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Fiscal 2002 Highlights
Global Context
Lending
and Advisory
Special Assistance
Knowledge Sharing
Assessment Program
World Bank's Resources
IBRD's Net Income
World Bank Cofinancing
Trust Fund Highlights
Trust Fund Reforms
Framework
For
Assistance
Country Assistance
Low-Income Countries
Middle-Income Countries
Sector Strategy
Partnerships
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Overview of World Bank Activities in Fiscal 2002
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fiscal 2002 the Bank underscored its efforts in poverty reduction as it responded to world events. The Bank's lending and advisory services continued to grow, focusing on work at the country level and reflecting the Bank's focus on its corporate and global public goods priorities. It provided debt relief to some of the world's poorest nations and extended this relief to countries emerging from conflict. The Bank's
knowledge sharing activities continued to expand, leading to participatory activities with governments,
nongovernmental organizations, private sector representatives, and donor government colleagues. |
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| FISCAL 2002 HIGHLIGHTS |
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IBRD and IDA lending commitments increased to $19.5 billion, reflecting highest-ever lending levels by
IDA, which reached $8.1 billion for 133 new operations. IDA's strong lending program was driven by record lending to Africa and South Asia, which together accounted for $6.4 billion.
In fiscal 2002 Bank support to
HIV/AIDS (human immuno deficiency virus/acquired immune deficiency syndrome) projects amounted to new commitments of over $300 million. Lending operations were approved in Benin, Burkina Faso, Burundi, Cape Verde, the Central African Republic, Jamaica, Madagascar, Nigeria, Senegal, and Sierra Leone, and HIV/AIDS components were significant in a number of other new and ongoing projects. The Bank supports HIV/AIDS work in over 64 countries. By far the greatest concentration of HIV/AIDS activities supported by the Bank has been in Africa.
To date, 16 Multi-country HIV/AIDS Programs
(MAPs) totaling commitments of over $550 million have been prepared in record time in Africa to match the emergency nature of the epidemic.
The MAP approach has involved extensive collaboration with national governments, partners in the Joint U.N. Programme on HIV/AIDS, bilateral donors, the International Partnership against AIDS in Africa, key nongovernmental organizations, persons living with HIV/AIDS, and other key stakeholders.
The Bank's Board of Executive Directors approved a second phase of the approach, known as MAP2, in February 2002, earmarking another $500 million. MAPs, such as a fiscal 2001 MAP in the Caribbean, are channeling a substantial share of resources (in most cases about 50 percent) directly to local communities to carry out HIV/AIDS activities of their own design.
The
Poverty Reduction Strategy Paper (PRSP) approach, which stresses the centrality of country ownership based on broad participation for success in fighting poverty, received support from developing-country, donor, and civil society participants at the joint World Bank-International Monetary Fund PRSP review conference in January 2002. The approach gained momentum in fiscal 2002, when an additional nine countries completed interim PRSPs and seven countries completed their first full
PRSPs.
The Bank studied the past 50 years of development assistance and recorded its findings in The Role and Effectiveness of Development Assistance: Lessons from World Bank Experience. The study took a broad view of the relationship between development experience and official development assistance over the past 50 years, with particular emphasis on the World Bank's experience in recent decades. It found that progress in improving well-being has been rapid, if uneven, and that' notwithstanding some significant shortcomings and
failures such assistance has often helped to underpin and support success. It also found that, in large part because of lessons that donors and governments have learned from both successes and failures, development assistance is becoming more effective in supporting growth and poverty reduction.
In March 2002 more than 50 heads of state gathered in Monterrey, Mexico, at the
Financing for Development Conference, where they adopted the Monterrey Consensus, which calls for freeing trade, increasing aid, and reducing external debt to sustainable levels in order to provide countries that follow sound policies and good governance with the means to obtain the Millennium Development Goals. An additional $12 billion in aid over the next three years was pledged by donor countries at the conference.
In April 2002 the Bank approved its first operation in
Afghanistan since 1979'a $10 million grant to assist the Afghanistan Interim Administration with key public administration
functions to enable it to effectively use its public resources, including millions of dollars in donor funding, for rebuilding and development. The Board of Executive Directors also endorsed the Transitional Support Strategy, the Bank's plan for support to Afghanistan for the following six to nine months.
In May the Bank opened its Afghanistan office and launched the Afghanistan Reconstruction Trust Fund, to help the Afghanistan Interim Administration fund physical reconstruction projects and salaries for civil servants. The Bank provided a total of $100 million in grant financing in fiscal 2002 and has proposed a further $470 million for the lifespan of the transitional government elected by the Loya Jirga in June.
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| Overview of World Bank Activities in Fiscal 2002
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In fiscal 2002 the World Bank underscored its efforts in poverty reduction, forming new initiatives in response to world events. It assessed the impact on poor countries of the events of September 11 and offered special assistance to countries experiencing particular economic shocks. The Bank's operations were temporarily affected this year as country teams adapted travel plans and worked to focus country activities with fewer missions.
Rich and poor nations fostered a new development partnership when they came together to address the challenges faced by the global community at the Financing for Development Conference in Monterrey, Mexico, in March 2002. The Bank, other multilateral organizations, and many countries pledged additional financial and technical resources to fight poverty.
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GLOBAL CONTEXT
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The global economic slowdown that began in fiscal 2001 was compounded by the economic aftermath of the events of September 2001. Greater uncertainty and slower world growth resulted. The developing countries hardest hit were those dependent on commodity
exports as many commodity prices reached historical lows and those with highly indebted emerging
economies as private investors reduced their exposure in emerging markets. Countries with high-tech sectors were also hard hit, and tourism industries suffered. Gross domestic product
(GDP) growth for the developing and transition countries fell from a record average of 5.4 percent in calendar 2000 to 2.8 percent in calendar 2001, and per capita growth declined to 1.4 percent.
