the pre-crisis period to make
our analysis comparable. We then compared various disbursement rates
to one another to reach our conclusions. We assessed the reliability
of the data we used in our analysis by comparing the consistency of
the data among the various sources, and discussing the data with World
Bank and IMF officials. For the data used to determine World Bank
disbursement rates, we interviewed World Bank officials to understand
their database and correct errors in the data. We determined that the
data used in our analysis were sufficiently reliable for our purposes.
To determine U.S. dollar values associated with the IMF's response to
the crises, we used information on IMF program and funding levels. To
calculate the portion of the $250 billion in support that the LICs
received, we totaled the amount each country received in Special
Drawing Rights, the IMF's unit of account, and multiplied that by the
August 28, 2009 conversion rate to arrive at a U.S. dollar value. To
calculate that IMF loans to LICs increased more than sixfold from
approximately $748 million between 2005 and 2007 to about $4.9 billion
between 2008 and 2010, we used data from the "IMF Lending
Arrangements" online tool.[Footnote 70] For each year, we totaled new
lending to LICs in Special Drawing Rights, then converted that total
to dollars using the year-end exchange rate. We also assessed the
sensitivity of the results of an IMF analysis of government spending
in LICs in 2009 using data from the IMF and the Worldwide Governance
Indicators. We compared program LICs and non-program LICs using
measures of institutional quality from the World Governance Indicators
and indicators of macroeconomic policy from the IMF's World Economic
Outlook database. We conducted sensitivity analyses by omitting
countries with the lowest scores on certain measures of institutional
quality or the least favorable pre-crisis macroeconomic policies from
the sample of non-program LICs. We assessed the reliability of data
used in our sensitivity analyses and found them to be sufficiently
reliable for summarizing and ranking countries' institutional quality
and macroeconomic policy.
Debt Sustainability Analyses:
To examine the extent to which IFI's assessments of LICs' ability to
repay their debt was impacted by the crises, we reviewed the changes
in each of the 40 LIC's Country Policy and Institutional Assessments
(CPIA) and debt distress ratings over the period 2007 through 2010 to
determine if the crises led to a change in a country's rating. We used
CPIA data from the World Bank's online database and the debt distress
ratings from each of the LIC's debt sustainability analyses (DSA) over
the period.
To illustrate how the DSAs are conducted and how macroeconomic
projections affect the reliability of the debt distress rating, we
focused on three case study countries: Burundi, Ethiopia, and
Tanzania. We selected these countries based on criteria that include
the number of IFI projects, amount of IFI financial support, and
country conditions. For example, between fiscal years 2008 and 2010,
Ethiopia and Tanzania were in the top three recipients of IDA
assistance by dollar value, receiving approximately $4.8 billion,
while Burundi is a post-conflict fragile state. For each of our three
case-study countries, we analyzed the country's 2010 World Bank-IMF
Bank DSAs, as well as the associated IMF program reviews and Article
IV consultations, and World Bank Country Assistance Strategies. We
also reviewed prior and subsequent DSAs to make comparisons and check
for data consistency. In addition, we met with IMF staff responsible
for the DSA preparation for preparing each of the case-study countries.
We based our assessment of the DSA's ability to accurately reflect the
country's debt vulnerabilities on our analysis of the DSA's
macroeconomic projections and the underlying assumptions, which form
the basis of the country's risk of debt distress. These include the
DSA's projections and assumptions regarding key macroeconomic
variables, such as real GDP and export growth, and the divergence of
the growth rates of these variables from their historic values;
assumptions regarding the LIC's implementation of reforms and
productivity-increasing investment; and assumptions concerning the
country's vulnerability to external shocks, including adverse weather,
political or regional instability, and rising food and fuel prices.
To determine economic performance over the study period for our three
case study countries, and to calculate historical growth rates for key
macroeconomic variables, we relied primarily on IMF and World Bank
databases--World Economic Outlook, International Financial Statistics,
World Development Indicators, and Balance of Payments Statistics. We
also utilized data from IMF Article IV consultations and country
program reviews. We compared GAO-calculated 10-year historical
averages for the most important macroeconomic variables with the DSA's
historical averages for these variables, which form the basis for the
DSA's projections and debt ratios. We evaluated the IFIs'
determination of a country's risk of debt distress partly based on the
extent to which the values of historical key macroeconomic variables
diverge from their projected values; and, if so, whether the DSA
provides reasonable justification for this divergence. In making this
assessment, we also considered additional information available in the
Article IVs, World Bank Country Assistance Strategies, and Global
Insight Country Intelligence Reports. We also based our assessment of
the IFIs' determination of the country's risk of debt distress on the
DSA's consideration of country-specific factors, such as the country's
susceptibility to weather-related shocks; political instability; and
implementation of institutional reforms that would enhance a country's
growth prospects, particularly in the economic and debt management
areas. We discussed our approach and preliminary findings with
officials from the IMF. We assessed the reliability of data used in
our country analysis based on the consistency of data across various
sources and determined them to be sufficiently reliable to make
nongeneralizable assessments of the DSAs for the three case study
countries.
We conducted this performance audit from September 2010 to September
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Economic, Demographic, and Financial Assistance Data for
LICs:
Country: Afghanistan;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 30;
Life expectancy (2008, years): 44;
GNI per capita ($USD, 2008): $310;
Percent of population:
Rural: 76%;
Access to improved water source: 48%;
Access to improved sanitation facilities: 37%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = 5,557;
IDA: 4%;
United States: 46%;
All multilateral assistance: 15%;
All bilateral assistance: 85%.
Country: Bangladesh;
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 162;
Life expectancy (2008, years): 66;
GNI per capita ($USD, 2008): $520;
Percent of population:
Rural: 73%;
Access to improved water source: 80%;
Access to improved sanitation facilities: 53%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions): $2,650;
All donors total = $2,650;
IDA: 22%;
United States: 4%;
All multilateral assistance: 50%;
All bilateral assistance: 50%.
Country: Benin;
Medium Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 9;
Life expectancy (2008, years): 61;
GNI per capita ($USD, 2008): $700;
Percent of population:
Rural: 59%;
Access to improved water source: 75%;
Access to improved sanitation facilities: 12%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $680;
IDA: 14%;
United States: 7%;
All multilateral assistance: 52%;
All bilateral assistance: 48%.
Country: Burkina Faso;
Medium Performer;
High risk of debt distress;
Population (nearest million, 2009): 16;
Life expectancy (2008, years): 53;
GNI per capita ($USD, 2008): $480;
Percent of population:
Rural: 80%;
Access to improved water source: 76%;
Access to improved sanitation facilities: 11%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,085;
IDA: 19%;
United States: 3%;
All multilateral assistance: 54%;
All bilateral assistance: 46%.
Country: Burma (Myanmar);
Performer: No rating;
Risk of debt distress: No rating;
Population (nearest million, 2009): 50;
Life expectancy (2008, years): 62;
GNI per capita ($USD, 2008): No data available;
Percent of population:
Rural: 67%;
Access to improved water source: 71%;
Access to improved sanitation facilities: 81%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $454;
IDA: 0%;
United States: 12%;
All multilateral assistance: 24%;
All bilateral assistance: 76%.
Country: Burundi;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 6;
Life expectancy (2008, years): 50;
GNI per capita ($USD, 2008): $140;
Percent of population:
Rural: 90%;
Access to improved water source: 72%;
Access to improved sanitation facilities: 46%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,060;
IDA: 35%;
United States: 4%;
All multilateral assistance: 68%;
All bilateral assistance: 32%.
Country: Cambodia;
Weak Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 15;
Life expectancy (2008, years): 61;
GNI per capita ($USD, 2008): $630;
Percent of population:
Rural: 78%;
Access to improved water source: 61%;
Access to improved sanitation facilities: 29%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $755;
IDA: 6%;
United States: 9%;
All multilateral assistance: 37%;
All bilateral assistance: 63%.
Country: Central African Republic;
Weak Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 4;
Life expectancy (2008, years): 47;
GNI per capita ($USD, 2008): $410;
Percent of population:
Rural: 61%;
Access to improved water source: 67%;
Access to improved sanitation facilities: 34%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $534;
IDA: 39%;
United States: 6%;
All multilateral assistance: 77%;
All bilateral assistance: 23%.
Country: Chad;
Weak Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 11;
Life expectancy (2008, years): 49;
GNI per capita ($USD, 2008): $540;
Percent of population:
Rural: 73%;
Access to improved water source: 50%;
Access to improved sanitation facilities: 9%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $565;
IDA: 3%;
United States: 22%;
All multilateral assistance: 42%;
All bilateral assistance: 58%.
Country: Comoros;
Weak Performer;
In debt distress;
Population (nearest million, 2009): 1;
Life expectancy (2008, years): 65;
GNI per capita ($USD, 2008): $750;
Percent of population:
Rural: 72%;
Access to improved water source: 95%;
Access to improved sanitation facilities: 36%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $53;
IDA: 5%;
United States: 0%;
All multilateral assistance: 47%;
All bilateral assistance: 53%.
