Author: Valencia M
What Does World Bank Success Look Like?
This blog is one in a series by experts across the Center for Global Development ahead of the IMF/World Bank Spring Meetings. Each post in the series will put forward a tangible policy “win” for the World Bank or the broader MDB system that the author would like to see emerge from the Spring Meetings. Read the other posts in the series, and stay tuned for more.
On the face of it, the case for a general capital increase for the World Bank should be obvious and urgent in our age of the polycrisis. It is a very efficient way to support an increase in development and climate lending by an order of magnitude. A $20 billion paid-in capital increase would support $200 billion of cumulative lending over 10 years, taking into account the leveraging of the new capital, the timing of loan repayments, and the resulting increases in net income that could add more to capital. The US, as the largest shareholder, would contribute a little over $3 billion, likely spread over five years, a drop in the US development assistance bucket.
But as we go into Spring Meetings of the IMF and World Bank, consideration of such an increase is not on the agenda. Many would see this omission as another case of the rich world avoiding its responsibilities, especially as it drove most of the climate change that is imposing growing losses, damage, and suffering in the developing world. There is, of course, truth to that. But it would be a mistake to look no further for an explanation.
Compare the foot dragging on multilateral development bank (MDB) capital increases generally to the greater willingness on the part of the US and other donors to step up to funding for what are called vertical funds—like the Global Fund to Fight AIDS, Tuberculosis and Malaria. The Global Fund has a clear purpose and tangible results relatively easy to measure. A glance at its website shows impact easily understood: 50 million lives saved, 23.3 million people on antiretroviral therapy for HIV, and 5.3 million people treated for TB in 2021. The US contribution to the Global Fund for FY23 is its highest ever, $2 billion.
By comparison, most shareholders and other stakeholders, if asked, would be hard pressed to articulate what World Bank success at an institutional and country level looks like. Its mandate is not only much broader—eliminating extreme poverty and promoting shared prosperity—it is also more difficult to attribute such economy-wide outcomes to particular World Bank interventions. In a sense, the World Bank and other MDBs are in the worst of both worlds. When global poverty was receding, the MDBs could not credibly claim principal credit for an outcome that so clearly depended on many factors outside their control. And now that poverty is resurgent, they are expected to swim upstream against very strong currents.
Perhaps as a result, both MDB management and shareholders tend to define success as institutions largely by the volume of finance inputs they supply: climate-related finance targets are an example. The problem is that strategic decisions about finance allocation then become a zero-sum game—more finance for one purpose comes at the expense of others (except during infrequent general capital increases). We are seeing the consequences now in the debate over the mission of the World Bank Group (WBG). Borrowing countries mistrust the focus on climate and global challenges, not because they disagree on their importance, but because they fear a misallocation of finance, in their view, between development and climate-related finance, especially in the absence of plans to increase capital.
It is not as if the World Bank does not measure results at the corporate level. Under Client Results, the WBG tracks globally: people with enhanced access to transport, expanded renewable, and other power generation; people with access to electricity and ICT; beneficiaries of “job-focused interventions”; people with access to financial services; farmers reached with assets and services; students reached; people who receive essential health, nutrition, and family planning services; people with access to improved water and sanitation; countries moving toward disaster resilience; and reductions in greenhouse gases.
These are generally outputs rather than outcomes like household income, educational attainment, and infant mortality, but at least they are consistent and measurable and related to World Bank-supported activities. In each case, the bank shows improvements over baselines. The problem is that it is hard to assess whether progress is rapid enough or whether the World Bank’s finance is being used efficiently and effectively. How much did it cost to increase global renewable power generation 318,379 gigawatt hours from FY19 to FY22? Could the World Bank have done more? There are no targets at the corporate level, which is understandable since the bank operates based on a country-driven model.
But what happens at the country level? Let’s take an example of a Country Partnership Framework (CPF), the World Bank’s country strategy document (replacing the earlier Country Assistance Strategy), for the Democratic Republic of Congo. The DRC CPF is a useful example because challenges and needs for that country are formidable, the WBG clearly has an important role to play, and DRC has a relatively recent CPF for FY22-26, presumably reflecting lessons learned as well as the increased focus on climate-related investments. How does the strategy measure success?
