Section Two
World Bank OperationsIncreasing Development Effectiveness
Increasing development effectiveness is the absolute priority of today's World Bank. For only by increasing the effectiveness of what the Bank does can its goals--reducing poverty and fostering sustainable development--be met.
To enhance the quality and impact of its operations, the Bank gave heightened priority in fiscal 1996 to meeting client needs more effectively, improving the quality of new operations entering the portfolio, improving portfolio management, measuring the performance and development effectiveness of its activities, and feeding back the lessons of experience into new initiatives.
Actions taken by the Bank during the year and, in fact, since the publication in fiscal 1993 of the report of the Task Force on Portfolio Management, are in line with the recommendations of the Development Committee's Task Force on Multilateral Development Banks, which, in April 1996, strongly endorsed the need to instill an organizational culture based not on approvals but results, and not on the quantity of lending but on the developmental impact of loans and other services.
In pursuit of efforts to improve development effectiveness, the interface between the executive board and Bank management improved through the work of the board's Committee on Development Effectiveness (CODE). This committee addresses issues--including operational policy and portfolio-management issues--that have an important bearing on the relevance, efficiency, and effectiveness of the Bank Group's operations, and it monitors the implementation of board decisions on these issues. The committee oversees the work of the independent Operations Evaluation Department (OED) and the responses of Bank management to evaluation findings and recommendations, so as to identify policy issues for consideration by the board. Within the forum offered by CODE, fiscal 1996 saw an intense process of debate and decisionmaking; while maintaining their distinctive institutional roles and perspectives, the CODE, Bank management, and OED initiated a collaborative process aimed at creating a learning culture in the Bank and shaping organizational change to make the Bank more responsive to the needs of clients and more accountable for results on the ground.
Meeting client needs. During fiscal 1996 the Bank made considerable progress in focusing its country-assistance strategies (CASs) more clearly on clients' specific needs, both for lending and for advice, and in linking its budget decisions more closely to the goals of these strategies. More systematic efforts were made to ensure that the CASs reflected the views of interest groups likely to be affected; Bank resident missions played a larger role in organizing opportunities for discussion with, and feedback from, key stakeholders.
Fundamental to the Bank's ability to meet client needs more effectively were the steps taken in fiscal 1996 to improve management. The president strengthened the functions of senior management, assigning direct line responsibilities to five managing directors. The two managing directors for operations have given priority to lightening the process burden and reducing reviews, giving operational staff more time and scope to focus on results "on the ground." Efforts to lighten processes, reduce reviews, and delegate responsibility are not without risks to quality. But Bank management is convinced that quality resides in its staff, that reliance on lengthy documentation and multiple reviews provides false comfort, and that the key to improved quality lies in reformed personnel incentives, enhanced skills, and tightened management.
In discussions with the executive board and CODE, Bank management sought to signal a break with the past by more thorough reporting on the status of the lending program, the quality of portfolio management, disbursement performance, and nonlending services, as well as on the implementation of management responses to recommendations from the Operations Evaluation Department. In the same vein, the CODE agreed to review with top management specific examples of significant project restructuring and country-portfolio performance reviews, so that all parties can better understand the management issues.
Business-innovation programs are now under way in all the Bank's regional offices. In the Africa region, changes in organization are designed to make operational approaches more responsive to clients' differing needs and differing levels of commitment to poverty reduction, economic reform, and better debt management. Measures are being implemented to simplify work processes and make lending and economic and sector studies more timely and responsive to needs. In East Asia and Pacific, work priorities and resources are being redirected from middle- to low-income countries, and operational processes have been accelerated. The South Asia region is increasing its focus on social and environmental risks. Borrowers' increased responsibility for project preparation and implementation has helped to increase development effectiveness and reduce costs.
In the Europe and Central Asia region, a major effort is in progress to strengthen portfolio implementation and improve rates of loan disbursement. The region is reducing its unit costs of lending and is making its economic and sector studies more succinct and better focused. Resources freed by these efforts, and by increased selectivity, are helping make possible a swift Bank response to urgent needs in Bosnia and Herzegovina. The Latin America and the Caribbean region is allocating increased resources to portfolio management. A high-level Brazil-Bank commission has been set up to reform portfolio-management processes. And, seeking closer relations with its clients, it is decentralizing resources, responsibilities, and activities to the field. The Middle East and North Africa region is developing more focused and flexible CASs, in concert with clients and other stakeholders. Decentralized decisionmaking and redesigned business processes aim at increasing cost-effectiveness and improving results on the ground.
To strengthen accountability for quality and results, the president of the Bank established the Quality Assurance Group in fiscal 1996. The new group provides line managers with independent assessments of their work and identifies and helps to address critical problem areas in the portfolio. The group is reviewing operational products on a sample basis, initially focusing on project-cycle activities--including reviews of supervision, checks on the quality of proposed new projects, and troubleshooting for problem projects--and on CASs and country-portfolio performance reviews.
