Appendix: Government response
The Government welcomes the International Development
Committee's Report on our engagement with the World Bank. We are
pleased that the Committee has highlighted the influence we have
and its support for the increased contribution we are making to
the International Development Association (IDA) of the World Bank.
Multilateral institutions play an important role
in the development architecture. Improving their effectiveness
and reforming the international system is a priority for the Government;
the main elements of our agenda were set out by the Prime Minister
in his speech in India in January 2008. In that speech, he recognised
the need for the Bank to reform—to be more representative
and effective, to select the President through open competition,
and to be better at helping countries tackle poverty effectively,
including through putting environmental sustainability at the
heart of its work. Taking this forward, we will be working to
build consensus for change, both within the institution and with
other shareholders.
But this in no way detracts from the fact that the
World Bank is a highly effective development organisation. In
the last few years, it has played a key role in the success of
global initiatives, such as the Multilateral Debt Relief Initiative,
as well as continuing to provide high quality support—financing,
analysis and advice—to developing countries.
DFID works closely with HM Treasury, as they hold
the policy lead for the IMF and the Chancellor is the alternate
World Bank Governor. Although outside the scope of this inquiry,
we recognise the considerable expertise and experience that Treasury
and other Whitehall colleagues bring to our agenda with the Bank.
Our responses to the specific recommendations made
by the Committee are given below.
UK contribution to the International Development
Association
[Paragraph 22] An effective World Bank is a vital
component in the international development system and we welcome
DFID's focus on its effectiveness. We note, however, that effectiveness
can be assessed at many levels, including organisational, development
impact and strategic. We therefore caution the Secretary of State
and his team against making bold statements that the World Bank
is the most effective multilateral development institution without
appropriate qualification. It will only be truly effective from
DFID's point of view if it does what DFID wants it to do—if
it is operationally effective as well as organisationally effective.
In our view, DFID should concentrate its efforts on assessing
the Bank's operational effectiveness in terms of development impact,
rather than just its organisational effectiveness, in order to
justify the large increases in its funding to the World Bank.
We were encouraged to learn about the drive within the World Bank
to monitor and analyse results and to make public this work. We
would urge the Bank to make this work a priority.
We have been working with other donors to develop
analytical tools to enable us to assess the effectiveness of the
multilateral organisations more rigorously, and will continue
to do so. To inform our view on the effectiveness of the World
Bank, and other multilaterals, DFID analysed these organisations'
performance on a range of issues, including their effectiveness
in achieving results. We agree with the Committee that achieving
development outcomes is crucial. As part of the IDA replenishment
discussions, we secured agreement to a series of measures designed
to improve the Bank's performance in helping countries achieve
and monitor progress towards their development goals. These included
further decentralisation of Bank staff to the poorest countries,
a strengthening of the Bank's result-management system, more support
for post-conflict states and help to assist countries to improve
their statistics capacity.
[Paragraph 25] We welcome DFID's decision to increase
its contribution to the World Bank's International Development
Association but we believe that it did so with insufficient rigour.
In developing its strategic approach to the funding levels, it
is right that during the negotiations DFID assessed both the Bank's
effectiveness and its responsiveness to DFID's own priorities
for the Bank. We look forward to examining the Deputies' Report
for evidence of DFID's influence on the negotiations. An explanation
of the strategic approach is not, however, the same as an explanation
of the mechanics of the decision itself. The Minister's assertion
that a 49% increase in the commitment was in line with the increase
in DFID's overall budget appears to suggest that the increase
was largely mechanical. Without a transparent account of how the
increase was decided, we have no evidence to challenge that suggestion.
We would have liked to have seen a robust analysis showing that
an additional £700 million allocated to IDA would do more
to meet DFID's objectives than using the same amount of money
for funding another multilateral agency or for bilateral development
work. We recommend that DFID publish, alongside the Deputies'
Report in spring 2008, a full account of how the increase of £700
million was calculated. Given the very large sums involved, we
further recommend that DFID ensure that, as well as conducting
a new assessment of the Bank's organisational effectiveness, a
full review of the World Bank's development impact is conducted
and published before the next IDA replenishment round is launched.