The strategy has three broad focus areas: (1) stabilization with reduced risk of conflict, (2) improved infrastructure and other service delivery and human capital development, and (3) strengthened governance for increased private investment. It has 33 objective indicators of success (plus 26 supplementary progress indicators), ranging from the number of direct beneficiaries of social safety net programs, to increased regional trade, to the number of people with access to climate-resilient roads, to the increase in girls’ secondary school enrollment rates, to revenue from forest carbon sales, to maintaining macroeconomic stability by avoiding monetary financing of the deficit. Baselines are measured and targets are set, so progress can be tracked. It is a credible and objective results framework.
But with this broad a program and this many indicators, the challenges of determining whether the partnership is ultimately a success are obvious. It is a comprehensive development program, with interventions across the economy. It is supported by 79 ongoing and indicative future WBG operations. It does not focus on transformation of a few selected sectors, but rather addresses a whole array of admittedly pressing problems. Inevitably some indicators will be met and others will not. What constitutes success? Meeting more than half the targets? Are some more important than others? Should success be measured by macroeconomic outcomes—growth, poverty reduction?
We can look at past performance reviews to get a sense of how the World Bank itself assesses performance. The Completion and Learning Review (CLR) is the WBG’s self-evaluation. The current CPF has an annex containing a CLR for the DRC country assistance strategy (CAS) for FY13-FY17. It is a comprehensive and generally honest assessment. Interestingly, it notes upfront that the CLR, “is not an assessment of DRC’s progress toward its development goals, but rather of program achievements directly linked to WBG-supported activities and to WBG engagement in DRC during the CAS period.” That makes sense from an attribution perspective, but it also acknowledges the crucial distinction between the magnitude of challenges to meeting the Sustainable Development Goals in DRC and what the WBG can achieve.
That CAS had four strategic objectives, not greatly different from those of the current CPF: (1) increase state effectiveness and improved governance, (2) boost competitiveness to accelerate private sector-led growth and job creation, (3) improve social services delivery and increase human development indicators, and (4) address fragility and conflict in the Eastern provinces. The results framework targeted 14 outcomes. One was achieved (increased access to clean water and sanitation), five were mostly achieved, and eight were partially achieved. Hard to say if that is or is not success.
But several of the report’s lessons for future WBG engagement bear emphasis, perhaps most fundamentally this statement: “the forthcoming CPF should reflect a realistic level of ambition, given the degree of government capacity and demonstrated commitment to the necessary reforms.” In that connection, the report urges that future engagement include some capacity building in every project and “start small, in a manner commensurate with existing capacity. Similarly, start with those provinces where there is a strong commitment to the desired reforms.” The report also urges collaboration across interdependent sectors and between investment project lending and development policy lending to maximize impact, such as between the road/transport program and the investments in agriculture. And it calls for more country-managed coordination across DRC’s 20 biggest development partners.
Taking all this together, one can reasonably conclude that the WBG needs an approach that scales back on breadth and boosts depth if it is to convincingly demonstrate success. That suggests a focus on a few achievable targets in perhaps one to three sectors that are on the critical path for—and make large contributions toward—development and climate challenges and are also client government (either central or local) priorities. It means bringing together all of the tools needed to address, in that sector or sectors, the policy, governance, capacity, project development, and other relevant obstacles, and to finance the relevant investments. An example might be sustainable agricultural production that benefits smallholder farmers. By concentrating resources and different kinds of support, the WBG is more likely to meet targets set. If the WBG could say, in country x, “we set an ambitious target of doubling the income of smallholder farmers in ways that are sustainable and resilient and we/the country achieved it,” I would argue that that would be enough to convince stakeholders of the World Bank’s value.