Staff training and education. The Bank began a new education and training effort to raise the professional standards and diversify the skills of its staff. In-house professional training programs were upgraded, and expanded training for technical staff promoted the sharing of best practices and lessons from evaluation experience. The Bank expanded staff opportunities for executive education and for exchange and secondment, including exchanges with, and secondment to, private sector organizations and autonomous agencies, and it established a Presidential Fellows Program to bring eminent scholars and leaders to the Bank. The education and training programs will help strengthen management capacity across the Bank, restore the Bank's skills base, and ensure professional excellence at all levels, enhancing the Bank's awareness and competitiveness. Ultimately the result should be more effective services to clients.
Improving the quality of new operations. The Bank continued with initiatives to improve the quality of new operations. At the president's request, the Operations Policy Department and the OED jointly reviewed the economic analysis of new operations proposed for financing and made recommendations for action. They found that today's operations are based on somewhat better analysis than those approved three years ago; nevertheless, a continuing need for much more analytical rigor in project appraisal, particularly in analyzing poverty-reduction impacts, was identified. Another review confirmed the value of the Bank's economic and sector work in client countries. It noted that in-depth economic and sector studies facilitate the dialogue with clients, encouraging project designs that are tailored to specific circumstances. Projects that were able to build on the results of economic and sector studies were found to give more thorough attention to institutional support, budgetary provisions, project alternatives, and risks. The CODE endorsed the recommendations of both these studies, and throughout fiscal 1996, the OED reviewed the early documentation for selected new lending operations and drew the attention of operational staff to relevant lessons of experience.
Improving portfolio management. The Bank's regional offices have been giving increased attention to portfolio management since the "Next Steps" Program began in fiscal 1993 (see Box 2-1). Actions in progress include identifying concentrations of problem projects and making concerted efforts to deal with them. They also include more intense portfolio supervision, greater reliance on reviews of country portfolio performance, and making portfolio performance a more important consideration in the design and adaptation of CASs.
BOX 2-1. "NEXT STEPS": A SECOND PROGRESS REPORT
In the wake of the November 1992 report of the Task Force on Portfolio Management, which examined the quality of the Bank's project portfolio and made recommendations on ways to reverse its decline, a commitment was made in July 1993 to undertake eighty-seven specific actions ("next steps") to enhance portfolio management.
These actions were grouped into the seven major themes of the task-force report to facilitate progress assessment and track specific deadlines. They were: linking country portfolio performance to the Bank's core business practices; providing for more active project and portfolio restructuring; improving the quality of projects entering the portfolio; defining the Bank's role in, and improving the management of, project performance; enhancing the role of the Operations Evaluation Department; creating a supportive internal environment for better portfolio management; and finally, generic issues affecting portfolio performance were included.
According to a first progress report (June 1994), almost all of those actions had either been completed or were at an advanced stage of completion by June 30, 1994.
The board reviewed a second report early in fiscal 1996. While it warned that "next steps" activities should not be viewed in isolation because they are interrelated and together they form a whole, it examined the program under four general categories of activities to illustrate progress in implementing the program. Thus:
- Studies, policy papers, and related policy changes had, for the most part, been completed; for example, a new information-disclosure policy had been adopted, and the operational policies and procedures for the economic analysis of investment projects had been improved.
- New approaches to improve projects were either in active use, or, in the case of performance-monitoring indicators, were at an early stage of implementation. Their impact will only become evident over time.
- Strengthened approaches to country-and project-level implementation had also progressed, with evidence of many instances of good practices.
- Changing the environment and organizational incentives to support conscientious portfolio management also showed progress, with relevant changes made to staff incentives, more targeted recruitment, and redesigned training, as well as simplification and more transparent and flexible mnagement processes.
The report did not attempt to assess the effect of these actions or claim that the goals espoused in the task-force report had been achieved.
This second report was the final report on the implementation of "next steps." Because the Annual Report on Portfolio Performance is the primary tool for assessing the development effectiveness of the Bank's portfolio, it will be used in the future to measure the overall effect of the "next steps" actions.Monitoring and evaluation of ongoing projects are fundamental to getting results on the ground. In fiscal 1996, the Bank began introducing more objective indicators for measuring projects' progress toward development goals. Responding to OED findings that the monitoring and evaluation of ongoing operations still need major improvement, management undertook to ensure that appropriate monitoring and evaluation provisions are built into new operations and the portfolio, and to provide better technical leadership and support services to operational staff for monitoring and evaluation.
Menus of sector-specific project-performance monitoring indicators have been developed. As of the end of fiscal 1996, seventeen sector "first edition" notes have been issued, as well as a handbook for task managers. The sector notes cover each sector in which the Bank works and areas of emphasis that cross economic and social sectors, such as environmental concerns, poverty reduction, public sector management, and technical assistance. The only note that remains to be issued is on public sector management; it is expected later in calendar 1996. All the notes will be revised as the Bank and its clients gain experience with the use of indicators.
The indicators are currently being incorporated into the Bank's work in several ways. To enhance the quality of projects at entry, the Bank's six operational regions are responsible for ensuring that project designs and implementation plans include appropriate monitoring indicators. Borrower and staff training, including regional workshops, on the appropriate uses of performance-monitoring indicators have taken place and will continue. The process of selecting indicators should help the borrower, implementing agency, other stakeholders, and Bank staff clarify project objectives.
The Bank expects that better-defined project objectives will lead to more objective project monitoring, which, in turn, will improve the realism of project ratings.