All regions showed a decline in GDP growth in calendar 2001, with the exception of South Asia, which grew at 4.3 percent, up from 4 percent in 2000. Growth in the East Asia and Pacific region slowed to 4.6 percent in 2001 from 7.4 percent the year before; it was affected by the collapse of global demand for high-tech commodities and the slowdown in tourism. Growth in the Middle East and North Africa region slowed to 3.1 percent in 2001 after above-average performance of 4.2 percent during 2000, largely due to falling oil prices. Africa grew by 2.6 percent, down from 3.1 percent the prior year. Europe and Central Asia grew by 2.2 percent, contrasted with 6.4 percent in 2000; it was affected by a contraction in Turkish exports and a fall in Russian growth. Latin America and the Caribbean registered the lowest growth rate at 0.6 percent, down from 3.8 percent in 2000; this reflected adverse external conditions, a progressive worsening of the political and economic situation in Argentina, and a steep decline in tourist bookings. Even excluding Argentina, GDP in Latin America and the Caribbean grew by only 1.3 percent in 2001.
As in every slowdown, poor people pay the highest price. Without buffers or safety nets to rely on, their ability to satisfy basic needs is immediately at stake when their incomes decline. The Bank's ability to respond to the recent global shocks has proven the overall soundness of its approach in such situations. Its existing instruments and policies make available a wide variety of options for providing tailored financial assistance to its clients affected by the economic downturn. Civil conflict, terrorism, money laundering, and corruption have increasingly become the focus of international concern. The combined effects of slower economic growth, the significant decline of private capital flows, and growing populations in developing countries have increased the need for official development assistance.
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THE WORLD BANK'S LENDING AND ADVISORY SERVICES IN FISCAL 2002
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The Bank's lending and advisory services focus on work at the country level and reflect the Bank's focus on the
Millennium Development Goals
(MDGs), its corporate priorities, and its identified global public goods priorities. The Bank tailors it's lending to the needs of individual countries while keeping in mind its larger overall goals.
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The International Bank for Reconstruction and Development
At $11.5 billion, new lending by IBRD in fiscal 2002 was $1 billion above the previous year's level. The number of new operations approved was higher than last year, at 96.
New IBRD lending to Europe and Central Asia reached a record high of $4.9 billion, or 43 percent of total IBRD commitments, followed by Latin America and the Caribbean with $4.2 billion. The East Asia and Pacific region was third with $1 billion.
Public administration was by far the leading sector for IBRD lending, receiving $3.6 billion, over 30 percent of the total. The significant amount of lending in the public administration sector reflects the Bank's focus on assisting its clients to improve development strategies, implement reform policies, and build institutional capacities. Lending to the finance sector was second, representing $2.1 billion, about 18 percent of the total.
(Box 2.1 describes the Bank's new coding system for lending.)
The prevalent themes correlated to the sector lending, with a major focus on strengthening the financial and private sector regulatory framework and improving public sector governance. Human development, economic management, and urban development were also supported.
The share of adjustment lending by IBRD rose to a record high of 64 percent in fiscal 2002, compared with 38 percent in fiscal 2001, and with 47 percent and 63 percent during the East Asian crisis years of fiscal 1998 and 1999, respectively. Argentina, Brazil, Jamaica, Tunisia, Turkey, and Ukraine are among the countries where Bank lending sought to alleviate the effects of falling export demand, commodity prices, and capital market access.
Figures 2.1 through 2.3 show IBRD lending by region, theme, and sector in fiscal 2002.
Table 2.1 shows the Bank's adjustment lending in 2000-02.
The International Development Association
IDA lending this fiscal year reached a record high of $8.1 billion for 133 operations, compared with $6.8 billion for 134 operations last fiscal year. (An IDA guarantee for $115 million was also approved for Uganda in fiscal 2002. This guarantee was not effective as of June 30, 2002.)
This robust lending program was driven by record lending to Africa and South Asia. Lending to Africa constituted nearly one-half of total IDA lending this year, with $3.8 billion financing 63 new operations. The largest borrowers in this region included the Democratic Republic of Congo ($500 million), Nigeria ($427 million), and Tanzania ($402 million). Lending to South Asia totaled $2.6 billion or about one-third of total IDA lending. The largest borrowers in this region were India at $1.3 billion and Pakistan at $800 million.
IDA's investment lending was strong at $5.6 billion, accounting for 70 percent of new commitments. This includes $100 million in IDA grants to Afghanistan to support emergency reconstruction, education, public administration, and community empowerment.
A significant portion of IDA lending supported operations in the social sectors where $2 billion financed 44 projects in the areas of education, health, social services, and water and sanitation. Lending in the area of public sector administration was also substantial this year at $1.6 billion for 34 operations, reflecting the focus on supporting IDA countries in their effort to establish the efficient and accountable public sector institutions needed for growth and poverty reduction. This emphasis was also reflected in the thematic breakdown, where lending in support of public sector governance featured prominently, along with lending in the area of financial and private sector development. Figures 2.4 through 2.6 show IDA lending by region, theme, and sector in fiscal
2002; table 2.2 shows overall IBRD and IDA lending by theme and sector for 1993-2002; and
figures 2.7 through 2.9 show overall IBRD and IDA lending by region, theme, and sector.
Figure 2.1 IBRD Lending by Region, Fiscal 2002
Share of total lending of $11.5 billion
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Figure 2.2 IBRD Lending by Theme, Fiscal 2002
Share of total lending of $11.5 billion
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Figure 2.3 IBRD Lending by Sector, Fiscal 2002
Share of total lending of $11.5 billion
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2.1 World Bank Adjustment Commitments, Fiscal 2000-02
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SPECIAL ASSISTANCE IN FISCAL 2002
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Accelerated Debt Relief
Significant progress was made in fiscal 2002 in providing increased debt relief to some of the world's poorest countries, many of them in Africa, under the Heavily Indebted Poor Countries
(HIPC) Initiative, which was proposed by the World Bank and International Monetary Fund
(IMF) and agreed to by the international community in 1996. It was the first comprehensive approach to reducing the external debt of the world's poorest, most heavily indebted countries, and represented a major advance by placing debt relief within an overall framework of poverty reduction.
