Posted on August 15, 2023

By Aboubakr K. Barry, CFA, Founder and Managing Director of Results Associates, Financial Management Consultancy Firm Based in Bethesda, State of Maryland.

Mr. Ajay Banga, the newly appointed President of The World Bank, has a timely and urgent opportunity to ensure that the institution is held accountable for the impact it has on its beneficiaries. This is a critical step towards increasing confidence in the institution's credibility, which is essential for mobilizing resources to help developing countries tackle pressing issues. These include climate change, the ongoing effects of the global pandemic, and the Russian-Ukrainian war. All of which exist under a persistent cloud of concerns about the effectiveness of aid agencies and multilateral financial institutions, including The World Bank. According to Stefan Dercon, former DIFD chief economist and policy adviser to the U.K foreign secretary, the overall impact of aid spending on growth and development across developing countries in the past five decades has been unsatisfactory, as highlighted in his book, Gambling on Development.

The chart below confirms this observation. Net official development assistance received in Sub Saharan Africa annually nearly doubled from $33 billion in 2005 to $63 billion in 2020 (chart 1). Yet the Country Performance and Institutional Assessment (CPIA, with a rating scale of 1 to 6) for the region, a proxy for good governance and used by the International Association for Development (IDA) to determine funding allocation, hardly moved during these 15 years.

This indicates that the large inflow of resources during this 15-year period ($732 billion per OECD) did not improve the region's capacity to reduce its dependence on aid. As Nobel laureate Douglass North wrote in his book, Structure and Change in Economic History, institutions act as a conduit between individuals and the capital stock, between the capital stock and the output of goods and services, and ultimately the distribution of income. Accordingly, effective, and sustainable development is incumbent upon effective development institutions.

Like its peer institutions, the World Bank operates under a model of bureaucrats spending taxpayers' money from donor countries on taxpayers in borrowing countries. As Nobel Laureate Milton Friedman stated, this way of spending is the least efficient because there is no personal pain associated with the losses or suboptimal use of resources. Therefore, in the absence of a credible accountability mechanism that creates genuine pressure to create an impact, the focus will remain on complying with the lending program, with impacts a secondary consideration. The solution lies in changing the incentive structure from concentrating on meeting lending targets to rewarding impact creation from the customers' perspectives.

William Easterly, a former World Bank staff member and economics professor at the University of New York, believes that accountability is the key to making aid work. The only way to ensure aid effectiveness is to ensure accountability to the people the aid is intended to help, as noted in his book, The White Man's Burden. This means that aid agencies must be accountable to aid beneficiaries, not just their donors or their own bureaucracies. Beneficiaries must have a say in how aid is delivered and deployed and must be able to hold agencies accountable for the results.

Big data and emerging technologies like blockchain offer a means to achieving transparency and accountability across various fields. The New York City Police Department's pioneering use of CompStat (Computer Statics) to collect and analyze crime data regularly for strategy setting, performance tracking, and data-driven accountability is a prime example. Bill Bratton, former commissioner of Police in New York City, noted the game-changing impact of CompStat on crime reduction in his book, The Profession. According to him, for the first time in policing history, the system allowed real-time crime tracking, identification of trends and patterns, and efficient resource deployment. CompStat helped reduce crime in New York City by over 70% in a decade and became a model for police departments worldwide.

Drawing on this success, I suggest Mr. Ajay Banga commissions the implementation of ImpStat (Impact Statistics) to bring accountability and transparency to development projects. The system would track implementation progress via a distributed ledger in real-time, enabling public access through mobile devices or other platforms. Independent external audits would be performed to evaluate outcomes from citizens' perspectives, which will then be used to inform promotion decisions and the World Bank President's renewal for a second term. ImpStat has the potential to revolutionize development projects and serve as a global model.

Implemented as recommended, ImpStat would link staff growth and the President's term renewal to the impact created, assessed from beneficiaries' perspectives. This approach would shift focus from disbursement to results, a meaningful approach that could attract significant private sector investments to address global challenges, as urgently identified by the World Bank.

Mr. Banja’s championing ImpStat will provide leadership by example, remove a key obstacle to the efficacy of aid in a time of dwindling resources, and usher in a new era of impact led development agenda.

I very much hope he does.

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