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Thomas Kenyon is a 2022 GO Lab Visiting Fellow of Practice, and senior economist in the operations policy unit of the World Bank, where he works on evaluating and advising on the design of results-based financing operations worldwide. In this blog, he offers the World Bank’s perspective on how they are seeking to embed long-term sustainability within their Program-for-Results (PforR) financing instrument.

The World Bank’s Program-for-Results (PforR) financing instrument was developed and works with two motivations in mind: the first is that by paying out against results rather than inputs, we draw attention to things that matter and give governments more flexibility to achieve them; the second is that, in some cases, it is more effective to use a country’s own system for managing project risks than to rely on the World Bank’s or other development partners’. Both features, at least in theory, promise to embed sustainability in World Bank financing.

But before exploring how the instrument works in practice, let me give you a bit of history. The World Bank started out in the 1950s by financing infrastructure projects, like dams, roads and pipelines and paying out against contracts. This is our traditional investment project financing instrument, which still accounts for about 60 percent of our portfolio. Over time though, it became clear that focusing on infrastructure wasn’t enough. We might finance the construction of new roads, schools, and hospitals, but ensuring that they were maintained, and that teachers and health workers that staffed them were properly trained and were paid on time required more.

About 20 years ago, we started financing not just capital but also operating expenditures. And then it became clear that if these improvements were to be sustainable, we needed to think about strengthening the institutions that were managing them. As a result, we started moving away from financing specific contracts or transactions, and towards supporting ongoing programs that financed not just investment but also recurrent expenditures, for example on salaries and operating costs. We also began to pay more attention to fixing bottlenecks in local procurement, financial and other management systems.

Early experiences in Latin America and South Asia, plus those of other donors with conditional cash transfers, output-based aid and result-based financing for education and health, prompted discussions about the need for a new lending instrument at the World Bank. The answer became clearly - yes. We needed to formalise an approach to lending that: (i) finances a program of activities, not individual transactions, or contracts; (ii) disburses not against inputs, but against policy or institutional actions, outputs, and intermediate outcomes; and (iii) works through and strengthens a country’s own procurement, financial management and environmental and social risk management systems.

And so, in 2011, we introduced the PforR instrument, which now accounts for about 15 percent of World Bank annual lending – roughly $55bn or about 80 percent of all results-based donor financing.

If we are talking about embedding approaches or programmes within national policy what are some of the enabling factors, but also barriers?

Moving from financing transactions to supporting program results requires us to think about the various actors in the service delivery chain – not just line ministries and service providers but the whole machinery of government behind them. We also need to consider the management systems used by those actors – for monitoring results, allocating resources, and ensuring that they are spent effectively. In other words, it means being more attentive to who needs to do what in the entire service delivery chain, and whether they have the resources, information, and motivation to do it.

Part of this involves encouraging improvements in: (i) the monitoring and collection of data; (ii) demand for and use of data; (iii) incentives for achieving results; and (iv) adaptive management and learning – or what we think of as components of a results-based management system. And our experience has been that there are some features of the instrument, particularly the requirement for independent verification, that predispose it to strengthening the reliability of data on what we are disbursing against. But there is much less evidence of impact on the use of data for performance management or on incentives within line ministries. Nor, contrary to the expectations of proponents of the instrument in and outside the World Bank, is there much evidence of flexible implementation. Instead, those at the centre of government have in many cases seen the instrument more as a tool for enforcing accountability and disciplining poor performers, than as a means of decentralising problem-solving.

Working with government systems for financial management, procurement and human resources is difficult. Fiduciary strengthening is a continuous long-term process: the development of sound budgetary institutions in developed economies countries took 200 years or more and is still evolving. And technology adoption is not enough: rather what matters is the application of technology and consequences for behaviour – to make sure that people in line ministries see an advantage in using them. It is also inherently political: reforming procurement or introducing financial management controls systems may threaten opportunities for rent-seeking or discretionary decision-making. Plus, there is very limited – even contradictory – hard evidence on what works.

We are still learning and determining if our efforts are working. Around 10 percent of PforR disbursements relate directly to financial management and procurement, mainly for the acquisition or development of systems (e.g. integrated financial management information systems, digital payments, e-procurement and procurement framework agreements), also to encourage the adoption and use of upgraded systems by line ministries. However, a lack of data on aspects of performance (such as budget execution, funds flow, and the timeliness and efficiency of procurement processes) makes it difficult to assess their contribution.