Country: Democratic Republic of Congo;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 66;
Life expectancy (2008, years): 48;
GNI per capita ($USD, 2008): $150;
Percent of population:
Rural: 66%;
Access to improved water source: 46%;
Access to improved sanitation facilities: 23%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $2,261;
IDA: 17%;
United States: 10%;
All multilateral assistance: 54%;
All bilateral assistance: 46%.
Country: Eritrea;
Weak Performer;
In debt distress;
Population (nearest million, 2009): 5;
Life expectancy (2008, years): 59;
GNI per capita ($USD, 2008): $280;
Percent of population:
Rural: 79%;
Access to improved water source: 61%;
Access to improved sanitation facilities: 14%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $149;
IDA: 14%;
United States: 2%;
All multilateral assistance: 60%;
All bilateral assistance: 40%.
Country: Ethiopia;
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 83;
Life expectancy (2008, years): 55;
GNI per capita ($USD, 2008): $280;
Percent of population:
Rural: 83%;
Access to improved water source: 38%;
Access to improved sanitation facilities: 12%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $3,598;
IDA: 22%;
United States: 21%;
All multilateral assistance: 48%;
All bilateral assistance: 52%.
Country: The Gambia;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 2;
Life expectancy (2008, years): 56;
GNI per capita ($USD, 2008): $400;
Percent of population:
Rural: 44%;
Access to improved water source: 92%;
Access to improved sanitation facilities: 67%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $231;
IDA: 52%;
United States: 4%;
All multilateral assistance: 85%;
All bilateral assistance: 15%.
Country: Ghana;
Strong Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 24;
Life expectancy (2008, years): 57;
GNI per capita ($USD, 2008): $1,150;
Percent of population:
Rural: 50%;
Access to improved water source: 82%;
Access to improved sanitation facilities: 13%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,495;
IDA: 17%;
United States: 8%;
All multilateral assistance: 45%;
All bilateral assistance: 55%.
Country: Guinea;
Weak Performer;
In debt distress;
Population (nearest million, 2009): 10;
Life expectancy (2008, years): 58;
GNI per capita ($USD, 2008): $340;
Percent of population:
Rural: 66%;
Access to improved water source: 71%;
Access to improved sanitation facilities: 19%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $394;
IDA: 6%;
United States: 13%;
All multilateral assistance: 37%;
All bilateral assistance: 63%.
Country: Guinea-Bissau;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 2;
Life expectancy (2008, years): 48;
GNI per capita ($USD, 2008): $460;
Percent of population:
Rural: 70%;
Access to improved water source: 61%;
Access to improved sanitation facilities: 21%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $155;
IDA: 15%;
United States: 1%;
All multilateral assistance: 66%;
All bilateral assistance: 34%.
Country: Haiti;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 10;
Life expectancy (2008, years): 61;
GNI per capita ($USD, 2008): No data available;
Percent of population:
Rural: 53%;
Access to improved water source: 63%;
Access to improved sanitation facilities: 17%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,448;
IDA: 16%;
United States: 20%;
All multilateral assistance: 56%;
All bilateral assistance: 44%.
Country: Kenya;
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 40;
Life expectancy (2008, years): 54;
GNI per capita ($USD, 2008): $730;
Percent of population:
Rural: 78%;
Access to improved water source: 59%;
Access to improved sanitation facilities: 31%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,805;
IDA: 10%;
United States: 29%;
All multilateral assistance: 32%;
All bilateral assistance: 68%.
Country: Kyrgyzstan;
Medium Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 5;
Life expectancy (2008, years): 67;
GNI per capita ($USD, 2008): $790;
Percent of population:
Rural: 64%;
Access to improved water source: 90%;
Access to improved sanitation facilities: 93%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $389;
IDA: 10%;
United States: 15%;
All multilateral assistance: 47%;
All bilateral assistance: 53%.
Country: Laos;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 6;
Life expectancy (2008, years): 65;
GNI per capita ($USD, 2008): $750;
Percent of population:
Rural: 69%;
Access to improved water source: 57%;
Access to improved sanitation facilities: 53%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $508;
IDA: 10%;
United States: 1%;
All multilateral assistance: 38%;
All bilateral assistance: 62%.
Country: Liberia;
Weak Performer;
Low risk of debt distress;
Population (nearest million, 2009): 4;
Life expectancy (2008, years): 58;
GNI per capita ($USD, 2008): $170;
Percent of population:
Rural: 40%;
Access to improved water source: 68%;
Access to improved sanitation facilities: 17%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,081;
IDA: 3%;
United States: 25%;
All multilateral assistance: 30%;
All bilateral assistance: 70%.
Country: Madagascar;
medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 20;
Life expectancy (2008, years): 60;
GNI per capita ($USD, 2008): $410;
Percent of population:
Rural: 70%;
Access to improved water source: 41%;
Access to improved sanitation facilities: 11%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $663;
IDA: 19%;
United States: 12%;
All multilateral assistance: 59%;
All bilateral assistance: 41%.
Country: Malawi;
Medium Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 15;
Life expectancy (2008, years): 53;
GNI per capita ($USD, 2008): $260;
Percent of population:
Rural: 81%;
Access to improved water source: 80%;
Access to improved sanitation facilities: 56%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $861;
IDA: 8%;
United States: 12%;
All multilateral assistance: 48%;
All bilateral assistance: 52%.
Country: Mali
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 13;
Life expectancy (2008, years): 48;
GNI per capita ($USD, 2008): $610;
Percent of population:
Rural: 68%;
Access to improved water source: 56%;
Access to improved sanitation facilities: 36%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,021;
IDA: 14%;
United States: 8%;
All multilateral assistance: 43%;
All bilateral assistance: 57%.
Country: Mauritania;
Medium Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 3;
Life expectancy (2008, years): 57;
GNI per capita ($USD, 2008): $980;
Percent of population:
Rural: 59%;
Access to improved water source: 49%;
Access to improved sanitation facilities: 26%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $328;
IDA: 13%;
United States: 5%;
All multilateral assistance: 48%;
All bilateral assistance: 52%.
Country: Mozambique;
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 23;
Life expectancy (2008, years): 48;
GNI per capita ($USD, 2008): $380;
Percent of population:
Rural: 63%;
Access to improved water source: 47%;
Access to improved sanitation facilities: 17%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $2,039;
IDA: 12%;
United States: 12%;
All multilateral assistance: 35%;
All bilateral assistance: 65%.
Country: Nepal;
Medium Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 29;
Life expectancy (2008, years): 67;
GNI per capita ($USD, 2008): $400;
Percent of population:
Rural: 83%;
Access to improved water source: 88%;
Access to improved sanitation facilities: 31%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $949;
IDA: 14%;
United States: 8%;
All multilateral assistance: 43%;
All bilateral assistance: 57%.
Country: Niger;
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 15;
Life expectancy (2008, years): 51;
GNI per capita ($USD, 2008): $330;
Percent of population:
Rural: 83%;
Access to improved water source: 48%;
Access to improved sanitation facilities: 9%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $556;
IDA: 9%;
United States: 8%;
All multilateral assistance: 51%;
All bilateral assistance: 49%.
Country: North Korea;
Performer: No rating;
Risk of debt distress: No rating;
Population (nearest million, 2009): 24;
Life expectancy (2008, years): 67;
GNI per capita ($USD, 2008): No data available;
Percent of population:
Rural: 37%;
Access to improved water source: 00%;
Access to improved sanitation facilities: No data available;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $140;
IDA: 0%;
United States: 55%;
All multilateral assistance: 19%;
All bilateral assistance: 81%.
Country: Rwanda;
Medium Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 10;
Life expectancy (2008, years): 50;
GNI per capita ($USD, 2008): $440;
Percent of population:
Rural: 82%;
Access to improved water source: 65%;
Access to improved sanitation facilities: 54%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $940;
IDA: 14%;
United States: 14%;
All multilateral assistance: 48%;
All bilateral assistance: 52%.
Country: Sienna Leone;
Weak Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 6;
Life expectancy (2008, years): 48;
GNI per capita ($USD, 2008): $320;
Percent of population:
Rural: 62%;
Access to improved water source: 49%;
Access to improved sanitation facilities: 13%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $407;
IDA: 11%;
United States: 4%;
All multilateral assistance: 54%;
All bilateral assistance: 46%.
Country: Solomon Islands;
Weak Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 1;
Life expectancy (2008, years): 66;
GNI per capita ($USD, 2008): $ 1,050;
Percent of population:
Rural: 82%;
Access to improved water source: No data available;
Access to improved sanitation facilities: No data available;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $220;
IDA: 0%;
United States: 0%;
All multilateral assistance: 4%;
All bilateral assistance: 96%.
Country: Somalia;
Performer: No rating;
Risk of debt distress: No rating;
Population (nearest million, 2009): 9;
Life expectancy (2008, years): 50;
GNI per capita ($USD, 2008): No data available;
Percent of population:
Rural: 63%;
Access to improved water source: 30%;
Access to improved sanitation facilities: 23%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $711;
IDA: 0%;
United States: 31%;
All multilateral assistance: 24%;
All bilateral assistance: 76%.
Country: Tajikistan;
Weak Performer;
High risk of debt distress;
Population (nearest million, 2009): 7;
Life expectancy (2008, years): 67;
GNI per capita ($USD, 2008): $600;
Percent of population:
Rural: 74%;
Access to improved water source: 70%;
Access to improved sanitation facilities: 94%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $386;
IDA: 11%;
United States: 13%;
All multilateral assistance: 60%;
All bilateral assistance: 40%.