Assessing performance. The Annual Report on Portfolio Performance (ARPP) is the Bank's principal means of informing management and the executive board of the overall status of the portfolio, as well as of identifying additional measures to improve portfolio performance and management. The ARPP for fiscal 1995, reviewed by the executive board in December 1995, examined 1,742 ongoing operations in 138 countries with a total commitment value of $143.1 billion.1
The ARPP provides an overview of portfolio performance, using the Bank's project-rating system that assesses projects' likelihood of achieving their development objectives (DO) and their implementation progress (IP). Under the first criterion, achievement of development objectives, the share of problem projects--those that get an "unsatisfactory" rating because they are not likely to achieve their developmental objectives--in the portfolio fell from 13.4 percent in fiscal 1994 to 11.5 percent in fiscal 1995. The modest improvement reflects two factors. First, reflecting efforts to clean up problematic country portfolios, fiscal 1995 saw the closure of many projects with higher-than-average unsatisfactory ratings. Second, projects that entered the portfolio during the year were rated positively at this early stage of their implementation.
In terms of implementation progress, the status of the portfolio seems to have stabilized since about fiscal 1992, with 17 percent-to-18 percent of the ongoing projects rated unsatisfactory each year. The gap between the IP and do ratings--about 6 percent--reflects overoptimistic assessments during project preparation and offers a measure of the risks that projects will not achieve their objectives. Greater attention to the quality of supervision ratings is being encouraged, in part, through the development of specific sets of performance indicators for each sector.
Independent review of the ARPP. In its "Process Review of the FY95 Annual Report on Portfolio Performance," also reviewed by the board, the OED noted that operational units are becoming steadily more realistic about the performance of ongoing operations. But it emphasized that a reduction in the failure rate of Bank operations is still elusive. Concerned that about a third of Bank operations are still rated unsatisfactory on their completion, and that the failure rate has been stuck at about this level for five years, the OED pointed to the continuing need to deal aggressively with weaknesses in the portfolio. It recommended the regions continue to push for more careful treatment of portfolio matters in the development and review of CASs, linking assistance more closely to the performance of ongoing operations. It urged that country portfolio performance reviews take on a greater strategic thrust, leading to agreements with borrowers on broad qualitative goals, and that progress toward these goals be systematically reviewed.
Performance of completed operations. The OED's independent analysis of completed operations evaluated in calendar 1994, Evaluation Results 1994, which was reviewed by the board in fiscal 1996, pointed to some encouraging signs, but confirmed the need to improve performance and accountability further for results.2 Sixty-six percent of the completed operations that were evaluated in 1994 had satisfactory outcomes--a figure somewhat better than the average for 199094, but still low. Only 44 percent of the evaluated operations were expected to sustain their benefits throughout the operational phase that follows the completion of Bank loan disbursements. This proportion differed little from the average for 198994, though there was a noticeable drop in the share of operations judged clearly unlikely to sustain their benefits. Institutional development goals were substantially achieved in 39 percent of the operations, better than the 30 percent in the 1993 cohort and the average of 31 percent for the last five years, but again a low figure. Adjustment operations performed better, on average, than investment projects.
Evaluation and feedback. As well as providing "report cards" on the Bank's record, evaluation supported the Bank's effort to improve development effectiveness in two ways: by providing lessons of experience for policies and projects, and by helping to enhance quality management through links to training programs, the work of the Quality Assurance Group, and monitoring and evaluating of ongoing operations.
Self-evaluation by regional offices. Under arrangements introduced in fiscal 1995, the Bank's regional staff and borrowers prepare implementation completion reports (ICRS) for the executive board on all completed lending operations. Unlike project completion reports (PCRS), which were prepared prior to fiscal 1995, ICRS are sent directly to the executive board rather than through the OED. In fiscal 1996, the OED reported on the experience with the first cohort of implementation completion reports. In general, it found that the reports were providing candid reviews with thoughtful insights on lessons learned. Borrower involvement in completion reporting had, however, remained somewhat superficial, confirming a need that the Bank has already recognized--for strengthening evaluation capacity in its client countries.
New emphases in independent evaluation. Responding to the Bank's new operational emphases, the OED increased the country focus of its work (by undertaking country-assistance reviews (CARS), for example); undertook follow-up studies to report on the Bank's progress in implementing earlier OED recommendations; and produced process evaluations of the Bank's implementation-completion reports, environmental impact assessments, and the ARPP. It issued impact evaluations that assessed the long-run development effectiveness of a wide range of operations, drawing out the implications for today's policies and programs.
Dissemination of evaluation findings. A Bankwide task force on dissemination of evaluation findings examined how the Bank learns from evaluation work and other Bank experience; it made recommendations for greater efforts by the OED and the central vice presidencies to disseminate these lessons and by operational staff to apply them.
Operations evaluation at the World Bank has a threefold mandate: to measure how far, how effectively, and how efficiently the Bank's activities are achieving their desired results; to draw and disseminate lessons for application in policies, operations, and processes; and to help the Bank and its member countries improve their evaluation capabilities.
