May 25, 2006 (WASHINGTON) — The World Bank Group Board approved an interim country assistance strategy for Ethiopia, emphasizing improved governance and growth.

The plan includes an immediate program to preserve the delivery of basic services to the population through grants to local governments.

The board decision follows a period of intensive consultation with Ethiopia’s international partners and with various actors within the country’s political economy.

The plan comes at a critical time for Ethiopia: contested elections in 2005 were followed by public protests, mass arrests, and an increasingly polarized climate that created continuing risks for the country’s development agenda.

The World Bank and other donors suspended direct budget support once the political impasse set in, but agreed to press for improved governance, including greater civic participation, while protecting critical services in health, education, agriculture and access to safe water.

The interim strategy, which covers the next fourteen months, carries clear expectations for performance at the country level. The Bank would assess Ethiopia’s progress on strengthening governance, and, if there are measurable improvements, would prepare a full three-year strategy envisioning scaled-up levels of assistance. However, if governance conditions deteriorate, the Bank would reduce aid over time.

The program approved by the World Bank board, and supported by Britain and the other donors, reflects a determination to protect the country’s poorest citizens from unnecessary setbacks flowing from the contested elections and the ensuing period of political uncertainty, said Ishac Diwan, World Bank Country Director for Ethiopia and Sudan. Ethiopia has registered real progress in providing services to the poor, and in advancing the Millennium Development Goals. Above all, we want to prevent a backsliding— while stepping up the work on governance.

A major component of the plan is the $215 million Protection of Basic Services Program to support local governments in providing the population essential services, while strengthening measures to ensure transparency and local accountability in the delivery of those services.

"Our agreements with the Government spell out some very specific results just in the next fourteen months", Diwan noted. For example, we’re committing to lower infant mortality to 115 per thousand from the current 127. For young children living in malaria-affected areas, we’re looking to make bednets available for 60%, up from 25% today. For the key childhood vaccinations, we aim to go from 40% to 60%.

In earmarking local government grants for essential services in health, education, agriculture and water, the Protection of Basic Services Program requires strict reporting on how funds are allocated and spent.

The plan applies four tests: fairness, to ensure that services are disbursed without partisan or political bias; sound fiduciary management, to guarantee that resources support the intended goals; additionality, to ensure that the Ethiopian government’s ongoing funding of basic services isn’t reduced; and accountability, so that citizens are fully informed and allowed to participate in decisions affecting their access to critical services. If performance falls short on the four tests, the Bank can halt disbursements until corrective measures are taken.

The larger interim strategy for Ethiopia carries several other programs to stimulate economic growth and strengthen governance. The plan calls for an expansion of access to electricity among Ethiopia's rural population. Another component would fund irrigation programs to strengthen farm productivity, while a private sector program would support high-growth corridors as a means of bolstering Ethiopian enterprise. Funding for roads and capacity-building in financial services and agriculture are also included in the first year of the interim strategy. In the second year, the Bank would continue to address the significant infrastructure gap that holds back economic growth in much of the country. Other resources would support safety nets for food-insecure households, the fight against HIV-AIDS, and urban housing.

The United Kingdom is supporting the PBS project, and the Netherlands will also contribute. The European Commission, African Development Bank, Canada, Ireland, and Sweden are also considering contributions.

The PBS project earmarks $20 million from the World Bank and $67 million from all PBS partners combined to help finance the acquisition of critical health commodities including mosquito bed nets, vaccines, malaria drugs and contraceptives. The program also provides funds to improve local governments disclosure practices and to equip civil society organizations with skills to track government spending and to participate in decision-making.

In recent years, Ethiopia has posted a comparatively strong growth performance, while increasing the portion of the national budget dedicated to poverty-reduction spending. Though starting from a low base, the country had begun to show progress toward achieving some of the Millennium Development Goals including strong gains in rates of school enrolment and lowering malnutrition. The PBS program is designed to avoid any reversal in these areas, while providing strong incentives for improved governance and participation.