Country: Tanzania;
Strong Performer;
Low risk of debt distress;
Population (nearest million, 2009): 44;
Life expectancy (2008, years): 56;
GNI per capita ($USD, 2008): $460;
Percent of population:
Rural: 74%;
Access to improved water source: 54%;
Access to improved sanitation facilities: 24%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $2,655;
IDA: 20%;
United States: 10%;
All multilateral assistance: 47%;
All bilateral assistance: 53%.
Country: Togo;
Weak Performer;
Moderate risk of debt distress;
Population (nearest million, 2009): 7;
Life expectancy (2008, years): 63;
GNI per capita ($USD, 2008): $410;
Percent of population:
Rural: 58%;
Access to improved water source: 60%;
Access to improved sanitation facilities: 12%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $503;
IDA: 19%;
United States: 1%;
All multilateral assistance: 45%;
All bilateral assistance: 55%.
Country: Uganda;
Strong Performer;
Low risk of debt distress;
Population (nearest million, 2009): 33;
Life expectancy (2008, years): 53;
GNI per capita ($USD, 2008): $420;
Percent of population:
Rural: 87%;
Access to improved water source: 67%;
Access to improved sanitation facilities: 48%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,745;
IDA: 17%;
United States: 21%;
All multilateral assistance: 41%;
All bilateral assistance: 59%.
Country: Zambia;
Medium Performer;
Low risk of debt distress;
Population (nearest million, 2009): 13;
Life expectancy (2008, years): 45;
GNI per capita ($USD, 2008): $950;
Percent of population:
Rural: 65%;
Access to improved water source: 60%;
Access to improved sanitation facilities: 49%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $1,211;
IDA: 4%;
United States: 19%;
All multilateral assistance: 41%;
All bilateral assistance: 59%.
Country: Zimbabwe;
Weak Performer;
In debt distress;
Population (nearest million, 2009): 13;
Life expectancy (2008, years): 44;
GNI per capita ($USD, 2008): $320;
Percent of population:
Rural: 63%;
Access to improved water source: 82%;
Access to improved sanitation facilities: 44%;
Average Annual Official Development Assistance (ODA) (Dollars in
millions):
All donors total = $676;
IDA: 0%;
United States: 35%;
All multilateral assistance: 15%;
All bilateral assistance: 85%.
Sources: GAO analysis of World Bank, IMF and OECD-DAC data; Map
Resources (map).
Note: Average Annual Official Development Assistance (ODA), for which
the main objective is economic development and welfare, was calculated
using data from 2008 and 2009 and does not include funding for 2010.
ODA excludes certain items such as military aid and antiterrorism
activities.
[End of table]
[End of section]
Appendix III: World Bank Commitments and Disbursements to LICs through
Crisis Response Initiatives:
[End of section]
Between 2008 and 2010, the World Bank committed $12.2 billion in
financial assistance to 38 LICs through five crisis response
initiatives, including $10.8 billion from existing International
Development Association (IDA) funds, and $1.4 billion from new
financial assistance. Figure 14 shows World Bank commitments to 38
LICs between 2008 and 2010.
Figure 14: Distribution of World Bank Commitments to 38 LICs, by
Country, 2008-2010:
[Refer to PDF for image: horizontal bar graph]
Country: Ethiopia;
Existing IDA funds: $1.964 billion;
New funds: $86.85 million.
Country: Bangladesh;
Existing IDA funds: $1.610 billion;
New funds: $50.53 million.
Country: Tanzania;
Existing IDA funds: $1.289 billion;
New funds: $89.03 million.
Country: Kenya;
Existing IDA funds: $895.46 million;
New funds: $88.93 million.
Country: Ghana;
Existing IDA funds: $790.81 million;
New funds: $47.59 million.
Country: Democratic Republic of Congo;
Existing IDA funds: $710 million;
New funds: $40 million.
Country: Uganda;
Existing IDA funds: $544.91 million;
New funds: $70.09 million.
Country: Nepal;
Existing IDA funds: $327.74 million;
New funds: $94.65 million.
Country: Burkina Faso;
Existing IDA funds: $349.96 million;
New funds: $36.54 million.
Country: Afghanistan;
Existing IDA funds: $257.98 million;
New funds: $69 million.
Country: Mali;
Existing IDA funds: $274.77 million;
New funds: $50.38 million.
Country: Mozambique;
Existing IDA funds: $230.92 million;
New funds: $75.23 million.
Country: Rwanda;
Existing IDA funds: $248.03 million;
New funds: $40.53 million.
Country: Benin;
Existing IDA funds: $134.93 million;
New funds: $39.84 million.
Country: Haiti;
Existing IDA funds: $135.02 million;
New funds: $38.32 million.
Country: Kyrgyzstan;
Existing IDA funds: $136.31 million;
New funds: $26.08 million.
Country: Zambia;
Existing IDA funds: $120.34 million;
New funds: $19.66 million.
Country: Burundi;
Existing IDA funds: $113 million;
New funds: $25.4 million.
Country: Laos;
Existing IDA funds: $94.21 million;
New funds: $38.11 million.
Country: Liberia;
Existing IDA funds: $83.21 million;
New funds: $42.28 million.
Country: Niger;
Existing IDA funds: $110 million;
New funds: $7.11 million.
Country: Tajikistan;
Existing IDA funds: $49.38 million;
New funds: $52.38 million.
Country: Sierra Leone;
Existing IDA funds: $50 million;
New funds: $40.98 million.
Country: Malawi;
Existing IDA funds: $46.79 million;
New funds: $34.1 million.
Country: Togo;
Existing IDA funds: $56.97 million;
New funds: $20.41 million.
Country: Cambodia;
Existing IDA funds: $65 million;
New funds: $8.18 million.
Country: Central African;
Existing IDA funds: $48.61 million;
New funds: $11.76 million.
Country: Madagascar;
Existing IDA funds: $40 million;
New funds: $10 million.
Country: Gambia, The;
Existing IDA funds: $12.13 million;
New funds: $21.6 million.
Country: Guinea-Bissau;
Existing IDA funds: $5 million;
New funds: $27.98 million.
Country: Mauritania;
Existing IDA funds: $9.96 million;
New funds: $15.54 million.
Country: Solomon Islands;
Existing IDA funds: $7.2 million;
New funds: $3.17 million.
Country: Guinea;
Existing IDA funds: $0;
New funds: $10 million.
Country: Comoros;
Existing IDA funds: $3.79 million;
New funds: $5.12 million.
Country: Zimbabwe;
Existing IDA funds: $0;
New funds: $7.3 million.
Country: Somalia;
Existing IDA funds: $0;
New funds: $7 million.
Country: Eritrea;
Existing IDA funds: $0;
New funds: $0.
Country: Chad;
Existing IDA funds: $0;
New funds: $0.
Source: GAO analysis of World Bank data.
[End of figure]
Within the four crisis response initiatives that sought to increase
the speed of disbursements of commitments from existing IDA funds,
first year disbursement rates varied by country, as shown in figures
15 through 18.
Figure 15: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds through the Global Food Crisis Response
Program, by Country:
[Refer to PDF for image: horizontal bar graph]
Country: Cambodia;
Disbursement rate: 105.7%.
Country: Ethiopia;
Disbursement rate: 102.49%.
Country: Bangladesh;
Disbursement rate: 95.05%.
Country: Mozambique;
Disbursement rate: 94.49%.
Country: Nepal;
Disbursement rate: 38.03%.
Country: Tanzania;
Disbursement rate: 34.22%.
Country: Kyrgyzstan;
Disbursement rate: 27.07%.
Country: Kenya;
Disbursement rate: 3.67%.
Country: Madagascar;
Disbursement rate: 0%.
Country: Haiti;
Disbursement rate: 0%.
Source: GAO analysis of World Bank data.
Note: We determined the first year disbursement rates by calculating
the total disbursements for each project for the first four quarters
following project approval, then taking the ratio of total
disbursements to the total committed funds. These rates include
projects that were approved under the Global Food Crisis Response
Program between 2008 and 2010. Some disbursement rates may exceed 100
percent due to exchange rate fluctuation between 2008 and 2010.
[End of figure]
Figure 16: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds through the Fast Track Facility, by Country:
[Refer to PDF for image: horizontal bar graph]
Country: Central African Republic;
Disbursement rate: 102%.
Country: Laos;
Disbursement rate: 102%.
Country: Burkina Faso;
Disbursement rate: 100%.
Country: Democratic Republic of Congo;
Disbursement rate: 86%.
Country: Ghana;
Disbursement rate: 50%.
Source: GAO analysis of World Bank data.
Note: We determined the first year disbursement rates by calculating
the total disbursements for each project for the first four quarters
following project approval, then taking the ratio of total
disbursements to the total committed funds. These rates include
projects that were approved under the Fast Track Facility between 2009
and 2010. Some disbursement rates may exceed 100 percent due to
exchange rate fluctuation between 2008 and 2010.
