A composite index of quality, combining all three QAG quality indicators, shows a 90 percent satisfactory rating for fiscal 2002, a very solid advance on the first set of assessments for fiscal 1998 that showed a 79 percent satisfactory rating. There was some slippage this fiscal year on one important indicator, quality-at-entry, which was rated 86 percent satisfactory. The most significant deterioration was in the quality of project implementation arrangements, which can critically affect the chances of projects achieving their development objectives. The QAG exercises identified other points of vulnerability: monitoring and evaluation arrangements, risk assessment, and realism and candor in reporting.

Riskiness, a measure of the likelihood of reaching development objectives, is a central portfolio indicator. A key message, agreed on with the Board, is that there is an optimal level of this indicator, one that balances innovation and calculated risk taking with concerns for fiduciary responsibility. A “balanced” Bank portfolio implicitly must often contain projects deemed “risky.” For fiscal 2002, using an enhanced set of leading indicators that QAG hoped would correct for some possible overestimating in recent years, projects-at-risk rose to 19 percent of the active portfolio, comfortably within the target range of 15–20 percent. These results were judged to be in part the result of more candid reporting, but QAG also notes that even greater realism is needed in these assessments. Over the last decade improvements in this measure of development impact imply that some $10 billion more of Bank-supported projects are meeting their goals.

A high level of riskiness is inherent in the development process. This reflects the continuing reality of frequently difficult global and regional economic conditions, including those in several large borrowing countries. Over the years, crisis-related lending has increased, with the Bank joining international assistance packages, often in partnership with the International Monetary Fund. There has been an increase in the estimated riskiness of the adjustment lending portfolio; this is judged to reflect crisis context and often sensitive country circumstances rather than poor preparation or supervision.

Although supervision was rated 85 percent satisfactory, the “Quality of Supervision” report suggested that Bank staff sometimes do not pay sufficient attention to the riskier elements of the portfolio, which often makes it difficult to remedy project deficiencies during implementation. The report suggested that incentives for seasoned managers and staff to work on risky projects—and in more vulnerable countries—need to be improved.

Over the past two years QAG has been adding a more integrated and client-focused dimension to its work. Based on a pilot program in 2002, QAG is now carrying out a baseline assessment of the quality of support provided by each sector board to the operations of the Bank. It has just completed a pilot program to assess the quality of analytical support and policy advice provided to a country across a full CAS cycle. The forthcoming “Annual Review of Portfolio Performance” will add a results dimension to its assessment of the overall portfolio.

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Figure 3.9: Active Project Portfolio by Region as of June 30, 2003 -- Share of total lending of $96.8 billion