Projects supported by results-based loans—of the breed of the current projects in education in Pakistan and counterparts in the Latin American and Caribbean region—are increasingly seen as a promising way for raising the effectiveness of Bank lending. In a seminar recently organized by the South Asia region, a proposal that such projects should be set as the default choice and quickly become the lion’s share in the region’s lending portfolio resonated widely with the participants.
While, in principle, linking loan disbursements to the achievement of results seems desirable, this step by itself may not be enough for project success. In this entry, and ones to follow, learning from the Pakistan results-based projects in education, I provide some insights on considerations that may increase the likelihood that such projects succeed. Some of these insights may also be relevant for other types of projects.
Lesson 1: Rigorous political-economy assessments are critical as results-based projects appear susceptible to the effects of a worsening political-economy climate. Certain settings may be conducive for results-based projects, such as where governments are becoming or are already results-oriented. In a given setting, certain times may be more conducive for such projects, such as when governments feel a newfound urgency for realizing results on the ground. A loss of government interest or commitment (or, worse, government resistance or backpedaling), even if short-lived, can spell trouble for results-based projects. Thus, getting a good grasp of the extent and nature of political-economy opportunities and risks is useful. As a matter of routine, starting from the design stage, teams should formally and systematically assess the prevailing political-economy conditions for and against a results-based approach and try to forecast potentially meaningful changes. There is room for improving the practical means and knowhow for teams to carry out such assessments.
The pull for results from the outside through the design of results-based projects may hinge on a complementary strong, steady push from inside government. An important political-economy factor is insider support. Having a critical mass of results-minded government officials with sufficient say in the right positions is likely a key precondition for successfully introducing and implementing results-based projects. These officials find the design of results-based projects appealing. They become champions for such projects within government as they recognize that the projects give them added leverage to align the broader government’s interests with theirs’. Such insider support can also be instrumental for minimizing and overcoming any hurdles during project implementation.
Lesson 2: Hybrid projects may be useful to facilitate government transition from traditional to results-based projects. Hybrid projects may also help the Bank hedge the risk of rough sailing on the results-based components in projects during the transition period. Under a hybrid design, some share of the loan amount can be linked to the achievement of results. This share can be fixed to grow incrementally over the life of the project, or over successive projects. Such an approach might be prudent in settings where, for example, governments have become accustomed to traditional projects or where governments have some difficulty picturing what it entails and may benefit from learning-by-doing projects with small doses of results-based loan disbursements. In risky settings, such as fragile states, hybrid projects may be a sound long-term loan strategy.
Perhaps counter-intuitively, a hybrid project may be superior to a pure results-based project in promoting the achievement of results. With a hybrid project, if the government fails to achieve the expected results, it bears a nontrivial cost in terms of lost loan disbursements. However, unlike with a results-based project, this failure does not arrest loan disbursements. A stalled loan can be counterproductive as disbursements often enable progress towards results and the government may react to the magnitude of the penalty by quickly developing a strong distaste for results-based support.