[End of figure]
Figure 17: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds through the Rapid Social Response Program, by
Country:
[Refer to PDF for image: horizontal bar graph]
Country: Rwanda;
Disbursement rate: 102.01%.
Country: Burkina Faso;
Disbursement rate: 92.72%.
Country: Benin;
Disbursement rate: 90.17%.
Country: Malawi;
Disbursement rate: 75.42%.
Country: Nepal;
Disbursement rate: 69.06%.
Country: Haiti;
Disbursement rate: 59.89%.
Country: Ghana;
Disbursement rate: 41.09%.
Country: Kyrgyzstan;
Disbursement rate: 40.18%.
Country: Tanzania;
Disbursement rate: 38.91%.
Country: Togo;
Disbursement rate: 36.55%.
Country: Democratic Republic Congo;
Disbursement rate: 28.47%.
Country: Ethiopia;
Disbursement rate: 23.79%.
Country: Sierra Leone;
Disbursement rate: 19.42%.
Country: Uganda;
Disbursement rate: 15.3%.
Country: Liberia;
Disbursement rate: 12.32%.
Country: Kenya;
Disbursement rate: 11.69%.
Country: Laos;
Disbursement rate: 10.5%.
Country: Comoros;
Disbursement rate: 9.29%.
Country: Afghanistan;
Disbursement rate: 7.89%.
Country: Central African;
Disbursement rate: 7.2%.
Country: Solomon Islands;
Disbursement rate: 5.27%.
Country: Bangladesh;
Disbursement rate: 0.74%.
Country: Guinea-Bissau;
Disbursement rate: 0.
Source: GAO analysis of World Bank data.
Note: We determined the first year disbursement rates by calculating
the total disbursements for each project for the first four quarters
following project approval, then taking the ratio of total
disbursements to the total committed funds. These rates include
projects that were approved under the Rapid Social Response between
2008 and 2010. Some disbursement rates may exceed 100 percent due to
exchange rate fluctuation between 2008 and 2010.
[End of figure]
Figure 18: First Year Disbursement Rates of World Bank Commitments
from Existing IDA Funds, Pilot Crisis Response Window, by Country:
[Refer to PDF for image: horizontal bar graph]
Country: Benin;
Disbursement rate: 96.24.
Country: Rwanda;
Disbursement rate: 93.13.
Country: Tajikistan;
Disbursement rate: 92.42.
Country: Burkina Faso;
Disbursement rate: 87.67.
Country: Mali;
Disbursement rate: 80.14.
Country: Malawi;
Disbursement rate: 74.51.
Country: Togo;
Disbursement rate: 64.71.
Country: Laos;
Disbursement rate: 50.83.
Country: Central African;
Disbursement rate: 50.64.
Country: Kyrgyzstan;
Disbursement rate: 44.05.
Country: Uganda;
Disbursement rate: 43.88.
Country: Sierra Leone;
Disbursement rate: 36.13.
Country: Guinea-Bissau;
Disbursement rate: 32.92.
Country: Democratic Republic of Congo;
Disbursement rate: 26.71.
Country: Mauritania;
Disbursement rate: 26.06%.
Country: Liberia;
Disbursement rate: 25.39%.
Country: Nepal;
Disbursement rate: 20.1%.
Country: Afghanistan;
Disbursement rate: 12.72%.
Country: Gambia, The;
Disbursement rate: 12.6%.
Country: Ghana;
Disbursement rate: 9.82%.
Country: Comoros;
Disbursement rate: 9.29%.
Country: Tanzania;
Disbursement rate: 9.17%.
Country: Bangladesh;
Disbursement rate: 5.99%.
Country: Haiti;
Disbursement rate: 5.33%.
Country: Mozambique;
Disbursement rate: 2.86%.
Country: Kenya;
Disbursement rate: 2.83%.
Country: Zambia;
Disbursement rate: 1.83%.
Country: Ethiopia;
Disbursement rate: 0.
Country: Burundi;
Disbursement rate: 0.
Source: GAO analysis of World Bank data.
Note: We determined the first year disbursement rates by calculating
the total disbursements for each project for the first four quarters
following project approval, then taking the ratio of total
disbursements to the total committed funds. These rates include
projects that were approved under the Pilot Crisis Response Window
during 2010. Some disbursement rates may exceed 100 percent due to
exchange rate fluctuation between 2008 and 2010.
[End of figure]
[End of section]
Appendix IV: Comments from the U.S. Department of the Treasury:
Note: GAO comments supplementing those in the report text appear at
the end of the appendix.
Department Of The Treasury:
Washington, D.C.
September 12, 2011:
Thomas Melito:
Director, International Affairs and Trade:
Government Accountability Office:
441 G Street N.W.
Washington, D.C. 20548:
Dear Mr. Melito,
Thank you for the opportunity to comment on the draft report regarding
the International Financial Institution (IFI) response to the crises
in low-income countries. The United States strongly advocated for
increased IFI engagement in low-income countries (LICs) during the
recent food, fuel, and financial crises. We recognized the potentially
severe impact that these crises could have for the poorest in these
countries, and we worked closely with other G-20 countries to shape
the IFI response in a way that hoped for the best, but prepared for
the worst. As such, we have a strong interest in the findings of your
report.
The GAO report provides a good overview of how the IMF responded
forcefully to the crisis in order to protect the poorest countries. As
the GAO report indicates, the IMF significantly reformed its
concessional facilities in order to respond to the crisis, more than
doubling resources available to lend to LICs, raising access limits,
and increasing the flexibility of its instruments. The United States
was instrumental in pressing for these reforms in the IMF Board and in
G-20 meetings. Treasury also worked closely with Congress to ensure
that $1 billion in profits from gold sales would be allocated towards
increased concessional resources for LICs.
The GAO report, in assessing the Funds response to the crisis in the
poorest countries, focuses on a comparison of program and non-program
LICS, indicating that the contribution of IMF programs to government
spending in LICs is difficult to establish. The U.S. Treasury closely
monitors IMF lending to LICs to ensure that programs appropriately
preserve pro-poor spending. In our analysis, IMF programs agreed to in
the wake of the crisis had appropriate fiscal targets, and as a
general policy the IMF sought to accommodate an increase in pro-poor
spending in these programs. In contrast to prior crises, almost 90
percent of LICs in both program and non-program countries were able to
increase real expenditures during the crisis. LIC spending on public
investment, health, and education grew at a faster rate during the
crisis, and many LICs took steps to strengthen social protection
systems even as revenues declined. The goal of an IMF program is to
provide countries with balance-of-payments support, which in turn can
help to create fiscal and monetary space to implement structural
adjustments and stabilize the economy within a sound macroeconomic
framework commensurate with economic reality. Thus, while we
appreciate GAO's analysis of program vs. non-program countries, a more
meaningful comparison would have been to examine the impact of IMF
programs on an individual country's expenditures on health, education
and social safety nets. [See comment 1]
Treasury also closely monitors World Bank lending to LICs. As the GAO
report correctly notes, the World Bank undertook five initiatives to
complement the response of the International Development Association
(IDA) to the crisis, specifically the: 1) Global Food Crisis Response
Program: 2) IDA Fast-track Facility; 3) Rapid Social Response Program;
4) Infrastructure Recovery and Assets Platform; and 5) Pilot Crisis
Response Window. Treasury was actively involved in the creation of
these facilities and has been working hand-in-hand with the World
Bank to ensure that these facilities adhere to the highest standards
of fiduciary controls, results reporting and capacity building at the
recipient country level. It is also worth noting that these facilities
were designed to achieve multiple objectives, notably to introduce
greater flexibility and improve the speed with which operations are
developed, approved and funds committed; to increase the awareness
with the intent of raising additional resources; and to work with
recipient governments to improve disbursements for development. The
GAO report's focus on speed of disbursements is just one measure of
effective crisis response, and it is important to keep these other
objectives in mind in considering the effectiveness of the World
Bank's efforts. [See comment 2]
We also believe it is important to consider the trade-off between
speed of disbursements and the need to ensure adequate governance
structures and fiduciary controls are in place. This is a particular
challenge in a crisis environment, but we believe that the MDBs have
managed it well in recent years. The MDBs have strong fiduciary
controls, as well as social and environmental protections, all of
which serve to ensure that U.S. taxpayer funds are being used
appropriately. And, as GAO notes, countries' absorptive capacity
affects the rate at which the MDBs can disburse effectively. We do not
believe the MDBs should sacrifice these standards even in a crisis
environment. The evidence suggests to us that the World Bank and other
MDBs managed an effective crisis response without undermining these
critical controls.
Further, we believe it is important to note the large and real
increase in resource flows (including disbursements) generated by the
World Bank and other MDBs in response to the call by the G20 for an
aggressive crisis response. Collectively, the MDBs have increased (or
are on track to increase) commitments by over $100 billion over the
period 2009-11, an effort that had a strongly positive impact in
support of the developing world. From the U.S. perspective, the
MDB's crisis support helped to bolster economies that represent
critical export markets. In this way, the MDBs were supporting our
recovery.