Evaluators responded in fiscal 1996 to the new president's emphasis on meeting clients' needs, introducing better business processes, and achieving development impact on the ground. Assessing the extent to which these goals are translated into practice, and making recommendations for further progress, are integral to the Bank's evaluation function. Some of the evaluation activities in support of greater development effectiveness were outlined earlier in this section.
Evaluation work in the Bank is overseen by the director general, operations evaluation, who reports to the board of executive directors through the Committee on Development Effectiveness (CODE) and keeps a watching brief over the large volume of self-evaluation work done by the regional offices and other vice presidencies. Independent evaluation is done by the Operations Evaluation Department (OED). Results and recommendations from evaluation are reported to the executive directors and fed back into the design and implementation of policies and lending operations.
Lending. All lending operations are evaluated on completion by the regional offices responsible for them; borrower agencies contribute to these completion reports. The OED reviews the performance ratings presented and, for each completed operation, provides the board with an independent assessment of overall outcome, sustainability, impact on the borrower's institutional development, borrower performance, and Bank performance, as well as the lessons to be drawn.
For a representative sample of completed operations, the OED produces performance audits.
In fiscal 1996 the OED reviewed 250 completion reports and reported on their quality to the Bank's board and management, and audited 100 completed operations. The cumulative total of Bank operations subjected to ex post evaluation reached 4,126 at the end of the fiscal year.
The OED's Evaluation Results 1994 provided an overview of performance in recently completed operations, as noted earlier in this section. It also broke new ground with a quantitative analysis of the determinants of performance in more than 1,000 completed operations. The Bank's board and management discussed the implications of this analysis. In particular, the findings suggested that in countries without a cohesive strategy to address economic fundamentals, the odds of successful investment operations are poor, and that, in consequence, the Bank should revisit its practice of maintaining substantial lending levels in countries with unhelpful economic environments.
In its impact evaluations, the OED, assisted by agencies in borrower countries, analyzes the development effectiveness of projects five to eight years after the close of loan disbursements. These evaluations assess the economic worth of projects and their long-term effects on people and the environment. They provide unique insights into what makes development efforts sustainable. Among the twenty-two impact evaluations produced in fiscal 1996, subjects included urban improvement projects in Kenya and India; a steel project in Egypt; assistance to refugees in Pakistan; road projects in Morocco; and irrigation projects in South and Southeast Asia. Several of these impact evaluations put into effect a new set of guidelines for more systematically involving stakeholders--including communities directly affected by Bank operations--in evaluations, so as to assess more accurately the social impact of Bank lending.
Nonlending services. Following recommendations made by a Bankwide working group, Bank management enhanced the arrangements for evaluating the development impact of nonlending services--including economic and sector work, trust funds, development training, research, and technical assistance--which now account for more than a third of the Bank's administrative budget.
The OED began a review of the self-evaluation processes of the Bank's economic and sector work and of the Economic Development Institute and, jointly with the Controller's Department, designed a process for evaluating the Bank's administration of trust funds, which currently finance more than 3,000 schemes and collaborative programs.
Country and sector assistance, business processes. The OED's evaluation studies examine Bank processes and broader development issues, including policies and experience in countries, regions, and sectors. Recommendations arising from the studies are discussed by the CODE, along with responses from Bank management, and agreements on follow-up actions are recorded in a policy ledger to have their implementation monitored by the OED. In fiscal 1996, the OED sent twelve studies to the board. These included evaluations of country-assistance programs in Argentina and Zambia, and reviews of lending for agricultural research and for electric power development in Africa.
OED's country-assistance review for Ghana raised generic issues for the Bank's planning and management of CASs. The CODE pursued these issues with management. They included the Bank's propensity to underestimate the time required to implement policy-reform programs and achieve a sustained response from producers; the need for CASs to reflect the political economy; the need to design trade-liberalization programs flexibly, with an eye to costs as well as benefits; the need for consistent, thoroughgoing efforts to promote partnership and borrower participation in Bank operations; the need for high-quality, judiciously timed economic and sector work and thorough analysis of proposed operations; and skill mix, staffing, and work- location issues.
Through follow-up studies, the OED assessed the progress the Bank had made in implementing earlier OED recommendations on agricultural credit policy and on monitoring and evaluation of ongoing operations. The latter study highlighted examples of best practices and noted an improving trend in the use of key performance indicators. But it also found that institutional capacity among borrowers and in the Bank, and data collection at the project level, had not kept pace, and that the record of tracking the developmental impact of projects under implementation was uneven.
Dissemination and outreach. In line with the Bank's disclosure policy on evaluation results, all impact evaluations and country- and sector-evaluation studies were released to the public through the Public Information Center. The OED expanded its publications program, and its offerings on the Internet led to a large volume of requests for evaluation information.
The OED gave seminars within and outside the Bank, including in borrower countries, to discuss evaluation design and results, and issues raised by evaluation results for the management of ongoing programs.
Several activities expanded and strengthened the professional links between the OED and evaluators in other agencies. First, the OED participated as an observer in meetings of the dac Expert Group. Second, the multilateral development banks (MDBs) established an Evaluation Cooperation Group, through which they will systematically learn from each other's experiences in evaluation approaches and practices. In this context, OED commissioned an independent review of project-evaluation methods and standards among the MDBs. Third, OED pursued professional contacts with Australian government evaluators, resulting in workshops for the Indonesian government and for Bank staff on Australia's well-established integration of evaluation into strategic planning and budgeting. Fourth, evaluation staff contributed to several professional evaluation meetings, including the first international conference on evaluation sponsored by the North American Evaluation Association.
