Financial Management

As a function of good governance, Financial Management (FM) forms an integral part of the development process in all Bank-financed operations and country institutional strengthening efforts, and is crucial to achieving the World Bank Group’s (WBG) goals of ending extreme poverty and boosting shared prosperity in a sustainable way.

The Bank’s FM work has dual objectives that are closely intertwined: to support borrowing countries in improving their financial management performance and capacity while encouraging public disclosure and transparency, and to provide reasonable assurance on the use of Bank loan proceeds. Sound public financial management (PFM) ensures accountability and efficiency in the management of public resources, and is an essential underpinning to improve governance and fight corruption.

Building Country Capacity

At the country level, FM staff collaborate across the WBG, and with international accounting and auditing bodies and donor partners to help countries strengthen their FM capacity in both the public and private sectors. FM specialists focus on helping countries develop sound financial systems and practices, including a strong accountancy profession with quality corporate financial reporting, efficient delivery of services, and enhanced accountability and transparency in the use of public resources.

FM Policies in Bank-financed Operations

In accordance with the Bank’s operational policies and procedures, FM specialists work with partner countries to design financial management and disbursement arrangements and to supervise and support the performance of Bank-financed operations. Since 1947, the World Bank has funded over 12,000 development projects, via traditional loans, interest-free credits, and grants.

Engagement with Global Partners

At the international level, the WBG engages in global partnerships with development partner organizations to promote FM standards and FM capacity development initiatives. Staff also play leadership roles in partnerships with bilateral and multilateral donors to coordinate and harmonize FM policy and operational practices, which enhances development effectiveness.

The World Bank supports development initiatives through project, policy, and program financing. The Bank Directive on Financial Management in Bank-Financed Operations and Other Operational Matters sets out the FM staff roles and responsibilities in operations financed by the Bank through IPF, DPF and PforR (Bank-financed operations) and operational FM rules applicable across Bank-financed operations. The key elements of the Financial Management (FM) approach with the different types of operations are detailed below.

Investment Project Financing (IPF)

The Bank Policy: Investment Project Financing defines the FM arrangements in IPF projects as the planning and budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements of the borrower and entity responsible for project implementation. The FM arrangements rely on the borrower’s existing institutions and systems, with due consideration to the capacity of those institutions.

During the preparation stage, FM staff assess the financial management risks to achieving the project’s development objectives and determine the adequacy of the FM arrangements proposed at the implementing agency levels, together with any measures needed to mitigate the impact of the likelihood of risks materializing.

Throughout the project’s life, FM specialists in task teams work with the country borrower to ensure sound management of funds and accountability for project resources in achieving the desired development results. The FM specialists also work with borrowers to strengthen the systems and institutions for fiduciary assurance.

IPF Resources

Development Policy Financing (DPF)

Financial management in DPFs centers around two major areas: gaining reasonable assurance that the borrower’s public financial management (PFM) system appropriately manages budget resources, and that funds flow arrangements are in place to ensure that the loan proceeds reach the designated accounts, and are accounted for in the country’s budget management system.

The funds are disbursed against satisfactory implementation of a program of policy and institutional actions that promote growth, including maintenance of a satisfactory macroeconomic policy framework and compliance with tranche release conditions. The borrower commits to using development policy lending funds for eligible expenditures only. The Bank normally disburses the loan proceeds into an account that forms part of the country’s official foreign exchange reserves (normally held by the central bank), and an amount equivalent to the loan proceeds is credited to an account of the government to finance budgeted expenditures.

DPF Resources

Program for Results (PforR)

PforR relies upon country systems and disburses against results as measured by pre-determined indicators.

At the identification stage, the Bank works with the borrowing country to determine a clear definition and scope of the government program and the part of the program or sub-program to be financed by the Bank. Once agreed, the Bank identifies key results in terms of outputs and outcomes, as well as the related disbursement linked indicators (DLIs) to be used to determine the timing and amount of each disbursement.

FM, Procurement, and Governance specialists conduct a joint Fiduciary Systems Assessment (FSA) of program fiduciary systems and program arrangements. The FSA considers whether program systems provide reasonable assurance that the financing proceeds will be used for intended purposes, with due attention to the principles of economy, efficiency, transparency, and accountability.

PforR Resources

FM Diagnostics

Knowledge of the country’s public financial management (PFM) institutional framework is acquired through diagnostic assessments done by the Bank, donors, country institutions, and experience with portfolio implementation. This knowledge helps identify fiduciary risks to Bank-supported programs and to the use of development funds, and determines the extent to which the Bank may make use of country institutions or require alternative project-specific arrangements. The diagnostics inform efforts aimed at improving the design and performance of systems.

Country Partnership Framework (CPF) / Systematic Country Diagnostic (SCD)

A Country Partnership Framework (CPF) is the central tool for reviewing and guiding the World Bank Group’s (WBG) country programs and gauging their effectiveness. Used in conjunction with a Systematic Country Diagnostic (SCD), the WBG and country – along with civil society and other stakeholders – focus on a results-based engagement.

