Public Sector Reform: What Works and Why?

The main objective of this evaluation by the Independent Evaluation Group (IEG) is to help the World Bank learn how to contribute more effectively to public sector reform (PSR) in its member countries. The intended audience also includes government officials and other stakeholders that want to see what lessons are available for improving project and program design. The World Bank has devoted an increasing share of its lending and advisory support to the reform of central governments, so it is important to understand what is working, what needs improvement, and what is missing. The evaluation examines lending and other kinds of Bank support in the period 1999-2006 for public sector reform in four areas: public financial management, administrative and civil service, revenue administration, and anticorruption and transparency. The public sector is the largest spender and employer in virtually every developing country and it sets the policy environment for the rest of the economy. About one-sixth of World Bank projects in recent years have supported public sector reform. Improving the efficiency of government counterparts is also essential for the effectiveness of the Bank's support for development.

Some findings:

Although a majority of countries that borrowed to support public sector reform experienced improved performance in some dimensions, there were shortcomings in important areas and in overall coordination.

• The frequency of improvement was higher among IBRD borrowers than among IDA borrowers.
• Performance usually improved for public financial management, tax administration, and transparency, but did not usually with respect to civil service.
• Direct measures to reduce corruption - such as anticorruption laws and commissions - rarely succeeded.

Some recommendations:

• Design PSR projects and allocate World Bank resources to them with recognition that PSR has especially complex political and sequencing issues. Be realistic about the time it takes to get significant results, understand the political context, identify prerequisites to achieve the objectives, and focus first on the basic reforms that a country needs in its initial situation. Reconsider the balance between development policy and investment lending; and institutional change usually needs the sustained support of investment projects, although development policy lending can help secure the enabling policy changes.
• Set priorities for anticorruption efforts based on assessments of which types of corruption are most harmful to poverty reduction and growth. Given that reducing corruption will be a long-term effort, the Bank should emphasize two things: building country systems that reduce the opportunities for corruption that is most costly to development, and making information public in ways that stimulate popular demand for more efficient and less corrupt service delivery. The country team needs operational clarification about how the Bank's anticorruption efforts fit within the overall country strategy.
• Strengthen the civil service and administrative components of PSR, providing them with a better framework and indicator set, and give more attention to the budget execution phases of financial management. This will require PEFA-like actionable indicators for civil service and administrative performance and more linkage between the implementation of reforms for civil service and for financial management.