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The World Bank Group in Papua New Guinea, 2008-23


Background and Country Context

This Country Program Evaluation assesses the relevance and effectiveness of World Bank Group support to Papua New Guinea between fiscal year (FY)08 and FY23. The assessment covers Bank Group support over three country strategy periods as guided by the Country Assistance Strategy for FY08–11, the Country Partnership Strategy for FY13–16, and the Country Partnership Framework for FY19–23. The evaluation examines the relevance of the evolution of the Bank Group–supported strategy, draws lessons from experience, and assesses three core themes that are critical for achieving development effectiveness as identified in the World Bank’s Systematic Country Diagnostic (SCD) and in the literature more broadly. The three themes are growth in the nonextractive sector; gender equity; and fragility, conflict, and violence (FCV). The assessment starts after an interruption in World Bank–client relations in the mid-2000s caused mainly by noncompliance within a forestry sector loan. The World Bank contributed an average of 9 percent of total official development assistance over the evaluation period, and the Australian government and the Asian Development Bank together contributed about 70 percent.

Papua New Guinea has abundant natural resource wealth, but this wealth has not translated into welfare gains for most citizens. Although resource sector development, associated infrastructure spending, and high commodity prices have spurred growth, the resource sector accounts for a negligible share of employment and has not distributed local welfare benefits. Boom and bust cycles have contributed to macroeconomic and fiscal volatility that, coupled with weak fiscal management, has led to equally volatile public spending on service delivery. There is little investment in nonextractive sectors, such as agriculture, and no growth in the share of nonagricultural jobs—a key indicator of economic transformation (Howes and Pillai 2022). Growth is stymied by an overvaluation of the currency (the kina) achieved through rationing foreign exchange that dampens investment, diminishes productivity, and increases export costs. High levels of insecurity, the inhospitable terrain and poor infrastructure, and low human capital further contribute to the high cost and lack of competitiveness in the nonresource sectors. State-owned enterprises with poor service delivery and high debt have crowded out private sector activity (IMF 2022).

Political fragmentation, a diverse sociocultural political economy, and dependence on extractives have contributed to intense competition among political elites, political instability, and institutional weakness. Papua New Guinea has been a democracy since independence in 1975. However, large resource rents have reinforced a form of “competitive clientelism.” Extractive rents enable powerful interests to dominate funding decisions in the electoral process, including those linked to capital budget allocations. Elites and other vested interests demand rents and other economic concessions in exchange for political support. This—together with unstable parties and a lack of coherent political agendas—has led to political fragmentation and limited expenditure focus and control. Votes of no confidence are a major mechanism driving the fragmentation of parliament. As a result, long-term policy making is difficult, and the interests of large portions of the population remain unserved. The resulting environment of weak institutions and weak enforcement of law and order thus facilitates the proliferation of corruption and rent-seeking behavior.

Inclusive growth has been elusive, especially for women and youth. Papua New Guinea’s rugged geography and resulting cultural diversity make central government functions difficult. The country consists of a main island and 600 offshore islands with a population of 600 tribes that speak about 800 languages (Jackson and Standish 2023). A 1995 Organic Law and its amendments instituted a model of decentralization, but Papua New Guinea’s largely top-down process has not established mechanisms for accountability and participation and does not leverage the latent dynamism anchored in its women and youth. About 67 percent of the population is under age 35, and urban youth are a growing proportion of the population. Urban youth, particularly, are disenfranchised and excluded from formal employment—factors that push them into the competitive informal sector and make them prone to crime (World Bank 2019b, 2020a). Women are central to kina livelihoods, but legal impediments and social norms prevent them from accessing economic opportunities that are often at a distance from home or within professions considered the preserve of men. Significant barriers to women’s political participation are evident in the low number of women in leadership. Extremely high levels of gender-based violence (GBV) perpetuate barriers to economic participation. Papua New Guinea has one of the highest rates of GBV globally: two-thirds of women have experienced GBV and 50 percent sexual assault (Sardinha et al. 2022).

