USD 100 million loan for foreign consultants


By a Special Correspondent


The Government should be complimented for negotiating and signing a $ 125 million IDA Credit on concessional terms from the World Bank Group for an Agriculture Sector Modernization Project, to help create jobs, help producers access markets and increase their productivity in the four northern and eastern provinces, which are dependent on agricultural production and are fully deserving of external financial and technical assistance.

But a local newspaper daily on Finance and Business announced on 23rd June that the Government had made a request for a $ 100 million World Bank loan for a new project to support its Reforms Agenda - essentially to help implement and fast-track its economic reform plans, focused on competitiveness, transparency and fiscal sustainability. Whether the loan is in dollars or in 71 million SDR's (a basket of currencies) as reported later, does not make any difference to it adding to the country's current external debt service, which the Governor of the Central Bank mentioned on June 30 is now absorbing 90% of the country's revenue.

In greater detail, this World Bank loan-financed work is expected to eliminate obstacles to private sector competitiveness, enhance transparent public sector management, and establish a basis and momentum for long-term policy reform.

World Bank policy is that loan funds are disbursed only for the foreign exchange cost of goods and services, procured from overseas while the local currency cost is met by the Government, who is the borrower. In the above project, since there is no mention of any physical goods being procured, the entire $ 100 million (or 71 million SDRs) can be assumed to enable the employment of foreign consultants to help formulate the plans and proposed legislation as well as provide foreign technical assistance to establish a debt management unit in the Finance Ministry, since debt has become a perennial feature on which Sri Lanka's present and near-term economic future depends.

An important issue arises why Sri Lanka requires foreign consultants financed by a huge $ 100 million World Bank/IDA loan, incurring more new external debt obligations, to perform the above policy formulation work. Even at a very high per day foreign consultant cost of $ 500-1,000.-, the above loan proceeds can purchase many thousand days of consultant work or several years of services by a team of foreign consultants.

It is a well known fact that Sri Lankan experts in every one of those required fields of policy expertise, identified above, is available throughout the world in university campuses, think tanks, multilateral financing agencies, the United Nations and its Specialized Agencies, as well as in a large reservoir of talent that has now grown all over the world consisting of Sri Lankan experts who have been employed as professionals in those overseas institutions and now are retired. A data base of such international Sri Lankan experts has been prepared on two occasions in the recent past through Sri Lanka Embassies on the directives of the Foreign Ministry, it should now be available.

The expert services of such Sri Lankans are available to their fatherland without the government having to pay the in foreign exchange the exorbitant daily consulting fees being budgeted for the so-called foreign experts to relocate and work in a country, whose languages, history, laws and legal system, unique culture, organizational set-up and real constraints to development, including varying degrees of political exigency, are completely unknown to them. However, they will have to learn while on the job for which they are being employed by the government.

Firstly, in the case of such consultant employment, whose foreign costs are financed by a World Bank loan, under well established policy, the World Bank has to approve the short list from which the consultants will be selected, the terms of reference for the reform plans and new institutions being created and also approve the selected foreign consultant. So using loan funds puts the World Bank in the driving seat.

Secondly, from the very moment that such a $ 100 million loan becomes effective, commitment charges start to flow to the World Bank, because that large amount of loan funds has been set aside for this project, although not transferred to Sri Lanka. The longer and more delayed the consultant selection process takes, adhering to all the guidelines of the World Banks consultant selection bible, the greater the amount of commitment charges long before the first consultant starts work in Sri Lanka. Thereafter, once consultants are mobilized here and payments start, interest rate charges start to accrue when the funds start getting disbursed. It is a recorded fact that the wheels of administration roll very slowly in Sri Lanka in the execution of foreign-assisted projects, maximizing the commitment charge payments which will become payable, as the following facts demonstrate.

World Bank data indicate that right now out of an overall total of $ 5 billion in historical IDA concessional lending to Sri Lanka over S917 million remains available, but undisbursed, for projects already under execution; and out of $525 million in total World Bank lending on standard interest terms, $ 231 million remain undisbursed on which the country is paying commitment charges. So, adding new loans or credits for projects without direct productive results and provable economic benefits, is only adding to the debt burden - with Sri Lanka already owing a total outstanding $ 2.7 billion in IDA credit repayments, and $ 83 million in World Bank loan repayments.