The lessons and experience from this crisis period have fed into the
creation of a Crisis Response Window (CRW) in IDA-16, designed to be
deployed in countries suffering from acute natural disasters or
exogenous economic shocks. In addition to the IDA-16 Crisis Response
Window, we are actively working with the Bank to improve the way it
approaches and delivers on crisis assistance. More broadly, we believe
that the best role for the Bank (and its core expertise) is to provide
long-term support in helping developing countries build greater
resilience to future crises. By working closely with the Bank and
other MDBs to put in place the right fiduciary arrangements and
strengthen country capacity to absorb and manage MDB assistance,
Treasury can improve the quality of the Bank's and other MDBs'
interventions and improve the monitoring and reporting of development
results.
We appreciate the work that has gone into this report. We believe that
the IFIs appropriately responded to the crisis and effectively managed
the tradeoffs associated with quickly disbursing funds in an
environment of limited capacity to absorb aid.
Sincerely,
Signed by:
Scott Morris:
Deputy Assistant Secretary:
International Development Finance and Debt:
Signed by:
Mark Sobel:
Deputy Assistant Secretary:
International Monetary and Financial Policy:
The following are GAO's comments on the U.S Treasury letter, dated
September 12, 2011.
GAO Comments:
1. We emphasized that accounting for the differences between program
and non-program countries is critical to estimating the impact of IMF
programs on spending during the crisis, which the IMF did not do in
their 2010 report.
2. We acknowledged that the speed of disbursements is one measure,
among others, of effective crisis response. We acknowledged the
Treasury's statement that the need to ensure that recipient country
capacity and governance controls were sufficiently robust to absorb
the additional resources provided during the crisis period played a
role in the speed of disbursements.
[End of section]
Appendix V: Comments from the World Bank:
Note: GAO comments supplementing those in the report text appear at
the end of the appendix.
The World Bank:
Joachim von Amsberg:
Vice President and Head of Network:
Operations Policy and Country Services:
Washington, D.C. 20433:
U.S.A.
September 14; 2011:
Mr. Thomas Melito:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Melito:
Thank you for the opportunity to comment on the United States
Government Accountability Office (GAO) draft report on the Response of
International Financial Institutions (IFIs) to Crises in Low-Income
Countries (LICs) (GA0-11-832). We appreciate the time and effort that
has gone into producing this report and are grateful for GAO staffs
kind interactions with us during preparation. We welcome and agree
with GAO's overall conclusion that IFIs, including IDA and IFC, met
many goals in response to the crises in LICs. The World Bank Group
(WBG) is proud of its response to the crises in the LICs and we are
continuously seeking ways to further enhance our efficiency and
development effectiveness, in consultation with our stakeholders.
The World Bank Group's response to the crises in LICs:
In response to the crises, the WBG achieved a significant increase in
both its commitments and its disbursements of financial resources to
LICs. The increase in IDA commitments to the 36 LICs included in GAO's
report was dramatic: a 48.6% increase in IDA commitments to LICs in
the four years following the onset of the crisis (FY2008-2011)
compared to the four year period preceding the crisis (FY2004-2007).
IDA disbursements to the 36 LICs also increased, from $16.6 billion to
$19.6 billion, comparing the two four year periods; an 18.1 percent
increase in disbursements to LICs.
[Figures: vertical bar graphs: Commitments and Disbursements]
IDA as a whole committed a record $56 billion in FY08-11 to promote
economic growth, fight poverty and protect the poor in the context of
the crises. This was a 43 percent increase over the pre-crisis period
(FY04-07) and a record high for the global development institution.
Over the same period of time, disbursements to IDA countries as a
whole increased by 20 percent.
This support has helped countries deal with the devastating effects of
the global financial meltdown. In addition to significantly scaling up
its response, the Bank also streamlined procedures. The average
preparation time for operations was cut by one third. We cut red tape
to enable swifter implementation of shovel-ready projects.
As the report acknowledges, the WBG's lnternational Finance
Corporation responded to the crises through investments, trade
initiatives and enhanced cooperation with donors. Like IDA, it did so
within resource constraints and taking into appropriate account the
limited capacity of some countries to implement programs quickly and
effectively.
Key international partners have noted the WBG's swift and effective
response to the crises, helping to lay the foundations for recovery
(see box below). In addition to financial support, by providing
cutting-edge expertise and policy advice the Bank helped Governments
put in place policy and institutional reforms to prevent future crises
and to promote good governance including in the private and financial
sectors.
The Views of Some Key International Partners:
The Bank "fast-tracked resources for the poorest countries"
- United Kingdom Government, Department for International Development.
The Bank "accelerated processing and approval procedures with front-
loading of IDA resources"
- Organization for Economic Cooperation and Development
"The increased lending by dramatic amount by the World Bank in this
context of recession reflects a role it has now played in helping to
stabilize world economic growth"
- Independent Evaluation Group.
More importantly, millions of poor bear testament to FDA's role in
building the foundations for resilience and recovery in the context of
the crisis. Between FY09-11, IDA financed 23 new public works projects
in response to the crisis. Two-thirds of this lending was in Africa.
For example, Ethiopia's Productive Safety Net workfare program, a
flagship for Africa in terms of a safety net system, reaches more than
eight million rural dwellers with much-needed support while generating
community assets. Since FY09, IDA support for short- and medium-term
food supply crisis response measures are estimated to have reached 5.9
million faun households to date, and are expected to directly benefit
at least 8.8 million farm households when all activities are fully
implemented.
Specific comments on the GAO's draft report:
Despite the overall positive conclusions, we feel that the report
could more fully reflect the speed and scale of our response. We have
the following specific comments in this regard:
* The major thrust of the Bank's response to the crises was through
mainstream IDA. However, the GAO report focuses heavily on a marginal
slice of the Bank's response ” namely additional resources that were
leveraged through various incremental crisis response initiatives. We
would emphasize that the crisis facilities were created to complement
overall IDA development financing during the crises: they were only a
small part of the Bank's total response. [See comment 2]
* Measured using standard definitions, the disbursement ratio for IDA
projects in the 36 LICs increased from 25.4 percent pre-crisis to 26.4
percent post-crisis, Taking a portfolio-wide view, IDA's overall
disbursements to LICs did not slow during the crises. The GAO report
compares the first year of disbursements of operations approved in the
crisis period to the first year of disbursements of operations
approved in the pre-crisis period. We disagree with the use of this ad
hoc indicator, because it overlooks disbursements made from the much
larger existing portfolio during the crises. Total disbursements from
the World Bank ongoing and new projects allowed the continuation of
investments and programs that would otherwise have slowed down or
stopped because of the crises. Furthermore GAO's indicator ignores the
very impact of the crises on the countries' capacity to launch and
implement new projects in more challenging circumstances. [See comment
3]
* IDA accelerated delivery without compromising attention to
governance and aid effectiveness (which remain central priorities for
both the WBG and the United States Treasury). As the report
emphasizes, disbursements did not increase uniformly across all
countries. IDA makes no apologies in this regard and is proud of its
continued commitment to sustainable and responsible development. The
needs, capacity and governance of countries vary over time. [See
comment 4]
* There is growing evidence that IDA supported public spending for
essential services. The World Bank never claimed it would single
handedly maintain LIC public spending intact”-merely that it would
contribute to this goal in priority areas. Financial support to LICs
was through scores of credits and grants that contributed to public
spending: the Bank routinely analyzes and monitors poverty reducing
expenditures in IDA countries and there is ever greater evidence on
this in country-specific public expenditure reviews and dedicated
economic reports. It is also unclear why the report only focuses on
two initiatives: the Fast Track Facility and the Infrastructure
Platform when assessing IDA support to public spending. Moreover, we
believe the report should acknowledge more clearly that definitive
evaluation will only be possible when the projects in question are
complete ” most are still in train. [See comment 5]
* Finally, on debt sustainability aspects, we note that the analysis
provided in the report is based on a sample of just three countries
and so cannot achieve its stated purpose of assessing the realism of
the 2010 Debt Sustainability Analysis projections. [See comment 6]
Again, let me thank you for the opportunity to review and comment on
this draft report. We look forward to working closely with the United
States authorities, along with other development partners, as we
strive to continuously improve our effectiveness and performance.
Sincerely,
Signed by:
Joachim von Amsberg:
Vice President and Head of Network Operations Policy and Country
Services:
The following are GAO's comments on the World Bank's letter, dated
September 14, 2011.
GAO Comments:
1. We included information about commitments and disbursements in our
report, although our figures differ from the Bank's because we used
different methodologies. Our methodology isolated those activities
which were explicitly undertaken in response to the crises.
2. We acknowledged that the World Bank responded to crises in LICs
through regular IDA lending and by establishing initiatives. Our
analysis focused on the initiatives because these were specifically
designed to respond to the crises.
3. Our analysis sought to isolate those activities which were
explicitly undertaken in response to the crises. We did not assess the
World Bank's standard approach to calculating disbursements. To
measure the speed of disbursements, we first calculated the total
disbursements for each project that took place during the first four
quarters, including the quarter of project approval. We then
determined the average disbursement rates for different groups of
projects by using a weighted average, which is computed as the ratio
between the sum of first year disbursements and the sum of the
commitments for all projects that belonged to a group.
4. We acknowledged that disbursement rates, which vary over time,
depend on a number of factors, including recipient country capacity,
need, and governance, and the type of lending.