DFID welcomes the Committee's support for our increased
contribution to IDA. As with any spending decision such as this,
a wide range of factors are considered and assessed before a final
contribution is decided. In this instance these included the contribution
the institution could make to achieving the Millennium Development
Goals with different levels of resource, the role the institution
plays in the international system, the level of financing provided
by other donors, the reforms that our financing can bring about,
and the other possible uses for the resources. Decisions on our
negotiating priorities and the level of our contribution were
informed by views from DFID teams on the effectiveness of the
World Bank also in country.
We have already published the Multilateral Effectiveness
Summaries for a number of large multilaterals, including the World
Bank. These were produced for the first time last year as part
of increased efforts by DFID to encourage the international community
to take a more systematic look at the effectiveness of the multilaterals.
The summaries draw on published material and cover a large number
of topics, under four headings: the results the organisation achieves,
the way in which it is managed, its effectiveness in working with
others, and the emphasis placed on ensuring high quality evaluation
and lesson learning. Other evidence we took into account included
the Client Survey undertaken by the Overseas Development Institute,
and the multi-donor Multilateral Organisations Performance Assessment
Network report on the World Bank. These reports are also published.
To inform discussions during the IDA 15 negotiations,
the World Bank produced material on what had been achieved with
IDA resources in recent years. Many country and project studies
can be found on the World Bank website under the heading "IDA
at Work". We and others continue to press the Bank to develop
this work, so that they can provide donors with further information
on the development outcomes achieved with IDA resources ahead
of the IDA 16 discussions. In addition, the Independent Evaluation
Group produces annual reports on the Bank's effectiveness, as
well as studies on specific topics. Finally, the Bank has committed
itself to the Paris Aid Effectiveness agenda. A baseline has been
set on its performance against the Paris targets, and this was
used in the IDA negotiations to identify areas where the Bank
needs to take action to fulfil its Paris commitments. Information
will be available ahead of the next IDA negotiations on how far
the Bank has improved its performance against these indicators.
Alignment of policy priorities
[Paragraph 33] It is crucial that each of DFID's
spending decisions is linked to the eradication of poverty and
attainment of the Millennium Development Goals, irrespective of
the way in which the money is channelled. Early and robust assessments
of the impact of any proposed course of action on poverty is an
effective safeguard against bad spending decisions. We believe
strongly that more consistent and transparent use of impact assessments
by the World Bank across all of its lending is the single most
important change in Bank practice that DFID should be pursuing.
We were therefore disappointed to learn that this matter had disappeared
from DFID's annual publication on the World Bank as the result
of an apparent oversight. We recommend that DFID renew its commitment
to this safeguard and press for impact assessments by the World
Bank which: are rigorous and systematic; enhance borrower country
capacity to assess the World Bank's impact; and examine a range
of alternative courses of action to find the option that has most
benefit for the poor. Such assessments should be published and
circulated within civil society in the borrower countries. We
recommend that DFID also encourage greater World Bank focus on
the issue of incentives for staff to integrate such full impact
assessments into their work. Given the strength of our view on
this issue, we further recommend that this position is reflected
in all DFID's budget discussions with the World Bank and that
consideration should be given to taking any lack of progress into
account in future funding rounds.
We agree that early and high quality impact assessments
are important and we have been at the forefront of donor efforts
to push forward this agenda. The Bank now makes much wider use
of Poverty and Social Impact Analysis (PSIA) to inform their programmes.
This type of analysis also allows governments to anticipate any
short-term negative impacts of policy changes, and take appropriate
action.
We agree that the Bank can do more, and that local
capacity needs to be strengthened. We will continue to encourage
the Bank to respond. During the IDA 15 negotiations, the Bank
agreed to a series of measures to improve its performance on impact
assessment, including producing a revised good practice note in
2008 and an independent review of its PSIA work.
