Fragile state: World Bank poverty target rests on weakest economies

If the World Bank is to hit Jim Yong Kim’s target to end extreme poverty, it will have to find a solution for the 2 billion people living in fragile states

  • By Phil Thornton
  • 11 Oct 2018
Email a colleague
Request a PDF

In the quarter century from 1990 to 2015 more than 1.1bn people were pulled out of poverty. While almost half of this was down to the Chinese government’s economic revolution that pushed 500m people above the basic poverty level of $1.25 a day, it is still hailed as a victory for the development finance industry.

While this still leaves 14.5% of the population in poverty, it is huge progress compared with 1949 when US President Harry S Truman lamented that more than half the people in the world were living in “conditions approaching misery”.

Yet as senior World Bank executives and development ministers from around the world gather in Bali, they will be aware that they have a long way to go to achieve the Bank’s goal of reducing extreme poverty in the world to less than 3% by 2030.

Having picked the low hanging fruit, they need to help the 2 billion people, or more than a quarter of the world’s population, who live in countries where development outcomes are affected by fragility, conflict and high levels of violence.

Yet the Bank’s own forecasts show that the share of the extreme poor living in conflict-affected situations is expected to rise to more than 60% by 2030. “To succeed in achieving our twin goals, eradicating poverty and boosting shared prosperity by 2030, we must succeed in fragile states,” says Franck Bousquet, senior director of the World Bank Fragility, Conflict & Violence Group (FCV).

“For us it is a no brainer that the top priority is really the whole support for fragile states.”

Bousquet and Bank president Jim Yong Kim will arrive in Bali carrying a box’s worth of independent reports warning the Bank and its sister organisation, the International Monetary Fund, that it needs to embark on a radical overhaul of policies to tackle fragile states.

The OECD warned that more than 80% of the world’s poor could be living in fragile contexts by 2030 and said governments and agencies needed to spend more in aid and in a smarter way. And the United States Institute of Peace said the international community was facing a challenge of equal immensity to the impact of the Second World War on Europe that led to the Marshall Plan.

ADMISSION OF FAILURE

One of the most significant was a joint report by the Commission on State Fragility, Growth and Development co-chaired by former British prime minister David Cameron and Donald Kaberuka, former president of the African Development Bank, which said that after decades of aid many of these countries are as poor as they ever were — some even poorer. It said that some of the things that developed countries, non-governmental organisations and donors had done had “arguably” made matters worse.

One thing that everyone agrees on is that there is a need for a new approach to supporting fragile states. Adnan Khan, research director of the International Growth Centre at the LSE, which hosted the commission, said: “We must start with an admission of failure. It is rare to see such a huge gap between what has been fixed and what needs to be fixed. We need to be honest: if the current strategies are not working, we should not go back to them.”

Masood Ahmed, president of the Center for Global Development (CGDev) think tank and a former IMF director, says that the international financial community has not been able to make the progress people would expect.

He says there are good reasons for this. For one, fragile states are inherently much harder to engage with. Allied to this is the tendency of big institutions to talk to each other rather than to the other actors on the ground. “The international community does not have any framework for co-ordination among the range of actors that are engaged in different ways in a fragile state context.”

Ahmed also says that institutions find it hard not to apply the processes that work in more stable countries, which is especially hard for large institutions that are structured around having a uniform approach.

The commission’s report had harsh words for all actors in the development space but was blunt about the Bank: “The World Bank needs both a strategy for fragile states and an organisational structure for delivery of a strategy.”

It castigated the Bank for not having a distinctive organisation-wide strategy on fragile states, saying its approach to those countries was no different to that for other developing countries it works with.

It focused on a lack of senior managers to formulate an economic strategy. “The core of the problem is that the Bank has not devoted sufficiently senior economic expertise to the formulation of a distinctive strategy,” it said. “Developing a strategy can only be done with the credibility to change country strategies if led by a vice-president or managing director.”

Bousquet says the World Bank welcomes the report and has backed its recommendations on areas such as partnerships and engaging the private sector but adds that the Bank sees FCV as a critical development challenge.