Support for evaluation in borrower countries. Bank country departments and the OED responded to requests for advice on evaluation capacity development from Colombia, Indonesia, Turkey, and Zimbabwe.
Executive board review. In fiscal 1996 the executive directors reviewed the OED's Evaluation Results 1994, the director general's "Annual Report on Operations Evaluation in the Bank," and the "Annual Report of the CODE." They found that, overall, the Bank's evaluation system was performing well. But they called for efforts to (a) strengthen borrower participation in completion reporting and borrowers' evaluation capacity; (b) ensure more timely preparation of reports on completed lending operations; (c) improve the economic analysis of proposed projects and the monitoring and evaluation of ongoing operations; and (d) make further progress in the evaluation of nonlending services. And they asked for more concrete evidence that lessons learned from experience are being implemented in lending, portfolio management, nonlending services, and CASs.
World Bank commitments (IBRD and IDA combined) amounted to $21,520 million in fiscal 1996, a decrease of $1,002 million (5 percent) over fiscal 1995's total (see Table 2-1). Commitments by the IBRD (including the refinanced/ rescheduled overdue charges of $168 million for Bosnia and Herzegovina) amounted to $14,656 million, while IDA credits totaled sdr4,616 million, or $6,864 million equivalent. A total of 129 IBRD loans to forty-five countries were approved; the 127 IDA credits went to forty-nine countries.
Table 2-1 The biggest increase in commitments was in the Middle East and North Africa region, where twenty-one projects were approved for a total of $1,595 million. Comparable figures for the previous year were fourteen projects for $979 million. Lending volume also increased in the Africa region. The sharpest drop occurred in Latin America and the Caribbean.
Adjustment lending amounted to 21 percent of Bank commitments, down from the previous year's 24 percent (see Table 2-2). The fiscal 1996 adjustment total includes $65 million in rehabilitation-import loans and $30 million in debt-reduction loans.
Table 2-2 The three largest borrowers from the IBRD were China ($2,490 million), Russia ($1,816 million), and Argentina ($1,509 million). The three largest borrowers of IDA credits were India ($1,301 million), Vietnam ($502 million), and China ($480 million).
Two projects in the West Bank and Gaza, totaling $60 million and funded from the Trust Fund for Gaza, were approved. Seven projects, totaling $150 million and funded by the Trust Fund for Bosnia and Herzegovina, were approved for Bosnia and Herzegovina.
Lending for electric power--at $3,247 million--led all sectors by volume, followed by transportation ($2,773 million) and agriculture ($2,577 million).
Fiscal 1996 saw the expansion of its partial risk and credit-risk gurantee program that was revitalized and amended during the previous year to catalyze the flow of private capital to infrastructure projects. Three such projects, totaling $275 million, were approved.
Gross disbursements by the IBRD to countries totaled $13,372 million, an increase of 5.5 percent over fiscal 1995's $12,672 million. IDA disbursements amounted to $5,884 million, up $181 million from the previous year.
Disbursements, by source of supply. Projects financed by the World Bank require procurement from foreign and local sources to achieve project goals. Disbursements are made primarily to cover specific costs for foreign procurement and some local expenditures.
Three procurement considerations generally guide the Bank's requirements: the need for economy and efficiency in the execution of a project; the Bank's interest, as a cooperative institution, in giving all eligible bidders from developing countries and developed countries an opportunity to compete in providing goods and works financed by the Bank; and the Bank's interest, as a development institution, in encouraging the development of local contractors and manufacturers in borrowing countries. The Bank prescribes conditions under which preferences may be given to domestic or regional manufacturers and, where appropriate, to domestic contractors.
Table 2-3 shows consolidated foreign and local disbursements for the IBRD and IDA through the end of fiscal 1991 and for the period fiscal 1992 through fiscal 1996. Advance disbursements consist of payments made into special accounts of borrowers, from which funds are paid to specific suppliers as expenditures are incurred. Because balances in these accounts cannot be attributed to any specific supplying country until expenditures have been reported to the Bank, these are shown as a separate category.
Table 2-3 Table 2-4 provides details for foreign disbursements by OECD and non-OECD countries for the IBRD and IDA separately.
Table 2-4 Appendix 7 shows disbursements made in fiscal 1996 by the IBRD and IDA for local procurement by current borrowing countries and disbursements made for goods, works, and services procured from them by other Bank borrowers (foreign procurement) for projects funded by the Bank.
Appendix 8 shows the amounts disbursed from the IBRD and IDA separately for foreign procurement of goods, works, and services from selected member countries in fiscal 1996 and cumulatively through fiscal 1996.
Appendix 9 shows the proportion of foreign disbursements from the IBRD and IDA for specific categories of goods and services provided by selected member countries in fiscal 1996.
