PROJECT
ROLE OF WORLD BANK IN IMPROVING GOVERNANCE IN
THE DEVELOPING WORLD
SUBMITTED BY
SAMIA NIAZI
M. PHIL INTERNATIONAL RELATIONS
SEMESTER II
COURSE: DEVELOPING PROSPERITY AND DEVELOPING
NATIONS
SESSION 2016-18
KINNAIRD COLLEGE FOR WOMEN, LAHORE
ABSTRACT
This project analyzes that role of World Bank in the developing world. The World
Bank is the world’s largest development institution. Since 1990s, the World Bank
has included governance in its agenda as a means of improving development in the
developing world. The main focus of the World Bank in its governance agenda is
the strengthening of institutions. It provides financial assistance, soft loans and
advice to developing states for maintaining social justice, improving human rights,
increasing
citizen
participation,
eliminating
corruption
and
increasing
accountability. The World Bank’s efforts for improving governance have achieved
limited success because it provides a one size fits all solution to the developing
world whereas the developing states vary considerably in their socio-political and
political contexts.
1. INTRODUCTION
The World Bank (formerly known as the International Bank for Reconstruction and
Development IBRD) was established in 1944 as part of the Bretton Woods System. In its
formative years, the World Bank provided loans as financial assistance to the states that had
suffered great devastation in the Second World War. Gradually, its role transformed from one of
aiding reconstruction to one of leading reforms and supporting the development of poorest states
of the world. The Bank’s role has changed over the years with the shifts in the international
economic system but still the main focus its agenda today is poverty reduction and sustainable
development. The World Bank Group, the parent organization of the World Bank which is part
of the United Nations System, has announced two goals for the world to be achieved by 2030
which include:

“End extreme poverty by decreasing the percentage of people living on less than $1.90 a
day to no more than 3%