Early promise established the basis for an even more dynamic approach, and in 1999 multilateral organizations, bilateral creditors, HIPC governments, and civil society worked together to create a deeper, broader, and faster initiative, providing more relief to more countries more rapidly.
Fiscal 2002 saw continued progress toward implementation of the HIPC Initiative, when four countries completed the initiative and three more countries qualified for assistance. Altogether, 26 countries are now receiving HIPC debt service relief that, under the current framework, is expected to amount to $41 billion from all creditors and to contribute to an overall reduction in debt stock of nearly two-thirds.
Notable progress was achieved in extending these benefits to countries emerging from conflict. Ethiopia and Sierra Leone received debt service relief, and preliminary work was commenced for the Democratic Republic of Congo and the Republic of
Congo. Work continues in this area, as most of the HIPCs yet to qualify for relief are conflict affected.
Work was also stepped up in HIPCs to help them address the challenges of maintaining external debt sustainability over the long term, particularly in light of the weakened global economy and the effects of declining commodity prices. In addition to identifying the potential costs of the economic slowdown, steps were taken to help strengthen capacity in the public sector in areas such as debt management and the administration of public expenditures. These are seen as critical to
ending the debt problem and establishing the foundation for successful poverty reduction strategies.
When fully implemented, the expanded HIPC Initiative is expected to cancel more than $50 billion in the debt service of some 34 countries. Arguably more important, it has created a strong and transparent link between debt relief and poverty reduction by leading to the adoption of nationally owned Poverty Reduction Strategy Papers
(PRSPs) as the basis of HIPC relief and concessional lending. HIPC debt relief is shown in
figure 2.10. Trends in social spending before and after HIPC relief are shown in
figure 2.11.
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Figure 2.4 IDA Lending by Region, Fiscal 2002
Share of total lending of $8.1 billion
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Figure 2.5 IDA Lending by Theme, Fiscal 2002
Share of total lending of $8.1 billion
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Figure 2.6 IDA Lending by Sector, Fiscal 2002
Share of total lending of $8.1 billion
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Argentina
The Bank will direct $100 million from undisbursed existing loans to meet Argentina's urgent social needs in health, education, and community development. The funds will provide for primary health care and essential medicines for mothers and infants, educational supplies for public schools, and funds for social work, community kitchens, and work with nongovernmental organizations
(NGOs) to administer the program.
Afghanistan
The Bank approved a grant of $10 million in direct budget support to the Interim Administration, and committed an additional $90 million in grant financing in fiscal 2002 for a series of reconstruction and capacity-building projects. It has proposed a further $470 million over two years beginning in fiscal 2003.
KNOWLEDGE SHARING
In fiscal 2002 the Bank continued to make effective use of knowledge to support the quality of its operations. Thematic technical units are charged with capturing the information the Bank and other institutions have acquired in their areas of specialty, and with using that knowledge to support the Bank's operations in countries. Each thematic group has a Web site providing access to important studies and information relevant to the topic, as well as specially commissioned
best practice papers designed to distill the Bank's unique experience in supporting projects in different countries.
Knowledge sharing with the Bank's clients and partners has led to participatory activities in which government officials, NGO and private sector representatives, and donor government colleagues become part of a team that builds programs with genuine ownership and commitment on the part of the client government. The Comprehensive Development Framework
(CDF) and PRSPs are products of this new way of working.
Ultimately, the success of national development efforts depends on the trained human resources and institutional arrangements available to carry them out. Supporting client countries to enhance their capacity to generate, access, and use knowledge from all sources is central to the Bank's mission of poverty reduction.
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The Bank's approach to creating, sharing, and applying knowledge helps it to leverage its IBRD and IDA lending activities for a greater impact on development. Traditional analytical and advisory services include economic and sector work
(ESW) and nonlending technical assistance. ESW, the Bank's main analytical and advisory product line, provides the basis for the Bank's policy dialogue with clients, the development of country strategies, and the formulation and implementation of effective lending programs. Nonlending technical assistance encompasses capacity-building efforts conducted jointly with clients. As the main analytical and advisory tool, the ESW program is closely monitored by the Bank.
In fiscal 2002, 457 products were delivered for country clients, compared with 335 in fiscal 2001. Of these, about 90 were core diagnostic reports, such as poverty assessments, country economic memoranda and development policy reviews, public expenditure reviews, country financial accountability assessments, and country procurement assessments. These support the Country Assistance Strategies
(CASs), Poverty Reduction Support Credits (PRSCs), and other adjustment lending. They also facilitate policy dialogue with clients.
Public sector governance had the largest share (25 percent) of the total ESW output in fiscal 2002, followed by economic management and financial and private sector development (15 percent each). Financial and private sector development, social protection and risk management, and human development reports provided the diagnostic bases for project design and country programming. Europe and Central Asia delivered 26 percent of the program, followed by Africa with 22 percent, and East Asia and Pacific with 16 percent. Country reports were supplemented by regional reports focusing on issues such as human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS), rural and urban poverty, public expenditure management, gender, and labor.
The high commitment to public sector governance reflects the importance the Bank attaches to issues such as public expenditure management, financial management, corruption, procurement, civil service reform, and decentralization.
The Bank has worked with partners to divide responsibility for some diagnostic ESW at the country level, and to enable joint preparation and wider dissemination of the diagnostic work. Particular emphasis in fiscal 2002 was placed on trade, the investment climate, the
MDGs, cross-country benchmarking, and basic service delivery (to be examined in World Development Report 2004). Joint programs are being carried out between the Private Sector Development and Infrastructure Network and the Development Economics and Data Group
(DECDG) on trade, the Human Development Network and DECDG on the MDGs, and among the Poverty Reduction and Economic Management Network, the World Bank Institute
(WBI), and DECDG on PRSPs and other cross-sectoral issues.
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Figure 2.7
Total IBRD-IDA Lending by Region, Fiscal 2002
Share of total lending of $19.5 billion
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Figure 2.8
Total IBRD-IDA Lending by Theme, Fiscal 2002
Share of total lending of $19.5 billion
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Figure 2.9
Total IBRD-IDA Lending by Sector, Fiscal 2002
Share of total lending of $19.5 billion
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FINANCIAL SECTOR ASSESSMENT PROGRAM
The IMF and World Bank have put in place the joint IMF-World Bank
Financial Sector Assessment Program (FSAP) following the East Asian
crisis of the late 1990s. The objective is to help countries
strengthen their financial systems and institutional infrastructure.