But Bousquet rejects the commission’s accusation that FCV is only a “theme” within the Bank, saying that its strategic approach is backed directly by Kim and by the Bank’s CEO, Kristalina Georgieva, whom he describes as a “champion” for the issue of fragile states. “For the first time this is a global thing and is a group that is a cross-cutting area that goes across all practices.”

He points to the doubling of finance for fragile states to $14bn from $7bn over the three years of the IDA18 financing round. “This is significant, but it is not only a question of doubling the financing it is the fact that we do things differently,” he says. “The whole focus of the bank on fragile states is completely changing.”

The Bank now targets the specific challenges faced by fragile states such as forced displacement where the Bank has also made available $2bn for countries hosting large numbers of refugees, and eight countries such as Pakistan and Uganda have so far qualified. On top of this is $1.4bn of financing for Jordan and Lebanon to promote job creation and boost public services to offset the refugee crisis they face.

Bousquet says that any proposed country partnership framework for a fragile state going to the board for approval must now include a risk resilience assessment. These look at the root cause of fragility such as regional imbalance, youth not finding jobs, gender or lack of equitable provision of services to different ethnic groups.

“We can analyse the grievances that need to be addressed so we can truly make sure that when we double the financing we are focusing on the root cause of fragility,” he says.

PAINFUL CHANGES

Ahmed at CGDev says he is less worried about the need to produce a “grand integrated” strategy than the requirement that the Bank should focus on working with the tried and tested ingredients for working in fragile states.

He says this includes limiting the operation in fragile states to the elements that really matter and not overloading them with policy requirements that are desirable but not essential. He says board members have sometimes become uneasy about signing off on operations just because they do not have the usual social and environmental assessments which would be standard for a non-fragile state.

Another ingredient is to engage more with other agencies and to take on board lessons from other successes such as the French-led Sahel Alliance that is working with five Francophone African countries.

“The role that the high level management can play is in recognising, disseminating and validating some of the successes that are out there and ensuring that when staff get pushback from adopting the streamlined approach that needs to be applied they have the support at the top level,” he says.

Bousquet echoes that point, saying that the Bank is increasingly working with other actors on the ground, describing partnerships as one of the most important elements of work in fragile states. “Partnership is the most important item on the policy agenda,” he says. “In the FCV spectrum it is a must because if you are not in partnership with UNHCR on refugees you are clearly not being effective from a development perspective.”

Bousquet is also keen to highlight the Bank’s focus on what he calls a “pivot to prevention”, highlighting a joint report the Bank did in March with the United Nations that showed that every dollar invested in preventative measures saved $16 down the road.

“This is only one part of the equation as the important thing is whether you can save lives,” he says. “The whole point of this report is that for the first time there is a business case for prevention.” He points to the country partnership framework agreed for Niger in July that looks at the root causes of fragility such as youth unemployment, job creation, gender and managing natural resources that are so often a source of tension between groups. “This is making sure that before it is too late we are supporting the countries from a development perspective.”

Ahmed says that he is glad there has been a boxload of reports pointing out the critical need to address better the needs of fragile states ahead of the annual meetings. “What I would like to see come out of Bali is a recognition from the leadership of these institutions that they have taken on board the message and that they are committed in following through,” he says.

“The nature of the problems that have been identified merit changes that will be sometimes painful and sometimes marking a departure from established ways of doing business which are hard to shake off in institutions with strong cultures.”
  • By Phil Thornton
  • 11 Oct 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 324,607.67 1260 8.10%
2 JPMorgan 317,157.29 1380 7.92%
3 Bank of America Merrill Lynch 292,436.96 1003 7.30%
4 Barclays 245,367.72 916 6.12%
5 Goldman Sachs 216,514.13 726 5.40%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 45,589.37 178 7.10%
2 JPMorgan 43,572.44 88 6.79%
3 Credit Agricole CIB 33,071.14 158 5.15%
4 UniCredit 33,064.66 151 5.15%
5 SG Corporate & Investment Banking 32,145.89 124 5.01%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 13,559.65 59 8.93%
2 Goldman Sachs 13,209.37 65 8.70%
3 Citi 9,711.73 55 6.40%
4 Morgan Stanley 8,471.86 53 5.58%
5 UBS 8,136.41 33 5.36%