We will consider the Bank's performance on this and
a range of other factors when considering future funding. We will
provide updates on impact assessment in future Annual Reports.
[Paragraph 42] Conditionality remains a contentious
issue for many civil society commentators. We have not been persuaded
that the World Bank is pursuing an aggressive policy of imposing
burdensome, sensitive policy reform conditions on borrower countries,
although we accept that there are some cases where this has happened
in the past. We do however share some of the concerns expressed
to us about ownership of the development process by developing
countries. There are no short-cuts in development. World Bank
diktat is no substitute for thorough debate and engagement of
parliaments and other stakeholders by the borrower country government.
It is only by this latter means that a resilient development programme
with broad domestic support can be achieved. We recommend that
the UK Government develop, with like-minded countries including
borrower nations, a proposal for independent monitoring of World
Bank conditionality to ensure that all the Good Practice Principles,
especially ownership, and dialogue with parliaments are fully
reflected in World Bank practice.
We agree with the finding that the Bank is not pursuing
an aggressive policy of imposing conditions on borrower countries.
The UK has led the international debate on conditionality reform
and helped secure real improvements in the Bank's use of conditionality.
The Good Practice Principles were agreed after a thorough review
that the UK pressed for, and we continue to emphasise to the World
Bank the importance of implementing them effectively and consistently.
The Bank's 2007 review of its use of conditionality, which the
UK also pressed for, involved extensive consultations with developing
country partners. This showed that the Bank had made good progress,
but once again, the Bank itself acknowledged that there was room
for improvement. The Government's sustained engagement has achieved
important results, and we continue—both through the IDA
process and in other fora—to urge the Bank to improve further.
The Bank made a number of commitments during the IDA 15 negotiations,
for example to improve staff incentives to implement the Good
Practice Principles and increase country ownership; to improve
the use of Poverty and Social Impact Analysis to allow a better
understanding of the impact of policy choices on the poor; to
strengthen local capacity for policy analysis to increase local
participation in policy making; and to more decentralisation of
staff to enable the Bank to be more responsive to governments
and to work better with civil society locally. The Bank has also
agreed that the Independent Evaluation Group (IEG), which is independent
of Bank management, should carry out a review of the Bank's use
of conditionality.
[Paragraph 46] We believe that the Millennium
Development Goals will never be achieved if women's empowerment
is not central to development efforts. The World Bank's action
plan on gender, launched last year, was overdue. Strategic commitments
and associated actions on economic empowerment of women may, if
based around the clear principles of women's rights, provide sufficient
scope to hold the Bank to account across the range of its activities.
We recommend that the Government assess now how it can best support
and improve the plan, and contribute to its mid-term and final
assessments, and that it share with us a timed outline of this
UK strategy.
We agree that women's empowerment is crucial to achieving
the MDGs. The UK Government's strategy of supporting, improving
and assessing the plan has a number of components including: regular
dialogue between the Secretary of State and the Bank President;
the participation of DFID's Director General for Policy and International
on the Bank's Gender Advisory Council; liaising closely at official
level with Bank staff and other Bank shareholders; and using Board
discussions to assess progress and encourage accelerated action.
[Paragraph 48] We endorse DFID's practical support
for the Bank's decentralisation initiatives, especially in Africa,
and recommend that DFID continue to build up its advisory and
knowledge-sharing role in this area.
We welcome the endorsement and will continue to share
our knowledge and experience with the Bank in this area.
[Paragraph 52] We welcome the priority that DFID
has given to securing greater focus by the World Bank on country-level
effectiveness and fragile states. As a result of the prominence
of these themes in the International Development Association negotiations,
we look forward to more intensive World Bank activity in both
these areas of work. DFID must recognise, however, that changes
in the focus of the World Bank may need to have a consequent impact
on DFID's own resources. We recommend that DFID reassess its staffing
arrangements and analytical capacity in both these areas of work
to ensure that it can carry out satisfactory oversight of the
Bank.