The program aims to improve the resiliency of national and
international financial markets through in-depth assessments of the
strengths, risks, and vulnerabilities of countries' financial systems.
The Bank's contribution focuses on the financial sector's
institutional infrastructure and its ability to support broad-based
inclusive development.
Twenty-one countries participated in the FSAP in fiscal 2002. FSAP
reports were delivered this year to 12 countries, and Financial Sector
Assessments for seven countries were delivered to the Bank's Executive
Directors.
A total of 55 countries will have participated in the program between
its launch in May 1999 and the end of fiscal 2002. Between the
inception of the program and the end of January 2002, over 190
standards assessments have been conducted, drawing on 157 experts from
127 cooperating official institutions.
THE WORLD BANK'S RESOURCES
The Bank's resources in fiscal 2002 were drawn from member country
shareholder equity and funds raised in international capital markets.
The International Development Association
Fiscal 2002 was the third year of the 12th Replenishment of IDA
(IDA12). This replenishment provided IDA with resources to fund
credits committed during the period July 1, 1999, to June 30, 2002.
Forty-one countries are now IDA donors. Historically, donor
contributions have been determined based on countries' relative
economic strengths and on their commitment to poor countries, and as
such the major industrial nations have been the largest contributors
to IDA. Nevertheless, donor nations also include developing and
transition countries some of them IBRD borrowers and former IDA
borrowers such as Argentina, Brazil, Hungary, the Republic of Korea,
the Russian Federation, and Turkey. (For a complete list of IDA
donors, see IDA's Special Purpose Financial Statements of the World
Bank Annual Report 2002: Volume 2, Financial Statements and
Appendixes.) IDA's financial strength is based primarily on the strong
and continued support of its donors, as well as on repayments of past
credits. This year concluded the IDA13 negotiations in which
representatives from donor countries agreed on a framework for the
projected IDA13 program and associated financing needs. IDA13 will
make possible the commitment of special drawing rights (SDRs) of 18
billion (about $23 billion) to poor IDA members over the next three
years, including approximately SDR 10 billion (approximately $13
billion) from new donor contributions. Within the IDA13 framework,
donor representatives adopted a program for the increased use of IDA
grants to help address the special difficulties faced by the poorest
and most vulnerable countries. The framework also provides for the
establishment of a results-based measurement system to link IDA
programs to countries' development outcomes. This year the
replenishment discussions were opened up to representatives of
borrowers and civil society, and background documents were made
publicly available on the Bank's Web site. Figure 2.12 shows the
sources of IDA's funding over the last three replenishments.
Figure 2.10
Heavily Indebted Poor Countries Debt Relief Reduced Debt Stock
and Improving Debt Service Ratios
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Figure 2.11
Trends in Social Spending before and after Assistance under the Heavily Indebted Poor
Countries Initiative
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The International Bank for Reconstruction and Development
As part of its regular financing operations IBRD raised $23 billion at
medium- to long-term maturities in international capital markets in
fiscal 2002. This funding volume was above the $17 billion raised in
fiscal 2001. IBRD issued loans in 10 currencies, with a wide range of
maturities and structures in fiscal 2002. Product diversification
helps IBRD to expand its investor base and to reduce lending rates on
its loans. IBRD's financial strength is based on the support it
receives from its shareholders and on its array of financial policies
and
practices.
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Figure 2.12 Sources of IDA Funding
(billions of dollars)
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Figure 2.13 Net Return on Assets
(percent)
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IBRD Financial Strength. IBRD's net income in fiscal 2002 was $2,778
million. IBRD retained $1,291 million out of operating income in its
general reserve-higher than the previous year, when $618 million was
retained-in keeping with IBRD's strategy to preserve long-term
financial strength and support other development needs. IBRD
maintained adequate liquidity in fiscal 2002 to ensure sufficient cash
flow to meet its obligations. As of June 30, 2002, the liquid asset
portfolio was $25 billion.
Managing Returns to Maintain Strength. As a cooperative institution,
IBRD does not seek to maximize profit but to earn a return on assets
sufficient to ensure its financial strength and sustain its
development activities on an ongoing basis. IBRD achieves a net return
on assets of about 1 percent per year. In fiscal 2002 the net return
on assets recovered to the 1 percent level after declining below 1
percent in fiscal 2001 as a result of an increase in the provision for
loan loss. Figure 2.13 shows the net return on assets for 1998-2002.
Managing Risk. Consistent with its development mandate, IBRD's main
financial risk is the credit risk of its loan portfolio. This risk is
closely managed. IBRD keeps its exposure to market risk quite limited.
Some market risk arises due to movements in market variables, such as
interest rates and exchange rates. IBRD's equity-to-loans ratio is a
summary measure of its risk-bearing capacity. The ratio is
conservatively managed in light of IBRD's financial and risk outlook.
Figure 2.14 shows the equity-to-loans ratio as of June 30, 2002.
Achieving Efficient Intermediation. IBRD enjoys an exceptional
franchise in capital markets, reflecting the capital commitments of
its sovereign shareholders and the preferred creditor status accorded
by its borrowing members which provide it a high credit rating (AAA)
and allow it to borrow for long maturities on favorable terms. This is
reflected in the relatively low cost basis of its new lending; an
average spread of about 34.6 basis points (1 basis point equals 0.01
percent) below London Inter Bank Offered Rate (LIBOR) in fiscal 2002;
and the high volumes it can intermediate relative to its paid-in
capital and retained earnings. In fiscal 2002 the Bank's outstanding
borrowings from capital markets was in excess of $110 billion, while
its total disbursed and outstanding loans were about $123 billion.
This was about five times the size of its equity. Figure 2.15 shows
the Bank's borrowings and investments as of June 30, 2002. Table 2.3
shows select IBRD financial data for fiscal 2001 and 2002.
