In March, the World Bank Group released a report assessing the effectiveness and impact of its irrigation loans, which have fallen in value since their peak in the 1970s and 1980s. The author reveals a significant optimism gap between the evaluation stage of a project and the appraisal stage carried some years after the completion of project. One of the consequences of projects that have fallen short of expectation is the use of groundwater resources, particularly in India.
Since the 1950s, theWorld Bank Group has contributed to thefinancing of 800 projects related to irrigation with cumulative lending of about $60 billion in 2010 US dollars.
The World Bank has been the largest source of external assistance to the irrigation subsector worldwide. Expanding on the Bank’s contribution, the report says its history of lending for irrigation is characterized by a sharp increase during the period from 1960 to 1980, followed by two decades of continuous slowdown until the early 2000s, and then a slow recovery during the past two decades to about one-third of the peak period.
At the peak of the World Bank’s lending for irrigation in the early 1980s, the irrigation subsector accounted for about one-tenth of total Bank lending and one-third of lending for the agricultural sector. This proportion fell through the mid-1990s with irrigation accounting for less than 2 percent of total Bank lending (Jones 1995).
Over the past three decades, commitments to the water sector have focused more on water supply and sanitation than agricultural water. The World Bank called on a former colleague Herve Plusquellec to provide a retrospective discussion paper on 70 years of bank engagement in the irrigation sector, in a discussion paper entitled:A retrospective of lending for irrigation: Reflections on 70 Years of Bank Experience.
In the executive summary, the paper laid out the most important criteria for an irrigation system – that it must be reliable and flexible. “Given the poor service rendered by canal systems in many countries, farmers turned to capturing groundwater when the prices of pumping equipment and drilling wells became affordable. The flexibility of this resource has contributed to the explosive growth of groundwater use, resulting in its declining quality and over-abstraction in many areas,” the report says.
The report advocates for the following.
Improving the quality of irrigation services through a combination of better design, adoption of modern technologies, and attuned operation and maintenance.
A bold risk-taking approach to irrigation modernization and sustainable expansion based on lessons learned by restoring legitimacy through strong technical, institutional, and economic engagement in reforming the subsector.
Drip system adoption Ground water versus drip and sprinkler irrigation The report provides some background figures on groundwater and drip irrigation. Groundwater accounts for 38 per cent of the total irrigated area worldwide, the report states, noting the contrast in between India and China. In India, two-thirds (63.7 percent) of the country’s irrigated area is groundwater, amounting to 39 Mil hectares (ha), while in China the percentage and absolute area is lower – 30.8 percent, covering 19 Mil hectares. Other high users of groundwater are Pakistan, Iran and Mexico, but total areas are lower than China and India.
The total area irrigated under drip irrigation is given as 10.3 million hectares, with the top 10 countries being India, China, Spain, the U.S., Italy, South Korea, Brazil, South Africa, Iran and Mexico. Of them, three exceed one million ha (India, China, Spain).
The total area for irrigation under sprinkler is about 42.7 million ha states the report. Twelve countries exceed the 500,000 ha mark, with the top five being the U.S. (12.3 million ha), India (3 million ha), China (2.9 million), Russia (2.5 million) , Brazil (2.4 million).
WB irrigation projects World Bank irrigation projects The report does not question the importance that irrigation has played in the meeting the rising demand for food since the 1950s. The report acknowledges the wider contribution of irrigation. As well as providing employment and enabling smallholder to adopt more diversified cropping patterns and shift to higher value cropping, irrigation can prevent migration to urban areas, maintaining rural communities.
In the 70-year review period covered in the report (1950 to 2018), the World Bank lent approximately $60 billion (in 2010 constant dollars) to 92 countries through 818 projects with irrigation components. The report says the contribution of borrowing governments, farmers and various co-financiers, irrigation supported operations represented a cumulated investment of about $100 billion.
Chart 1 shows that project lending increased sharply during the 1970s to reach a peak around 1980. After falling to a low level in 2002, in terms of value, although project numbers remained stable and have climbed since 2010.
Chart 1: World Bank lending for irrigation by decade, 1950-2018 In constant 2010 US$ millions
India has been the largest recipient of loans in the review period with a total commitment of over $14.7 billion in current dollars for 86 operations, or nearly 25 percent of the total lending for irrigation.
Indonesia is second in terms of lending volume, and Pakistan is second in terms of number of projects. With $2.6 billion for 32 projects, China is the fifth-largest recipient country. Part of the reason for China’s lower number of projects and value is that China became a member of the World Bank in 1982, roughly 20 years after India.
The report notes that three countries that were among the most active borrowers in the past have had no activity with the Bank since the year 2000. The three being South Korea, Thailand and Sudan. These three countries as well as four active countries – Bangladesh, Brazil, Romania and the Philippines – have had far less activity than in earlier decades. Mexico, a major borrower before the year 2000, fell from fifth to ninth position during thereview period.
Thailand has financed 12 irrigation projects through the Bank in the 1970-80 period, with the last loan (Project 12) of US$57 million approved in 1980 and the loan was closed in 1988 and US$22.6 was cancelled (so not used by the borrower). It is possible to download a project performance audit report for Thailand’s Project 11 and 12. (See box copy)
The report notes that by the mid-1980s, it had become evident that irrigation projects were performing below expectations “resulting in declining interest among donors in irrigation development.” One of the consequences was the increased use of groundwater, as well as poor irrigation practices. The report says that in 2015, about 0.25 to 1.5 million ha of irrigated lands were estimated to be lost annually from salinization due to bad irrigation practices.