DFID devotes considerable staff resources to working
on country-level effectiveness and fragile states issues, both
in headquarters and in country. We work closely with the Bank
on policy issues, both directly and through the OECD Development
Assistance Committee working group on fragile states. At the country
level DFID teams work closely with Bank staff on programmes.
We have been clear on the ways in which the Bank needs to improve
its performance, and have raised with them specific concerns arising
from our work in country. The appointment of a full-time UK Executive
Director to the World Bank will also enable greater oversight
of the Bank's work on these and other issues.
Staffing
[Paragraph 58] We support the Secretary of State's
decision to appoint a full-time UK Executive Director to the World
Bank. It is appropriate recognition of the need for UK oversight
of the Bank to be as well-resourced and comprehensive as that
of other delegations, if not more so given the UK's role as the
largest bilateral contributor to the International Development
Association. We are glad that the Secretary of State listened
to our representations about this matter and take some satisfaction
from the part that we appear to have played in changing the policy,
especially given the surprisingly vigorous defence of the shared
directorship provided to us by the UK delegation. We recommend
that DFID take up all adviser slots available to it in Washington—the
UK cannot afford to be under-resourced at a time when its oversight
of and influence over the World Bank must be as strong as possible.
We welcome the Committee's support for our decision
to appoint a full-time Executive Director to the World Bank. To
date, the Government has appointed a single UK Executive Director
with responsibility for both the IMF and the World Bank. Our increased
engagement and support for the Bank warrants a change to these
arrangements, and an Executive Director devoted entirely to Bank
business will give us greater capacity to pursue our objectives
effectively. We will continue to assess the level of staffing
required to carry out our work with the Bank, and make adjustments
when necessary.
Trust Funds
[Paragraph 63] On current trends, UK funding for
World Bank-managed Trust Funds will soon match UK funding for
the International Development Association. Some of these Funds
are largely autonomous institutions with which DFID will need
to engage directly to influence policies. For those for which
the World Bank is both financial agent and policy lead, DFID is
right to provide support if such Funds can add value to the work
done by the Bank's major institutions and reduce the burden on
borrower countries. We are concerned however that any further
proliferation of Funds could distract World Bank shareholders
from the key challenges ahead with regard to its main institutions,
such as ensuring IDA effectiveness and progress on governance
reforms. We recommend DFID resist proposals to set up any further
Funds or where it supports such proposals—for example on
climate change—provide us in advance with the rationale
for its support.
How best to manage and spend scarce aid resources
is a constant consideration for both DFID and the Bank. In some
circumstances setting up a Trust Fund in the Bank is the best
option for achieving a specific goal. We will keep Parliament
informed of our work on Trust Funds via our Annual Report on DFID
and the World Bank.
Governance and accountability
[Paragraph 70] Adequate representation of developing
nations in World Bank decision-making is not only a question of
fairness, it is one of effectiveness: we believe greater ownership
and buy-in by developing countries will lead to more effective
Bank programmes. The Government has been better at setting out
this argument than at developing a solution to the problem. As
we have stated, the UK has a responsibility as a leading nation
at the Bank to act decisively on these issues.
The Prime Minister made clear in his speech in India
in January that we must do more to make our global institutions
more representative and effective.
The UK showed leadership at the April 2008 World
Bank and IMF Spring Meetings and secured agreement in the Development
Committee communiqué that a package of measures to increase
the say that developing countries have in the Bank should be developed
and agreed upon by the 2009 Spring Meetings. The Government will
work hard to try and ensure that this is achieved.
[Paragraph 71] We believe that double majority
voting has some merit and is worthy of serious study by DFID.
We recognise, however, the difficulties of securing any reform
to the voting arrangements: the Bank is run as a shareholder organisation
and donors are unlikely to wish to cede large amounts of power.