The limited reach and poor condition of the country’s transportation network isolates large swaths of the population from markets, income earning opportunities, and services. Papua New Guinea has a series of unconnected road networks focused mainly within provinces, with little or no connectivity to the capital, and the condition of many of these national and provincial roads has deteriorated, imposing significant costs on the economy and society. In addition, alternative marine and air transport options are limited and expensive. Significant institutional and political factors undermine transport infrastructure, connectivity, and related welfare outcomes. These factors include strong political incentives to build rather than maintain roads and an unwillingness to safeguard road maintenance funding (leading to a vicious cycle of build-neglect-rebuild).

A complex set of fragility, violence, and disaster drivers and risks undermines inclusive and sustainable growth. Compounding and interrelated risks involving the interplay between violence, conflict, disasters, institutional fragility, and governance limit human capital development and constrain investment and growth severely. The country’s ethnic and cultural diversity and the remoteness of its communities have thwarted national conflict, but local ethnic conflicts and rising numbers of underemployed youth fuel violence daily. Such daily violence affects women disproportionately because of the character of gendered relations that reinforce men’s dominance. In urban areas, ethnic identities (among other factors) emerge as fault lines for new kinds of violence. Intertribal conflict, especially in the highlands, and interpersonal violence remain high and, by some metrics, higher than at the start of the evaluation period and more deadly because of the spread of modern high-powered arms (IHME 2019). Papua New Guinea also faces disaster and climate risks that it is ill-equipped to manage. Slow disaster response, such as after the 2018 earthquake, exacerbates preexisting grievances and multiplies violence risks (World Bank 2018b).

Severe data limitations have undermined sound policy making and effective programming. The World Bank’s 2018 SCD cited the challenges to effective programming associated with outdated or nonexistent censuses, household, and other survey data and the lack of timely macroeconomic data. Data deficiencies have resulted in significant shortcomings in population estimates and in the level of poverty and have prevented effective targeting for service delivery, especially in rural areas.

Strategy Evolution

Bank Group–supported country strategies have become more relevant by building on long-standing relationships in core sectors while increasingly taking some risk to cover key development gaps in new sectors. The Bank Group effectively rebuilt its engagement with Papua New Guinea by focusing on transport, information and communication technology, and agriculture—three sectors in which the Bank Group had long-standing engagements and could generate goodwill. Over time, the relevance of its engagement has increased through decisions to address key development challenges identified in the SCD, especially health and social protection. To address these issues, the World Bank has had to engage in new sectors in which relationships and capacity are being tested. Risk mitigation efforts have involved conducting programmatic advisory services and analytics (some of which have been done in partnership with the government of Australia) before lending. Because of weak demand, earlier country strategies in Papua New Guinea paid limited attention to human capital development, despite lagging progress on malnutrition—especially for women and children—and stunted growth in children.

The World Bank has also increasingly leveraged its multilateral position and technical expertise to achieve more meaningful complementarities. During the evaluation period, the Bank Group provided about 9 percent of official development assistance, compared with 70 percent provided by the Australian government and the Asian Development Bank combined. Reflecting its status as a relatively small development partner in financial terms, the Bank Group’s role evolved from one focused on delivering services in core sectors (such as transport and agriculture) to leading by demonstrating innovative technical approaches that others are replicating and by leveraging co-financing to achieve complementary donor aims.

However, decisions on the scope of Bank Group engagement have not always been based on an assessment of what is feasible and measurable. To achieve country strategy aims, a better sense of realism was needed about what could be achieved and measured, considering limited state capacity. The 2019 Country Strategy of the International Finance Corporation (IFC) depended heavily on reforms (including state-owned enterprise reforms) that exceeded the country’s reform capacity. Funded mostly by external donors, the effectiveness of the IFC advisory services program was partially undermined by donors’ desires for expedient disbursements and ambitious activity objectives that exceeded client capacity.