But shareholders take note. That means that the World Bank must be free to determine, in collaboration with client country governments, a few country-specific achievable priorities for deep and sustainable sectoral transformation. It means that large shareholders cannot set a priori WBG finance allocation priorities. It means that the World Bank executive board should focus on performance in meeting targets under country strategies, rather than on individual project approval. It does not mean abandoning climate-related activities or the focus on poverty, but rather integrating analysis of potential poverty and climate-related gains into all decisions for sector priorities in country strategies and in the projects/activities chosen.
Adapting Multilateral Development Banks (MDBs) to Global Challenges: Perspectives of African Leaders on Reform
This event was hosted in-person at CGD’s DC office: 2055 L St NW, 5th floor, Washington, DC 20036
The shared challenges facing humanity, including climate change and pandemics have only grown more pressing and existential. Given their financial firepower and expertise, many around the world are calling to reform the multilateral development banks (MDBs) to address these global challenges which can and already have setback development outcomes. While the perspectives of African leaders are key in these conversations, voices from the continent have not gotten the attention they deserve. At the sidelines of the Spring Meetings of the World Bank and IMF, a group of African finance ministers and a private sector leader will share their perspectives on what they would like to see from the reform of the World Bank and MDBs.
Refreshments will be provided. For a full list of CGD Spring Meetings events, click here.
For the World Bank to Address Global Challenges, It Needs to Address Trade-Offs Head On
This blog is one in a series by experts across the Center for Global Development ahead of the IMF/World Bank Spring Meetings. Each post in the series will put forward a tangible policy “win” for the World Bank or the broader MDB system that the author would like to see emerge from the Spring Meetings. Read the other posts in the series, and stay tuned for more.
At the Spring Meetings, calls for the World Bank to become the go-to institution for fighting global challenges will intensify, including from some of us at CGD. This isn’t new: Janet Yellen called for the bank to “evolve” to tackle climate change and other global threats; Gordon Brown called for its immediate transformation into a “Global Public Goods” bank; my colleague Charles Kenny called for a larger and easier-to-access IBRD to tackle global challenges; and a recent piece I co-wrote with Amanda Glassman, Clemence Landers, and Eleni Smitham ends on the following lines:
“There is a clear hunger for the World Bank to be a leader on GPG issues, not only as a financier or vehicle. The bank brings analytical capabilities, capacity building, and intellectual leadership to both country development and global challenges. The global system lacks an effective focal point in the fight against global public bads. Deploying the World Bank effectively, both as a financial and an intellectual leader, can fill that gap.”
Doing so involves tackling a set of serious institutional challenges: mobilizing more capital and financing; learning to live with or work around more and different kinds of risk; streamlining processes and procedures to become not just a viable source of financing for new challenges, but an attractive one. These challenges remain unresolved.
But they are not the only unresolved challenge. The World Bank—and indeed, those of us who have called for changes to the bank—face an intellectual challenge we have not yet met: working out what exactly we mean when we speak of global challenges and global public goods, and what that implies for how we address them. Most crucially, we need to consider their relationship with what remains the core mandate of the bank for now—poverty and economic growth in developing countries. That we have yet to fully resolve this challenge—despite breezy statements that no trade-offs exist at all—suggests how far we are from creating a World Bank that has the tools to discharge its core mandate and an expanded one well—indeed, whether such a bank is possible to create.
There is a common language centred on “global public good” provision that many commentators—myself included—have employed when proposing a revision to the mandate and remit of the World Bank. But public good provision presents a very particular form of economic problem, with very particular solutions, and it is not clear either that the problems typically raised as potential new space for the World Bank to occupy are truly public goods problems, or that the mechanisms that the bank has its disposal are suited to fix public goods problems. Meanwhile, the pursuit of poverty eradication and economic growth—the World Bank’s current mission—is most definitely not a public goods problem.
Classifying something as a public good has a very particular meaning in economics, suggesting it has characteristics that make it very difficult for the private market to provide. Public goods are non-rival, so use by one consumer does not diminish availability for others, but most importantly for market provision, they are non-excludable: that is, once provided, they benefit everyone, whether or not those people have paid for them. This leads to free-riding—where potential beneficiaries do not pay for the good, because they hope to benefit from some other payer’s action, a position which if universal means that the good simply isn’t provided at all. In the textbooks, free-rider problems are solved by coercive mechanisms for payment such as taxation.