While votes are important, the outcome of any renegotiation is
unlikely, in our view, to deliver more than minor changes. The
UK should therefore prioritise action on practical and immediate
changes which can help to rebalance the Board to give developing
countries a greater voice. In our view, the most critical Board
reform issue is the representation of African countries and the
capacity of these delegations. As a priority region for the World
Bank and the continent facing the biggest challenge in terms of
the Millennium Development Goals, Africa should have at least
one more Executive Director on the Board. We recommend that DFID
pursue this objective as a priority and separately from any broader
reform deal. Moreover, given that the Trust Fund set up to support
African Executive Directors is not delivering the desired results,
we recommend that the UK urgently propose a new method, and consider
providing new and additional money, for developing greater capacity
in these delegations.
We are willing to consider any options that will
increase the say of the poorest countries and that can command
the support of the shareholders. We have already initiated discussions
with African and European partners about the next steps on the
Analytical Trust Fund.
[Paragraph 75] There is a broad consensus that
selection of the President of the World Bank, one of the most
influential figures in international development, should be transparent
and based on merit, rather than in the gift of the United States.
The Government supports this position and made some effort to
change the system during the selection of President Zoellick.
We recommend that DFID initiate work now towards agreeing an open
and merit-based process for selecting his successor. Such a strategy
would need to include giving up Europe's monopoly on the post
of Managing Director of the International Monetary Fund. The UK
should use its role as the largest contributor to the International
Development Association and its related increased leverage in
Washington to bring about such a 'grand bargain'. DFID should
ensure that, as part of the review of the selection process, systems
are put in place to evaluate the performance of the President
during his or her tenure.
We agree that the practice of selecting the heads
of the World Bank and IMF on nationality should end. Successive
White Papers on development have made clear that we want to see
a merit-based appointment. This is an important element of our
agenda to make global institutions more representative and effective.
The Board remains responsible for evaluating the performance of
the President.
[Paragraph 81] The World Bank argues that its
founding articles restrict its ability to engage with political
actors beyond governments. The Bank has, however, made some efforts
to engage with and consult parliaments and civil society on some
policy and operational matters with mixed success. We believe
such engagement is particularly important in borrower nations
where it has the potential to bring about national debate and
ownership, which could significantly enhance World Bank performance
as well as strengthening accountability in those countries. We
recommend that DFID encourage the World Bank to adopt outreach
strategies with parliaments and civil society consistently across
its programmes, especially with borrower countries.
We agree and will continue to encourage the Bank
to do so.
[Paragraph 82] Parliaments have a central role
in overseeing government expenditure of national budgets. Those
elements of national budgets which are donations to the Bank or
assistance from it should fall within that oversight. In our view,
it follows that the Bank should make itself available to provide
formal evidence and information directly to parliaments to complement
that provided by governments, as other multilateral organisations
such as the United Nations do. We recommend that DFID ensure that
the Bank's policy of refusing to appear formally before parliamentary
bodies is discussed at the Board of Directors within six months;
that it push for a change in the policy; and that it report back
to us on those discussions.
The Bank is accountable to its Governors who are
Ministers and in turn accountable to national parliaments. Bank
staff provide—and are encouraged to provide—briefings
and information to legislative bodies on the Bank's work. As the
Committee noted, Bank management made considerable time available
for discussions to inform this Inquiry, arranging for senior staff
to be available for discussions with the Committee. We also encourage
the Bank to increase their efforts to brief parliaments in borrowing
countries on their work. However, given that the Bank has 185
members, it is unclear that the benefits arising from more formal
procedures would be sufficiently high to warrant the increased
burden this would place on the Bank's top management and the increased
administration costs that would be incurred.
[Paragraph 83] The Parliamentary Network of the
World Bank plays an important role in the Bank's relations with
parliamentarians. It receives help in cash and kind from the World
Bank but we believe that it would be more effective and more independent
if it had a larger secretariat of its own. We ask DFID to consider
how it and other donors could provide funding for a larger PNoWB
secretariat and for its outreach activities with parliamentarians,
especially in developing countries.
