West Bank and Gaza: Evaluation of Bank Assistance – World Bank report

Report No. 23820

West Bank and Gaza

An Evaluation of Bank Assistance

March 7, 2002

Operations Evaluation Department

Document of the World Bank

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MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

West Bank and Gaza: An Evaluation of Bank Assistance

Following the Oslo Accord signed between the Palestinian Liberation Organization and Israel in September 1993, the international donor community pledged considerable amounts of assistance to the Palestinians in West Bank and Gaza (WB&G). The main objective was to provide tangible benefits through improvements in standards of living and increased incomes, which it was hoped in turn would provide an environment conducive to the peace process. The World Bank, having just produced a comprehensive analysis of the development needs of the WB&G, was at the center of this effort.

Since 1994, the Bank has been active in WB&G in a number of important donor assisted initiatives aimed at laying the foundations of long term development. The Bank has administered, on behalf of other donors, the Holst Fund ($270 million), which has financed recurrent and start up costs of the Palestinian Authority (PA) as well as an emergency employment program to assist during economic crisis. It also administered the donor financed Technical Assistance Trust Fund ($23 million), which supported a wide array of institution building and feasibility studies for investment projects. From its own resources, the Bank established a Trust Fund for Gaza and-the West Bank (TFGWB – to date $390 million allocated), out of which it has financed about 22 projects totaling $326 million and mobilized considerable donor financing as well. Finally, the Bank has been a major player in aid coordination.

In the earlier years (1994-95), the Bank focused on upgrading and expanding infrastructure. In 1996, following outbreaks of violence, Israel imposed strict border closures which prevented movement of goods and people and resulted in economic crisis conditions in WB&G. The Bank responded quickly by shifting support to employment-creating activities. As the economic conditions improved in 1998 and 1999, the Bank began to develop longer-tern strategies, to create an enabling environment for private sector development, to support institutional development and public sector management, and to strengthen the NGO sector for service delivery. With the renewed violence, border closures, and economic crisis in WB&G in late 2000, the Bank again provided emergency economic assistance. The overall outcome, sustainability, and institutional development impact of Bank assistance must be seen in the context of an unstable political environment and severe periodic economic crises resulting from border closures.

Even within this difficult context, the Bank's assistance has had a positive impact on the living standards of Palestinians in WB&G and this may have contributed to the relative calm during most of the 1993-2000 period. The Bank has been a major player in developing greater access to road networks; better quality of schools; and improved access to safe water. Emergency assistance for employment creation as well as successful community development efforts have most likely contributed to the reduction in poverty measured at the end of the 1990s. More disappointing has been the lack of development of the private sector, in spite of Bank efforts to improve the climate for private investors: private investment fell as a percentage of GDP between 1994 and 1998, and the private sector accounts for a smaller share of employment than it did several years ago. The main factors discouraging private sector investment have been restrictions on the movement of goods and people and the uncertain political climate; these have also been major factors in the outcomes of Bank efforts at improving public sector management, governance, and institutional development (next paragraph). Overall, OED rates the outcome of Bank assistance as satisfactory.

Institutional development impact has been mixed. The Bank, through its administration of the Holst Fund, enabled the start up and functioning of the PA; in addition, the Bank provided a considerable range of technical assistance and training to many PA agencies and ministries through both lending and non-lending services, with a concentration of effort and some success in strengthening local (municipal) governments. The Bank has also helped improve the dialogue between the PA and the NGOs and been innovative in the provision of direct assistance to the NGO community. Finally, the Bank provided analysis on the unsustainability of the level of public employment and lack of transparency of the public sector. In spite of the Bank's concerted efforts in a range of important issues, such as the need for civil service reform, improving public sector management, the unsustainable level of public sector employment, and the need for further legal and judicial reforms, progress has been mixed. These are politically charged, difficult, long-term issues, and they remain challenges. Overall, institutional development impact is considered modest.