Thailand’s World Bank irrigation loans – performance report
New AG International downloaded the World Bank performance report for Thailand’s 11 and 12 projects. Of the $80 million approved for Irrigation 11, $22.6 million was cancelled, while $22.6 million of the $57 million for Irrigation 12 was cancelled. The result says: “If one considers the heavy pre-project sunk costs excluded from the economic analyses then the economics of these high-tech schemes providing wet and dry season water are not very impressive.” The report also noted that the high-tech elements of the system that was implemented were not being used as the engineers intended. “Few of the key structures in the Mae Klong and the Pattani have been calibrated – so measuring the major flows is impossible even if it were desired.
Optimism Gap The optimism gap is the difference between the expected economic rate of return (ERR) for a project and its assessed rate of return some years after completion.
Before diving into the gap, it is necessary to go back a step and see how infrastructure assessment has evolved at the World Bank.
The report explains how the irrigation subsector has unique characteristics that make it difficult to compare to other infrastructure sectors, such as hydropower, transport, water supply or to other industries. “The performance of irrigation is not based on manufactured products, such as the number of cars or tons of fertilizer, the energy generated, or the volume of potable water charged to the users. The success of an irrigation project is measured in terms of the increased productivity of agriculture.” As such, results depend on a complex set of factors such as the use of other inputs by water users and the international price of commodities. Also, and importantly, results depend on the method of analysis, which varies across countries. Australia, for example, evaluates the performance of irrigation water supplier companies through a benchmarking process at the farm gate, the report says.
Since 1972, the Bank’s operations staff are required to prepare a project completion report on each closed loan. The next stage in the evaluation was an independent audit conducted by the OED (World Bank’s Operations Evaluation Department), a level reached by about 40 percent of Bank projects. Audits do not recalculate rates of return. The OED operated as follows:
“The OED evaluated 208 projects using two types of assessment apiece. One outlined satisfactory or unsatisfactory ratings (in other words, whether the project was a good thing for the borrower and whether, overall, the project met its objective); the other estimated the economic returns to project investments. The economic rate of return (ERR) of a project, for it to be approved by the Board, was 12 percent, later reduced to 10 percent. The same threshold was used for rating a project at completion.”
The Independent Evaluation Group, 2005-present then became responsible for assessing the relevance, efficacy and efficiency of World Bank Group operational policies, programs and activities, and their contribution to development effectiveness.
Mind the GapThe report says the success rate of the irrigation projects completed during the 50-year period was 72 percent, with a lower rate (70 percent) for the dedicated projects than for the non-dedicated projects (77 percent). “This unexpected finding is caused by the low percentages of dedicated projects (63 and 67 percent) during thetwo decades 1980-99,” the report explains.
The ERR was calculated at appraisal for about 68 percent of 600 irrigation projects completed so far with a high of 80-90 percent during the three decades 1970-99, dropping to about 30 per cent for 1999-2019. The percentage for the 407 dedicated projects and the 192 nondedicated projects is respectively 85 and 33 percent, the report writes.
The average ERR at entry and exit was calculated by decade and by region for the 32O out of 407 dedicated projects for which both ERRs have been calculated. These tables are provided in the report.
For the decade 1970-79, average ERRs were higher at evaluation than at appraisal for two regions, but were lower at evaluation for the South Asia and Africa region. For the following decades 1980-99, all regions show an “optimism gap” between three and 10 percent, i.e. evaluation being lower than appraisal. Chart 2 provides a visual presentation and how this gap has closed in recent decades.
Why is this the case? It can be seen from the chart that the average ERR has flatlined, so it is a case of the evaluation line moving upwards – is this due to a new method of evaluation? Or are the projects more successful?
An implied answer in the report is that size of the gap in the 1990s was largely due to the underperformance of large irrigation projects in India, where “unrealistic assumptions were adopted at appraisal” and this has not been repeated in subsequent projects. Projects in South Asia and Africa were consistently the worst performers until the mid-2000s said the report. The trend for decreasing optimism gap seems to have been led by better performance in East Asia, and improvement in performance in South Asia.
Chart 2: Projects with more than 50% committed to irrigation and drainage: ERR at appraisal and evaluation, by Exit FY
Conclusion The report concludes with a discussion of whether policies and institutions need improving or the engineering and technology. The debate is not settled in this report, merely presented.
However, two lengthy quotations are included in the conclusions to the report, which help to illustrate some of the complexities in the topic. Elinor Ostrom wrote on infrastructure policy, “Where maintenance is inadequate, public investments deteriorate long before their expected useful lives are completed. This premature deterioration in capital assets results in a further drain of the already scarce resources of low-income countries” (Ostrom 1993).
The report says that a 1994 World Development Report (World Bank 1994) – Infrastructure for Development – endorsed Ostrom’s diagnosis by stating: “Inadequate maintenance has been an almost universal (and costly) failure of infrastructure provided in developing countries. Poor maintenance can also reduce service quality and increase the costs for users, some of whom installed back-up generators or water storage tanks and private wells.”
The final word is left to the word ‘modernization’. The report says few authors have challenged the view that managerial and institutional deficiencies – not the technology of irrigation – are the main causes of underperformance of irrigation schemes. Horst (1998) ended up writing a book on the dilemmas of designing irrigation systems, stating: “Is management really the crux of irrigation problems? Do we need to apply cosmetic surgery by only trying to improve the management environment without considering the technology? Is it now time to examine the root of the problem: the design of irrigation systems?”
One answer that comes out in the report – that of unit pricing, but that would be the subject of a wholenew report.
DYK Did you know? According to the World Bank discussion paper, the irrigation subsector contributes to about 40 percent of food production while covering only about 20 percent of the world’s cultivated areas. ●
Reference
A retrospective of lending for irrigation
Reflections on 70 Years of Bank Experience
World Bank Discussion Paper
March 2024
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