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Flawed conditions: the impact of the World Bank's conditionality on developing countries

Added 10 Apr 2019
The World Bank exerts enormous influence over the  economies of developing countries through loan conditions, advisory services, technical assistance and policy blueprints. Conditions are significant because they tend to lock in a donor-driven reform agenda in recipient countries. Loan conditions are part of the World Bank’s Development Policy Financing (DPF) and have long been criticised by civil society, academics and developing country governments. They undermine borrower country ownership and restrict policy space, and all too often they have harmful impacts on the lives and livelihoods of people, especially the world’s poorest and most vulnerable.

This briefing aims to shed light on the extent to which the World Bank advances its own policy agenda through loan conditionality. Eurodad – the European Network on Debt and Development – examined the loan conditions attached to Development Policy Operations (DPOs) for 2017. We looked at 53 DPOs in 46 countries, including 30 International Development Assistance (IDA) operations (in 28 countries) and 23 International Bank for Reconstruction and Development (IBRD) operations (in 18 countries). We ‘unbundled’ conditions to identify all conditions including those that refer to more than one policy issue, and we found 506 conditions for 53 DPOs – 9.6 conditions per operation on average. We focused on prior actions, the conditions borrower countries need to fulfil before the loans are disbursed.

We then examined conditions in five key policy areas: economic policy; increasing the role of the private sector; public financial management; agriculture; and social protection. Doing so, we found evidence that the World Bank’s own strategic approaches and ideological preferences are reflected in loan conditions. Loan conditions promote the ‘private finance first’ ideology of the World Bank’s Maximizing Financing for Development (MFD) approach that was adopted in 2017 and also the (foreign) business-friendly approaches which guide the World Bank’s Doing Business Report, the Enabling the Business of Agriculture agenda and the World Bank’s own procurement policy.

World Bank lending will be scaled up in the coming years due to the capital increase approved last year. Loan conditions will therefore become more relevant for borrower countries, making such analysis timely and worthwhile.