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DISTRIBUTION OF IBRD'S NET INCOME
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IBRD's net income serves several purposes related to the Bank's mission.
A portion of net income is retained annually to ensure IBRD's financial integrity. The general reserve allows IBRD to assume credit risk in lending to countries at the lowest funding
costs which in turn benefits borrowers. Income retention has enabled IBRD to maintain financial soundness through past periods of both deteriorating loan quality as well as surging loan demand.
Support to IDA has consistently been a priority. Over the last five years $1.622 billion (or about 24 percent of IBRD's net income) has been transferred to
IDA.
Support for the HIPC Initiative has also been important. Over the past five years transfers to the HIPC Trust Fund have amounted to a total of about $890 million, averaging about 13 percent of annual IBRD net income.
IBRD's net income helps meet other development needs from time to time. It enables IBRD to respond to unforeseen humanitarian crises and provide grants or other support for worthy causes. IBRD also regularly shares income with its borrowing members through partial waivers of the interest and commitment fees it contractually charges on its loans.
Financial strength and standing in the markets allow IBRD to leverage its equity by five times in the international bond markets. This leverage increases IBRD's ability to lend for development
activities. Figure 2.16
shows the proposed allocation of the Bank's net operating income.
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Figure 2.14 Equity-to-Loans Ratio as of June 30, 2002
(percent)
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Figure 2.15 Borrowings and Investments as of June 30, 2002
(billions of dollars)
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Figure 2.16 Proposed Allocation of Fiscal 2002 Net Operating Income of $1.9 billion (millions of dollars)
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Table 2.3 Select IBRD Financial Data
(millions of dollars)
WORLD BANK COFINANCING
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The Bank's cofinancing partners include regional development banks and public and private sector organizations.
The Bank's cofinancing figures reflect the combination of the Bank's resources with those of other donors for projects in specific regions and sectors.
Cofinancing in fiscal 2002 amounted to $4.7 billion. Major partners included the Inter-American Development Bank (IADB), the African Development Bank, the Global Environment Facility (GEF), and the Japan Bank for International Cooperation.
The Latin America and the Caribbean region accounted for the largest share of cofinancing in fiscal 2002 ($2.3 billion), followed by the Africa region ($1.3 billion) and the Middle East and North Africa region ($0.4 billion).
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Examples of Cofinancing in Fiscal 2002
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total of 109 projects were cofinanced by the Bank and its partners
in fiscal 2002. Examples of projects with significant cofinancing
include:
The Ghana Road Sector Development Project, which leveraged $745 million from 13 donor agencies.
The Colombia Structural Fiscal Adjustment Loan which was cofinanced by the IADB for $400 million.
The
Tunisia ECAL III Project, which was cofinanced by the African
Development Bank for $194 million and the European Commission,
through the Europe Aid Co-operation Office, for $72 million.
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shows the ratio of total cofinancing to
World Bank lending.
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TRUST FUND HIGHLIGHTS
Trust funds, which are accounted for separately from the Bank's own resources, are financial and administrative arrangements with external donors that lead to grant funding of high-priority development needs, including technical assistance and advisory services, debt relief, postconflict transition, and cofinancing. Trust funds help the Bank leverage its poverty reduction programs by funding key due diligence activities for development operations, promoting innovative approaches for projects, forging partnerships, and expanding the scope of development collaboration.
Ratio of Total Cofinancing to World Bank Lending
They enable the Bank to complement and strengthen investment activities by breaking new ground with research and accessing a broad international knowledge base.
In fiscal 2002 management and the Board conducted a review of the cost-effectiveness and risk implications of managing a large and complex trust fund
portfolio. Major new programs were funded, a series of focused audits and reviews were conducted, and reform initiatives for streamlining the channels of assistance, prioritizing proposals, and enhancing the control environment are well under way. These initiatives are expected to help ensure that the trust fund program is well managed and closely aligned with the Bank's overall strategy.
The Bank's trust fund program expanded in fiscal 2002. Trust fund assets rose from $4.38 billion to $5.34 billion (22 percent). The disbursements totaled $1.93 billion, an increase of $0.08 billion, or 5 percent. The contributions received from donors totaled $2.61 billion, a decrease of $0.11 billion, or 4 percent. The five largest donors were the United States ($640 million), Japan ($316 million), the Netherlands ($268 million), the World Bank Group ($222 million), and the United Kingdom ($187 million), accounting for 62 percent of all contributions. Disbursements on five major
programs HIPC ($758 million), GEF ($225 million), the Policy and Human Resource Development Fund ($85 million), the Consultative Group on International Agricultural Research ($82 million), and the Ozone Trust Fund ($50
million) totaled $1.20 billion, or 62 percent of total disbursements.
Accounting Policy
The trust fund financial information provided in the preceding paragraph reflects contributions on an accrual basis for the HIPC Trust Fund and on a cash basis for all other trust funds. Disbursements for all trust funds, including the HIPC Trust Fund, are reported on a cash basis.
Major New Programs
Responding to the emerging challenges, the donor community agreed to establish several major new trust fund programs for Bank administration during fiscal 2002. These included the Global Fund for AIDS, Tuberculosis, and Malaria; the Afghanistan Reconstruction Trust Fund; the Nile River Basin Trust Fund; The Eastern Greater Great Lakes Trust Fund; the Knowledge for Change Trust Fund; the Trust Fund for Capacity Building for Poverty Reduction Strategies in Low-Income Countries; and the Financial Sector Reform and Strengthening Initiative.
Donor Consultations on Policy Reforms
The Bank initiated a series of consultations with the trust fund donors to review audit results, propose standardizing the terms of trust fund agreements, and discuss policy reforms for ensuring the alignment of priorities. The focus of the policy reforms is on Consultant Trust Funds and Single-Purpose Trust Funds supporting Bank lending development and analytical work.
TRUST
FUND REFORMS
The Bank also initiated a series of internal reforms to improve the control environment and reporting. These reforms included organizational changes, such as the strengthening of the donor-relations function and the establishment of a separate compliance unit, as well as complementary system enhancements for the financial accounting and reporting on trust funds.