Coercive mechanisms aren’t something the World Bank is set up to do, but the organisation can take a different approach: in the real world, public goods are often provided through the provision of goods that are excludable: if national defense is a non-excludable public good (that is, everyone in the country benefits whether or not they pay tax), a new weapons system is not. It is simply a private good that has positive externalities. And if a 1.5 degree world is a public good from which we will all benefit, clean energy is not: it is a private good that benefits a specific country but has positive spillovers for everyone else. In fact, many climate mitigation actions have local effects that are either partly excludable or partly rival. For example, moving to cleaner energy or reducing crop residue burning will have local effects on air quality which, though they may spill over into neighbouring countries, are mine; others who do not pay for it do not benefit, or not in full. In such cases, a contribution to a global public good comes in the form of providing a private good (a cleaner energy plant, or a method of reducing crop residue burning) with a positive externality, also called a merit good.
So the role of the World Bank will be to substitute these positive merit goods for those demerit goods that have negative externalities, like fossil-fuel burning power plants, or crop burning practices that are over-supplied in the free market. This substitution is closer to what the World Bank has the tools to provide at scale: positive externality merit goods are simply under-consumed in the market and subsidy can be enough to provide them at their optimal level. In other words, to provide the public good, the World Bank can support the provision by client governments of private goods that have positive externalities towards the public good we seek—be that global public health or a lower-warming world.
The question that remains is then simply about prioritization of its scarce subsidy resources for different positive-externality goods. The World Bank has funds to pursue goods and services that have merit or positive externalities: from public health, to education, to good macroeconomic management (and indeed climate change adaptation, which is a quite different kind of good to climate change mitigation). If the climate mitigation spending that the bank is capable of delivering is that which has local benefits, it begins to fall into this class as well—and its ability to deliver them depends on how much clients with access to different World Bank funds want to utilize them, and, in turn, on the level of subsidy offered. But since the viable path for the World Bank to contribute to both poverty reduction and global public goods is in the provision of private goods with merit characteristics, it must also grapple with the fact that these goods are by definition location-specific. The World Bank’s selling point (not it’s unique selling point, but one of the biggest ones) is that it is a cheap and reliable source of money. To provide location-specific goods at a subsidy, it is, by definition, trading off between alternative purposes and alternative locations. And the places where poverty-reducing goods are most in demand and will have most impact are not the places where goods supporting climate change mitigation will have the biggest impact, for example.
That means that an expanded mandate requires that we trade off between subsidizing action on poverty and growth on the one hand, and climate mitigation and similar global challenges on the other; we will also need to trade off between the goods we subsidise to fight different global challenges. The only way to avoid these trade-offs is to have a World Bank that is fully funded to fight both poverty and global challenges. None of the proposals on the table will get us there. They will only make the trade-off slightly less painful, if they are even adopted.
So my ask of the World Bank—and indeed all participants at the Spring Meetings—is simple. Before we retool and reorient, think carefully. Think about the underlying problems it wants to solve; think about what its scope for action really is; think about what clients want; and think about the trade-offs that a reorientation will force. And wherever we land on these trade-offs, the only way towards an expanded mission that doesn’t fail the poor is far, far more money.
This blog has benefited from excellent comments by Stefan Dercon, Mark Plant, and Amanda Glassman.
Accelerating MDB Reform to Address Today’s Global Challenges
To better respond to today’s global crises, the MDBs must transform themselves. The MDB Reform Accelerator is mobilizing the evidence-based analysis and strategic outreach needed to ensure MDB reform delivers real results for development, climate, and other global challenges.
The world has changed since the creation of the International Monetary Fund and the World Bank—the world’s first international financial institutions—over 75 years ago. The shared challenges facing humanity have only grown more pressing and existential. From pandemics to climate change to financial distress and the looming public debt breakdown, the world is entering an era of polycrises, characterized by a multiplicity of shocks, to which countries of the Global South are most exposed. At the same time, these countries face tremendous development challenges. Some are on the path to achieving milestones by implementing appropriate safety nets and adopting frontier technologies that allow them to leapfrog over the development process. Others risk falling further behind.