5. As we previously reported, IFIs do not independently track
developing countries' poverty-reducing expenditures and instead rely
upon developing countries' governments to provide such data, even
though the accuracy of these data and country capacity to provide this
information is questionable. We focused on the Fast Track Facility and
the infrastructure program because these two initiatives were
explicitly designed to support domestic spending in recipient
countries during the crises.
6. We based our conclusion that the underlying macroeconomic
projections might prove too optimistic on the realism of the 2010 DSA
projections for three countries--Burundi, Ethiopia, and Tanzania--as
well as on the current risks to the global economic recovery and
rising commodity prices, reported by the IMF in August 2011. Our
analysis of the three countries' DSAs is intended to be illustrative
and not generalizable. Our conclusion, that projections which might be
too optimistic could be mitigated by future DSAs and additional
grants, is not dependent on these three countries.
[End of section]
Appendix VI: Comments from the International Monetary Fund:
Note: GAO comments supplementing those in the report text appear at
the end of the appendix.
International Monetary Fund:
Deputy Managing Director:
Washington, D.C. 20431
September 8, 2011:
Mr. Thomas Melito:
Director, International Affairs and Trade:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mr. Melito:
We welcome this opportunity to comment on your report entitled
"International Financial Institutions Met Some Goals in Response to
the Crises in Low-Income Countries But Impact on Spending Difficult to
Establish." We broadly agree with the findings of the report, including
the overview of the impact of the crisis on low-income countries
(LICs), which aligns closely with our own analysis. Our comments are
focused on three broad issues related to the IMF's engagement with our
LIC members.
Overall coverage of the IMF's response to the crisis:
The report focuses its assessment rather narrowly on IMF
disbursements, fiscal spending, and debt risk ratings. While these are
important areas, other key elements of the IMF's comprehensive
initiatives to assist LICs during the crisis receive little or no
attention, and could have been more fully explored to provide a more
balanced and complete account. In particular: [See comment 1]
* The Fund's macro-policy advice to LICs in the face of the crisis,
and especially the early call for a countercyclical policy response.
This response was a first for LICs, which in past global downturns
often had to cut spending as revenues and financing dried up. The IMF
was able to advocate such a response because of the improved
macroeconomic conditions in LICs, which in turn reflected these
countries' policy efforts over an extended period prior to the crisis”
in most cases, with IMF support.
* The doubling of access levels (the amounts countries could draw
under IMF concessional facilities) early on in the crisis (April 2009)
was a key measure-”more important for countries, in practical terms,
than the subsequent funding pledges.
* The modifications to these facilities, to make them more flexible,
easier to use, and tailored to country needs. These started with the
reforms to the Exogenous Shock Facility (ESF) in September 2008,
followed by a comprehensive reform of the concessional facilities in
July 2009 that generalized and extended the earlier reforms.
Discussion of fiscal spending:
The report acknowledges the finding of a 2010 IMF staff paper that
LICs with programs supported by the Fund were able to increase
government spending more than non-program countries during the crisis.
Indeed, almost 90 percent of LICs with a Fund-supported program were
able to increase real primary expenditure at the height of the crisis
in 2009.[Footnote 1] The GAO report goes on to argue that simply
comparing program with non-program countries does not prove a causal
link from program engagement to higher spending. This is, of course, a
valid point, which is why we were careful not to claim causality in
the 2010 paper. We agree with the GAO report's conclusion that a more
rigorous analysis would be needed to conclude that IMF-supported
programs resulted in increased government spending. In this context,
however, we would note that a recently published IMF Staff Discussion
Note conducted just such an analysis, albeit over a longer time period
(1985-2009) and larger sample of countries (140), and found that IMF-
supported programs have had a positive and significant effect on
education and health spending in LICs, after controlling for other
relevant factors.[Footnote 2] [See comment 2]
Impact of the global crisis on debt sustainability:
The GAO report rightly states that the basis for the IMF and World
Bank's generally sanguine view on the impact of the crisis on debt
sustainability depends on the "realism of the projections, which
include quick recovery, implementation of policy reforms, and low
inflation." (page 1). The GAO is correct to note that, like any
projections, these may turn out to be too optimistic after the fact.
However, we would note that the "quick recovery" assumption has
generally been borne out so far, and see no reason to believe that the
growth path for LICs over the 20-year horizon used for Debt
Sustainability Analysis (DSA) will be materially different than
currently assumed. Moreover, the DSA does have some built-in
constructs that address potential concerns raised by the GAO regarding
downside risks. In particular, stress tests and alternative scenarios
performed in the context of DSAs are designed as a check on the
realism of baseline projections, and feed directly into the debt
distress ratings. As regards policy implementation, while some
specific policy slippages are cited in two of the three ease studies
in the GAO report, the report rightly emphasizes elsewhere that such
findings cannot he generalized. No evidence is given of a systematic
weakening of policy implementation in LICs since the crisis.
Let me thank you once again for the opportunity to comment on your
report and to offer our perspective on such an important topic.
Sincerely yours,
Signed by:
Min Zhu:
[End of section]
Appendix VI Footnotes:
[1] Emerging From the Global Crisis”Macroeconomic Challenges Facing
Low-Income Countries, October 2010.
[2] What Happens to Social Spending in IMF-Supported Programs, IMF SDN
11/15, August 2011.
The following are GAO's comments on the IMF's letter, dated September
8, 2011.
GAO Comments:
1. We reported on a wide range of IMF responses, including the IMF's
call for countercyclical policy responses, improved macroeconomic
conditions in LICs, doubling of access levels, and modifications to
lending instruments.
2. We believe that comparisons of program and non-program country
performance can be misleading without appropriate context or analysis.
The IMF acknowledged that comparing program with non-program countries
does not prove a causal link from program engagement to higher
spending and notes a recent related study. The study found that IMF-
supported programs were associated with increased spending on
education and health as percentage of GDP or a percentage of spending
in LICs, based on data from 1985 through 2009. We include a reference
to the study, entitled "What Happens to Social Spending in IMF-
Supported Programs"--which was released after our audit work had
concluded--and we described its conclusions and relevance in a
footnote. In particular, the study's results represent the average
effect of an IMF-supported program over the time period, and therefore
do not necessarily reflect the results during the crises response
period.
3. We discussed the DSAs' assumption for "quick recovery" in relation
to both LICs and the global economy. The IMF forecasted LICs' recovery
in line with the forecast of a quick recovery for the global economy,
which was expected to boost demand for LICs' exports. In August 2011,
the IMF reported renewed risks to the global recovery, which means
that projections for future export growth could be too optimistic.
However, in commenting on this report, IMF noted that the "quick
recovery" assumption had been borne out so far. Our report described
the IMF's use of alternative scenarios and stress tests to arrive at a
country's debt distress rating. However, we noted that these tests are
very general and do not adequately reflect country-specific risks
including political instability, adverse weather, global economic
crises, and failure to implement reforms or make planned investment.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Thomas Melito, (202) 512-6901 or melitot@gao.gov:
Staff Acknowledgments:
Cheryl Goodman, Assistant Director; Marc Castellano; RG Steinman;
Michael Hoffman; Elizabeth Kowalewski; and Arian Terrill made key
contributions to this report. The team benefited from the expert
advice and assistance of Adam Vogt, Etana Finkler, Bruce Kutnick, Fang
He, Shirley Min, Leah DeWolf, Kathryn Buldoc, Martin de Alteriis, Tom
McCool, Heneng Yu, Mary Moutsos, Mae Liles, and Holly Dye.
[End of section]
Footnotes:
[1] The World Bank defines low-income countries as the 40 countries
with a per capita gross national income of $995 or less for fiscal
year 2011.
[2] We focused on two World Bank organizations, the International
Development Association (IDA) and the International Finance
Corporation (IFC), and the International Monetary Fund (IMF). In this
report we use the term IFIs to refer to this group. We did not include
other international financial institutions, such as the African
Development Bank and the Asian Development Bank.
[3] The United States and other countries contribute to a fund that
finances IDA activities.
[4] See Supplemental Appropriations Act, 2009, Pub. L. No. 111-32, §
1402, 123 Stat. 1859, 1918, June 24, 2009.
[5] Countries experiencing balance-of-payments problems have
difficulty obtaining the financial resources needed to meet their
payments to foreigners.
[6] Our analysis will sometimes refer to a smaller group of countries
based on the availability of data. Data were generally not available
for North Korea and Somalia. Also, some World Bank documents refer to
LICs as a broader group of about 80 countries eligible for IDA
assistance, which includes the 40 in the scope of this report. When
necessary, we use the term "IDA-eligible countries" to differentiate
the larger group.
[7] The G-20, an organization of finance ministers and central bank
governors representing both industrialized and developing economies,
was created in response to financial crises during the late 1990s as
an annual forum to facilitate international economic policy
cooperation. In response to the global economic crisis, the G-20
convened at a summit in November 2008, at which time major political
leaders, including heads of states and governments, agreed on a joint
plan of action to prevent the global economy from collapsing. Since
then, the G-20 has convened on a regular basis.
