The World Bank

Written evidence submitted by the Department for International Development

Executive Summary

1. The World Bank shares the Government’s ambition of eradicating poverty and achieving the Millennium Development Goals (MDGs). It is at the heart of the international development system, providing large scale financial assistance and policy advice and playing a convening role. Evidence suggests that the Bank is making a significant contribution to development gains, with the International Development Association (IDA) widely held as one of the most effective instruments for delivering the MDGs.

2. The World Bank is a leading development agency. In the last few years, it played a central role in global efforts to respond to the crisis, more than tripling its lending. It is also taking concrete steps to improve its effectiveness. This Spring, shareholders approved a package that will equip the Bank going forward, comprising: a new strategy; new capital for the International Bank for Reconstruction and Development (IBRD; voting reform to give developing countries more say; and a set of operational and governance reforms.

3. The IFC shares the Government’s objectives of wealth creation and poverty reduction, enabled by private sector development and economic growth. Evidence suggests that IFC is becoming increasingly effective with a growing focus on poor countries, climate positive investments and strong reputation for measuring results. IFC is pursing improvements to increase the representation of developing countries and engagement of the Board. DFID’s priority is to see the IFC go further in increasing its focus on poor and fragile countries.

4. The IDA 16 replenishment is underway and concludes in December. During the negotiations, the UK has made progress against our priorities for: a stronger results framework and a stronger role for IDA in fragile states, gender and climate change. A new permanent crisis window is nearing agreement which would significantly enhance IDA’s ability to respond to poor countries hit by crisis. Donors are considering three financing scenarios.

5. The Annual Meetings at the World Bank and IMF recognized the positive role played by both institutions during the crisis. The UK’s priority is to see the Bank strengthen its work on results, which is being taken forward by the Bank in IDA and through a new results framework and scorecard for the Bank Group.

6. The World Bank’s engagement with parliamentarians continues to improve with a stronger focus on training and involvement of parliamentarians in developing countries in key strategic documents. This year it introduced a major reform to enhance its transparency. Its new Access to Information policy places it at the forefront of practice amongst other multilateral organizations.

The World Bank’s Effectiveness

7. The World Bank shares the Government’s ambition of eradicating poverty and achieving the Millennium Development Goals (MDGs). It is at the heart of the international development system, providing large scale financial assistance and policy advice, generating and disseminating analysis and knowledge, and playing a convening role. The Bank also acts as an agent in the management and implementation of large, global initiatives, for example the Fast Track Initiative for Education.

8. The Bank has two main arms that provide resources to member governments – the International Development Association (IDA), which provides concessional resources to the poorest countries, and the International Bank for Reconstruction and Development which provides financing to middle income, creditworthy countries.

9. The Government is a strong supporter of IDA. IDA is widely recognised as being one of the most effective instruments for achieving the MDGs. Particular strengths include IDA’s role in helping countries develop good poverty reduction strategies; its ability to provide support across a range of sectors in response to countries’ priorities; its good financial resource management and strengthening of country public financial systems; and its strong commitment to lesson learning and evaluation.

10. But there are also some weaknesses. The Bank’s way of partnering with other donors is not as strong as it should be. In particular, the way in which it provides assistance – the instruments – are widely seen as cumbersome. The lack of flexibility in their use makes it hard for the Bank to pool its resources with those of other donors, and separate arrangements have to be put in place. As well as increasing the burden on governments, the Bank’s procedures are frequently a source of delay in the implementation of projects. Partnership is also constrained in countries where the Bank has located few professional staff, which tend to be small or fragile states.

11. Nevertheless, the Bank is able to point to a very significant contribution to development gains in many poor countries. A recent assessment of projects agreed by IDA between 2003-2005 showed that more than 80% had achieved their objectives. Some of the examples of how the Bank has helped developing countries meet the MDGs through IDA over the last decade include:

· saving more than 13 million lives

· providing access to a clean water source to over 113 million people;

· providing over 2 million classrooms; and

· assisting over 11 million people with social safety nets like public work schemes and cash transfer programmes.