Another measure to enhance donor relations was the establishment of a Web-based donor center that provides access to trust fund information on a
real time basis. In addition, a trust fund awareness campaign, reaching about 1,000 staff and managers, was implemented, and a Trust Fund Learning and Accreditation Program is being developed to ensure that staff are trained in all aspects of trust fund management.
Figure 2.18 Contributions to Bank-Administered Trust Funds, Fiscal 1998-2002
(millions of dollars)
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Figure 2.18 Shows contributions to Bank-administered trust funds in fiscal
1998-2002.
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FRAMEWORK FOR THE WORLD BANK'S ASSISTANCE
In fiscal 2002 the Bank moved to implement its Strategic Framework worldwide. In the past year the Bank has developed and communicated its strategy, approach, and priorities, establishing many of the procedures and tools needed to translate those broad directions into concrete actions at the country and global levels. The March 2002 Strategy Update Paper for fiscal 2003-05 focused on the evolution from strategy development to implementation and results. The corporate priorities can now be more accurately monitored because of the new system of identifying and coding bank lending activities.
Selectivity and Alignment
The ongoing process of managing priorities is done within the three-level framework for selectivity within countries, across countries, and at the regional and global level. Selectivity within countries combines a comprehensive analysis with a selective set of program activities based on the client's priorities, the Bank's comparative advantage, and the comparative advantage of its partners. Sector Strategy Papers (SSPs) are linked closely to the PRSPs and CASs. They can further evolve into outcome documents with a strengthened focus on results.
The key criteria guiding the Bank's selectivity across countries are poverty and performance, focusing its lending on countries where the overall policy environment favors aid effectiveness and where the Bank's presence will have a high impact. To address the needs of countries with weak institutions and poor policy environments where development assistance is urgently needed but likely to have little impact, the Bank is exploring ways to adapt its assistance instruments to countries' specific needs. Corporate advocacy priorities help the Bank to incorporate the twin pillars of its development strategy into its country level work. Selectivity at the global level reflects the Bank's global public goods priorities: communicable diseases, the environment, trade and integration, information and knowledge, and international financial architecture. The Bank's Global Public Goods Incentive Fund, launched in 2001, helped to achieve a stronger link between global and country programs.
Box 2.2 describes the Bank's CDF.
COUNTRY ASSISTANCE STRATEGIES
The World Bank prepares a CAS for each of its borrowing members in consultation with the government, civil society organizations such as private nonprofit organizations, and other development agencies. The purpose of the CAS is to set out a Bank Group program of lending and advisory services linked to a country's development
strategy. Where there is a PRSP, CDF, or other country-led process in place, it provides the general framework for the Bank's CAS. Beginning in fiscal 2003, the Bank expects that all new CASs for IDA-borrowing countries will normally be based on a PRSP. To facilitate this alignment, the Bank has generally updated its strategy in a CAS progress report pending the PRSP completion.
In fiscal 2002 the Board discussed 34 CAS products, including the first regionally integrated assistance strategy for 15 countries in West Africa, and 5 transitional support strategies for
post conflict countries such as Afghanistan, Burundi, and the former Yugoslav Republic of Macedonia. In fiscal 2002, 18 CAS documents were prepared jointly with IFC, underscoring the importance of private sector investment in these countries' economies.
Significant progress has been made on CAS disclosure. All fiscal 2002 CAS documents (except one, which is pending) have been or are in the process of being disclosed. (See
www.worldbank.org/cas.) Also, in calendar 2002 disclosure was extended to include the Chairman's Concluding Remarks to Board discussions for CAS documents that are disclosed. The Bank is also piloting the disclosure of information on CASs that are under preparation.
In fiscal 2002 a draft CAS retrospective study found that their quality continues to improve, with noticeable progress in the treatment of poverty, gender, governance, private sector, and financial sector issues. Nevertheless, some areas need strengthening. Developing practical performance monitoring and evaluation frameworks remains a major challenge.
SUPPORT TO LOW-INCOME COUNTRIES
The PRSP approach offers a new opportunity for development strategy
and development assistance to be grounded in a broad-based and country-owned process. PRSCs are designed to support this approach in countries with good policies and sound public institutions. PRSCs have been approved this year for Albania and Burkina Faso. Recent discussions with representatives from PRSP countries, development partners, and civil society organizations reinforced the importance of adapting PRSP processes to specific country circumstances, setting realistic priorities and targets in country-owned PRSPs, and supporting their implementation through improved harmonization of donor policies.
The Bank's rural enterprise project in Uzbekistan will support newly created private sector farming initiatives and result in improved farm productivity and profitability.
BOX 2.2 STRENGTHENING THE COUNTRY BUSINESS MODEL: THE COMPREHENSIVE DEVELOPMENT FRAMEWORK
The CDF is the approach the Bank has adopted for its work at the country level. It fosters more effective and sustained poverty reduction by working according to four key interrelated principles: a long-term holistic development agenda; broad-based country ownership, where countries identify priorities; a country-based partnership; and accountability for development results. The CDF enables each country to take charge of its development process in a manner that reflects a broad national consensus, beyond government alone. There is beginning to be a more inclusive role for civil society in such policy discussions, and there is good progress in engaging a wide range of external as well as internal partners in a country's strategy formulation. This approach has been widely accepted by developing countries and major development partners' the U.N. system, the multilateral development banks (MDBs), the European Commission, and bilateral donors. These key partners are taking concrete steps to achieve better alignment of their assistance strategies with nationally owned country strategies.
The CDF principles form the basis for PRSPs. Nearly 50 low-income countries around the world are pursuing the CDF approach explicitly through the PRSP. Many middle-income countries have also embarked on the CDF approach. To support CDF implementation, staff at the Bank, as well as other external partners, recognize country priorities and form partnerships to maximize the impact of the development effort. For the Bank's clients in the future, there are two particular challenges: to further improve participatory approaches that ensure better engagement of key constituencies, such as the poor, the sectoral ministries, the private sector, and parliaments; and to develop the national and institutional capacities to monitor and evaluate policy reforms and their impact in relation to country-specific targets, using the MDGs as a frame of reference. Harmonizing external partners' strategies, policies, and procedures, both at the institutional level and the country level, is an additional challenge for all partners (see
www.worldbank.org/cdf for more details on the latest CDF progress report).