Promote shared prosperity by fostering the income growth of the bottom 40% for every
country” (World Bank, n.d.).
Since its inception, the World Bank has been a major source of providing financial and technical
assistance to the developing world and it is the largest development institution in the world
(World Bank, n.d.). The World Bank not only provides loans for development but also provides
expert knowledge and advice on development related issues. It works in partnership with state
actors and non-state actors such as civil society groups, NGO, multinational corporations and
international organizations. The World Bank assists in the development of developing states by
providing them low-interest loans, zero to low-interest credits and grants. It also supports
investments in education, health, public administration, infrastructure, financial and private
sector development, agriculture, and environmental and natural resource management. The Bank
is also involved in trust fund partnerships with bilateral and multilateral donors. Moreover, the
World Bank provides technical assistance and policy advice to developing states and facilitates
capacity building. It openly shares knowledge and offers technical expertise to the developing
world.
Initially, the World Bank’s approach to development was centered on reducing poverty by
facilitating modernization but over the years, the World Bank has included governance in its
agenda as poverty and lack of technical resources are not the only impediments to economic
growth. The need for the adoption of governance as a global agenda was brought about by a host
of factors such as the collapse of authoritarian regimes in Soviet Union, Eastern Europe and also
in Africa due to growing civil conflicts. There were demands for democratic reforms and human
rights in China, south-east Asia and the authoritarian states of Latin America. State owned
enterprises were underperforming in command economies, unsustainable levels of public
expenditures led to fiscal crises. The low-income countries presented high levels of corruption
and lacked the resources for establishing mechanisms for its. All these global issues were
basically governance related issues and international institutions such as the World Bank decided
to include it in their formal agenda.
Governance and later good governance formally became part of the World Bank’s sphere of
activity in the 1990s (Rakner, 2017). The collapse of the new public management in the 1980s
furthered the induction of governance on the global agenda. For the purpose of development,
many states from the developing world followed the traditional public management process and
due to the failure of politicians, inefficient bureaucrats and the poor performance of governments
in terms of failure in tax collection, failure in reaching the targets of welfare projects, failure in
getting economic and political consensus and the unachieved targets of distribution of resources
forced the states to follow new planning and new options to achieve the target of development.
For that purpose, many states tried to follow the concept of new public management which was
the mixture of many economic ideologies. The main target of this program was to increase
efficiency in all government activities like to squeeze the size of government, giving preference
to privatization, transferring the supply of public goods to private companies in the decade of
1980s. Furthermore, in 1980s pressure was mounted on the developing world for adoption of
neo-liberal economic policies which reduced the role of the state in economic affairs, by
encouraging greater autonomy in the market economy and facilitating privatization. International
financial institutions such as the International Monetary Fund and the World Bank provided aid
to developing states on the basis of conditionality. Structural Adjustment Programs (SAPs) were
introduced which made foreign aid conditional with increasing privatization, adoption of reforms
conducive to market economy and deregulation (Rakner, 2017). The agenda of neoliberalism
was augmented by the collapse of the command economies of Soviet Union and Eastern Europe
and the triumph of capitalism in the Cold War during the same time period (Lateef, 2016).
However, the neo-liberal policies failed to achieve the desired results. The World Bank noted in
its findings in the World Development Report 1990 with regards to Sub Saharan Africa that the
developing states of the region were facing a ‘crisis of governance’ (Lateef, 2016). It was
highlighted that the root cause of economic problems in Sub Saharan African states was not
increased state intervention in economic affairs, rather, it was the lack in the government’s
ability to obtain and exercise power effectively which obstructed economic growth and
development. Large amounts of aid that were provided to these states could not be channeled to
the development of the public sector. Lack of accountability and transparency contributed to
soaring levels of corruption (Lateef, 2016).
By early 1990s, the major issue was the gap between governments and citizens and due to that
gap people were not satisfied with any agenda of new public management. So, in 1990s a new
agenda concept was again introduced in many developing countries and the experts of political
economy gave the title ‘reinventing government’ and the main theme of this agenda was that
good government requires good governance. The target must be efficiency, sustainable growth
and better satisfaction of citizens so more care like job opportunities, education and health is
required and the ability to meet the challenges like lack of resources, pollution, climate change,
quality of life, intensive migration. These all challenges must be countered by the state and its
institutions. Good governance adjusts the country development towards the technology
advancement, openness of market, global competition, and higher citizen expectations.
It was realized that governments act as facilitators of market economies and state intervention in
economic affairs was necessary to prevent market failures. Therefore, the calls for eradicating
the role of state in economic affairs were replaced by calls for ensuring that governments
exercised a limited role in market economies.
According to the World Bank:
“Governance is defined as the traditions and institutions by which authority in a country is
exercised for the common good. Governance systems that are transparent, responsive,
participatory, and accountable ensure that benefits and services are delivered to the citizens that
need them most, especially the poor and marginalized. Open and accountable public institutions
help build citizens’ trust in government and support for development policies and outcomes.”
(World Bank, n.d.)
It is evident that politics and economics are inseparable but the terms of agreement of the World
Bank prohibit it from commenting on the nature of government which is conducive to
development. It is a widely held view by development economists that democracies are more