Data scarcity has been a major constraint in setting feasible and measurable objectives and in determining scope. As noted in the SCD (World Bank 2018a), many statistical indicators considered standard in other parts of the world are either not prepared or are produced so irregularly or with poor quality that their usefulness is limited. For example, historically, basic questions such as whether national sector expenditure, workforce, or infrastructure have increased or decreased in recent years could not be answered. This jeopardizes the quality and feasibility of key activities such as planning, policy development, monitoring, and evaluation that require timely and reliable data.

Performance and Implementation

Bank performance in the early part of the evaluation period was less than satisfactory, but it has improved over time. Strategy implementation was challenging because of weak government capacity for financial and contract management, procurement, auditing, and safeguards in central or implementing agencies and insufficient counterpart funding. The World Bank also at times underestimated capacity and implementation constraints.

The Bank Group has overcome some engagement challenges by adapting to the country context, whereas other key issues that undermine development effectiveness remain.

  • More effective support has been associated with high-frequency, low-intensity engagement (efforts likened to “lacquering a bowl”) by layering advice and support, not going too quickly, and never letting the engagement cool. This includes staff efforts to build personal relationships over time with clients in ways that help staff navigate patronage dynamics and identify appropriate entry points. Layering institutional analyses and technical fixes to address patronage dynamics over time, such as using performance-based approaches in the road sector, is showing promise. Other efforts featuring low-frequency, high-intensity support provided in short bursts have been less effective.
  • The World Bank increased technical staff presence significantly in the region and country in ways that potentially allow programs to be grounded better in an understanding of context and the client. For example, the resident mission maintained modest staffing during the first half of the evaluation period, but it has recruited several international and local technical experts in the country, including through using extended-term consultants.
  • However, the short duration of postings for international technical staff (because of the FCV nature of the environment) has limited opportunities for staff to build meaningful client relationships to support medium- to longer-term reforms. Using a regional hub has provided important continuity in some cases. A lack of continuity in IFC’s staff presence and the COVID-19 pandemic has also affected deal flow.
  • The high cost of operating in Papua New Guinea has affected engagement and supervision capabilities negatively, and solutions to navigate this constraint more effectively, such as linking more granular security analysis to operational decision-making, are not forthcoming. These high operating costs are caused by security constraints and high prices for logistics, goods, and services.
  • A shift in the World Bank’s approaches has sometimes overcomplicated the engagement with authorities and risked overwhelming client capacity. Delays and project failures have sometimes been associated with introducing international or regional best practices without paying adequate attention to how to adapt these approaches to local institutional capacity (for example, in tourism and community-driven development). The introduction of four different agriculture project designs also overcomplicated engagement because each focused on a different or expanded set of commodities or livestock, and each had new institutional requirements.

Growth in Nonextractive Sectors

Several constraints undermine Papua New Guinea’s nonextractive growth aims. Among others, these include governance challenges that impede policy reform, weak institutions, the lack of kina convertibility, poor transport infrastructure that constrains access to markets and services, underinvestment in agriculture, a lack of competition, and security.

The World Bank and the International Monetary Fund cited the overvaluation of the kina as constraining growth in the nonextractive sectors and called for a gradual relaxation in exchange rate restrictions. The lack of kina convertibility poses a substantial barrier to growth in the nonextractive sectors. The overvaluation of the kina has led to a rationing of foreign exchange that dampens investment and undermines productivity. The International Monetary Fund approved a $918 million arrangement, which included measures to reform the foreign exchange regime. Analytical work on the costs and distributional effects of the overvaluation across populations and sectors was only recently conducted. The World Bank provided a (qualitative) assessment of cost of overvaluation for the economy and argued for more flexibility and convertibility, most vocally, in the recent Country Economic Memorandum (July 2023). The paucity of reliable and up-to-date data—referred to and highlighted throughout this report—significantly limits the ability to conduct a meaningful distributional analysis.