We remain in contact with PNoWB as it seeks to develop
its strategy. Any request from PNoWB for DFID to help fund a larger
Secretariat would be considered in the light of this strategy.
Both we and the Bank have indicated our willingness to help support
PNoWB in the strategy formulation process.
[Paragraph 87] Given the priority the Prime Minister
and the Secretary of State attach to World Bank reform, it is
perplexing that British advocacy of that agenda in Washington
is not more high-profile. We assume that not all of DFID's work
on this issue is in the public eye—nor should it be. Advocacy
does require some public position-taking, however, and we recommend
that the Government do so more consistently in Washington.
The Prime Minister, ministers and officials (including
from DFID, Treasury and the FCO) have regular dialogue with the
US Government on development issues, including the reform of the
World Bank, both bilaterally and for example in G8 and G20 meetings.
However, we agree with the Committee that we need to further
strengthen our capacity in Washington on development issues, and
so we are creating a new post in our Embassy.
[Paragraph 88] We accept the Minister's view that
developing countries must also advance a view on reform issues.
We reject, however, the implication that the UK should wait until
they do so. As a major shareholder and contributor to the World
Bank, the UK has a distinct leadership role. The UK must not only
articulate a vision for reform of the World Bank but it must pursue
this with vigour, building alliances with borrower countries and
with other like-minded donors in and outside the European Union.
The Prime Minister's speech in January set out our
vision for more representative international financial institutions.
The UK was instrumental—including through the Ministerial
statement—in securing a commitment from the Bank's Development
Committee at the Spring Meetings in April to try and reach consensus
on a comprehensive package on voice and participation in the Bank
by the 2009 Spring Meetings. We are also working through other
channels, for example the G20, the Commonwealth and events such
as the the Progressive Governance Conference in London, to advance
this agenda.
The World Bank as a 'knowledge bank'
[Paragraph 93] The World Bank has come to occupy
the role of foremost source of international development knowledge,
advice and analysis. Development will not succeed through lending
alone and we support the Bank's efforts to ensure that it provides
intellectual added value to its lending. The Bank's analysis influences
decisions across the development community, including DFID's own
decisions. DFID must, therefore, be confident that the Bank's
knowledge is credible in the way it is both created and shared.
We recommend that DFID work closely with the Bank to ensure that
its role as a 'knowledge bank' is demonstrably neutral and flexible,
providing well-argued menus of best practice options for effective
development. This is long-term work and we look forward to a detailed
explanation of it in DFID's next and subsequent annual reports
on the UK and the World Bank.
We welcome the Committee's support for the Bank's
knowledge function. We agree that it is one of the important ways
in which they contribute to international efforts to reach the
Millennium Development Goals. It has been identified by President
Zoellick as one of his six strategic themes, and work is underway
in the Bank to examine how the Bank's contribution in this area
might be improved. We will include updates on this work in our
Annual Reports as appropriate.
[Paragraph 95] The World Bank's historical financing
model whereby interest on loans is a means of compensating the
Bank for its advice is sustainable as long as developing countries
are willing to accept the arrangement. We see some merit, however,
in the World Bank assessing other, more flexible options for financing
its services as a knowledge bank. Separating loans from advice
might be a more practical way forward than reliance on an old
financing model. We believe a plan which allows different income
groups to pay for services according to a sliding scale of discounts
is one which deserves further feasibility study and we urge DFID
to pursue with the Bank's management strategic work on this and
other alternatives for unbundling loans and advice.
We agree with the Committee that the Bank needs to
provide better services to its borrowing members, and should be
ready to implement different models as appropriate. We welcome
President Zoellick tasking staff to consider how the Bank can
be more responsive to its clients. As part of its middle income
countries work plan, the World Bank is developing a business model
for fee-based advisory services which we expect to be introduced
this year.
[Paragraph 101] DFID has little or no bilateral
reach in middle-income countries. It relies almost entirely on
multilateral organisations, including to a large degree the World
Bank, to extend its reach into these regions. We believe that
it is important, therefore, that DFID and the Executive Director's
office are fully engaged with World Bank policy in these regions
as well as where the UK is a natural partner, such as Africa.