prone to development as compared to authoritarian regimes but the World Bank reports remain
silent on this issue because considerations regarding the nature of political system of aid
recipient states are outside the mandate of the Bank. It is believed that political considerations
were excluded from the mandate of the Bank because it was likely to prejudice aid decisions.
The populations of poor states with authoritarian regimes could not be made to suffer because of
the nature of the political system. From 1990s onwards, governance indicators were used as the
yardstick for sanctioning foreign aid by the international financial institutions and bilateral donor
governments (Rakner, 2017). However, governance and democracy are also characterized by a
dichotomy. The remarkable of economic growth of authoritarian states such as China indicates
that performing poorly on governance indicators does not hamper economic growth. The
converse of this that states with effective governance do not do well economically is not true
which is why global institutions, other than the World Bank which is constrained by its mandate,
such as the United Nations Development Programme, promote democracy as democracies
uphold the principles of good governance and are likely to foster economic growth (Rakner,
2017).
1.1 Literature Review
In 1980s, the two major international financial institutions, the International Monetary Fund
(IMF) and the World Bank introduced a number of conditions which were to be adopted by the
developing states in order to be eligible for receiving aid. These conditions included opening up
the economy for trade and international finance, privatization of natural resources and stateowned enterprises, deregulation of economic activities, social service reform and some other
market-based reforms. The World Bank’s mandate does not allow it to interfere in political
affairs of states; therefore it has confined its activities to the economic dimensions of
governance. However, it is a well-established reality that no economic policy can be effective
unless a strong political system is in place for its implementation. In order to make aid
programmes effective, the World Bank is now focusing on improving governance in developing
states and has made good governance an important element of its overall development strategy.
The World Bank’s strategy to improve governance in developing states thus implicitly
incorporates strategies for strengthening democracy and state institutions. The World Bank
traditionally relied on conditionality to make its aid programmes effective but it could not
achieve the desired results. Conditionality could not foster commitment or willingness in aid
recipient states as there was no favorable environment for implementing policy reforms. Large
amounts of aid provided fell prey to corruption as the state institutions in developing states were
weak and aid was not directed towards public sector development. Increasing conditionality was
not the solution as it would have led to infringement on state sovereignty and subsequent
backlash, therefore a better alternative was to give the control of aid programmes to domestic
stakeholders and partnering with them simultaneously for political and economic development.
The World Bank’s stated aim is to reduce poverty around the world therefore, it should lend to
states after considering the state-specific constraints on poverty reduction and it should seek to
resolve coordination problems between states in order to successfully evade shared threats. The
World Bank needs to reform its agenda in line with the changing trends of the twenty-first
century and include political reform in its mandate. Economic aid is futile without political
reform and the World Bank’s increased focus on fostering good governance is a step in the right
direction by virtue of which it can assist parliaments, judiciary and civil society institutions in
improving rule of law, accountability, participation and transparency. The World Bank should
work to sustain democracy in developing states as only democracies can ensure the practices of
good governance. (Babb & Kentikelenis, 2017; Ravallion, 2015; Santiso, 2001).
The World Bank is considered among the most credible financial institutions by donors and
recipients alike. When the World Bank decides to withdraw aid from a particular state or
governmental body, other donors also follow suit. Hence the World Bank enjoys a greater
leverage in negotiations with client governments and can influence the decision making of other
donor agencies. The World Bank also plays an important role in information collection and
dissemination which leads to the generation of ideas. These ideas are submitted to a greater
policy audience and then translated into specific policies. In other words, the World Bank
performs the task of global agenda setting. The reports published by the World Bank are
successful in urging leaders to reform their behavior as leaders become concerned about
deterioration in their image which could deter foreign investment flows. The World Bank
employs highly qualified and skilled staff which can engage in independent policy discussion.
The governance reforms professed by the World Bank are absolved of vested political interests
which is why these are likely to be more effective for equitably delivering public goods.
However, the World Bank’s programmes in developing states are hampered by rampant
corruption in domestic political systems. Politicians use development aid to gain political
objectives such as funding political campaigns which undermines aid effectiveness. The financial
authorities do not give priority to budget control and basic accounting and focus on undertaking
high profile projects. Moreover, the bureaucracy in developing states shows reluctance in
implementing reform projects and insists on continuing with its routine work. The World Bank’s
reform programmes have only been successful in those states that have democratically elected
governments, demonstrate political stability, are immune from authoritarian trends and have an
absence of ethnic issues. Foreign aid is successful in fostering development and growth in states
with sound monetary, fiscal and trade policies as opposed to states with poor policies and
dysfunctional institutions. However, the World Bank experts fail to account for the fact that why
the states with impressive growth rates are the ones that have poor governance. Most East Asian
states that rapidly achieved high levels of development are plagued with authoritarianism,
corruption and do not have a favorable record of extending human rights to their citizens. The
World Bank focuses on institutional reform but has little expertise to offer with regards to the
creation of institutions. Moreover, the governance agenda propounded by the World Bank
appears to be uniform for all developing states whereas actually the circumstances in developing
states vary considerably from one another (Clemens & Kremer, 2016; Lateef, 2016; Laws,
2016).
1.2 Aims and Objectives
This study aims to:

Highlight the ways in which the World Bank assists developing states in improving
governance.

Analyze that whether the strategies adopted by the World Bank have been successful in
improving governance in the developing world or not.
1.3 Research Questions
In light of the above mentioned aims and objectives; the following research questions are
constructed:

How does the World Bank assist developing states in improving governance?

To what extent are the strategies adopted by World Bank successful in improving
governance in the developing world?
1.4 Research Methodology
The project is based on the qualitative research method. Data is collected from various secondary
sources such as books and peer-reviewed journal articles. Analytical and descriptive tools are
used to highlight the role of World Bank in the developing world.
1.5 Plan of Research
This project is divided into four sections. The first section provides the introduction. The second
section elucidates the role of World Bank in the developing world. The third section highlights
the positive and negative aspects of World Bank’s governance policies and presents an example
of World Bank’s role in Pakistan. The final section provides conclusion.
2. WORLD BANK’S ROLE IN IMPROVING GOVERNANCE IN THE
DEVELOPING WORLD
The people of the developing world do not trust their governments as they believe that most of
their problems are caused by a lack of strategic vision in their leadership. Addressing governance
issues is the core of policy debate at national and international levels today. The World Bank
stresses on improving governance in its client states by building strong institutions which are
capable, efficient, open, inclusive and accountable (World Bank, n.d.). Strong institutions create
the environment for good governance in which individuals can lead a prosperous life. Moreover,
institutions are necessary for creating mutual trust between the government and the governed.
People’s participation in the decision-making process allows them to effectively channelize their
demands which can be converted into policies.
2.1 Principles of good governance
There are many characteristics of good governance but the major ones are:
1) Participation: All men and women should have a voice in decision making either
directly or through legitimate institutions that represent their interests. Such broad
participation is built on freedom of association and speech as well capacity to participate.
2) Rule of law: Legal frameworks should be fair and enforced impartially; particularly the
laws on human rights.
3) Transparency: Transparency is built on the free flow of information, process,
institutions, information, accessible to those concerned with them and enough
information is provided to understands and monitor them.
4) Responsiveness: Institutions may try to serve all the stakeholders.
5) Consensus orientation: Good governance mediates different interests to reach a broad
consensus where possible on policies and procedures.
6) Equity: All men and women are equal so they must have opportunities to improve or
maintain their situation.
7) Effectiveness and efficiency: Process and institutions produce results that meet the
needs of people both the fair process and the role of institutions is required.
8) Accountability: Decision maker in government, the private sector and civil society, they
all are accountable to the public and this accountability actually leads towards the
performance of government.
9) Strategic vision: Leaders and public have a broad and long term perspective on good
governance and human development along with a sense of what is needed for such
development. This vision is important for the development of state and society.
2.2 Strengthening institutions
Experts at the World Bank are of the view that the issues of the world’s poorest developing
nations are rooted in historically and systematically inefficient institutions. The institutional
incapacities have resulted in absence of responsiveness to the citizens’ needs. Building efficient
and effective institutions is thus necessary for responding to the changing needs of the people in
a timely manner. By strengthening institutions, the World Bank is aiming to develop and reform
the public sector in developing states which would be based on the values of transparency and
citizen participation. Core government systems would be strengthened to ensure that resources
are channelized to the poorest 40% of the population (World Bank, n.d.).
2.3 Components of World Bank’s governance agenda
The World Bank’s conception of governance entails the following components:
Fundamental tasks
Policy reforms
A legal foundation
Fiscal consolidation
Non-economic factors of
governance
Electoral democracy
Maintaining a nondistortionary policy
Reduction and re-direction of
environment with macro-
public expenditures
economic stability
Transparency
Investment in basic social
services and infrastructure.
Protecting the vulnerable
Protecting the environment.
Reform and reduction of taxes
Maintenance of competitive
exchange rates
Accountability
Participation and
responsiveness in the
processes of government
Financial trade and investment Provision and assurance of
citizens’ safety and security
liberalization
Overall deregulation and the
privatization
of
state Rule of law
enterprises
Effective enforcement of
contracts
Protection of human rights
Reduction of military
expenditures
3. ASSESSMENT OF THE WORLD BANK’S GOVERNANCE AGENDA
The World Bank can only advise its client states to implement its governance agenda by sharing
its knowledge. It only enjoys bargaining leverage in the projects assisted by it as it can impose
conditionalities when targets are not met and reforms are not practically translated into policies.
Beyond this, the World Bank can do little to persuade the developing states governments to
conform to its agenda. Even conditionalities are not effective as they are unpopular and when
imposed they cause protests to break out in the developing world. It would be more beneficial for
the developing states if the reforms introduced by the World Bank in its assisted programmes
could have a spill-over effect on other socio-economic and political initiatives.
3.1 Criticism on World Bank’s policies
One of the basic criticisms levied on the World Bank’s approach to governance, poverty
reduction and development is that it views underdevelopment as technical problems requiring
technical solutions. The model of development propagated by the World Bank is also referred to
as ‘technocratic development’ wherein the World Bank relies solely on the work of development
economists and experts (Easterly, 2015). Poverty and bad governance are not only the causes of
underdevelopment but also its consequences. The developing states lack the resources and
capacity to counter these menaces. The World Bank leaves out industrial development and
redistribution of resources from its governance agenda which are the most pertinent demands of
the developing world. The lack of development in developing states is also rooted in some
historical and cultural factors such as the brutal experience of colonization. The policies
exercised by the colonial powers prevented the building of strong institutions in the developing
world.
The World Bank’s agenda for governance presents a model of one size fits all whereas the
situation in developing states varies from one to another. Therefore in order to make it
successful, the socio-cultural factors must be taken into account while promoting an agenda for
governance.
Another criticism on World Bank’s policies in the developing world is that they have engulfed
the developing world in a cycle of dependency. It has been almost three decades since the
governance agenda was adopted but still no breakthrough or significant success story has
emerged. The World Bank’s policies are designed in such a way that the problems that they
highlight can only be countered by more reliance on the World Bank. For instance, the
governance agenda was adopted after the structural adjustment programs had failed to achieve
their objectives. The opponents of World Bank’s policies assert that the Bank’s policies only
further the agenda of the Western developed world and are not designed to alleviate the problems
of the developing world.
States with authoritarian regimes that are accompanied by a poor human rights record and lack of
transparency are showing impressive levels of economic growth. The rise of China and the
wealth enjoyed by Middle Eastern monarchies exemplify that democracy, citizen participation
and provision of human rights is not necessary for economic growth.
The World Bank’s governance agenda also ignores the principal-agent problem which has grave
consequences for the developing world. Developing states act as principals while the
international financial institutions such as the IMF and World Bank serve as agents. The
principals delegate power to the agents to act on its behalf. The agents do not perform their tasks
and practice slippage, slacking and shirking by means of which only the agent’s interests are
served and the interests of the agents are undermined.
3.2 World Bank and governance in Pakistan
The World Bank’s Country Partnership Strategy for Pakistan for the duration of FY2015-2019 is
based on the Pakistan’s government framework of 4Es namely: Energy, Economy, Extremism
and Education.