The World Bank’s attempt to use budget support for fiscal and public management reforms was unsuccessful. The World Bank’s first development policy operation (DPO) in Papua New Guinea in two decades, in FY19, sought to improve revenue performance and public financial management. However, political fragmentation and an unpredictable policy environment limit the government’s ability to credibly commit to policy reforms, particularly policies that constrain spending. This makes a DPO’s probability of success very low and the risk that medium- to longer-term policy reforms will not be sustained high. The DPO failed to adequately identify and mitigate risks related to the government’s inability to implement reforms, contributing to the DPO’s failure to meet its objectives. Along with this, poor design of results indicators and a lack of provision for gathering data led to a moderately unsatisfactory rating for Bank performance.

The World Bank is testing new forms of performance-based contracts to overcome the culture of a lack of maintenance and build-neglect-rebuild approach to road assets, which undermine road quality and connectivity outcomes. The World Bank rehabilitated key segments of national, provincial, and feeder roads effectively. However, because of deeply embedded patronage dynamics contributing to investment in road construction rather than road maintenance, by 2018, there were fewer roads in good condition and more roads in poor condition than in 2008. To address the lack of funding for maintenance that undermines sector performance, the World Bank has been successfully testing a performance-based implementation pilot that builds the cost of road maintenance into the life cycle of road rehabilitation contracts. Although the results are good at the highway level, the government and donors need to internalize and scale the approach to contribute to wider country outcomes.

A lack of competition has undermined efforts to achieve inclusive growth in key nonextractive infrastructure sectors. The Bank Group (IFC and the World Bank) contributed to a significant increase in information and communication technology infrastructure, but without successfully supporting enhanced market competition, penetration remains limited and costs exorbitantly high. Similarly, a lack of competition in the banking sector has constrained small and medium enterprises’ access to finance—a core goal of IFC during the evaluation period.

The World Bank effectively supported an alternative service delivery model in the agriculture sector that increased incomes for smallholders, but more could have been done to address resilience risks. Between 2008 and 2020, the government and the World Bank focused on growing cash crops for export, which was the theme of the Productive Partnerships in Agriculture Project that also increased the incomes of cocoa and coffee farmers. The project was innovative in introducing a parallel service delivery model that linked farmers to lead partners who could aggregate, buy, and sell to exporters. It also critically rehabilitated market access roads (though maintenance is a challenge). Other donors have since replicated the model. Although the project helped cocoa farmers replant after a devastating pest outbreak, it did not address the coffee borer pest outbreak effectively. Until the recent approval of the Child Nutrition and Social Protection Project in June 2022, the focus on nutrition has been insufficient, considering the country’s issues with severe malnutrition—especially in women and children—and stunted growth in children. IFC’s agribusiness work in Papua New Guinea has also been limited, with modest results.

Gender and Gender-Based Violence

The World Bank relevantly approached gender equality as smart economics, applied through culturally appropriate family and community-based models, but more evidence is needed about what works to achieve gender-related outcomes in different contexts. The Bank Group’s focus on gender deepened over time by using analytics to show the economic benefits of women’s empowerment, thus giving gender issues more traction in economic sectors such as agriculture and transport. The World Bank relevantly rolled out a smart economics approach to gender equality through a culturally appropriate engagement model that sensitizes family and community to the household benefits of improving women’s labor opportunities. Tested in the agriculture sector, the engagement model reportedly helped increase women’s agency but mainly in matrilineal versus patrilineal areas, and results were hard to validate. Other sector efforts to employ women safely by using different implementation models also faced challenges.

IFC led the way in demonstrating how to address GBV in the workplace directly. IFC has helped clients develop guidance, build coalitions, provide training, and establish safe houses and showed early results in the form of increased productivity and cost savings in firms that adopted and followed GBV policies. This engagement has been foundational for IFC’s work on gender. IFC has replicated the model elsewhere in the region, and it is shaping IFC’s approach to performance standards on GBV overall.