Other factors constrain the success of execution of new policies and the effectiveness of both new and existing public sector institutions, which make the expenditure of scarce foreign exchange to overcome them a controversial issue. The principal constraints are the dispersed nature of the administrative framework under a multiplicity of Ministries, and several tiers of government, making it very difficult to achieve a reasonable level of inter-agency coordination, and the effect of political influence on public sector performance, which again adversely affects operational efficiency, whether with or without consultants' advice and inputs.

This view is not a biased or subjective because the government-supported Institute of Policy Studies (IPS) has stated likewise in its Report on the Economy 2015, as follows: "Posts and privileges are dispensed freely, encouraging the practice of 'competitive populism' to the detriment of sound policy-making ... the bureaucracy has also become more political and powerful, performing both administrative and political functions as politicians rely on a few hand-picked technocrats to formulate and implement policy ... The dual role and discretionary powers they enjoy mean a greater blurring of transparency and accountability in policy decisions, and a distancing of policymakers and elected politicians from their constituencies".

For all the above reasons, using less expensive local talent supplemented by expatriate Sri Lankan expertise as mentioned above, is the optimum alternative for these kinds of plan formulation and institution building, contemplated under this project, which is a really onerous and complicated undertaking for foreign experts who are new to Sri Lanka and may have worked in western or developing countries, which have different issues to address in varying circumstances, in performing such work. If World Bank involvement was considered essential for some reason by the Government, grant trust funds, available in abundance to it, could have been offered by the World Bank to the Government which could then finance foreign consultants, without any attendant need for repayment of such grant funds.

For these many reasons, India very rarely agrees to any foreign consultant component in a World Bank loan or any other foreign agency-financed project, because the Indian bureaucracy know the constraints and huge dollar expenditure involved in ineffective foreign consultant use and is most anxious to conserve foreign exchange for the country. Only as a last resort and only in some highly sophisticated technical or esoteric field where there is inadequate Indian knowledge, domestically or overseas, will India agree to World Bank loans funding foreign consultants in any such project, and that has been the practice for many decades of India-World Bank relations and in literally hundreds of projects.

The final point is a very important one and little known outside the multi-lateral financial aid community. For the last several years, the World Bank itself has been embroiled in a continuous state of unending institutional convulsion, undergoing radical and structural reorganization, also aided on a daily basis by 'consultants' who may not know what they are doing because the process is simply dragging on for years now, with most of the senior management having been eased out, and a constant turnover of professionally skilled and highly experienced staff leaving the World Bank to seek more stable work environments throughout the world.

The result is that the world-class expert technical and professional staff resources accumulated over the last over 60 years, in a tried and tested organizational structure geared to serve the borrowing countries, and the rapport that World Bank staff had built up by specializing in different countries in need of varying expertise, have all been rudely shattered, and now ad hoc consultants who do not know their countries are being mostly fielded to learn on the job in the field, resulting in poor work quality and taking much longer to produce decent results, which is very unfair to the borrowing authorities. Removal of institutional memory destroys seven world-class institutions!

Due to this variety of reasons, World Bank staff morale is at its lowest ebb since the institution was created, the wrong people are being assigned for various tasks and the much vaunted high quality product traditionally expected of a World Bank-assisted project is a thing of the past. Very probably, most government borrowing country authorities are unaware of this sad turn of events.

In order to allay any possible readers' skepticism of the above observations, and doubts about the veracity of the current institutional convulsion at the World Bank articulated above, the quotation that follows is from a recent March 2016 Report of a bulletin, recording a discussion about the ongoing World Bank reorganization; and I reproduce extracts from it verbatim: "Many dealt with the nature and approach of the realignment. Why the haste? Do not the recent losses of so many experienced staff indicate that something was seriously misperceived? What is being done to offset this brain drain? Why does every new World Bank President feel the need to reorganize, restructure or realign? Why does the World Bank approach change in such a sporadic and convulsive manner? Should it not be a permanent, unfolding process as in the better private sector firms?"

The day following the discussion reported above, it was announced that the Chief Financial Officer of the World Bank, and the Executive Vice President of IFC, the top official who manages the International Financial Corporation (IFC), the private sector affiliate of the WB, resigned their jobs, roiling the confusion still more, and making the task of the World Bank President, the Korean-American medical doctor at the top, even harder!

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