SUPPORT TO MIDDLE-INCOME COUNTRIES
Faced with a different set of development challenges, Middle-income countries continue to seek Bank services to enhance their debt/risk management flexibility and to improve their institutional capacity for designing and implementing economic and sector reforms. Following the recommendation of the 2001
middle-income country task force, the Bank now emphasizes the complementary role of advisory services and has improved its lending instruments to meet the dynamic needs of middle-income countries. For example, a deferred
drawdown option for adjustment loans was approved by the Board, and the corresponding instrument became available to clients during the fiscal year. The Bank has also introduced new financial products, including variable-spread single currency loans,
fixed-spread loans, and local currency loans, which provide more flexible options for both low- and
middle-income clients.
SECTOR STRATEGY PAPERS
SSPs help organize the Bank's work on global priorities such as disease eradication and the environment. They are a launching point for promoting public action at the global level, pulling together global programs and partnerships, and providing incentives for client countries to take
action. More generally, SSPs help shape the Bank's approach and activities in a given sector or thematic area in order to enhance the impact on growth and poverty reduction. SSPs also lay out strategic options for sector and thematic areas, identifying aspects of relatively weak country performance for priority attention. They are developed with broad stakeholder consultation, and their implementation is regularly monitored.
In fiscal 2002 the Bank reviewed four SSPs, covering the areas of environment, gender, information and communications, and private sector development. The titles of the SSPs include "Making Sustainable Commitments: An Environmental Strategy for the World Bank Group"; "Integrating Gender into the World Bank's
Work A Strategy for Action"; "Sector Strategy Paper: Information and Communications Technologies"; and "Private Sector Development Strategies: Directions for the World Bank Group."
PARTNERSHIPS FOR DEVELOPMENT
Partnerships, as a way of doing the Bank's business, have grown dramatically over the past 10 years. The Bank has recognized the importance of tracking the number of partnerships, the amount of administrative funds involved, and the flow of managed funds through partnerships. In recognition of the potential risks, the Bank established explicit criteria for partnerships in fiscal 2001. In fiscal 2002 the Partnership Approval and Tracking System was put in place to provide centralized information on the Bank's regional and global partnerships. The Bank's partnership with the Development Gateway Foundation is described in
Box 2.3.
World Bank Institute: A Partnership for Knowledge and Learning
WBI, which supports the Bank's learning and knowledge agenda, fosters a wide range of institutional partnerships, including 20 bilateral donors, over 100 training and content
partners, more than 40 private sector and foundation partners, and 16 international, regional, and national institutions.
In the past year WBI has expanded its partnerships with the IMF and the U.N. Development Programme
(UNDP). WBI worked with the IMF on PRSP learning events and on other programs at two regional institutes: the Joint Africa Institute (Abidjan, Côte d'Ivoire) and the Joint Vienna Institute (Austria). WBI has worked closely with UNDP to develop
capacity building strategies and policies, and contributed substantially to the UNDP publication Capacity for
Development New Solutions to Old Problems, a major book launched at the Financing for Development Conference in Monterrey, Mexico, in March 2002.
The Global Development Learning Network (GDLN), a rapidly expanding network of
distance learning centers, uses videoconferencing and other technologies to share learning activities worldwide. Thirty-seven GDLN sites are now operating, and an additional 42 are under development. In China the distance-learning center hub in Beijing is linked with a regional center in Ningxia via a high-speed fiber network: the China Education and Research Network is creating a network of networks, reaching out to universities throughout China. WBI's partnership with TEC de Monterrey in Mexico also provides access to more than 500 downlink points in Latin America and the Caribbean.
Some WBI partnerships focus on specific topics. For example, the Clean Air Initiative, which advances innovative ways of improving air quality in cities around the world, involves a wide range of partners including city governments, automobile companies, and donors. A distance-learning course on clean air was delivered through the Inter-American Educational Television Network's 500 affiliates in Latin America.
Several partnerships are aimed specifically at enhancing the capacity of regional learning organizations. The African Virtual University
(AVU), headquartered in Nairobi, is one of these. In fiscal 2002 AVU strengthened the information technology capabilities at its 31 partner universities throughout Africa and is preparing for the launch of accredited diploma and degree programs by the end of calendar year 2002.
Box 2.4 provides a list of knowledge sharing and partnership Web sites.
United Nations
The Bank's relationship with the United Nations has advanced as a fundamental business partnership this past year. The common ground, underpinned by a comprehensive development agenda and the
MDGs, evolved during 2001-02 as a consequence of the International Conference on Financing for Development preparation process, complemented by the work to link economic, social, and environmental issues in the World Summit on Sustainable Development. These solid building blocks have encouraged creation of stronger platforms to support country efforts to create poverty reduction strategies, and to harmonize operational issues with the U.N. Development Group. In addition, the two institutions are revitalizing their joint work on conflict prevention and reconstruction, two areas in which the Bank, the United Nations, and other partners share a common challenge of helping countries that are faced with the special needs associated with conflict.
At the global level, innovative efforts to work together are embedded in such initiatives as joint work to address the challenges of communicable diseases (Global Fund to Combat
AIDS, Malaria, and Tuberculosis, and the World Health Organization's Commission on Macroeconomics and Health), joint exploration of linkages between economic development and human rights, and joint efforts to accelerate Education for All action.
The Bank is involved in interagency groups including the Chief Executives Board of agency heads within which issues of coherence, coordination, and strategy have emerged as part of learning and working with the U.N. system as a whole.
Management and staff continue to participate in intergovernmental processes and with agency governing bodies to build engaged, proactive, and
forward looking partnerships across the United Nations.