The World Bank has addressed the risks of GBV through safeguards at the project level but has not articulated a country engagement approach. The World Bank has identified and mitigated GBV risks through safeguards at the project level. However, the World Bank’s guidance on sexual exploitation and abuse and sexual harassment is focused on a narrow set of risks that exclude the wider spectrum of coercion and psychological and physical violence experienced by GBV victims in Papua New Guinea. The safeguard approach is also not designed to identify opportunities and tackle trade-offs at the portfolio level, in collaboration with partners. For example, opportunities and trade-offs are inherent in promoting job creation for women across different sectors and in different sociocultural contexts that are linked to GBV risks.

Fragility, Conflict, and Violence; Disaster; and Climate Drivers and Risks

Strategies have identified compound and interrelated FCV, disaster, and climate change risks, but country engagement has not addressed them adequately. Compounding and interrelated risks of institutional fragility, conflict, violence, natural disasters, climate change, and governance challenges erode development gains by limiting human capital development and constraining investment and growth. These interrelated drivers of fragility and risks were highlighted in the Risk and Resilience Assessment and the SCD but were not adequately integrated into the Bank Group’s engagement strategy, including as part of an adaptive management approach. The Bougainville situation (characterized by high levels of fragility as the autonomous region seeks to achieve full independence) is testing the World Bank’s ability to balance client relations with the need to sustain development gains in contested spaces. Contrary to the Risk and Resilience Assessment guidance, the World Bank has significantly reduced its engagement from Bougainville in ways that do not align with FCV strategy aims to stay engaged and prevent conflict. The World Bank’s youth employment programs targeted drivers of urban crime and violence, but causal links among skills development, job placement, and crime reduction are not evident. The intractable and rising challenge of urban violence will require redress through multiple security, justice, and social reforms that exceed the youth employment programs’ labor market incentives.

These findings yield the following lessons to inform the next Country Partnership Framework.

  1. Data gaps need to be addressed to inform sound policy making and effective programming in Papua New Guinea. Using data has helped the World Bank engage in previously neglected sectors, such as health (tuberculosis) and nutrition (maternal, newborn, and child health and stunted growth in children), and on sensitive issues, such as gender equality. Yet a lack of timely economic and social data, especially household survey data, continues to undermine strategic decision-making and program targeting.
  2. Declining governance quality and increasing bilateral aid will require the World Bank to reassess how it supports key policy reforms to achieve development impact, including through using DPOs. Coupled with the World Bank’s limited leverage in relation to other key donors, Papua New Guinea’s insufficient political capability to credibly commit to sustained policy reform is at the heart of the matter, particularly policies that constrain government spending and promote inclusive growth.
  3. The Bank Group could elevate its impact on gender equality and GBV by shifting from a project-centric approach to a strategic country engagement approach. This will require assessing and sharing information better about the effectiveness of its different approaches to gender integration and GBV (including across sociocultural contexts) both internally and as part of wider country dialogue with clients and donor partners. The Bank Group has developed entry points on gender equality and GBV that clients accept, so it is appropriate and timely for the Bank Group to identify opportunities and address trade-offs more strategically at the country engagement and portfolio levels. Country-based staff with gender and GBV expertise will be critical for ensuring a more strategic approach to gender, as IFC’s effective advisory experience has shown.
  4. The negative effects that compound and interrelated risks pose to achieving development aims need to be addressed more comprehensively. Relevant staff need to understand the interrelated drivers of fragility and risks examined in the Risk and Resilience Assessment and the SCD, and those drivers should be integrated into strategy and portfolio decision-making as part of an adaptive management approach and appropriate analysis available to relevant staff. The World Bank can also address these risks in Bougainville by staying engaged so it can continue to build on past sector experiences that focused on strengthening social and economic resilience that also had a strong gender focus.