Closing the income gap between countries will require that each makes the right policy choices, but it will also require more funding dedicated to building resilience, preventing shocks, and mitigating the impact of recurrent crises. The latest World Investment Report suggests that achieving the Sustainable Development Goals will require closing a $4 trillion funding gap. For decades, the network of multilateral development banks (MDBs) and international financial institutions more broadly played a key role in working towards achieving these objectives, through concessional finance, project finance, and close country monitoring. The World Bank and the other MDBs have been key players in reducing extreme poverty and promoting shared prosperity.
But as recent events show, the financial firepower and mission of the MDBs now need updating. Successive shocks have left the MDBs unable to properly balance the risks threatening the global economy and the specific needs of developing countries. Many around the world are calling to reform these institutions to also address threats like climate change and pandemics. Thanks to their know-how and extensive experience, the MDBs are increasingly recognized as the most promising instrument both to mobilize needed additional financial flows for these global challenges—which have the potential to set back development progress—and to fight poverty and support development in emerging markets and developing countries.
While there is general agreement about the need to reconsider the financial model and missions of the MDBs, the tools and reform agendas among the different institution are very diverse. It is crucial that this reform process includes the voices and perspectives of a broad range of experts, policymakers, and other stakeholders, and it should focus on making MDBs more useful for their clients. The perspectives of recipient countries who borrow from the MDBs should be at the heart of these debates.
The time for reform is now
Political momentum is strong and there are many key opportunities in the coming year to define the reform agenda, including the upcoming Spring Meetings of the World Bank and the IMF, the installment of a new World Bank president in June, the Paris Summit for a New Global Financial Pact in June, the G20 Leaders’ Summit in September, the Annual Meetings of the World Bank and IMF in October, and COP28 at the end of the year. These milestones offer the opportunity to catalyze substantial reforms to create a stronger, well-functioning, and relevant MDB system.
From our standpoint, as think tanks focused on international development or from the Global South, we hope to seize this momentum to contribute to that effort and share our views on what should be expected from this reform.
To that end, the Center for Global Development (CGD), the Policy Center for the New South (PCNS), and the Reinventing Bretton Woods Committee (RBWC) will host a conference to bring together perspectives of the Global South in the MDB reform agenda in Rabat, Morocco on September 11-12, just ahead of the Annual Meetings. The conference will gather academics, think tank experts, and policymakers to put forward reform ideas and amplify borrowing country perspectives on the MDB reform agenda. The main conclusions of this conference will feed into the debates—and hopefully, the actions taken—at the official gathering of finance ministers and central bank governors a month later.
In the run-up to this conference, CGD and PCNS alongside the Centro Brasileiro de Relações Internacionais (CEBRI), the Center for Social and Economic Progress (CSEP), the African Center for Economic Transformation (ACET), and the Shanghai Institute for International Studies (SIIS) have come together to launch the MDB Reform Accelerator. Our objective is to bring together a wide network of researchers from think tanks across emerging markets, low-income countries, and advanced economies to analyze MDB reform. Under the auspices of the Accelerator, we share research and analysis on what is needed for the MDBs to modernize and deliver results for global challenges like climate change while also staying true to their development mandate.
Watch this space.
Karim El Aynaoui is Executive President of the Policy Center for the New South, and Dean of the Faculty of Economics and Social Sciences and Executive Vice-President of the Mohammed VI Polytechnic University. From 2005 to 2012, he worked at the Central Bank of Morocco as the Director of Economics, Statistics and International Relations. Prior to this, he served as an economist at the World Bank. He holds scientific and advisory positions in various institutions, including the Malabo-Montpellier Panel, the Moroccan Capital Market Authority, and the French Institute of International Relations. He is also advisor to the CEO and Chairman of the OCP Group, and serves as a board member of the OCP Foundation and as a global member of the Trilateral Commission. He holds a PhD in Economics from the University of Bordeaux.