Appendix 10 provides a summary listing of the amounts paid to OECD and non-OECD country suppliers in each fiscal year from 1994 to 1996 under investment projects. Amounts disbursed are compared with respect to significant categories of goods procured from foreign suppliers. The extent to which OECD and non-OECD countries participated in supplying these major categories of goods in each of the past three fiscal years is also compared.
In all these tables and appendixes, IBRD figures exclude disbursements for loans to the IFC and "B" loans. IDA figures include Special Fund and Special Facility for sub-Saharan Africa credits. Disbursements for Project Preparation Facility advances are excluded for both the IBRD and IDA.
Cofinancing and Trust-fund Programs
Cofinancing is an essential tool in mobilizing resources for development and in harmonizing Bank assistance with other institutions, both official and private. The volume of cofinancing anticipated in support of World Bank projects approved in fiscal year 1996 was $8.35 billion,3 remaining within the range of $8 billion-$9 billion achieved during the past two years (see Table 2-5). These funds helped finance 131 Bank-assisted projects, or about half of the total number of projects approved during the year.
Table 2-5 About 86 percent of cofinancing came from official sources, both bilateral (37 percent) and multilateral (49 percent). Japan remained the most important bilateral source in fiscal year 1996. Japan's Overseas Economic Cooperation Fund (OECF) and the Export-Import Bank of Japan (JEXIM) together cofinanced ten projects for a total of $1.1 billion. Other important bilateral sources of cofinancing during the year were Germany ($394 million), France ($217 million), the United Kingdom ($159 million), and the United States ($96 million).
The Inter-American Development Bank (IDB), which provided $1.6 billion in cofinancing during the year, remained the Bank's largest multilateral cofinancier. The second largest multilateral source of cofinancing came from European Union (EU) institutions, including the European Investment Bank (EIB). Together these institutions accounted for $829 million in cofinancing. The Asian Development Bank ($703 million) and the European Bank for Reconstruction and Development ($181 million) also cofinanced a significant number of operations with the Bank during the year.
Fourteen percent of cofinancing was provided by export-credit agencies (ECAS) and the private sector. Private sector cofinancing amounted to $724 million in fiscal 1996, compared with $1.2 billion in 1995. Export credit cofinancing was $433 million during the year, about the same as last year.
Investment loans attracted the largest share of cofinancing, at 75 percent. The trend towards lower levels of cofinancing for adjustment lending and other fast-disbursing loans resumed during fiscal 1996, after temporarily rising in fiscal 1995 due to two large, fast-disbursing operations in Mexico and Argentina. On a sectoral basis, cofinancing in infrastructure (power, energy, telecommunications, transportation, water supply) once again attracted the most cofinancing, amounting to $3.8 billion, or 45 percent of the total. Cofinancing in the social sectors rose significantly, mainly due to large loans to Argentina, Brazil, and Egypt.
Regionally, the largest amount of cofinancing ($2.1 billion) continued to go to Latin American countries, reflecting the Bank's close collaboration with the Inter-American Development Bank. Cofinancing fell in East Asia, in part because of the stronger reliance of many East Asian countries on private sector financing, particularly for infrastructure. This was offset by a significant rise in cofinancing for South Asia, due to a few big infrastructure projects in India and Pakistan. In Eastern Europe and Central Asia, cofinancing grew in line with donor readiness to support the needs of the transition economies and reconstruction efforts in Bosnia. Cofinancing in Africa and the Middle East and North Africa remained at about the previous year's level.
The Special Program of Assistance for Sub- Saharan Africa (SPA) continued to constitute the largest single on-going donor coordination effort. The third phase of the SPA (SPA-3) was launched in October, 1993, to cover the 19941996 period. To date, seventeen donors have pledged $6.7 billion under SPA-3, and the number of eligible countries grew to thirty-one. Other large cofinancing efforts during the year included those with the Global Environmental Facility (GEF) and with special efforts for reconstruction in Bosnia and Herzegovina, as well as in the West Bank and Gaza.
Cofinancing management. In order to strengthen its capacity to generate resources and to better leverage funds for development from other sources, the Bank consolidated its resource mobilization and cofinancing functions into a single vice presidency for Resource Mobilization and Cofinancing (RMC). This change, effective March 15, 1996, was made to better enable the Bank to forge more effective partnerships with the donor community and the private sector.
RMC (and its predecessor Cofinancing and Financial Advisory Services) carried out a number of specific activities during fiscal year 1996 to further enhance the Bank's cofinancing partnerships. A new Cofinancing Framework Agreement was finalized with Australia, and an agreement on processing Fifth Dimension cofinancing was signed with Norway. A total of twenty cofinancing consultations were held with sixteen major partners. Bank/donor consultations help firm up cofinancing arrangements for specific projects in the Bank's lending program, deepen the Bank's policy dialogue with its partners, and focus on coordinating official flows with private sector investment in developing countries.
RMC took steps, as well, to improve the Bank's ongoing relations with ECAS and with the Berne Union, which comprises insurers of export credit and private foreign investment. Activities during fiscal year 1996 included: (a) a two-day meeting with ECAS in Washington, in which prospects for increasing cofinancing were discussed, (b) a meeting between the Berne Union's Cofinancing Committee and the Bank where participants gained a better understanding of cofinancing issues, and (c) consultations with major ECAS in order to build on the improving dialogue with the Berne Union.