Within the CPF, Financial Management (FM) specialists focus on key elements of PFM, fiduciary risk management strategy, corporate financial reporting (CFR), and accounting and auditing architecture in terms of assessing their impact on achieving the CPF’s goals and fiduciary assurance environment within which the Bank’s lending will occur.


The Public Expenditure and Financial Accountability (PEFA) Program is a multi-donor partnership which assesses the condition of country public expenditure, procurement and financial accountability systems, and develops a practical sequence for reform and capacity-building actions. 

Within PEFA, the Public Financial Management Performance Measurement Framework (PEFA Framework) provides an integrated and harmonized approach for measuring and monitoring PFM performance progress, while supporting country-led PFM reform programs. The framework, covering the entire budget cycle, incorporates a set of high-level indicators that draw on international standards, and a PFM performance report that enables the indicators to be read and understood in context.

Supreme Audit Institutions (SAI)

A supreme audit institution (SAI) in a country undertakes the external audit of government bodies. The Bank works closely with SAIs through arrangements designed to enhance country capacity and strengthen global institutions.

Related Links

World Bank Financial Management (FM) staff actively engage with colleagues from other development partner organizations, including multilateral development banks (MDBs), the International Organization of Supreme Audit Institutions (INTOSAI), the International Federation of Accountants (IFAC), and the United Nations (UN) family when working on FM policy and institutional and operational issues. The aim of these partnerships is to have a coordinated approach on FM policies, procedures, and practices as part of the global harmonization initiative.

FM actively supports the development of standards and codes through engagement with international standards setting and regulatory bodies. These bodies include the International Auditing and Assurance Standards Board (IAASB), the International Public Sector Accounting Standards Board (IPSASB), and INTOSAI’s Professional Standards Committee (PSC) to promote responsiveness of their pronouncements and processes to developing country needs.

Multilateral Development Banks

The Financial Management Harmonization Working Group (FMHWG) consists of representatives from five multilateral development banks (MDBs): World Bank (current chair), African Development Bank, Asian Development Bank, Inter-American Development Bank, Islamic Development Bank, International Fund for Agricultural Development (IFAD), New Development Bank (NDB), and European Investment Bank (EIB). The Group meets quarterly to promote the harmonization of their policies and practices in financial management, and to operationalize the development effectiveness agenda. The Group also focuses on fostering collaboration in FM diagnostic work, financial reporting and auditing, fiduciary risk assessments, FM capacity building in client countries, and use of country public financial management systems.

International Organization of Supreme Audit Institutions (INTOSAI)

Cooperation between the World Bank and INTOSAI is primarily governed by the INTOSAI-Donor Cooperation Memorandum of Understanding (MoU). The MoU strives to augment and strengthen support to the supreme audit institution (SAI) community, and recognizes the value of SAIs in strengthening governance, accountability, and poverty reduction.

Strategic guidance and implementation of the MoU is governed by a steering committee, which comprises all donor signatories to the MoU and SAIs appointed by INTOSAI. The Steering Committee is jointly chaired by one INTOSAI and one donor representative. Currently, the SAI of Saudi Arabia and the World Bank hold the position of joint chairs, while the United States Government Accountability Office (GAO) and the UK Department for International Development (DFID) hold the positions of vice-chairs.

Operational Partnerships with UN Agencies

Historically, under the World Bank country-based model, Bank Borrowers have engaged UN Agencies to support achievement of their development objectives. As the World Bank has seen significant expansion of demand for its operations to support rapid response in fragile, crisis-affected situations, as well as in response to global emergencies, including pandemics, UN Agencies have increasingly come to serve as critical implementation partners, where the benefits of operational partnership have included, scaling-up impact in delivering famine relief, tackling COVID, pandemic/epidemic outbreaks and malnutrition, reinforcing social safety nets and, building the resilience of communities affected by conflict and epidemics, as well as natural and climate-related disasters.

The principal modality for engagement of UN Agencies under World Bank-financed operations is through Indirect Financing, also referred to as Borrower contracting. UN Agency-specific Standard Forms of Agreement (SFA) have been developed in accordance with the World Bank 2016 Procurement Framework to facilitate Borrower contracting and are available on the  World Bank Procurement webpage. Under the Indirect Financing modality, financial management arrangements with UN Agencies are governed by World Bank standard FM requirements, with requirements spelled out in the SFA General Conditions.

The World Bank may also engage UN Agencies to implement specific projects, or project components, on behalf of client countries, particularly in high-risk environments. In such cases the World Bank enters into a grant agreement directly with the Bank. Such Direct Financing may be used for Trust Fund grants and, in exceptional circumstances, for IDA grants.

The terms for Direct Financing are governed by authorizing frameworks negotiated with the UN, which allow the World Bank to recognize the UN single audit principle, through which audit requirements are met through the normal audit function of UN Agencies own external auditors. The World Bank reviews the UN Agencies’ annual external audit reports and can discuss auditors’ recommendations with the management of the relevant UN Agency. These also allow UN Agencies to implement a World Bank grant in accordance with their own financial management procedures and internal governance (oversight and accountability) systems, based on alternate assurance arrangements agreed with the World Bank.



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