12. At the UN Summit in September 2010, the Bank committed to intensify its efforts to reach the MDGs. It made new commitments to increase investment in basic education by an additional $750 million; to do more to achieve the health MDGs in countries where child and maternal nutrition is poor and disease high; and to expand its support for infrastructure and agriculture. It also committed to place a stronger focus on delivering measurable development results.

13. Over the last 2-3 years, the Bank’s work has been dominated by helping countries respond to the global economic crisis. At the 2010 Annual Meetings, there was discussion of the impacts on developing countries and the response of the International Finance Institutions (IFIs). See section on "World Bank and Annual Meetings" below.

14. At the World Bank’s Spring meetings in April 2010, shareholders endorsed a package to improve its effectiveness and legitimacy, and equip the Bank going forward. The package comprised a new strategy, new capital for IBRD, a change to voting to give developing countries more say, and a set of operational and governance reforms.

15. The "Post-Crisis Directions" strategy was agreed focussing the Bank on five themes:

i) Targeting the poor and vulnerable, especially in Sub-Saharan Africa;

ii) Creating opportunities for growth with a special focus on agriculture and infrastructure;

iii) Promoting global collective action on a range of topics including climate change and agriculture;

iv) Strengthening governance and anti-corruption efforts; and

v) Tackling crises.

16. This gives the Bank clear direction, and a means of focusing its efforts. Going forward it will be important that resources, both finance and staff, are aligned in support of this agreed set of priorities, making trade-offs where necessary.

17. The capital increase was the first in 22 years for the International Bank for Reconstruction and Development (IBRD), amounting to $86.2 billion. The Government will be seeking Parliamentary approval of our share of which the paid-in amount is approximately £100 million. There was strong support from borrowing countries for this extra capital to be agreed. It will allow the IBRD to lend at around $15 billion a year from 2012; without it, the Bank has said it would be constrained to provide only $10 billion, until it began to receive reflows from the exceptional lending it made during the crisis. The new capital will also benefit poorer countries, with agreement that a larger share of Bank’s operating profits (known as net income) be transferred to IDA as the Bank’s financial position improves. For efficiency, and to protect its finances, the Bank continues to operate within a flat real budget constraint and to review loan pricing annually.

18. The change to voting was the second phase of reform which is designed to give developing and transition countries more say. The first phase of reforms agreed in 2008 had led to an increase in voting power of 1.46%, as well as an additional Board seat for African member countries. In the second phase, agreement was reached to transfer a further 3.13% of votes, bringing the total transfer to 4.59%. The total developing and transition country share of Bank votes will stand at 47.19% when these changes are affected. There is a clear commitment to continue the move towards more equitable voting shares, and more changes will be made at the conclusion of the next review in 2015.

19. This agreement on voting shares fulfilled the 2009 Annual Meetings commitment in terms of the size of the transfer. However it did not protect the share of all the poorest and smallest countries as promised, with 13 countries losing out. The process also failed to establish a new basis for determining voting power at the Bank. Shareholders agreed to continue work to find a new dynamic voting formula to determine Bank voting shares in time for the next review in 2015. The formula should reflect and support the Bank’s development mission.

20. A suite of operational and corporate reforms has been identified to improve the effectiveness of the Bank. These range from operational reforms, such as basing more staff in developing countries, closer to their client, to measures to strengthen accountability and governance. The new results framework and corporate scorecard being developed by the Bank should enable shareholders to agree performance targets, hold management to account annually against delivery of results and reform implementation and have a discussion around current and emerging challenges. The Bank has set up an Internal Reform Secretariat to coordinate and sequence the institutional reforms across the World Bank Group. Board members are leading on discussions to improve the Bank’s corporate governance, including on reforming the selection of the President.

21. The Bank has already implemented a major reform to improve its transparency with the release of a new Access to Information policy in July. This new policy puts many documents into the public domain which were previously not available, such as Bank reviews of on-going projects. It also provides for simultaneous disclosure of Board documents. This step places the Bank at the forefront of practice among multilateral organizations.