During the year, RMC sought to improve the services and information it provides its clients. As part of this effort, it kept donors informed of cofinancing prospects through its biannual Cofinancing Opportunities Publication. It also kept Bank task managers informed of donor programs and procedures through an updated version of the "Cofinancing Handbook." As part of its overall review of cofinancing activities, it issued a report, "Cofinancing With the World Bank--Twenty-Five Years of Cooperation."
Trust funds. Despite constraints on national aid budgets, donors continued to increase their funding in support of technical assistance trust-fund programs. During the year, the two main programs, the Policy and Human Resources Development (PHRD) Fund--financed by Japan--and the Consultant Trust Fund (ctf) program--financed by twenty-six donors--both increased their activities.
The PHRD Fund extends untied grants to meet the technical assistance needs of developing countries. During the past fiscal year, the PHRD Fund provided 270 grants for $162 million to support project-preparation activities of Bank-financed operations (270 grants for $177 million were extended in fiscal 1995). Fifty-nine percent of projects approved during the year were prepared with grant assistance from the PHRD Fund. The balance of the PHRD Fund is allocated to financing the training and development activities of the Economic Development Institute; the funding of Japanese experts through the Japan Consultant Trust Fund; and other special programs.
During the year, the Japanese government also provided, through the PHRD, financial support to assist regions emerging from civil strife. This program began with $9 million in cofinancing funds allocated for the Emergency Recovery Project to assist Bosnia and Herzegovina.
The Consultant Trust Fund (ctf) Program provides consultancy services to support the Bank's operational and technical assistance work. The ctf program financed a total of $78 million in new allocations in fiscal year 1996, a 23 percent increase over the previous year. During the year, two new CTFs were established (by Austria and Canada) to support activities in the environmental sector, bringing the total number of CTFs to forty-nine, funded by twenty-six donors. The growth in the program reflects the continuing need for consultancy services, particularly in the environmental sector and in the transitional economies of Europe and Central Asia. It also reflects the continuing support for the program by donors who, despite constraints on aid budgets, made special efforts to increase their contributions to support the Bank's programs of assistance.
During the year, the Bank sought to improve its management and monitoring of trust funds. Towards this end, a first "Annual Report" on ctf activities was issued, internal controls on the use of funds were strengthened, and ctf resource information was placed "on-line" for easy access by Bank staff.
In order to improve flexibility and effectiveness in the use of trust funds, the Bank reviewed with donors ways to reduce the degree to which ctf funds are restricted in terms of procurement. As a result, a number of donors (ten to date) have agreed to untie CTFs by at least 25 percent on the basis of reciprocity.
Trust-fund management. In response to the rapid growth in the use of trust funds, the Bank has introduced a series of initiatives to strengthen the institutional procedures for administering externally funded trust funds. The Bank's principal policy objectives are to ensure that trust funds are: (a) used in accordance with institutional priorities; (b) consistent with country-assistance strategies; and (c) fully effective from a development perspective, particularly in the case of country-specific technical assistance in which recipient ownership of the product can be a critical factor. A report on the status of trust-fund programs was submitted to the executive board in April 1996.
In order to strengthen the coherence of these efforts, the newly created vice presidency for Resource Mobilization and Cofinancing was designated as the focal point in the Bank to establish trust-fund policies and strategies, to be the institutional link with donors and the main channel for trust-fund resource mobilization, and to improve trust-fund processing, monitoring, and accountability.
The Debt-reduction Facility for IDA-only Countries provides grant funds to heavily indebted IDA-eligible countries, which use these funds to buy back their commercial debt at a deep discount. Four operations (Albania, Ethiopia, Nicaragua, and Mauritania) were completed in fiscal year 1996 under facility auspices. They utilized $77 million in IBRD resources from the facility and $135 million in cofinancing to extinguish a total of $1.7 billion in eligible principal debt.
Technical assistance (TA) is an important ingredient in the Bank's menu of operational activities. It provides the resources and expertise countries need to build up institutions critical for development success--institutions that facilitate a flourishing private sector, invest in people, and protect natural resources and the environment.
In calendar 1995 World Bank funding for technical assistance totaled $1.9 billion. Of this amount, $1.3 billion was for the technical assistance components of investment or economic reform projects and $610 million was for twenty-four freestanding technical assistance loans.
While funding for technical assistance fluctuates from year to year, the overall share of Bank lending geared to TA has remained stable at about 10 percent.
Argentina was the largest single user of the Bank's technical assistance funding ($250 million), followed by China ($227 million), India ($218 million), and Indonesia ($159 million).
The Bank's Project Preparation Facility (PPF), as its name suggests, provides funds for countries that lack the resources to prepare projects for external funding. Use of the PPF does not signal a funding commitment to the project by the IBRD or IDA. In calendar 1995, the Bank made 122 PPF advances totaling $96.2 million. Sixty-six of these (54 percent) were to countries in the Africa region, which traditionally has been the largest user of the facility.
The Bank approved 105 Institutional Development Fund grants to sixty-one countries totaling $24.2 million. These covered a wide range of activities, including a grant of $446,800 to Eritrea to help build the government's capacity for budgeting, monitoring, and coordinating projects; a grant of $489,000 to Tanzania to help establish a Revenue Authority; and a grant of $198,000 to Vietnam to support water management.