This will become even more crucial as the Bank's relationship
with these countries continues to evolve away from traditional
lending. We recommend that, in allocating the new adviser portfolios
that we have recommended should be taken up, DFID ensure that
sufficient resources are available in Washington to make good
on its promises to influence and monitor as well as finance Bank
operations in middle-income countries.
DFID continues to attach priority to addressing poverty
and accelerating development in middle income countries, and to
pursuing the objectives set out in our Middle Income Country strategy
agreed in 2005. Middle income countries play an important role
in global institutions. As well as being major clients, they contribute
their perspectives and experiences to discussions on Bank strategy
and policy, and some have more recently contributed to the concessional
funds accessed by the poorest countries. We strongly welcome the
fact that there were new MIC donors to IDA this time. DFID and
other government departments have a range of interests in middle
income countries, and UKDEL staff from DFID, Treasury and the
Bank of England work with their counterparts from other delegations
to take these forward. These include those delegations representing
middle income countries.
The World Bank as a "Bank for the environment"
[Paragraph 106] Climate change is a global challenge
but there is convincing evidence that it is a particularly acute
one for developing countries. We believe that it is right that
the World Bank, a leader in international development, integrates
action on climate change into its overall programme of work. However,
we would caution against too literal an interpretation of the
Prime Minister's assertion that the Bank should become an 'environment
bank' as this could compromise its overriding poverty reduction
objectives. The urgency of climate change does not lessen the
blight of poverty. The Bank is central to international efforts
to meet the Millennium Development Goals. This becomes increasingly
urgent as the 2015 deadline for the Goals approaches and the Bank
and its current resources which were provided for combating poverty
must not be diverted from that task. Moreover, fulfilment of this
development remit would have a positive impact on environmental
objectives because developed countries are less vulnerable to
climate change. We recommend that the UK ensure that the World
Bank Board monitor and, where necessary, correct the Bank's strategic
direction to ensure that its core development and poverty mandate
is not overshadowed. If the Bank is to adopt an additional role
as an environment bank it must raise additional funds for this
purpose.
The Prime Minister made it clear in his speech in
India in January that we want the Bank to pursue an "integrated
approach for tackling both poverty reduction and climate change".
President Zoellick has also made it clear that poverty reduction
will continue to be the Bank's core mandate and that actions to
tackle climate change need to be 'baked into' the development
recipe rather than being the icing on the cake. Action needs to
be taken now. The problems will be exacerbated if the rate of
carbon emission growth is not reduced, and the costs of addressing
these problems will escalate. Unchecked, climate change and environmental
degradation will reverse the progress on the MDGs. The Environmental
Transformation Fund International Window (ETF-IW) is one way in
which the UK is providing the additional resources needed to deliver
change at the pace and scale required. We will help to capitalise
the Strategic Climate Fund managed by the World Bank with money
from the ETF-IW. This will help ensure that the ETF-IW is part
of a bigger multi-donor effort and help develop a multilateral
financing system that is better able to enable developing countries
to respond effectively to climate change.
[Paragraph 113] Funding for climate change work
introduces two key problems: raising the huge sums of money needed;
and ensuring that mechanisms are streamlined and funding is well-coordinated.
The World Bank has a role to play in developing solutions to both
problems. As a bank, it should help to leverage the money needed
and, as a leader in development, it should help to marshal funds
and stakeholders. The urgency of the challenge of climate change
has triggered a proliferation of bilateral and multilateral funds.
We believe that building on the mechanisms already in place is
crucial, particularly the Global Environment Facility which operates
under the joint aegis of the World Bank and the UN. We would urge
the Bank to make this a priority to ensure effective and efficient
co-ordinated action.