Sustainability is the likelihood that the benefits of the assistance to WB&G will be resilient to risks. In WB&G, the risks include the abilities of the PA, their agencies, the municipalities, villages, and NGOs to operate and maintain the physical infrastructure and to maintain or continue to improve service delivery. In view of the fiscal issues facing the PA and the need for reforms in intergovernmental and municipal finance, providing the necessary resources for operations, maintenance, and service delivery in the future may be difficult for the PA and municipalities. The agencies (water and electricity in particular), villages, and NGOs may be in a better financial position to maintain their investments. An equally significant risk to overall sustainability of all benefits is the political uncertainty and potential for further border closures, which will have a profound impact on the ability of the PA, agencies, and other levels of government to carry on business as usual. At this time, given the political situation and the PA's difficulties in providing operation and maintenance on a long-term basis, OED considers sustainability uncertain.

The Bank's performance has been timely and relevant. The Bank has been required to play many roles in a complex and highly politicized context, and in general, it played them well. There are many examples of innovation and good practice: the Bank became involved in WB&G even before the Oslo Accord; the WB&G program was the first in the Bank to be decentralized in 1994, it focused early on infrastructure and providing tangible benefits to the population; it has made a major effort at donor coordination and has been instrumental in setting up mechanisms at all levels to achieve this. All of these approaches were incorporated into the 1997 policy framework paper on the Role of the World Bank in Post-Conflict Reconstruction, based among other things on the positive experience of the Bank in WB&G. In addition, a number of the projects supported by the Bank's trust fund have been heralded in the Bank as best practice, and in 2000, out of 29 projects across the Bank cited by QAG for excellence in supervision, three were in WB&G. Finally, the Bank has made concerted efforts at institution building through many activities (lending and non-lending) and across a range of issues (para. 5). Thus, in most respects, the Bank's performance has been excellent and should serve as a model for other post-conflict situations.

An important constraint on the Bank's assistance, however, has been the highly politically charged nature of a post-conflict situation, exacerbated in WB&G by periodic economic crises. The Bank responded to the crises by shifting some resources to shorter term relief measures. On longer term issues such as improving public sector management, it has been extremely difficult for the Bank to use leverage such as conditionality or timing or amounts of lending to engage the PA in addressing problems; in many post-conflict situations, pressures on the Bank are considerable to focus on short term emergency relief, to avoid using leverage (such as amounts and timing of lending; conditionality) to bring about reforms, and, in general, to operate in ways that are not always consistent with the Bank's longer term development role. The experience in WB&G is no exception.

For the future, assistance in WB&G that goes beyond the immediate issue of emergency employment should be more selective, focusing on a few key areas such as: (i) targeting infrastructure delivery and services to poorer segments of the population; and (ii) public sector management issues such as civil service reform and economic policy reform, with continued efforts at strengthening local governments. Other areas for focus may emerge as a result of the CDF process and once the political situation stabilizes. More generally in post-conflict situations, it is critical that the Bank maintain its focus on ensuring a competent, transparent, fiscally sound governing structure, especially if other donors focus on relief efforts and shorter-term measures. In addition, the Holst Fund that provided critical recurrent cost support should be used as a model in other post-conflict situations, while a fund that supports technical assistance should start out with modest commitments, remain somewhat flexible in design, and be very closely supervised.

Robert Picciotto

by Gregory K. Ingram

Contents

Preface – i

1. Background – 1

Economnic developments – 1

Unfinished agenda: huge challenges – 2

2. The Role of Aid in the West Bank and Gaza – 4

Large flows, planned versus actual use –  4

Aid coordination: A Daunting Task – 5

3. The Role of the World Bank in WB&G – 6

4. Assessing Development Effectiveness: Results and Attribution – 18

5. Conclusions, ratings, and recommendations – 23

Addendum: Evaluation of individual instruments – 27

Evaluation of the Holst Fund – 27

Evaluation of the TATF – 28

Evaluation of the Banks's role in Aid coordination – 29

Boxes:

3.1: IEFC, MIGA, and FIAS in West Bank and Gaza – 10

3.2 Assessment of progress on the CDF in West Bank & Gaza – 16

4.1: Outcomes versus Bank projections – 18

4.2: Palestinian views on changes in their standard of living – 19

5.1: Innovation and Good Practice: Many Examples – 25

Tables:

1.1 Selected economic indicators, WB&G, 1994-99 – 2

2.1 Average annual per capita official assistance for post-conflict

and other countries, 1993/94-97 – 4

3.1 Funds administered or financed by the World Bank in WB&G – 8

Annexes

Annex I

Table 1: West Bank and Gaza At-a-Glance – 31

Table 2: Key Economic Indicators, 1994-99 – 33

Table 3: WB&G: social indicators, 1970 and 1996 – 34

Table 4: Comparative social indicators: WB&G, countries in MNA Region lower middle income countries, most recent year since 1996 – 34

Table 5: Gender disparity: WB&G and comparator countries, 1996 – 35

Table 6: Infrastructure services in WB&G and other countries: 1992-94 – 35

Table 7: Extemal Assistance – 36

Table 8: Portfolio Financed under the TFGWB – 37

Table 9: QAG and OED findings – 38

Table 10: IFC and MIGA portfolios in WB&G – 39

Table 11: List of Economic and Sector Work, FY94-00 – 40

Table 12a: Total Cost of West Bank & Gaza Program – 41

Table 12b: Average Cost – 42

Table 13: List of Managers responsible for WB&G – 43

Annex II

Table 1: List of sub-projects financed by TATF – 45

Chart 1: Organizational structure of aid coordination – 49

Annex III

Questionnaire for the PA and PECDAR – 51

Questionnaire for donors – 53

List of people met on mission in WB&G – 54

World Bank and IMF staff interviewed – 57

Annex IV

References – 58

Attachments

1. Glossary of Ratings Definition – 59

2. Management Action Record – 60

3. Comments from the Palestinian National Authority – 62

4. Comments from the Regional Management – 64

5. OED response to Regional Management – 69

Preface

This report examines World Bank assistance to West Bank and Gaza (WB&G) during the period 1993 to end 2000. Initially, there was considerable optimism in the international community that the process of establishing a final peace agreement would proceed uninterrupted, and that assistance was needed during the five year transitional period to provide tangible benefits, help raise incomes, and contribute to building a climate of optimism which would provide a positive environment for peace discussions. The period 1993-95 witnessed some decline in economic activity and incomes, but the start-up of rebuilding infrastructure. In 1995 and 96, however, violence led to border closures, in which movement of goods and people into and out of WB&G was halted, resulting in economic crisis within WB&G during 1996. Several years of relative calm and renewed optimism then followed. The peace process resumed, although at a slower pace than initially expected, employment opportunities slowly re-emerged, the economy of WB&G began to recover, and assistance from the World Bank as well as large flows from the international community began to have a tangible and positive impact. The economic recovery came to an abrupt halt in September 2000, when violence and fighting became widespread, severe movement restrictions were imposed, and the economy of WB&G spiraled downward again.

In addition to interviewing a wide array of Bank staff involved with WB&G from the beginning and reviewing the files, documents, and reports on WB&G both within and outside the Bank, OED also interviewed Palestinian and Israeli officials, and project staff, donors, non-governmental organizations in WB&G. A list of people met and the questionnaires used as a basis for discussion are in Annex HI of the report. The OED mission also held a participatory round-up meeting with Palestinian Authority officials, project managers, and Resident Mission staff to review preliminary findings. References in the report to the views of "informed" observers are the result of these many meetings and interviews.

The report was sent to the Palestinian Authority; their written comments are found in Attachment 3. In addition, the Regional Management of the Bank also provided comments on the report, which are in Attachment 4. OED response to the Region's comments are in Attachment 5.

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