Measuring technical assistance effectiveness. For many years, the Bank has used performance indicators to measure the performance of investment operations--mostly the physical aspects of a project rather than its TA components. Recognizing that an effective means of measuring capacity building is also essential in allocating scarce resources and identifying best practice, the Bank expanded its system of performance indicators this past year so that the performance of technical assistance operations can also be measured. These indicators measure performance by results and outputs (rather than by inputs) and distinguish between quantitative and qualitative yardsticks.
The Bank and the United Nations Development Programme (UNDP). The Bank maintained a frequent policy dialogue with the UNDP at the highest levels of management throughout the year. A letter to field staff, jointly signed by the Bank's president and the UNDP's administrator, reinforced the institutions' commitments to enhance their collaboration, and agreement was reached on coordination mechanisms for consultative group and roundtable activities.
An independent inspection panel was established by the executive directors in September 1993 to help ensure that the Bank's operations adhere to the institution's operational policies and procedures regarding the design, preparation, or implementation of a project. Any group of individuals who may be directly and adversely affected by a Bank-supported project or projects can ask the panel to investigate complaints that the Bank has failed to abide by its policies and procedures. The executive directors decide, on the recommendation of the panel, whether an inspection will take place.
The panel has received numerous queries concerning potential requests for inspection. To date, however, it has received only five formal requests for inspection, three of which were found to be admissible. Two of those requests were acted upon in fiscal 1996.
One relates to the execution of the Rondonia Natural Resources Management Project (Brazil), where the requesters claimed that the Bank's lack of enforcement of several covenants of the project's legal documents caused material adverse effects on, among other things, their incomes and health. The panel recommended an investigation, but the executive board requested more information on which to base the decision of whether an investigation should be carried out.
The panel conducted an "Additional Review" of the request for inspection and of the information provided by Bank management, and in December 1995, it submitted to the executive board a report on the Additional Review. Later in the month, Bank management submitted a status report on project implementation to the board, which included a plan of action dealing with the principal issues raised by the panel. The executive directors considered the request for inspection, and, in light of the action plan presented by management and the follow-up now under way, concluded that it would not be advisable to proceed with the investigation as recommended by the panel. However, in view of the complexity of the project and the Bank's desire to help ensure its success, the executive directors agreed to review a progress report by management and to invite the panel to assist in the review.
The second involved a request related to the provision of IDA financing for an emergency power project in Tanzania. The requesters claimed that there was private sector financing (to be provided by the firm they owned or worked for) available for the project on reasonable terms. The board accepted the panel's recommendation that no inspection take place, as the panel had found that IDA management had followed its policies in this regard. The panel also declared a related complaint on alleged possible adverse environmental effects of the proposed emergency project not eligible.
The resolution that established the panel requires a review of its functions by the Bank's executive board after two years of operations. It is expected that the review process will have been completed early in fiscal 1997.
Since the Bank's disclosure-of-information policy was endorsed by the executive directors in August 1993, the Public Information Center (PIC) has worked to make available a wider range of operational information--formerly available only to official users--to a wider audience, in user-friendly ways. The PIC provides information related to Bank-assisted projets, including project-preparation documents, environmental studies, and evaluations. The PIC's aim is to support accountability and transparency of the Bank's operations.
The PIC continued to expand its activites in fiscal 1996. Several new initiatives were taken to inform the public about the center's services. A brochure on PIC services was distributed at the annual meetings. Printed copies, as well as an electronic version on the Internet, are available in English, French, and Spanish. The PIC also made its Internet program more user-friendly and added abstracts of many documents that fall under the Bank's disclosure policy.
The PIC's usage continues to grow (see Figure 2-1). Requests for information received at the PIC totaled more than 2 million, a fivefold increase over fiscal 1995; users of the Internet program numbered almost 2 million. In fiscal 1996, the highest demand for information from the PIC came from the business community, followed by public agencies and the academic community. Figure 2-2 depicts the breakdown of requests by developing country region.
Figure 2-1
Figure 2-2The PIC manager visited Bank field offices in Côte d'Ivoire, Kenya, Madagascar, and Senegal to review progress in implementing the Bank's disclosure policy, orient field staff on the policy, and help establish a PIC section in their libraries. New PICs were opened in Colombia, Ecuador, and Tunisia, and several others are in the advanced planning stage. Many Bank field offices that do not have PICs are making great efforts to make information available to the public.
Footnotes
1. World Bank. 1996. Annual Report on Portfolio Performance Fiscal 1995. Washington, D.C.
2. World Bank. 1996. Evaluation Results 1994. Washington, D.C.
3. Cofinancing figures, which represent planned cofinancing, are compiled at the time of presentation of each ibrd and ida operation to the Bank's executive board. The amounts of official cofinancing, in most cases, are firm commitments by that stage; export credits and private cofinancing, however, are generally only estimates, since such cofinancing is actually arranged as required for project implementation, and the amounts get firmed up within a year or two after board approval. The amounts of private cofinancing in Table 2-5 for any fiscal year do not necessarily reflect market placements.
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