International Finance Corporation (IFC) Effectiveness

22. IFC shares the Government’s key objectives of wealth creation and poverty reduction, enabled by private sector development and economic growth. As the world’s largest provider of development finance to the private sector in developing countries, IFC has investments and advisory services projects in 137 countries and has staff in 86 countries (54% of whom are based in field offices). Alongside mobilising private finance, IFC invests institutional investors' funds through its Asset Management Company.

23. The Government strongly supports the IFC. IFC is an increasingly effective and strategy-based Development Finance Institution (DFI) with a growing focus on poor countries and a strong reputation for results measurement. As a member of the World Bank, IFC also has global reach and substantial convening power. IFC is scaling up its climate-positive investments, which accounted for 13% of new commitments in FY2010 ($1.7 billion) [1] . It recently created a new Climate Business Solutions Department and introduced a development goal for climate-positive investments to account for 20-25% of IFC’s investment portfolio by 2013 [2] .

24. DFID is pursuing a number of areas for improvement with IFC. IFC’s focus on poor countries is still very limited – only 10% of new commitments in LICs (10% of portfolio commitments) and only 5% of new commitments in fragile and conflict-affected states (6% of portfolio commitments) in 2010 – and questions exist about IFC’s added value in some MICs and sectors. DFID is pressing IFC to diversify its portfolio away from its concentration in wealthier MICs (with 46.8% of its portfolio in Upper MICs), to ensure greater impact on the poorest.

25. Independent Evaluation Group highlighted weaknesses in IFC’s estimation of its added value. While it has taken steps to improve its estimates and reporting, DFID is continuing to explore with IFC the scope for a stronger evidence base. Similarly, while IFC’s reporting of development impacts has improved significantly, IFC claims total beneficiaries of projects in which it is (always) a minority investor.

26. IFC management has been criticised for failing to engage IFC’s Board early and routinely on a number of strategic issues. Developing countries are also under-represented on IFC’s Board. The multi-donor Crisis Response Facility established by IFC has been slow to disburse, with only $1.3 billion of the $18 billion mobilised (of which IFC contributed $7 billion from its own account) actually disbursed by end Q3 FY2010 [3] . This followed a decline in IFC’s commitments of 7% between 2008 and 2009 during the onset of the financial crisis [4] .

27. IFC’s evidence of results is positive and improving, with investments in FY2009 [5] delivering for example:

· health services for 7.6 million patients

· loans to 10 million micro, small and medium enterprises

· support to businesses directly employing over 220,000 people

· new phone connections for over 169 million people.

28. IFC also mobilised $5.4 billion of finance from third parties in FY2010.

29. Going forward, a number of new and ongoing IFC initiatives are likely to tackle some of IFC’s weaknesses outlined above:

· IFC has developed a series of output-focussed development goals, with baselines and targets to be met by 2013.

· IFC is introducing a set of "specific attribution rules" from FY2011 to ensure that its reporting more accurately reflects impacts from IFC’s involvement [6]

· IFC intends to review its target of 50% of investment projects in IDA countries, where it currently has a committed portfolio of $10.9 billion. IFC has committed to setting but not yet made explicit targets for fragile and conflict-affected states investments and advisory services as a proportion of frontier markets [7] activities going forward

· IFC’s Voice reforms agreed at the 2010 World Bank and IMF Spring meetings increased developing and transition country representation by 6 percentage points, to 39.5% of the vote. When reviewed in 5 years (as scheduled), however, reforms will need to go further

· In terms of IFC offering global leadership, the Foreign Investment Advisory Service (FIAS) - whose activities represent a large proportion of IFC’s advisory services portfolio - has developed a proposed leadership strategy on improving the climate for investment in developing countries for the period 2012-16. It also proposes rebranding as the Global Partnership for Investment Climate Reform (GPICR)

· An ongoing review of IFC’s Performance Standards and Information Disclosure Policy should ensure that stakeholders are sufficiently well consulted during project development, and that detailed information is easily accessible.

IDA 16 Replenishment

30. IDA is "replenished" every 3 years, with contributions from donors being combined with reflows on past IDA loans and contributions from the World Bank Group’s net income to give an overall envelope for poorest countries.