[8] The sale of IMF gold stocks concluded in December 2010. According
to the IMF, the primary motivation for the gold sales was to support
the IMF's new income model through the creation of an endowment funded
by profits from these sales; support for LICs also included
contributions from member governments; and the portion of gold
resources intended to support LICs are expected to subsidize future
financing to LICs.
[9] IDA financing includes a 0.75 percent service charge.
[10] Investment lending provides financing for a wide range of
activities aimed at creating the physical and social infrastructure
necessary to reduce poverty and create sustainable development.
Development policy lending provides rapid financial assistance in the
form of direct, untied budget support to governments for policy and
institutional reforms aimed at achieving a set of specific development
results.
[11] The World Bank Group includes three other institutions: the
International Bank for Reconstruction and Development, the
Multilateral Investment Guarantee Agency, and the International Centre
for Settlement of Investment Disputes. We did not include these
institutions in our review because they are only minimally, if at all,
engaged with LICs.
[12] IMF lending to LICs is funded by member governments and some IMF
contributions.
[13] GAO, Developing Countries: The United States Has Not Fully Funded
Its Share of Debt Relief, and the Impact of Debt Relief on Countries'
Poverty-Reducing Spending Is Unknown, [hyperlink,
http://www.gao.gov/products/GAO-09-162] (Washington, D.C.: Jan. 26,
2009). Beginning in 1998, we reported that even after receiving debt
relief, many countries remained vulnerable to future debt problems
even with sound economic policies. We reported that World Bank and IMF
assumptions that countries would achieve strong export growth may have
been optimistic for some countries, particularly those that rely upon
a few commodities for export earnings. Such countries are particularly
vulnerable to economic events such as a decline in the price or output
of a primary export.
[14] Data for most economic indicators were not available for North
Korea and Somalia.
[15] Real GDP is a measure of the value of all the goods and services
produced in the economy in a given year, adjusted for changes in the
price level.
[16] From January 2007 to June 2008, the price index rose by 57
percent.
[17] GAO, International Food Assistance: Better Nutrition and Quality
Can Further Improve U.S. Food Aid, [hyperlink,
http://www.gao.gov/products/GAO-11-491] (Washington, D.C.: May 2011);
and GAO, Global Food Security: U.S. Agencies Progressing on
Governmentwide Strategy, but Approach Faces Several Vulnerabilities,
[hyperlink, http://www.gao.gov/products/GAO-10-352] (Washington, D.C.:
March 2010).
[18] According to the World Bank, in general, increases in domestic
food prices have been smaller than increases in international food
prices due to, for example, changes in exchange rates and domestic
foods that are only loosely connected to international markets.
However, some countries are dependent on imported food and therefore
sensitive to fluctuations in international food prices.
[19] The current account consists of the balance of trade in exports
and imports of goods and services, and also includes current
transfers, such as worker remittances--personal funds that the foreign-
born send to their home countries.
[20] A countercyclical policy moves counter to economic cycles, by
cutting taxes or increasing spending in recessionary times and raising
interest rates to tighten credit and curb spending during inflationary
periods.
[21] Real primary spending includes all expenditures (current and
capital) except interest, adjusted for inflation using the GDP
deflator. The composition varies by country. It could include spending
to safeguard social safety nets in the context of declining revenues
or capital spending, such as infrastructure.
[22] Data for North Korea was not available. Foreign direct investment
is net inflow of investment to acquire a lasting management interest
(10 percent or more of voting stock) in an enterprise operating in an
economy other than that of the investor. It is the sum of equity
capital, reinvestment of earnings, other long-term capital, and short-
term capital as shown in the balance of payments.
[23] To measure the speed of disbursements, we first calculated the
total disbursements for each project that took place during the first
four quarters, including the quarter of project approval. We then
determined the average disbursement rates for different groups of
projects by using a weighted average, which is computed as the ratio
between the sum of first year disbursements and the sum of the
commitments for all projects that belonged to a group.
[24] Similarly, first year disbursements from projects approved
between 2008 and 2010 totaled $6.3 billion, an increase of about $700
million, or 12.7 percent, from first year disbursements for projects
approved between 2005 and 2007.
[25] IDA resources are replenished by donor countries every 3 years
and committed in fixed allocations to countries' long-term development
programs.
[26] According to IFIs, the MDGs were designed to provide a framework
for the entire international community to work together toward a
common end: making sure that human development reaches everyone,
everywhere. Among others, MDGs include eradicating extreme poverty and
hunger.
[27] The World Bank reported that effective social protection programs
directly reduce poverty and inequality and build resilience by helping
to provide individuals and families with the flexibility to adjust
their consumption over time and cope with shocks.
[28] For more information, see the Framework Document for a Global
Food Crisis Response Program (Report Number 43841), available at
[hyperlink, http://go.worldbank.org/4GNDMS8VT0].
[29] For more information, see the Proposal for an IDA Financial
Crisis Response Fast-Track Facility (Report Number 46735), available
at [hyperlink, http://go.worldbank.org/MP3GUZTYU0].
[30] Safety nets are social protection programs targeted to the poor
or vulnerable. They include cash transfers, school lunch programs,
public works projects, and fee waivers for essential services such as
health, nutrition, education and heating.
[31] For more information, see the Framework Document for a Rapid
Social Response Program (Report Number 48121), available at
[hyperlink, http://go.worldbank.org/YXCMLIJYD0].
[32] For more information, see the Infrastructure Recovery and Assets
Platform overview, available at [hyperlink,
http://siteresources.worldbank.org/INTSDNET/Resources/5944695-
1247775731647/InfrastructureRecoveryandAssets_overview_01.12.2010.pdf].
[33] For more information see the Proposal for a Pilot IDA Crisis
Response Window (Report Number 51848), available at [hyperlink,
http://siteresources.worldbank.org/IDA/Resources/Seminar%20PDFs/73449-
1257448780237/CRW_Official_Use.pdf].
[34] In March 2009, the World Bank also requested that donors provide
a portion of their domestic economic stimulus funding to help address
the impacts of the crises on developing countries. However, the World
Bank's Independent Evaluation Group reported that donors' minimal
response led the World Bank to instead focus on replenishing IDA funds
and developing a crisis response window. See Independent Evaluation
Group, The World Bank Group's Response to the Global Economic Crisis
(Washington, D.C.: World Bank, 2010).
[35] New financial assistance was provided from internal World Bank
resources through the Pilot Crisis Response Window and the food
program. The internal resources available through these initiatives
include $1.2 billion linked to arrears clearance and about $300
million in income earnings. Countries were required to clear their
arrears, or pay any late principal and interest charges, to IDA before
they could receive debt relief under the Heavily Indebted Poor
Countries Initiative. Donors provided some of the funding to clear
these arrears. Funds that were provided by donors to compensate for
prior arrears clearance costs or to be used for future arrears
clearance were instead used by the Pilot Crisis Response Window.
Income earnings refer to higher-than-anticipated returns on IDA's
investments and income earned from interest payments to the World Bank
by middle-income borrower countries.
[36] Efforts to improve data through the social protection program's
trust fund operations in LICs were to include funding technical
diagnostics assessing the impacts of increasing prices and financial
shocks on various communities and social groups; more effective
identification and enrollment of beneficiaries and the disbursement of
benefits; and monitoring and evaluation, among other activities.
[37] Over the next 3 years, the permanent Crisis Response Window will
be able to draw upon $2.1 billion.
[38] Our analysis included only projects approved after the World Bank
first stated its intention to respond to any of the three crises. This
occurred in early 2008, with the establishment of the Global Food
Crisis Response Program.
[39] For the social protection program, we were also able to identify
a comparison group of similar projects approved from 2005 through
2007, using project "theme codes" provided by the World Bank.
[40] In July 2011, the World Bank's Independent Evaluation Group
recommended that the World Bank engage consistently with governments
during stable times to help countries develop safety nets, place a
continued emphasis on building social safety net systems and
institutional capacity, and strengthen engagement in LICs. World Bank
Management agreed with these recommendations. See Independent
Evaluation Group, Social Safety Nets, An Evaluation of World Bank
Support 2000-2010 (Washington, D.C.: World Bank, 2011).
[41] Even though more countries received disbursements faster during
the crises period, the average first year disbursement rate for all
LICs is slower because this average takes into account the amount of
commitments in addition to disbursement rates. We calculated the
average first year disbursement rate for all countries using a
weighted average. Countries with faster disbursement rates received 43
percent of all commitments and were given a lower weight in the
weighted average calculation.
[42] For more information, see G-20 Chair Consultations of LICs on
Flexibility and Adaptability of IFIs in Freetown (8/14/09) and London
(8/17/09).
[43] http://www.gao.gov/products/GAO-09-162].
[44] By contrast, the World Bank prepared about 20 technical
diagnostics for middle-income countries.
[45] Other initiatives established in response to the financial crisis
have relatively small investments in LICs, including approximately
$13.2 million for microfinance, advisory services, and bank
capitalization activities.
[46] According to IFC, the level of trade supported is determined for
each transaction by the value associated with the trade and IFC's
guarantee percentage.