BOX 2.3 THE DEVELOPMENT GATEWAY FOUNDATION
The Bank has played a major role in launching the Development Gateway Foundation, an independent, nonprofit organization that combines public and private support for a variety of efforts geared toward addressing the digital divide. The core mission of the Foundation is to reduce poverty and support sustainable development through the use of information and communication technologies
(ICT).
In addition to the World Bank, Founding Members of the Foundation include the governments of Australia, China, Germany, India, Italy, Japan, the Republic of Korea, Mali (sponsored by the Netherlands), Pakistan, and Rwanda. Founding Members contribute at least $5 million (in cash or in kind) over a three-year period.
The Foundation is moving forward in four key areas: the Development Gateway portal, an interactive portal facilitating access to information and knowledge on development and poverty reduction; the Network of Research and Training Centers with hubs in the developing world, designed to exchange ideas and test information and technology applications that will benefit the poor; an ICT Development Forum for debate and knowledge sharing on key issues, and for promoting partnerships between civil society and the public and private sectors; and the Grants and Investments Program, designed to support innovative projects and programs that bridge the digital divide at the local, national, regional, and global levels.
The Foundation held its inaugural meetings in December 2001 and its second meeting in April 2002. (See
www.dgfoundation.org.)
Multilateral Development Banks
Collaboration with MDBs such as the African Development Bank (see
www.AfDB.org), the Asian Development Bank (see
www.ADB.org), the Inter-American Development Bank (see
www.IADB.org), and the European Bank for Reconstruction and Development (see www.EBRD.com) intensified significantly, particularly in the aftermath of September 11.
The presidents of the MDBs had regular consultations, leading to coordinated responses to the global economic downturn and specific country issues and issued a joint statement on October 5, 2001. Building on established operational cooperation, now supported by memoranda of understanding between the Bank and most of the regional development banks, and on work done to harmonize operational policies and procedures, the MDBs embarked on a major new
initiative - a collaboration on results-based management, including development of outcome indicators in country operations.
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A jointly hosted
roundtable, "Measuring,Monitoring, and Managing for Results," brought together developing- and industrial-country representatives, bilateral and multilateral institution representatives, and academics to discuss challenges in results-based approaches and next steps to be taken jointly. They issued a joint statement on March 19, 2002, in Monterrey. In joint reports, MDBs articulated their role on the provision of global public goods and analyzed global poverty and progress toward the MDGs, with a special focus on
Africa. Work on harmonization of policies and procedures, involving MDBs and the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC), progressed according to an agreed-on action plan endorsed by the Bank's Development Committee.
Organisation for Economic Co-operation and Development
The partnership with OECD has deepened and broadened considerably in recent years, with the objective of maximizing complementary activities and synergies and minimizing duplication. Collaboration with the organization's DAC has been an especially important focus of this partnership. DAC provides a forum for OECD members to achieve, as bilateral donors, greater coherence and convergence in their development programs. The DAC Guidelines on Poverty Reduction have been the basis for the remarkable degree of convergence and consensus among the bilateral donors for the CDF-PRSP approach, who have expressed an intention to align aid programs within the PRSP framework and to untie their aid to least-developed countries. Beyond low-income countries, the Bank collaborates with the OECD on a broad agenda including trade, environment, corporate governance, anticorruption, and the digital divide. A partnership of the OECD, Bank, and IMF initiated the establishment of an International Tax Dialogue to facilitate discussions and experience sharing among government officials responsible for tax policy and administration, to the benefit of developing and industrial countries alike.
BOX 2.4 WEB SITES: KNOWLEDGE SHARING AND PARTNERSHIPS
Knowledge Sharing
Attacking poverty: www.worldbank.org/wbi/attackingpoverty
Country Analytic Work:
www.countryanalyticwork.net
Development Forum:
www.worldbank.org/devforum
Development Gateway (focus on poverty
reduction): www.developmentgateway.org
Global Development Learning Network:
www.gdln.org
Global Knowledge Partnership:
www.globalknowledge.org
Information for Development Program:
www.infodev.org
Knowledge Sharing: www.worldbank.org/ks
World Links for Development (technology in education): www.worldbank.org/worldlinks
Thematic Topic-Focused Partnerships
Clean Air Initiative:
www.worldbank.org/wbi/cleanair
www.worldbank.org/wbi/airelimpio
www.worldbank.org/wbi/arlimpo
Health Flagship:
www.worldbank.org/wbi/healthflagship
HIV/AIDS: www.worldbank.org/wbi/aidsleadership
World Business Council for Sustainable
Development Virtual University: www.wbcsd.ch
Regional Capacity-Building Partnerships
African Capacity Building Foundation:
www.acbf-pact.org
African Virtual University: www.avu.org
Joint Africa Institute: www.ima-jai.org
Joint Vienna Institute: www.jvi.org
Mediterranean Development Forum:
www.worldbank.org/wbi/mdf
International Monetary Fund
Cooperation between the World Bank and IMF intensified in fiscal 2002. The two institutions made substantial progress in approving debt relief for heavily indebted poor countries under the HIPC Initiative. The executive boards approved debt reduction packages for 16 countries and discussed the poverty reduction strategies of 29 countries. In the context of their cooperation, each organization is concentrating on its area of comparative advantage: the IMF is responsible for the dialogue with country authorities on macroeconomic and related structural issues, while the World Bank takes the lead on social and structural issues. In August 2001 the Boards of the Bank and Fund agreed to strengthen Bank-Fund collaboration on country programs and conditionality. The strategy is intended to strengthen collaboration between the two institutions throughout the country program cycle through early collaboration, clear delineation of responsibilities by designating the lead agency, and transparent reporting in Board documents of each institution's views. Nonetheless, each institution remains ultimately accountable for its own lending decisions and for safeguarding its resources. Under the PRSP framework for low-income countries supported by the Fund's Poverty Reduction and Growth Facility, the Bank and Fund are expected to work closely together to support the implementation of a common country strategy while focusing their efforts on their respective areas of responsibility. For middle-income countries there will be a need for greater flexibility to accommodate variations in country circumstances, but benefits are expected from improved coordination and information sharing between the Bank and the Fund.
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