31. The fifteenth replenishment of IDA, which was concluded in December 2007, resulted in a record level of donor contributions. A total of $25 billion was pledged, with the UK becoming the largest donor with a contribution of £2.1 billion. The negotiations for the sixteenth replenishment (IDA 16) are underway and expected to conclude by December 2010. They will set the policy framework and financial envelope for IDA for the period July 2011 to June 2014.

32. In the IDA negotiations, the UK’s main focus is on establishing a stronger results and accountability framework, and pressing for a clear sense of how IDA will deliver better value for money. Our aim is to be clear on what our contributions will deliver in terms of outputs and outcomes for poor people. We want to see the Bank agree a more comprehensive results framework and set stretching targets for delivering improved operational effectiveness and efficiency.

33. We are also pressing for agreement to a permanent crisis response window. During the crisis, it was clear that the Bank, and the international system more broadly, lacked the ability to provide additional resources to the poorest countries to help them respond quickly. A new crisis window has been proposed that will allow IDA to provide additional resources to countries facing a major natural disaster, like the Haiti earthquake, or another financial crisis. If agreement is reached, this would mark a significant development in IDA’s ability to respond to poor countries’ needs at a time of crisis.

34. Our other priorities include securing specific commitments on how the Bank will better assist fragile and conflict affected countries. Despite IDA 15 commitments to extend exceptional allocations to some fragile states, to improve joint working with the UN and to increase staff presence, it is clear that given the scale of the challenge, the Bank needs to do more. A key factor in improving the effectiveness of its assistance is to base more staff in country, and ensure they have the right skills and decision-making authority. More flexibility in procedures is also required in these challenging operating environments and close coordination with development partners like the UN. We are calling for clear performance standards to drive performance in these areas. We also expect a commitment for the funding framework for fragile states to be reviewed at the IDA 16 mid-term review in 2012, along with its management of multi-donor trust funds in post-conflict countries, where Bank performance has sometimes been poor.

35. Along with fragile states, gender and climate change have also been agreed as special themes for IDA 16, recognising their importance for equitable and sustainable poverty reduction and IDA’s potential to make a stronger contribution in these areas. On gender, we have been disappointed by the weakness of the Bank’s performance, highlighted in the recent report by the Independent Evaluation Group on "Gender and Development". To address this weak performance, Bank has committed to give more prominence to gender issues in all Country Assistance Strategies, develop regional gender action plans and increase its investment in programmes to address the disadvantages faced by women and girls. We have also secured a commitment for IDA to track more gender-related indicators in its results framework and to disaggregate indicators by sex as far as possible. The 2011 World Development Report will also be focussed on gender.

36. IDA needs to integrate climate change issues in country assistance strategies starting with the most vulnerable countries, and ensure that it builds climate resilience into its core development activities. IDA should also play a key role in helping the poorest countries leverage funding from the separate climate change mechanisms managed by the Bank.

37. Along with others, we have also called for IDA countries to have much more say in the replenishment process, and for accountability to IDA countries to be strengthened. At the IDA replenishment meeting in October, working groups on, results and effectiveness, IDA’s long-term financial sustainability, inclusive growth and fragile states were agreed. These working groups will enable IDA countries, IDA donors and Bank management to jointly review and regularly report on progress on these key issues during the IDA 16 period, including at the mid-term review.

38. The Bank has presented 3 financing scenarios in its latest paper for this replenishment, increasing IDA by 10%, 15% and 20%. All increase the total IDA envelope by more than the rate of inflation and would require an increase in the total contribution from donors compared to IDA 15. The total envelope is a combination of donor contributions plus internal transfers (IDA investment reflows and financial transfers from IBRD and IFC from their operating profits). So the non-donor part of the IDA pot could increase by as much as 40%. The Bank has presented 15% as their preferred scenario.

World Bank and IMF Annual Meetings

39. The shared agenda at the World Bank and IMF was taking stock of the response to and impact of the global financial crisis. Both the Fund and the Bank were cautiously optimistic about the economic outlook and highlighted countries’ resilience to the crisis.