[47] According to the World Bank Independent Evaluation Group, the
amount available for IFC to respond to impacts of the financial crisis
in all member countries was $36 billion. In contrast, other
institutions at the World Bank had $142 billion available to lend to
these same countries, and at the April 2009 G-20 Summit, world leaders
pledged to support a tripling of the IMF's lending resources from
about $250 billion to $750 billion. Also, IFC as a whole estimated
that to respond to the financial crisis, it could invest 5 percent
more annually in fiscal years 2009 through 2011 than it did in 2008.
In contrast, IDA could increase lending overall by 25 percent.
[48] According to U.S. Treasury, total IMF lending in 2009 and 2010 to
a larger group of LICs (IMF generally uses a broader definition than
the 40 countries in the scope of this report) exceeded $5.5 billion,
in line with 2009 legislation which requires the Secretary of the
Treasury to seek to ensure that the IMF provide support to LICs of not
less than $4 billion as a condition of the gold sales.
[49] The $250 billion in support was a general Special Drawing Right
(SDR) allocation implemented in August 2009. An SDR is an interest-
bearing international reserve asset created by the IMF. An SDR
allocation is a way of adding to members' international reserves,
allowing members to reduce their reliance on more expensive domestic
or external debt for building reserves.
[50] The countries included are the 62 countries for which data were
available, using a broader definition of LICs.
[51] In a 2010 report, Emerging from Global Crisis: Macroeconomic
Challenges Facing Low-Income Countries, the IMF found that in 2009
LICs with IMF-supported programs were more likely to increase primary
expenditures (spending not including interest payments) and on average
increased primary expenditures more than non-program LICs. As noted
above, the countries included in the IMF analysis are the 62 countries
for which data were available, using a broader definition of LICs.
Liquidity constraints are limits on borrowing that could make it
difficult to finance spending when the economy suffers a downturn. The
analysis includes 36 of the 40 LICs we reviewed.
[52] We repeated the analysis for the 40 LICs and found that while
spending increased in program LICs more than non-program LICs, this
result also remained sensitive to small changes in the sample of non-
program LICs.
[53] We used indicators of institutional quality and governance from
the Worldwide Governance Indicators. See Daniel Kauffman, Aart Kraay,
and Massimo Mastruzzi, "The Worldwide Governance Indicators:
Methodology and Analytical Issues," Policy Research Working Paper 5430
(The World Bank, September 2010).
[54] We replicated the IMF's analysis of 62 LICs, which compared
average (median) growth in real primary expenditures in 2009, each
time omitting certain LICs from the sample of non-program countries
that were least comparable to program LICs due to self-selection into
IMF programs. In each case we compared mean and median growth in real
primary expenditures for the two samples. For the two sensitivity
analyses described in this report our results held for both median and
mean spending growth.
[55] See, e.g., Aye Y. Evrensel, "Effectiveness of IMF-supported
Stabilization Programs in Developing Countries," Journal of
International Money and Finance (2002) or Zlata Hajro and Joseph P.
Joyce, "A True Test: Do IMF Programs Hurt the Poor?" Applied Economics
(2009). Multivariate techniques, including those that address
selection bias such as Heckman selection models, instrumental
variables, or synthetic control methods, would be necessary to
properly account for differences between program and non-program LICs.
In a separate and more sophisticated analysis, IMF researchers found
that IMF-supported programs were associated with increased spending on
education and health as a percentage of GDP or a percentage of
spending in LICs, based on data from 1985 through 2009. The study's
results represent the average effect of an IMF-supported program over
the time period, and therefore do not necessarily reflect the results
during the crises response period. Benedict Clements, Sanjeev Gupta,
and Masahiro Nozaki, "What Happens to Social Spending in IMF-supported
Programs?" IMF Staff Discussion Note SDN/11/15 (2011).
[56] According to IMF and World Bank documents, until the impact of
the crisis dissipates, the IMF and World Bank will prepare full DSAs
for LICs annually. After that, full DSAs are expected to be prepared
once every 3 years, with short annual updates in interim years.
[57] IDA assigns countries a CPIA rating based on 16 indicators in 4
categories. The 4 categories with examples of their indicators follow:
economic management (macro, fiscal, debt policy); structural policies
(trade, financial sector, business regulatory environment); policies
for social inclusion and equity (gender equality); and public sector
management and institutions (property rights and rule-based
government).
[58] The present value of debt is a measure that takes into account
the concessional, or below-market, terms that underlie most of these
countries' loans. Present value of debt is defined as the sum of all
debt-service obligations (interest and principal) on existing debt,
discounted at the market interest rate.
[59] According to the research group Development Finance
International, the "alternative scenarios" generated are not
comprehensive, because they do not vary all relevant macroeconomic
variables, exclude certain effects, and do not necessarily reflect the
risks that a government may believe are likely to occur in its
economic or borrowing prospects. While useful as an overall general
tool to compare debt sustainability across multiple countries,
individual countries need to interpret their results with caution in
analyzing the risk of a debt crisis.
[60] Each category of debt distress has specific debt thresholds.
According to the World Bank and IMF, in the low risk category, all
debt indicators are well below relevant country-specific debt-burden
thresholds, and stress testing and country-specific alternative
scenarios do not result in indicators significantly breaching
thresholds. In the moderate risk category, the baseline scenario does
not indicate a breach of thresholds; however alternative scenarios or
stress tests result in a significant rise in debt-burden indicators
over the projection period (nearing thresholds) or a breach of debt or
debt-service thresholds. In the high risk category, the baseline
scenario indicates a protracted breach of debt or debt-service
thresholds but the country does currently not face payment
difficulties. This is exacerbated by the alternative scenarios, or
stress tests. For a country categorized as "in debt distress," current
debt and debt-service ratios are in significant or sustained breach of
thresholds. Actual or impending debt restructuring negotiations or the
existence of arrears would generally suggest that a country is in debt
distress.
[61] Countries received full and irrevocable debt relief from
creditors by meeting specific criteria such as maintaining good
performance under an IMF-supported reform program, when they completed
the Heavily Indebted Poor Countries Initiative. To qualify for this
debt relief, countries had to meet additional criteria, including
having unsustainable debt burdens. See GAO, Developing Countries: The
United States Has Not Fully Funded Its Share of Debt Relief, and the
Impact of Debt Relief on Countries' Poverty-Reducing Spending is
Unknown, http://www.gao.gov/products/GAO-09-162] (Washington, D.C.:
Jan. 26, 2009).
[62] To the extent that countries are receiving more grants, IDA and
the African Development Bank's African Development Fund reduce the
volume of grant assistance provided under this system. Specifically,
IDA and the African Development Fund reduce grant assistance by 20
percent for countries classified at a high or moderate risk of debt
distress, thereby reducing available resources. The 20 percent volume
reduction is divided into an "incentives"-related portion and a
"charges"-related portion. The incentives-related portion is
reallocated to IDA-only countries based on performance, and the
charges-related portion is provided to creditworthy blend countries.
According to IDA, this grant reduction was instated to maintain IDA's
performance incentive. We estimate that, during the crisis response
period, IDA committed about $1.5 billion less in assistance to the
LICs due to its policy of reducing assistance by 20 percent when grant
financing is provided. IDA was to reallocate these funds to all
eligible IDA countries. This amount is slightly more than the total
new financial assistance IDA allocated to these countries as part of
its crisis response.
[63] IMF, Staff Guidance Note on the Applications of the Joint Bank-
Fund Debt Sustainability Framework for Low-Income Countries (Jan. 22,
2010).
[64] In our analysis of the divergence of projections from historical
averages, we focused on GDP growth and the current account and fiscal
deficits, because GDP, exports, and government revenues are key
measures of the country's capacity to repay debt. We also examined
inflation, as inflation is vulnerable to food supply and energy price
shocks and can affect the growth outcome, and foreign direct
investment, which helps meet LICs' financing needs. We compared the
historical averages of key macroeconomic variables with medium-and
long-term projections for these variables, taking into account the
underlying rationale for these projections as presented in the DSA and
accompanying program papers, and interviewed IMF and IDA staff. We
also examined the extent to which program reforms and key country-
specific risk factors were included in the baseline scenario. See
appendix I for additional information on our methodology.
[65] Burundi, one of the poorest countries in the world, is emerging
from more than a decade of civil conflict.
[66] Remittances are recorded through official and unofficial
channels, including estimates based on banking system flows.
Remittances can be used explicitly in the DSA analysis when they are a
large and stable source of income and the breaches under the analysis
excluding remittances are not protracted.
[67] According to the U.S. Treasury, the Ethiopian government has
since removed the government-imposed bank credit ceilings, but
replaced them with a still-repressive central bank directive.
[68] Our analysis of remittance data from the World Bank's World
Development Indicators database yielded significantly different
results than the data in Ethiopia's DSA. For example, according to the
World Development Indicators database, the remittances-to-GDP ratio
averaged 1.4 percent from 2007 through 2009, whereas, according to the
DSA, that ratio is expected to be 8.5 percent from 2010 onward.
[69] IMF staff told us that such country-specific factors are
addressed by additional risk assessments or stress tests that include
shocks to export growth and GDP growth that last for only 2 years.
[70] Available at [hyperlink,
http://www.imf.org/external/np/fin/tad/extarr1.aspx]. These figures
refer to the LICs in the scope of this report, but the IMF generally
uses a broader definition of LICs.
[End of section]
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