The World Bank has shown commitment to support reforms and large investments in
power sector to reduce load shedding, reduce and cut losses by increasing accountability
and expansion of low cost generation supply.

The World Bank will provide skills training and support private sector development for
creating a conducive business environment. It will work in collaboration with the
provinces to improve competitiveness and expand investment while strengthening
agricultural markets and productivity.

Engaging with the vulnerable groups in the society and improving social justice.

Facilitating improvement in service provision particularly engaging with provinces to
support better service delivery in cities.

Leveraging regional markets by extending links with other regional players and
neighbouring countries. The main focus areas in this regard are energy and trade. The
long term goal is to create an integrated regional electricity market in South Asia with
power transmission links to Central Asia and India.
The World Bank Pakistan portfolio has 29 investment lending projects under implementation
with a total net commitment of $5.4 billion (World Bank, n.d.). During fiscal year 2016, the
World Bank commitments amounted to almost $2.3 billion (World Bank, n.d.). FY17
commitments to date are approximately $0.8 billion. IFC’s advisory services program in Pakistan
is one of its largest in the region, with 17 active projects and a funding commitment of about $25
million (World Bank, 2017). In the context of Pakistan, lack of strategic vision and leadership
has made Pakistan increasingly reliant on foreign aid. Pakistan has a poor record with regards to
corruption and human development. Moreover lack of accountability, absence of transparency,
and the lack of responsiveness on part of the government has led to a situation in which the
situation of governance does not seem to improve. The structure of bureaucracy in Pakistan has
not been reformed, natural resources have not been equitably distributed due to which there are
impediments to economic growth and development.
CONCLUSION
The World Bank has embarked on the agenda of improving governance because the objectives of
development could not be achieved by structural adjustment programmes alone. Good
governance now-a-days is a dominant policy and practice in developed, democratic countries but
good governance needs education, better business regulations and rational social policy to
contribute for sustainable economic growth and social welfare of citizens. Governance is is an
effective tool to manage country development and to serve citizens in best way. So, we can say,
governance is a concept, policy and practice without boundaries. The World Bank can only play
an advisory role and extend lending to developing states but the onus of taking action lies with
state governments. Lack of strategic vision and accountability impede the World Bank’s agenda
for governance and the policies that are enacted by the Bank are achieving little in terms of
practical success in the form of economic growth and development.
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