We agree that effective and efficient co-ordinated
action is essential across the entire international system. By
signalling our intention to make funds from the Environmental
Transformation Fund International Window available to help capitalise
the Strategic Climate Fund, the UK has catalysed international
discussion and effort to design a more coordinated multilateral
approach. The Strategic Climate Fund will have efficient governance
arrangements and deliver finance through the existing procedures
of the multilateral development banks. It will provide a channel
for more coordinated financing. It will also provide an overarching
forum for donors and recipient countries to discuss climate related
investments. It should therefore increase coherence in the international
system.
[Paragraph 114] We welcome the UK's commitment
of £800 million to international work on climate change through
the Environmental Transformation Fund. Although preparatory work
is well-advanced, we are sceptical that creating a new Trust Fund
in addition to the dozen or so that already exist within the Bank
for such work is the best way forward for this money. It may be
that new arrangements are needed but we have not seen evidence
which makes explicit the case for them. We recommend that DFID
conduct an audit of the current bilateral and multilateral funds
available for international climate change work and share this
with us before final decisions are taken.
We do not accept this recommendation. There is currently
no other multilateral, multi-donor fund in the World Bank which
can cover the range of climate change (mitigation and adaptation
and energy access) and wider environmental protection (forestry)
actions which ETF-IW resources are designed to support. Nor can
any other Trust Fund in the Bank provide finance to the other
multilateral development banks for these purposes, or provide
this finance at the scale and pace needed.
There is a gap in the international aid architecture
on climate change financing. This needs to be filled now with
arrangements to provide funds for investments at scale and with
due urgency. The Strategic Climate Fund and Clean Technology Fund
arrangements are not yet finalised. Our intention is to continue
to work with interested donors and the Multilateral Development
Banks to put arrangements in place quickly to provide bridging
finance whilst the new post 2012 climate change deal is being
negotiated. We cannot afford to delay this process. We believe
that by providing funding in this way we will demonstrate the
commitment of developed countries to scale up climate-related
financing thus building confidence and so increasing the prospects
that the post-2012 deal is ambitious and effective. We will also
use the arrangements to pilot approaches to adaptation that integrate
it with existing development efforts.
[Paragraph 117] Emissions from extractive industries
are major contributors to climate change which, as we have set
out, has a disproportionate impact on developing countries. The
Bank is right to take a pragmatic line, supporting energy investments
which provide essential services to poor people. But, given the
urgency of the climate change challenge, such investments should
examine all viable options and favour where practicable the environmentally
cleanest option. This will entail a greater weight of subsidies
for clean, renewable energy and less for extractive industries
and this rebalancing should be happening at a faster rate than
is currently the case. We recommend DFID lead the Board towards
using the Bank's substantial resources and leverage to make investment
in renewables more financially viable.
The Bank is already playing a key role in supporting
developing countries' efforts to increase access to energy and
to move towards cleaner energy development paths. In 2006 the
Bank increased its financing of renewable energy and energy efficiency
projects by 45%. We will continue to work to ensure that cleaner,
more efficient energy solutions, including renewable energy, are
given priority in order to increase Bank investments in low or
no carbon energy technologies.
Conclusion
[Paragraph 119] DFID's clarity of purpose and
effectiveness have set the standard for many bilateral development
agencies. It must now aim to do the same for multilateral organisations,
particularly the World Bank. In this inquiry, we have seen that
DFID's influence is already being felt. Given the urgency of the
effort on poverty and the scale of the sums entrusted to the Bank
to contribute to that effort, DFID must demonstrate not only excellent
partnership skills but equally good leadership skills in its future
relationship with the World Bank.
We thank the Committee for the report and their advice.
The Government has identified reform of the international system
as a priority, and we are investing large and increasing amounts
of time and energy into bringing about change. The World Bank
is a highly effective part of the system and makes a key contribution
to international efforts to reduce global poverty and ensure sustainable
development. We, and the Bank, recognise that it can improve,
and we will work with Bank management, and other shareholders,
to bring about the changes necessary to maximise its contribution
to the Millennium Development Goals.
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