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April 10, 2023

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.

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