40. A paper prepared for the Annual Meetings notes the positive role played by both the IMF and the World Bank in assisting countries. Both provided substantially more financing to middle income countries. The World Bank committed $33 billion in their financial year 2009, almost triple the previous year’s level, followed by $44 billion in their financial year 2010. Since the start of the global financial crisis the IMF has committed $200 billion to advanced and emerging markets. The IMF scaled up its concessional lending to poor countries substantially, providing $5.65 billion in commitments to 40 countries since late 2008. This represents nearly five times the level of lending in the three years before the crisis.

41. There was also clear evidence that the IFIs had learnt lessons from previous crises. Major improvements to the Fund’s lending and conditionality were agreed. A wholescale reform of the Fund’s use of "structural" conditionality was agreed, meaning that the IMF no longer uses measures like public sector reform or privatisation to determine the release of its funds. It was also clear that the Fund had been flexible in its approach to fiscal policy, helping poor countries to implement effective counter-cyclical policies during the crisis.

42. There was also recognition that the Bank had been quick and responsive during the crisis, and given much more attention to social protection than in previous crises. But the paper noted that whilst there has been good progress in middle income countries in implementing social protection programmes, there remains a lack of good mechanisms in low income countries, and this is an area that needs more attention.

43. The Annual Meetings on the Fund side were focused on global imbalances and IMF governance reform. No agreements were reached on these topics and shareholders will continue to discuss them

44. On the Bank side, the Annual Meetings were an opportunity to take stock of reforms agreed in Spring and discuss the IDA replenishment, as well as continue the informal "Bali Dialogue" on climate change financing.

45. Our priority was to reinforce the need for the Bank to focus on development results and delivering value for money. The Secretary of State emphasised this in his interventions, being clear that he strongly supported IDA but wanted to see a clearer statement on what IDA would deliver for poor people. He welcomed the work to date that the Bank had done to take forward this agenda, and looked forward to seeing the new results framework and corporate scorecard.

46. At the "Bali Dialogue", the Secretary of State centred on the importance of the multilaterals, including the Bank, playing their full role in 2010 climate finance goals and doing more to mobilise private sector resources for climate change. This was picked up as a key theme. The Mexican Minister of Finance presented prospects for the COP 16 climate negotiations at Cancun. In discussion, participants commented that Cancun would be difficult but it should still be possible to make progress in specific areas such as Fast Start Finance and forestry.

Engagement with Parliamentarians in Developing Countries

47. Good governance is at the heart of development and Parliaments have a crucial role to play in promoting and ensuring accountability.

48. The World Bank engages with parliamentarians both at the national and global level, in developing and in developed countries. In recent years it has heightened its engagement with parliamentarians in developing countries by:

· Providing capacity building – From 2000-2010 the World Bank Institute has trained around 12,000 MPs and staff in developing countries in partnership with parliamentary organizations. Training for MPs has covered topics such as the role of parliament in poverty reduction, in curbing corruption and budget-management.

· Involving parliamentarians more in the preparation of Country Assistance Strategies (CASs) and encouraging participation in the Poverty Reduction Strategy processes PRSPs). A recent World Bank survey showed that involvement of parliamentarians in the CAS has risen to 76% in 2009 from 62% in 2004. The Bank is working with Inter-Parliamentary Union to identify the degree and type of parliamentary involvement in the shaping and implementation of PRSPs.

· Sharing knowledge and data – The World Bank Open Data Initiative now offers free online access to 4,000+ statistics that previously were only available to paying subscribers. Further, the Bank’s transparency has improved over the years. Nearly all World Bank documents are now publicly disclosed and the Bank scored well in the One World Trust’s 2006 Global Accountability Index, ranking second out of the ten intergovernmental organizations being monitored in that year.

49. DFID is supporting the Parliamentary Network on the World Bank (PNoWB). This is an informal network of over 1200 parliamentarians from 110 countries, mobilising parliamentarians in the fight against global poverty, and promoting transparency and accountability in international development. It offers a platform for policy dialogue between the World Bank and parliamentarians and many of its activities are undertaken in partnership with the Bank, including the Annual Conference and the Field Visits programme.